UNITED
STATES
  SECURITIES
AND EXCHANGE COMMISSION
  Washington,
D.C. 20549
   FORM
10-K
   x
              Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
      of 1934
  For
the fiscal year ended December 31, 2008
    ̈
              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.Yeso Noþ
   Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past
90 days.     Yes þ         No o
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     þ
  
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
 Large
accelerated
filer           Accelerated
filer þ      Non-accelerated
filer       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 (9,715,642 shares) based on the closing price of
the registrant’s common stock as reported on the NASDAQ National Market on
June 30, 2008, was $70,244,092.  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 4, 2009, was 14,168,716 shares.
  
 DOCUMENTS
INCORPORATED BY REFERENCE
  
 The
registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended
December 31, 2008. The proxy statement is incorporated herein by reference
into the following parts of the Form 10-K:
  
 Part III,
Item 10, Directors, Executive Officers and Corporate
Governance;
  Part III,
Item 11, Executive Compensation;
  Part III,
Item 12, Security Ownership of Certain Beneficial Owners and Management and
Related
  Stockholder
Matters;
 Part III,
Item 13, Certain Relationships and Related Transactions, and Director
Independence; and
  Part III,
Item 14, Principal Accountant Fees and Services.
   
  
  NUMEREX
CORP.
  ANNUAL
REPORT ON FORM 10-K
  FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
  
  TABLE
OF CONTENTS
  PagePART
      IItem
      1.
              Business
              4Item
      1A.
              Risk
      Factors
              17Item
      1B.
              Unresolved
      Staff Comments
              28Item
      2.
              Properties
              28Item
      3.
              Legal
      Proceedings
              29Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              29PART
      IIItem
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of EquitySecurities
              30Item
      6.
              Selected
      Consolidated Financial Data
              32Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              33Item
      7A.
              Quantitative
      and Qualitative Disclosures about Market Risk
              49Item
      8.
              Financial
      Statements and Supplementary Data
              50Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              85Item
      9A.
              Controls
      and Procedures
              85Item
      9B.
              Other
      Information
              89PART
      IIIItem
      10.
              Directors,
      Executive Officers of the Registrant and Corporate
    Governance
              89Item
      11.
              Executive
      Compensation
              89Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              89Item
      13.
              Certain
      Relationships and Related Transactions and Director
      Independence
              90Item
      14.
              Principal
      Accounting Fees and Services
              90PART
      IVItem
      15.
              Exhibits
      and Financial Statement Schedule
              90
 
  
  
   
  Forward-Looking
Statements
  
  This
document contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements include, among other things,
forward-looking statements with respect to the Company’s future financial or
business performance, conditions or strategies and other financial and business
matters, including expectations regarding growth trends and activities in the
wireless data business. Forward-looking statements are typically identified by
words or phrases such as "believe," "expect," "anticipate," "intend,"
"estimate," "assume," "strategy," "plan," "outlook," "outcome," "continue,"
"remain," "trend," and variations of such words and similar expressions, or
future or conditional verbs such as "will," "would," "should," "could," "may,"
or similar expressions. The Company cautions that these forward-looking
statements are subject to numerous assumptions, risks and uncertainties, which
change over time. These forward-looking statements speak only as of the date of
this Annual Report, and the Company assumes no duty to update forward-looking
statements. Actual results could differ materially from those anticipated in
these forward-looking statements and future results could differ materially from
historical performance.
  
  The
following factors, among others, could cause actual results to differ materially
from forward-looking statements or historical performance: our inability to
reposition our platform to capture greater recurring service revenues,
difficulties associated with integrating Orbit One’s business, the risks that a
substantial portion of Orbit One's revenues are derived from government
contracts that may be terminated by the government at any time, variations in
quarterly operating results, delays in the development, introduction,
integration and marketing of new wireless services; customer acceptance of
services; economic conditions; changes in financial and capital markets; the
inability to attain revenue and earnings growth in our wireless data business;
changes in interest rates; inflation; the introduction, withdrawal, success and
timing of business initiatives and strategies; competitive conditions; the
inability to realize revenue enhancements; and extent and timing of
technological changes. Actual events, developments and results could differ
materially from those anticipated or projected in the forward-looking statements
as a result of certain uncertainties set forth below and elsewhere in this
document. Subsequent written or oral statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements in this report and those in the Company’s reports
previously and subsequently filed with the Securities and Exchange
Commission.
  
  PART I. BUSINESS
  
  Overview
  
  Numerex
Corp. (“Numerex” or “Company”) is a wireless provider of a broad spectrum of
secure machine-to-machine (M2M) services.  We emphasize recurring
revenues in order to enhance shareholder value creation.  We have
continuously developed technology, networks, and applications towards that end.
 We believe that simplifying the development and deployment process is an
important key to promoting sustainable growth in the M2M industry. Numerex DNATM is our way of
combining a device, a network and an application to bring a customer’s M2M
solution to life rapidly and easily.  Our goal is to “jumpstart” the
application process for our customers, through our foundation application
software technology or Numerex
FASTTM, and to be a single source for M2M products and services, i.e., a
“one stop shop”.
  
  M2M is
defined as electronic (wireless) data communication between devices, systems,
and people that turns data into useful information across many industries.
 At Numerex, we concentrate our efforts on several critical vertical
markets:  commercial and residential security, energy and utilities,
healthcare, financial services, and government & transportation. 
Throughout our service delivery, we endeavor to ensure data confidentiality,
integrity and availability every step of the way.
   4
  We
believe that Numerex has established a leadership position in M2M through
delivering end-to-end, single-source solutions as well as “white label” products
that are available for distribution as branded offerings through Value Added
Resellers (VARs), vertically focused System Integrators (SIs) and Original
Equipment Manufacturers (OEMs) who choose to integrate our products and services
into their own solutions. Numerex customers can select from a menu of products
and services that address their specific M2M needs.
  
  Numerex
has developed industry-specific expertise in offering M2M solutions with a host
of value added services. We add value for our customers by assisting them in
removing much of the complexity associated with the design, development,
deployment and support of M2M solutions so that they can better focus on their
primary business objectives and speed time to market.
  
  We
continue to look for ways to expand our expertise by entering new vertical
sectors conducive to our long-term recurring revenue model. We may choose to
enter those sectors through industry partnerships, organically, or via
acquisition.
  
  Generally,
our customers serve the final end user.  One of our strategic goals is to
be recognized as the leading M2M solutions enabler and as the primary source of
wireless M2M services in our target markets.  We call the elements of our
business strategy ,“c-h-o-i-c-e:”
  ·
              Community –
      Community of dedicated associates and partners with recognized expertise
      and experience at the service of the
customers;
  ·
              History –
      History in the M2M industry for its longevity, hallmarks, industry awards
      and recognition and substantial intellectural property created over the
      years;
  ·
              Optimization –
      Optimal technical (technology agnostic) and marketing
      capabilities;
  ·
              Information
      security – Information security emphasis; we are the first, ant to-date,
      the only, ISO 27001 certified M2M provider in North
    America;
  ·
              Core values –
      Core values that reflect the company’s focus on providing the best
      possible service and commitment;
  ·
              Enablement –
      Enabling platform that includes an array of service – from the Device
      across the Network to the Application, including what we refer to as
      Numerex DNATM, and enriched by tools such as Numerex FASTTM (Foundation
      Application Software Technology).  We believe that Numerex FASTTM
      makes the application development process easier and faster, and has the
      capacity to support several different devices, wireless networks and
      protocols, and other enabling services such as flexible billing,
      integration services, hosting (or managed services), light assembly,
      warehousing, fulfillment, reverse logistics, provisioning and quality
      assurance.
  
  Numerex
Corp. is headquartered in Atlanta, Georgia and is organized under the laws of
the Commonwealth of Pennsylvania, and began operations in July 1992 with the
acquisition of technology referred to as “Derived Channel.” Derived Channel
enables data transmission over an existing telephone line without interfering
with voice communications over that same telephone line. We expanded our
business primarily through the acquisition of complementary businesses, product
lines, and proprietary technologies. In November 1999, we sold the Derived
Channel technology and business to British Telecommunications PLC
(“BT”).
   5
  In May
1998, Numerex Corp., BellSouth Corporation and BellSouth Wireless, which became
Cingular in 2001 and AT&T in 2006, completed a transaction whereby
Cellemetry LLC, a joint venture between Numerex and Cingular, was formed.
Cellemetry LLC provided a cost-effective, two-way wireless data communications
network throughout the United States, Canada, Mexico, Colombia, Argentina,
Paraguay, the Dutch Antilles, and Puerto Rico. On March 28, 2003, we acquired
Cingular’s interest in Cellemetry LLC.
   At the
beginning of 2006, the Company further enhanced its portfolio of wireless
products and services through the acquisition of the assets of Airdesk, Inc.
Airdesk’s wireless data solutions, network access and technical support
have been fully integrated into the Company’s operations.
   In August
2007, Numerex acquired the assets of Orbit One Communications, Inc. which
provides satellite data products and services to government agencies and the
emergency services market.
   In
October 2008, Numerex acquired Ublip, a privately-held M2M software and services
company, headquartered in Dallas, Texas.  With this acquisition, Numerex
gained an infusion of technology and expertise, including middleware designed to
simplify and “jumpstart” application development and deployment.
  NUMEREX
CORE BUSINESS
  
  Over the
years, Numerex’s business has evolved from primarily a proprietary network
service into a comprehensive M2M business serving a wide range of markets with a
variety of wireless technologies.
  
  Numerex
Target Markets
  
  ·
              Commercial
      and Residential Security
  
  According
to market data reported by Security Sales and Integration magazine (“SSI”), the
US electronic security market revenues reached $27.4 billion in 2008 for 3.0
million installed systems.  The total monitored population was 32.4
million in 2008.  Residential (single and multiple dwellings) security
represented 32% of all security installations, vs. 44% for commercial business
(office buildings, retail, financial institutions, etc.), and 24% for large
industrial projects (government, utilities, airports, stadiums,
etc.).   The big four sectors, i.e., video, access, intrusion and
fire, represent 70% of the electronic security business (data source:
SSI).
  
  Uplink,
Numerex’s packaged wireless security product, is a dedicated wireless
communications solution for security monitoring that reports alarm, status, and
other messages generated by security systems. Uplink provides a secure,
dedicated cellular data link and network access module that transmits alarms to
virtually any alarm-receiving center or monitoring service.
  
  A
stand-alone sensor, alarm panel output, or alarm panel serial connection
provides the trigger to one of Uplink’s family of network access modules, which
in turn transmits the alarm event over the Numerex Network. The Numerex gateway
accepts the incoming signal and logs it for immediate viewing through the
password-secured Web interface. Depending on the selected reporting options and
alarm monitoring station receiver, the decoded signal can be forwarded via
encrypted IP or the Public Switched Telephone Network (PSTN) to the alarm
monitoring station. As an option, a customizable text message can be sent to any
email-enabled device or to an alphanumeric pager.  The Uplink Network
Operations Center (NOC) in Atlanta, GA activates and manages the service for its
dealers.
  
   6
  Uplink is
distributed through master distributors to a network of over 4,500 Uplink
dealers in North America for both commercial and residential alarm security
markets. Uplink private labeled and custom services are marketed through direct
business development and partnering initiatives.
  
  On average
Uplink connections remain active for 6 to 8 years, and contribute a consistent
source of recurring revenue to the Company.
  
  At the
beginning of 2008, Numerex introduced the Uplink FD-1000 module used with any
existing Uplink AnyNET product.  This add-on provides full data
communications and reporting capabilities for commercial and residential
security alarm panels.   Later in 2008, the Uplink model 2550 was
launched to provide a stand-alone full event reporting cellular alarm
communicator, also for commercial and residential use.
  
  Energy
and Utilities
  
  The
energy and utilities market is comprised of numerous sectors such as oil, water,
gas, and electricity, each with its own challenges.  With enhanced
regulatory activity, heightened environmental concerns, tighter data security
requirements and the increasing need for remote monitoring and controlling,
there is an important role for intelligent technologies in securely enabling
resource management and operational efficiency.
    ·
              Wireless
      technology is already deployed in some form in the energy and utilities
      market.  A communications link connects a meter or field device
      back to a data collection device, many times referred to as a
      concentrator, and then to a server.  Numerex also supplies
      embedded RF modules that can be integrated within these meters and field
      devices. The module is typically installed under the glass of a meter and
      may communicate with short-range wireless transceivers within close
      proximity of the cellular module.
    ·
              Advanced
      Metering Infrastructure systems are becoming increasingly critical to the
      delivery and management of power resources. We expect that wide-area
      two-way communications will progressively replace the existing one-way
      communications networks (paging or localized RF) as related applications
      evolve and interactive capabilities are required to manage power
      consumption.
    ·
              In
      light of these anticipated changes, we believe that Numerex’s primary
      products, such as core network service offerings, cellular modules and
      customized professional services, are well suited for the growing demands
      of the utility or energy management
companies.
    ·
              Healthcare
  
  Not only
is healthcare the nation’s largest vertical market, but it is one where
employment will continue to grow in 2009 and beyond, according to the US Bureau
of Labor Statistics.  In addition, analysis by Insight Research
Corporation  (May 2008) (“Insight”) indicates that “the hospitals,
physicians, pharmaceutical companies, and insurance providers that make up the
$2.3 trillion US healthcare system will be spending $55 billion on
telecommunications services over the next five years, and “spending by the US
healthcare industry on telecommunications services will grow at a compounded
rate of 8.4 percent over the forecast period, increasing from $7.5 billion in
2008 to $11.3 billion in 2013.”
   7
   The same
Insight analysis underlines that “forces external to the healthcare industry,
including an aging population and worker shortages are pushing the industry to
find alternative approaches to current business practices.  Better
practices are expected to rely heavily on telecommunications services. Most of
the high costs inherent in the current system are related to the proximity of
the patient and provider, as well as to the archaic administrative systems used
to manage records and exchange information. Telecommunications can bridge these
proximity gaps as well as provide a normalized set of baseline data that can
remain secure and yet be shared among healthcare workers.”
  Currently,
we provide services for companies that engineer, develop, and manufacture
ambulatory cardiac monitors for leading healthcare companies
worldwide.
    ·
              Financial
      Services
    This is a
diverse sector that includes banking, insurance, credit card transactions, and
other financial activities.  From 2003 to 2007, employment in the
financial services industry averaged 5.4 % of total U.S. employment in private
industry.   When real estate transactions (leasing, renting,
etc.) are excluded, financial services account for about 8% of the US GDP. (Data
source: The Financial Services Fact Book 2009 – Insurance Information Institute
and the Financial Services Roundtable).
    ·
              Numerex
      has extensive expertise in servicing the financial services market, for
      instance, with the provision of vending, point-of-sale, insurance and
      automotive theft detection services.  Our customers rely on
      Numerex for its ability to deliver reliable and secure
      solutions.  As an example, Numerex provides the largest beverage
      bottling company in Mexico with vending machine data from the field to the
      bottler’s business managers.   The solution supplies
      operational tools such as cash accountability, which are used to optimize
      daily vending operations.
    ·
              Government
      & Transportation
  
  The
Deloitte “2009 Economic Outlook” notes that government IT spending will grow:
“Even as the federal government struggles to manage the fallout from the
financial system’s collapse and the nation’s slide into recession, agencies must
continue to deliver the day-to-day services that keep this country
running.”  In addition, the new administration plans to create
millions of jobs in the U.S. by injecting massive federal investments in various
parts of the economy.  Numerex believes that its technology is well
positioned to contribute to the construction and maintenance of the US
“intelligent infrastructure”, i.e., an infrastructure that is monitored and
controlled by efficient M2M technology.
  
  The
transportation sector is facing numerous challenges.  According to a
January 2009 Standard & Poor’s Rating Services Industry Report Card,
“rapidly deteriorating U.S. economy, slowing growth worldwide, and credit market
dislocations are stepping up the pressure on North American transportation
companies.”  We believe that this should prompt those companies to
look for solutions that bring about productivity enhancements and overall
operations improvements in order to control costs and generate additional
revenues.
  
  Numerex
has been supplying its Satellite Asset Tracking solutions to the Federal
Emergency Management Agency (FEMA) and many of their subcontractors since 2005
in support of hurricanes Rita, Katrina and most recently Ike.  In addition,
following successful tests at US Government testing facilities, Numerex’s SX1
Satellite Tag has received the US Department of Defense (DoD) Transportation
Command (TRANSCOM) designation as Premium Service Device (PSD) and a Hazards of
Electromagnetic Radiation to Ordnance (HERO) - Zero Separation Distance rating
giving the US DoD the assurance that SX1 can be used in any austere environment
and in any type of shipments. We believe that Numerex is well positioned with
the US DoD to provide both In Transit Visibility (ITV) as well as the critical
“Last Mile Visibility” where shipments to the frontlines are outside of the
established RFID nodal infrastructure.
   8
  Numerex
has also provided its Satellite Asset Tracking Solutions in many transportation
applications for the tracking of yachts and pleasure craft, railcars, trailers
and shipping containers in North America, Europe and Southwest Asia.
    Numerex
Products and Services: Numerex DNATM
  
  The
acquisition of Ublip in October 2008 enhanced Numerex’s ability to deliver a
complete range of M2M products and services through Numerex DNA, which
includes:
  
  ·
              Device
    Numerex
designs, develops, manufactures, and distributes a suite of network access
modules (wireless data modems) that provide the physical and electrical
interface between the customer’s application and the Numerex network. Examples
of the various Numerex-manufactured modules include Uplink AnyNET (VAR version) for
security applications, the SX1 Tracker, and ADM3500 family for mobile
applications. The network modules are configurable as generic product offerings
for VAR application development, as fully configured modules for OEM
integration, or as a component of the Company’s end-to-end
solutions.
  
  Critical
to the strengthening of Numerex DNA, we continue to
select new device sources to meet our growing customer
requirements.  For example, a customer that provides a tracking and
diagnostic product, recently added to our portfolio of industry partners, allows
us to provide on-board diagnostics (OBD) services that meet our standards in
terms of ease-of-use and reliability.
  
  We use a
diverse array of radio modules, and currently have relationships with Wavecom
and Enfora.
    ·
              Network
    Ø  Cellular
    Infrastructure
  Numerex
brings to market M2M solutions and an array of products that support the M2M
value chain, and provides carrier-grade network air-interface transport
services. Numerex is an M2M network operator that serves a dynamic M2M
marketplace. Numerex sells cellular-based network services without owning or
deploying the physical network infrastructure or other equipment in the field
over which data is transmitted. While Numerex owns and operates an open-source
proprietary intelligent network gateway platform, we have not invested in
wireless spectrum or cellular towers. Instead, we have entered into several
agreements with a variety of wireless operators/ carriers that allows us to move
information over their existing cellular infrastructure. As a result, we provide
a multitude of wireless data network services.
  
  Numerex
is dedicated to the M2M market and currently only offers data network services.
These services include specific and vertically focused M2M applications
combined. Numerex services are comprised of application engineering and
development, customized billing, GPS mapping for mobile applications, network
and application implementation management, back-end message delivery management,
application and network support, and interactive Web services.
  
  Our
customers and industry partners look to us not only to help integrate our
wireless platform and services with their devices and applications, but also to
assist them through the certification, launch, and operation of their products
in their respective markets.
   9
  Numerex
is capable of supporting a variety of remote applications that are either fixed
or portable. From Global System for Mobile Communications (GSM) and Code
Division Multiple Access (CDMA) digital and Satellite network offerings, to
premium 24x7x365 network support services, Numerex supports continued expansive
coverage, legacy network interoperability, and extended gateway capabilities for
higher bandwidth M2M applications.  Through various carrier
agreements, Numerex provides extensive digital and analog (analog services have
been discontinued by most U.S. and Canadian wireless operators/ carriers – see
below) wireless network connectivity and services in the Continental U.S.,
Canada, the Caribbean, and Mexico.
  
  Numerex
offers multiple digital network services, and supports various wireless
transport technologies, providing unique, value added services to fulfill
diverse customer data and
application requirements.   Numerex services include
SMSXpressTM and GPRS, real-time network activations, provisioning and
configuration support, and 24x7x365 network support services.
  
  SMSXpressTM
  Numerex
offers a network architecture enabling Short Message Service (SMS) delivery with
low latency.  Numerex Networks delivers messages from our dedicated
intelligent gateway to customer back-end
applications.  Acknowledgement of message delivery is provided within
microseconds.  Low latency, a dedicated SMS platform, and message
acknowledgement are two features that differentiate Numerex Networks and the
SMSXpress service from its competitors in the market.
  
  Introduced
in October 2007 and fully deployed in 2008, FastTrack TM utilizes SMSXpress to
deliver real-time data between remote devices and
facilities.   It is designed to wirelessly monitor and control
remote processes, events, conditions and devices.  It serves a variety
of industries with remote monitoring and control requirements  --
including highway and transportation, utilities, security, SCADA and agriculture
– and a host of wider area monitoring situations such as pipeline temperature
sensors, pressure measuring points, flow monitoring, discrete level monitoring
and pulse generating sensors.
  
  GPRS
Service and GPRSXpressTM
  Numerex’s
GPRS service (General Packet Radio Service) provides a secure, two-way network
feature as an option, enabling private connectivity of packet routing to
applications, as well as hosted applications services.  The network
offering allows management of dynamic device IPs, which facilitates true two-way
communication between field devices and application servers.  Our GPRS
service provides dedicated frame relay connections to route packet data off the
Internet across North America.  In April 2008, GPRSXpressTM was
launched.  This new service is designed for users anticipating
occasional data usage with an exception reporting application.  GPRSXpress provides an
appealing price-performance network option for under 500 KB
applications.  GPRSXpresscan be easily
combined with the SMSXpressservice.  In June 2008, Numerex introduced the NumereXpressTM
portal to simplify device management and network provisioning for GPRSXpress and SMSXpresscustomers.
  
  U.S.
Coverage with 1xRTT
  Numerex
Networks provides coverage throughout the domestic United States with 1xRTT
(CDMA-based single carrier (1x) Radio Transmission Technology) services. In
addition, Numerex Networks delivers location-based services (LBS) that provide
an accurate, cost-effective way to track customers’ valuable assets. These two
services have been combined for unique and specific private-labeled customer
applications.
  
   10
  Analog
to Digital Migration
  On June
15, 2007, the FCC upheld its analog cellular sunset ruling, which allowed
carriers to cease providing Advanced Mobile Phone System (AMPS) analog network
service as of February 18, 2008.   Throughout 2008, Numerex
substantially completed the migration to digital of its analog customer
base.   In parallel, various technical upgrade projects to the
Company’s network gateways and technology platforms were carried out in order to
support the migration efforts and to fulfill other corporate
objectives.
  
  Ø  Satellite
    ·
              Our
      satellite services are primarily marketed and sold to the emergency
      services and government sectors that, we believe, give Numerex entree into
      these market sectors for both satellite and our terrestrial cellular-based
      products and solutions.  Numerex Satellite Solutions (formerly
      Orbit One) provides turnkey and customized satellite-based M2M solutions
      that include hardware, software, data management, installation and
      maintenance support, coupled with a proprietary operational support
      platform.  Primarily through integration partners and VARs,
      Numerex Satellite Solutions currently supplies satellite-tracking
      solutions to a variety of federal and state agencies for disaster and
      emergency response operations.
    Ø  Hybrid
(mobile platform)
    Numerex’s
mobile platform enables advanced vehicle tracking features and functions. It
includes network-centric services and multiple technologies that suit a variety
of needs in the automotive and security markets. Numerex’s vehicle location and
recovery solutions combine the accuracy of GPS (Global Positioning System),
cellular networks, and wireless communications technology to improve the
prospect of vehicle recovery and the timeframe in which the recovery
occurs.
  
  Ø  Network
Quality
    Numerex’s
overall network quality is built on certain critical elements such
as:
  
  v  Gateway: Our Numerex
Operation Center (NOC) architecture is built on the latest generation of best of
class processing power, using high-grade servers in a totally redundant and hot
swappable configuration, i.e., where components can be easily removed and
replaced while the system remains in operation. The hardware and software
network topology features high grade, robust platforms for increased
reliability.
    v  Redundancy and Reliability:
The operations sites are geographically diverse and are interconnected over
Synchronous Optical Network bidirectional, fault-tolerant facilities. We believe
this architecture provides Numerex Networks with service level standards that
meet and exceed requirements for mission-critical applications;
    v  Secure Network: Numerex is a
proud holder of the ISO 27001 certification, ISO’s highest security
certification for information security that helps to ensure data
confidentiality, integrity and availability. Numerex is the first North American
M2M service provider to become ISO 27001 certified, and we continue to use
advanced security standards throughout our business;
    v  Network Management: The system allows for the
automation of help desk management—from submission to monitoring to lifecycle
management of customer issues.  It also facilitates the management of
tasks and asset inventory records, and indicates which business services are
impacted by a given incident or problem. We believe that this helps Technical
Support Center develop priorities that resolve customer issues based on business
requirements and translates into higher customer satisfaction and quality of
service; and
   11
    v  Network Support Services:
Building on its operating experience and a solid understanding of data networks
and technology, Numerex network support personnel bring a working knowledge of
systems and processes for GSM, CDMA, and Satellite service activation, service
provisioning, inventory planning and management, and supply chain logistical
support.
    ·
              Application
    Ø  Scope
    Numerex
provides flexible M2M market-ready solutions that are fully integrated with our
M2M network platforms and radio technology, adaptable to applications deployed
by our partners and customers across a wide range of industries. With individual
applications and comprehensive end-to-end solution expertise, it serves various
targeted vertical markets: commercial and residential security; energy and
utilities; healthcare; financial services; and government &
transportation.  Numerex supplies packaged and custom-designed M2M
products and services for asset tracking, inventory control, point-of-sale
systems and a host of emerging M2M applications.
  
  Ø  Numerex
FASTTM
    Numerex FAST (Foundation
Application Software Technology) enables the rapid creation of Web-based M2M
applications, and provides a reliable hosting environment for M2M
solutions.  Typically, application developers must identify hardware
(radio modules, servers), understand and select wireless networks, build
communications software, as well as the front-end web application. Numerex FAST can dramatically
simplify and shortcut the application development process.   It
removes the complexity of transporting data from remote devices to the backend
server. We believe that Numerex’s strategy of simplifying the development and
deployment process is a critical element for long term success in the M2M
industry.
  
