Numerex Form 10Q 0205

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended	Commission File Number
JUNE 30, 2005	0-22920

NUMEREX CORP.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	11-2948749
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

1600 Parkwood Circle, Suite 200

Atlanta, Georgia 30339-2119

(Address of principal executive offices)

(770) 693-5950

(Registrant's telephone number, including area code)

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 x No _ _

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

Yes ___ No _x_

As of August 09, 2005 an aggregate of 11,638,708 shares of the registrant's Class A Common Stock, no par value (being the registrant's only class of common stock outstanding), were outstanding.

NUMEREX CORP. AND SUBSIDIARIES

INDEX

Part I. FINANCIAL INFORMATION

	Page
Item 1. Financial Statements

Condensed Consolidated Balance Sheets (Unaudited) June 30, 2005 and December 31, 2004	4


Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months ended June 30, 2005 and June 30, 2004
	5

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months ended June 30, 2005 and June 30, 2004
	6

Consolidated Statement of Shareholders’ Equity	7

Notes to Condensed Consolidated Financial Statements - Unaudited	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3. Quantitative and Qualitative Disclosures about Market Risk	22

Item 4. Controls and Procedures	22

Part II. OTHER INFORMATION

Item 1. Legal Proceedings	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3. Defaults Upon Senior Securities	23

Item 4. Submission of Matters to a Vote of Security Holders	23

Item 5. Other Information	24

Item 6. Exhibits	24

Signature Page	25

Certifications	26

Exhibits

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Forward-looking Statements

This document contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, among other things, statements regarding trends, strategies, plans, beliefs, intentions, expectations, goals and opportunities. Forward-looking statements are typically identified by words or phrases such as “believe,”“expect,”“anticipate,”“intend,”“estimate,”“assume,”“strategy,”“plan,”“outlook,”“outcome,”“continue,”“remain,”“trend,” and variations of such words and similar expressions, or future or conditional verbs such as “will,”“would,”“should,”“could,”“may,” or similar expressions. All statements and information herein and incorporated by reference herein, other than statements of historical fact, are forward-looking statements that are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Many phases of the Company's operations are subject to influences outside its control. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. These forward-looking statements speak only as of the date of this report, and the Company assumes no duty to update forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements and future results could differ materially from historical performance.

Any one or any combination of factors could have a material adverse effect on the Company's results of operations or could cause actual results to differ materially from forward-looking statements or historical performance. These factors include: competition; the pace of technological change; customer acceptance of products and services; inability to manage rapid expansion; the availability of capital to fund further development of products and services to meet technological or competitive changes; unforeseen product defects or failures; the introduction, withdrawal, success and timing of business initiatives and strategies; interruption in flow of products from our suppliers; changes in customer distribution channels; changes in telecommunications regulations; ability to maintain and operate our Cellemetry® network efficiently; network failures; international regulations; loss of intellectual property protection; inability to maintain secrecy and confidentiality obligations; product certification requirements; indirect regulations on our network; changes in customer spending patterns; variations in quarterly operating results; the inability to attain revenue and earnings growth; changes in interest rates; inflation; general economic conditions and conditions affecting the capital markets. Actual events, developments and results could differ materially from those anticipated or projected in the forward-looking statements as a result of certain uncertainties set forth below and elsewhere in this document. Subsequent written or oral statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this report and those in the Company’s reports previously and subsequently filed with the Securities and Exchange Commission.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
	JUNE 30,			DECEMBER 31,
	2005			2004
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,591		$	1,684
Accounts receivable, less allowance for doubtful accounts of
$1,329 at June 30, 2005 and $1,084 at December 31, 2004:		4,861			3,986
Notes Receivable		41			41
Inventory		1,618			1,561
Prepaid expenses and other current assets		570			736
TOTAL CURRENT ASSETS		10,681			8,008

Property and Equipment, Net		845			840
Goodwill, Net		15,014			15,014
Other Intangibles, Net		6,714			7,213
Software, Net		709			598
Other Assets		849			939
TOTAL ASSETS	$	34,812		$	32,612

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	3,812		$	2,601
Other current liabilities		1,334			1,603
Note payable, current		2,108			1,637
Deferred revenues		936			906
Obligations under capital leases, current portion		66			33
TOTAL CURRENT LIABILITIES		8,256			6,780

LONG TERM LIABILITIES
Obligations under capital leases and other long term liabilities		97			2
Note Payable		2,429			2,178
TOTAL LONG TERM LIABILITIES		2,526			2,180

SHAREHOLDERS’ EQUITY
Preferred stock - no par value; authorized 3,000,000; none issued		-			-
Class A common stock - no par value; authorized 30,000,000;
issued 13,319,406 shares at June 30, 2005 and 13,203,660
shares at December 31, 2004		37,325			36,872
Additional paid-in-capital		982			809
Treasury stock, at cost, 2,391,400 shares on June 30, 2005 and
December 31, 2004		(10,197	)		(10,197	)
Class B common stock - no par value; authorized 5,000,000; none issued		-			-
Accumulated other comprehensive income		5			13
Retained earnings		(4,085	)		(3,845	)
TOTAL SHAREHOLDERS' EQUITY		24,030			23,652
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	34,812		$	32,612

See accompanying notes to condensed consolidated financial statements - unaudited

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Numerex Corp.
Condensed Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Net sales:
Product	$	3,526		$	2,271		$	6,147		$	4,163
Service		3,837			3,482			7,393			6,359
Total net sales		7,363			5,753			13,540			10,522

Cost of product sales (excluding depreciation)		2,505			1,858			4,690			3,488
Cost of services (excluding depreciation and amortization)		1,548			1,288			2,802			2,198
Depreciation and amortization		53			100			91			210
Gross Profit		3,257			2,507			5,957			4,626
		44.2	%		43.6	%		44.0	%		44.0	%

Selling, general, and administrative expenses		2,094			2,310			4,253			4,463
Research and development expenses		286			202			554			480
Bad debt expense		101			116			159			284
Depreciation and amortization		438			409			905			836
Operating earnings (loss)		338			(530	)		86			(1,437	)

Interest income and (expense), net		(93	)		(150	)		(279	)		(264	)
Other income and (expense), net		(1	)		(27	)		(4	)		(29	)
Gain on sale of business		-			-			-			250
Earnings (loss) before income taxes		244			(707	)		(197	)		(1,480	)

