-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K3zIC8abIZrZoavV2jYH49/bIxhIZKj5q7fzmmbcC0WdhAfuiJf7br4M3YL4+S9Y 6jbyl+aIovAaMKfJjG1pwA== 0000870753-06-000016.txt : 20060814 0000870753-06-000016.hdr.sgml : 20060814 20060814165509 ACCESSION NUMBER: 0000870753-06-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060814 DATE AS OF CHANGE: 20060814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUMEREX CORP /PA/ CENTRAL INDEX KEY: 0000870753 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 112948749 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22920 FILM NUMBER: 061031533 BUSINESS ADDRESS: STREET 1: 1600 PARKWOOD CIRCLE STREET 2: SUITE 200 CITY: ATLANTA STATE: GA ZIP: 30339 BUSINESS PHONE: 770-693-5950 MAIL ADDRESS: STREET 1: 1600 PARKWOOD CIRCLE STREET 2: SUITE 200 CITY: ATLANTA STATE: GA ZIP: 30339 10-Q 1 form10q.htm NUMEREX 10Q 06 30 2006 Numerex 10Q 06 30 2006
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, 2006
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 500
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 þ          No o
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o          Accelerated filer o          Non-accelerated filer þ          

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes o          No þ

As of August 9, 2006 an aggregate of 12,313,143 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


 
Page
PART I - FINANCIAL INFORMATION
  
Item 1. Financial Statements
  
Condensed Consolidated Balance Sheets June 30, 2006 (Unaudited) and December 31, 2005
4
Condensed Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2006
and June 30, 2005
5
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2006 and
  
June 30, 2005
6
Condensed Consolidated Statement of Shareholders' Equity - Unaudited
7
Notes to Condensed Consolidated Financial Statements - Unaudited
8
   
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3. Quantitative and Qualitative Disclosures about Market Risk
26
Item 4. Controls and Procedures
26
PART II - OTHER INFORMATION
  
Item 1. Legal Proceedings
27
Item 1A. Risk Factors
27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
27
Item 3. Defaults Upon Senior Securities
27
Item 4. Submission of Matters to a Vote of Security Holders
27
Item 5. Other Information
28
Item 6. Exhibits
28
Signature Page
29
Certifications
30
Exhibits
  



 
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 Numerex networks 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.



PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

NUMEREX CORP.
  
CONDENSED CONSOLIDATED BALANCE SHEET
  
(In thousands, except share information)
  
 
  
June 30,
  
December 31,
  
 
  
2006
  
2005
  
 
  
(Unaudited)
  
 
  
ASSETS
  
 
  
 
  
CURRENT ASSETS
          
Cash and cash equivalents
  
$
12,580
  
$
2,821
  
Short-term investments
    
64
   
1,538
 
Accounts receivable, less allowance for doubtful accounts of $639 at June 30, 2006 and $704 at December 31, 2005:
    
10,933
   
6,046
 
Inventory
    
3,325
   
1,694
 
Prepaid expenses and other current assets
    
606
   
517
 
TOTAL CURRENT ASSETS
    
27,508
   
12,616
 
 
          
Property and Equipment, Net
    
1,118
   
986
 
Goodwill, Net
    
18,241
   
15,014
 
Other Intangibles, Net
    
6,955
   
6,268
 
Software, Net
    
1,460
   
1,020
 
Other Assets
    
469
   
444
 
TOTAL ASSETS
  
$
55,751
  
$
36,348
  
 
          
LIABILITIES AND SHAREHOLDERS’ EQUITY
          
CURRENT LIABILITIES
          
Accounts payable
  
$
7,664
  
$
3,911
  
Other current liabilities
    
2,775
   
2,326
 
Note payable, current
   
1,822
   
490
 
Deferred revenues
    
1,658
   
1,056
 
Obligations under capital leases, current portion
    
94
   
58
 
TOTAL CURRENT LIABILITIES
    
14,013
   
7,841
 
 
          
LONG TERM LIABILITIES
          
Obligations under capital leases and other long term liabilities
    
146
   
60
 
Note Payable
    
8,532
   
718
 
TOTAL LONG TERM LIABILITIES
    
8,678
   
778
 
 
          
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 14,702,341 shares at June 30, 2006 and 14,033,877 shares at December 31, 2005
    
42,990
   
40,050
 
Additional paid-in-capital
    
2,181
   
1,136
 
Treasury stock, at cost, 2,391,400 shares on June 30, 2006 and December 31, 2005
   
(10,197
)
  
(10,197
)
Class B common stock - no par value; authorized 5,000,000; none issued
    
-
   
-
 
Accumulated other comprehensive loss
    
(23
)
  
(8
)
Accumulated deficit
    
(1,892
)
  
(3,252
)
TOTAL SHAREHOLDERS' EQUITY
    
33,059
   
27,729
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  
$
55,751
  
$
36,348
  

See accompanying notes to condensed consolidated financial statements - unaudited



Numerex Corp.
  
Condensed Consolidated Statement of Operations
  
(In thousands, except per share data)
  
(Unaudited)
  
 
  
 
  
 
  
 
  
 
  
 
  
Three Months Ended
  
Six Months Ended
  
 
  
June 30,
  
June 30,
  
 
  
2006
  
2005
  
2006
  
2005
  
Net sales:
                 
Product
 
$
8,273
  
$
3,526
  
$
15,871
  
$
6,147
  
Service
   
4,620
   
3,837
   
8,864
   
7,393
 
Total net sales
   
12,892
   
7,363
   
24,735
   
13,540
 
 
                  
Cost of product sales (excluding depreciation)
   
6,716
   
2,505
   
12,890
   
4,690
 
Cost of services (excluding depreciation and amortization)
   
1,471
   
1,548
   
2,905
   
2,802
 
Depreciation and amortization
   
40
   
53
   
84
   
91
 
Gross Profit
   
4,666
   
3,257
   
8,857
   
5,957
 
 
                  
Selling, general, and administrative expenses
   
2,938
   
2,094
   
5,731
   
4,253
 
Research and development expenses
   
280
   
286
   
575
   
554
 
Bad debt expense
   
83
   
101
   
83
   
159
 
Depreciation and amortization
   
395
   
438
   
844
   
905
 
Operating earnings
   
970
   
338
   
1,624
   
86
 
 
                  
Interest expense, net
   
(69
)
  
(93
)
  
(218
)
  
(279
)
Other expense, net
   
(3
)
  
(1
)
  
(1
)
  
(4
)
Earnings (loss) before income taxes
   
898
   
244
   
1,406
   
(197
)
 
                  
Provision for income taxes
   
15
   
4
   
46
   
43
 
Net earnings (loss)
 
$
883
  
$
240
  
$
1,360
  
$
(240
)
 
                  
Basic earnings (loss) per common share
 
$
0.07
  
$
0.02
  
$
0.11
  
$
(0.02
)
Diluted earnings (loss) per common share
 
$
0.07
  
$
0.02
  
$
0.11
  
$
(0.02
)
Number of shares used in per share calculation
                 
Basic
   
12,307
   
10,903
   
12,275
   
10,870
 
Diluted
   
13,021
   
11,957
   
12,944
   
10,870
 

See accompanying notes to condensed consolidated financial statements - unaudited