  Ø  Enabling
Services
    ·
              Numerex
      provides many value added services
including:
  
  v  24x7 Customer
Support:  Numerex provides an “around-the-clock” support
center, or help desk, to provide assistance to customers;
    v  Flexible
billing:  Numerex provides accurate, timely invoices in
flexible formats that detail usage per device, and various billing options such
as, but not limited to, “billing-on-behalf-of” or third-party
billing.  This flexibility is a key differentiator for customers’
end-user billing requirements;
  
  v  Integration
services:  Numerex provides development support to ensure
timely and efficient production;
  
  v  Automated
provisioning:  Numerex enables automated, Web-based online
provisioning of devices for immediate activation and account
management;
  
  v  Network Operations Center:
Customers and industry partners receive 24x7x365 network support from our
Network Operations Center in Atlanta, Georgia; and
  
   12
  v  Ancillary services provided at the
customer’s discretion:  Numerex
offers a host of ancillary services aimed at facilitating and enhancing its
customers’ performance such as warehousing, fulfillment, reverse logistics,
web-based provisioning and quality assurance.
  
  Sales,
Marketing and Distribution
  
  Numerex
primarily employs an indirect sales model through private label/OEM agreements,
channel partners, system integrators, and VARs (collectively referred to in some
cases as ‘industry partners’). We also indirectly market and sell certain
Numerex branded products and services through distribution and dealer channels,
specifically the Uplink product suite.
  
  Our
network is integrated and bundled with other Numerex products and services to
provide private-labeled solutions for both fixed and portable applications. It
is also sold and marketed to VARs, integrators, and application service
providers who bundle and resell it with their end-to-end
solutions.  In addition, the Numerex network is also sold as a
data-only network offering for enterprise customers running M2M
applications.
  
  Our
private-label solutions are designed for and marketed to specific vertical
markets.  Typically, these customers are sales and marketing
organizations with vertical market expertise without adequate technical
resources that are seeking rapid entry into a market.   Numerex FAST is an example of
a technology platform Numerex provides that enables these types of customers to
deliver their market specific product to their end users.
  
  We
currently market and distribute our mobile solutions to a variety of asset
tracking customers, including VARs and integrators, which serve several markets;
such as automotive, insurance, government and transportation, and emergency
services, and others.
  
  NUMEREX
NON-CORE BUSINESS: DIGITAL MULTIMEDIA, NETWORKING AND WIRELINE DATA
COMMUNICATIONS
  
  Numerex’s
primary focus is wireless M2M networks and solutions as described above. We
continue to offer products and services to certain customers in digital
Multimedia education, networking integration and Derived Channel wireline data
communications. These products and services currently comprise about 8% of our
revenue base and are managed as a single business group.
  
  Digital
Multimedia
  
  We
design, develop, and market complete video conferencing and digital multimedia
system products and services for high-quality communications networks. We
manufacture both the products upon which the systems are based and incorporate
third-party products where appropriate.  The offerings includePowerPlayTM , a digital
multimedia solution for high-bandwidth private network applications. PowerPlay
provides capability for interactive videoconferencing and is an integrated
hardware-software system that supports user-friendly control over network
devices. PowerPlay
is supplemented by our desktop videoconferencing software version,IPContactTM ,
which offers high-quality and high-performance video.
  
  Networking Integration
(Digilog)
  
  We
provide products under the Digilog brand that assist both wireline and
wireless carriers in the engineering, installation, and servicing of new
telecommunications control networks. These telecommunications network
operational support systems and services can be categorized as: Services,
including system integration (rack and stack) and Installation: Products, Test
Access and Interconnecting Devices.
   13
  
  Wireline
Data Communications (Derived Channel)
  
  This
licensed technology creates a ‘derived channel’ on an existing telephone line by
using an inaudible frequency below the voice communications spectrum for data
transmission. This creates a two-way communication system that continuously
monitors the integrity of a user’s telephone line and security
system.
  
  Non-Core
Products and Services: Sales and Marketing
  
  Our
digital multimedia products and services are marketed through a combination of
system integrators and VARs.   Our networking products are sold
and marketed under the Digilog brand. Distribution is focused on wireless and
wireline telecommunications companies through system integration agreements with
a number of suppliers of telecommunications and monitoring equipment and
services.  Our Wireline Data Communications service is marketed under
the DCX brand directly to carriers primarily in the United States and
Australia.
  
  NUMEREX
BUSINESS ENVIRONMENT
  
  Clients
  For the
year ended December 31, 2008, revenue from our largest client, General
Electric (GE), accounted for an aggregate of approximately 22% of our total
revenue.
    Suppliers
  We rely
on third-party contract manufacturers and wireless network operators/ carriers,
both in the United States and overseas, to manufacture most of the equipment
used to provide our wireless M2M solutions, networking equipment and products;
and to provide the underlying network service infrastructure that we use to
support our M2M data network, respectively.
  
  Competition
  Several
businesses that share our M2M space can be viewed as competition, such as
application service providers, MVNOs, system integrators, and wireless
operators/ carriers that offer a variety of the components and services required
for the delivery of complete M2M solutions.  However, Numerex believes
it has a competitive advantage and is uniquely positioned as an M2M service
provider since it provides all of the key components of the M2M value chain,
including enabling hardware, multiple wireless technologies and custom
applications, and wireless network services.  Numerex markets and
sells complete network-enabled solutions, or individual components, based upon
the specific needs of the customer.
  
  We
believe that our current M2M services combined with the continuing development
of our network offerings and technology positions us to compete effectively with
emerging providers of M2M solutions using GSM, CDMA and Satellite technology.
Other potentially competitive offerings may include “wireless fidelity” (Wi-Fi),
World Interoperability for Microwave Access (WiMAX) and other emerging
technologies and networks.  We believe that principal competitive
factors when selecting an M2M service or network-only provider are network
reliability, data security, and customer support.
  We
believe that our M2M service platforms, our network gateways, together with
competitive pricing, end-to-end solution offerings, a ‘single source’ approach
to the M2M market, extensive experience and intellectual property, will allow
Numerex to effectively maintain and increase its current market
share.
    14
  Our
Uplink security products and services have three primary competitors in the
existing channels of distribution — Honeywell’s AlarmNet, Telular’s Teleguard
and DSC, the security division of TYCO.  The principal competitive
factors when making a product selection in the business and consumer security
industry are hardware price, service price, reliability, industry certification
status and feature requirements for specific security applications, for example
fire, burglary, bank vault, etc. Additional competitors have entered the market
in the last several years with a focus on blending security monitoring and home
automation. These products and services are targeted for the do-it-yourself
market as opposed to traditional security dealers.  Several companies,
including GE Security, offer OEM versions or include alarm monitoring technology
and network services provided by Numerex. We believe that the Uplink products
and services are competitively positioned and priced.
  
 Our
Numerex Mobile end-to-end product is offered to a variety of customers,
primarily comprised of resellers and VARs. There are many competitors offering
vehicle location and recovery services, but the principal direct competitor to
our customer base in the new car after-market vehicle location and recovery
business is LoJack Corporation, the industry’s market leader. OnStar Corp., a
subsidiary of General Motors Corp., which offers a full suite of concierge
services, markets and sells their services primarily through automobile
manufacturers. Other manufacturers are also moving to provide factory direct
“networked cars” including Ford and others.  There are also numerous
other small companies that currently offer or are developing other wireless
products and services for this market. The principal competitive factors are
channel distribution, hardware price, network service price, features, and the
ability to locate a vehicle at any time on demand.
  
 Our
competitive challenge is the pressure to maintain our hardware margins with an
on-going process of cost reduction associated with the in-vehicle hardware and
the expansion of our distribution network.  We believe our mobile
hardware-based solution for this market will continue to undergo pricing
pressure and will require hardware cost reduction in order to remain
competitive.
  
 The
market for our technology and platforms has been characterized by rapid
technological change. The principal competitive factors in this market include
product performance, ease of use, reliability, price, breadth of product lines,
sales and distribution capability, technical support and service, customer
relations, and general industry and economic conditions. The ability to provide
wireless network service, wireless radios, device and modem technology, and
end-to-end solutions -- including integration, network and service management --
has set Numerex apart from the competition. We believe that our distribution
agreements with module manufacturers give us a competitive advantage in
combining the sale of their radio modules with the marketing and selling of our
network and technology services.
  
 Research
and Development
  Technology
is subject to abrupt change.  Therefore, the introduction by
competitors of new products, technologies, and applications in our markets could
adversely affect our business. Our success will depend, in part, on our ability
to enhance existing Numerex products and introduce new products and applications
on a timely basis. We plan to continue to devote a portion of our resources to
research and development.  Our research and development expenses were
$2.2 million for the year ended December 31, 2008, as compared to $1.5 million
for the year ended December 31, 2007 and $1.1 million for the year ended
December 31, 2006.
  
 We
continue to invest in new services and improvements to various Numerex
technologies, especially networks and digital fixed and mobile solutions. We
primarily focus on the development of M2M services and enabling platforms,
enhancement of our gateway and network services, reductions in the cost of
delivery of our network services and solutions, and enhancements and expansion
of our application capabilities.
  
 We have
concentrated on providing customers with industry-benchmark solutions that go
beyond the network requirement. Prudent integration of new digital and Web
technology into our wireless businesses is an active and ongoing process. We are
committed to taking full advantage of such new technology whenever and wherever
it makes sense to our customers.
   Product
Warranty and Service
  Our M2M
wireless communications business provides a one-year parts and labor warranty on
all hardware-based products. Our wireline data communications (Derived Channel)
business provides customers with limited one-year warranties on scanners and
message switch software, while Subscriber Terminal Units (STUs) are typically
sold with a one-year labor and materials warranty. Our digital multimedia
business provides either a one-year warranty on parts and labor, depending on
the scale and type of product provided. Our networking business provides a one-
or two-year warranty on all telecommunications networking products. In addition,
a help desk and training support is offered to users of telecommunications
networking products. To date, warranty costs and the cost of our warranty
programs have not been material to our business.
  
 Intellectual
Property
  We hold
patents through Cellemetry LLC, Numerex Corp., and Numerex Investment Corp.
covering the technologies we have developed in support of our product and
service offerings in the United States and various other
countries.  These patents are by law subject to
expiration.  Through Cellemetry, we license certain technologies
related to Cellemetry under licenses with BellSouth Corporation (now AT&T).
It is our practice to apply for patents as we develop new technologies,
products, or processes suitable for patent protection.  No assurance
can be given about the scope of the patent protection.
  We also
hold other intellectual property rights including, without limitation,
copyrights, trademarks, and trade secret protections relating to our technology,
products, and processes.  Patents have a limited legal lifespan. The
patents we presently hold will, by law, begin expiring over the approximate
period 2010 through 2022, depending upon the effective date of the subject
patent. We believe that the rapid technological developments in the
telecommunications industry may limit the protection afforded by
patents.  Accordingly, we believe that our success will also depend on
our manufacturing, engineering, and marketing know-how and the quality and
economic value of our products, services, and solutions.
  Cellemetry
is a registered trademark of Numerex Corp.  We believe that no
individual trademark or trade name is material to our competitive position in
the industry.
  
 Regulation
  Federal,
state, and local telecommunications laws and regulations have not posed any
significant impediments to either the delivery of wireless data signals/
messaging using our networks or the provision of alarm services by telephone
companies using Derived Channel technology. However, we may be subject to
certain governmentally imposed telecommunications taxes, surcharges, fees, and
other regulatory charges, as well as new laws and regulations governing our
business and markets.
  
 Economic
Outlook
  Our
operations and performance depend on overall domestic and global economic
conditions. Recessionary forces worldwide have contributed to slowdowns in the
technology industry generally, and the specific markets we serve, such as the
residential real estate and home security markets. Declining consumer confidence
driven by fears of a prolonged recession, may impact the demand for our
products, increase price competition in the markets we serve, and increase our
risk of carrying excess inventory. On the other hand, a bad economic environment
may contribute to a sentiment of insecurity that may be conducive to increasing
the demand for our alarm monitoring services and vehicle tracking solutions. In
addition, as federal, state and local governments are considering investing
billions of dollars to repair the country’s ailing infrastructure, the demand
for “smart” technologies, including the type of solutions offered by Numerex,
could increase significantly.
  15
 Employees
  As of
March 1, 2009, we had 119 employees in the U.S., consisting of 50 in sales,
marketing and customer service, 42 in engineering and operations and 27 in
management and administration. We have experienced no work stoppages and none of
our employees are represented by collective bargaining
arrangements.  We believe our relationship with our employees is
good.
  
  Available
Information
  We make
available free of charge through our website atwww.numerex.com our annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K, and all amendments thereto filed or furnished pursuant to 13(a) or 15(d) of
the Securities and Exchange act of 1934, as soon as reasonably practicable after
such reports are filed with or furnished to the Securities and Exchange
Commission.  Our filings are also available through the Securities and
Exchange Commission via their website,  http://www.sec.gov . You may
also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, N.E., Washington,
D.C. 20549.  You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The information
contained on our website is not incorporated by reference in this annual report
on form 10-K and should not be considered a part of this report.
    Executive
Officers of the Registrant
    Our
executive officers, and all persons chosen to become executive officers, and
their ages and positions as of March 15, 2009, are as follows:
  
  Name
              Age
              PositionStratton
      J. Nicolaides*
              55
              Chairman
      of the Board of Directors, Chief Executive OfficerMichael
      A. Marett
              54
              Executive
      Vice President, Chief Operating OfficerAlan
      B. Catherall
              55
              Executive
      Vice President, Chief Financial OfficerLouis
      Fienberg
              54
              Executive
      Vice President, Corporate DevelopmentMichael
      Lang
              43
              Executive
      Vice President, Sales & MarketingJeff
      Smith, Phd
              48
              Chief
      Technology Officer
 
  *Member
of the Board of Directors
  
  Mr.
Nicolaides has served as Chief Executive Officer of the Company since April
2000, having served as Chief Operating Officer from April 1999 until March 2000
and as Chairman of the Board since December 1999.  From July 1994
until April 1999, Mr. Nicolaides managed a closely held investment
partnership.
    Mr.
Marett has been an Executive Vice President of the Company since February 2001.
In February 2005 he was named Chief Operating Officer.  From 1999 to
2001, Mr. Marett was Vice President, Sales and Marketing, of TManage, Inc.,
which provided planning, installation, and support services to companies with
large remote workforces. From 1997 to 1999 Mr. Marett was Vice President,
Business Development, of Mitel Business Communications Systems, a division of
Mitel Corporation.  Prior to 1997, Mr. Marett held a number of
executive positions at Bell Atlantic.
    Mr.
Catherall has been the Executive Vice President and Chief Financial Officer of
the Company since June 2003.  From 1998 to 2002, Mr. Catherall served
as Chief Financial Officer of AirGate PCS, a NASDAQ-listed wireless
company.  From 1996 to 1998, Mr. Catherall was a partner in Tatum CFO
LLP, a financial services consulting company.  Prior to 1996, he held
a number of executive and management positions at MCI
Communications.
     16
  Mr.
Fienberg serves as the Company’s Executive Vice President for Corporate
Development and has been with the Company since July 2004.  From
August 2003 to July 2004, Mr. Fienberg served as Managing Director of an
investment banking firm. From 1992 to 2003, Mr. Fienberg was a Senior Vice
President and merger and acquisition specialist with Jefferies and Company,
Inc.
  
  Mr. Lang
has been an Executive Vice President of the Company since January 2008 and
directs the focus and execution of sales and marketing. From January 2006
through December 2007 Mr. Lang served as Senior Vice President of Sales for the
Company and President of Airdesk, LLC. Prior to joining the Company in January
of 2006, Mr. Lang was founder and President of Airdesk, Inc. From 1988 to 1997,
Mr. Lang founded and led a wireless voice and data services company and also
co-founded an internet services company which was sold to Verio in
1997.
  
  Mr. Smith
has served as the Chief Technology Officer since October 9,
2008.  From June 2007 to October 2008, he served as the President and
Chief Executive Officer of Ublip, Inc. a provider of M2M and location based
services that Mr. Smith founded.  From January 2002 until June 2007,
Dr. Smith served as President and Chief Executive Officer of SensorLogics, Inc.,
an M2M application service provider that he also founded.  From June
1996 until January 2000, Dr. Smith served as regional President and director of
NTT/Verio, an internet service provider and web hosting company.  From
October 1993 until January 1997, he served as President and Chief Executive
Officer of OnRamp Technologies, an internet service provider that he
co-founded.
  Item
1A.   Risk Factors
  
  An
investment in our common stock involves a high degree of risk. You should
carefully consider the following information about these risks before buying
shares of our common stock. The following risks and uncertainties are not the
only ones facing us. Additional risks and uncertainties of which we are unaware
or we currently believe are not material could also adversely affect us. In any
case, the value of our common stock could decline, and you could lose all or
part of your investment. You should also refer to the other information
contained in this Form 10-K or incorporated herein by reference, including our
consolidated financial statements and the notes to those statements. See also,
“Special Note Regarding Forward-Looking Statements.”
  
  Risks
Related to Our Financial Condition and Ownership Structure
  
  We
have a history of losses and are uncertain as to our future
profitability.
  
  We have
had mixed success with regard to generating profits. We incurred losses in 2008
after being profitable from 2005-2007. Prior to 2005, we had net operating
losses in each year dating back to 1998. In view of our operating costs, which
are significant, and given all other risk factors discussed herein, we may not
be profitable in the future. Moreover, as a holding company our primary material
assets are our ownership interests in our subsidiaries and in certain
intellectual property rights. Consequently, our earnings derive from our
subsidiaries and we depend on accumulated cash flows, distributions, and other
inter-affiliate transfers from our subsidiaries to make payments on our debt. In
view of all of the risk factors discussed herein, we cannot assure you that the
operating results of our subsidiaries, accumulated cash flows, or the
distributions they make to us at any given time will be sufficient to sustain
our earnings or that any distribution and/or payments they make to us will be
adequate to pay our debt, including interest payments, when due.
  
   17
  A
prolonged overall economic downturn, or one or more market-specific downturns,
could have a material adverse effect on our financial condition and operating
results.
  
  Our
operations and performance depend significantly on overall domestic and global
economic conditions. Economic conditions worldwide have contributed to slowdowns
in the technology industry generally, as well as to slowdowns within the
specific markets we serve, such as the residential real estate and home security
markets. The current, highly uncertain macroeconomic climate including, but not
limited to, limited availability of credit, eroding home values and a slowdown
in new housing starts, and declining consumer confidence driven by fears of a
prolonged recession, threatens to reduce demand for our products, increase price
competition in the markets we serve, and increase our risk of carrying excess
inventory. In particular, we anticipate that a continued slowdown in the number
of new housing starts will result in a slowdown in the sales of our residential
alarm monitoring products. If overall conditions worsen significantly, consumers
may also decide to cancel wireless monitoring services in an effort to eliminate
expenses they may view as “discretionary.” Similarly, declining automobile sales
associated with an overall economic downturn negatively impacts sales of our
vehicle tracking solutions. All of these and other macroeconomic factors could
have a material adverse effect on demand for our products and services and on
our financial condition and operating results.
  
  Because
our stock is held by a relatively small number of investors and is thinly
traded, it may be more difficult for you to sell your shares or buy additional
shares when you desire to do so and the price may be volatile.
  
  Our
common stock is currently listed on the NASDAQ. Our stock is thinly traded
and we cannot guarantee that an active trading market will develop, or that it
will maintain its current market price. A large number of shares of our common
stock are held by a small number of investors. An attempt to sell a large number
of shares by a large holder could adversely affect the price of our stock. In
addition, it may be difficult for a purchaser of our shares of our common stock
to sell such shares without experiencing significant price
volatility.
  
  The
markets in which we operate are highly competitive, and we may not be able to
compete effectively.
  
  We face
competition from many companies with significantly greater financial resources,
well-established brand names, and larger customer bases. Numerous companies also
may try to enter our market and expose us to greater price competition. We
expect such competition to intensify in the future. If our competitors
successfully focus on the markets we serve, our business could be adversely
affected.
  
  Our
future operating performance depends on the performance of resellers, value
added resellers, and other distributors.
  
  We
distribute our products through wholesalers, resellers, value-added resellers,
and other distributors, many of whom distribute products from competing
manufacturers. Many resellers operate on narrow margins and have been adversely
affected by current overall economic conditions. Our financial condition and
operating results could be materially adversely affected if the financial
condition of these resellers weakens, if resellers stop distributing our
products, or if uncertainty regarding demand for our products causes resellers
to reduce their orders for, and curtail the marketing of, our products. We have
invested and will continue to invest in programs to enhance reseller sales.
These programs could require a substantial investment while providing no
assurance of return or incremental revenue.
  
  
   18
  If
we achieve our growth goals, we may be unable to manage our resulting
expansion.
  
  To the
extent that we are successful in implementing our business strategy, we may
experience periods of rapid expansion. In order to effectively manage growth,
whether organic or through acquisitions, we will need to maintain and improve
our operations and effectively train and manage our employees. Our expansion
through acquisitions is contingent on successful management of those
acquisitions, which will require proper integration of new employees, processes
and procedures, and information systems, which can be both difficult and
demanding from an operational, managerial, cultural, and human resources
perspective. We must also expand the capacity of our sales and distribution
networks in order to achieve continued growth in our existing and future
markets. The failure to manage growth effectively in any of these areas could
have a material adverse effect on our financial condition and operating
results.
  
  We
operate in new and rapidly evolving markets where rapid technological change can
quickly make products, including those that we offer, obsolete.
  
  The
markets we operate in are subject to rapid advances in technology, continuously
evolving industry standards and regulatory requirements, and ever-shifting
customer requirements. The M2M wireless data communications field, in
particular, is currently undergoing profound and rapid technological change. For
example, cellular carriers that we rely upon in delivering our network services
began dismantling their analog-based cellular networks in 2008. While we were
largely successful in managing that risk and transitioning our existing customer
base to the digital standard,  the introduction of unanticipated new
technologies by carriers, or the development of unanticipated new end use
applications by our customers, could render our current solutions obsolete. In
that regard, we must discern current trends and anticipate an uncertain future.
We must engage in product development efforts in advance of events that we
cannot be sure will happen and time our production cycles and marketing
activities accordingly. If our projections are incorrect, or if our product
development efforts are not properly directed and timed, or if the demands of
the marketplace shift in directions that we failed to anticipate, we may lose
market share and revenues as a result. To remain competitive, we continue to
support research and development efforts intended to bring new products to the
markets that we serve. However, those efforts are capital intensive. If we are
unable to adequately fund our research and development efforts, we may not be
successful in keeping our product line current with advances in technology and
evolving customer requirements. Even with adequate funding, our development
efforts may not yield any appreciable short-term results and may never result in
products that produce revenues over and above our cumulative development costs
or that gain traction in the marketplace, causing us to either lose market share
or fail to increase and forego increased sales and revenues as a
result.
  
  Failure
of our new products and services to gain market acceptance would adversely
affect our financial condition.
  
  Over the
past several years, among many initiatives, we have introduced a system enabling
alarm signals to be transmitted digitally over the cellular network to central
monitoring stations; a cellular and GPS-based vehicle tracking solution;
satellite-based asset monitoring and tracking solutions; a multimedia
videoconferencing solution, enhanced “back end” services; and, most recently,
with our acquisition of uBlip, Inc., enhanced application development
capabilities. If these products and services, or any of our other existing
products and services, do not perform as expected, or if our sales are less than
expected, our business may be adversely affected.
  
   19
  If
we are unable to provide our suppliers with accurate forecasts of our product
needs, margins could be adversely affected.
  
  We are
contractually obligated to provide our suppliers with forecasts of our demand
for manufactured products. Specific terms and conditions vary by contract,
however, if our forecasts do not result in the production of a quantity of units
sufficient to meet demand we may be subject to contractual penalties under some
of our contracts with our customers. By contrast, overproduction of units based
on forecasts that that overestimate demand could result in an accumulation of
excess inventory that, under some of our contracts with our customers, would
have to be managed at our expense thus adversely impacting our margins. Excess
inventory that becomes obsolete or that we are otherwise unable to sell would
also be subject to write-offs resulting in adverse affects on our
margins.
  
  The
loss of one or just a few of our significant customers could negatively impact
our revenues.
  In 2008,
a single customer, General Electric, accounted for approximately 22% of our
annual revenues and it is possible that such customer’s purchases in 2009 will
account for 10% or more of our anticipated revenues for 2009. The loss of such a
customer could have a material adverse affect on our revenues, operating income
and net earnings.
  
  We
may experience long sales cycles for our products, as a result of a variety of
factors.
  
  Certain
of our product offerings, for example our satellite-based asset tracking
solutions, are subject to long sales cycles in view of the need for testing of
our products in combination with our customers’ applications and third parties’
technologies, the need for regulatory approvals and export clearances, and the
need to resolve other complex operational and technical issues. In the
government contracting arena in particular, longer sales cycles are reflective
of the fact that government contracts can take months or longer to progress from
a “request for proposal” to a finalized contract document pursuant to which we
are able to sell a finished product or service. Terms and conditions of sale
unique to the government sector may also affect when we are able to recognize
revenues. For that reason, quarter-over-quarter comparisons of our financial
results may not always be meaningful.
  
  We
are dependent on a number of network service providers, manufacturers and
suppliers of our products and product components, the loss of any one of which
could adversely impact our ability to service or supply our
customers.
  
  The loss
or disruption of key telecommunications infrastructure services and key wireless
network services supplied to the Company would unfavorably impact our ability to
adequately service our customers. Our long-term success depends on our ability
to operate, manage, and maintain a reliable and cost effective network, as well
as our ability to keep pace with changes in technology. Furthermore, our network
operations are dependent on third parties. If we experience technical or
logistical impediments to our ability to transfer traffic onto our network, fail
to generate additional traffic on our network, or if we experience difficulties
with our third party providers, we may not achieve our revenue goals or
otherwise be successful in growing our business.
  
   20
  We
outsource the manufacturing of our products to independent companies and do not
have internal manufacturing capabilities to meet the demands of our customers.
Any delay, interruption, or termination of the manufacture of our products could
harm our ability to provide our products to our customers and, consequently,
could have a material adverse effect on our business and operations. The
manufacture of our products requires specialized know-how and capabilities
possessed by a limited number of enterprises. Consequently, we are reliant on
just a few suppliers for the manufacture of key products and product components.
If a key supplier experiences production problems or financial difficulties, we
may not be able to obtain enough units to meet demand, which could result in
failure to meet our contractual commitments to our customers, further causing us
to lose sales and generate less revenue. If any of our products or product
components contain significant manufacturing defects that the existing
manufacturer or supplier is unable to resolve, we could also have difficulty
locating a suitable alternative manufacturer or supplier. Related efforts to
design replacement products or product components could also take longer and
prove costlier than planned, resulting in a material adverse impact on our
financial condition and operating results.
  