Provision for income taxes		4			2			43			-
Net earnings (loss)	$	240		$	(709	)	$	(240	)	$	(1,480	)

Basic earnings (loss) per common share	$	0.02		$	(0.07	)	$	(0.02	)	$	(0.14	)
Diluted earnings (loss) per common share	$	0.02		$	(0.07	)	$	(0.02	)	$	(0.14	)
Number of shares used in per share calculation
Basic		10,904			10,794			10,871			10,794
Dilluted		11,957			10,794			10,871			10,794

See accompanying notes to condensed consolidated financial statements - unaudited

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NUMEREX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)

	For the six month period
	ended June 30,
	2005			2004

Cash flows from operating activities:
Net earnings (loss)	$	(240	)		(1,480	)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation		316			361
Amortization		680			681
Allowance for doubtful accounts		148			-
Inventory reserves		104			71
Non-cash interest expense		104			-
Gain on sale of subsidiary		-			(250	)
Changes in assets and liabilities which provided
(used) cash:
Accounts and notes receivable		(1,024	)		(681	)
Inventory		(162	)		958
Prepaid expenses & interest receivable		159			26
Other assets		181			-
Accounts payable		1,213			422
Other accrued liabilites		(272	)		(165	)
Deferred revenue		30			-
Income taxes		-			-
Net cash provided by (used in) operating activities:		1,237			(57	)
Cash flows from investing activities:
Purchase of property and equipment		(141	)		(126	)
Purchase of intangible and other assets		(283	)		(357	)
Proceeds the from sale of a business		-			200
Increase (decrease) in deposits and long term receivables		-			88
Net cash provided used in investing activities		(424	)		(195	)
Cash flows from financing activities:
Proceeds from exercise of common stock options		-			16
Proceeds from note payable and debt		1,500			4,283
Principal payments on capital lease obligations		(54	)		(112	)
Principal payments on notes payable and debt		(344	)		(3,314	)
Net cash provided by financing activities:		1,102			873
Effect of exchange differences on cash		(8	)		(68	)
Net increase in cash and cash equivalents		1,907			553
Cash and cash equivalents at beginning of year		1,684			734
Cash and cash equivalents at end of year	$	3,591		$	1,287

Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest		207			158
Income taxes		43			-
Disclosure of non-cash activities:
Capital leases		182			27
Non-cash interest		104			-
Non-cash financing		291			-

See accompanying notes to condensed consolidated financial statements - unaudited

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NUMEREX CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)

										Accumulated
					Additional					Other
	Common		Stock		Paid-In		Treasury			Comprehensive			Retained
	Shares		Amount		Capital		Stock			Earnings			Earnings			Total

Balance, December 31, 2004		13,205	$	36,872	$	809	$	(10,197	)	$	13		$	(3,845	)	$	23,653
Issuance of shares under Directors
Stock Plan		3		9		-		-			-			-			9
Issuance of shares in connection with employee stock purchase plan		-		-		-		-			-			-			-
Issuance of common stock		112		444													444
Purchase of treasury stock		-		-		-		-			-			-			-
Translation adjustment		-		-		-		-			(8	)		-			(8	)
Warrants		-		-		173		-			-			-			173
Net Loss		-		-		-		-			-			(240	)		(240	)
Balance, June 30, 2005		13,320	$	37,325	$	982	$	(10,197	)	$	5		$	(4,085	)	$	24,030

See accompanying notes to condensed consolidated financial statements - unaudited

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NUMEREX, CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2005

(Unaudited)

NOTE A - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying condensed consolidated financial statements are unaudited. Pursuant to the rules and regulations of the Securities and Exchange Commission (SEC), we have condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles. You should review these consolidated financial statements in conjunction with the consolidated financial statements and related notes contained in our Annual Report Form 10-K for fiscal year ended December 31, 2004, as filed with the SEC. The financial information we present in the condensed consolidated financial statements reflects all normal recurring adjustments, which are, in our opinion, necessary for a fair presentation of the period indicated. This information is not necessarily indicative of the results for the full year or for any other future period.

NOTE B - 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 technology company comprised of operating subsidiaries that develop and market a wide range of communications products and services. Our primary focus is wireless data communications utilizing proprietary network technologies. We primarily offer products and services in wireless data communications through Cellemetry, and digital multimedia networking through PowerPlay™ and IPContact™. Uplink Security, Inc., a wholly owned subsidiary of Cellemetry, provides cost effective, alarm security products, services, and related technical support utilizing Cellemetry® wireless data communications technology. In February 2003 we introduced MobileGuardian®, a Web-based vehicle location and recovery solution that combines the accuracy of GPS (Global Positioning System) and Cellemetry wireless data communications technology. We also introduced VendView®, a product and service offering that is a Web-based vending machine monitoring solution that also uses the Cellemetry wireless data communications technology. These services enable customers around the globe to monitor and move information for a variety of applications from home and business security to distance learning. In addition, we offer wireline alarm security products and services, as well as telecommunications network operational support systems.

2. Principles of Consolidation

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

3. Cash and Cash Equivalents

For purposes of financial reporting, we consider all highly liquid investments purchased with original maturities of less than three months to be cash equivalents.

4. Intangible Assets

Intangible assets consist of developed software, patents and acquired intellectual property, 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. Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142 (“SFAS 142), Goodwill and Other Intangibles. Under SFAS No. 142, goodwill is no longer amortized. Rather, SFAS No. 142 requires that intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of SFAS No. 142 and at least annually thereafter.

Intangible assets with determinable useful lives are amortized on a straight-line basis over their estimated useful lives. We capitalize software development costs when project technological feasibility is established and conclude capitalization when the product is ready for release. Software development costs incurred prior to the establishments of technological feasibility are expensed as incurred. The following table provides a summary of the components of our intangible assets.

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(In thousands)	June 30,			December 31,
	2005			2004

Goodwill	$	17,693		$	17,693
Purchased and developed software		2,867			2,664
Patents, trade and service marks		11,436			11,449
Intangible and other assets		454			361
Total intangible assets		32,450			32,167
Accumulated amortization		(10,013	)		(9,342	)
Intangible assets, net	$	22,437		$	22,825

4. Income Taxes

We account for income taxes using the asset and liability method in accordance with SFAS 109, Accounting for Income Taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of ²temporary differences² by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. A valuation allowance is provided for deferred tax assets when it is more likely than not that the assets will not be realized.

5. Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market.