 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  
Unaudited
  
(In thousands)
  
 
  
For the six month period
  
 
  
ended June 30,
  
 
  
2006
  
2005
  
 
  
 
  
 
  
Cash flows from operating activities:
          
Net earnings (loss)
  
$
1,360
    
(240
)
Adjustments to reconcile net earnings (loss) to net cash
         
provided by operating activities:
          
Depreciation
    
294
   
316
 
Amortization
    
634
   
680
 
Allowance for doubtful accounts
    
83
   
148
 
Inventory Reserves
    
(78
)
  
104
 
Non-cash interest expense
    
137
   
104
 
Stock options compensation expense
    
199
   
-
 
Stock issued in lieu of directors fees
    
38
   
-
 
Changes in assets and liabilities which provided
          
(used) cash:
          
Accounts and notes receivable
    
(1,558
)
  
(1,024
)
Inventory
    
(345
)
  
(162
)
Prepaid expenses & interest receivable
    
(257
)
  
159
 
Other assets
    
183
   
181
 
Accounts payable
    
1,090
   
1,213
 
Other accrued liabilities
    
188
   
(272
)
Deferred revenue
    
584
   
30
 
Income taxes
    
38
   
-
 
Net cash provided by operating activities:
    
2,589
   
1,237
 
Cash flows from investing activities:
          
Purchase of property and equipment
    
(216
)
  
(141
)
Purchase of intangible and other assets
    
(480
)
  
(283
)
 Sale of short-term investment, net
    
1,474
     
Purchase of Airdesk, Inc, net of cash acquired
    
(3,686
)
  
-
 
Net cash used in investing activities
    
(2,909
)
  
(424
)
Cash flows from financing activities:
          
Proceeds from exercise of common stock options
    
258
   
-
 
Proceeds from note payable and debt
    
10,000
   
1,500
 
Principal payments on capital lease obligations
    
(28
)
  
(54
)
Principal payments on notes payable and debt
    
(136
)
  
(344
)
Net cash provided by financing activities:
    
10,094
   
1,102
 
Effect of exchange differences on cash
    
(16
)
  
(8
)
Net increase in cash and cash equivalents
    
9,759
   
1,907
 
Cash and cash equivalents at beginning of year
    
2,821
   
1,684
 
Cash and cash equivalents at end of year
  
$
12,580
  
$
3,591
  
Supplemental Disclosures of Cash Flow Information
          
Cash payments for:
          
Interest
    
104
   
207
 
Income taxes
    
46
   
43
 
Disclosure of non-cash activities:
          
Capital leases
    
-
   
182
 
Common stock issued for the purchase of Airdesk
    
1,329
   
-
 
Non-cash interest
    
137
   
104
 
Debt converted to common stock
    
1,317
   
405
 

See accompanying notes to condensed consolidated financial statements - unaudited



 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
  
(In Thousands)
  
(Unaudited)
  
                   
Accumulated
          
           
Additional
      
Other
          
   
Common
  
Stock
  
Paid-In
  
Treasury
  
Comprehensive
  
Retained
      
   
Shares
  
Amount
  
Capital
  
Stock
  
Earnings
  
Earnings
  
Total
  
                               
Balance, December 31, 2005
    
14,034
 
$
40,050
  
$
1,136
  
$
(10,197
)
$
(8
)
$
(3,252
)
$
27,729
  
Issuance of shares under Directors
                                            
Stock Plan
    
5
   
37
   
-
   
-
   
-
   
-
   
37
 
Compensation for the issuance of stock options
    
-
   
-
   
199
   
-
   
-
   
-
   
199
 
Issuance of shares in connection with
                                           
exercise of stock options
    
67
   
257
   
-
   
-
   
-
   
-
   
257
 
Issuance of common stock for conversion of
                                            
debt to equity
    
248
   
1,317
   
-
   
-
   
-
   
-
   
1,317
 
Issuance of common stock in connection with purchase of Airdesk, Inc.
    
348
   
1,329
   
-
   
-
   
-
   
-
   
1,329
 
Warrants
                
846
   
-
   
-
   
-
   
846
 
Translation adjustment
    
-
   
-
   
-
   
-
   
(15
)
  
-
   
(15
)
Net Earnings
    
-
   
-
   
-
   
-
   
-
   
1,360
   
1,360
 
Balance, June 30, 2006
    
14,702
 
$
42,990
  
$
2,181
  
$
(10,197
)
$
(23
)
$
(1,892
)
$
33,059
  

See accompanying notes to condensed consolidated financial statements - unaudited




NUMEREX, CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
(UNAUDITED)


NOTE A - BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month period ended June 30, 2006 may not be indicative of the results that may be expected for the year ending December 31, 2006. For further information, reference is also made to Numerex Corp.’s (the “Company’s”) Annual Report on Form 10-K for the year ended December 31, 2005 and the consolidated financial statements contained therein.

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. (NASDAQ: NMRX) is a leader in providing wireless fixed and mobile machine-to-machine (M2M) solutions, as well as a broad range of reliable, competitive network services and technology. A single-source provider for M2M requirements, Numerex enables real-time wireless data communications, monitoring, tracking, and service management tailored to the needs of each application, customer and industry, from vehicle location and tracking, to vending, security and utilities. Numerex products and services are primarily marketed and sold through alliance partners and indirect channels including integrators, licensees and distributors.  Wireless M2M network services and solutions are delivered through the Airdesk Wireless division. The Airdesk division was created when we acquired the assets of Airdesk Inc. on January 5, 2006 (see Note C - Investments). Wireless security solutions are delivered through the Uplink Security division. In addition to its core M2M business, Numerex markets proprietary digital multimedia and collaboration products to the educational and distance learning markets. It also provides networking and integration services to major telecommunications companies. Numerex primarily serves customers throughout the United States, Canada and Latin America. 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 and include the results of Airdesk from January 1, 2006. The Airdesk acquisition was accounted for using the purchase method (see Note C - Acquisitions). Significant intercompany accounts and transactions have been eliminated in consolidation.

3. Cash and Cash Equivalents

Cash equivalents of $12.6 million at June 30, 2006 and $2.8 million at December 31, 2005, consist of overnight repurchase agreements, money market deposit accounts, amounts on deposit in a foreign bank and restricted cash held as a letter of credit. Cash of $50,000 at June 30, 2006 and $60,000 at December 31, 2005 was held in our foreign bank account. Restricted cash of $46,000 was related to a letter of credit outstanding on June 30, 2006 and December 31, 2005.



4. Short-Term Investments

Short-term investments that have an original maturity between three months and one year and a remaining maturity of less than one year are classified as either held-to-maturity or available-for-sale. Held-to-maturity securities are stated at amortized cost as it is our intent to hold these securities until maturity. Available-for-sale securities are recorded at fair value and are classified as current assets due to our intent and practice to hold these readily marketable investments for less than one year.