  A
significant portion of our future revenue will be derived from contracts with
the U.S. government or U.S. government agencies.  These agreements are
subject to uncertain future funding and possible termination.
  
  Historically,
a significant portion of our Satellite division revenues have been derived from
sales made indirectly as a subcontractor to another government contractor,
referred to as the prime contractor, who has the direct relationship with the
U.S. government or US government agencies.  If the prime contractor
loses existing business on which we serve as a subcontractor, or fail to win the
competitive bids on which we team with them, our government business would be
hurt.    Additionally, our Satellite division has Federal
Supply Schedule with the General Services Administration.  It is the
general practice of government agencies to renegotiate contracts with commercial
companies, such as our Satellite division, upon expiration.  Although
we are continuing negotiations with the GSA, these negotiations may not result
in a new contract.  Sales to U.S. government customers may continue
through resellers or under direct contracts with specific agencies; however, the
revenue resulting from these arrangements may be less than past revenues under
the GSA schedule contract, and sales through resellers may generate reduced
margins.
  
  The
funding of U.S. government programs is uncertain and dependent on continued
congressional appropriations and administrative allotment of funds based on an
annual budgeting process.  We cannot assure you that current levels of
congressional funding for our Satellite division’s products and services will
continue.  Furthermore, all of our contracts with the U.S. government
are terminable by the U.S. government (or, in certain circumstances, by us)
at will.  A significant decline in government expenditures generally,
or with respect to programs for which we provide products, could adversely
affect our business and prospects.  Our operating results may
also be negatively affected by other developments that affect these government
programs generally, including the following:
  
 ·  changes
in government programs that are related to our products and
services;
 
 ·  adoption
of new laws or regulations relating to government contracting or changes to
existing laws or regulations;
 
 ·  changes
in political or public support for programs;
 
 ·  delays or
changes in the government appropriations process; and
 
 ·  delays in
the payment of invoices by government payment offices and the prime
contractors.
 
 These
developments and other factors could cause governmental agencies to reduce their
purchases under existing contracts, to exercise their rights to terminate
contracts at-will or to abstain from renewing contracts, any of which would
cause our revenue to decline and could otherwise harm our business, financial
condition and results of operations.
  21
  Agreements
with government agencies may lead to claims against us under the Federal False
Claims Act. These claims could result in substantial fines and other
penalties.
 
 Our
agreement with the U.S. Government is subject to substantial financial penalties
under the Civil Monetary Penalties Act and the False Claims Act and, in
particular, actions under the False Claims Act’s “whistleblower”
provisions.  Private enforcement of fraud claims against businesses on
behalf of the U.S. Government has increased due in large part to amendments to
the False Claims Act that encourage private individuals to sue on behalf of the
government.  These whistleblower suits by private individuals, known
as qui tam actions, may be filed by almost anyone, including present and former
employees. The False Claims Act statute provides for treble damages and up to
$11,000 per claim on the basis of the alleged claims. Prosecutions,
investigations or qui tam actions could have a material adverse effect on our
liquidity, financial condition and results of operations. Finally, various state
false claim and anti-kickback laws also may apply to us. Violation of any of the
foregoing statutes can result in criminal and/or civil penalties that could have
a material adverse effect our business.
 
 Federal
government contracts contain provisions that are unfavorable to us.
 
 Federal
government contracts contain provisions, and are subject to laws and
regulations, that give the government rights and remedies not typically found in
commercial contracts. These provisions may allow the government to
   •
              
              Terminate
      existing contracts for convenience, as well as for
  default,
   •
              
              Reduce
      or modify contracts or
subcontracts,
   •
              
              Cancel
      multi-year contracts and related orders if funds for contract performance
      for any subsequent year become
unavailable,
   •
              
              Decline
      to exercise an option to renew a multi-year
  contract,
   •
              
              Claim
      rights in products and systems produced by
us,
   •
              
              Suspend
      or debar us from doing business with the federal government or with a
      governmental agency, and
   •
              
              Control
      or prohibit the export of our
products.
 
  If the
government terminates a contract for convenience, we may recover only our
incurred or committed costs, settlement expenses and profit on work completed
prior to the termination. If the government terminates a contract for default,
we may not recover even those amounts, and instead may be liable for excess
costs incurred by the government in procuring undelivered items and services
from another source. We may experience performance issues on some of our
contracts. We may receive show cause or cure notices under contracts that, if
not addressed to the government’s satisfaction, could give the government the
right to terminate those contracts for default or to cease procuring our
services under those contracts in the future.
  
   22
  We
may lose customers if we experience system failures that significantly disrupt
the availability and quality of the service our network provides.
  
  The
operation of our network depends on our ability to avoid or limit any
interruptions in service to our customers. Interruptions in service or
performance problems, for whatever reason, could undermine confidence in our
services and cause us to lose customers or make it more difficult to attract new
customers. In addition, because most of our customers are businesses, any
significant interruption in service could result in lost profits or other losses
to our customers. Although we attempt to disclaim or limit liability in our
agreements with these customers, a court may not enforce a limitation on
liability, which could expose us to losses.
  
  The
failure of any equipment on our network, or that of a customer’s or end user’s
equipment, could result in the interruption of service until necessary repairs
are made or replacement equipment is installed. Network failures, delays, and
errors may result from natural disasters, power losses, security breaches,
viruses or terrorist acts. These failures or faults cause delays, service
interruptions, expose us to customer liability, or require expensive
modifications that could have a material adverse effect on our business and
operating results.
  
  We
may have difficulty identifying the source of a problem in our
network.
  
  If a
problem occurs on our network, it may be difficult to identify the source of the
problem due to the overlay of our network with cellular, and/or satellite
networks and our network’s reliance on those other networks. The occurrence of
hardware or software errors, regardless of whether such errors are caused by our
products or our network, may result in the delay or loss of market acceptance of
our products and services, and any necessary revisions may result in significant
and additional expenses. The occurrence of some of these types of problems may
seriously harm our business, financial condition, or operations. Given our
dependence on cellular, and satellite telecommunications service providers,
risks specific or unique to their technologies, i.e., the loss or malfunction of
a satellite or satellite ground station, should also be viewed as having the
potential to impair our ability to provide services.
  
  A
natural disaster or other weather events could diminish our ability to provide
service; our revenues may be impacted by weather patterns.
  
  Although
our internal platform is very robust and supported by redundant systems, natural
disasters including, without limitation, hurricanes, tornadoes, earthquakes, or
solar flares could damage or destroy our facilities resulting in a disruption of
service to our customers. If a future natural disaster impairs or destroys any
of our facilities, we may be unable to provide service to our customers in the
affected area for a period of time. In addition, even if our facilities are not
affected by natural disasters, our service could be disrupted if a natural
disaster damages the third party cellular or satellite networks we are
interconnected with. Further, in the event of an emergency, the
telecommunications networks that we rely upon may become capacity constrained or
preempted by governmental authorities.
  
  With
respect to our satellite-based asset tracking unit in particular, sales may be
influenced by weather patterns. For example, if government agencies and
emergency responders anticipate a relatively “mild” storm season, they buy fewer
of our units for deployment in support of disaster response
operations.
  
   23
  The
loss of a few key technical personnel could have an adverse affect on us in the
short-term.
  
  We rely
on a relatively small number of technical personnel who play key roles in
maintaining the back-end technology and systems that enable us to provide
network services to our customers and that is also central to our product
development efforts. The loss of some staff could result, temporarily, in
shortfalls in the knowledge base of our remaining technical staff concerning
existing products and products that are under development.
  
  We
may require additional capital to fund further development, and our competitive
position could decline if we are unable to obtain additional capital, or access
the credit markets.
  
  To
address our long-term capital needs, we intend to continue to pursue strategic
relationships that would provide resources for the further development of our
product candidates. There can be no assurance, however, that these discussions
will result in relationships or additional funding. In addition, we may continue
to seek capital through the public or private sale of securities, if market
conditions are favorable for doing so. If we are successful in raising
additional funds through the issuance of equity securities, stockholders will
likely experience dilution, or the equity securities may have rights,
preferences, or privileges senior to those of the holders of our common stock.
If we raise funds through the issuance of debt securities, those securities
would have rights, preferences, and privileges senior to those of our common
stock.
  
  The
current credit environment has negatively affected the economy, and we have
considered how it could affect our business.  Events affecting credit
market liquidity could increase borrowing costs or limit availability of
funds.  If we are not successful in obtaining sufficient capital
because we are unable to access the capital markets at financially economical
interest rates, it could reduce our product development efforts and may
materially adversely affect our future growth, results of operations and
financial results, and we may be required to curtail significantly, or eliminate
at least temporarily, one or more of our research and development programs
involving new products and technologies.
  
  Sales
of common stock issuable on the exercise of warrants may dilute the value
of our common stock.
  
  In 2006
we entered into a $10 million financing agreement with the Laurus Master Fund,
Ltd ("Laurus").  The net proceeds from the transaction fund strategic
initiatives that may include joint ventures, co- marketing programs, and
acquisitions. The financing provided is a $10 million Convertible Note with a
term of four years and a fixed interest rate of 9.5%.  It is secured
by the assets of Numerex. Pursuant to the transaction, we issued
warrants to Laurus to purchase a total of 158,562 Numerex shares of our
common stock at a price per share of $10.13. Both principal and
interest on the Note are payable in cash or, subject to certain
conditions, in shares of our common stock. Principal reductions
in equal amounts began in July 2007 and will continue until the
final payment is made in December 2010. If payments are made in common
stock, the amount of principal and interest repaid will be converted into equity
at the fixed conversion price of $10.37, a 10% premium over the average NASDAQ
closing prices for the past ten trading days. (We have a put right to
convert the Note into equity in tranches not to exceed $2.5 million, should
the market price of the common stock exceed $11.40 or 110% of the fixed
conversion price for twelve consecutive trading days.) As of December 31,
2008, Laurus has not exercised any warrants.
  
  The
issuance of shares of common stock issuable upon the exercise of options or
warrants could result in dilution of our common stock. It also
could adversely affect the terms on which we may be able
to obtain equity financing in the future.
  
   24
  The
structure of our company limits the voting power of our stockholders and certain
factors may inhibit changes in control of our company.
  
  The
concentration of ownership of our common stock may have the effect of delaying,
deferring, or preventing a change in control, merger, consolidation, or tender
offer that could involve a premium over the price of our common stock.
Currently, our executive officers, directors and greater-than-five percent
stockholders and their affiliates, in the aggregate, beneficially own
approximately 54% of our outstanding common stock. These stockholders, if they
vote together, are able to exercise significant influence over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions and matters. The interests of these
stockholders may be different than those of our unaffiliated stockholders and
our unaffiliated stockholders may be dissatisfied with the outcome of votes that
may be controlled by our affiliated stockholders.
  
  Our
articles of incorporation generally limit holdings by persons of our common
stock to no more than 10% without prior approval by our Board. Except as
otherwise permitted by the Board, no stockholder has the right to cast more than
10% of the total votes regardless of the number of shares of common stock owned.
In addition, if a person acquires holdings in excess of this ownership limit,
our Board may terminate all voting rights of the person during the time that the
ownership limit is violated, bring a lawsuit against the person seeking
divestiture of amounts in excess of the limit, or take other actions as the
Board deems appropriate. Our articles of incorporation also have a procedure
that gives us the right to purchase shares of common stock held in excess of the
ownership limit.  In addition, our articles of incorporation permit
our Board to authorize the issuance of preferred stock without stockholder
approval. Any future series of preferred stock may have voting provisions that
could delay or prevent a change in control or other transaction that might
involve a premium price or otherwise be in the best interests of our common
stockholders.
  
  The
Company is subject to risks associated with laws, regulations and
industry-imposed standards related to mobile communications
devices.
  
  Laws and
regulations related to mobile communications devices in the many jurisdictions
in which the Company operates are extensive and subject to change. Such changes,
which could include but are not limited to restrictions on production,
manufacture, distribution, and use of mobile devices, locking the devices to a
carrier’s network, or mandating the use of the device on more than one carrier’s
network, could have a material adverse effect on our financial condition and
operating results.  Mobile communication devices we sell are subject
to certification and regulation by governmental and standardization bodies, as
well as by cellular network carriers for use on their networks. These
certification processes are extensive and time consuming, and could result in
additional testing requirements, product modifications or delays in product
shipment dates, which could have a material adverse effect on our financial
condition and operating results.
  
  Our
expansion into government markets subjects us to increased regulation. We must
comply with a complex set of rules and regulations applicable to government
contractors. Failure to comply with an applicable rule or regulation could
result in our suspension of doing business with the government or cause us to
incur substantial penalties.
  
  Many of
the ultimate consumers of our PowerPlay hardware and services are elementary and
secondary schools that pay for their purchases with funding that they receive
through the Schools and Libraries Program (commonly known as the “E-Rate
Program”)  of the Universal Service Fund, which is administered by the
Universal Service Administrative Company (USAC) under the direction of the FCC.
Changes in this program could affect demand for our PowerPlay hardware and
services.
  
   25
  We may be
subject to telecommunications taxes, surcharges, and fees, and changes in these
could affect our results of operations. And, as we expand beyond the
“business-to-business” market and begin providing some services directly to end
user consumers, some of our sales could become subject to federal and state
level consumer protection laws and other regulations that could prompt adverse
legal action in the event of an alleged violation of those laws.
  
  We
operate internationally, which subjects us to international regulation and
business uncertainties that create additional risk for us.
  
  We are
doing business in Australia, Canada, China, and Mexico., and are expanding into
additional countries in Latin America, Europe, the Middle East, and Asia.
Accordingly, we are subject to additional risks, such as
 
 ·  a
prolonged, international economic downturn,
 ·  export
control requirements, including restrictions on the export of critical
technology,
 ·  restrictions
imposed by local laws and regulations;
 ·  restrictions
imposed by local product certification requirements;
 ·  currency
exchange rate fluctuations,
 ·  generally
longer receivable collection periods and difficulty in collecting accounts
receivable,
 ·  trade
restrictions and changes in tariffs,
 ·  difficulties
in staffing and managing international operations, and
 ·  potential
insolvency of international dealers and distributors.
 
 Our
products and services experience quality problems from time to time that can
result in decreased sales and operating margin.
 
 Our
products and services, and the applications they support, are complex. While we
test our products, they may still have errors, defects, or bugs that we find
only after commercial production has begun. In the past, we have experienced
errors, defects, and bugs in connection with new products. Our customers may not
purchase our products if the products have reliability, quality, or
compatibility problems. Furthermore, product errors, defects, or bugs could
result in additional development costs, diversion of resources from our other
development efforts, claims by our customers or others against us, or the loss
of credibility with our current and prospective customers. Historically, the
time required for us to correct defects has caused delays in product shipments
and resulted in lower than expected revenues. Significant capital and resources
may be required to address and fix problems in new products. Failure to do so
could result in lost revenue, harm to reputation, and significant warranty and
other expenses, and could have a material adverse impact on our financial
condition and operating results.
 
 
  26
  The
loss of intellectual property protection both U.S. and international, could have
a material adverse effect on our operations.
 
 Our
future success and competitive position depend upon our ability to obtain and
maintain intellectual property protection, especially with regard to our core
business. We cannot be sure that steps taken by us to protect our technology
will prevent misappropriation of the technology. Our services are highly
dependent upon our technology and the scope and limitations of our proprietary
rights therein. If our assertion of proprietary rights is held to be invalid, or
if another party’s use of our technology were to occur to any substantial
degree, our business, financial condition and results of operations could be
materially adversely affected. In order to protect our technology, we rely on a
combination of patents, copyrights, and trade secret laws, as well as certain
customer licensing agreements, employee and customer confidentiality and
non-disclosure agreements, and other similar arrangements. Loss of such
protection could compromise any advantage obtained and, therefore, impact our
sales, market share, and results. To the extent that our licensees develop
inventions or processes independently that may be applicable to our products,
disputes may arise as to the ownership of the proprietary rights to this
information. These inventions or processes will not necessarily become our
property, but may remain the property of these persons or their full-time
employers. We could be required to make payments to the owners of these
inventions or processes, in the form of either cash or equity, or a combination
of both. Furthermore, our future or pending patent applications may not be
issued with the scope of the claims sought by us, if at all. In addition, others
may develop technologies that are similar or superior to our technology,
duplicate our technology or design around the patents owned or licensed by us.
Effective patent, trademark, copyright, and trade secret protection may be
unavailable or limited in foreign countries where we may need
protection.
 
 We
rely on access to third-party patents and intellectual property, and our future
results could be materially adversely affected if we are unable to secure such
access in the future.
 
 Many of
our products are designed to include third-party intellectual property, and in
the future we may need to seek or renew licenses relating to various aspects of
its products and business methods. Although we believe that, based on past
experience and industry practice, such licenses generally could be obtained on
reasonable terms, there is no assurance that the necessary licenses would be
available on acceptable terms or at all. Some licenses we obtain may be
nonexclusive and, therefore, our competitors may have access to the same
technology licensed to us. If we fail to obtain a required license or are unable
to design around a patent, we may be unable to sell some of our products, and
there can be no assurance that we would be able to design and incorporate
alternative technologies, without a material adverse effect on our business,
financial condition, and results of operations.
 
 Our
competitors may obtain patents that could restrict our ability to offer our
products and services, or subject us to additional costs, which could impede our
ability to offer our products and services and otherwise adversely affect us. We
may, from time to time, also be subject to litigation over intellectual property
rights or other commercial issues.
 
 Several
of our competitors have obtained and can be expected to obtain patents that
cover products or services directly or indirectly related to those offered by
us. There can be no assurance that we are aware of all patents containing claims
that may pose a risk of infringement by its products or services. In addition,
patent applications in the United States are confidential until a patent is
issued and, accordingly, we cannot evaluate the extent to which our products or
services may infringe on future patent rights held by others.
 
 Even with
technology that we develop independently, a third party may claim that we are
using inventions claimed by their patents and may go to court to stop us from
engaging in our normal operations and activities, such as research and
development and the sale of any of our products or services. Furthermore,
because of technological changes in the M2M industry, current extensive patent
coverage, and the rapid issuance of new patents, it is possible that certain
components of our products and business methods may unknowingly infringe the
patents or other intellectual property rights of third parties. From time to
time, we have been notified that we may be infringing such rights.
 
  27
  In the
highly competitive and technology-dependent telecommunications field in
particular, litigation over intellectual property rights is significant business
risk, and some entities are pursuing a litigation strategy the goal of which is
to monetize otherwise unutilized intellectual property portfolios via licensing
arrangements entered into under threat of continued litigation. Regardless of
merit, responding to such litigation can consume significant time and expense.
In certain cases, we may consider the desirability of entering into licensing
agreements, although no assurance can be given that such licenses can be
obtained on acceptable terms or that litigation will not occur. If we are found
to be infringing such rights, we may be required to pay substantial damages. If
there is a temporary or permanent injunction prohibiting us from marketing or
selling certain products or a successful claim of infringement against us
requires us to pay royalties to a third party, our financial condition and
operating results could be materially adversely affected, regardless of whether
we can develop non-infringing technology. While in management’s opinion we do
not have a potential liability for damages or royalties from any known current
legal proceedings or claims related to the infringement of patent or other
intellectual property rights that would individually or in the aggregate have a
material adverse effect on its financial condition and operating results, the
results of such legal proceedings cannot be predicted with certainty. Should we
fail to prevail in any of the matters related to infringement of patent or other
intellectual property rights of others or should several of these matters be
resolved against us in the same reporting period, our financial condition and
operating results could be materially adversely affected.
 
 Unfavorable
results of legal proceedings could materially adversely affect us.
 
 We are
subject to various legal proceedings and claims that have arisen out of the
ordinary conduct of its business and are not yet resolved and additional claims
may arise in the future. Results of legal proceedings cannot be predicted with
certainty. Regardless of its merit, litigation may be both time-consuming and
disruptive to our operations and cause significant expense and diversion of
management attention. In recognition of these considerations, we may enter into
material settlements. Should we fail to prevail in certain matters, or should
several of these matters be resolved against us in the same reporting period,
we  may be faced with significant monetary damages or injunctive
relief against us that would materially adversely affect a portion of our
business and might materially affect our financial condition and operating
results.
 
 
  Item
1B.  Unresolved Staff Comments.
  
  None.
  
  Item
2.  Properties.
  
  All of
our facilities are leased.  Set forth below is certain information
with respect to our leased facilities:
  
  Location
              Principal Business
              Square Footage
              Lease TermAtlanta,
      Georgia
              Wireless
      M2M Data Communications and Principal Executive Office
              31,526
              2012Warminster,
      Pennsylvania
              Wireless
      M2M Data Communications
              18,000
              2011Bozeman,
      Montana
              Wireless
      M2M Data Communications
              5,060
              2012State
      College, Pennsylvania
              Digital
      Multimedia
              10,788
              Month
      to MonthAddison,
      Texas
              Wireless
      Data Communications
              7,731
              2010
 
     28
  We
conduct engineering, sales and marketing, and administrative activities at many
of these locations.We believe that our
existing facilities are adequate for our current needs. As we grow and expand
into new markets and develop additional hardware, we may require additional
space, which we believe will be available at reasonable rates.
  
  We engage
in limited manufacturing, equipment and hardware assembly and testing for
certain hardware. We also use contract manufacturers for production,
sub-assembly and final assembly of certain hardware.  We believe there
are other manufacturers that could perform this work on comparable
terms.
  
  Item
3.  Legal Proceedings.
  
  On
January 7, 2008 Orbit One Communications, Inc. (“Orbit One”) and David Ronsen
(“Ronsen”) filed an action against Numerex in New York State Supreme Court,
County of New York, alleging,inter alia,breach of contract in frustrating Orbit One’s ability to
achieve earn out targets in the acquisition and employment agreements.
Plaintiffs are claiming $20 million in damages.  On January 25, 2008
Numerex removed the action to the United States District Court, Southern
District of New York.  On March 11, 2008 Numerex answered and
counterclaimed asserting, inter alia, breach of
fiduciary duty and declaratory relief.  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.  Numerex believes that the plaintiffs'
claims in each of the related actions are without merit and intends to defend
against the allegations and to vigorously pursue its
counterclaims.
  
  Item
4.  Submission of Matters to a Vote of Security Holders.
  
  None.
    
   29
  PART
II
  
  Item
5.  Market for the Registrant's Common Stock and Related Shareholder
Matters.
  
  The
Company’s Common Stock trades publicly on the NASDAQ Global Market System under
the symbol NMRX.
  
  The
following table sets forth, for the fiscal quarters indicated, the high and low
sales prices per share for the Common Stock on the NASDAQ Global Market for the
applicable periods.
  
  
  Fiscal 2008
              
              High
              
              
              LowFirst
      Quarter (January 1, 2008 to March 31, 2008)
              
              $
              8.75
              
              
              $
              6.01Second
      Quarter (April 1, 2008 to June 30, 2008)
              
              
              8.45
              
              
              
              6.51Third
      Quarter (July 1, 2008 to September 30, 2008)
              
              
              7.15
              
              
              
              2.80Fourth
      Quarter (October 1, 2008 to December 31, 2008)
              
              
              5.10
              
              
              
              2.29Fiscal 2007
              
              High
              
              
              LowFirst
      Quarter (January 1, 2007 to March 31, 2007)
              
              $
              11.90
              
              
              $
              9.02Second
      Quarter (April 1, 2007 to June 30, 2007)
              
              
              12.44
              
              
              
              9.72Third
      Quarter (July 1, 2007 to September 30, 2007)
              
              
              11.75
              
              
              
              7.30Fourth
      Quarter (October 1, 2007 to December 31, 2007)
              
              
              9.05
              
              
              
              7.26
   On March
4, 2009, the last reported sale price of our Class A common stock on The NASDAQ
Global Market was $2.07 per share.
  
  As of
March 4, 2009, there were 64 holders of record of our Common Stock,
approximately 10 beneficial shareholders and  14,168,716 shares of
Common Stock outstanding.  Because many of the shares of our common
stock are held by brokers and other institutions on behalf of stockholders, we
are unable to estimate the total number of stockholders represented by these
record holders.
  
  Dividend
Policy
    We
currently do not pay any cash dividends.  In deciding whether or not
to declare or pay dividends in the future, the Board of Directors will consider
all relevant factors, including our earnings, financial condition and working
capital, capital expenditure requirements, any restrictions contained in loan
agreements and market factors and conditions.  We have no plans now or
in the foreseeable future to declare or pay cash dividends on our common
stock.
     30
  Performance
Graph
    The
information included under the heading "Performance Graph" in this Item 5 of
this Annual Report on Form 10-K is "furnished" and not "filed" and shall not be
deemed to be "soliciting material" or subject to Regulation 14A or 14C, nor
shall it be deemed "filed" for purposes of Section 18 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference in
any filing under the Securities Act of 1933, as amended, or the Exchange Act,
except to the extent that we specifically incorporate it by reference into any
such filing.
    The
following graph shows a comparison of the cumulative total return for Common
Stock, the NASDAQ Composite Index and the NASDAQ Telecomm Index, assuming
(i) an investment of $100 in each, on December 31, 2003, the last
trading day before the beginning of the Company’s five preceding years, and,
(ii) in the case of the Indices, the reinvestment of all
dividends.
  
  
  
  
  
  SHAREHOLDER
      VALUE AT YEAR END2003
              
              
              2004
              
              
              2005
              
              
              2006
              
              
              2007
              
              
              2008NMRX
              
              
              100.00
              
              
              
              123.68
              
              
              
              124.47
              
              
              
              247.89
              
              
              
              217.11
              
              
              
              95.79NASDAQ
      US Index
              
              
              100.00
              
              
              
              108.59
              
              
              
              110.08
              
              
              
              120.57
              
              
              
              132.40
              
              
              
              78.73NASDAQ
      Telecom Index
              
              
              100.00
              
              
              
              108.00
              
              
              
              100.21
              
              
              
              128.03
              
              
              
              139.77
              
              
              
              79.69
 
  
  
  
     31
  Item
6.  Selected Consolidated Financial Data.
  
  The
following selected financial data should be read in conjunction with the
consolidated financial statements and the notes contained in “Item
8.  Financial Statements and Supplementary Data” and the information
contained in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.”  Historical results are not
necessarily indicative of future results.
  
  The
following financial information was derived using the consolidated financial
statements of Numerex Corp.  The table lists historical financial data
of the Company for the fiscal years ended December 31, 2008, 2007, 2006,
2005 and 2004.
  