The components of inventory, net of reserves are as follows:


	June 30,		December 31,
(In thousands)	2005		2004

Raw materials	$	791	$	830
Work-in-progress		7		13
Finished goods		820		718
Inventory, net		1,618		1,561

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7. Note Payable

On January 28, 2005, the Company completed a private placement to Laurus Master Fund, Ltd. (“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 bears interest at the rate of eight percent (8%) per annum, matures on January 28, 2008 and is secured by the same collateral and guarantees as the First Company Note (described below) that we executed and delivered to Laurus on January 13, 2004. The Second Company Note requires that interest and principal thereunder is to be paid monthly, and provides that such monthly principal and interest payments may be paid by us either in cash or in common stock, subject to certain limitations. If the monthly payment then due is paid by us using common stock, then the number of shares to be issued by us to Laurus will be determined based upon a fixed conversion price of $5.31 per share. Otherwise, if the monthly payment then due is paid by us using cash, then we are required to pay Laurus an amount equal to one hundred two percent (102%) of the amount then due and payable. The Second Company Note also provides that Laurus may convert all or any portion of the outstanding principal amount of the Second Company Note into shares of common stock, subject to certain limitations. The Second Warrant is exercisable by Laurus until January 28, 2012, and has two separate pricing tranches. The first pricing tranche is exercisable for up to 50,000 shares of common stock at a price of $5.51 per share. The second pricing tranche is exercisable for up to 50,000 shares of common stock at a price of $5.72 per share. We are required to register the common stock underlying the Second Company Warrant for resale by Laurus, and have such registration declared effective, by August 28, 2005. Such registration statement was declared effective June 17, 2005.

On January 13, 2004, we completed our first private placement to Laurus of (i) a Convertible Term Note in the aggregate principal amount of $4,500,000 (the “First Company Note”), and (ii) a warrant to purchase up to 300,000 shares of the Company’s common stock (the “First Warrant”). The First Company Note bears interest at the rate of eight percent (8%) per annum, matures on January 12, 2007 and is secured by substantially all of our assets and our U.S. subsidiaries (except DCX Systems Australia Pty Limited). Each of our U.S. subsidiaries also has executed and delivered a guaranty to Laurus. The First Company Note requires that interest and principal thereunder is to be paid monthly, and provides that such monthly principal and interest payments may be paid by us either in cash or in common stock, subject to certain limitations. If the monthly payment then due is paid by us using common stock, then the number of shares to be issued by us to Laurus will be determined based upon a fixed conversion price of $4.56 per share. Otherwise, if the monthly payment then due is paid by us using cash, then we are required to pay Laurus an amount equal to one hundred two percent (102%) of the amount then due and payable. The First Company Note also provides that Laurus may convert all or any portion of the outstanding principal amount of the First Company Note into shares of common stock, subject to certain limitations. The First Warrant is exercisable by Laurus until January 13, 2011, and has three separate tranches. The first tranche is exercisable for up to 150,000 shares of common stock at a price of $4.75 per share. The second tranche is exercisable for up to 100,000 shares of common stock at a price of $5.17 per share. The third tranche is exercisable for up to 50,000 shares of common stock at a price of $5.99 per share. We also agreed to register the common stock underlying the First Company 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. Thus, under the terms of the First Company Warrant, we were required to increase the number of shares of common stock underlying the First Company Warrant by 15,000 additional shares per month (at an exercise price of $5.99 per share) during the period from August 13, 2004 through November 22, 2004. As a result, an additional 66,000 warrants were issued and are covered by the First Warrant Agreement.

On July 6, 2005 we voluntarily converted 500,000 common shares into equity which equated to $2,280,000 of the outstanding debt associated with the First Company Note. On August 1, 2005 we converted 209,000 common shares into equity, which equated to $953,040 which equaled the remaining outstanding portion of the debt associated with the First Company Note. As a result of these transactions, the only outstanding debt of the Company, excluding capital leases, is the Second Company Note of $1,500,000.

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.

As a result of the July 6, 2005 and the August 1, 2005 transactions with the Laurus Master Fund, stockholders will experience dilution and may experience future dilution based on transactions with the Laurus Master Fund, or the equity securities may have rights, preferences or privileges senior to those of the common stockholders. In addition, as a result of issuing debt, those securities have rights, preferences and privileges senior to those of the common stock holders. If we are unable to repay the Company Notes, Laurus could take action on its security interests, Laurus has the right to demand full payment of all outstanding principal and interest due under the Company Notes and invoke its right to the collateral under the related security agreements.

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8. Shareholders’ Equity

Shareholders’ Equity increased by $378,000 for the six-month period ending June 30, 2005. The increase in Shareholders’ Equity was attributable to the conversion of common shares for payments on the note payable in the amount of $453,000. The increase was also attributable to an increase of $172,000 in additional paid in capital due to the valuation of warrants issued with the second Company Note. This was partially offset by the net loss for the six-month period of $240,000.

9. Net Earnings Per Common Share

Basic net earnings per common share available to common shareholders is based on the weighted-average number of common shares outstanding excluding the dilutive impact of common stock equivalents. For periods in which we have net earnings, we base diluted net earnings per common share available to common shareholders on the weighted-average number of common shares outstanding and dilutive potential common shares, such as dilutive stock options.

The numerator in calculating both basic and diluted net earnings per common share for each period is the same as net earnings. The denominator is based on the following number of common shares:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In thousands, except per share data)	2005		2004			2005			2004

Common Shares:
Weighted average common shares outstanding		10,903		10,796			10,870			10,794
Dilutive effect of outstanding stock options		1,056		-			-			-
Total		11,959		10,796			10,870			10,794

Net earnings (loss):	$	240	$	(709	)	$	(240	)	$	(1,480	)
Net earnings (loss) per common share:
Basic	$	0.02	$	(0.07	)	$	(0.02	)	$	(0.14	)
Diluted	$	0.02	$	(0.07	)	$	(0.02	)	$	(0.14	)

For the three months ended June 30, 2005, we excluded options to purchase 1,518,936 shares of common stock and common stock equivalents from the computation of diluted earnings per share. We excluded these share amounts because the exercise prices of those shares were greater than the average market price of the common stock during the applicable period. Because of the antidilutive effect of the net loss, potential common shares resulting from options, convertible debt and warrants were excluded from the calculation of diluted earnings per share for the six months ended June 30, 2005. For the six months ended June 30, 2005, options to purchase 946,998 shares of common stock would have been taken into account in calculating diluted earnings per share were it not for the antidilutive effect of the net loss.