The investment securities held by the Company at June 30, 2006 are debt instruments and classified as held-to-maturity. The fair value of the securities was $64,000 at June 30, 2006 and at December 31, 2005 the fair value of the securities was $1,538,000.

5. Intangible Assets

Intangible assets consist 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 is amortized using the straight-line method over 4 years. The $3,227,000 increase in goodwill in Wireless Data Communications was due to the acquisition of the assets of Airdesk, Inc on January 5, 2006 (see Note C - Acquisitions).

Intangible assets with determinable useful lives are amortized on a straight-line basis over their estimated useful lives. The increase in other intangible assets was primarily due to the acquisition of Airdesk which is 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.

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.


   
June 30,
  
December 31,
  
(In thousands)
  
2006
  
2005
  
Wireless Data Communications
          
Goodwill
  
$
15,511
  
$
12,284
  
Accumulated Amortization
    
(1,405
)
  
(1,405
)
Digital Multimedia and Networking
              
Goodwill
    
5,409
   
5,409
 
Accumulated Amortization
    
(1,274
)
  
(1,274
)
Goodwill, net
  
$
18,241
  
$
15,014
  
               
Purchased and developed software
    
3,890
   
3,268
 
Patents, trade and service marks
    
12,110
   
11,452
 
Other Intangible assets
    
985
   
503
 
Total intangible assets
    
16,985
   
15,223
 
Accumulated amortization
    
(8,570
)
  
(7,935
)
Intangible assets, net
  
$
8,415
  
$
7,288
  





6. 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. Historically, we have recorded a deferred tax valuation allowance in an amount equal to our net deferred tax assets. If we determine that we will ultimately be able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been provided, the related portion of the valuation allowance will be released to income as a credit to income tax expense. Management evaluates the deferred tax asset valuation allowance on a quarterly basis.

7. 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)
  
2006
  
2005
  
 
          
Raw materials
  
$
947
  
$
349
  
Work-in-progress
    
1
   
8
 
Finished goods
    
2,377
   
1,337
 
Inventory, net
  
$
3,325
  
$
1,694
  



8.  Notes Payable

As part of the acquisition of Airdesk (see Note C - Acquisitions), we assumed a note payable to Motorola for $1,700,000 of which $500,000 was paid closing on the acquisition on January 5, 2006, resulting in a balance of  $1,200,000 at June 30, 2006.  The note bears an interest rate of eight percent (8%) per annum.  The balance of the principal is payable in three installments of $500,000 due on September 30, 2006, $500,000 due on June 30, 2007 and $200,000 due on December 1, 2007.  

 
Effective as of May 30, 2006, we 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.
 
Interest and principal under the convertible note may be paid in either cash or, subject to certain conditions, in shares of our common stock. If payments are made in cash, principal reductions will begin in December 2006 and will continue for the next 42 months with the final payment due in May 2010. We may only use common stock to make payments on the convertible note 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 our common stock at a fixed conversion price equal to $7.91 per share.
 
The warrant 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. We are required to register the common stock underlying the Warrant for resale by Laurus. The Securities and Exchange Commission declared the registration statement effective on August 8, 2006. Note A also contains 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 $37,000.



We also completed two prior private placements with Laurus. 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 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 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, we issued warrants covering additional 66,000 shares pursuant to the registration rights agreement. On July 6, 2005 we voluntarily converted $2,280,000 of the outstanding debt associated with the First Company Note into 500,000 shares of common stock. On August 1, 2005 we converted the $953,040 remaining outstanding portion of the debt associated with the First Company Note into 209,000 shares of common stock.
 
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 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. We were 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. The Second Company Note also contains 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 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.



9.  Stock-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 including equity awards related to the Long-Term Incentive Plan (the “1999 Plan”) based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) for periods beginning in fiscal 2006. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
 
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 first day of the Company’s fiscal year 2006. The Company’s Condensed Consolidated Financial Statements as of and for the three and six months ended June 30, 2006 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method, the Company’s Condensed Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). Stock-based compensation expense recognized under SFAS 123(R) for the three months ended June 30, 2006 was $99,000 and for the six months ended June 30, 2006 was $199,000, which consisted of stock-based compensation expense related to employee equity awards. Total unrecognized compensation related to unvested stock-based awards granted to employees and members of our board of directors at June 30, 2006, net of estimated forfeitures, is $876,000 and is expected to be recognized over a weighted-average period of 8.6 years. There was no stock-based compensation expense related to employee equity awards recognized during the three and six months ended June 30, 2005.
 
SFAS 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company’s Condensed Consolidated Statement of Operations. Prior to the adoption of SFAS 123(R), the Company accounted for employee equity awards using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”  (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Condensed Consolidated Statement of Operations, because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.
 
Stock-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. Stock-based compensation expense recognized in the Company’s Condensed Consolidated Statement of Operations for the three and six months ended June 30, 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 stock-based compensation costs to expense on the straight-line method. As stock-based compensation expense recognized in the Condensed Consolidated Statement of Operations for the second quarter of fiscal 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. In the Company’s pro forma information required under SFAS 123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.

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 an 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 impact of adopting SFAS 123(R) on January 1, 2006, was to lower the Company’s earnings before taxes and net earnings for the three and six months ended June 30, 2006 by $99,000 and $199,000, respectively. Basic and diluted net earnings per share for the three and six months ended June 30, 2006 were lower by $0.01 and $0.03 respectively, as a result of adopting SFAS 123(R).

We have outstanding stock options granted pursuant to three 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, and the Long-Term Incentive Plan (the “1999 Plan”). The 1994 Plan and the Director Plan were terminated and replaced by the 1999 Plan and was effective for options granted from October 25, 1999. Options outstanding under the 1994 Plan and the Director Plan remain in effect, but no new options may be granted under those plans. Options issued under the 1999 Plan typically vest ratably over a four-year period. Options issued under the 1994 Plan typically vest over a five-year period. Certain options issued under the 1994 Plan have cliff-vesting terms at the end of a five-year period and terms which provide for the acceleration of vesting upon the attainment of specified market prices for our common stock for a period of 60 days.


The aggregate number of shares, which may be issued upon the exercise of options under the 1999 Plan, is 1,500,000 shares of Class A Common Stock.A summary of the company's stock option activity and related information follows:

For the period ended June 30, 2006
 
    
 
 
Weighted
Weighted
Aggregate
 
 
Average
Average Remaining
Intrinsic
 
Shares
Ex. Price
Contractual Life (Yrs)
Value
Outstanding, at 12/31/05
1,379,015
4.74
 
 
Options granted
115,000
4.75
 
 
Options exercised
(65,950)
3.91
 
 
Options cancelled
-
-
 
 
Options expired
(2,500)
5.13
 
 
Outstanding, end of period
1,425,565
4.78
6.54
$ 3,710,877
Exercisable, end of period
881,190
5.13
5.30
$ 2,096,881
 
The following table summarizes information about fixed stock options outstanding at June 30, 2006:

 
Options outstanding
  
Options exercisable
Range of exercise prices
Number outstanding at
 June 30, 2006
Weighted average remaining contractual life (years)
Weighted average exercise price
  
Number exercisable at June 30, 2006
Weighted average exercise price
  $1.00 -   4.00
552,865
6.52
$3.06
  
351,740
$2.86
    4.01 -   8.00
702,700
7.15
$5.10
  
361,450
$5.55
    8.01 -  12.94
170,000
4.08
$9.02
  
168,000
$9.00
 
1,425,565
6.54
$4.78
  
881,190
$5.13

 
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 average expected life was based on the contractual term of the option and expected employee exercise behavior. 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.