  
  (in
      thousands)
              
              December
      31, 2008
              
              
              December
      31, 2007
              
              
              December
      31, 2006
              
              
              December
      31, 2005
              
              
              December
      31, 2004
              
              
              December
      31, 2003Statement
      of Operations DataRevenues
              
              $
              72,319
              
              
              $
              68,004
              
              
              $
              52,788
              
              
              $
              29,946
              
              
              $
              22,993
              
              
              $
              20,157Gross
      profit
              
              
              25,420
              
              
              
              23,408
              
              
              
              18,922
              
              
              
              12,717
              
              
              
              10,039
              
              
              
              9,029Goodwill
      and long-lived asset impairment
              
              
              5,289
              
              
              
              -
              
              
              
              2,140
              
              
              
              -
              
              
              
              -
              
              
              
              -Operating
      income (loss)
              
              
              (6,389
              )
              
              
              2,500
              
              
              
              1,674
              
              
              
              961
              
              
              
              (1,631
              )
              
              
              (2,726
              )Provision
      (benefit) for income taxes
              
              
              3,047
              
              
              
              728
              
              
              
              (2,950
              )
              
              
              52
              
              
              
              9Net
      income (loss)
              
              
              (10,975
              )
              
              
              440
              
              
              
              4,103
              
              
              
              593
              
              
              
              (2,079
              )
              
              
              (1,404
              )Earnings
      (loss) per common share (diluted)
              
              
              (0.78
              )
              
              
              0.03
              
              
              
              0.32
              
              
              
              0.05
              
              
              
              (0.19
              )
              
              
              (0.13
              )Balance
      Sheet DataCash,
      cash equivalents and short term investments
              
              $
              8,917
              
              
              $
              7,382
              
              
              $
              20,384
              
              
              $
              4,359
              
              
              $
              1,684
              
              
              $
              734Total
      Assets
              
              
              62,506
              
              
              
              74,098
              
              
              
              66,394
              
              
              
              36,348
              
              
              
              32,612
              
              
              
              33,970Total
      debt and obligations under capital leases (short and long term) and other
      long-term liabilities
              
              
              10,746
              
              
              
              10,683
              
              
              
              14,337
              
              
              
              1,326
              
              
              
              3,848
              
              
              
              3,782Shareholders'
      equity
              
              
              40,392
              
              
              
              46,865
              
              
              
              41,420
              
              
              
              27,729
              
              
              
              23,652
              
              
              
              25,366Cash
      Flow DataNet
      cash provided by (used in) operations
              
              $
              8,359
              
              
              $
              (3,304
              )
              
              $
              2,663
              
              
              $
              3,277
              
              
              $
              1,520
              
              
              $
              706
 
   32
  Item
7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations.
  
  Overview
  
  We are
a machine-to-machine data communications, technology and solutions
business.  We combine our network services, hardware and applications
development capabilities to create packaged and custom designed
machine-to-machine solutions for customers across multiple market
segments.
  
  Fiscal
year 2008 represented an improvement in revenues over 2007 and
2006.  Full year revenues of $72.3 million increased $4.3 million, or
6.3%, from 2007.  This increase was primarily the result of growth in
our Wireless M2M Data Communications business units due to demand for our
network services.
  
  Gross
margins for 2008 were 35.1% compared with 34.4% in 2007.  Gross
margins were favorably affected by an increase in service revenues, which
typically earn a higher gross margin than those achieved by hardware
sales.
  
  Fiscal
year 2008 overhead, which includes selling, general and administrative
(SG&A) costs, as well as research and development expenses and bad debt
costs, collectively were $31.8 million or $10.9 million higher than
2007.  The increase was primarily related to our acquisition of the
assets of Orbit One Communications, Inc. in late 2007, which increased overhead
by approximately $3.3 million, an increase in professional fees related to
litigation and impairment of goodwill and long-lived assets of $5.3
million.
  
  Although
revenues continued to grow for the year ended December 31, 2008, our growth
rates were slowed by the impact of  the economic downturn, which we
expect may continue to adversely affect our revenues.
  
  The
following is a discussion of our consolidated financial condition and results of
operations for the fiscal years ended December 31, 2008, 2007 and
2006.  This discussion should be read in conjunction with our
consolidated financial statements, the related notes thereto, and other
financial information included elsewhere in this report.
  
  Critical
Accounting Policies
  
  Note A of
the Notes to the Consolidated Financial Statements includes a summary of the
significant accounting policies and methods used in the preparation of Numerex’s
Consolidated Financial Statements. The following is a brief discussion of the
more significant accounting policies and methods used.
  
  General
  
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenues and expenses
during the reporting periods. The most significant estimates and assumptions
relate to revenue recognition, accounts receivable and allowance for doubtful
accounts, inventories and the adequacy of reserves for excess and obsolete
inventories, accounting for income taxes and valuation of goodwill and other
intangible assets. Actual amounts could differ significantly from these
estimates.
  
   33
  Revenue
Recognition
  
  We
primarily sell hardware, recurring services (most billed on a monthly basis) and
on-demand services.   Hardware revenues are recognized at the
time title passes to the customer, which is at the time of
shipment.
  
  We bill
most of our recurring service revenues on a monthly basis, which are generated
by providing customers access to our wireless machine-to-machine communications
network (the Network).  We sell these services to retailers and
wholesalers of the service.  For services sold to retailers, monthly
service fees are generally a fixed monthly amount billed at the beginning of
each month.  For services sold to wholesalers, the customers are
billed a fixed base fee in advance and usage fees in arrears at the end of each
month.  We defer the advance billing of the base fee and recognize the
revenues when the services are performed.
  We also
provide services on a demand basis.  These types of services are
generally completed in a short period of time (usually less than one month) and
are billed and the revenue recognized when the services are completed.
  
  Some of
our customers prepay for services for up to a year in advance.  These
services include our satellite communication services, 24 hour a day access to
our internet based mapping software and other support services.  
Additionally, these prepaid services expire after a specified period of
time.  We defer these revenues until the services have been performed or,
for unused services, when the term expires.
    Accounts
Receivable
    Trade
receivables are stated at gross invoiced amount less discounts, other allowances
and provision for uncollectible accounts.
  
  Allowance
for Doubtful Accounts
  
  We
maintain an allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. Changes in the
financial condition of our customers could result in upward or downward
adjustments to the allowance for doubtful accounts.
  
  Inventories
and Reserves for Excess, Slow-Moving and Obsolete Inventory
  
  We value
our inventory at the lower of cost or market.  We continually evaluate
the composition of our inventory and identify, with estimates, potential future
excess, obsolete and slow-moving inventories. We specifically identify obsolete
hardware for reserve purposes and analyze historical usage, forecasted
production based on demand forecasts, current economic trends, and historical
write-offs when evaluating the adequacy of the reserve for excess and
slow-moving inventory. If we are not able to achieve our expectations of the net
realizable value of the inventory at its current carrying value, we adjust our
reserves accordingly.
  
   34
  Valuation
of Goodwill and Long-lived Assets
  
  We
perform an annual review of goodwill in accordance with the provisions of FASB
Statement No. 142, Goodwill
and Other Intangibles (“SFAS 142”), in our fourth fiscal quarter of each
year, or more frequently if indicators of a potential impairment exist, to
determine if the carrying amount of our recorded goodwill is impaired. For each
reporting unit, the impairment review process compares the fair value of each
reporting unit where goodwill resides with its carrying value. If the net book
value of the reporting unit exceeds the fair value, we would perform the second
step of the impairment test which requires the allocation of the reporting
unit’s fair value to all of its assets and liabilities in a manner similar to a
purchase price allocation, with any residual fair value being allocated to
goodwill. An impairment charge will be recognized only when the implied fair
value of a reporting unit’s goodwill is less than its carrying amount. We have
identified six reporting units, 4 of which have associated
goodwill.  The six reporting units are Wireless (which excludes
Airdesk, LLC and Orbit One LLC), Airdesk, LLC and Orbit One LLC, Digital
Multimedia, Networking Integration and Wireline Data
Communications.  The four reporting units with associated goodwill are
Wireless, Airdesk, LLC, Orbit One, LLC and Digital Multimedia.
  
  For our
2008 review, we used standard modeling techniques to estimate a fair market
value for each of the four reporting units containing goodwill.  This
included a combination of a discounted cash flow analysis and, where available,
the use of public company market comparables in similar
industries.  We used historical information, our 2009 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.
  
  In
accordance with FASB Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (“SFAS 144”), we
evaluate long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If impairment indicators are present, we determine whether the sum
of the estimated undiscounted cash flows expected to result from the use of the
asset and its eventual disposition are less than the asset’s carrying value. If
the sum is less, we recognize an impairment loss based on the excess of the
carrying amount of the asset over its respective fair value. The fair value is
estimated using discounted cash flows, appraisals, or other methods. The fair
value of the asset then becomes the asset’s new carrying value, which we
depreciate over the remaining estimated useful life of the asset.
  
  As a
result of our 2008 review, we recorded a pre-tax goodwill impairment of $4.0
million and a long-lived intangible asset impairment of $1.3 million. As a
result of our 2006 review, we recorded a pre-tax goodwill impairment of $2.1
million related to our Digital Multimedia reporting unit.
  
  Deferred
Tax Assets
  
  Estimates
and judgments are required in the calculation of certain tax liabilities and in
the determination of the recoverability of certain of the deferred tax assets,
which arise from net operating losses, tax credit carryforwards and temporary
differences between the tax and financial statement recognition of revenue and
expense. SFAS 109, "Accounting for Income Taxes", also requires that the
deferred tax assets be reduced by a valuation allowance, if based on the weight
of available evidence, it is more likely than not that some portion or all of
the recorded deferred tax assets will not be realized in future
periods.
  
   35
  In
evaluating the ability to recover the deferred tax assets, in full or in part,
management considers all available positive and negative evidence including past
operating results, the existence of cumulative losses in the most recent years
and the forecast of future taxable income on a jurisdiction by jurisdiction
basis. In determining future taxable income, management is responsible for the
assumptions utilized including the amount of state, federal and international
pre-tax operating income, the reversal of temporary differences and the
implementation of feasible and prudent tax planning strategies. These
assumptions require significant judgment about the forecasts of future taxable
income and are consistent with the plans and estimates management is using to
manage the underlying businesses. Actual operating results and the underlying
amount and category of income in future years could differ materially from our
current assumptions, judgments and estimates of recoverable net deferred
taxes.
  
  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, management established a full
valuation allowance against the net deferred tax assets, which will remain until
sufficient positive evidence exists to support reversal. The increase in the
valuation allowance resulted in net deferred tax expense of approximately
$2,766,000. 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.
    
   36
  Result
of Operations
  
  The
following table sets forth, for the periods indicated, certain revenue and
expense items and the percentage increases and decreases for those items in the
Company’s Consolidated Statements of Operations.
  
  For
      the years ended December 31,
              
              
              2008
      vs. 2007
              
              
              2007
      vs. 2006(in
      thousands, except per share amounts)
              
              2008
              
              
              2007
              
              
              2006
              
              
              %
      Change
              
              
              %
      ChangeNet
      sales:Wireless
      M2M Data CommunicationsHardware
              
              $
              40,197
              
              
              $
              41,661
              
              
              $
              32,383
              
              
              
              -3.5
              %
              
              
              28.7
              %Service
              
              
              25,952
              
              
              
              21,164
              
              
              
              13,938
              
              
              
              22.6
              %
              
              
              51.8
              %Sub-total
              
              
              66,149
              
              
              
              62,825
              
              
              
              46,321
              
              
              
              5.3
              %
              
              
              35.6
              %Digital
      Multimedia, Networking and
    Wireline   ServicesHardware
              
              
              2,851
              
              
              
              1,747
              
              
              
              2,142
              
              
              
              63.2
              %
              
              
              -18.4
              %Service
              
              
              3,319
              
              
              
              3,432
              
              
              
              4,325
              
              
              
              -3.3
              %
              
              
              -20.7
              %Sub-total
              
              
              6,170
              
              
              
              5,179
              
              
              
              6,467
              
              
              
              19.1
              %
              
              
              -19.9
              %Total
      net salesHardware
              
              
              43,048
              
              
              
              43,408
              
              
              
              34,525
              
              
              
              -0.8
              %
              
              
              25.7
              %Service
              
              
              29,271
              
              
              
              24,596
              
              
              
              18,263
              
              
              
              19.0
              %
              
              
              34.7
              %Total
      net sales
              
              
              72,319
              
              
              
              68,004
              
              
              
              52,788
              
              
              
              6.3
              %
              
              
              28.8
              %Cost
      of hardware sales
              
              
              37,469
              
              
              
              38,491
              
              
              
              27,967
              
              
              
              -2.7
              %
              
              
              37.6
              %Cost
      of services
              
              
              9,430
              
              
              
              6,106
              
              
              
              5,899
              
              
              
              54.4
              %
              
              
              3.5
              %Gross
      profit
              
              
              25,420
              
              
              
              23,407
              
              
              
              18,922
              
              
              
              8.6
              %
              
              
              23.7
              %Gross
      profit %
              
              
              35.1
              %
              
              
              34.4
              %
              
              
              35.8
              %Selling,
      general, and administrative expenses
              
              
              20,113
              
              
              
              16,320
              
              
              
              12,088
              
              
              
              23.2
              %
              
              
              35.0
              %Research
      and development expenses
              
              
              2,198
              
              
              
              1,459
              
              
              
              1,067
              
              
              
              50.7
              %
              
              
              36.7
              %Bad
      debt expense
              
              
              1,102
              
              
              
              635
              
              
              
              198
              
              
              
              73.4
              %
              
              
              220.9
              %Depreciation
      and amortization
              
              
              3,107
              
              
              
              2,493
              
              
              
              1,755
              
              
              
              24.2
              %
              
              
              42.1
              %Goodwill
      and long-lived asset impairment
              
              
              5,289
              
              
              
              -
              
              
              
              2,140
              
              
              nm
              
              
              nmOperating
      earnings (loss)
              
              
              (6,389
              )
              
              
              2,500
              
              
              
              1,674
              
              
              
              -355.6
              %
              
              
              49.3
              %Interest
      expense
              
              
              (1,665
              )
              
              
              (1,940
              )
              
              
              (904
              )
              
              
              -14.3
              %
              
              
              114.6
              %Interest
      income
              
              
              134
              
              
              
              575
              
              
              
              354
              
              
              
              -76.7
              %
              
              
              62.4
              %Other
      income and (expense), net
              
              
              (8
              )
              
              
              33
              
              
              
              31
              
              
              nm
              
              
              nmProvision
      (benefit) for income taxes
              
              
              3,047
              
              
              
              728
              
              
              
              (2,950
              )
              
              
              318.5
              %
              
              nmNet
      earnings (loss)
              
              $
              (10,975
              )
              
              $
              440
              
              
              $
              4,103
              
              
              
              -2,594.3
              %
              
              
              -89.3
              %Basic
      income (loss) per common share
              
              $
              (0.78
              )
              
              $
              0.03
              
              
              $
              0.33Diluted
      income (loss) per common share
              
              $
              (0.78
              )
              
              $
              0.03
              
              
              $
              0.32Basic
      weighted average common shares
              
              
              14,144
              
              
              
              13,137
              
              
              
              12,502Diluted
      weighted average common shares
              
              
              14,144
              
              
              
              13,700
              
              
              
              12,985
 
  See notes
to consolidated financial statements.
  
   37
  Fiscal
Years Ended December 31, 2008 and December 31, 2007
  
  Net
revenues increased 6.3% to $72.3 million for the year ended December 31, 2008,
as compared to $68.0 million for the year ended December 31,
2007.  The increase in total net revenues for the year ended December
31, 2008 is attributable to a 19.0% increase to $29.3 million in service
revenues as compared to $24.6 million for the year ended December 31,
2007.  The increase in service revenues is due primarily to the growth
of network connections and approximately $519,000 of revenue related to the
acquisitions of Orbit One, LLC and Ublip, LLC. Hardware sales for the year ended
December 31, 2008 remained relatively flat at $43.0 million.
  
  Cost of
hardware sales decreased 2.7% to $37.5 million for the year ended December 31,
2008 as compared to $38.5 million for the year ended December 31,
2007.  The decrease was primarily the result of reduced costs for our
Wireless M2M Communication hardware.
  
  Cost of
services increased 54.4% to $9.4 million for the year ended December 31, 2008 as
compared to $6.1 million for the year ended December 31, 2007.  The
increase in cost of services was primarily the result of higher service sales
volume in Wireless Data Communications attributed to an increase in connections
to our wireless M2M network.  The increase in connections was a direct
correlation to our increase in costs.
  
  Gross
profit, as a percentage of net revenue, was 35.1% for the year ended December
31, 2008 as compared to 34.4% for the year ended December 31,
2007.  The increase for 2008, as compared to 2007 is primarily a
result of a change in the overall revenue mix. In the twelve month period ended
December 31, 2007, service revenues were 36.2% of total revenues compared to
40.5% in the twelve month period ended December 31, 2008. This change drives an
overall margin improvement since service revenues have a significantly higher
gross margin than those achieved through the sale of hardware.
  
  Selling,
general, administrative and other expenses increased 23.2% to $20.1 million for
the year ended December 31, 2008, as compared to $16.3 million for the year
ended December 31, 2007.  As a percentage of revenue, selling,
general, administrative and other expenses increased to 27.8% for the year ended
December 31, 2008 as compared to 24.0% for the year ended December 31,
2007.  The increase of $3.8 million is primarily the result of higher
general and administrative expenses associated with litigation expenses related
to our satellite M2M unit ($2.3 million), higher personnel related costs ($1.1
million) and an increase in sales and marketing expenses
($400,000).
  
  Research
and development expenses increased 50.7% to $2.2 million for the year ended
December 31, 2008, as compared to $1.5 million for the year ended December 31,
2007.  The increase in research and development expenses is primarily
due to higher personnel related expenses.
  
  Bad debt
expense increased to $1.1 million for the year ended December 31, 2008, as
compared to $635,000 for the year ended December 31, 2007.  We analyze
accounts receivable and consider our historical bad debt experience, customer
credit-worthiness, current economic trends and changes in our customer payment
terms when evaluating the adequacy of the allowance for doubtful
accounts.  Bad debt expense increased over the prior year period as a
result of our identification of specific collection issues.
  
  Depreciation
and amortization expense increased 24.2% to $3.1 million for the year ended
December 31, 2008, as compared to $2.5 million for the year ended December 31,
2007.  This increase is attributable to amortization beginning on
research and development projects that have been completed and released, as well
as the purchase of depreciable computer and office equipment.
  
   38
  During
2008, we recorded a pre-tax, non-cash charge of $4.0 million for the impairment
of goodwill and a pre-tax, non-cash charge of $1.3 million for the impairment of
long-lived assets.
  
  Interest
expense decreased to $1.6 million in 2008, as compared to $1.9 million in
2007.  This decrease was the result of declining debt due to continued
payments.
  
  The
company recorded a tax provision of $3,047,000 for the year ended December 31,
2008, as compared to a tax provision of $728,000 for
the year ended December 31, 2007, representing effective tax rates
of (38.44)% and 65.74%, respectively. The difference between the
company's effective tax rate and the 34% federal statutory rate in the current
year resulted primarily from an increase in the Company's valuation allowance,
stock option expenses, impairment charges, state tax accruals, and uncertain tax
position expense. The Company's negative effective tax rate in 2008 of (38.44)%
can be attributed to the increase in the valuation allowance against net
deferred tax assets.
  The
weighted average basic shares outstanding increased to 14,144,000 for the year
ended December 31, 2008, as compared to 13,137,000 for the year ended December
31, 2007.  The increase in weighted average basic shares outstanding
for the year ended December 31, 2008 was primarily due to the issuance of 27,000
common shares related to the employee stock option plan, 200,000 common shares
related to the acquisition of Airdesk, Inc. and 405,000 common shares
related to the acquisition of the assets of Ublip, Inc.
  
  Fiscal
Years Ended December 31, 2007 and December 31, 2006
  
  Net
revenues increased 28.8% to $68.0 million for the year ended December 31, 2007,
as compared to $52.8 million for the year ended December 31,
2006.  The increase in total net revenues for the year ended December
31, 2007 is attributable to a 25.7% increase in total hardware sales and a 34.7%
increase in service revenue.  The hardware sales and service revenue
increase for the year ended December 31, 2007, compared to the same period in
2006, was in Wireless Data Communications in the amount of $16.5
million.  These increases were partially offset by a decrease in
Digital Multimedia, Networking & Wireline Security hardware sales and
service revenue of $1.3 million, as compared to fiscal year 2006.
  
  Cost of
hardware sales increased 37.6% to $38.5 million for the year ended December 31,
2007, as compared to $28.0 million for the year ended December 31,
2006.  The increase in cost of sales was primarily the result of
higher hardware sales volume in Wireless Data Communications.
  
  Cost of
services was increased 3.5% to $6.1 million for the year ended December 31,
2007, as compared to $5.8 million for the year ended December 31,
2006.  The increase in cost of services was primarily the result of
higher service sales volume in Wireless Data Communications.
  
  Gross
profit, as a percentage of net revenue, was 34.4% for the year ended December
31, 2007, as compared to 35.8% for the year ended December 31,
2006.  The total gross profit as a percentage of revenue decreased for
the year ended December 31, 2007 compared to 2006 as a result of changing the
pricing model in our wireless data communications segment.  The
pricing model was changed in order to secure additional network connections to
support the associated long-term recurring service revenues.
  
   39
  Selling,
general, administrative and other expenses increased 34.7% to $16.3 million for
the year ended December 31, 2007, as compared to $12.1 million for the year
ended December 31, 2006.  As a percentage of revenue, selling,
general, administrative and other expenses increased to 23.9% for the year ended
December 31, 2007 as compared to 22.9% for the year ended December 31,
2006.  The increase of $4.2 million was due to higher personnel
related costs ($1.2 million), increased spending in sales and marketing to
support hardware sales ($790,000), an increase in general & administrative
spending as we responded to regulatory requirements such as Sarbanes-Oxley and
the adoption of FIN 48 ($981,000), the acquisition of the assets of Orbit One,
Inc. ($759,000) and share-based compensation expense ($480,000).
  
  Research
and development expenses increased for the year ended December 31, 2007 to $1.5
million, as compared to $1.1 million for the year ended December 31,
2006.  The increase in research and development expenses is primarily
due to new projects related to new digital hardware that have not reached
technical feasibility and therefore work on these projects was expensed as
incurred.
  
  Bad debt
expense increased 221% to $635,000 for the year ended December 31, 2007, as
compared to $198,000 for the year ended December 31, 2006.  Bad debt
increased over the prior year due to an increase in the bad debt allowance in
the current year period as a result of reserving for specific customers based on
our assessment of the likelihood of these customers defaulting.
  
  Depreciation
and amortization expense increased 42.1% to $2.5 million for the year ended
December 31, 2007, as compared to $1.8 million for the year ended December 31,
2006.  This increase is attributable to amortization beginning on
completed research and development projects as well as the purchase of
depreciable computer and office equipment.
  
  We did
not record any goodwill impairment for the year ended December 31,
2007.  We recorded a pre-tax, non-cash charge of $2.1 million for the
impairment of goodwill within the Digital Multimedia, Networking and Wireline
segment for the year ended December 31, 2006. Key factors affecting the amount
of the impairment charge included the Company’s assessment of the long term
outlook for its Broadband Networks, Inc. within the Digital Multimedia,
Networking and Wireline segment and a determination that a reduction in the
goodwill balance in the amount of $2.1 million would be required to more
properly reflect the current value of the business.
  
  Interest
expense increased to $1.9 million in 2007, as compared to $904,000 for the prior
year.  This increase was the result of the transactions with the
Laurus Master Fund (Laurus) that occurred on May 30, 2006 and December 29,
2006.  Interest expense related to these transactions was $1.9 million
for the year ended December 31, 2007, as compared to $638,000 for the year ended
December 31, 2006.
  
  A foreign
currency loss of $28,000 was recorded for the year ended December 31, 2007 down
from a $10,000 gain for the year ended December 31, 2006.  This
decrease was the result of increased foreign currency losses on sales to
Canadian and Australian customers.
  
  The
company recorded a tax provision of $728,000 for the year ended December 31,
2007, as compared to a tax benefit of $2,950,000 for
the year ended December 31, 2006, representing effective tax rates
of 65.74% and (256%), respectively. The difference between the
company's effective tax rate and the 34% federal statutory rate in the current
year resulted primarily from state tax accruals, stock option expenses, and
changes in the Company’s uncertain tax positions. The overall increase in the
effective tax rate from the year ended 2006 compared to the same period in
2007 can be attributed to the company's partial release of the valuation
allowance which offset much of the company's net operating loss (NOL) deferred
tax assets in 2006. The company is recognizing deferred tax expense in 2007
primarily related to the utilization of these NOLs.
  
