10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2010
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number: 0-22920

Numerex Corp

(Exact Name of Registrant as Specified in Its Charter)

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

1600 Parkwood Circle, Suite 500

Atlanta, GA  30339-2119

(Address of Principal Executive Offices) (Zip Code)

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes o    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o

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

As of November 12, 2010, an aggregate of 15,106,822 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 Statements of Operations and Comprehensive Income (Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2010 and September 30, 2009	3
Condensed Consolidated Balance Sheets (Unaudited) September 30, 2010 and December 31, 2009	4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2010 and September 30, 2009	5
Condensed Consolidated Statement of Shareholders' Equity (Unaudited) for the Nine Months Ended September 30, 2010	6
Notes to Condensed Consolidated Financial Statements – (Unaudited)	7
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.  Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.  Controls and Procedures	25
PART II - OTHER INFORMATION
Item 1.  Legal Proceedings	25
Item 1A.  Risk Factors	25
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.  Defaults Upon Senior Securities	25
Item 4.  Removed and Reserved	25
Item 5.  Other Information	25
Item 6.  Exhibits	26
Signature Page	27
Certifications	28
Exhibits	28

PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements.

Numerex Corp and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(In thousands, except per share data)
(Unaudited)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Net sales:
Hardware	$	6,494		$	3,977		$	17,779		$	14,557
Service		8,911			7,572			25,545			22,259
Total net sales		15,405			11,549			43,324			36,816
Cost of hardware sales, exclusive of depreciation and   amortization shown separately below		5,113			3,449			14,215			12,611
Cost of services, exclusive of depreciation and amortization shown separately below		3,426			2,995			10,085			8,117
Gross profit		6,866			5,105			19,024			16,088
Sales and marketing expenses		1,691			1,404			5,238			4,676
General, administrative and legal expenses		2,673			2,503			7,586			8,889
Engineering and development expenses		888			584			2,260			1,743
Bad debt expense		53			102			219			393
Depreciation and amortization		810			879			2,542			2,516
Operating earnings (loss)		751			(367	)		1,179			(2,129	)
Interest expense		(44	)		(1,781	)		(62	)		(2,471	)
Other income (expense)		9			-			(31	)		1
Income (loss) before income taxes		716			(2,148	)		1086			(4,599	)
Provision for income taxes		59			31			73			96
Net income (loss)		657			(2,179	)		1,013			(4,695	)
Other comprehensive income (loss), net of income tax:
Foreign currency translation adjustment		2			6			8			8
Comprehensive income (loss)	$	659		$	(2,173	)	$	1,021		$	(4,687	)
Basic income (loss) per common share	$	0.04		$	(0.15	)	$	0.07		$	(0.33	)
Diluted income (loss) per common share	$	0.04		$	(0.15	)	$	0.07		$	(0.33	)
Weighted average common shares outstanding:
Basic		15,078			14,360			15,077			14,228
Diluted		15,363			14,360			15,262			14,228

See accompanying notes to condensed consolidated financial statements – unaudited

 3

Numerex Corp and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share information)
	September 30,			December 31,
	2010			2009
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	9,647		$	5,306
Accounts receivable, less allowance for doubtful accounts of $425
at September 30, 2010 and $548 at December 31, 2009		7,328			6,341
Inventory		4,317			6,290
Prepaid expenses and other current assets		1,866			1,569
TOTAL CURRENT ASSETS		23,158			19,506
Property and equipment, net		1,521			1,603
Goodwill, net		23,787			23,787
Other intangibles, net		5,416			4,985
Software, net		2,758			2,747
Other assets - long term		411			119
TOTAL ASSETS	$	57,051		$	52,747
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	7,164		$	5,888
Other current liabilities		2,360			2,555
Note payable		-			493
Deferred revenues		2,157			1,261
Obligations under capital leases		442			24
TOTAL CURRENT LIABILITIES		12,123			10,221
LONG TERM LIABILITIES
Obligations under capital leases and other long-term liabilities		990			335
Deferred income taxes		213			154
TOTAL LONG TERM LIABILITIES		1,203			489
COMMITMENTS AND CONTIGENCIES		-			-
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 16,321,079
shares at September 30, 2010 and 16,307,963 shares at December 31, 2009;
outstanding 15,080,270 shares at September 30, 2010 and 15,082,154 shares
at December 31, 2009		57,488			57,430
Class B common stock – no par value; authorized 5,000,000; none issued		-			-
Additional paid-in-capital		6,217			5,582
Treasury stock, at cost, 1,240,809 shares on September 30, 2010 and
1,225,809 shares on December 31, 2009		(5,239	)		(5,213	)
Accumulated other comprehensive earnings		8			-
Retained deficit		(14,749	)		(15,762	)
TOTAL SHAREHOLDERS' EQUITY		43,725			42,037
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	57,051		$	52,747

See accompanying notes to condensed consolidated financial statements – unaudited

4 

NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
	For the nine month period
	ended September 30,
	2010			2009
Cash flows from operating activities:
Net loss	$	1,013		$	(4,695	)
Adjustments to reconcile net earnings (loss) to net cash
provided by/(used in) operating activities:
Depreciation		661			714
Amortization		1,881			1,802
Allowance for doubtful accounts		219			393
Inventory Reserves		134			62
Non-cash interest expense		26			1,917
Stock options compensation expense		751			774
Stock issued in lieu of directors fees		46			94
Deferred income taxes		59			-
Changes in assets and liabilities which provided/(used) cash:
Accounts and notes receivable		(1,175	)		3,407
Inventory		1,839			1,410
Prepaid expenses & interest receivable		(299	)		(259	)
Other assets		(91	)		8
Accounts payable		1,276			(1,638	)
Other current liabilities		222			(808	)
Deferred revenue		896			631
Income taxes		(11	)		(38	)
Other non-current liabilities		(96	)		(82	)
Net cash provided by operating activities:		7,351			3,692
Cash flows from investing activities:
Purchase of property and equipment		(437	)		(697	)
Purchase of intangible and other assets		(1,583	)		(1,201	)
Purchase of investment		(200	)		-
Net cash used in investing activities		(2,220	)		(1,898	)
Cash flows from financing activities:
Proceeds from exercise of common stock options		12			6
Fees paid for credit facility		(50	)		-
Purchase of Treasury Stock		(26	)		(160	)
Repurchase of warrants		(116	)		-
Principal payments on capital lease obligations		(118	)		(24	)
Principal payments on notes payable and debt		(500	)		(4,667	)
Net cash used in financing activities:		(798	)		(4,845	)
Effect of exchange differences on cash		8			10
Net increase in cash and cash equivalents		4,341			(3,041	)
Cash and cash equivalents at beginning of year		5,306			8,917
Cash and cash equivalents at end of year	$	9,647		$	5,876
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest		36			654
Income taxes		32			62
Disclosure of non-cash activities:
Capital leases		882
Non-cash interest		26			1,917
Non-cash financing payments					2,000

See accompanying notes to condensed consolidated financial statements – unaudited

5 

NUMEREX CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
			(Unaudited)
			(in thousands)
											Accumulated
					Additional						Other
	Common		Stock		Paid-In			Treasury			Comprehensive		Retained
	Shares		Amount		Capital			Stock			Earnings		Earnings			Total
Balance, December 31, 2009		16,308	$	57,430	$	5,582		$	(5,213	)	$	-	$	(15,762	)	$	42,037
Issuance of shares under Directors Stock Plan		11		46		-			-			-		-			46
Issuance of shares in connection with employee stock option plan		2		12		-			-			-		-			12
Repurchase of treasury shares		-		-		-			(26	)		-		-			(26	)
Repurchase of warrants		-		-		(116	)		-			-		-			(116	)
Share-based compensation		-		-		751			-			-		-			751
Translation adjustment		-		-		-			-			8		-			8
Net income		-		-		-			-			-		1,013			1,013
Balance, September 30, 2010		16,321	$	57,488	$	6,217		$	(5,239	)	$	8	$	(14,749	)	$	43,725

See accompanying notes to condensed consolidated financial statements – unaudited

6 

NUMEREX CORP AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2010

(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 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 and nine months ended September 30, 2010 may not be indicative of the results that may be expected for the year ending December 31, 2010.  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, 2009 and the consolidated financial statements contained therein.