Because of the antidulitive effect of the net loss, potential common shares resulting from options, convertible debt and warrants were excluded from the calculation of diluted earnings per share for the three and six months ended June 30, 2004. For the three months ended June 30, 2004, options to purchase 1,175,369 shares of common stock and common stock equivalents, and for the six months ended options to purchase 1,167,629 shares of common stock and common stock equivalents would have been taken into account in calculating diluted earnings per share were it not for the antidilutive effect of the net loss.

As of June 30, 2005, we had a total of 1,428,515 options outstanding and as of June 30, 2004, we had a total of 1,349,515 options outstanding.

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10. Stock-Based Compensation

We account for employee options or share awards under the intrinsic-value method prescribed by Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" with pro forma disclosures of net earnings and earnings per share, as if the fair value method of accounting defined in SFAS No. 123 "Accounting for Stock Based Compensation" had been applied. SFAS No. 123 establishes a fair value based method of accounting for stock based employee compensation plans. Under the fair value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under SFAS No. 123, our net loss and net loss per share would have changed as reflected in the following pro forma amounts.

	Three Months Ended					Six Months Ended
	June 30,					June 30,
(In thousands, except per share data)	2005		2004			2005			2004

Net earnings (loss) - as reported	$	240	$	(709	)	$	(240	)	$	(1,480	)
Less total stock-based compensation expense determined under fair value based method for all awards		76		409			151			817
Pro forma net earnings (loss)	$	164	$	(1,118	)	$	(391	)	$	(2,297	)

Basic loss per share:
As reported	$	0.02	$	(0.07	)	$	(0.02	)	$	(0.14	)
Pro forma	$	0.02	$	(0.10	)	$	(0.04	)	$	(0.21	)
Diluted loss per share:
As reported	$	0.02	$	(0.07	)	$	(0.02	)	$	(0.14	)
Pro forma	$	0.01	$	(0.10	)	$	(0.04	)	$	(0.21	)

11. Revenue Recognition

Our revenue is generated from three sources:

ཉ the supply of product, under non recurring agreements,

ཉ the provision of services, under non recurring agreements, and,

ཉ the provision of data transportation services, under recurring or multi-year contractually based agreements.

Revenue is recognized when persuasive evidence of an agreement exists, the product or service has been delivered, fees and prices are fixed and determinable, collectibility is probable and when all other significant obligations have been fulfilled.

We recognize revenue from product sales at the time of shipment and passage of title. We offer customers the right to return products that do not function properly within a limited time after delivery. We continuously monitor and track such product returns and record a provision for the estimated amount of such future returns, based on historical experience and any notification received of pending returns. While such returns have historically been within expectations and the provisions established, we cannot guarantee that we will continue to experience the same return rates that we have experienced in the past. Any significant increase in product failure rates and the resulting credit returns could have a material adverse impact on operating results for the period or periods in which such returns materialize.

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

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

-12-

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

12. Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement (“SFAS”) No. 123 (Revised 2004), “Share-Based Payment” (“SFAS No. 123(R)”). SFAS No. 123(R) requires that the compensation cost relating to share-based payment transactions, including grants of employee stock options, be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments at the time of issuance. SFAS No. 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The effect of the standard will be to require entities to measure the cost of employee services received in exchange for stock awards based on its grant-date fair value and to recognize the cost over the period the employee is required to provide services for the award.

We expect to adopt the provisions of SFAS No. 123(R) effective January 1, 2006, as required, and plan to use the modified prospective transition method for our existing stock-based compensation plans. Under the modified prospective transition method, the fair value-based accounting method will be used for all employee awards granted, modified, or settled after the adoption date. Compensation cost related to the nonvested portion of awards outstanding as of that date will be based on the grant-date fair value of those awards as calculated under the original provisions of SFAS No. 123.

In November 2004, the FASB released revised SFAS No. 151, “Inventory Costs - an amendment of ARB No. 43” (“SFAS No. 151”). The new standard requires abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) to be recognized as current-period charges. It also requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The requirements of the standard will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Although we are still evaluating the impact that the adoption of SFAS No. 151 will have on our Consolidated Financial Statements, we currently do not believe it will have a material impact as we have not historically had any abnormally low levels of production, unplanned downtime, labor or material shortages.

The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United Sates of America, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

13. Savings and Investment Plan

We sponsor a 401k savings and investment plan that covers all of the employees of Numerex Corp. and its subsidiaries who elect to participate. Employees are eligible for participation on the enrollment date following six months of service. We contributed an amount equal to 50% of the portion of the each participant’s elective deferral contribution that does not exceed 6% of such participant’s total compensation for each payroll period in which an elective deferral is made. Our contribution is made in cash on a semi-monthly basis. The matching contributions made by us vest over a three-year period at a rate of 33% per year. Approximately $26,500 and $26,400 were expensed for the quarters ended June 30, 2005 and 2004, respectively.

14. Reclassification

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

15. Subsequent Events

On July 6, 2005 we voluntarily converted into equity 500,000 shares of the company stock at $4.56 per share which equates to a reduction in the outstanding debt associated with the First Company Note by $2,280,000. Additionally, on August 1, 2005 we also voluntarily converted into equity 209,000 shares of the company stock at $4.56 per share which equates to $953,040. The remaining balance of the First Company Note which was less than $1,000 was paid in cash on August 2, 2005.

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NOTE C - INVESTMENTS AND DIVESTITURES

On September 15, 2003, we sold the Data1Source mobile messaging service through an entity Data1Source LLC. The selling price was approximately $3,400,000 with $3,200,000 paid in cash at closing and $200,000 due in six months, if certain criteria were met. In March 2004, we received the contingent payment on the sale of Data1Source LLC because the criteria specified in the agreement had been met. Accordingly, we recognized an additional $250,000 gain on the sale during the six months ended June 30, 2004.

NOTE D - GEOGRAPHIC INFORMATION

Segment Information

Numerex is a technology company comprised of operating subsidiaries that develop and market a wide range of communications products and services. Our primary focus is wireless data communications utilizing proprietary network technologies. The four reporting segments are Wireless Data Communications, which is made up of all of our wireless machine-to-machine communications products and services, Digital Multimedia and Networking, which includes our networking products and services and video conferencing products, Wireline, which are is our wire-line security detection products and services, and unallocated corporate expenses.