  Basic and
diluted earnings per common share decreased to $.03 for year ended December 31,
2007, as compared to $.33 and $.32, respectively for the year ended December 31,
2006.
   40
  
  The
weighted average basic shares outstanding increased to 13,137,000 for the year
ended December 31, 2007 as compared to 12,502,000 for the year ended December
31, 2006.  The increase in weighted average basic shares outstanding
for year ended was due to the potential issuance of 321,000 common shares
related to the acquisition of the assets of Orbit One Communications, Inc.,
134,000 common shares related to the exercise of employee stock options and
100,000 common shares related to the acquisition of the assets of Airdesk,
Inc.
     41
  Segment
Information
  
  For
      the years ended December 31,
              
              
              2008
      vs. 2007
              
              
              2007
      vs. 2006(In
      thousands)
              
              2008
              
              
              2007
              
              
              2006
              
              
              %
      Change
              
              
              %
      ChangeNet
      sales:Wireless
      M2M Data CommunicationsHardware
              
              $
              40,196
              
              
              $
              41,661
              
              
              $
              32,383
              
              
              
              -3.5
              %
              
              
              28.7
              %Service
              
              
              25,952
              
              
              
              21,164
              
              
              
              13,938
              
              
              
              22.6
              %
              
              
              51.8
              %Sub-total
              
              
              66,148
              
              
              
              62,825
              
              
              
              46,321
              
              
              
              5.3
              %
              
              
              35.6
              %Digital
      Multimedia, Networking and WirelineHardware
              
              
              2,852
              
              
              
              1,747
              
              
              
              2,142
              
              
              
              63.2
              %
              
              
              -18.4
              %Service
              
              
              3,319
              
              
              
              3,432
              
              
              
              4,325
              
              
              
              -3.3
              %
              
              
              -20.7
              %Sub-total
              
              
              6,171
              
              
              
              5,179
              
              
              
              6,467
              
              
              
              19.1
              %
              
              
              -19.9
              %Total
      net salesHardware
              
              
              43,048
              
              
              
              43,408
              
              
              
              34,525
              
              
              
              -0.8
              %
              
              
              25.7
              %Service
              
              
              29,271
              
              
              
              24,596
              
              
              
              18,263
              
              
              
              19.0
              %
              
              
              34.7
              %Total
      net sales
              
              $
              72,319
              
              
              $
              68,004
              
              
              $
              52,788
              
              
              
              6.3
              %
              
              
              28.8
              %Cost
      of Sales:Wireless
      M2M Data CommunicationsCost
      of hardware sales
              
              $
              36,184
              
              
              $
              37,443
              
              
              $
              26,648
              
              
              
              -3.4
              %
              
              
              40.5
              %Cost
      of service sales
              
              
              8,182
              
              
              
              4,803
              
              
              
              3,671
              
              
              
              70.4
              %
              
              
              30.8
              %Subtotal
              
              
              44,366
              
              
              
              42,246
              
              
              
              30,319
              
              
              
              67
              %
              
              
              71
              %Digital
      Multimedia, Networking and WirelineCost
      of hardware sales
              
              
              1,285
              
              
              
              1,048
              
              
              
              1,468
              
              
              
              22.6
              %
              
              
              -28.6
              %Cost
      of service sales
              
              
              1,248
              
              
              
              1,303
              
              
              
              2,079
              
              
              
              -4.2
              %
              
              
              -37.3
              %Subtotal
              
              
              2,533
              
              
              
              2,351
              
              
              
              3,547
              
              
              
              18
              %
              
              
              -66
              %Total
      cost of sales
              
              $
              46,899
              
              
              $
              44,597
              
              
              $
              33,866
              
              
              
              5.2
              %
              
              
              31.7
              %Gross
      Profit
              
              $
              25,420
              
              
              $
              23,407
              
              
              $
              18,922
              
              
              
              8.6
              %
              
              
              23.7
              %Gross
      Profit %
              
              
              35.1
              %
              
              
              34.4
              %
              
              
              35.8
              %Percent
      of Total Sales2008
              
              
              2007
              
              
              2006Net
      sales:Wireless
      M2M Data CommunicationsHardware
              
              
              55.6
              %
              
              
              61.3
              %
              
              
              61.3
              %Service
              
              
              35.9
              %
              
              
              31.1
              %
              
              
              26.4
              %Sub-total
              
              
              91.5
              %
              
              
              92.4
              %
              
              
              87.7
              %Digital
      Multimedia, Networking and WirelineHardware
              
              
              3.9
              %
              
              
              2.6
              %
              
              
              4.1
              %Service
              
              
              4.6
              %
              
              
              5.0
              %
              
              
              8.2
              %Sub-total
              
              
              8.5
              %
              
              
              7.6
              %
              
              
              12.3
              %Total
      net salesHardware
              
              
              59.5
              %
              
              
              63.8
              %
              
              
              65.4
              %Service
              
              
              40.5
              %
              
              
              36.2
              %
              
              
              34.6
              %Total
      net sales
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
 
  
  
   42
  Fiscal
Years Ended December 31, 2008 and December 31, 2007
  
  Wireless
M2M Data Communications Segment
  
  Net
revenues from Wireless M2M Data Communications increased 5.3% to $66.1 million
for the year ended December 31, 2008, as compared to $62.8 million for the
year ended December 31, 2007.  This increase was the result a 22.6%
increase in service revenues, partially offset by a 3.5% decrease in hardware
sales.  The increase in Wireless M2M Data Communications service sales
of $4.8 million was primarily the result of an increase in network connections
that were generated by sales of our security hardware as well as by end users
and value added resellers who utilize our network to provide customer
solutions.  We continue to focus on increasing connections to our
network due to the recurring nature of the service revenues.  Our
growth was also attributable to increased connections from wireless modules used
in the door entry control solution used by real estate agents and
brokers.  The slight decrease in the Wireless M2M Data Communication
hardware revenue was primarily the result of decline in sales of our wireless
security devices due to the decreased demand for wireless security hardware now
that our customers have fully transitioned from analog network
services.
  
  Cost of
hardware sales for our Wireless Data Communications segment decreased 3.4% to
$36.1 million for the twelve months December 31, 2008 as compared to $37.4
million for the twelve months ended December 31, 2007.  The decrease
in cost of hardware sales for our Wireless M2M Data Communications segment for
the year ended December 31, 2008 is primarily the result of decreased hardware
sales due to the completion of the analog to digital transition in the
commercial and residential security market coupled with reduced demand from M2M
customers for wireless modules adjusting to the macroeconomic
slowdown.
  
  Cost of
service sales for our Wireless M2M Data Communications segment increased 70.4%
for the year ended December 31, 2008 to $8.2 million as compared to $4.8 million
for the year ended December 31, 2007.  Wireless M2M Data
Communications service net costs increased primarily due to an increase in the
number of connections to our wireless M2M network during the year ended December
31, 2008.  Connection increases were generated by sales of our
security hardware as well as by end users and value added resellers who utilize
our network to provide customer solutions.  We continue to focus on
increasing connections to our network due to the recurring nature of the service
net sales.
  
  Digital
Multimedia, Networking and Wireline Security Segment
  
  Net
revenue from Digital Multimedia, Networking and Wireline Security increased
19.1% to $6.2 million for the year ended December 31, 2008 as compared to $5.2
million for the year ended December 31, 2007.  This increase was
primarily due to a 63.2% increase in hardware sales.  The increase in
hardware sales was primarily the result of an increase in sales of our
interactive videoconferencing hardware (PowerPlay), which is sold directly and
indirectly to distance-learning customers. Capital spending by targeted distance
learning customers is largely funded by government entities and, as a result, is
difficult to predict and can fluctuate significantly from period to
period.
  
  Cost of
hardware sales for our Digital Multimedia, Networking and Wireline Security
segment increased 22.6% to $1.3 million for the year ended December 31,
2008 as compared to $1.0 million for the year ended December 31, 2007.  The
increase in cost of hardware sales for our Digital Multimedia, Networking and
Wireline Security segment for year ended December 31, 2008 was primarily the
result of higher hardware sales volume in our interactive videoconferencing
hardware (PowerPlay).
  
   43
  Cost of
service sales for our Digital Multimedia, Networking and Wireline Security
segment decreased 4.2% to $1.2 million for the year ended December 31, 2008 as
compared to $1.3 million for the year ended December 31, 2007.  The
decrease in cost of service sales for the Digital Multimedia, Networking and
Wireline Security segment for the year ended December 31, 2008 is in direct
correlation to the decrease in services net sales for this segment.
  
  Fiscal
Years Ended December 31, 2007 and December 31, 2006
  
  Wireless
M2M Data Communications Segment
  
  Net
revenues from Wireless M2M Data Communications increased 35.6% to $62.8 million
for the year ended December 31, 2007 including our satellite solutions
division as compared to $46.3 million for the year ended December 31,
2006.  This increase was the result of a 28.7% increase in hardware
sales and a 51.8% increase in service revenues compared to the same period last
year.  The increase in Wireless M2M Data Communications hardware sales
of $9.3 million for the year ended December 31, 2007 versus the same period in
2006 was primarily the result of increased sales of wireless modules, and
increased sales of our security devices used for wireless communications between
alarm installations and central monitoring stations. The increase in the
Wireless M2M Data Communication services revenue was primarily due to an
increase in the number of connections to our wireless
network.  Connection increases were generated by sales of our security
hardware as well as those generated by value added resellers who utilize our
network to provide customer solutions.  We continue to focus on
increasing connections to our network due to the recurring nature of service
revenues.
  
  Digital
Multimedia, Networking and Wireline Security Segment
  
  Net
revenue from Digital Multimedia, Networking and Wireline Security decreased
19.9% to $5.2 million for the year ended December 31, 2007 as compared to $6.5
million for the year ended December 31, 2006.  This decrease was
primarily due to an 18.4% decrease in hardware sales to $1.7 million, primarily
due to decreased sales of our interactive videoconferencing hardware
(PowerPlayTM) to distance-learning customers.  Capital spending by
targeted distance learning customers is largely funded by government entities
and, as a result, is difficult to predict and can fluctuate significantly from
period to period.  Digital Multimedia, Networking and Wireline
Security service revenues, mainly installation and integration services, also
decreased to $3.4 million for the year ended December 31, 2007 compared to $4.3
million during the same period in 2006.  Our installation and
integration services are primarily, either directly or indirectly, provided to
large wireline and wireless telecommunication companies.  The decrease
for the year ended December 31, 2007 is due to a decrease in demand for these
services.
  
  Selected
Quarterly Financial Data
  
  The
following tables detail certain unaudited financial data of Numerex for each
quarter of the last two fiscal years ended December 31, 2008 and 2007,
respectively.
  
  Our
financial results may fluctuate from quarter to quarter as a result of certain
factors related to our business, including the timing of hardware shipments, new
hardware introductions and equipment, and hardware and system sales that
historically have been of a non-recurring nature.
  
  This
information has been prepared from our books and records in accordance with
accounting principles generally accepted in the United States of America for
interim financial information.  In the opinion of management, all
(including only normal, recurring) adjustments considered necessary for fair
presentation have been included.  Interim results for any quarter are
not necessarily indicative of the results that may be expected for any future
period.
  
   44
  Selected
Quarterly Financial Data (Unaudited)
  
  
  For
      the Three Months Ended(in
      thousands)
              
              March
      31,
              
              
              June
      30,
              
              
              September
      30,
              
              
              December
      31,2008
              
              
              2008
              
              
              2008
              
              
              2008Net
      sales:Wireless
      M2M Data CommunicationsHardware
              
              $
              13,421
              
              
              $
              9,442
              
              
              $
              10,235
              
              
              $
              7,099Service
              
              
              6,132
              
              
              
              6,212
              
              
              
              6,486
              
              
              
              7,121Sub-total
              
              
              19,553
              
              
              
              15,654
              
              
              
              16,721
              
              
              
              14,220Digital
      Multimedia and NetworkingHardware
              
              
              203
              
              
              
              1,048
              
              
              
              1,397
              
              
              
              203Service
              
              
              700
              
              
              
              723
              
              
              
              859
              
              
              
              1,038Sub-total
              
              
              903
              
              
              
              1,771
              
              
              
              2,256
              
              
              
              1,241Total
      net salesHardware
              
              
              13,624
              
              
              
              10,490
              
              
              
              11,632
              
              
              
              7,302Service
              
              
              6,832
              
              
              
              6,935
              
              
              
              7,345
              
              
              
              8,159Sub-total
              
              
              20,456
              
              
              
              17,425
              
              
              
              18,977
              
              
              
              15,461Cost
      of hardware sales
              
              
              12,162
              
              
              
              9,013
              
              
              
              9,663
              
              
              
              6,631Cost
      of services
              
              
              1,839
              
              
              
              2,143
              
              
              
              2,773
              
              
              
              2,675Gross
      Profit
              
              
              6,455
              
              
              
              6,269
              
              
              
              6,541
              
              
              
              6,155Selling,
      general, and administrative expenses
              
              
              5,015
              
              
              
              5,047
              
              
              
              4,558
              
              
              
              5,493Research
      and development expenses
              
              
              530
              
              
              
              485
              
              
              
              473
              
              
              
              710Bad
      debt expense
              
              
              138
              
              
              
              125
              
              
              
              209
              
              
              
              630Depreciation
      and amortization
              
              
              751
              
              
              
              766
              
              
              
              773
              
              
              
              817Goodwill
      impairment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,986Long-lived
      assets impairment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1.303Operating
      earnings (loss)
              
              
              21
              
              
              
              (154
              )
              
              
              528
              
              
              
              (6,784
              )Interest
      expense, net
              
              
              (403
              )
              
              
              (407
              )
              
              
              (331
              )
              
              
              (387
              )Other
      income (expense)
              
              
              (2
              )
              
              
              (2
              )
              
              
              5
              
              
              
              (12
              )Earnings
      (loss) before income taxes
              
              
              (384
              )
              
              
              (563
              )
              
              
              202
              
              
              
              (7,183
              )Provision
      (benefit) for Income taxes
              
              
              (166
              )
              
              
              (380
              )
              
              
              125
              
              
              
              3,468Net
      earnings (loss)
              
              $
              (218
              )
              
              $
              (183
              )
              
              $
              77
              
              
              $
              (10,651
              )Foreign
      currency translation adjustment
              
              
              10
              
              
              
              -
              
              
              
              -
              
              
              
              (12
              )Comprehensive
      earnings (loss)
              
              $
              (208
              )
              
              $
              (183
              )
              
              $
              77
              
              
              $
              (10,663
              )Basic
      income (loss) per common share
              
              $
              (0.02
              )
              
              $
              (0.01
              )
              
              $
              0.01
              
              
              $
              (0.78Diluted
      income (loss) per common share
              
              $
              (0.02
              )
              
              $
              (0.01
              )
              
              $
              0.01
              
              
              $
              (0.78
              )Weighted
      average shares used in per share:Basic
              
              
              13,725
              
              
              
              13,736
              
              
              
              13,742
              
              
              
              14,160Diluted
              
              
              13,725
              
              
              
              13,736
              
              
              
              13,986
              
              
              
              14,160
 
   45
  Selected
Quarterly Financial Data (Unaudited)
  
  For
      the Three Months Ended(in
      thousands)
              
              March
      31,
              
              
              June
      30,
              
              
              September
      30,
              
              
              December
      31,2007
              
              
              2007
              
              
              2007
              
              
              2007Net
      sales:Wireless
      M2M Data CommunicationsHardware
              
              $
              8,913
              
              
              $
              9,661
              
              
              $
              9,874
              
              
              $
              13,213Service
              
              
              3,956
              
              
              
              4,176
              
              
              
              4,964
              
              
              
              8,068Sub-total
              
              
              12,870
              
              
              
              13,837
              
              
              
              14,837
              
              
              
              21,281Digital
      Multimedia and NetworkingHardware
              
              
              361
              
              
              
              452
              
              
              
              312
              
              
              
              623Service
              
              
              955
              
              
              
              881
              
              
              
              835
              
              
              
              761Sub-total
              
              
              1,316
              
              
              
              1,333
              
              
              
              1,147
              
              
              
              1,383Total
      net salesHardware
              
              
              9,274
              
              
              
              10,113
              
              
              
              10,185
              
              
              
              13,836Service
              
              
              4,911
              
              
              
              5,057
              
              
              
              5,799
              
              
              
              8,829Sub-total
              
              
              14,185
              
              
              
              15,170
              
              
              
              15,984
              
              
              
              22,665Cost
      of hardware sales
              
              
              7,610
              
              
              
              9,168
              
              
              
              9,096
              
              
              
              12,617Cost
      of services
              
              
              1,203
              
              
              
              1,282
              
              
              
              1,536
              
              
              
              2,085Gross
      Profit
              
              
              5,372
              
              
              
              4,720
              
              
              
              5,352
              
              
              
              7,963Selling,
      general, and administrative expenses
              
              
              3,613
              
              
              
              3,866
              
              
              
              4,078
              
              
              
              4,763Research
      and development expenses
              
              
              288
              
              
              
              334
              
              
              
              382
              
              
              
              455Bad
      debt expense
              
              
              86
              
              
              
              162
              
              
              
              164
              
              
              
              223Depreciation
      and amortization
              
              
              489
              
              
              
              530
              
              
              
              697
              
              
              
              777Goodwill
      impairment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Operating
      earnings (loss)
              
              
              896
              
              
              
              (172
              )
              
              
              31
              
              
              
              1,745Interest
      and other expense
              
              
              (155
              )
              
              
              (365
              )
              
              
              (449
              )
              
              
              (363
              )Earnings
      (loss) before income taxes
              
              
              741
              
              
              
              (537
              )
              
              
              (418
              )
              
              
              1,382Provision
      (benefit) for Income taxes
              
              
              314
              
              
              
              (214
              )
              
              
              (201
              )
              
              
              829Net
      earnings (loss)
              
              $
              427
              
              
              $
              (323
              )
              
              $
              (217
              )
              
              $
              553Foreign
      currency translation adjustment
              
              
              10
              
              
              
              4
              
              
              
              (9
              )
              
              
              (13
              )Comprehensive
      earnings (loss)
              
              $
              437
              
              
              $
              (319
              )
              
              $
              (226
              )
              
              $
              540Basic
      income (loss) per common share
              
              $
              0.03
              
              
              $
              (0.02
              )
              
              $
              (0.02
              )
              
              $
              0.04Diluted
      income (loss) per common share
              
              $
              0.03
              
              
              $
              (0.02
              )
              
              $
              (0.02
              )
              
              $
              0.04Weighted
      average shares used in per share:Basic
              
              
              13,006
              
              
              
              13,156
              
              
              
              13,187
              
              
              
              13,197Diluted
              
              
              13,608
              
              
              
              13,156
              
              
              
              13,187
              
              
              
              13,575
 
   46
  Liquidity
and capital resources
  
  We had
working capital of $14.1 million as of December 31, 2008 compared to working
capital of $20.0 million as of December 31, 2007.  We had cash
balances of $8.9 million and $7.4 million, respectively, as of December 31, 2008
and December 31, 2007.  The increase in cash balances is primarily
related to a decrease in accounts receivable and inventory, partially offset by
a decrease in accounts payable and the purchase of the assets of Ublip, Inc. and
intangible assets.
    The
following table shows information about our cash flows and liquidity positions
during the twelve months ended December 31, 2008 and 2007. You should read this
table and the discussion that follows in conjunction with our consolidated
statements of cash flows contained in “Item 8. Financial Statements” of this
report.
  
  Year
      ended December 31,2008
              
              
              2007Net
      cash provided by (used in) operating activities
              
              $
              8,359
              
              
              $
              (3,305
              )Net
      cash used in investing activities
              
              
              (4,053
              )
              
              
              (8,699
              )Net
      cash used in financing activities
              
              
              (2,812
              )
              
              
              (947
              )Effect
      of exchange differences on cash
              
              
              (2
              )
              
              
              (8
              )Net
      increase (decrease) in cash and cash equivalents
              
              $
              1,492
              
              
              $
              (12,959
              )
 
  
  We
provided cash from operating activities totaling $8.4 million for the year ended
December 31, 2008 compared to using cash of $3.3 million for the year ended
December 31, 2007.  The increase in cash provided by operating
activities was primarily due to a decrease in accounts receivable and inventory,
partially offset by a decrease in accounts payable.
  
  We used
cash in investing activities totaling $4.1 million for the year ended December
31, 2008 compared to $8.7 million for the year ended December 31,
2007.   The decrease in cash used in investing activities was
primarily due to the acquisition of Orbit One Communications, Inc. payment for
$1.8 million during 2008, as compared to the related payment for $6.6 million
during 2007.
  
  We used
cash in financing activities totaling $2.8 million for the year ended December
31, 2008 compared to $947,000 for the year ended December 31,
2007.  For the years ended December 31, 2008 and 2007, cash used in
financing activities was primarily due to payments on our notes payable, which
began in July 2007.
  
  Our
business has traditionally not been capital intensive; accordingly, capital
expenditures have not been material.  To date, we have funded all
capital expenditures from working capital, capital leases and other long-term
obligations.
  
  As of
December 31, 2008, the Company had $10.7 million in notes payable.  We
expect to make principal payments of $2.9 million during 2009 and $7.8 million
during 2010.  There are no covenants associated with this
debt.
  
  During
2008, we incurred approximately $2.0 million in legal expenses related to our
litigation with Orbit One Communications, Inc. (see Item 3 – Legal
Proceedings).  For 2009, our expectation of legal fees related to this
matter is consistent with the amount incurred in 2008.
   47
  We
believe that our existing cash and cash equivalents together with expected cash
generated from operations will be sufficient to meet our operating requirements
through at least December 31, 2009.  This belief could be affected by
future results that differ from expectations, a material adverse change in our
operating business or a default under the Company Notes.
  
  Contractual
Obligations
  
  The table
below sets forth our contractual obligations at December 31,
2008.  Additional details regarding these obligations are provided in
the notes to our consolidated financial statements.
  
  (in
      thousands)Payments
      due by periodTotal
              
              
              Less
      than 1 Year
              
              
              1 -
      3 Years
              
              
              3 -
      5 Years
              
              
              More
      than 5 YearsLong-term
      debt(1)
      (2)
              
              $
              11,970
              
              
              $
              3,763
              
              
              $
              8,207
              
              
              $
              -
              
              
              $
              -Capital
      lease obligations(3)
              
              
              64
              
              
              
              32
              
              
              
              32
              
              
              
              -
              
              
              
              -Operating
      lease obligations(4)
              
              
              3,358
              
              
              
              972
              
              
              
              2,386
              
              
              
              -
              
              
              
              -Total(5)
              
              $
              15,392
              
              
              $
              4,767
              
              
              $
              10,625
              
              
              $
              -
              
              
              $
              -
 
  (1)
              $5,714,000
      of this debt is convertible into the Company’s common stock at both the
      Company’s and Lender’s option depending on the Company’s stock
      price.
  (2)
              Long-term
      debt includes estimated interest.  Interest rates used on the
      debt outstanding is fixed at 9.5% and 9.75%.  See Note J to the
      consolidated financial statements contained in this report for further
      information.
  (3)
              Amounts
      represent future minimum lease payments under non-cancelable capital
      leases for computer equipment.  The value of the computer
      equipment recorded in property and equipment at the inception of the
      leases was $157,000.
  (4)
              Amounts
      represent future minimum rental payments under non-cancelable operating
      leases for our facilities.
  (5)
              Liabilities
      of approximately $478,000  related to FASB Interpretation No.
      48, Accounting for
      Uncertainty in Income Taxes – an interpretation of FASB Statement No.
      109 (“FIN No. 48”) have not been included in the table above
      because we are uncertain as to if or when such amounts may be settled. See
      Note I to the consolidated financial statements contained in this report
      for further information.
  
  Off-Balance
Sheet Arrangements
  
  As of
December 31, 2008, we did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of SEC Regulation S-K.
   Recent
Accounting Pronouncements
   For
information with respect to new accounting pronouncements and the impact of
these pronouncements on our consolidated financial statements, see Note 22 of
the Notes to Consolidated Financial Statements.
  
   48
  Effect
of Inflation
  
  Inflation
has not been a material factor affecting our business.  In recent
years the cost of electronic components has remained relatively stable, due to
competitive pressures within the industry, which has enabled us to contain our
hardware costs.  Our general operating expenses, such as salaries,
employee benefits, and facilities costs are subject to normal inflationary
pressures, but to date inflation has not had a material effect on our operating
results.
  
  Item
7A. Quantitative and Qualitative Disclosures about Market Risk.
  
  The
market risk in our financial instruments represents the potential loss arising
from adverse changes in financial rates. We are exposed to market risk in the
area of interest rates. These exposures are directly related to our normal
funding and investing activities.
  
  As a
result of our placement of $ 5.0 million and $10.0 million of notes due in
2010, at interest rates of 9.75% and 9.5%, respectively, substantially all of
our debt as of December 31, 2008 is at fixed rates. The fair market value
of long-term fixed interest rate debt is subject to interest rate risk.
Generally, the fair market value of fixed interest rate debt will increase as
interest rates fall and decrease as interest rates rise. Fair market values are
determined based on estimates made by investment bankers. For fixed rate debt,
interest rate changes do not impact book value, operations, or cash
flows.
  
  Foreign
Currency
  
  Our
functional and reporting currency is the U.S. Dollar. Fluctuations in foreign
currency exchange rates have not, and are not expected to have a material impact
on our results of operations or liquidity.
    