Numerex Corp (NASDAQ: NMRX) is a leading provider of business services, technology, and products used in the development and support of machine-to-machine (M2M) solutions for the enterprise and government markets worldwide. The Company offers Numerex DNA(R) that includes hardware and smart Devices, cellular and satellite Network services, and software Applications that are delivered through Numerex FAST(TM) (Foundation Application Software Technology). Customers typically subscribe to device management, network, and application services through hosted platforms.  Numerex’s business services enable the development of secure solutions while simplifying and speeding up deployment through streamlined processes and comprehensive integration services. Numerex is ISO 27001 information security-certified. "Machines Trust Us(R)" represents the Company's focus on M2M data security, service reliability, and round-the-clock support of its customers' M2M solutions.

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

NOTE B – REVENUE RECOGNITION

The Company’s revenue is generated from three sources:

·   the supply of hardware, under non recurring agreements,

·   the provision of services,

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

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

The Company recognizes revenue from hardware sales at the time of shipment and passage of title. Provision for rebates, promotions, product returns and discounts to customers is recorded as a reduction in revenue in the same period that the revenue is recognized. The Company offers customers the right to return hardware that does not function properly within a limited time after delivery. The Company continuously monitors and tracks such hardware returns and records a provision for the estimated amount of such future returns, based on historical experience and any notification received of pending returns. While such returns have historically been within expectations and the provisions established, the Company cannot guarantee that it will continue to experience the same return rates that it has experienced in the past. Any significant increase in hardware failure rates and the resulting credit returns could have a material adverse impact on operating results for the period or periods in which such returns materialize. The Company recognizes revenue from the provision of services at the time of the completion, delivery or performance of the service.

7 

In the case of revenue derived from maintenance services the Company recognizes revenue ratably over the contract term. In certain instances the Company may, under an appropriate agreement, advance charge for the service to be provided. In these instances the Company recognizes the advance charge as deferred revenue (classified as a liability) and releases the revenue ratably over future periods in accordance with the contract term as the service is completed, delivered or performed. The Company’s revenues in the consolidated statement of operations are net of sales taxes.

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

The Company’s arrangements do not generally include acceptance clauses. However, for those arrangements that include multiple deliverables, the Company first determines whether each service, or deliverable, meets the separation criteria of ASC Subtopic 605-25, as amended by Accounting Standards Update (“ASU”) 2009-13.  For hardware elements that contain software, the Company determines whether the hardware and software function together to provide the element’s core functionality.  The majority of the Company’s elements meet this definition, and therefore the Company follows the guidance in ASC Subtopic 605-25 to determine the amount to allocate to each element.  The guidance in ASC Subtopic 605-25 provides a hierarchy of evide nce to determine the selling price for each element in the order of (1) vendor-specific objective evidence (“VSOE”), (2) third-party evidence (“TPE”), and (3) management’s best estimate.  The Company currently determines the amount to allocate to each element based on VSOE.

For transactions including multiple deliverables where software elements do not function together with hardware to provide an element’s core functionality, the Company follows the guidance in ASC Subtopic 985-605, as amended by ASU 2009-14, which requires the establishment of VSOE, to determine whether the transaction should be accounted for as separate elements and the amount to allocate to each element.

The Company may provide multiple services under the terms of an arrangement and are required to assess whether one or more units of accounting are present. Service fees are typically accounted for as one unit of accounting as fair value evidence for individual tasks or milestones is not available. The Company follows the guidelines discussed above in determining revenues; however, certain judgments and estimates are made and used to determine revenues recognized in any accounting period. If estimates are revised, material differences may result in the amount and timing of revenues recognized for a given period.

For additional information regarding our critical accounting policies see our Annual Report on Form 10-K for the year ended December 31, 2009 and the condensed consolidated financial statements contained therein.

NOTE C - INVENTORY

The components of inventory, net of reserves, consist of the following:

	September 30,			December 31,
(In thousands)	2010			2009
Raw materials	$	1,153		$	1,503
Work-in-progress		11			14
Finished goods		3,726			5,212
Less reserve for obsolescence		(573	)		(439	)
Inventory, net	$	4,317		$	6,290

8 

NOTE D – GOODWILL, SOFTWARE AND OTHER INTANGIBLE ASSETS

The following table presents the changes in goodwill (in thousands):

	For the Nine Months  Ended September 30, 2010
M2M Services
Balance at the beginning of the period
Goodwill	$	25,921
Accumulated impairment losses		(3,060	)
		22,861
Balance at the end of the period
Goodwill		25,921
Accumulated impairment losses		(3,060	)
Subtotal		22,861
Other Services
Balance at the beginning of the period
Goodwill		4,015
Accumulated impairment losses		(3,089	)
		926
Balance at the end of the period
Goodwill		4,015
Accumulated impairment losses		(3,089	)
Subtotal		926
Total at end of period	$	23,787

      The Company did not incur costs to renew or extend the term of existing software and acquired intangible assets during the nine months ending September 30, 2010. Software and intangible assets, which will continue to be amortized, consisted of the following (in thousands):

	September 30, 2010							December 31, 2009
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Purchased and developed software	$	9,329	$	(6,571	)	$	2,758	$	8,344	$	(5,597	)	$	2,747
Patents, trade and service marks		13,651		(9,890	)		3,761		13,397		(9,106	)		4,291
Intangible and other assets		2,606		(951	)		1,655		1,523		(829	)		694
Total intangible and other assets	$	25,586	$	(17,412	)	$	8,174	$	23,264	$	(15,532	)	$	7,732

Amortization expense of intangible assets and software totaled $596,000 and $637,000 for the three months ended September 30, 2010 and September 30, 2009, respectively, and $1.9 million and $1.8 million for the nine months ended September 30, 2010, respectively.

9 

As of September 30, 2010, the estimated remaining amortization expense associated with the Company’s intangible assets and software for the remainder of 2010 and in each of the next four fiscal years is as follows (in thousands):

Remainder of 2010	$0.6 million
2011	2.1 million
2012	1.8 million
2013	1.4 million
2014	1.0 million
Thereafter	1.3 million

 NOTE E – NOTES PAYABLE

On May 30, 2006, the Company completed a private placement to Laurus Master Fund, Ltd. (“Laurus”) of (i) a convertible term note in the principal amount of $5,000,000 (“Note A”) (ii) a non-convertible term note in the principal amount of $5,000,000 (“Note B”), and (iii) a warrant  to purchase up to 241,379 shares of our common stock.  Interest accrued on each of the notes at a rate of 9.75% annually.  Both notes had four year terms and were secured by substantially all of our assets.  The fair value of the warrant associated with Note A and Note B on May 30, 2006 was $846,000 and was calculated using the Black-Scholes fair value pricing model.  

As of December 31, 2009, Note A had been fully repaid.  In January 2010, the Company fully repaid Note B.  The Company’s notes payable was zero at September 30, 2010.

In consideration of the above private placements and other private placements for term notes, the Company issued to Laurus warrants to purchase our common stock, the terms of which are summarized as follows:

Number of Securities		Common Stock Exercise Price		Expiration Date
	150,000	$	4.75	January 13, 2011
	100,000		5.17	January 13, 2011
	50,000		5.99	January 13, 2011
	50,000		5.51	January 28, 2012
	50,000		5.72	January 28, 2012
	241,379		7.73	May 30, 2013
	158,562		10.13	December 29, 2013

On July 23, 2010, Numerex repurchased warrants covering an aggregate of 288,647 outstanding shares of Common Stock for $116,667.   The repurchased warrants represent approximately one-third of the aggregate warrants previously issued to Laurus and have been cancelled.  Concurrently with the sale of such warrants to Numerex, the remaining outstanding warrants issued to Laurus were sold to other third parties unaffiliated with Numerex.