Wireless Data Segment

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

The Wireless Data segment develops, operates, markets, and sells products and services CellemetryXG™, Cellemetry®, Uplink™, MobileGuardian®, and VendView® brands, as well as distribution through Value Added Resellers (VARs) who have integrated the CellemetryXG Network and components into their own offerings.

Digital Multimedia and Networking Segment

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

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

Wireline Data Communications Segment

The Wireline Data Communications segment’s licensed technology creates a Derived Channel on an existing telephone line by using an inaudible frequency below the voice communications spectrum for data transmission. This creates a two-way communication system that continuously monitors the integrity of a user’s telephone line and security system. Derived Channel operates over a regular voice telephone line with no interference, whether or not the telephone is in use. The Company provides this service through its DCX Systems and DCX Australia subsidiaries.

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Below is segment information for our reportable segments.

	Three Months Ended June 30, 2005
	Wireless Data Communications			Digital Multimedia & Networking		Wireline		Total

Revenues from external customers	$	5,005		$	1,883	$	475	$	7,363
Interest income		-			-		7		7
Interest expense		1			2		-		3
Depreciation and amortization		309			99		30		438
Income tax expense		-			4		-		4
Segment earnings/(loss) before tax		(8	)		12		158		162

	Three Months Ended June 30, 2004
	Wireless Data Communications			Digital Multimedia & Networking		Wireline		Total

Revenues from external customers	$	3,451		$	1,972	$	328	$	5,751
Interest income		-			-		-		-
Interest expense		1			10		-		11
Depreciation and amortization		326			127		30		483
Income tax expense		3			1		5		9
Segment earnings/(loss) before tax		(652	)		161		112		(379	)

	Six Months Ended June 30, 2005
	Wireless Data Communications			Digital Multimedia & Networking			Wireline		Total

Revenues from external customers	$	9,861		$	2,982		$	697	$	13,540
Interest income		2			-			7		9
Interest expense		-			1			3		4
Depreciation and amortization		633			198			61		892
Income tax expense		27			1			7		35
Segment earnings/(loss) before tax		(63	)		(222	)		82		(203	)

	Six Months Ended June 30, 2004
	Wireless Data Communications			Digital Multimedia & Networking			Wireline		Total

Revenues from external customers	$	6,865		$	3,001		$	656	$	10,522
Interest income		-			-			-		-
Interest expense		1			22			3		26
Depreciation and amortization		648			265			59		972
Income tax expense		3			3			5		11
Segment earnings/(loss) before tax		(1,178	)		(162	)		144		(1,196	)

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

-15-

Reconciliation of segment items to consolidated amounts:

(in thousands)

	Three Months Ended June 30,
	2005		2004
Net earnings/(loss)
Total income (loss) for reportable segments	$	162	$	(379	)
Unallocated corporate expenses		78		(330	)
Net earnings (loss)	$	240	$	(709	)

	Six Months Ended June 30,
	2005			2004
Net loss
Total loss for reportable segments	$	(203	)	$	(1,196	)
Unallocated corporate expenses		(37	)		(284	)
Net loss	$	(240	)	$	(1,480	)

	June 30,		December 31,
	2005		2004
Assets
Total assets for Wireless Data Communications	$	21,915	$	21,152
Total assets for Digital Multimedia & Networking		6,669		6,815
Total assets for Wireline		1,135		1,153
Other unallocated assets		5,093		3,492
Consolidated total assets	$	34,812	$	32,612

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Numerex Corp. (“we” or the “Company”) is a technology company comprised of operating subsidiaries that develop and market a wide range of communications products and services. Our primary focus is wireless data communications utilizing proprietary network technologies.

Revenues for the second quarter of 2005 increased 28% compared to the second quarter of 2004 and revenues increased 28.7% for the six months ended June 30, 2005 compared to the six months ended June 30, 2004. We also continued to see growth in our wireless data products and services. Wireless data revenues increased over 45% compared to the second quarter last year and increased 43.7% for the six months ended June 30, 2005 as compared to the prior year six months.

Numerex provided cash from operations of $1.2 million for the six months ended June 30, 2005 as a result of both diminished operating losses as well as continued working capital efficiencies. Our cash balances at June 30, 2005 were $3.6 million compared to $1.7 million at December 31, 2004. This increase was partly due to the second round of financing that we closed with Laurus as well as the cash provided from operations.

Our goals continue to include improving operating results and to further improve our liquidity position.

Critical Accounting Policies

For additional information regarding the Company’s critical accounting policies see Note B to the Consolidated Financial Statements included in Part 1, Item 1 above. Also, reference is made to the Company’s Annual Report on Form 10-K as amended for the year ended December 31, 2004 and the consolidated financial statements contained therein.

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General

The following tables set forth, for the periods indicated, the amounts and percentages of net sales represented by selected items in the Company’s Condensed Consolidated Statements of Operations.

SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
	For the Three Months Ended									For the Six Months Ended
	June 30,									June 30,
	2005			2004			% Change			2005			2004			% Change
Net sales:
Wireless Data Communications
Product	$	2,474		$	1,309			89.0	%	$	4,784		$	2,730			75.2	%
Service		2,531			2,143			18.1	%		5,078			4,134			22.8	%
Sub-Total		5,005			3,452			45.0	%		9,862			6,864			43.7	%
Digital Multimedia and Networking
Product		728			819			-11.1	%		1,003			1,139			-11.9	%
Service		1,155			1,153			0.2	%		1,979			1,862			6.3	%
Sub-Total		1,883			1,972			-4.5	%		2,982			3,001			-0.6	%
Wireline Security
Product		324			143			126.6	%		361			294			22.8	%
Service		151			186			-18.8	%		335			363			-7.7	%
Sub-Total		475			329			44.4	%		696			657			5.9	%
Total net sales
Product		3,526			2,271			55.3	%		6,148			4,163			47.7	%
Service		3,837			3,482			10.2	%		7,392			6,359			16.2	%
Total net sales		7,363			5,753			28.0	%		13,540			10,522			28.7	%
Cost of product sales (excluding depreciation)		2,505			1,858			34.8	%		4,690			3,488			34.5	%
Cost of services (excluding depreciation
and amortization)		1,548			1,288			20.2	%		2,802			2,198			27.5	%
Depreciation and amortization		53			100			-47.0	%		91			210			-56.7	%
Gross Profit		3,257			2,507			29.9	%		5,957			4,626			28.8	%