  
  
  
  
  
   49
  ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  
  
  PageConsolidated
      Balance Sheets as of December 31, 2008 and 2007
              51Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Years
      ended December 31, 2008, 2007 and 2006
              52Consolidated
      Statements of Shareholders’ Equity for the Years ended December 31, 2008,
      2007 and 2006
              53Consolidated
      Statements of Cash Flows for the Years ended December 31, 2008, 2007 and
      2006
              55Notes
      to Consolidated Financial Statements
              56Report
      of Independent Registered Public Accounting Firm on the Consolidated
      Financial Statements
              86
 
  
   
  
  Numerex
      Corp. and Subsidiaries.CONSOLIDATED
      BALANCE SHEETS(In
      thousands, except share information)December
      31,
              
              
              December
      31,2008
              
              
              2007ASSETSCURRENT
      ASSETSCash
      and cash equivalents
              
              $
              8,917
              
              
              $
              7,425Accounts
      receivable, less allowance for doubtful accounts of $1,010 at December 31,
      2008 and $1,009 at December 31, 2007
              
              
              9,159
              
              
              
              16,396Inventory
              
              
              8,506
              
              
              
              10,059Prepaid
      expenses and other current assets
              
              
              1,508
              
              
              
              1,885Deferred
      tax asset – current
              
              
              -
              
              
              
              770TOTAL
      CURRENT ASSETS
              
              
              28,090
              
              
              
              36,535Property
      and equipment, net
              
              
              1,765
              
              
              
              2,003Goodwill,
      net
              
              
              23,771
              
              
              
              22,603Other
      intangibles, net
              
              
              5,796
              
              
              
              6,940Software,
      net
              
              
              2,796
              
              
              
              3,486Other
      assets
              
              
              288
              
              
              
              526Deferred
      tax asset – long term
              
              
              -
              
              
              
              2,005TOTAL
      ASSETS
              
              $
              62,506
              
              
              $
              74,098LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable
              
              $
              7,289
              
              
              $
              10,298Other
      current liabilities
              
              
              2,943
              
              
              
              2,312Notes
      payable, current
              
              
              2,568
              
              
              
              2,568Deferred
      revenues
              
              
              1,134
              
              
              
              1,328Obligations
      under capital leases, current portion
              
              
              29
              
              
              
              44TOTAL
      CURRENT LIABILITIES
              
              
              13,963
              
              
              
              16,550LONG
      TERM LIABILITIESObligations
      under capital leases and other long term liabilities
              
              
              520
              
              
              
              486Notes
      payable
              
              
              7,629
              
              
              
              10,197TOTAL
      LONG TERM LIABILITIES
              
              
              8,149
              
              
              
              10,683COMMITMENTS
      AND CONTINGENCIES
              
              
              -
              
              
              
              -SHAREHOLDERS’
      EQUITYPreferred
      stock - no par value; authorized 3,000,000; none issued
              
              
              -
              
              
              
              -Class
      A common stock – no par value; authorized 30,000,000; issued 15,349,327
      shares at December 31, 2008 and 14,706,101 shares at December 31,
      2007
              
              
              50,801
              
              
              
              47,455Additional
      paid-in-capital
              
              
              4,587
              
              
              
              3,427Treasury
      stock, at cost, 1,185,809 shares at December 31, 2008 and December 31,
      2007
              
              
              (5,053
              )
              
              
              (5,053
              )Class
      B common stock – no par value; authorized 5,000,000; none
      issued
              
              
              -
              
              
              
              -Accumulated
      other comprehensive loss
              
              
              (8
              )
              
              
              (6
              )Retained
      earnings (deficit)
              
              
              (9,933
              )
              
              
              1,042TOTAL
      SHAREHOLDERS' EQUITY
              
              
              40,394
              
              
              
              46,865TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              62,506
              
              
              $
              74,098
 The
accompanying notes are an integral part of these financial
statements.
  51
 Numerex
      Corp. and SubsidiariesConsolidated
      Statements of Operation and Comprehensive Income (Loss)(In
      thousands, except per share data)For
      the YearsEnded
      December 31,2008
              
              
              2007
              
              
              2006Hardware
              
              $
              43,048
              
              
              $
              43,408
              
              
              $
              34,525Service
              
              
              29,271
              
              
              
              24,596
              
              
              
              18,263Total
      net sales
              
              
              72,319
              
              
              
              68,004
              
              
              
              52,788Cost
      of hardware sales, exclusive of depreciation and
    amortization
              
              
              37,469
              
              
              
              38,491
              
              
              
              27,967Cost
      of services, exclusive of depreciation and amortization
              
              
              9,430
              
              
              
              6,106
              
              
              
              5,899Gross
      Profit
              
              
              25,420
              
              
              
              23,407
              
              
              
              18,922Selling,
      general, and administrative expenses
              
              
              20,113
              
              
              
              16,320
              
              
              
              12,088Research
      and development expenses
              
              
              2,198
              
              
              
              1,459
              
              
              
              1,067Bad
      debt expense
              
              
              1,102
              
              
              
              635
              
              
              
              198Depreciation
      and amortization
              
              
              3,107
              
              
              
              2,493
              
              
              
              1,755Goodwill
      and long-lived asset impairment
              
              
              5,289
              
              
              
              -
              
              
              
              2,140Operating
      earnings (loss)
              
              
              (6,389
              )
              
              
              2,500
              
              
              
              1,674Interest
      expense
              
              
              (1,665
              )
              
              
              (1,940
              )
              
              
              (904
              )Interest
      income
              
              
              134
              
              
              
              575
              
              
              
              354Net
      other income and (expense)
              
              
              (8
              )
              
              
              33
              
              
              
              29Earnings
      (loss) before income taxes
              
              
              (7,928
              )
              
              
              1,168
              
              
              
              1,153Provision
      for income taxes
              
              
              3,047
              
              
              
              728
              
              
              
              (2,950
              )Net
      earnings
              
              
              (10,975
              )
              
              
              440
              
              
              
              4,103Other
      comprehensive income (loss), net of income tax:Foreign
      currency translation adjustment
              
              
              (2
              )
              
              
              (8)
              
              
              
              10Comprehensive
      income (loss)
              
              $
              (10,977
              )
              
              $
              432
              
              
              $
              4,113Basic
      earnings (loss) per share
              
              $
              (0.78
              )
              
              $
              0.03
              
              
              $
              0.33Diluted
      earnings (loss) per share
              
              $
              (0.78
              )
              
              $
              0.03
              
              
              $
              0.32Weighted
      average common shares used in per share calculationBasic
              
              
              14,144
              
              
              
              13,137
              
              
              
              12,502Diluted
              
              
              14,144
              
              
              
              13,700
              
              
              
              12,985
 
  
  The
accompanying notes are an integral part of these financial
statements.
   52
  
  
  NUMEREX CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENT OF SHAREHOLDERS' 0EQUITYAccumulated
      OtherCommon
              
              
              
              
              
              Additional
      paid
              
              
              Treasury
              
              
              Comprehensive
              
              
              RetainedDESCRIPTION:
              
              Shares
              
              
              $
      Amount
              
              
              in
      capital
              
              
              Stock
              
              
              Income
      (loss)
              
              
              Earnings
              
              
              TOTALBalance
      @ 12/31/05
              
              
              14,034
              
              
              $
              40,050
              
              
              $
              1,135
              
              
              $
              (10,197
              )
              
              $
              (8
              )
              
              $
              (3,251
              )
              
              $
              27,729Issuance
      of shares under Directors Stock Plan
              
              
              9
              
              
              
              61
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              61Issuance
      of shares in connection with employee stock option plan
              
              
              75
              
              
              
              303
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              303Issuance
      of shares in connection with purchase of assets of Airdesk,
      Inc.
              
              
              348
              
              
              
              1,503
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,503Issuance
      of shares in lieu of debt payment
              
              
              885
              
              
              
              6,359
              
              
              
              (794
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,565Retirement
      of Treasury Shares
              
              
              (1,206
              )
              
              
              (5,143
              )
              
              
              -
              
              
              
              5,144
              
              
              
              -
              
              
              
              -
              
              
              
              1Translation
      adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10
              
              
              
              -
              
              
              
              10Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              462
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              462Warrants
              
              
              -
              
              
              
              -
              
              
              
              1,646
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,646Beneficial
      Conversion Feature
              
              
              -
              
              
              
              -
              
              
              
              37
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              37Net
      earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,103
              
              
              
              4,103Balance
      @ 12/31/06
              
              
              14,145
              
              
              $
              43,133
              
              
              $
              2,486
              
              
              $
              (5,053
              )
              
              $
              2
              
              
              $
              852
              
              
              $
              41,420FIN
      48 Adoption
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (250
              )
              
              
              (250
              )Issuance
      of shares under Directors Stock Plan
              
              
              6
              
              
              
              62
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              62Issuance
      of shares in connection with employee stock option plan
              
              
              134
              
              
              
              569
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              569Issuance
      of shares in connection with purchase of assets of Airdesk,
      Inc.
              
              
              100
              
              
              
              1,018
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,018Issuance
      of shares in connection with purchase of assets of Orbit One
      Communications, Inc.
              
              
              321
              
              
              
              2,673
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,673Translation
      adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (8
              )
              
              
              -
              
              
              
              (8
              )Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              941
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              941Net
      earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              440
              
              
              
              440Balance
      @ 12/31/07
              
              
              14,706
              
              
              
              47,455
              
              
              $
              3,427
              
              
              $
              (5,053
              )
              
              $
              (6
              )
              
              $
              1,042
              
              
              $
              46,865
  53
  
  Issuance
      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 assets of Orbit One
      Communications, Inc.
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              0Issuance
      of shares in connection with purchase of Ublip, Inc.
              
              
              405
              
              
              
              1,446
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              1,446Translation
      adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2
              )
              
              
              -
              
              
              
              (2
              )Share
      based compensation
              
              
              -
              
              
              
              -
              
              
              
              1,159
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,159Net
      earnings
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (10,975
              )
              
              
              (10,975
              )Balance
      @ 12/31/08
              
              
              15,350
              
              
              $
              50,801
              
              
              $
              4,586
              
              
              $
              (5,053
              )
              
              $
              (8
              )
              
              $
              (9,933
              )
              
              $
              40,393
 
  The
accompanying notes are an integral part of these financial
statements.
   54
  NUMEREX CORP. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWS(In
      thousands)For
      the years ended December 31,2008
              
              
              2007
              
              2006Cash
      flows from operating activities:Net
      (loss) earnings
              
              $
              (10,975
              )
              
              $
              440
              
              $
              4,103Adjustments
      to reconcile net (loss) earnings to net cash provided by (used in)
      operating activities:Depreciation
              
              
              824
              
              
              
              699
              
              
              668Amortization
              
              
              2,283
              
              
              
              1,794
              
              
              1,236Allowance
      for Doubtful Accounts
              
              
              1,102
              
              
              
              635
              
              
              229Inventory
      Reserves
              
              
              266
              
              
              
              (13
              )
              
              13Non
      cash interest expense
              
              
              485
              
              
              
              290
              
              
              439Stock
      option compensation expense
              
              
              1,160
              
              
              
              941
              
              
              462Stock
      issued in lieu of directors fees
              
              
              70
              
              
              
              62
              
              
              61Warrants
      issued in addition to investor relation fees
              
              
              -
              
              
              
              -
              
              
              64Impairment
      of goodwill
              
              
              3,986
              
              
              
              -
              
              
              2,140Impairment
      of long-lived assets
              
              
              1,303
              
              
              
              -
              
              
              -Deferred
      income taxes
              
              
              2,776
              
              
              
              528
              
              
              (3,062
              )Changes
      in assets and liabilities which provided (used) cash:Accounts
      and notes receivable
              
              
              6,035
              
              
              
              (5,176
              )
              
              (2,976
              )Inventory
              
              
              1,357
              
              
              
              (6,129
              )
              
              134Prepaid
      expenses
              
              
              417
              
              
              
              411
              
              
              (504
              )Other
      assets
              
              
              42
              
              
              
              480
              
              
              (855
              )Accounts
      payable
              
              
              (3,133
              )
              
              
              2,586
              
              
              957Other
      current liabilities
              
              
              585
              
              
              
              377
              
              
              (244
              )Deferred
      revenues
              
              
              (235
              )
              
              
              (492
              )
              
              (240
              )Income
      taxes
              
              
              11
              
              
              
              (738
              )
              
              38Net
      cash provided by (used in) operating activities:
              
              
              8,359
              
              
              
              (3,305
              )
              
              2,663Cash
      flows from investing activities:Purchase
      of property and equipment
              
              
              (453
              )
              
              
              (613
              )
              
              (703
              )Purchase
      of intangible and other assets
              
              
              (1,544
              )
              
              
              (1,461
              )
              
              (1,262
              )Purchase
      of short-term investment
              
              
              -
              
              
              
              (8,051
              )
              
              -Sale
      of short-term investment, net
              
              
              -
              
              
              
              8,051
              
              
              1,538Purchase
      of Airdesk, Inc. assets
              
              
              -
              
              
              
              -
              
              
              (3,683
              )Purchase
      of Orbit One Communications, Inc. assets
              
              
              (1,807
              )
              
              
              (6,625
              )
              
              -Purchase
      of Ublip, Inc. assets
              
              
              (249
              )
              
              
              -
              
              
              -Net
      cash used in investing activities
              
              
              (4,053
              )
              
              
              (8,699
              )
              
              (4,110
              )Cash
      flows from financing activities:Proceeds
      from exercise of common stock options
              
              
              124
              
              
              
              569
              
              
              303Proceeds
      from note payable and debt
              
              
              -
              
              
              
              -
              
              
              20,000Principal
      payments on capital lease obligations
              
              
              (79
              )
              
              
              (87
              )
              
              (80
              )Principal
      payments on notes payable and debt
              
              
              (2,857
              )
              
              
              (1,429
              )
              
              (1,223
              )Net
      cash (used in) provided by financing activities:
              
              
              (2,812
              )
              
              
              (947
              )
              
              19,000Effect
      of exchange differences on cash
              
              
              (2
              )
              
              
              (8
              )
              
              10Net
      increase (decrease) in cash and cash equivalents
              
              
              1,492
              
              
              
              (12,959
              )
              
              17,563Cash
      and cash equivalents at beginning of year
              
              
              7,425
              
              
              
              20,384
              
              
              2,821Cash
      and cash equivalents at end of year
              
              $
              8,917
              
              
              $
              7,425
              
              $
              20,384Supplemental Disclosures of Cash Flow
      InformationCash
      payments for:Interest
              
              $
              1,196
              
              
              $
              1,444
              
              $
              583Income
      taxes
              
              $
              233
              
              
              $
              17
              
              $
              189Disclosure
      of non-cash financing activities:Capital
      leases
              
              $
              -
              
              
              $
              -
              
              $
              182Non-cash
      interest expense
              
              $
              485
              
              
              $
              290
              
              $
              439Non-cash
      financing payments
              
              $
              -
              
              
              $
              -
              
              $
              3,634Non-cash
      leasehold improvement
              
              $
              127
              
              
              $
              140
              
              $
              88Disclosure
      of non-cash investing activities:Common
      stock issued for the purchase of assets of Airdesk, Inc.
              
              $
              1,706
              
              
              $
              1,018
              
              $
              1,503Common
      stock issued for the purchase of assets of Orbit One Communications,
      Inc.
              
              $
              -
              
              
              $
              2,673
              
              $
              -Common
      stock issued for the purchase of assets of Ublip, Inc.
              
              $
              1,446
              
              
              $
              -
              
              $
              -
 
  The
accompanying notes are an integral part of these financial
statements.
   55
  NUMEREX
CORP. AND SUBSIDIARIES
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Years
ended December 31, 2008, 2007 and 2006
  
  
  NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
  A summary
of the significant accounting policies consistently applied in the preparation
of the accompanying financial statements follows:
  
  1.           Nature of
Business
  
  Numerex
Corp. is a leading single source provider of solutions and network services for
machine-to-machine (M2M) applications. Numerex's platforms for asset tracking,
intelligent monitoring and security include a portfolio of monitoring devices
and technologies, on-demand cellular and satellite networks, and a full suite of
back-office support services. Numerex enables customers to bring M2M solutions
to market faster and with greater flexibility. The company is headquartered in
Atlanta, Georgia.
  
  2.           Principles of
Consolidation
  
  The
consolidated financial statements include the results of operations and
financial position of Numerex and its wholly owned
subsidiaries.  Intercompany accounts and transactions have been
eliminated in consolidation.
  
  3.Revenue
Recognition
  
  The
Company’s revenue is generated from three sources:
  · the supply of
hardware, under non recurring agreements,
  · the provision
of services,
  · the provision
of data transportation services, under recurring or multi-year contractually
based agreements.
  
  Revenue
is recognized when persuasive evidence of an agreement exists, the hardware or
service has been delivered, fees and prices are fixed and determinable, and
collectibility is probable and when all other significant obligations have been
fulfilled.
  
  The
Company recognizes revenue from hardware sales at the time of shipment and
passage of title. Provision for rebates, promotions, product returns and
discounts to customers is recorded as a reduction in revenue in the same period
that the revenue is recognized. The Company offers customers the right to return
hardware that does not function properly within a limited time after delivery.
The Company continuously monitors and tracks such hardware returns and records a
provision for the estimated amount of such future returns, based on historical
experience and any notification received of pending returns. While such returns
have historically been within expectations and the provisions established, the
Company cannot guarantee that it will continue to experience the same return
rates that it has experienced in the past. Any significant increase in hardware
failure rates and the resulting credit returns could have a material adverse
impact on operating results for the period or periods in which such returns
materialize.
  Numerex
recognizes revenue from the provision of services at the time of the completion,
delivery or performance of the service. In the case of revenue derived from
maintenance services the Company recognizes revenue ratably over the contract
term. In certain instances the Company may, under an appropriate agreement,
advance charge for the service to be provided. In these instances the Company
recognizes the advance charge as deferred revenue (classified as a liability)
and release the revenue ratably over future periods in accordance with the
contract term as the service is completed, delivered or
performed.  The Company’s revenues in the consolidated statement of
operations are net of sales taxes.
  
  The
Company recognizes revenue from the provision of data transportation services
when it performs the services or processes transactions in accordance with
contractual performance standards. Revenue is earned monthly on the basis of the
contracted monthly fee and an excess message fee charge, should it apply, that
is volume based.  In certain instances the Company may, under an
appropriate agreement, advance charge for the data transport service to be
provided. In these instances the Company recognizes the advance charge (even if
nonrefundable) as deferred revenue (classified as a liability) and releases the
revenue over future periods in accordance with the contract term as the data
transport service is delivered or performed.
    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 Financial
Accounting Standards Board Emerging Issues Task Force Issue No. 00-21,
“Revenue Arrangements with Multiple Deliverables.” In general, a deliverable (or
a group of deliverables) meets the separation criteria if the deliverable has
standalone value to the customer and if there is objective and reliable evidence
of the fair value of the remaining deliverables in the arrangement. Each
deliverable that meets the separation criteria is considered a separate “unit of
accounting.” We allocate the total arrangement consideration to each unit of
accounting based on the relative fair value of each unit of accounting. The
amount of arrangement consideration that is allocated to a delivered unit of
accounting is limited to the amount that is not contingent upon the delivery of
another unit of accounting.
  
  After the
arrangement consideration has been allocated to each unit of accounting, we
apply the appropriate revenue recognition method for each unit of accounting as
described previously based on the nature of the arrangement and the services
included in each unit of accounting. All deliverables that do not meet the
separation criteria of EITF 00-21 are combined into one unit of accounting,
and the most appropriate revenue recognition method is applied.
  
  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 $47,000
and $26,000 at December 31, 2008 and 2007, respectively was held in our foreign
bank account.
  
  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.
  
   56
  We
adopted SFAS 142 on January 1, 2002.  In connection with the adoption,
we reviewed the classification of our goodwill and other intangible assets,
reassessed the useful lives previously assigned to other intangible assets, and
discontinued amortization of goodwill.  SFAS 142 also requires that an
impairment test be performed on goodwill at least annually.  This test
requires that the fair value of each reporting unit as a whole be compared to
its carrying value including goodwill.  If the reporting unit’s fair
value exceeds its carrying value, goodwill is not impaired.  If,
however, the carrying value of the reporting unit exceeds its fair value, a
second step of the impairment test is required. This second test requires that
an estimate of the implied fair value of goodwill be compared to its carrying
amount.  If the carrying amount of goodwill exceeds the implied value,
the goodwill is impaired and is written down to the implied fair
value.  The implied fair value of goodwill is the excess of the fair
value of the reporting unit as a whole, over the fair values that would be
assigned to its assets and liabilities in a purchase business
combination.
  
  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
  
  In
accordance with SFAS No. 144, long-lived assets, such as property and equipment,
and purchased intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.  Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the
asset.  If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the
asset.  Assets to be disposed of by sale would be separately presented
in the consolidated balance sheet and reported at the lower of the carrying
amount or fair value less costs to sell, and are no longer
depreciated.  The assets and liabilities of a disposed group
classified as held for sale would be presented separately in the appropriate
asset and liability sections of the consolidated balance sheet.
  
  During
2008, we recorded an impairment of long-lived assets of $1.3
million.  See note G (Intangible Assets) for additional
information.
   57
  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
September 2006 the FASB issued Interpretation No. 48,Accounting for Uncertainty in
Income Taxes - An Interpretation of FASB Statement No.
109  ("FIN 48"). FIN 48 provides detailed guidance for the
financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in an enterprise's financial statements in accordance with
SFAS 109. Income tax positions must meet a more-likely-than-not recognition
threshold at the effective date to be recognized upon the adoption of FIN 48 and
in subsequent periods. The Company adopted FIN 48 effective January 1, 2007, and
the provisions of FIN 48 will be applied to all income tax positions commencing
from that date. The Company recognizes potential accrued interest and penalties
related to unrecognized tax benefits within operations as income tax expense.
The cumulative effect of applying the provisions of FIN 48 has been reported as
an adjustment to the opening balance of retained earnings as of January 1,
2007.
  
  Upon
adoption of FIN 48, the Company recorded a liability for unrecognized tax
benefits of $250,000 inclusive of interest and penalties of $24,250 and
$11,700, respectively. The $250,000 unrecognized benefit also caused a
corresponding decrease to retained earnings as of January 1,
2007. The Company continues to accrue interest and
penalties for unrecognized tax benefits existing as of January 1,
2007. The Company has made an accounting policy election to treat interest and
penalties as tax expense. The Company has recorded an increase to the
liability for unrecognized tax benefits for the year ended December 31, 2008 of
$106,000. This amount is made up of an increase to total tax expense of $48,000
which is net of federal benefit. The remaining addition to this liability is an
accrual of interest and penalties related to the exposure, with approximately
$11,000 related to current year positions, and $47,000 related to interest and
penalties on positions originating in prior periods. Because of the nature of
the exposure, interest is also recorded net of federal benefit, while penalties
are recorded gross. The Company's total unrecognized tax benefits as of December
31, 2008 were $478,000 inclusive of interest and penalties of $133,000. If the
Company were to recognize these tax benefits, all of the benefit would impact
the effective tax rate. The Company anticipates a decrease to the balance of
total unrecognized tax benefits in the next twelve months of approximately
$20,000. This reduction results from the Company's policy to treat the statute
of limitations as expiring on certain state tax positions after five years,
consistent with many state's administrative practices. Management does not
anticipate any other material changes to unrecognized tax benefits, net of
federal benefit, excluding interest and penalties in the next twelve
months.
  
   58
  The
following table summarizes the activity for the years ended December 31, 2007
and 2008 related to the company's unrecognized tax benefits, net of federal
benefit, excluding interest and penalties (in thousands):
  2007
              
              
              2008Balance
      at January 1
              
              $
              214
              
              
              $
              297Increases
      as a result of positions taken during prior periods
              
              
              16
              
              
              
              -Decreases
      as a result of positions taken during prior periods
              
              
              -
              
              
              
              (5
              )Increases
      as a result of positions taken during the current period
              
              
              67
              
              
              
              53Reductions
      in benefits from lapse in statute of limitations
              
              
              -
              
              
              
              -Balance
      at December 31
              
              $
              297
              
              
              $
              345
 
  9.           Inventory
  
  Inventories
are valued at the lower of cost or market. Cost is generally determined on the
first-in, first-out (“FIFO”) basis.  We include raw material freight
costs to manufacturers in inventory and these costs are recognized in cost of
sales when the product is sold.  Lower of cost or market value of
inventory is determined at the operating unit level and evaluated periodically.
Estimates for obsolescence or slow moving inventory are maintained based on
current economic conditions, historical sales quantities and patterns and, in
some cases, the specific risk of loss on specifically identified inventories.
Such inventories are recorded at estimated realizable value net of the costs of
disposal.
  
  10.           Accounts Receivable and
Allowance for Doubtful 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 monthly.  Account balances are
charged off against the allowance after all means of collection have been
exhausted and the potential for recovery is considered remote.
  
  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, 2008 and 2007, all of our
notes receivable were determined to be collectible and current.
  
   59
  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.
  
  14.           Fair Value of Financial
Instruments
  
   Effective
January 1, 2008, we adopted SFAS No. 157, which clarifies the
definition of fair value, prescribes methods for measuring fair value,
establishes a fair value hierarchy based on the inputs used to measure fair
value, and expands disclosures about fair value measurements. The three-tier
fair value hierarchy, which prioritizes the inputs used in the valuation
methodologies, is:
   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. 
The carrying value of the long-term note payable discussed in Note J
approximates its fair value because the interest rates of the debt approximate
market interest rates at the reporting periods.
  
  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.
  
   60
  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 $8.7 million and $7.3 million at December 31, 2008 and 2007,
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.
  
  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.
  
  18.           
Research and
Development
  
  Research
and development expenses are charged to operations in the period in which they
are incurred.  For the years ended December 31, 2008, 2007 and 2006
research and development costs amounted to $2.2 million, $1.5 million and $1.1
million, respectively.
  
  19.           Share-Based
Compensation
    On
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”)
which requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors.
    The
Company adopted SFAS 123(R) using the modified prospective transition method,
which requires the application of the accounting standard as of January 1,
2006.  The Company’s Consolidated Financial Statements as of and for
the years ended December 31, 2008, 2007 and 2006 reflect the impact of SFAS
123(R).
  
  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.
  
   61
  21.          Advertising
Expenses
  
  Advertising
expenses are charged to operations in the period in which they are
incurred.  For the years ended December 31, 2008, 2007 and 2006,
advertising costs were approximately $905,000, $526,000 and $420,000,
respectively.
  
  22.          Recent Accounting
Pronouncements
  
  In
October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of
a Financial Asset when the Market for That Asset Is Not Active.” providing
guidance on calculating fair value in an inactive market.  This FSP is
effective upon issuance, including prior periods for which financial statements
have not been issued.  The adoption of this FSP did not have an impact
on our consolidated financial statements.
  In June
2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted
in Share-Based Payment Transactions Are Participating
Securities.”  This FSP provides that unvested share-based payment
awards that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of earnings per share pursuant to the two-class
method.  The FSP is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
years.  All prior period earnings per share data presented shall be
adjusted retrospectively.  Early application of this FSP is
prohibited.  The Company is currently evaluating the potential impact
of adopting FSP EITF 03-6-1.
  
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities — including an amendment of FASB
Statement No. 115.” This statement permits entities to choose to measure
many financial instruments and certain other items at fair value. This statement
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, including interim periods within that fiscal year. The
Company did not elect the fair value option for any of its existing financial
instruments as of December 31, 2008 and the Company has not determined whether
or not it will elect this option for financial instruments it may acquire in the
future.
  
  In
May 2008, the FASB issued FASB Staff Position APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (“the FSP”).  The FSP requires that the
proceeds from the issuance of certain convertible debt instruments be allocated
between a liability component (issued at a discount) and an equity
component.  The resulting debt discount must be amortized over the period
the convertible debt is expected to be outstanding as additional non-cash
interest expense.  The FSP is effective for fiscal years beginning after
December 15, 2008, will not permit early application, and will require
retrospective application to all periods presented.  The Company is
currently evaluating the impact of the FSP on our consolidated financial
statements.
  
  In April
2008, the FASB issued Statement No. 142-3, “Determination of the Useful
Life of Intangible Assets”(“FAS 142-3”).FAS 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under FASB No. 142, “Goodwill and Other
Intangible Assets”. The
intent is to improve the consistency between the useful life of a recognized
intangible asset under FAS 142 and the period of expected cash flows used to
measure the fair value of the asset under FASB No. 141(R), “Business
Combinations—revised”
(“FAS 141(R)”),and
other GAAP. FAS 142-3 will be effective for intangible assets acquired beginning
January 1, 2009. Accordingly, the impact on the Company would be limited to
the extent of any future acquisitions.
   62
  
  In
December 2007, the FASB issued SFAS No.160, “Non-controlling Interests in
Consolidated Financial Statements” (“SFAS No. 160”), an amendment of Accounting
Research Bulletin No. 51. SFAS No.160 establishes accounting and
reporting standards for ownership interests in subsidiaries held by parties
other than the parent, the amount of consolidated net income attributable to the
parent and to the non-controlling interest, changes in a parent’s ownership
interest, and the valuation of retained non-controlling equity investments when
a subsidiary is deconsolidated. Statement No. 160 also establishes
disclosure requirements that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
No. 160 is effective for fiscal years beginning after December 15,
2008.  We will adopt SFAS No. 160 in the first quarter of fiscal 2009.
We do not expect this statement will have a material impact on our future
results of operations and financial condition.
  