On May 4, 2010, we entered into a Loan and Security Agreement (the “Agreement”) with Silicon Valley Bank. The Agreement provides the Company with a revolving credit facility up to $5.0 million (the “Credit Facility”).  The Credit Facility has a maturity date of May 2013 and includes a sublimit of up to $1.5 million for letters of credit, cash management and foreign exchange services. The interest rate applicable to amounts drawn from the Credit Facility is, at the Company’s option, equal to either (i) the Prime Rate (as defined in the Agreement) or (ii) the sum of the LIBOR Rate (as defined in the Agreement) plus a LIBOR rate margin of 2.75%. The Credit Facility includes an annual fee of 0.375% of the average unused portion and is secured by all of the Company’s personal property, other than its intellectual property.  As of September 30, 2010, the Company had no borrowings on the Credit Facility.   

10 

NOTE F – INCOME TAXES

The Company recorded a tax provision of $73,000 for the nine months ended September 30, 2010, as compared to a tax provision of $96,000 for the nine months ended September 30, 2009, representing effective tax rates of 6.84% and (2.9)%, respectively. The difference between the Company’s effective tax rate and the 34% federal statutory rate in both the nine months ending September 30, 2010 and the nine months ending September 30, 2009 resulted primarily from the change in the Company's valuation allowance against all net deferred tax assets, the amortization of goodwill, and state tax accruals related to unrecognized tax benefits.

In the third quarter, the Company recorded a benefit of $38,000 related to unrecognized tax benefits, resulting in a year-to-date benefit of $76,000. As of September 30, 2010, the Company anticipates it will have $415,000 of unrecognized tax benefits, which are includible in long-term liabilities, inclusive of interest and penalties of $131,000 as of December 31, 2010, all of which would impact the Company's effective tax rate if recognized. The Company anticipates recording $14,000 of unrecognized tax benefits for the year ending December 31, 2010, consisting entirely of interest on uncertain tax positions existing at January 1, 2010 for state and local income taxes. This increase in liability would impact the company's effective tax rate if recognized. The Company also anticipates recording a decrease in liability for un recognized tax benefits due to expiration of the typical scope of examination under certain state administrative practices for the year ending December 31, 2010 of $76,000, inclusive of interest and penalties of $23,000 and $14,000, respectively. The decrease in liability will impact the Company's effective tax rate.

The IRS has been conducting an examination of the Company’s 2007 tax year. Finalization of this examination occurred during the first quarter and resulted in AMT expense of $7,902, including $639 of interest. Settlement of the examination resulted in a decrease to the NOL and a corresponding decrease to the valuation allowance of $290,524.

The Company files U.S., state and foreign income tax returns in jurisdictions with varying statutes of limitation. The 2007 through 2009 tax years generally remain subject to examination by federal and most state tax authorities. However, certain returns from years in which net operating losses have arisen are still open for examination by the tax authorities.

NOTE G – SHARE-BASED COMPENSATION                                                                                                           

Share-based compensation was $263,000 and $228,000 for the three months ended September 30, 2010 and 2009, respectively and $751,000 and $774,000 for the nine months ended September 30, 2010 and 2009, respectively.  At September 30, 2010, there was approximately $1.7 million of total unrecognized compensation expense related to unvested share-based awards.  Generally, this expense will be recognized over the next 3 years and will be adjusted for any future changes in estimated forfeitures.

The Company has outstanding stock options granted pursuant to two stock option plans, the Long-Term Incentive Plan (the “1999 Plan”), which was adopted in 1999 and the 2006 Long Term Incentive Plan (the “2006 Plan”) which was adopted in 2006.  The 1999 Plan was terminated and replaced by the 2006 Plan. Options outstanding under the 1999 Plan remain in effect, but no new options may be granted under that plan.  Options issued under the 2006 Plan and the 1999 Plan typically vest ratably over a four-year period. 

On May 21, 2010 the Board of Directors approved an amendment to the 2006 Long-Term Incentive Plan (the “2006 Plan”), to (a) increase the maximum aggregate number of shares authorized for issuance under the 2006 Plan from 750,000 shares to 1,500,000 shares (in each case prior to taking into account provisions under the 2006 Plan allowing shares that were available under the Company’s predecessor stock incentive plan as of its termination date (and shares subject to options granted under the predecessor plan that expire or terminate without having been fully exercised) to be available again for issuance under the 2006 Plan) and (b) permit stock appreciation rights (SAR), settled in shares, to be issued under the 2006 Plan.

11 

A summary of the Company's stock option activity and related information for the nine months ended September 30, 2010:

				Weighted		Weighted		Weighted Avg.		Aggregate
				Average		Average Remaining		Grant Date		Intrinsic
	Shares			Ex. Price		Contractual Life (Yrs)		Fair Value		Value
Outstanding, at 12/31/09		1,838,096		$	5.86		5.17	$	3.74	$	632,057
Options granted		117,500		$	5.50			$	3.42	$	-
Options exercised		(2,500	)	$	4.57			$	3.06	$	-
Options expired		(153,135	)	$	8.42			$	7.51	$	-
Outstanding, at 09/30/10		1,799,962		$	5.62		5.11	$	3.64	$	2,110,943
Exercisable, at 09/30/10		1,428,959		$	5.53		4.36	$	3.65	$	1,793,731

Under the 2006 Plan, a recipient of a stock appreciation right is generally entitled to receive, upon exercise and without payment to the Company (but subject to required tax withholdings), that number of Shares having an aggregate Fair Market Value as of the date of exercise not to exceed the number of Shares subject to the portion of the SAR exercised, multiplied by an amount equal to the excess of (i) the Fair Market Value per Share on the date of exercise of the SAR over (ii) the Fair Market Value per Share on the date of grant of the SAR (or such amount in excess of the Fair Market Value per Share as the Administrator may specify). The terms and conditions applicable to a SAR (including upon termination or change in the status of employment or service of the recipient with the Company and its subsidiaries) shall be determined by the Administrator and set forth in the Award Agreement applicable to the SAR.  

The following table summarizes information about SARs outstanding at September 30, 2010:

			Weighted		Weighted		Weighted Avg.		Aggregate
			Average		Average Remaining		Grant Date		Intrinsic
SARs	Shares		Ex. Price		Contractual Life (Yrs)		Fair Value		Value
Outstanding, at 12/31/09		-	$	-		-	$	-	$	-
Granted		335,796	$	4.70		3.26	$	2.64	$	402,306
Outstanding, at 09/30/10		335,796	$	4.70		3.26	$	2.64	$	402,306
Exercisable, at 09/30/10		-	$	-		-	$	-	$	-

The following table summarizes information related to stock options outstanding at September 30, 2010:

		Options outstanding						Options exercisable
Range of exercise prices		Number outstanding at September 30, 2010		Weighted average remaining contractual life (years)		Weighted average exercise price		Number exercisable at September 30, 2010		Weighted average exercise price
$	1.00 –  4.00		454,664		3.81	$	2.93		398,415	$	2.86
	4.01 –  8.00		1,016,298		5.51	$	5.57		764,922	$	5.55
	8.01 –  12.94		329,000		5.68	$	9.47		265,622	$	9.48
			1,799,962		5.11	$	5.62		1,428,959	$	5.53

The fair value of share-based payment awards is estimated at the grant date using the Black-Scholes option valuation model. The Company’s determination of fair value of share-based payment awards on the date of grant using the option-pricing model is affected by the Company’s stock price, as well as management’s assumptions. These variables include, but are not limited to; the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.  Stock option grants in the table below include both stock options, all of which were non-qualified, and stock appreciation rights (SAR) that will be settled in the Company’s stock.