The key assumptions used in the valuation model during the six months ended June 30, 2006 and 2005 are provided below:

 
Six Months Ended
 
June 30,
 
2006
2005
Valuation Assumptions:
 
 
Volatility
66.55%
68.27%
Expected term
6.3 years
8 years
Risk free interest rate
4.31%
5.08%
Dividend yield
0.00%
0.00%
 

The Company recognized $99,000 of stock based compensation expense for the three months ended June 30, 2006 and $199,000 for the six months ended June 30, 2006. Prior to the adoption of SFAS 123(R), the Company accounted for stock based compensation plans using the intrinsic value method prescribed in Accounting Principles Board Opinion 25, Accounting for Stock-Based Compensation, (APBO 25). Under APBO 25, no compensation expense related to stock options was recognized in operations. For the purpose of pro forma disclosure, the estimated fair value of options accounted for under APBO 25 were calculated using the Black-Scholes method utilizing the valuation assumptions above for the three and six months ended June 30, 2005.

The Company’s pro forma information is as follows:

 
  
Three Months
  
Six Months
  
   
Ended June 30,
  
Ended June 30,
  
(In thousands, except per share data)
    
2005
    
2005
  
Net earnings (loss) - as reported
  
$
240
  
$
(240
)
Less total stock-based compensation expense determined
          
under fair value based method for all awards
    
76
   
151
 
Pro forma net loss
  
$
164
  
$
(391
)
 
          
Basic earnings (loss) per share:
          
As reported
  
$
0.02
  
$
(0.02
)
Pro forma
  
$
0.02
  
$
(0.04
)
 
          
Diluted earnings (loss) per share:
          
As reported
  
$
0.02
  
$
(0.02
)
Pro forma
  
$
0.01
  
$
(0.04
)




10. Earnings Per Share

Basic net earnings (loss) per common share available to common shareholders are based on the weighted-average number of common shares outstanding. For periods in which we have net earnings, diluted net earnings per common share available to common shareholders are based 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 earnings per common share for each period is the same as net earnings (loss). The denominator is based on the number of common shares as shown in the following table:
 
 
  
Three Months Ended
  
Six Months Ended
  
 
  
June 30,
  
June 30,
  
(In thousands, except per share data)
  
2006
  
2005
  
2006
  
2005
  
 
  
 
  
 
  
 
  
 
  
Common Shares:
                  
Weighted average common shares outstanding
    
12,307
   
10,903
   
12,275
   
10,870
 
Dilutive effect of common stock equivalents
    
714
   
1,054
   
669
   
-
 
Total
    
13,021
   
11,957
   
12,944
   
10,870
 
 
                  
Net earnings (loss):
  
$
883
  
$
240
  
$
1,360
  
$
(240
)
 
                  
Net earnings (loss) per common share:
                  
Basic
  
$
0.07
  
$
0.02
  
$
0.11
  
$
(0.02
)
Diluted
  
$
0.07
  
$
0.02
  
$
0.11
  
$
(0.02
)

For the three and six months ended June 30, 2006, we excluded options to purchase 255,000 and 246,000 shares respectively, of common stock and common stock equivalents for 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 periods. For the three and six months ended June 30, 2005, we excluded options to purchase 1,519,000 and 1,250,000 shares respectively, of common stock and common stock equivalents for 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 periods. With the acquisition of Airdesk, the Company could issue an additional 300,000 shares of the Company’s common stock over a three-year period. These shares are currently held in Escrow and are not included in the basic and diluted share calculation.
 
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 six months ended June 30, 2005. For the six months ended June 30, 2005, options to purchase 891,000 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.




Our revenue is generated from three sources:
·  the supply of product, under non recurring agreements,
·  the provision of services, under non recurring agreements and,
·  the provision of data transportation services, under recurring or multi-year contractually based agreements.

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

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.

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 February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments” (“FAS 155”), which amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“FAS 133”) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“FAS 140”). FAS 155 provides guidance to simplify the accounting for certain hybrid instruments by permitting fair value remeasurement for any hybrid financial instrument that contains an embedded derivative, as well as, clarifies that beneficial interests in securitized financial assets are subject to FAS 133. In addition, FAS 155 eliminates a restriction on the passive derivative instruments that a qualifying special-purpose entity may hold under FAS 140. FAS 155 is effective for all financial instruments acquired, issued or subject to a new basis occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. We believe that the adoption of this statement will not have a material effect on our financial condition or results of operations.
 
In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets” (“FAS 156”), which amends SFAS No. 140. FAS 156 provides guidance addressing the recognition and measurement of separately recognized servicing assets and liabilities, common with mortgage securitization activities, and provides an approach to simplify efforts to obtain hedge accounting treatment. FAS 156 is effective for all separately recognized servicing assets and liabilities acquired or issued after the beginning of an entity’s fiscal year that begins after September 15, 2006, with early adoption being permitted. We believe that the adoption of this statement will not have a material effect on our financial condition or results of operations.



 
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”), which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position may be recognized only if it is “more likely than not” that the position is sustainable based on its technical merits. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. We are currently evaluating the impact the adoption of FIN 48 will have on our consolidated financial statements.

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 that 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 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 monthly basis. The matching contributions made by us vest over a three-year period at a rate of 33% per year. Approximately $27,700 and $26,500 was expensed for the three months ended June 30, 2006 and 2005, respectively. Approximately $61,000 and $53,000 was expensed for the six months ended June 30, 2006 and 2005, respectively.

14.  Reclassification

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

NOTE C - ACQUISITIONS

AirDesk  Acquisition

On January 5, 2006 the Company completed the acquisition of the assets of AIRDESK, Inc. through its wholly owned subsidiary, Airdesk LLC. 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. The acquisition aligns Airdesk’s digital M2M products and portfolio of industry leading radio modules with the Company’s M2M network and services platform.

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.

Total consideration for the asset purchase was approximately $4,235,000 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 the Company’s common stock over a three-year period.

The Company assumed approximately $2,475,000 of debt, of which $1,199,000 was paid in cash at closing of the transaction as a reduction of part of the debt, and the balance of $1,276,000 is payable over a two-year period. The Company also issued shares of common stock valued at approximately $196,000 to AIRDESK at closing and deposited the remaining shares of common stock, valued at closing at approximately $1,307,000, with an Escrow Agent. AIRDESK retains voting and dividend rights to these shares while held in escrow. The Escrow Agent will release the shares of common stock to AIRDESK over a two-year period in accordance with the terms of the Escrow Agreement. In addition, the Company incurred approximately $257,000 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 at the date of acquisition.