Selling, general, and administrative expenses		2,094			2,310			-9.4	%		4,253			4,463			-4.7	%
Research and development expenses		286			202			41.6	%		554			480			15.4	%
Bad debt expense		101			116			-12.9	%		159			284			-44.0	%
Depreciation and amortization		438			409			7.1	%		905			836			8.3	%
Operating earnings (loss)		338			(530	)		-163.8	%		86			(1,437	)		-106.0	%
Interest income (expense)		(93	)		(150	)		-38.0	%		(279	)		(264	)		5.7	%
Other income (expense)		(1	)		(27	)		-96.3	%		(4	)		(29	)		-86.2	%
Gain on sale of business		-			-			na			-			250			-100.0	%
Earnings (loss) before income taxes		244			(707	)		-134.5	%		(197	)		(1,480	)		-86.7	%
Income taxes		4			2			na			43			-			na
Net earnings (loss)	$	240		$	(709	)		-133.9	%	$	(240	)	$	(1,480	)		-83.8	%
Basic income (loss) per common share	$	0.02		$	(0.07	)				$	(0.02	)	$	(0.14	)
Diluted income (loss) per common share	$	0.02		$	(0.07	)				$	(0.02	)	$	(0.14	)
Basic weighted average shares outstanding		10,903			10,794						10,870			10,792
Diluted weighted average shares outstanding		11,957			10,794						10,870			10,792

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SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS
Percent of Total Sales
	Three Month Period Ended						Six Month Period Ended
	June 30,						June 30,
	2005			2004			2005			2004

Wireless Data Communications
Product		33.6	%		22.8	%		35.3	%		25.9	%
Service		34.4	%		37.3	%		37.5	%		39.3	%
Sub-Total		68.0	%		60.0	%		72.8	%		65.2	%
Digital Multimedia and Networking
Product		9.9	%		14.2	%		7.4	%		10.8	%
Service		15.7	%		20.0	%		14.6	%		17.7	%
Sub-Total		25.6	%		34.3	%		22.0	%		28.5	%
Wireline Security
Product		4.4	%		2.5	%		2.7	%		2.8	%
Service		2.1	%		3.2	%		2.5	%		3.4	%
Sub-Total		6.5	%		5.7	%		5.1	%		6.2	%
Total net sales
Product		47.9	%		39.5	%		45.4	%		39.6	%
Service		52.1	%		60.5	%		54.6	%		60.4	%
Total net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of product sales (excluding depreciation)		34.0	%		32.3	%		34.6	%		33.1	%
Cost of services (excluding depreciation and amortization)		21.0	%		22.4	%		20.7	%		20.9	%
Depreciation and amortization		0.7	%		1.7	%		0.7	%		2.0	%
Gross Profit		44.2	%		43.6	%		44.0	%		44.0	%
Selling, general, and administrative expenses		28.4	%		40.2	%		31.4	%		42.4	%
Research and development expenses		3.9	%		3.5	%		4.1	%		4.6	%
Bad debt expense		1.4	%		2.0	%		1.2	%		2.7	%
Depreciation and amortization		5.9	%		7.1	%		6.7	%		7.9	%
Operating earnings (loss)		4.6	%		-9.2	%		0.6	%		-13.7	%
Interest income (expense)		-1.3	%		-2.6	%		-2.1	%		-2.5	%
Other income (expense)		0.0	%		-0.5	%		0.0	%		-0.3	%
Gain on sale of business unit		0.0	%		0.0	%		0.0	%		2.4	%
Net earnings (loss) before income taxes		3.3	%		-12.3	%		-1.5	%		-14.1	%
Income taxes		0.1	%		0.0	%		0.3	%		0.0	%
Net earnings (loss)		3.3	%		-12.3	%		-1.8	%		-14.1	%

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Comparison of Results of Operations for the Three and Six Months Ended June 30, 2005:

Net Sales

Net sales increased 28% to $7.4 million for the three-month period ended June 30, 2005 as compared to $5.8 million for the three-month period ended June 30, 2004. Most of the sales increase for the three months ended June 30, 2005, compared to the same period in 2004, was in Wireless Data Communications. This increase was partially offset by a slight decrease in Digital Multimedia and Networking product sales and a decrease Wireline Security service sales. Net sales for the six months ended June 30, 2005 increased 28.7% to $13.5 million as compared to $10.5 million for the six months ended June 30, 2004. The increase for the six month period is primarily a result of an increase in product and service sales in the Wireless Data Communications division, which was partially offset by a decrease in product sales in the Digital Multimedia and Networking division.

Wireless Data Communications. Net sales from Wireless Data Communications increased 45.0% to $5.0 million for the three-month period ended June 30, 2005 as compared to $3.5 million for the three-month period ended June 30, 2004. For the six months ended June 30, 2005, net sales from Wireless Data Communications increased 43.7% to $9.9 million as compared to $6.9 million for the same prior year period. The increases in net sales were the result of increases in both product sales and service sales.

For the three-month period ended June 30, 2005, product sales in Wireless Data Communications increased 89% to $2.5 million from $1.3 million in the prior year period. For the six-month period, product sales in Wireless Data Communications increased 75.2% to $4.8 million as compared to $2.7 million in the prior year period. These increases were primarily due to increased sales of our wireless vehicle security product and tracking services, MobileGuardian. Product sales also increased due to higher demand for Uplink Security devices used for wireless communications between alarm installations and central monitoring stations.

During the three-month period ended June 30, 2005, Wireless Data Communications service revenues increased 18.1% to $2.5 million as compared to $2.1 million for the three-month period ended June 30, 2004. For the six months ended June 30, 2005, Wireless Data Comminications service revenues increased 22.8% to $5.1 million as compared to $4.1 million for the same prior year period. These increases were primarily due to an increase in the number of connections to our Cellemetry wireless network during the three- and six-month periods ending June 30, 2005. Revenues from connections to our network increased $375,000 for the three-month period ended June 30, 2005 and $876,000 for the six-month period ended June 30, 2005 compared to the same periods in 2004. Connection increases were generated by sales of our security products as well as by value added resellers who utilize the Cellemetry network to provide customer solutions. We continue to focus on increasing connections to our network due to the recurring nature of the service revenues.