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The key assumptions used in the valuation model during the nine months ended September 30, 2010 are provided below:

Valuation Assumptions:
Volatility	77.63	%
Expected term (years)	4.2
Risk free interest rate	0.99	%
Dividend yield	0.00	%

NOTE H – INCOME (LOSS) PER SHARE

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

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

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands, except per share data)	2010		2009			2010		2009
Common Shares:
Weighted average common shares outstanding		15,078		14,360			15,077		14,228
Dilutive effect of common stock equivalents		285		-			185		-
		15,363		14,360			15,262		14,228
Net income (loss)	$	657	$	(2,179	)	$	1,013	$	(4,695	)
Net income (loss) per common share:
Basic	$	0.04	$	(0.15	)	$	0.07	$	(0.33	)
Diluted	$	0.04	$	(0.15	)	$	0.07	$	(0.33	)

For the three and nine months ended September 30, 2010, the effect of 940,750 outstanding stock options, 287,796 outstanding SARS and 410,627 outstanding warrants, was not included in the computation of diluted earnings per share as their effect was anti-dilutive.

For the three and nine months ended September 30, 2009, the effect of 1.9 million stock options and warrants was not included in the computation of diluted earnings per share as their effect was anti-dilutive.

In connection with the acquisition of the assets of Orbit One Communications, the Company issued an additional 1,250,596 shares of the Company’s common stock.  These shares are currently held in escrow for the benefit of Orbit One or Numerex, as their interest may appear in the future, and are not included in the basic and diluted share calculation.  The shares could be released depending on the outcome of the litigation described in Note L.

NOTE I – FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value because of their short maturity.  

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NOTE J – LIQUIDITY

The Company believes that existing cash and cash equivalents together with cash generated from operations will be sufficient to meet operating requirements over the next twelve months.  This belief could be affected by future operating earnings that are lower than expectations or a material change in the Company’s operating business, including but not limited to, a significant change in the rate of growth of our services and products, the impact of any significant acquisitions or transactions or a change in strategy or product development plans.

NOTE K - RECENT ACCOUNTING PRONOUNCEMENTS

 In January 2010, we adopted the new accounting guidance related to the accounting and disclosure for revenue recognition.  This guidance, which is effective for fiscal years beginning on or after June 15, 2010  with early adoption permitted, modifies the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable.  Adoption of this new guidance did not have a material impact on our consolidated financial statements as there was no change in the units of accounting, the methods used to allocate arrangement consideration to each unit of accounting, or the pattern and timing of revenue recognition.  Additionally, there was no change to reported revenues or net income as a result of this early adoption.

In January 2010, we adopted new accounting guidance issued by the FASB which amends the evaluation criteria to identify the primary beneficiary of a variable interest entity, or VIE, and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the VIE. The new guidance significantly changes the consolidation rules for VIEs including the consolidation of common structures, such as joint ventures, equity method investments and collaboration arrangements and is applicable to all new and existing VIEs. Adoption of this new accounting guidance did not impact our consolidated financial statements.

In January 2010, we adopted new accounting guidance issued by the FASB which amends the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers.  Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements), which will be effective during the first quarter of  2011. The adoption of this new guidance did not and will not hav e a material impact on our consolidated financial statements.

NOTE L – LEGAL PROCEEDINGS

As previously reported, Orbit One Communications, Inc. (“Orbit One”) and David Ronsen (“Ronsen”) filed an action against Numerex in New York State Supreme Court, County of New York, alleging, inter alia, breach of contract in frustrating Orbit One’s ability to achieve earn out targets in the acquisition and employment agreements.   Plaintiffs are claiming $11 million in damages, plus interest, attorney’s fees and punitive damages.  Numerex has filed counterclaims against the plaintiffs for fraud, theft of trade secrets and confidential information and breach of the Asset Purchase Agreement; and against Messrs. Ronsen, Naden and Rosenzweig for breach of their fid uciary duties and duty of loyalty to Numerex, as well as breach of their respective Severance Agreements.  Numerex is claiming $5 million in damages, plus interest, attorney’s fees and punitive damages. On March 12, 2010, the Court entered a decision on the cross-motions for summary judgment.  The Court dismissed Orbit One and Mr. Ronsen’s claims of breach of the APA for lack of corporate support, breach of the implied covenant of good faith and fair dealing and unjust enrichment, as well as Messrs. Rosenzweig and Naden’s claim of tortious interference with prospective economic advantage.  The Court held that Mr. Ronsen’s claim that he had “good reason” to resign presented material issues of fact requiring a trial.  Similarly, the Court held that Numerex’s claims against Orbit One and its principals for breach of contract, breach of representations and warranties, fraud, breach of fiduciary duty, setoff, misappropriation, conversion and indemnific ation presented material issues of fact requiring a trial, while dismissing Numerex’s claim for violation of the Computer Fraud and Abuse Act.  No trial date has been set.  Numerex believes that the plaintiffs' claims are without merit and intends to defend against the allegations and to vigorously pursue its counterclaims. 

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NOTE M – SEGMENT INFORMATION

Segment Information

The Company has two reportable operating segments.  These segments are M2M Services and Other Services.  The M2M Services segment is made up of all our cellular and satellite machine-to-machine communications hardware and services.  The Other Services segment includes our video conferencing hardware and installation of telecommunications equipment.

During the three months ended September 30, 2010, we changed our internal organization structure and internal management reporting to combine all M2M activity into one operating group.  As such, we have recast our reportable segments to conform with our internal reporting structure.  We have integrated our network services and our wire-line security detection hardware and services with our M2M Services segment as they are closely related to our cellular and satellite machine-to-machine communications hardware and services.  Other Services consists of our video conferencing hardware and installation of telecommunications equipment.  We have reclassified financial information for the three and nine months ended September 30, 2009 to conform to the current period presentation.

The Company’s chief operating decision maker is the Chief Executive Officer (CEO). While the CEO is apprised of a variety of financial metrics and information, the Company’s business is principally managed on a segment basis, with the CEO evaluating performance based upon segment operating profit or loss that includes an allocation of common expenses, but excludes certain unallocated expenses. The CEO does not view segment results below operating profit (loss) before unallocated costs, and therefore unallocated expenses, interest income and other, net, and the provision for income taxes are not broken out by segment. Items below segment operating profit/(loss) are reviewed on a consolidated basis.

Summarized below are the Company’s unaudited revenues and operating earnings (loss) by reportable segment:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2010			2009			2010			2009
Net sales:
M2M Services	$	14,948		$	11,159		$	42,046		$	35,628
Other Services		457			390			1,278			1,188
	$	15,405		$	11,549		$	43,324		$	36,816
Gross profit, exclusive of depreciation and amortization shown separately below:
M2M Services	$	6,610		$	4,895		$	18,368		$	15,457
Other Services		256			210			656			631
	$	6,866		$	5,105		$	19,024		$	16,088
Operating earnings (loss):
M2M Services	$	2,050		$	836		$	5,449		$	1,442
Other Services		(19	)		(2	)		(104	)		(19	)
Unallocated Corporate		(1,280	)		(1,201	)		(4,166	)		(3,552	)
	$	751		$	(367	)	$	1,179		$	(2,129	)
Depreciation and amortization:
M2M Services	$	664		$	717		$	2,109		$	2,035
Other Services		20			3			54			8
Unallocated Corporate		126			159			379			473
	$	810		$	879		$	2,542		$	2,516

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

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Summarized below are the Company’s unaudited identifiable assets:

(In thousands)	September 30,		December 31
Identifiable assets:	2010		2009
M2M Services	$	43,188	$	43,739
Other Services		2,558		2,181
Unallocated Corporate		11,305		6,827
	$	57,051	$	52,747

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

Forward-looking Statements

This document contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, among other things, forward-looking statements with respect to our future financial or business performance, conditions or strategies and other financial and business matters, including expectations regarding growth trends and activities. 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. We cau tion 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 Quarterly Report on Form 10-Q, and we assume no duty to update forward-looking statements. Actual results could differ materially from those anticipated in these forward-looking statements and future results could differ materially from historical performance.