(in thousands)
  
At January 5, 2006
  
Current assets
  
$
2,410
  
Property, plant and equipment
    
444
 
Other non-current assets
    
12
 
Intangible assets
    
934
 
Goodwill
    
3,227
 
Total assets acquired
    
7,027
 
         
Current liabilities
    
(3,367
)
Long-term debt
    
(700
)
Total liabilities assumed
    
(4,067
)
Net assets acquired
  
$
2,960
  

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.

We engaged an external appraisal firm to help us determine the fair value of the tangible assets and intangible assets acquired for the allocation of the purchase price. This valuation was based on projected financial information as well as historical trends. Due to the timing of the valuation, a draft of this appraisal was used as an estimate for the allocation of the purchase price in the previous quarter ending March, 31, 2006. This resulted in an initial estimated valuation of intangible assets from this acquisition of $2,255,000, made up of $1,510,000 assigned to customer relationships, $668,000 assigned to trademarks, and $77,000 assigned to a non-compete agreement. After further review of the valuation of these intangible assets the amount assigned to customer relationships was revised to $189,000. On the date of acquisition, nearly all AIRDESK’s customers were product customers and based on historical sales, these customers had a high rate of turnover and were at lower margins than that of service customers. Thus, not a significant value should be assigned to the existing customers. The projections used in the initial valuation included both product and service revenues and margins, however, the higher margin service revenues should have been excluded from the initial valuation since they were not in the initial customer base. This resulted in a $1,321,000 decrease in purchase price assigned to intangible assets and an increase in goodwill for the same amount.

The $3,227,000 of goodwill was assigned to the wireless data communications segment. The goodwill and intangible assets will not be deductible for income tax purposes, thus resulting in a $635,000 lowering of the consolidated valuation allowance on deferred tax assets.

NOTE D - LIQUIDITY

We believe that our existing cash and cash equivalents, will be sufficient to meet our operating requirements through at least December 31, 2006. This belief could be affected by a material adverse change in our operating business.



NOTE E - SEGMENT INFORMATION

Beginning in fiscal year 2006, the Company adopted a new business strategy, which focuses on three distinct segments: Wireless Data Communications; Digital Multimedia, Networking and Wireline Security; and Unallocated Corporate. The Wireless Data Communications segment is made up of all our wireless machine-to-machine communications products and services. The Digital Multimedia, Networking and Wireline Security includes our networking products and services, video conferencing products, and our wire-line security detection products. There are expenses, such as depreciation and amortization at the corporate level that are not allocated to the other reportable segments. In prior years Digital Multimedia, Networking and Wireline Security was two separate segments. With the acquisition of Airdesk, the Wireless Data Communications segment has become the primary focus of the Company. As two separate segments, Digital Multimedia and Network Services and Wireline Security did not make up 10% of the Company’s operations. As a consolidated segment, Digital Multimedia, Networking and Wireline Security makes up approximately 13% of revenues, and identifiable assets. Prior year segment data has been reclassified to conform to the current period presentation.

Summarized below are the Company’s revenues and net income (loss) by reportable segment.

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


 
  
Three Months Ended
  
Six Months Ended
  
 
  
June 30,
  
June 30,
  
(In thousands, except per share data)
  
2006
  
2005
  
2006
  
2005
  
 
  
 
  
 
  
 
  
 
  
Revenues:
                  
Wireless Data Communications
  
$
11,211
  
$
5,005
  
$
21,614
  
$
9,862
  
Digital Multimedia, Networking and Wireline Security
    
1,681
   
2,358
   
3,121
   
3,678
 
 
  
$
12,892
  
$
7,363
  
$
24,735
  
$
13,540
  
 
                  
Operating earnings (loss) before taxes
                  
Wireless Data Communications
  
$
597
  
$
(8
)
$
895
  
$
(67
)
Digital Multimedia, Networking and Wireline Security
    
153
   
166
   
150
   
(132
)
Unallocated Corporate
    
148
   
86
   
361
   
2
 
 
  
$
898
  
$
244
  
$
1,406
  
$
(197
)
 
                  
Depreciation and Amortization
                  
Wireless Data Communications
  
$
279
  
$
309
  
$
619
  
$
632
  
Digital Multimedia, Networking and Wireline Security
    
94
   
129
   
192
   
259
 
Unallocated Corporate
    
62
   
53
   
117
   
105
 
 
  
$
435
  
$
491
  
$
928
  
$
996
  



 
  
June 30,
  
Dec. 31
  
Identifiable Assets
    
2006
    
2005
  
Wireless Data Communications
  
$
34,683
  
$
23,244
  
Digital Multimedia, Networking and Wireline Security
    
7,059
   
7,360
 
Unallocated Corporate
    
14,009
   
5,744
 
 
  
$
55,751
  
$
36,348
  



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 2006 increased 75% compared to the second quarter of 2005 and revenues increased 83% for the six months ended June 30, 2006 compared to the six months ended June 30, 2005. Year to date we continued to see growth in our wireless data products and services. Wireless data revenues increased over 100%, for both the three and six months ended June 30, 2006, primarily as a result of increased product sales, compared to the three and six months ended June 30, 2005. The increase in the current year revenues compared to the prior year is partially attributable to the increased product sales as a result of the addition of Airdesk and to a lesser extent, growth in wireless M2M products and services.

Critical Accounting Policies and Estimates

The following discussion and analysis is based upon our condensed consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. The preparation of our condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets, and liabilities during the periods reported. Estimates are used when accounting for certain items such as unbilled revenue, allowance for doubtful accounts, depreciation or amortization periods, income taxes and valuation of intangible assets. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. We believe that certain significant accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements.

For additional information regarding the Company’s critical accounting policies see Note B to the Condensed 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, 2005 and the condensed consolidated financial statements contained therein.




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.

 
(in thousands, except per share data)
  
 
  
For the Three Months Ended
  
For the Six Months Ended
  
 
  
June 30,
  
 
  
June 30,
  
 
  
 
  
2006
  
2005
  
% Change
  
2006
  
2005
  
% Change
  
Net sales:
  
 
  
 
  
 
  
 
  
 
  
 
  
Wireless Data Communications
                         
Product
  
$
7,810
  
$
2,474
    
215.7
%
$
15,103
  
$
4,784
    
215.7
%
Service
    
3,402
   
2,531
   
34.4
%
  
6,511
   
5,078
   
28.2
%
Sub-Total
    
11,211
   
5,005
   
124.0
%
  
21,614
   
9,862
   
119.2
%
Digital Multimedia, Networking and Wireline Security
                   
Product
    
463
   
1,052
   
-56.0
%
  
768
   
1,363
   
-43.7
%
Service
    
1,218
   
1,306
   
-6.7
%
  
2,353
   
2,315
   
1.6
%
Sub-Total
    
1,681
   
2,358
   
-28.7
%
  
3,121
   
3,678
   
-15.1
%
Product
    
8,273
   
3,526
   
134.6
%
  
15,871
   
6,147
   
158.2
%
Service
    
4,620
   
3,837
   
20.4
%
  
8,864
   
7,393
   
19.9
%
Total net sales
    
12,892
   
7,363
   
75.1
%
  
24,735
   
13,540
   
82.7
%
Cost of product sales (excluding depreciation)
   