  In
December 2007, the FASB issued Statement No. 141(R), "Business Combinations,"
(“SFAS 141(R)”), which will change the accounting for and reporting of business
combination transactions. The most significant changes in the accounting for
business combinations under SFAS 141(R) include: (1) valuation of any acquirer
shares issued as purchase consideration will be measured at fair value as of the
acquisition date; (2) contingent purchase consideration, if any, will generally
be measured and recorded at the acquisition date, at fair value, with any
subsequent change in fair value reflected in earnings rather than through an
adjustment to the purchase price allocation; (3) acquired in-process research
and development costs, which have historically been expensed immediately upon
acquisition, will now be capitalized at their acquisition date fair values,
measured for impairment over the remaining development period and, upon
completion of a successful development project, amortized to expense over the
asset's estimated useful life; (4) acquisition related costs will be expensed as
incurred rather than capitalized as part of the purchase price allocation; and
(5) acquisition related restructuring cost accruals will be reflected within the
acquisition accounting only if certain specific criteria are met as of the
acquisition date; the prior accounting convention, which permitted an acquirer
to record restructuring accruals within the purchase price allocation as long as
certain, broad criteria had been met, generally around formulating, finalizing
and communicating certain exit activities, will no longer be permitted. SFAS
141(R) will be effective for all business combinations consummated beginning
January 1, 2009. Earlier adoption is not permitted.  The impact of
adopting SFAS 141R will be dependent on the business combinations that the
Company may pursue after its effective date.
  
  In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”), which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
(GAAP), and expands disclosures about fair value measurements. For financial
assets and liabilities, this statement was effective for fiscal periods
beginning after November 15, 2007 and did not require any new fair value
measurements. In February 2008, the FASB Staff Position No. 157-2,
“Effective Date of FASB Statement No. 157” (“SFAS 157-2”), was issued which
delayed the effective date of FASB Statement No. 157 to fiscal years
beginning after November 15, 2008 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).
  
  The
Company adopted SFAS 157 as related to financial assets and liabilities in the
first quarter of 2008. As a result, the Company was not required to recognize
any new assets or liabilities at fair value.The Company is currently
evaluating the impact of adopting the provisions of SFAS 157-2.
     63
  NOTE
B – ACQUISITIONS
  
  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 will be 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 on the date of the acquisition of $3.56 per share, 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 wireless M2M data communications
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 generated approximately $7.5 million in
goodwill which the Company believed was appropriate because it expanded the
Company’s M2M communications hardware and service technologies, increased
penetration  into the governmental markets,  and improved
capabilities to enable M2M applications globally in areas underserved by
terrestrial-based and cellular communications providers.
  
   64
  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 are achieved,
subsequent payments could include shares of Numerex Corp’s common
stock.  If all earn-out objectives are achieved stock payments could
be up to 1,100,000 shares of the Company’s Class A common
stock.   If the performance targets are exceeded, Orbit One may
receive up to an additional 471,729 shares of the Company’s Class A common stock
and an additional cash payment of $2.5 million. 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 are measured over three periods: (i) from the closing date of the
transaction through December 31, 2007; (ii) calendar year 2008; and (iii)
calendar year 2009. The Company and Orbit One entered into an escrow agreement,
whereby 10% of the cash payments not subject to performance-related milestones
were placed in escrow for one year from the closing date in order to settle any
indemnification claims under the Agreement and subject to the limitations
described therein.  Any additional payments of either cash or equity
will be reflected as incremental goodwill.
  
  On
December 31, 2007 certain revenue and EBITA targets were met for the first
measurement period, ending December 31, 2007.   As a result,
320,833 shares of the Company’s Class A common stock were 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 the legal action. The earn-out milestones for calendar year 2008 were
not been.
  
   65
  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 was comprised of $170,000 assigned to trademarks,
and $770,000 assigned to customer relationships.  The estimated useful
lives for these assets are 10 years for proprietary software, 1 year for
trademarks and 9 years for customer relationships.However, the valuation of
the assets of Orbit One at the time of the acquisition is the subject of
litigation. See “Legal Proceedings” In addition, the Company conducted its
goodwill and long lived asset analysis and assessment in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) 141 and
Statement of Financial Accounting Standards (SFAS) 144. As a result, the values
for customer relationships and proprietary software was impaired by $1.3 million
thus adjusted to their estimated fair value at December 31, 2008 as a result of
our impairment analysis, with assistance from an external appraisal
firm.
  
  The $7.4
million of goodwill was assigned to the Wireless M2M Data communications
segment.    The goodwill and intangible assets will be
deductible for income tax purposes.
  
   66
  The
following unaudited pro-forma consolidated results of operations assume that the
acquisition of Orbit One assets was completed as of January 1 for each of
the 12 months periods shown below:
  
  For
      the YearsEnded
      December 31,(In
      thousands, except per share data)
              
              2007
              
              
              2006Revenues
              
              $
              71,952
              
              
              $
              65,210Net
      Income
              
              $
              836
              
              
              $
              6,227Earnings
      Per Common Share
              
              $
              0.08
              
              
              $
              0.50Earnings
      Per Common Share - diluted
              
              $
              0.07
              
              
              $
              0.48
 
  These
pro-forma statements have been prepared for comparative purposes only and are
not intended to be indicative of what the Company’s results would have been had
the acquisition occurred at the beginning of the periods presented or the
results which may occur in the future.
  
  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
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.
  
   67
  The
Company assumed approximately $2.5 million of debt, of which $1.2 million was
paid in cash at closing of the transaction as a reduction of part of the debt,
and the balance of $1.3 million was paid on August 17, 2006.  The
Company also issued shares of common stock valued at approximately $196,000 to
Airdesk, Inc. at closing and deposited the remaining shares of common stock,
valued at closing at approximately $1.3 million, with an Escrow
Agent.  Airdesk, Inc. retains voting and dividend rights to these
shares while held in escrow. The Escrow Agent will release the shares of common
stock to Airdesk, Inc. over a two-year period in accordance with the terms of
the Escrow Agreement. In addition, we incurred approximately $266,000 of direct
acquisition expenses that are in addition to the purchase price.
  
  The
following table summarizes the estimated fair values of the assets acquired and
liabilities assumed on January 5, 2006 as updated for the additional issuance of
shares on April 1, 2007.
  
  (in
      thousands)Current
      assets
              
              $
              2,410Property,
      plant and equipment
              
              
              444Other
      non-current assets
              
              
              12Intangible
      assets
              
              
              934Goodwill
              
              
              4,232Total
      assets acquired
              
              
              8,032Current
      liabilities
              
              
              (3,346
              )Long-term
      debt
              
              
              (700
              )Total
      liabilities assumed
              
              
              (4,046
              )Net
      assets acquired
              
              $
              3,986
 
  The
$934,000 of acquired intangible assets was comprised of $668,000 assigned to
trademarks, $189,000 assigned to customer relationships and $77,000 assigned to
a non-compete agreement.  The estimated useful life of the customer
relationships is 4 years and the estimated useful life of the non-compete
agreement is 2 years.  The trademarks are not subject to
amortization.
  
  The $4.2
million of goodwill was assigned to the wireless M2M data communications
segment. 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)
              
              2008
              
              
              2007Accounts
      receivable
              
              $
              9,952
              
              
              $
              16,243Unbilled
      accounts receivable
              
              
              217
              
              
              
              1,162Allowance
      for doubtful accounts
              
              
              (1,010
              )
              
              
              (1,009
              )Accounts
      receivable
              
              $
              9,159
              
              
              $
              16,396
 
   68
  NOTE
D – PREPAID EXPENSES AND OTHER CURRENT ASSETS
  
  Prepaid
expenses and other current assets consisted of the following:
  
  December
      31,
              
              
              December
      31,(In
      thousands)
              
              2008
              
              
              2007Notes
      receivable
              
              $
              916
              
              
              $
              882Prepaid
      expenses
              
              
              380
              
              
              
              721Prepaid
      minutes
              
              
              -
              
              
              
              75Debt
      issuance costs
              
              
              196
              
              
              
              196Misc.
      and employee receivables
              
              
              16
              
              
              
              11$
              1,508
              
              
              $
              1,885
 
  We had
one note receivable at December 31, 2008 in the amount of $916,000 with a 10%
interest rate.  We had three notes receivables at December 31, 2007 in
the amounts of $645,000, $150,000 and $87,000.  These notes were payable to
us in installments.  Two of the notes were non-interest bearing and the
other note bore interest at 12%.
  
  NOTE
E – INVENTORY
  
  Inventory
consisted of the following:
  
  December
      31,(In
      thousands)
              
              2008
              
              
              2007Raw
      materials
              
              $
              2,710
              
              
              $
              4,086Work-in-progress
              
              
              14
              
              
              
              51Finished
      goods
              
              
              6,388
              
              
              
              6,262Less
      reserve for obsolescence
              
              
              (606
              )
              
              
              (340
              )Inventory
              
              $
              8,506
              
              
              $
              10,059
 
  NOTE
F – PROPERTY AND EQUIPMENT
  
  Property
and equipment consisted of the following:
  
  December
      31,(In
      thousands)
              
              2008
              
              
              2007Leasehold
      improvements
              
              $
              1,228
              
              
              $
              1,049Plant
      and machinery
              
              
              10,004
              
              
              
              9,597Equipment,
      fixtures, fittings
              
              
              810
              
              
              
              810Total
      property and equipment
              
              
              12,042
              
              
              
              11,456Accumulated
      depreciation
              
              
              (10,277
              )
              
              
              (9,453
              )Property
      and equipment, net
              
              $
              1,765
              
              
              $
              2,003
 
   69
  NOTE
G – INTANGIBLE ASSETS
  
  The
following table provides a summary of the components of our intangible
assets:
  
  December
      31,
              
              
              December
      31,(In
      thousands)
              
              2008
              
              
              2007Wireless
      Data CommunicationsGoodwill
              
              $
              24,226
              
              
              $
              22,133Accumulated
      Amortization
              
              
              (1,405
              )
              
              
              (1,405
              )Digital
      Multimedia and NetworkingGoodwill
              
              
              4,364
              
              
              
              5,289Accumulated
      Amortization
              
              
              (3,414
              )
              
              
              (3,414
              )Goodwill,
      net
              
              $
              23,771
              
              
              $
              22,603Purchased
      and developed software
              
              
              8,040
              
              
              
              6,921Patents,
      trade and service marks
              
              
              13,116
              
              
              
              12,673Intangible
      and other assets
              
              
              2,142
              
              
              
              1,951Total
      intangible assets
              
              
              23,298
              
              
              
              21,545Accumulated
      amortization
              
              
              (14,706
              )
              
              
              (11,119
              )Intangible
      assets, net
              
              $
              8,592
              
              
              $
              10,426
 
  During
2008, we prepared an analysis using standard modeling techniques to estimate a
fair market value for each of the four reporting units with
goodwill:  Wireless, Airdesk, LLC, Orbit One, LLC and Digital
Multimedia.  This analysis included a combination of a discounted cash
flow analysis and, where available, the use of public company market comparables
in similar industries.  We used historical information, our 2009
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.
  
  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 Digital Multimedia reporting
unit.
  
  During
2008, the increase in goodwill of $1.2 million is due to the following (see Note
B for additional information):
  ·
              $1.6
      million increase to goodwill related to the acquisition of Ublip,
      Inc.
  ·
              $1.1
      million net decrease to the goodwill related to the acquisition and
      impairment of Orbit One Communications,
Inc.
  ·
              $1.7
      million increase to goodwill related to the acquisition of Airdesk,
      Inc.
  ·
              $1.0
      million decrease to goodwill related to impairment related to our Digital
      Multimedia reporting unit.
    At
December 31, 2008 and 2007, the Company had capitalized approximately $823,000
and $971,000 of software development costs, respectively. Amortization of
capitalized software development costs for the years ended December 31, 2008 and
2007 was $706,000 and $319,000, respectively.
  
   70
  The
Company expects amortization expense for the next five years and thereafter to
be as follows based on intangible assets as of December 31, 2008 (in
thousands):
    2009
              $
      2.6 million2010
              2.0
      million2011
              1.3
      million2012
              0.9
      million2013
              0.8
      millionThereafter
              1.0
      millionTotal
              $8.6
      million
 
  NOTE
H – OTHER ASSETS
  
  Other
assets consisted of the following:
  
  December
      31,
              
              
              December
      31,(In
      thousands)
              
              2008
              
              
              2007Deposits
      long term
              
              $
              130
              
              
              $
              112Notes
      Receivable long-term
              
              
              -
              
              
              
              60Debt
      Issuance costs
              
              
              158
              
              
              
              354$
              288
              
              
              $
              526
 
  Notes
Receivable long-term is related to a revenue share agreement with a customer in
Australia.  During 2008, the note receivable was written off due to
slow collections.
  
  The
long-term portion of debt issuance costs were $556,000, less accumulated
amortization of approximately $398,000, at December 31, 2008, and $556,000, less
accumulated amortization of approximately $202,000, at December 31,
2007.
  
   71
  NOTE
I – INCOME TAXES
  
  The
provision (benefit) for income taxes consisted of the following:
  
  December
      31,(in
      thousands)
              
              2008
              
              
              2007
              
              
              2006Current:Federal
              
              $
              26
              
              
              $
              43
              
              
              $
              57State
              
              
              95
              
              
              
              17
              
              
              
              55Reserve
      for Uncertain Tax Positions
              
              
              106
              
              
              
              140
              
              
              
              -Foreign
              
              
              54
              
              
              
              -
              
              
              
              -Deferred:Federal
              
              
              2,664
              
              
              
              529
              
              
              
              (2,941
              )State
              
              
              102
              
              
              
              (1
              )
              
              
              (121
              )$
              3,047
              
              
              $
              728
              
              
              $
              (2,950
              )
 
  Income
taxes recorded by the Company differ from the amounts computed by applying the
statutory U.S. federal income tax rate to income before income taxes. The
following schedule reconciles income tax expense (benefit) at the statutory rate
and the actual income tax expense as reflected in the consolidated statements of
operations for the respective periods:
  
  
  December
      31,(in
      thousands)
              
              2008
              
              
              2007
              
              
              2006Income
      tax provision (benefit) computedat
      U.S. corporate tax rate of 34%
              
              $
              (2,695
              )
              
              $
              377
              
              
              $
              392Adjustments
      attributable to:Deferred
      balance true-up
              
              
              (173
              )
              
              
              639
              
              
              
              -State
      net operating losses
              
              
              -
              
              
              
              (93
              )
              
              
              -Valuation
      allowance
              
              
              4,035
              
              
              
              (554
              )
              
              
              (4,452
              )State
      tax
              
              
              67
              
              
              
              11
              
              
              
              56Foreign
      tax
              
              
              30
              
              
              
              (7
              )
              
              
              (3
              )Reserve
      for uncertain tax positions
              
              
              106
              
              
              
              140
              
              
              
              -Non-deductible
      expenses
              
              
              1,547
              
              
              
              215
              
              
              
              958Expiration
      of net operating loss
              
              
              98
              
              
              
              -
              
              
              
              108Other
              
              
              32
              
              
              
              -
              
              
              
              (9
              )$
              3,047
              
              
              $
              728
              
              
              $
              (2,950
              )
 
   72
  The
components of the Company’s net deferred tax assets and liabilities are as
follows:
  
  (in
      thousands)
              
              December
      31,2008
              
              
              2007Current
      deferred tax assetInventories
              
              $
              327
              
              
              $
              122Accruals
              
              
              85
              
              
              
              390Net
      operating loss carry forward
              
              
              -
              
              
              
              1,455Other
              
              
              395
              
              
              
              419Valuation
      Allowance
              
              
              (807
              )
              
              
              (1,616
              )-
              
              
              
              770Non-Current
      deferred tax assetIntangibles
              
              
              (580
              )
              
              
              (234
              )Foreign
      NOL carry forward
              
              
              -
              
              
              
              14Net
      operating loss carry forward
              
              
              7,270
              
              
              
              5,352Tax
      credit carry forward
              
              
              1,303
              
              
              
              1300Difference
      between book andtax
      basis of property
              
              
              1,321
              
              
              
              160Other
              
              
              227
              
              
              
              109Valuation
      Allowance
              
              
              (9,541
              )
              
              
              (4,696
              )-
              
              
              
              2,005Deferred
      Tax LiabilitiesGoodwill
              
              
              (48
              )
              
              
              (56
              )Net
      Deferred Tax Assets (liabilities)
              
              $
              (48
              )
              
              $
              2,719
   Net
operating loss carry forwards available at December 31, 2008, expire as
follows:
  
  (in
      thousands)
              
              
              
              
              Year
      ofAmount
              
              
              ExpirationFederal
      operating losses
              
              $
              13,054
              
              
              
              2021
      - 2028State
      operating losses
              
              $
              51,824
              
              
              
              2009
      - 2028Foreign
              
              $
              -
              
              
              
              N/AMinimum
      Tax Credit Carryforward
              
              $
              738
              
              
              
              N/AGeneral
      Business Credit Carryforward
              
              $
              565
              
              
              
              2015
      - 2022
 
   73
  In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized.  The ultimate realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible.  Management
considers projections of future taxable income, tax planning strategies and the
reversal of temporary differences in making this assessment.  During
the year ended December 31, 2008, management determined that certain deferred
tax assets related to net operating losses previously not offset by a valuation
allowance had been determined to be more likely than not to be unrealizable. As
such, the valuation allowance was increased in 2008 to offset these deferred tax
assets. This increase in valuation allowance on net deferred tax assets had an
approximate $2,766,000 impact on deferred income tax expense for the year ended
December 31, 2008.
  
  Upon
adoption of FIN 48, the Company recorded a liability for unrecognized tax
benefits of $246,000 inclusive of interest and penalties of $20,250 and
$11,700, respectively. The $246,000 unrecognized benefit also caused a
corresponding decrease to retained earnings as of January 1,
2007. The Company continues to accrue interest and
penalties for unrecognized tax benefits existing as of January 1,
2007. The Company has recorded an increase to the liability for
unrecognized tax benefits for the year ended December 31, 2008 of $92,000. This
amount is made up of an increase to total tax expense of $48,000 which is net of
federal benefit. The remaining addition to this liability is an accrual of
interest and penalties related to the exposure. The Company has made an
accounting policy election to treat interest and penalties as tax expense.
Because of the nature of the exposure, interest is also recorded net of federal
benefit, while penalties are recorded gross. For the year ended December 31,
2008, interest and penalties of $34,000 have been recorded related to exposure
that existed as of January 1, 2007 and interest of $5,000 has been recorded
related to incremental exposure for positions taken in the current year. The
Company's total unrecognized tax benefits as of December 31, 2008 were $478,000
inclusive of interest and penalties of $131,000. The company has not been able
to determine with reasonable accuracy what, if any, increase or decrease will be
recorded for uncertain tax positions during the next twelve months. If the
company were to recognize these tax benefits, all of the benefit would impact
the effective tax rate.
  
  The
following table summarizes the activity related to the company's unrecognized
tax benefits, net of federal benefit, excluding interest and penalties (in
thousands):
  
  Balance
      at January 1, 2007
              
              $
              297Increases
      as a result of positions taken during prior periods
              
              
              -Decreases
      as a result of positions taken during prior periods
              
              
              (5
              )Increases
      as a result of positions taken during the current period
              
              
              53Reductions
      in benefits from lapse in statute of limitations
              
              
              -Balance
      at December 31, 2008
              
              $
              345
 
  The
company files U.S., state and foreign income tax returns in jurisdictions with
varying statutes of limitation. The 2005 through 2007 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.
  
   74
  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 principal reductions began in
July 2007 and will continue for the next 42 months with final payment due in
December 2010. Interest and principal under convertible Note C may be paid in
either cash or, subject to certain conditions, in shares of our common
stock.  The Company may only use common stock to make payments on
convertible Note C if the price per share of the common stock for the required
number of trading days immediately prior to conversion is greater than
$11.41.  The holder of the convertible note may convert the entire
principal amount of the convertible note, and any accrued interest thereon, into
our common stock at a fixed conversion price equal to $10.37 per
share.  The fair value of the warrant associated with Note C on
December 29, 2006 was $735,000 and was calculated using the Black-Scholes fair
value pricing model.
  
  On
May 30, 2006, the Company completed a private placement to Laurus Master
Fund, Ltd. (“Laurus”) of (i) a convertible term note in the principal
amount of $5,000,000 (“Note A”) (ii) a non-convertible term note in the
principal amount of $5,000,000 (“Note B”), and (iii) a
warrant  to purchase up to 241,379 shares of our common
stock.  Interest accrues on each of the notes at a rate of 9.75%
annually.  Both notes have four year terms and are secured by
substantially all of our assets.  The fair value of the warrant
associated with Note A and Note B on May 30, 2006 was $846,000 and was
calculated using the Black-Scholes fair value pricing
model.
  The
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.
    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
 
  On August
31, 2006, Laurus converted $158,200 of Note A, which included $41,979 of accrued
interest into 20,000 shares of common stock.  On September 14, 2006
the Company voluntarily converted $1,249,994 of Note A into 158,027 shares of
common stock.  On October 9, 2006 the Company voluntarily converted
$1,249,994 of Note A into 158,027 shares of common stock.  On November
14, 2006 the Company voluntarily converted $1,249,994 of Note A into 158,027
shares of common stock. On December 19, 2006, the Company voluntarily converted
the remaining outstanding balance of $1,133,796 of Note A into 143,337 shares of
common stock.
   75
  Interest
under Note B must be paid in cash.  The principal balance on Note B is
due and payable in cash on May 30, 2010.
    As of
December 31, 2008, the Company had $5.0 million outstanding under Note B and
$5.7 million outstanding under Note C.  As of December 31, 2008, the
Company had a balance of $150,000 for the unamortized warrant associated with
Note B and $368,000 for the unamortized warrant associated with Note
C.
    The
Company expects to make principal payments on our note payable as follows based
on our note payable balance as of December 31, 2008:
  
  2009
              $  2.9
      million2010
              7.8
      millionTotal
              $10.7
      million
 
  On August
1, 2007, Laurus Master Fund, Ltd. assigned to the Valens Fund, a principle
amount equal to $719,215 of Note B.  On August 3, 2007, Laurus Master
Fund, Ltd. assigned to the PSource Structured Debt Limited, a principle amount
equal to $2,777,433 of Note B.  Other than a change in the remittance
account, the Company’s rights and obligations have not been altered as a result
of these assignments.
  
  The
warrant with Note C is exercisable by the holder until December 29,
2013.  Subject to adjustments described in the warrant, the holder
will be entitled to receive, upon exercise of the warrant in whole or in part,
shares of common stock at an exercise price of $10.13. In accordance with the
Warrant agreement, the common stock has been registered.
  
  The
warrant with Note A and Note B is exercisable by the holder until May 30,
2013. Subject to adjustments described in the warrant, the holder will be
entitled to receive, upon exercise of the warrant in whole or in part, shares of
common stock at an exercise price of $7.73. The Company has registered the
common stock underlying the Warrant for resale by Laurus.  Note A also
contains a beneficial conversion feature with a contingent conversion
option.  The value of the Beneficial Conversion Feature, $38,000, was
measured as of the commitment date.
  
  The
Company also completed two prior private placements with Laurus.  On
January 13, 2004, the Company completed its first private placement to Laurus of
(i) a Convertible Term Note in the aggregate principal amount of $4,500,000 (the
“First Company Note”), and (ii) a warrant to purchase up to 300,000 shares of
the Company’s common stock (the “First Warrant”).  The First Warrant
is exercisable by Laurus until January 13, 2011, and has three separate
tranches.
  
  The first
tranche is exercisable for up to 150,000 shares of common stock at a price of
$4.75 per share.  The second tranche is exercisable for up to 100,000
shares of common stock at a price of $5.17 per share.  The third
tranche is exercisable for up to 50,000 shares of common stock at a price of
$5.99 per share.  The Company also agreed to register the common stock
underlying the First Warrant for resale by Laurus, and have such registration
declared effective, by August 13, 2004.  Such registration statement
was declared effective on November 22, 2004.  As a result, under the
terms of the First Warrant, the Company issued warrants covering additional
66,000 shares pursuant to the registration rights
agreement.
  
   76
  On
January 28, 2005, the Company completed a second private placement to Laurus of
(i) a Convertible Term Note in the original principal amount of $1,500,000 (the
“Second Company Note”), and (ii) a warrant to purchase up to 100,000 shares of
our common stock (the “Second Warrant”).  The Second Company Note
provided that Laurus may convert all or any portion of the outstanding principal
amount of the Second Company Note into shares of common stock, subject to
certain limitations.  The Second Warrant is exercisable by Laurus
until January 28, 2012, and has two separate pricing tranches.  The
first pricing tranche is exercisable for up to 50,000 shares of common stock at
a price of $5.51 per share.  The second pricing tranche is exercisable
for up to 50,000 shares of common stock at a price of $5.72 per
share.  The Company has registered the common stock underlying the
Second Company Warrant for resale by Laurus.  The Second Company Note
also contained a beneficial conversion feature with a contingent conversion
option.  The value of the beneficial conversion feature was measured
as of the commitment date.  The value at the commitment date was
$154,000.  On January 24, 2006, Laurus converted $53,100 of our
outstanding debt into 10,000 shares of common stock.  On February 6,
2006, Laurus converted $1,263,780 of our outstanding debt, including $8,944 of
accrued interest into 238,000 shares of common stock. The result of this
transaction was to eliminate our Second Company Note with Laurus, excluding the
warrants issued with the Second Company Note.  These warrants along
with the warrants issued with the First Company Note, which total 400,000,
remain outstanding.
  
  Laurus is
an "accredited investor" as defined in Rule 501(d) of Regulation D under the
Securities Act of 1933, as amended (the "Securities Act").  The
Company issued the securities to Laurus in reliance on the exemption from
registration provided by Section 4(2) under the Securities Act.
  
  NOTE
K – SHARE-BASED COMPENSATION
  
  On
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123(R)”)
which requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors.
    The
Company adopted SFAS 123(R) using the modified prospective transition method,
which requires the application of the accounting standard as of January 1,
2006.  The Company’s Consolidated Financial Statements as of and for
the years ended December 31, 2008, 2007 and 2006 reflect the impact of SFAS
123(R).  Share-based compensation expense recognized under SFAS 123(R)
for the year ended December 31, 2008 was $1.2 million, as compared to $941,000
and $462,000 for the years ended December 31, 2007 and 2006,
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, 2008, net of estimated forfeitures, is $1.4 million
and is expected to be recognized over a weighted-average period of 1.2
years.
     77
  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, 2008, 2007
and 2006 included compensation expense for share-based payment awards granted
prior to, but not yet vested as of December 31, 2005 based on the grant
date fair value estimated in accordance with the pro forma provisions of SFAS
123 and compensation expense for the share-based payment awards granted
subsequent to December 31, 2005 based on the grant date fair value
estimated in accordance with the provisions of SFAS 123(R).  With the
adoption of SFAS 123(R), the Company will continue to use the method of
attributing the value of share-based compensation costs to expense on the
straight-line method.  As stock-based compensation expense recognized
in the Consolidated Statement of Operations for the years ended December 31,
2008, 2007 and 2006 is based on awards ultimately expected to vest, it has been
reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates.
  