The following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: our inability to reposition our platform to capture greater recurring service revenues; the risks that a substantial portion of revenues derived from government contracts may be terminated by the government at any time; variations in quarterly operating results; delays in the development, introduction, integration and marketing of new services; customer acceptance of services; economic conditions resulting in decreased demand for our products and services; the risk that our strategic alliances and partnerships will not yield substantial revenues; changes in financial and capital markets, and the inability to raise growth capital; the inability to attain revenue and earnings gr owth; changes in interest rates; inflation; the introduction, withdrawal, success and timing of business initiatives and strategies; competitive conditions; the inability to realize revenue enhancements; disruption in key supplier relationships and/or related services; and extent and timing of technological changes. Our SEC reports identify additional factors that can affect forward-looking statement.

Overview

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of the Company.  This MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited financial statements and the accompanying notes to the unaudited financial statements in this Quarterly Report on Form 10-Q for the period ended September 30, 2010.

Net sales increased 33% to $15.4 million for the three-month period ended September 30, 2010, as compared to $11.5 million for the three-month period ended September 30, 2009.  Net sales increased 18% to $43.3 million for the nine-month period ended September 30, 2010, as compared to $36.8 million for the nine-month period ended September 30, 2009 primarily as a result of an increase in our service sales.

While our overall business has grown and we believe that our pipeline of future sales opportunities is solid, general economic uncertainty remains and may reduce our future growth.  We have tightened our credit policies in response to the economic climate, in particular to our hardware-only sales, which may impact revenues for the balance of the year but has also reduced our bad debt expense.

16

We recognized operating income of $751,000 for the three-month period ended September 30, 2010, as compared to an operating loss of $367,000 for the three-month period ended September 30, 2009.  We recognized operating income of $1.2 million for the nine-month period ended September 30, 2010, as compared to an operating loss of $2.1 million for the nine-month period ended September 30, 2009.

We recognized net income of $657,000 for the three-month period ended September 30, 2010, or $0.04 per basic and diluted share, as compared to a net loss of $2.2 million, or ($0.15) per basic and diluted share for the three-month period ended September 30, 2009.  We recognized net income of $1.0 million for the nine-month period ended September 30, 2010, or $0.07 per basic and diluted share, as compared to a net loss of $4.7 million, or ($0.33) per basic and diluted share for the nine-month period ended September 30, 2009.

Critical Accounting Policies and Estimates

The MD&A is based on our unaudited 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 unaudited 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 deferred 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.  There can be no as surance that actual results will not differ from those estimates and such differences could be significant.

Goodwill and Intangible Assets

Goodwill and certain intangible assets with indefinite lives are not amortized but are subject to an annual impairment test, and more frequently, if events or circumstances occur that would indicate a potential decline in our fair value.  An impairment charge will be recognized only when the implied fair value of a reporting unit’s goodwill is less than its carrying amount.  As of December 31, 2009, we identified four reporting units, 3 of which had associated goodwill.  The four reporting units were M2M Services (which excludes Orbit One LLC), Orbit One LLC (“Orbit One”), BNI and Wireline Services.  The three reporting units with associated goodwill were M2M Services, Orbit One and Wireline Services.  Due to the consolidation of our hardware management and network platf orms in late 2008, we no longer maintained separate reporting for Airdesk and M2M Services, and thus combined the Airdesk reporting unit with M2M Services (excluding Airdesk LLC and Orbit One) reporting unit beginning January 1, 2009.  For our 2009 annual impairment test, we used standard modeling techniques to estimate a fair market value for each of the three reporting units containing goodwill.  This included a combination of discounted cash flow models and, where available, the use of public company market comparables in similar industries.  We used historical information, our 2010 business plan and expected future development projects to prepare nine year financial projections used in the discounted cash flow analysis for each of the reporting units.

The growth rate assumptions used in our most recent annual impairment test were consistent with operating results for the nine months ended September 30, 2010, and no events or circumstances occurred that would require us to perform an interim impairment test for these same periods.

A summary of the critical assumptions utilized for our impairment tests are outlined below. We believe this information provides relevant information to understand our goodwill impairment testing and evaluate our goodwill balances.

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As of September 30, 2010, a breakdown of our goodwill balance by reporting unit is as follows:

(In thousands)
M2M Services excluding Orbit One Unit	$	18,433
Orbit One Unit (part of  M2M Services)		4,428
BNI Unit (part of Other Services)		926
Total Goodwill	$	23,787

During 2009, we did not record a goodwill impairment charge.  In determining whether an impairment charge was necessary, we considered economic conditions, which we expected to improve in 2010 and subsequently return to more normal levels, as compared to general economic conditions of 2009.

For our M2M Services (excluding Orbit One) reporting unit, we use a discounted cash flow model to determine the fair value and a 21% discount rate, as this reporting unit’s risks mirror that of the Company as a whole.  Our historical revenue growth rate averaged 17% over the past four years.   We use a more conservative revenue growth rate than our historical growth rate in this reporting unit, as we expect the market to mature.  We expect our margins to remain at the historical four year average of 42% for this reporting unit for the forecast period.  The growth rates used for SG&A and R&D are expected lower than that of our historical growth rates as we built out a new internal service sales team which would not occur in future periods.  Depreciation and amortization and capital expenditures are kept at historic run rates.  We used historical accounts receivable as a percentage of sales, inventory as a percentage of cost of sales and accounts payable as a percentage of cost of sales to determine the projected changes in working capital requirements.  

Based upon our goodwill impairment analysis conducted in the fourth quarter of 2009, a hypothetical reduction in the fair value of  our M2M Services (excluding Orbit One) reporting unit of  14.2%, would have resulted in the carrying value of the reporting unit exceeding its fair value and thus require a Step 2 analysis and possible impairment.  Over the forecast period, this means that our cumulative projected revenues would have to decrease by 4% (representing a proportional decrease in our average growth rate of 7% over the forecast period), or our cumulative projected profitability would have to decrease by 12%.  A 1.9% increase to the discount rate that we applied also would have resulted in the carrying value of the reporting unit exceeding its fair value.

We believe that our cash flow analysis was appropriate as our projections took the present challenging economic environment into account and are consistent with our current operating results.

           In our Orbit One reporting unit, we used a discounted cash flow model to determine the fair value as we cannot determine any market comparables for this unit.  We used a 21% discounted rate as this reporting unit’s risks mirrored that of the Company as a whole.  A combination of existing contractual agreements and targeting of specific industries is used to determine the first year’s revenue growth rate, the following years’ revenue growth rates are based on expected industry growth rates.  Margins are projected to decline as a combination of expected pricing pressures in the market and lower margin hardware sales are expected to make up a larger portion of total reve nues versus higher margin service sales.  SG&A expenses are forecasted to increase in the first year as the result of a build out of necessary sales support to meet projected revenue targets then the SG&A growth are expected to moderate for the balance of the forecast period.  Depreciation and amortization and capital expenditures are kept at historic run rates.  We used historical accounts receivable as a percentage of sales, inventory as a percentage of cost of sales and accounts payable as a percentage of cost of sales to determine the projected changes in working capital requirements.  