6,716
   
2,505
   
168.1
%
  
12,890
   
4,690
   
174.8
%
Cost of services (excluding depreciation
                         
and amortization)
   
1,471
   
1,548
   
-5.0
%
  
2,905
   
2,802
   
3.7
%
Depreciation and amortization
   
40
   
53
   
-24.5
%
  
84
   
91
   
-7.7
%
Gross Profit
   
4,666
   
3,257
   
43.2
%
  
8,857
   
5,957
   
48.7
%
Selling, general, and administrative expenses
   
2,938
   
2,094
   
40.3
%
  
5,733
   
4,253
   
34.8
%
Research and development expenses
   
280
   
286
   
-2.2
%
  
575
   
554
   
3.8
%
Bad debt expense
   
83
   
101
   
-18.0
%
  
81
   
159
   
-49.3
%
Depreciation and amortization
   
395
   
438
   
-9.7
%
  
844
   
905
   
-6.8
%
Operating earnings
    
970
   
338
   
186.9
%
  
1,624
   
86
   
1788.5
%
Interest income (expense)
   
(69
)
  
(93
)
  
-25.8
%
  
(218
)
  
(279
)
  
-21.9
%
Other income (expense)
   
(3
)
  
(1
)
  
150.0
%
  
(1
)
  
(4
)
  
-85.0
%
Earnings (loss) before income taxes
   
898
   
244
   
268.1
%
  
1,406
   
(197
)
  
813.5
%
Income taxes
   
15
   
4
   
275.0
%
  
46
   
43
   
7.0
%
Net earnings (loss)
 
$
883
  
$
240
    
268.0
%
$
1,360
  
$
(240
)
  
666.5
%
Basic income (loss) per common share
 
$
0.07
  
$
0.02
      
$
0.11
  
$
(0.02
)
    
Diluted income (loss) per common share
 
$
0.07
  
$
0.02
      
$
0.11
  
$
(0.02
)
    
Basic weighted average shares outstanding
   
12,307
   
10,903
       
12,275
   
10,870
     
Diluted weighted average shares outstanding
   
13,021
   
11,957
       
12,944
   
10,870
     

See notes to consolidated financial statements



 
Percent of Total Sales
  
 
  
Three Month Period Ended
  
Six Month Period Ended
  
 
  
June 30,
  
June 30,
  
 
  
2006
  
2005
  
2006
  
2005
  
Wireless Data Communications
 
 
  
 
  
 
  
 
  
Product
    
60.6
%
  
33.6
%
  
61.1
%
  
35.3
%
Service
    
26.4
%
  
34.4
%
  
26.3
%
  
37.5
%
Sub-Total
    
87.0
%
  
68.0
%
  
87.4
%
  
72.8
%
Digital Multimedia, Networking and Wireline Security
                 
Product
    
3.6
%
  
14.3
%
  
3.1
%
  
10.1
%
Service
    
9.4
%
  
17.7
%
  
9.5
%
  
17.1
%
Sub-Total
    
13.0
%
  
32.0
%
  
12.6
%
  
27.2
%
Total net sales
                  
Product
    
64.2
%
  
47.9
%
  
64.2
%
  
45.4
%
Service
    
35.8
%
  
52.1
%
  
35.8
%
  
54.6
%
Total net sales
    
100.0
%
  
100.0
%
  
100.0
%
  
100.0
%
Cost of product sales (excluding depreciation)
   
52.1
%
  
34.0
%
  
52.1
%
  
34.6
%
Cost of services (excluding depreciation
                 
and amortization)
   
11.4
%
  
21.0
%
  
11.7
%
  
20.7
%
Depreciation and amortization
   
0.3
%
  
0.7
%
  
0.3
%
  
0.7
%
Gross Profit
   
36.2
%
  
44.2
%
  
35.8
%
  
44.0
%
Selling, general, and administrative expenses
   
22.8
%
  
28.4
%
  
23.2
%
  
31.4
%
Research and development expenses
   
2.2
%
  
3.9
%
  
2.3
%
  
4.1
%
Bad debt expense
   
0.6
%
  
1.4
%
  
0.3
%
  
1.2
%
Depreciation and amortization
   
3.1
%
  
5.9
%
  
3.4
%
  
6.7
%
Operating earnings
   
7.5
%
  
4.6
%
  
6.6
%
  
0.6
%
Interest income (expense)
   
-0.5
%
  
-1.3
%
  
-0.9
%
  
-2.1
%
Other income (expense)
   
0.0
%
  
0.0
%
  
0.0
%
  
0.0
%
Net earnings (loss) before income taxes
   
7.0
%
  
3.3
%
  
0.0
%
  
19.1
%
Income taxes
   
0.1
%
  
0.1
%
  
0.2
%
  
0.3
%
Net earnings (loss)
   
6.9
%
  
3.3
%
  
5.5
%
  
-1.8
%


See notes to consolidated financial statements



Results of Operations

Three and Six Months Ended June 30, 2006 Compared to Three and Six Months Ended June 30, 2005:

Net Sales

Net sales increased 75% to $12.9 million for the three-month period ended June 30, 2006 as compared to $7.4 million for the three-month period ended June 30, 2005. The increase in total net sales for the second quarter was attributable to a 135% increase in total product sales and a 20% increase in sales of services. The majority of the product and service sales increase for the quarter ended June 30, 2006, compared to the same period in 2005, was in Wireless Data Communications as a result of our acquisition of the assets of Airdesk, L.L.C. in January 2006. These increases were partially offset by a decrease in Digital Multimedia, Networking and Wireline Security product and service sales. Net sales for the six months ended June 30, 2006 increased 83% to $24.7 million as compared to $13.5 million for the six months ended June 30, 2005. 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, Networking and Wireline Security division.  

Net sales from Wireless Data Communications increased 124% to $11.2 million for the three-month period ended June 30, 2006 as compared to $5.0 million for the three month period ended June 30, 2005. For the six months ended June 30, 2006, net sales from Wireless Data Communications increased 119% to $21.6 million as compared to $9.9 million for the same prior year period. The increases in net sales were the result of increases in both product sales and service sales as described below.

For the three month period ended June 30, 2006, product sales in Wireless Data Communications increased 215.7% to $7.8 million from $2.5 million in the prior year period. For the six month period, product sales in Wireless Data Communications increased 215.7% to $15.1 million as compared to $4.8 million in the prior year period. The increase in Wireless Data Communications product sales for the three and six months ended June 30, 2006 versus the same period in 2005 was primarily the result of product sales in Airdesk, LLC. Product sales also increased due to continued demand for Uplink Security devices used for wireless communications between alarm installations and central monitoring stations as well as our wireless vehicle security product and tracking services, MobileGuardian.