  The fair
value of share-based payment awards is estimated at the grant date using the
Black-Scholes option valuation model. The Company’s determination of fair value
of share-based payment awards on the date of grant using the option-pricing
model is affected by the Company’s stock price as well as assumptions regarding
a number of highly complex and subjective variables. These variables include,
but are not limited to; the Company’s expected stock price volatility over the
term of the awards, and actual and projected employee stock option exercise
behaviors.
    The
Company has outstanding stock options granted pursuant to four stock option
plans. The 1994 Long-Term Incentive Plan (the “1994 Plan”), which was adopted in
1994, the Non-Employee Director Stock Option Plan (the “Director Plan”) which
was adopted in 1996, the Long-Term Incentive Plan (the “1999 Plan”), which was
adopted in 1999 and the 2006 Long Term Incentive Plan (the “2006 Plan”) which
was adopted in 2006.  The 1994 Plan and the Director Plan were
terminated and replaced by the 1999 Plan which was effective for options granted
from October 25, 1999.  The 1999 Plan was terminated and replaced by
the 2006 Plan. Options outstanding under the 1994 Plan, the Director Plan and
the 1999 Plan remain in effect, but no new options may be granted under those
plans.  Options issued under the 2006 Plan and the 1999 Plan typically
vest ratably over a four-year period.  All options issued under the
1994 Plan are fully vested.
  
   78
  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, 2008, 2007 and 2006
follows:
  
  Weighted
              Weighted
              Weighted
      Avg.
              AggregateAverage
              Average
      Remaining
              Grant
      Date
              IntrinsicShares
              Ex.
      Price
              Contractual
      Life (Yrs)
              Fair
      Value
              ValueOutstanding,
      at 12/31/05
              1,453,515
              $        4.76Options
      granted
              426,250
              7.89
              
              $                 4.46Options
      exercised
              (74,150)
              3.98
              
              
              $        283,331Options
      cancelled
              (18,250)
              3.82Options
      expired
              (2,500)
              5.13Outstanding,
      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
              5.59
              
              $        383,626Exercisable,
      at 12/31/08
              1,458,282
              5.62
              4.51
              
              $        372,376
 
   79
  The
following table summarizes information related to fixed stock options
outstanding at December 31, 2008:
  
  Options
      outstanding
              
              
              Options
      exercisableRange
      of exercise prices
              
              
              Number
      outstanding at December 31, 2008
              
              
              Weighted
      average remaining contractual life (years)
              
              
              Weighted
      average exercise price
              
              
              Number
      exercisable at December 31, 2008
              
              
              Weighted
      average exercise price$
              1.00
      –  4.00
              
              
              
              558,665
              
              
              
              4.63
              
              
              $
              3.03
              
              
              
              483,665
              
              
              $
              2.954.01
      –  8.00
              
              
              
              935,306
              
              
              
              6.05
              
              
              $
              5.85
              
              
              
              610,555
              
              
              $
              5.478.01
      –  12.94
              
              
              
              511,750
              
              
              
              5.82
              
              
              $
              9.40
              
              
              
              364,062
              
              
              $
              9.402,005,721
              
              
              
              5.59
              
              
              $
              5.97
              
              
              
              1,458,282
              
              
              $
              5.62
 
  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.
  
  A summary
of the status of the Company’s nonvested shares as of December 31, 2008, and
changes during the year ended December 31, 2008, is presented
below:
    WeightedAverageGrant-dateNonvested
      Shares
              
              Shares
              
              
              Fair
      ValueNonvested
      at January 1, 2008
              
              
              714,687
              
              
              $
              4.21Options
      granted
              
              
              199,500
              
              
              
              3.34Options
      vested
              
              
              (312,559
              )
              
              
              3.72Options
      forfeited
              
              
              (54,188
              )
              
              
              4.48Nonvested
      at December 31, 2008
              
              
              547,440
              
              
              $
              4.09
 
    The total
fair value of shares vested during the years ended December 31, 2008, 2007 and
2006 was $1.3 million, $868,000 and $353,000.
  
   80
  The key
assumptions used in the valuation model during the twelve months ended December
31, 2008, 2007 and 2006 are provided below:
  
  Twelve
      Months EndedDecember
      31,2008
              
              
              2007
              
              
              2006Valuation
      Assumptions:Volatility
              
              
              69.73
              %
              
              
              57.24
              %
              
              
              53.70
              %Expected
      term
              
              
              6.3
              
              
              
              6.3
              
              
              
              6.3Risk
      free interest rate
              
              
              3.15
              %
              
              
              4.29
              %
              
              
              4.62
              %Dividend
      yield
              
              
              0.00
              %
              
              
              0.00
              %
              
              
              0.00
              %
 
  NOTE
L – SIGNIFICANT CUSTOMER, CONCENTRATION OF CREDIT RISK AND RELATED
PARTIES
    One
customer accounted for approximately 22% of consolidated revenue for the year
ended December 31, 2008 principally from our Wireless M2M Data Communications
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
Wireless M2M Data Communications segment. Accounts receivable from this customer
was $3.0 million at December 31, 2007, which is approximately 18% of total
accounts receivable.  No customer accounted for more than 10% of
consolidated revenues for the year ended December 31, 2006.
  
  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
and 76% of cost of hardware sales for the year ended December 31,
2006.  Our accounts payable to these suppliers was approximately $1.2
million at 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,
2008.  Mr. Ryan, a director on the Company’s Board of Directors is
also partner in the law firm of Salisbury & Ryan LLP.  Salisbury
& Ryan LLP provided legal services to the Company in fiscal 2008 and will
continue to provide such services during fiscal 2009.  During the year
ended December 31, 2008, 2007, and 2006 Salisbury & Ryan LLP charged legal
fees of approximately $762,000, $277,000, and $172,000,
respectively.  Our accounts payable to Salisbury & Ryan LLP was
$201,000 and $33,000 at December 31, 2008 and 2007, respectively.
  
   81
  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 is approximated
$56,000 as of December 31, 2008.  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, 2008, (in
thousands).
  
  2009
              
              $
              322010
              
              
              262011
              
              
              6Total
      minimum lease payments
              
              
              64Less
      amount representing interest
              
              
              (8
              )Present
      value of net minimum lease payments
              
              $
              56
 
  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, 2008, (in
thousands) are as follows:
  2009
              
              $
              9722010
              
              
              9302011
              
              
              8822012
              
              
              5722013
              
              
              2Total
      minimum lease payments
              
              $
              3,358
 
  Rent
expense, including short-term leases, amounted to approximately $1.1 million,
$938,000 and $795,000 for the years ended December 31, 2008, 2007 and 2006,
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 $182,000, $151,000 and
$142,000 were expensed for the years ended December 31, 2008, 2007 and 2006,
respectively.
   82
  
  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)
              
              2008
              
              
              2007
              
              
              2006Common
      Shares:Weighted
      average common shares outstanding
              
              
              14,144
              
              
              
              13,137
              
              
              
              12,502Dilutive
      effect of common stock equivalents
              
              
              -
              
              
              
              563
              
              
              
              483Total
              
              
              14,144
              
              
              
              13,700
              
              
              
              12,985Net
      earnings (loss)
              
              $
              (10,975
              )
              
              $
              440
              
              
              $
              4,103Net
      earnings (loss) per common share:Basic
              
              $
              (0.78
              )
              
              $
              0.03
              
              
              $
              0.33Diluted
              
              $
              (0.78
              )
              
              $
              0.03
              
              
              $
              0.32
 
  For the
year ended December 31, 2008, the effect of our 2,005,721 stock options and
warrants was not included in the computation of diluted earnings per share as
their effect was anti-dilutive.
  
  For the
years ended December 31, 2007 and 2006, we excluded, respectively, antidilutive
options of 239,692 and 245,120 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.
  
  With the
acquisition of the assets of Orbit One Communications, the Company could issue
an additional 1,250,596 shares of the Company’s common stock over a two-year
period.  These shares are currently held in Escrow and are not
included in the basic and diluted share calculation.
  
  As of
December 31, 2008, 2007 and 2006, we had a total of 2,005,721, 1,926,222 and
1,784,865 stock options and warrants outstanding, respectively.
  
   83
  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.  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
  
  SFAS
No. 131, Disclosures
About Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments in financial
statements.  The Company has two reportable operating
segments.  These segments are Wireless M2M Data Communications and
Digital Multimedia, Networking and Wireline Security.  The Wireless
M2M Data Communications segment is made up of all our cellular and satellite
machine-to-machine communications hardware and services.  The Digital
Multimedia, Networking and Wireline Security segment includes our networking
hardware and services, video conferencing hardware, and our wire-line security
detection hardware.
    The
Company’s chief operating decision maker is the Chief Executive Officer (CEO).
While the CEO is apprised of a variety of financial metrics and information, the
Company’s business is principally managed on a segment basis, with the CEO
evaluating performance based upon segment operating profit or loss that includes
an allocation of common expenses, but excludes certain unallocated expenses. The
CEO does not view segment results below operating profit (loss) before
unallocated costs, and therefore unallocated expenses, interest income and
other, net, and the provision for income taxes are not broken out by segment.
Items below segment operating profit/(loss) are reviewed on a consolidated
basis.
  
   84
  Summarized
below are the Company’s revenues and net income (loss) by reportable
segment as of and for the years ended December 31, 2008, 2007 and
2006.
  
  Certain
Corporate expenses are allocated to the segments based on segment
revenues.
  For
      the years ended December 31,(In
      thousands, except per share data)
              
              2008
              
              
              2007
              
              
              2006Revenues:Wireless
      M2M Data Communications
              
              $
              66,149
              
              
              $
              62,825
              
              
              $
              46,321Digital
      Multimedia, Networking and Wireline Security
              
              
              6,170
              
              
              
              5,179
              
              
              
              6,467$
              72,319
              
              
              $
              68,004
              
              
              $
              52,788Operating
      earnings (loss):Wireless
      M2M Data Communications
              
              $
              (6,729
              )
              
              $
              2,374
              
              
              $
              3,659Digital
      Multimedia, Networking and Wireline Security
              
              
              916
              
              
              
              680
              
              
              
              (1,619
              )Unallocated
      Corporate
              
              
              (576
              )
              
              
              (554
              )
              
              
              (366
              )$
              (6,389
              )
              
              $
              2,500
              
              
              $
              1,674Depreciation
      and Amortization (includes $5.3 impairment of goodwill and long-lived
      assets):Wireless
      M2M Data Communications
              
              $
              6.878
              
              
              $
              1,801
              
              
              $
              1,268Digital
      Multimedia, Networking and Wireline Security
              
              
              965
              
              
              
              194
              
              
              
              220Unallocated
      Corporate
              
              
              553
              
              
              
              498
              
              
              
              267$
              8,396
              
              
              $
              2,493
              
              
              $
              1,755Dec.
      31,
              
              
              Dec.
      31,
              
              
              Dec.
      31Identifiable
      Assets:
              
              2008
              
              
              2007
              
              
              2006Wireless
      M2M Data Communications
              
              $
              49,598
              
              
              $
              57,271
              
              
              $
              37,380Digital
      Multimedia, Networking and Wireline Security
              
              
              2,168
              
              
              
              3,972
              
              
              
              3,941Unallocated
      Corporate
              
              
              10,740
              
              
              
              12,855
              
              
              
              25,072$
              62,506
              
              
              $
              74,098
              
              
              $
              66,393
 
  
  
   85
  REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM ON CONSOLIDATED FINANCIAL
STATEMENTS
    Board of
Directors and Shareholders
  Numerex
Corp.
  
  We have
audited the accompanying consolidated balance sheets of Numerex Corp.
(a Pennsylvania company) and subsidiaries (the “Company”) as of December
31, 2008 and 2007, 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, 2008. Our audits of the basic
financial statements included the financial statement schedule II listed in the
index appearing under Item 15 (a)(2). These financial statements and financial
statement schedule are the responsibility of the Company's management.Our responsibility is
to express an opinion on these financial statements and financial statement
schedule based on our audits.
  
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.We
believe that our audits provide a reasonable basis for our opinion.
  
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Numerex Corp. and
subsidiaries as of December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008 in conformity with accounting principles generally accepted in
the United States of America.  Also in our opinion, the related
financial statement schedule II, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
    As
discussed in Note A to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board ("FASB")
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109 on January 1,
2007.
    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, 2008, 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 13,
2009 expressed an unqualified opinion thereon.
    
  /s/
Grant Thornton
  
  Atlanta,
Georgia
  March 13,
2009
  
   86
  Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
  
  None.
  
  Item
9A.  Controls and Procedures.
  
  Evaluation
of Disclosure Controls and Procedures
  
  As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer (its principal executive
officer and principal financial officer), of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in the
Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission and that such
information is accumulated and communicated to our management (including our
Chief Executive Officer and Chief Financial Officer) to allow timely decisions
regarding required disclosures. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded these disclosure controls are
effective as of December 31, 2008.
  
  Changes
in Internal Control Over Financial Reporting
  
  During
the quarter ended December 31, 2008, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
    Management’s
Annual Report on Internal Control Over Financial Reporting
  
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in the Securities
Exchange Act Rules 13a – 15(f).  Our internal control system is
designed to provide reasonable assurance to our management and the Board of
Directors regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance as to the reliability of financial
statement preparation and presentation.    Our management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008.  In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control – Integrated
Framework.  Based on this assessment, management concludes that, as of
December 31, 2008, our internal control over financial reporting is
effective based on those criteria.  The effectiveness of our internal
control over financial reporting as of December 31, 2008 has been audited
by Grant Thornton LLP, an independent registered public accounting firm, as
stated in their report which is included herein.
    
   87
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
  
  Board of
Directors and Shareholders
  Numerex
Corp.
  
  We have
audited Numerex Corp. (a Pennsylvania Corporation) and subsidiaries internal
control over financial reporting as of December 31, 2008, based on criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  Numerex Corp. and
subsidiaries' management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on Numerex Corp. and
subsidiaries' internal control over financial reporting based on our
audit.
  
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
  
  A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
  
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  
  In our
opinion, Numerex Corp. and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control—Integrated
Framework issued by COSO.
  
  We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Numerex
Corp. and subsidiaries as of December 31, 2008 and 2007, 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, 2008and our report dated
March 13, 2009 expressed an unqualified opinion on those financial
statements.
  
  /s/
Grant Thornton, LLP
  
  Atlanta,
Georgia
  March 13,
2009
  
  
     88
  Item
9B.    Other Information.
    None.
  
  PART
III
  
  Item
10.  Directors, Executive Officers of the Registrant and Corporate
Governance
  
  Except as
set forth above under “Business - Executive Officers of the Registrant,” the
information required by Item 10 of Form 10-K is incorporated by reference from
the Company's Proxy Statement relating to the 2009 Annual Meeting of
Shareholders to be filed pursuant to General Instruction G (3) to Form 10-K.
Also incorporated by reference is the information under the caption “Section
16(a) Beneficial Ownership Reporting Compliance.”
  
  Item
11.  Executive Compensation.
  
  Incorporated
by reference from our Proxy Statement relating to the 2009 Annual Meeting of
Shareholders to be filed pursuant to General Instruction G (3) to Form
10-K.
  
  Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
  
  Except as
set forth below, the information required by Item 12 of Form 10-K is
incorporated by reference from our Company's Proxy Statement relating to the
2009 Annual Meeting of Shareholders to be filed pursuant to General Instruction
G (3) to Form 10-K.
  
  Equity
Compensation Plan Information
    The
following table provides information as of December 31, 2008 about the
securities authorized for issuance to our employees and non-employee directors
under our stock-based compensation plans:
  
  
  Column
      (a)
              Column
      (b)
              Column
      (c)Plan
      category
              Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              Weighted-average
      exercise price of outstanding options, warrants and rights
              Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a)Equity
      compensation plans approved by security holders
              2,005,722
              $5.97
              151,814Equity
      compensation plans not approved by security holders
              -
              -
              -Total
              2,005,722
              $5.97
              151,814
 
  
  
 89
  Item
13.  Certain Relationships and Related Transactions and Director
Independence.
  
  Incorporated
by reference from our Proxy Statement relating to the 2009 Annual Meeting of
Shareholders to be filed pursuant to General Instruction G (3) to Form
10-K.
  
  Item
14.  Principal Accounting Fees and Services
  
  Incorporated
by reference from our Proxy Statement relating to the 2009 Annual Meeting of
Shareholders to be filed pursuant to General Instruction G (3) to Form
10-K.
  
  PART
IV
  
  Item
15.  Exhibits, Financial Statement Schedules.
  
  (a)  Documents
filed as part of this report:
  
  1.
              Consolidated
      Financial Statements; All financial statements of the Company as described
      in Item I of this report on Form
10-K.
  2.
              Financial
      statement schedule included in Part IV of this
  Form:
  Report of Independent Registered
Public Accounting Firm
  Schedule II - Valuation and qualifying
accounts
  
 90
  3.   Exhibits
  
  2.112Asset
Purchase Agreement, by and between Orbit One Communications LLC and Orbit One
Communications, Inc., effective as of July 31, 2007.
  
  3.11Amended
and Restated Articles of Incorporation of the Company
  
  3.21Bylaws
of the Company
  
  4.12Securities Purchase Agreement, dated May 30, 2006 by and between the
Company and Laurus Master  Fund, Ltd.
  
  4.22Secured
Non-Convertible Term Note, dated May 30, 2006 by and between the Company and
Laurus Master Fund, Ltd.
  
  4.32Common
Stock Purchase Warrant, dated May 30, 2006 by and between the Company and Laurus
Master Fund, Ltd.
  
  4.42Master
Security Agreement, dated May 30, 2006 by and among the Company, its U.S.
subsidiaries, and Laurus Master Fund, Ltd.
  
  4.52Subsidiary Guaranty, dated May 30, 2006 entered into by each of the
      Company’s U.S. Subsidiaries, in connection with the note payable issued to
      Laurus Master Fund, Ltd.
  
  4.63Securities Purchase Agreement, dated December 29, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.
  
  4.73Secured Convertible Term Note, dated December 29, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.
  
  4.83Common Stock Purchase Warrant, dated December 29, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.
  
  4.93Master Security Agreement, dated December 29, 2006 by and among the
      Company, its U.S. subsidiaries, and Laurus Master Fund,
    Ltd.
  
  4.103Subsidiary Guaranty, dated December 29, 2006 entered into by each
      of the Company’s U.S. Subsidiaries, in connection with the note payable
      issued to Laurus Master Fund, Ltd.
  
  4.113Registration Rights Agreement, dated December 29, 2006 by and
      between the Company and Laurus Master Fund,
Ltd.
  
  4.123Amended and Restated Grant of Security Interest in Patent and
      Trademarks, dated December 29, 2006 by and between the Company and Laurus
      Master Fund, Ltd.
   4.133 Pledge
Agreement, dated December 29, 2006, by and between the Company and Laurus Master
Fund, Ltd.
  
  4.144Common Stock Purchase Warrant, dated January 13, 2004 by and
      between the Company and Laurus Master Fund,
Ltd.
  
  4.155Common Stock Purchase Warrant, dated January 28, 2005 by and
      between the Company and Laurus Master Fund,
Ltd.
  
 91
  10. 16Registration Agreement between the Company and Dominion dated July 13,
1992
  
  10.
      27Letter Agreement between the Company and Dominion (now Gwynedd)
      dated October 25, 1994 re: designation of
  director
  
  10.
      38
      2006 Long-Term Incentive Plan (2006
Plan)*
  
  10.49Form of Non-Qualified Stock Option Grant Agreement (consultants)
      under 2006 Long-Term Incentive
Plan*
  
   10.
      59
      Form of Non-Qualified Stock Option Grant Agreement (non-employee
      directors) under 2006 Long-Term Incentive
Plan*
   10. 69 Form of
Incentive Stock Option Grant Agreement (employees) under 2006 Long-Term
Incentive Plan*
  
  10.710
      Severance Agreement, by and between Stratton Nicolaides and the Company
      dated November 1, 2006.  (Management Compensation
      Plan)*
  
  10.810
      Severance Agreement, by and between Alan Catherall and the Company dated
      November 1, 2006.  (Management Compensation
    Plan)*
  
  10.910
      Severance Agreement, by and between Michael Marett and the Company dated
      November 1, 2006.   (Management Compensation
      Plan)*
  
   10.1011
      Subcontract Agreement by and between Stratix Corporation and Orbit One
      Communications, Inc., dated as of June 1, 2007 (with certain information
      omitted pursuant to a request for confidential treatment and filed
      separately with the Securities and Exchange
  Commission).
  
  11   Computation
      of Earnings Per Share
  
  21   Subsidiaries
      of Numerex Corp.
  
  23   Consent
      of Grant Thornton LLP.
  
  31.1 
      Rule 13a-14(a) Certification of Chief Executive
  Officer
  
  31.2 
      Rule 13a-14(a) Certification of Chief Financial
  Officer
  
  32.1 
      Rule 13a-14(b) Certification of Chief Executive
  Officer
  
  32.2 
      Rule 13a-14(b) Certification of Chief Financial
  Officer
  
  92
 *Indicates
a management contract of any compensatory plan, contract or
arrangement.
  
  1
              Incorporated
      by reference to the Exhibits filed with the Company's Annual Report on
      Form 10-K filed with the Securities and Exchange Commission for the year
      ended October 31, 1995 (File No.
0-22920)
  
  2
              Incorporated
      by reference to the Exhibits filed with the Company's Current Report on
      Form 8-K Filed with the Securities and Exchange Commission on June 5, 2006
      (File No. 0-22920)
  
  3
              Incorporated
      by reference to the Exhibits filed with the Company's Current Report on
      Form 8-K Filed with the Securities and Exchange Commission on January 5,
      2007 (File No. 0-22920)
  
  4
              Incorporated
      by reference to the Exhibit filed with the Company's Current Report on
      Form 8-K filed with the Securities and Exchange Commission on January 15,
      2004 (File No. 0-22920)
  
  5
              Incorporated
      by reference to the Exhibits filed with the Company's Current Report on
      Form 8-K Filed with the Securities and Exchange Commission on February 3,
      2005, 2005 (File No. 0-22920)
  
  6
              Incorporated
      by reference to the Exhibit filed with the Company's Current Report on
      Form 8-K filed with the Securities and Exchange Commission on July 20,
      1994 (File No. 0-22920)
  
  7
              Incorporated
      by reference to the Exhibits filed with the Company’s Registration
      Statement on Form S-1 filed with the Securities and Exchange Commission
      (File No. 33-89794)
  
  8
              Incorporated
      by reference to the Exhibits filed with the Company's Proxy Statement on
      Schedule 14A filed with the Securities and Exchange Commission on April
      10, 2006 (File No. 0-22920)
  
   9
              Incorporated
      by reference to the Exhibits filed with the Company’s Current Report on
      Form 8-K filed with the Securities and Exchange Commission on July 12,
      2007 (File No. 0-22920)
  
  10
              Incorporated
      by reference to the Exhibits filed with the Company's Quarterly Report on
      Form 10-Q filed with the Securities and Exchange Commission on November
      14, 2006 (File No. 0-22920)
   
  11
              Incorporated
      by reference to the Exhibits filed with the Company's Quarterly Report on
      Form 10-Q filed with the Securities and Exchange Commission on November
      14, 2007 (File No. 0-22920)
  
  12
              Incorporated
      by reference to the Exhibits filed with the Company's Current Report on
      Form 8-K filed with Securities and Exchange Commission on August 6, 2007
      (File No. 0-22920)
   93
  
  SCHEDULE
II
  
  NUMEREX
CORP.
  
  VALUATION
AND QUALIFYING ACCOUNTS
  
  Years
ended December 31, 2008, 2007, 2006
  (in
thousands)
  Description
              
              Balance
      at beginning of Period
              
              
              Additions
      charged to expense
              
              
              Deductions
              
              
              Balance
      at end of PeriodYear
      ended December 31, 2008:Accounts
      receivableAllowance
      for uncollectible accounts
              
              
              1,009
              
              
              
              1,102
              
              
              
              (1,101
              )
              
              
              1,010InventoryAllowance
      for obsolescence
              
              
              340
              
              
              
              476
              
              
              
              (210
              )
              
              
              606Year
      ended December 31, 2007:Accounts
      receivableAllowance
      for uncollectible accounts
              
              
              935
              
              
              
              635
              
              
              
              (561
              )a
              
              
              1,009InventoryAllowance
      for obsolescence
              
              
              353
              
              
              
              99
              
              
              
              (112
              )
              
              
              340Year
      ended December 31, 2006:Accounts
      receivableAllowance
      for uncollectible accounts
              
              
              704
              
              
              
              231
              
              
              
              
              
              
              
              935InventoryAllowance
      for obsolescence
              
              
              317
              
              
              
              36
              
              
              
              
              
              
              
              353(a)
      Amounts written off as uncollectible, net of recoveries.
 
   94
  SIGNATURES
  
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
  
  NUMEREX CORP.
  
  By:/s/Stratton
J. Nicolaides
  Stratton
J. Nicolaides,
  Chairman
and Chief Executive Officer
  Date:
March 13, 2009
  
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
  
  Signature
              Title
              Date/s/ Stratton J.
      Nicolaides
              Chairman
      and Chief Executive Office
              March
      13, 2009Stratton
      J. Nicolaides/s/ Brian C.
      Beazer
              Director
              March
      13, 2009Brian
      C. Beazer/s/ George
      Benson
              Director
              March
      13, 2009George
      Benson/s/ E. James
      Constantine
              Director
              March
      13, 2009E.
      James ConstantineDirector
              March
      13, 2009/s/ 
      Nicholas DavidgeNicholas
      Davidge/s/ Matthew J.
      Flanigan
              Director
              March
      13, 2009Matthew
      J. Flanigan/s/ John G.
      Raos
              Director
              March
      13, 2009John
      G. Raos/s/ Andrew J.
      Ryan
              Director
              March
      13, 2009Andrew
      J. Ryan/s/ Alan B.
      Catherall
              Executive
      Vice President,
              March
      13, 2009Alan
      B. Catherall
              Chief
      Financial Officer, PrincipalFinancial
      and Accounting Officer
  95