Based upon our goodwill impairment analysis conducted in the fourth quarter of 2009, a hypothetical reduction in the fair value of  our Orbit One reporting unit of  9.4%, would have resulted in the carrying value of the reporting unit exceeding its fair value and thus require a Step 2 analysis and possible impairment.  Over the forecast period, this means that our cumulative projected revenues would have to decrease by 3% (representing a proportional decrease in our average growth rate of 4% over the forecast period), or our cumulative projected profitability would have to decrease by 8%.  A 1.0% increase to the discount rate that we applied also would have resulted in the carrying value of the reporting unit exceeding its fair value.

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In our BNI reporting unit, we used a combination of a discounted cash flow analysis and use of public company market comparables to determine the fair value.  Since this reporting unit’s revenues mostly result from government related contracts, the revenue can fluctuate significantly from year to year and over our forecast period.  Taking this into consideration, we used two cash flow models for this reporting with two possible revenue streams over the forecast period.   We then applied a weighting to each outcome to determine the unit’s fair value on a discounted cash flow basis.   We used the company’s overall 21% discount rate as we accounted for this units fluctuating revenue by weighting two separate cash flow models.  We gave the combination of these cash flow models greater weighting totaling 90% with the balance on the market comparables since we only had a limited number of market comparables.  In the first year of the forecast combined weighted revenues increase over the forecast period over 2009, but do not grow over 2008 revenue levels until 2011 and for the balance of the forecast period.   This growth is the result of the completion of new product development projects currently in process, and new contracts.  Weighted combined margins were projected to decline due to changes in the mix of hardware and service sales and expected pricing pressures.  SG&A expenses are forecast to decrease in the first year as the result of cost reductions planned and returning to historical growth rates.  Depreciation and amortization and capital expenditures are kept at historic run rates.  We used historical accounts receivable as a percentage of sales, our sales growth rate for inventory and accounts pay able as a percentage of cost of sales to determine the projected changes in working capital requirements.  The combination of all these factors determined our cash flow growth rates.   For the market comparables, we used a combination of EBITDA and sales ratio’s to determine fair value.

Based upon our goodwill impairment analysis conducted in the fourth quarter of 2009, a hypothetical reduction in the fair value of  our BNI reporting unit of  63%, would have resulted in the carrying value of the reporting unit exceeding its fair value and thus require a Step 2 analysis and possible impairment.  Over the forecast period, this means that our cumulative projected revenues would have to decrease by 44%, or our cumulative projected profitability would have to decrease by 44%.  A 46% increase to the discount rate that we applied also would have resulted in the carrying value of the reporting unit exceeding its fair value.

Additionally, the sum of the fair value of all our reporting units was less than our market capital at December 31, 2009, indicating that our projections were reasonable and not aggressive.

Revenue Recognition

In January 2010, we adopted the new accounting guidance related to the accounting and disclosure for revenue recognition.  This guidance, which is effective for fiscal years beginning on or after June 15, 2010  with early adoption permitted, modifies the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable.  Adoption of this new guidance did not have a material impact on our consolidated financial statements.

We summarize our revenue recognition policies in Note B to the accompanying financial statements.

Segment Information

During the three months ended September 30, 2010, we changed our internal organization structure and internal management reporting to combine all M2M activity into one operating division.  We now have two reportable operating segments.  M2M Services, which consists of our cellular and satellite machine-to-machine communications hardware and services, and Other Services, which includes our video conferencing hardware and installation of telecommunications equipment.  We have reclassified financial information for the three and nine months ended September 30, 2009 to conform to the current period presentation.

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Results of Operations

Three and Nine Months Ended September 30, 2010 Compared to Three and Nine Months Ended September 30, 2009:

Net Sales

Net sales for our reportable segments for the three and nine months ended September 30, 2010 and 2009 are summarized in the following table:

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(In thousands)	2010		2009		Change		% change			2010		2009		change		% change
Net Sales:
M2M Services
Hardware	$	6,300	$	3,810	$	2,490		65	%	$	17,360	$	14,154	$	3,206		23	%
Services		8,648		7,349		1,299		18	%		24,686		21,474		3,212		15	%
Sub-Total		14,948		11,159		3,789		34	%		42,046		35,628		6,418		18	%
Other Services
Hardware		194		167		27		16	%		419		403		16		4	%
Services		263		223		40		18	%		859		785		74		9	%
Sub-Total		457		390		67		17	%		1,278		1,188		90		8	%
Total net sales	$	15,405	$	11,549	$	3,856		33	%	$	43,324	$	36,816	$	6,508		18	%

Net sales from M2M Services segment increased 34% to $14.9 million for the three-month period ended September 30, 2010, as compared to $11.2 million for the three-month period ended September 30, 2009.  Net sales from M2M Services segment increased 18% to $42.0 million for the nine-month period ended September 30, 2010, as compared to $35.6 million for the nine-month period ended September 30, 2009.

Hardware net sales from M2M Services increased 65% to $6.3 million for the three-month period ended September 30, 2010, as compared to $3.8 million for the three-month period ended September 30, 2009.  Hardware net sales from M2M Services increased 23% to $17.4 million for the nine-month period ended September 30, 2010, as compared to $14.2 million for the nine-month period ended September 30, 2009.  The increase in both periods is primarily due to an increase in sales of our cellular and satellite tracking units.

Service net sales from M2M Services increased 18% to $8.6 million for the three-month period ended September 30, 2010, as compared to $7.3 million for the three-month period ended September 30, 2009.  Service net sales from M2M Services increased 15% to $24.7 million for the nine-month period ended September 30, 2010, as compared to $21.5 million for the nine-month period ended September 30, 2009.  The increase in both periods is primarily due to subscription increases which were generated by sales of our security hardware, as well as increased sales of our cellular and satellite tracking units. Our subscriptions at September 30, 2010 increased 31% to 1,120,000, as compared to 843,000 for the nine months ended September 30, 2009.  We continue to focus on increasing subscriptions to our network due to the rec urring nature of the service revenues.

Net sales from Other Services increased 17% to $457,000 for the three-month period ended September 30, 2010, as compared to $390,000 for the three-month period ended September 30, 2009.  Net sales from Other Services increased 8% to $1.3 million for the nine-month period ended September 30, 2010, as compared to $1.2 million for the nine-month period ended September 30, 2009.

Hardware sales from Other Services increased 16% to $194,000 for the three-month period ended September 30, 2010, as compared to $167,000 for the three-month period ended September 30, 2009.  Hardware sales from Other Services increased 4% to $419,000 for the nine-month period ended September 30, 2010, as compared to $403,000 for the nine-month period ended September 30, 2009. The increase in both periods is primarily the result of sales of our interactive videoconferencing hardware (PowerPlay), which is sold directly and indirectly to distance-learning customers.

20 

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.

Service net sales from Other Services service revenues increased 18% to $263,000 for the three-month period ended September 30, 2010, as compared to $223,000 for the three-month period ended September 30, 2009.  Service net sales from Other Services service revenues increased 9% to $859,000 for the nine-month period ended September 30, 2010, as compared to $785,000 for the nine-month period ended September 30, 2009.  Our installation and integration services are primarily, either directly or indirectly, provided to large wireline and wireless telecommunication companies. The increase in both periods is primarily the result of an increase in demand for these services.

Cost of Sales

Cost of sales for our reportable segments for the three and nine months ended September 30, 2010 and 2009 are summarized in the following table:

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
(In thousands)	2010		2009		change		% change			2010		2009		change		% change
Cost of Sales:
M2M Services
Cost of hardware sales	$	5,032	$	3,383	$	1,649		49	%	$	13,956	$	12,418	$	1,538		12	%
Cost of service sales		3,306		2,881		425		15	%		9,722		7,753		1,969		25	%
Sub-Total		8,338		6,264		2,074		33	%		23,678		20,171		3,507		17	%
Other Services
Cost of hardware sales		81		66		15		23	%		234		174		60		34	%
Cost of service sales		120		114		6		5	%		388		383		5		1	%
Sub-Total		201		180		21		12	%		622		557		65		12	%
Total cost of sales	$	8,539	$	6,444	$	2,095		33	%	$	24,300	$	20,728	$	3,572		17	%

Cost of hardware sales from M2M Services segment increased 49% to $5.0 million for the three-month period ended September 30, 2010, as compared to $3.4 million for the three-month period ended September 30, 2009.  Cost of hardware sales from M2M Services segment increased 12% to $14.0 million for the nine-month period ended September 30, 2010, as compared to $12.4 million for the nine-month period ended September 30, 2009.  The increase in both periods is in direct correlation to the increase in M2M Services hardware sales.