During the three month period ended June 30, 2006, Wireless Data Communications service revenues increased 34.4% to $3.4 million as compared to $2.5 million for the three month period ended June 30, 2005. For the six months ended June 30, 2006, Wireless Data Communications service revenues increased 28.2% to $6.5 million as compared to $5.1 million for the same prior year period. These increases were primarily due to an increase in the number of connections to our wireless network during the three and six month periods ending June 30, 2006. Revenues from connections to our network increased $451,000 for the three month period ended June 30, 2006 and $808,000 for the six month period ended June 30, 2006 compared to the same periods in 2005. Connection increases were generated by sales of our security products as well as 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 the service revenues.

Net sales from Digital Multimedia, Networking and Wireline Security decreased 28.7% to $1.7 million for the three-month period ended June 30, 2006 compared to $2.4 million for the three-month period ended June 30, 2005. For the six month period ended June 30, 2006 net sales from Digital Multimedia, Networking and Wireline Security decreased 15.1% to $3.1 million compared to $3.7 million for the same prior year period.

For the three month period ended June 30, 2006, product sales from Digital Multimedia, Networking and Wireline Security decreased 56% to $463,000 as compared to $1.1 million for the three months ended June 30, 2005. For the six months ended June 30, 2006 product sales decreased 43.7 % to $768,000 compared to $1.4 million for the same prior year period. This decrease is due to decreased sales of our interactive videoconferencing products (PowerPlay), which is sold 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.

For the three months ended June 30, 2006, Digital Multimedia, Networking and Wireline Security services revenues decreased 6.7% to $1.2 million compared to $1.3 million for the three months ended June 30, 2005. For the six months ended June 30, 2006, service revenues increased slightly by 1.6% to $2.4 million as compared to $2.3 million for the same prior year period. Our installation and integration services are primarily, either directly or indirectly, provided to large wireline and wireless telecommunication companies.




Cost of Sales

Cost of product sales increased 168.1% to $6.7 million for the three months June 30, 2006 as compared to $2.5 million for the three months ended June 30, 2005. For the six months ended June 30, 2006 cost of product sales increased 174.8% to $12.9 million compared to $4.7 million for the same prior year period. The increase in cost of product sales for both the three and six months ended June 30, 2006 was primarily the result of our acquisition of Airdesk as well as higher product sales volume of our Uplink Security devices and our wireless vehicle security product and tracking services, MobileGuardian.

Cost of services remained flat at $1.5 million for the three months ended June 30, 2006 and June 30, 2005. For the six months ended June 30, 2006 cost of services increased 3.7% to $2.9 million compared to $2.8 million for the six months ended June 30, 2005. The increase in cost of services for the six month period ended June 30, 2006 versus the same period in 2005 was primarily the result of higher service revenue in both Wireless Data Communications and higher service sales volume in Digital Multimedia, Networking and Wireline Security.

Cost of sales depreciation and amortization expense decreased 24.5% to $40,000 for the three month period ended June 30, 2006 as compared to $53,000 for the three month period ended June 30, 2005. For the six months ended June 30, 2006 cost of sales depreciation and amortization expense decreased 7.7% to $84,000 as compared to $91,000 for the same prior year period. The decrease for both the three and six months ended June 30, 2006 is due to certain assets becoming fully depreciated.

Gross Profit

Gross profit, as a percentage of net sales, was 36.2% for the three month period ended June 30, 2006 compared to 44.2% for the three month period ended June 30, 2005. For the six months ended June 30, 2006, gross profit as a percentage of net sales was 35.8% compared to 44% for the same prior year period. The total gross profit as a percentage of sales decreased for the three and six months ended June 30, 2006 compared to the same period in 2005 primarily as a result of the Airdesk acquisition and the related increase in product sales. Since gross profit as a percentage of sales is generally less on product sales than for service revenue, the increase in product sales versus service revenue resulted in a lower gross profit percentage.

Operating Expenses

Selling, general, administrative and other expenses increased 40.3% to $2.9 million for the three months ended June 30, 2006 as compared to $2.1 million for the three months ended June 30, 2005. The increase for the three months ended, is a result of the acquisition of Airdesk, which added approximately $500,000 in expenses as well as an increase of approximately $300,000 in personnel related costs due to increased hiring for administration and sales. For the six months ended June 30, 2006 selling, general, administrative and other expenses increased 34.8% to $5.7 million compared to $4.3 million for the same prior year period. The increase for the six months ended June 30, 2006 is primarily the result of our acquisition of Airdesk, which added approximately $1.0 million in expenses. There was also an increase of $400,000 related to additional personnel costs due to additional administrative and sales hiring.

Research and development expenses decreased 2.2% to $280,000 for the three month period ended June 30, 2006 as compared to $286,000 for the three month period ended June 30, 2005. This decrease is primarily due to an increase in software capitalization to $113,000 compared to $104,000 in the prior year three month period as some of the new digital products and services being developed proved technically feasible and moved into full development. For the six months ended June 30, 2006 research and development expenses increased 3.8% to $575,000 compared to $554,000 for the same prior year period. This increase is primarily due to increased contractor costs related to digital development projects. Not all of these projects have reached technical feasibility and therefore were expensed as incurred.

Bad debt expense decreased 18.0% to $83,000 for the quarter ended June 30, 2006 from $101,000 in the same quarter in 2005. For the six months ended June 30, 2006, bad debt expense decreased 49.3% to $81,000 as compared to $159,000 for the six months ended June 30, 2005. 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.

Operating expense depreciation and amortization expense decreased 9.7% to $395,000 for the three-month period ended June 30, 2006 as compared to $438,000 for the three-month period ended June 30, 2005. For the six months ended June 30, 2006, operating depreciation and amortization expense decreased 6.8% to $844,000 as compared to $905,000 for the six months ended June 30, 2005. This decrease was attributable to certain assets becoming fully depreciated.


Interest expense decreased for the three month period ended June 30, 2006 to $69,000 as compared to $93,000 for the three month period ended June 30, 2005. For the six months ended June 30, 2006 interest expense decreased to $218,000 compared to $279,000 for the same prior year period. This decrease was primarily the result of the conversion of an outstanding note on February 6, 2006, essentially eliminating the Second Company Note payable to Laurus Master Fund. We expect interest expense to increase in future periods as a result of $10 million of additional indebtedness to Laurus Master Fund.

We are entitled to the benefits of certain net operating loss carry forwards. However, we believe it is unlikely that we will utilize the deferred tax items in the near future; therefore, we have not recorded a federal tax benefit for the three and six months ended June 30, 2006. The $15,000 provision for income taxes for the quarter ended June 30, 2006 is related to certain state income taxes. The $4,000 income tax expense for the quarter ended June 30, 2005 is related to certain state and foreign income taxes. The $46,000 provision for income taxes for the quarter ended June 30, 2006 is related to certain state income taxes. The $43,000 income tax expense for the quarter ended June 30, 2005 is related to certain state and foreign income taxes.
 