Digital Multimedia and Networking. Net sales from Digital Multimedia and Networking decreased 4.5% to $1.9 million for the three-month period ended June 30, 2005 compared to $2.0 million for the three-month period ended June 30, 2004. This decrease was due to an 11.1% decrease in product revenues during the three months ended June 30, 2005 to $728,000, down from $819,000 in the prior year period. Service revenues for the Digital Multimedia and Networking division remained flat at $1.2 million for the three months ended June 30, 2005 and June 30, 2004. Net sales from Digital Multimedia and Networking remained flat at $3.0 million for the six months ended June 30, 2005. Product revenues for the six months ended June 30, 2005 decreased by 11.9% to $1.0 million as compared to $1.1 million for the six months ended June 30, 2004. This decrease was offset by a 6.3% increase in Digital Multimedia and Networking services, to $2.0 million compared to $1.9 million in the corresponding prior year period.

For both the three and six months ended June 30, 2005 the decrease in Digital Multimedia and Networking product revenues is the result of decreased sales of our interactive videoconferencing products (PowerPlay), which is sold directly or indirectly (as a subcontractor) 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. The increase in Digital Multimedia and Networking services during the six-month period ending June 30, 2005 is due to an increase in the services that we provided, either directly or indirectly, to large wireline and wireless telecommunication companies.

Wireline Data Communications. Wireline Security net sales increased 44.4% to $475,000 for the three-month period ended June 30, 2005 as compared to $329,000 for the three-month period ended June 30, 2004. This increase is due to a 126.6% increase in product sales to $324,000 compared to $143,000 in the prior year period, slightly offset by a 18.8% decrease in Wireline Security service sales, to $151,000 for the three-month period ended June 30, 2005 compared to $186,000 in the prior year period. The increase in product sales is due to sales of maintenance parts to a customer in Australia with which we have an equipment supply agreement.

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For the six months ended June 30, 2005, Wireline Security net sales increased 5.9% to $696,000 as compared to $657,000 for the six months ended June 30, 2004. This increase resulted from a 22.8% increase in Wireline Security product sales, slightly offset by a 7.7% decrease in Wireless Security products.

Cost of Sales

Cost of product sales increased 34.8% to $2.5 million for the three-month period ended June 30, 2005 as compared to $1.9 million for the three-month period ended June 30, 2004. For the six months ended June 30, 2005 cost of product sales increased 34.5% to $4.7 million up from $3.5 million for the six months ended June 30, 2004. The increase in cost of product sales for both the three and six months ended June 30, 2005 was primarily the result of higher product sales volume in the Wireless Data Communications, which corresponds to the increased revenues in Wireless Data Communications, as discussed previously. The increase in Wireless Data Communications product sales was partially offset by lower Digital Multimedia & Networking product sales.

Cost of services increased 20.2% to $1.5 million for the three-month period ended June 30, 2005 as compared to $1.3 million for the three-month period ended June 30, 2004. For the six months ended June 30, 2005, cost of services increased 27.5% to $2.8 million, compared to $2.2 million for the corresponding prior year period. The increase in cost of services for both the three and six months ended June 30, 2005 versus the same period in 2004 was primarily the result of higher service sales volume in both Wireless Data Communications and Digital Multimedia and Networking.

Cost of sales depreciation and amortization expense decreased 47% to $53,000 for the three-month period ended June 30, 2005 as compared to $100,000 for the three-month period ended June 30, 2004. For the six months ended June 30, 2005 cost of sales depreciation and amortization expense decreased 56.7% to $91,000 as compared to $210,000 for the same prior year period. The decrease for both the three and six months ended June 30, 2005 is due to some assets becoming fully depreciated during the period.

Gross Profit

Gross profit, as a percentage of net sales, was 44.2% for the three-month period ended June 30, 2005 compared to 43.6% for the three-month period ended June 30, 2004. The slight increase in total gross profit as a percentage of sales was due to a slight decrease in cost of services and cost of sales depreciation and amortization as a percentage of net sales, partially offset by an increase in cost of product sales as a percentage of net sales. Gross profit, as a percentage of net sales, remained flat at 44% for the six months ended June 30, 2005 and 2004.

Operating Expenses

Selling, general and administrative expenses decreased 9.4% to $2.1 million for the three-month period ended June 30, 2005 as compared to $2.3 million for the three months ended June 30, 2004. For the six months ended June 30, 2005, selling, general and administrative expenses decreased 4.7% to $4.3 million as compared to $4.5 million for the comparable prior year period. These decreases are due to reduced personnel and the related benefit expenses.

Research and development expenses increased 41.6% to $286,000 for the three-month period ended June 30, 2005 as compared to $202,000 for the three-month period ended June 30, 2004. This increase is primarily due to an increase in personnel costs of $119,000, partially offset by an increase of $38,000 software capitalization to $104,000 versus $66,000 for the same period in 2004. For the six months ended June 30, 2005, research and development expenses increased 15.4% to $554,000, up from $480,000 for the six months ended June 30, 2004. This increase is also primarily due to an increase of personnel costs partially offset by increased capitalization.

Bad debt expense decreased 12.9% to $101,000 for the quarter ended June 30, 2005 from $116,000 in the same quarter in 2004. For the six months ended June 30, 2005, bad debt expense decreased 44% to $159,000 as compared to $284,000 for the six months ended June 30, 2004. Bad debt expense decreased during these periods as a result of the implementation of more stringent credit policies and collections processes, as well as an improvement in the general economic conditions.

Depreciation and amortization expense increased 7.1% to $438,000 for the three-month period ended June 30, 2005 as compared to $409,000 for the three-month period ended June 30, 2004. For the six months ended June 30, 2005 depreciation and amortization expense increased 8.3% to $905,000 as compared to $836,000 in the prior year period. These increases are primarily attributable to a new capital lease for the replacement and upgrade of computer server equipment.

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Interest expense and other expense decreased for the three-month period ended June 30, 2005 to $94,000 as compared to $177,000 for the three-month period ended June 30, 2004. This decrease was primarily the result of Laurus opting to convert shares of our common stock in lieu of cash payments. The accounting treatment for this transaction requires that the percentage of the payment that has been converted be applied to the amount of deferred financing fees that would have been charged to interest expense, instead be an adjustment to shareholders’ equity rather than to interest expense. For the three months ended June 30, 2005, shareholders’ equity was adjusted by $63,000 for the deferred financing fees. For the six months ended June 30, 2005, interest expense and other expense decreased slightly to $283,000 as compared to $293,000 for the six months ended June 30, 2004. The slight decrease is primarily the result of higher exchange rate losses in the period ended June 30, 2004 as compared to the current year period. The decrease in exchange rate losses was partially offset by the additional interest expense we have incurred on the $1,500,000 we received from a convertible note payable to Laurus Master Fund on January 28, 2005.