Cost of service sales from M2M Services segment increased 15% to $3.3 million for the three-month period ended September 30, 2010, as compared to $2.9 million for the three-month period ended September 30, 2009.  Cost of service sales from M2M Services segment increased 25% to $9.7 million for the nine-month period ended September 30, 2010, as compared to $7.8 million for the nine-month period ended September 30, 2009.  The increase in both periods is primarily the result of an increase in the number of subscriptions to our M2M network.

Cost of hardware sales from Other Services segment increased 23% to $81,000 for the three-month period ended September 30, 2010, as compared to $66,000 for the three-month period ended September 30, 2009.  Cost of hardware sales from Other Services segment increased 34% to $234,000 for the nine-month period ended September 30, 2010, as compared to $174,000 for the nine-month period ended September 30, 2009.  The increase in both periods is primarily due to the increase in Other Services hardware sales.

Cost of service sales for our Other Services segment increased 5% to $120,000 for the three-month period ended September 30, 2010, as compared to $114,000 for the three-month period ended September 30, 2009. Cost of service sales for our Other Services segment increased 1% to $388,000 for the nine-month period ended September 30, 2010, as compared to $383,000 for the nine-month period ended September 30, 2009.  The increase in both periods is primarily due to the increase in Other Services service sales.

21 

Gross Profit

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2010			2009			2010			2009
Total net sales	$	15,405		$	11,549		$	43,324		$	36,816
Total cost of sales		8,539			6,444			24,300			20,728
Gross Profit:	$	6,866		$	5,105		$	19,024		$	16,088
Gross Profit %:		44.6	%		44.2	%		43.9	%		43.7	%

Gross profit, as a percentage of net sales, remained fairly constant at 44.6% for the three-month period ended September 30, 2010, as compared to 44.2% for the three-month period ended September 30, 2009.  Gross profit, as a percentage of net sales, remained fairly constant at 43.9% for the nine-month period ended September 30, 2010, as compared to 43.7% for the nine-month period ended September 30, 2009.

Operating, Interest and Other Expenses

Operating, interest and other expenses for the Company for the three and nine months ended September 30, 2010 and 2009 are summarized in the following table:

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
(in thousands)	2010			2009			change			% change			2010			2009			change			% change
Sales and marketing expenses	$	1,691		$	1,404		$	287			20	%	$	5,238		$	4,676		$	562			12	%
General and administrative expenses		2,673			2,503			170			7	%		7,586			8,889			(1,303	)		-15	%
Engineering and development expenses		888			584			304			52	%		2,260			1,743			517			30	%
Bad debt expense		53			102			(49	)		-48	%		219			393			(174	)		-44	%
Depreciation and amortization		810			879			(69	)		-8	%		2,542			2,516			26			1	%
Operating earnings (loss)		751			(367	)		1,118			-305	%		1,179			(2,129	)		3,308			-155	%
Interest expense, net		(44	)		(1,781	)		1,737			-98	%		(62	)		(2,471	)		2,409			-97	%
Other income (expense)		9			-			9		nm				(31	)		1			(32	)	nm
Income (loss) before  income taxes		716			(2,148	)		2,864			-133	%		1,086			(4,599	)		5,685			-124	%
Income tax (benefit)expense		59			31			28			90	%		73			96			(23	)		-24	%
Net income (loss)	$	657		$	(2,179	)	$	2,836			-130	%	$	1,013		$	(4,695	)	$	5,708			-122	%

Sales and marketing expenses increased 20% to $1.7 million for the three-month period ended September 30, 2010, as compared to $1.4 million for the three-month period ended September 30, 2009.  Sales and marketing expenses increased 12% to $5.2 million for the nine-month period ended September 30, 2010, as compared to $4.7 million for the nine-month period ended September 30, 2009.  The increase for the three-month period is primarily the result of a $119,000 increase in employee related costs, a $108,000 increase in promotional costs and an increase of $37,000 in travel related expenses.  The increase for the nine-month period is primarily the result of a $282,000 increase in employee related costs, a $100,000 increase in promotional costs and an increase of $78,000 in travel related expenses.

General and administrative expenses increased 7% to $2.7 million for the three-month period ended September 30, 2010, as compared to $2.5 million for the three-month period ended September 30, 2009.  General and administrative expenses decreased 15% to $7.6 million for the nine-month period ended September 30, 2010, as compared to $8.9 million for the nine-month period ended September 30, 2009.  The increase for the three-month period is primarily the result of a $170,000 increase in employee related costs.  The decrease for the nine-month period is primarily the result of a $1.0 million decrease in legal fees, a $100,000 decrease in professional service fees and a $200,000 decrease in supplies, telecommunications and facility related costs.

22

Engineering and development expenses increased 52% to $888,000 for the three-month period ended September 30, 2010, as compared to $584,000 for the three-month period ended September 30, 2009.  Engineering and development expenses increased 30% to $2.3 million for the nine-month period ended September 30, 2010, as compared to $1.7 million for the nine-month period ended September 30, 2009.  The increase for the three-month period is primarily the result of a $125,000 increase in employee related costs a $100,000 increase in professional service fees and a $111,000 increase in expenses related to new product testing and certifications  The increase for the nine-month period is primarily the result of a $229,000 increase in professional service fees, a $115,000 increase in employee related costs and a $105, 000 increase in expenses related to new product testing and certifications.

Bad debt expense decreased 48% to $53,000 for the three-month period ended September 30, 2010, as compared to $102,000 for the three-month period ended September 30, 2009.   Bad debt expense decreased 44% to $219,000 for the nine-month period ended September 30, 2010, as compared to $393,000 for the nine-month period ended September 30, 2009.   The decrease in both periods is due to tighter credit controls and increased efficiency in our collection procedures, particularly with regard to our hardware-only customer sales.

Depreciation and amortization expense decreased 8% to $810,000 for the three-month period ended September 30, 2010, as compared to $879,000 for the three-month period ended September 30, 2009.  Depreciation and amortization expense remained constant at $2.4 million for the nine-month period ended September 30, 2010 and 2009.

Interest expense, net decreased 98% to $44,000 for the three-month period ended September 30, 2010, as compared to $1.8 million for the three-month period ended September 30, 2009.  Interest expense, net decreased 97% to $62,000 for the nine-month period ended September 30, 2010, as compared to $2.5 million for the nine-month period ended September 30, 2009.    In January 2010, all outstanding principle and interest were repaid on our outstanding debt, which resulted in decreased interest expense in both periods.

We recorded tax expense of $59,000 for the three-month period ended September 30, 2010, as compared to tax expense of $31,000 for the three-month period ended September 30, 2009.  We recorded tax expense of $73,000 for the nine-month period ended September 30, 2010, as compared to tax expense of $96,000 for the nine-month period ended September 30, 2009.

Liquidity and Capital Resources

We had working capital of $11.0 million as of September 30, 2010 and $9.3 million as of December 31, 2009.  We had cash balances of $9.6 million and $5.3 million as of September 30, 2010 and December 31, 2009, respectively.