Basic and fully diluted earnings per common share was $0.07 for three months ended June 30, 2006 as compared to $0.02 for the three months ended June 30, 2005. For the six months ended June 30, 2006, basic and fully diluted earnings per common share was $0.11 as compared to $0.02 basic and fully diluted loss per common share for the six months ended June 30, 2005.
 
The basic weighted average shares outstanding was 12,307,000 and diluted weighted average shares outstanding was 13,021,000 for the three month period ended June 30, 2006 as compared to basic weighted average shares outstanding of 10,903,000 and 11,957,000 diluted weighted average shares outstanding for the three month period ended June 30, 2005. For the six months ended June 30, 2006, the basic weighted average shares outstanding was 12,275,000 and diluted weighted average shares was 12,944,000 as compared to 10,870,000 basic and diluted weighted average shares for the six months ended June 30, 2005. This increase was primarily due to 348,000 shares issued for the acquisition of Airdesk, LLC, and 238,000 shares issued upon conversion by Laurus for principle reduction on the second Company Note.

Liquidity and Capital Resources 

We had working capital of $13.5 million as of June 30, 2006 compared to a working capital of $4.8 million at December 31, 2005. We had cash balances of $12.6 million and $2.8 million, respectively, as of June 30, 2006 and December 31, 2005. The increase in our working capital and cash balances is primarily related to the cash received from the recently completed private placement with the Laurus Master Fund, Ltd.

We provided cash from operating activities totaling $2.6 million for the period ended June 30, 2006 compared to providing cash of $1.2 million for the period ended June 30, 2005. The increase in cash provided by operating activities for the period ended June 30, 2006 versus the comparable period of 2005 was primarily due to an increase in net earnings, an increase in deferred revenue and an increase in other accrued liabilities. These were partially offset by an increase in accounts receivable, a decrease in accounts payable, a decrease in other assets and an increase in prepaids.

We used cash in investing activities totaling $2.9 million for the period ended June 30, 2006 compared to $424,000 for the period ended June 30, 2005. The increase in cash used in investing activities was primarily due to the acquisition of Airdesk, LLC.

We generated cash from financing activities totaling $10.1 million for the period ended June 30, 2006 compared to $1.1 million for the period ended June 30, 2005. For the period ended June 30, 2006 cash generated from financing activities was primarily related to the proceeds from Laurus Notes A and B, as well as the proceeds from the exercise of stock options, which was partially offset by payments on the notes and lease payable. The cash generated from financing activities for the period ended June 30, 2005 was primarily from the funds received from the Second Company Note.
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 believe that our existing cash and cash equivalents will be sufficient to meet our operating requirements through December 31, 2006. We expect that additional capital may be required to continue to expand our business through strategic acquisitions or internal growth. We may seek to raise this capital through public or private equity offerings, debt financing, strategic alliances or some combination of these financing alternatives. If we are successful in raising additional funds through the issuance of equity securities, our shareholders likely will 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.



Item 3.  Quantitative and Qualitative Disclosures about Market Risks.

At June 30, 2006, 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 operations.

At June 30, 2006, we have obligations under note payable and under capital leases, 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, 2006. No changes were made in our internal control over financial reporting during the quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




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 1A. Risk Factors.

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussion set forth in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and the information under “Forward-Looking Statements” included in this report.


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 Company’s Annual Meeting of Stockholders was held on May 12, 2006 in Atlanta, Georgia. Of the 12,610,941 shares of common stock outstanding as of the record date, 11,078,969 shares, or 88% of the Company’s capital stock, were present or represented by proxy at the meeting. The results of the matters submitted to the stockholders were as follows:

1.  
Elect eight directors to the Numerex’s board of directors, each to serve for a term of one year or until a successor has been elected and qualified:

Name
For
Withheld
Brian C. Beazer
11,070,469
8,500
George Benson
11,065,269
13,700
Nicholas A. Davidge
11,073,869
5,100
Matthew J. Flanigan
11,069,669
9,300
Allan H. Liu
10,778,734
300,235
Stratton J. Nicolaides
11,074,469
4,500
John G. Raos
11,069,669
9,300
Andrew J. Ryan
11,035,058
43,911

2.  
Approval of the Company’s 2006 Long Term Incentive Plan:

For: 5,821,593
Against:  42,824
Abstain:  12,731
Broker Non-Votes: 5,201,821

3.  
Ratify the appointment of Grant Thornton LLP as the Company’s independent accountants for the current fiscal year ending December 31, 2006:

For: 11,074,469
Against:  3,500
Abstain:  1,100



Item 5. Other Information.   
 
None - not applicable.

Item 6. Exhibits 

Exhibit 10.2 2006 Long Term Incentive Plan approved by the Board on March 31, 2006 and by the Shareholders on May 12, 2006.


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 2003.


Exhibit 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003.

 
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.





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 14, 2006             /s/ Stratton J. Nicolaides
STRATTON J. NICOLAIDES
Chairman and Chief Executive Officer

Date:   August 14, 2006           /s/ Alan B. Catherall    
     ALAN B. CATHERALL
                    Chief Financial Officer,
                    Executive Vice President, and
                           Principal Financial and Accounting Officer
 EX-31.1 2 ex31_1.htm EXHIBIT 31.1 Exhibit 31.1
Exhibit 31.1

CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER

I, Stratton J. Nicolaides, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Numerex Corp.;

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

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

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

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

b) [omitted pursuant to the guidance of Release No. 33-8283 (June 5, 2003)]

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 14, 2006
/s/ Stratton J. Nicolaides 
Stratton J. Nicolaides
Chief Executive Officer and
Chairman
 EX-31.2 3 ex31_2.htm EXHIBIT 31.2 Exhibit 31.2
 Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Alan B. Catherall, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Numerex Corp.;

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

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

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

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

b) [omitted pursuant to the guidance of Release No. 33-8283 (June 5, 2003)]

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Date: August 14, 2006
/s/ Alan B. Catherall  
Alan B. Catherall
Chief Financial Officer,
Executive Vice President, and
Principal Financial and Accounting Officer
 EX-32.1 4 ex32_1.htm EXHIBIT 32.1 Exhibit 32.1
Exhibit 32.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with the Quarterly Report of Numerex Corp. (the “Company”) on Form 10-Q as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stratton J. Nicolaides, as Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

This certificate is being made for the exclusive purpose of compliance by the Chief Executive Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.
 
August 14, 2006
 
/s/ Stratton J. Nicolaides
 
Stratton J. Nicolaides
 
Chief Executive Officer and Chairman
EX-32 5 ex32_2.htm EXHIBIT 32.2 Exhibit 32.2

Exhibit 32.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2003

In connection with the Quarterly Report of Numerex Corp (the “Company”) on Form 10-Q as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Alan B. Catherall, as Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

This certificate is being made for the exclusive purpose of compliance by the Chief Financial Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.
 
August 14, 2006
 
/s/ Alan B. Catherall
 
Alan B. Catherall
 
Chief Financial Officer, Executive Vice President,
and Principal Financial and Accounting Officer
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