Gain on the sale of business of $250,000 for the six-month period ended June 30, 2004 was due to the receipt of a contingent payment on the sale of Data1Source in September 2003 since the contingency was favorably met.

Due to the loss position for the six-months ended June 30, 2005 we have not recorded federal tax provisions. The $43,000 of income tax expense in the six-month period ended June 30, 2005 is related to certain state and foreign income taxes.

Liquidity and Capital Resources

We had working capital of $2.4 million as of June 30, 2005 compared to a working capital of $1.2 million at December 31, 2004. We had cash balances of $3.6 million and $1.7 million, respectively, as of June 30, 2005 and December 31, 2004.

We generated cash from operating activities totaling $1.2 million for the six months ended June 30, 2005 compared to net cash used in operating activities of $57,000 for the six months ended June 30, 2004. The increase in cash provided by operating activities for the six months ended June 30, 2005 versus the comparable period of 2004 was primarily due to a decrease in net operating losses, an increase in accounts payable, non-cash interest expense and deferred revenue. These were partially offset by an increase in accounts receivable and a decrease in other accrued liabilities.

We used cash in investing activities totaling $424,000 for the six months ended June 30, 2005 compared to net cash used totaling $195,000 for the six months ended June 30, 2004. The increase in cash used in investing activities was primarily due to the fact that during the six-month period ending June 30, 2004 we had proceeds from the sale of Data1Souce of $200,000. These proceeds were contingent on certain criteria being met within six months following the original sale. We received this payment during the quarter ended March 31, 2004.

We generated cash from financing activities totaling $1.1 million for the six-month period ended June 30, 2005 compared to net cash provided from financing activities totaling $873,000 for the six-month period ended June 30, 2004. The increase in cash provided by financing activities was primarily due to proceeds we received from the second Company Note during the six months ended June 30, 2005 (see Note B-7 - Note Payable in the footnotes to the Company’s financial statements) partially offset by principal payments on the notes of $344,000, and principal payments on capital lease obligations of $54,000. During the six months ended June 30, 2004 we also had proceeds from the first Company Note of $4.3 million, but this was partially offset by the payoff of the short-term debt payable to Cingular in the amount of $3.5 million during that same period.

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.

We paid principal and interest of approximately $375,000 on our notes during the six months ended June 30, 2005. Laurus opted to convert 111,720 shares of the company stock at a price of $4.56 per share for principal payment on the Company Notes during the six months ended June 30, 2005.

We believe that our existing cash and cash equivalents, together with cash generated from operations will be more than sufficient to meet our operating requirements for at least the next twelve months. This belief could be affected by unexpected operating losses, a material adverse change in our operating business or a default under the Company Notes. We continually consider other sources of funding, including the sale of certain non-core assets.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

At June 30, 2005, we have not invested in any material balances of market risk sensitive instruments held for either trading purposes or for purposes other than trading. As a result, we are not subject to interest rate risk, commodity price risk, or other relevant market risks, such as equity price risk, other than risks created in the ordinary course of business through its operations.

At June 30, 2005, we have obligations under a note payable and under capital leases, both of which have fixed interest rates. We believe that the effect, if any, of reasonably possible near-term changes in interest rates or foreign currency exchange rates on our financial position, results of operations and cash flows should not be material.

Item 4. Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective as of June 30, 2005. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.

Legal Proceedings.

We are involved in litigation in the ordinary course of our business, both as a defendant and as a plaintiff. While we cannot predict the outcome of any pending or future litigation, examination or investigation, we do not believe that any pending matter will have a material adverse effect on our cash flows, financial condition or results of operations.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None - not applicable.

Item 3.

Defaults Upon Senior Securities.

None - not applicable.

Item 4.

Submission of Matters to a Vote of Security Holders.

The Annual Meeting of Shareholders of the Company was held on May 12, 2005 (the "Meeting"). Two proposals were presented for a vote at the Meeting. Of the 13,241,441 shares of our common stock outstanding on the record date, 10,698,283 were present or represented by proxy at the Meeting. The results of the voting on the matters submitted to the shareholders were as follows:

Proposal 1 - The election of eight directors, Brian C. Beazer, George Benson, Nicholas A. Davidge, Matthew J. Flanigan, Allan H. Liu, Stratton J. Nicolaides, John G. Raos and Andrew J. Ryan, each to serve as director of the Company for a one-year term expiring at the annual meeting of shareholders to be held in 2006 and until the election and qualification of each successor.

	For	Withheld
Brian C. Beazer	9,936,451	761,832
George Benson	9,819,071	879,212
Nicholas A. Davidge	9,936,451	761,832
Matthew J. Flanigan	9,757,252	941,081
Allan H. Liu	9,894,297	803,976
Stratton J. Nicolaides	9,936,451	761,832
John G. Raos	9,819,071	879,212
Andrew J. Ryan	9,926,882	771,401

Proposal 2 - The ratification of the appointment of Grant Thornton LLP as the Company’s independent accountants for the year ending December 31, 2005.

For	Against	Abstain
10,695,683	500	2,100

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Item 5. Other Information.

None - not applicable.

Item 6. Exhibits.

Exhibit 31.1 Certification of Chairman and Chief Executive Officer Pursuant to Exchange Act Rule 13a-14.

Exhibit 31.2 Certification of Chief Financial Officer, Executive Vice President, and Principal Financial and Accounting Officer Pursuant to Exchange Act Rule 13a-14.

Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Through its website at www.nmrx.com, the Company makes available, free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and all amendments thereto, as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements 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.

(Registrant)

Date: August 11, 2005 /s/Stratton J. Nicolaides

STRATTON J. NICOLAIDES

Chairman and Chief Executive Officer

Date: August 11, 2005 /s/ Alan B. Catherall

ALAN B. CATHERALL

Chief Financial Officer,

Executive Vice President and Principal Financial and Accounting Officer

August 11, 2005	/s/ Stratton J. Nicolaides
	Stratton J. Nicolaides
	Chief Executive Officer and Chairman

August 11, 2005	/s/ Alan B. Catherall
	Alan B. Catherall
	Chief Financial Officer, Executive Vice President, and Principal Financial and Accounting Officer