The following table shows information about our cash flows and liquidity positions during the nine months ended September 30, 2010 and 2009. You should read this table and the discussion that follows in conjunction with our consolidated statements of cash flows contained in “Item 1. Financial Statements” in Part I of this report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

	Nine Months Ended
	September 30,
(in thousands)	2010			2009
Net cash provided by operating activities	$	7,351		$	3,692
Net cash used in investing activities		(2,220	)		(1,898	)
Net cash used in financing activities		(798	)		(4,845	)
Effect of exchange rate differences on cash		8			10
Net change in cash and cash equivalents	$	4,341		$	3,041

We provided cash from operating activities totaling $7.4 million for the nine-month period ended September 30, 2010, as compared to $3.7 million for the nine-month period ended September 30, 2009.  The increase was primarily due to the current period net income over the prior period net loss, the increase in accounts payable and decrease in inventory, partially offset by the increase in accounts receivable.

23

We used cash in investing activities totaling $2.2 million for the nine-month period ended September 30, 2010, as compared to $1.9 million for the nine-month period ended September 30, 2009.   The increase was primarily due to the purchase of intangible and other assets.

We used cash in financing activities totaling $798,000 for the nine-month period ended September 30, 2010, as compared to $4.8 million for the nine-month period ended September 30, 2009.  The decrease is primarily due to the decreased debt principal payments for the nine months ended September 30, 2010.

On May 4, 2010, we entered into that certain Loan and Security Agreement (the “Agreement”) with Silicon Valley Bank (“SVB”).  The terms of the Agreement provide that SVB will, among other things, make revolving credit advances up to an aggregate of $5 million (the “Credit Facility”), subject to certain conditions as set forth in the Agreement.  The Credit Facility also includes a sublimit of up to $1.5 million for letters of credit, cash management and foreign exchange services. The interest rate applicable to amounts drawn from the Credit Facility is, at our option, equal to either (i) the Prime Rate (as defined in the Agreement) or (ii) the sum of the LIBOR Rate (as defined in the Agreement) plus a LIBOR rate margin of 2.75%.  The Credit Facility includes an an nual fee of 0.375% of the average unused portion of the credit facility.

All unpaid principal and accrued interest is due and payable in full on May 4, 2013, which is the maturity date.  Our obligations under the SVB Credit Facility are secured by substantially all of our assets and the assets of our subsidiaries, excluding any intellectual property.  We also agreed not to encumber our intellectual property during the term of the Credit Facility without the prior written consent of SVB.  The Agreement contains customary terms and conditions for credit facilities of this type.  In addition, we are required to meet certain financial covenants customary with this type of facility, including maintaining a minimum EBITDA and a minimum adjusted quick ratio. The Agreement contains customary events of default.  If a default occurs and is not cured within any applicabl e cure period or is not waived, our obligations under the Credit Facility may be accelerated.

We were in compliance with all financial covenants under the Credit Facility at September 30, 2010 and, as of that date, we had no outstanding borrowings or letters of credit.

           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 together with cash generated from operations will be sufficient to meet operating requirements over at least the next twelve months.  This belief could be affected by future operating earnings that are lower than expectations or a material change in our operating business, including but not limited to, a significant change in the rate of growth of our services and products, the impact of any significant acquisitions or transactions or a change in strategy or product development plans.

Off-Balance Sheet Arrangements

As of September 30, 2010, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Item 3.                        Quantitative and Qualitative Disclosures about Market Risks.

The market risk in our financial instruments represents the potential loss arising from adverse changes in financial rates. We are exposed to market risk in the area of interest rates. These exposures are directly related to our normal funding and investing activities.

24 

Item 4.                        Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2010.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or su bmits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on the evaluation of our disclosure controls and procedures as of September 30, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

During the period ended September 30, 2010, no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings.

As previously reported, Orbit One Communications, Inc. (“Orbit One”) and David Ronsen (“Ronsen”) filed an action against Numerex in New York State Supreme Court, County of New York, alleging, inter alia, breach of contract in frustrating Orbit One’s ability to achieve earn out targets in the acquisition and employment agreements.   Plaintiffs are claiming $11 million in damages, plus interest, attorney’s fees and punitive damages.  Numerex has filed counterclaims against the plaintiffs for fraud, theft of trade secrets and confidential information and breach of the Asset Purchase Agreement; and against Messrs. Ron sen, Naden and Rosenzweig for breach of their fiduciary duties and duty of loyalty to Numerex, as well as breach of their respective Severance Agreements.  Numerex is claiming $5 million in damages, plus interest, attorney’s fees and punitive damages. On March 12, 2010, the Court entered a decision on the cross-motions for summary judgment.  The Court dismissed Orbit One and Mr. Ronsen’s claims of breach of the APA for lack of corporate support, breach of the implied covenant of good faith and fair dealing and unjust enrichment, as well as Messrs. Rosenzweig and Naden’s claim of tortious interference with prospective economic advantage.  The Court held that Mr. Ronsen’s claim that he had “good reason” to resign presented material issues of fact requiring a trial.  Similarly, the Court held that Numerex’s claims against Orbit One and its principals for breach of contract, breach of representations and warranties, fraud, breach of fiduciary duty, se toff, misappropriation, conversion and indemnification presented material issues of fact requiring a trial, while dismissing Numerex’s claim for violation of the Computer Fraud and Abuse Act.  No trial date has been set.  Numerex believes that the plaintiffs' claims are without merit and intends to defend against the allegations and to vigorously pursue its counterclaims. 

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, 2009, as previously filed with the SEC, and the information under “Forward-Looking Statements” included in this report.  Except as set forth below, at September 30, 2010, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2009 and as set forth in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2010.

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.                      Removed and Reserved.

Item 5.                      Other Information.                                                      

None - not applicable.

25 

Item 6.                        Exhibits

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

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

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

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

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

26 

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)
November 15, 2010	/s/ ­­­­Stratton J. Nicolaides
	Stratton J. Nicolaides
	Chief Executive Officer and Chairman
November 15, 2010	/s/ ­­­­Alan B. Catherall
	Alan B. Catherall
	Chief Financial Officer
	Executive Vice President and
	Principle Financial and Accounting Officer

27 

EX-31.1 2 exhibit31_1.htm NMRX 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f)) for the registrant and we 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)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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: November 15, 2010

/s/ Stratton J. Nicolaides                                                      

Stratton J. Nicolaides

Chief Executive Officer and

Chairman

EX-31.2 3 exhibit31_2.htm NMRX 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f)) for the registrant and we 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)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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: November 15, 2010

/s/ Alan B. Catherall                                                      

Alan B. Catherall

Chief Financial Officer,

Executive Vice President, and

Principal Financial and Accounting Officer

EX-32.1 4 exhibit32_1.htm NMRX 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 2002

In connection with the Quarterly Report of Numerex Corp. (the “Company”) on Form 10-Q for the period ended September 30, 2010, 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 2002, to the best of my knowledge, that:

(1)           The Report fully complies with the requirements of Section 13(a)  or Section 15(d) 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.

November 15, 2010	/s/ ­­­­Stratton J. Nicolaides
	Stratton J. Nicolaides
	Chief Executive Officer  and Chairman

EX-32.2 5 exhibit32_2.htm NMRX 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 2002

In connection with the Quarterly Report of Numerex Corp (the “Company”) on Form 10-Q for the period ended September 30, 2010, 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 2002, to the best of my knowledge, that:

(1)           The Report fully complies with the requirements of Section 13(a) or Section 15(d) 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.

November 15, 2010	/s/ ­­­­­­­­­­­­­­­­­­Alan B. Catherall
	Alan B. Catherall
	Chief Financial Officer, Executive Vice President, and Principal Financial and Accounting Officer

-----END PRIVACY-ENHANCED MESSAGE-----

EX-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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f)) for the registrant and we 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)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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: November 15, 2010

/s/ Stratton J. Nicolaides                                                      

Stratton J. Nicolaides

Chief Executive Officer and

Chairman

EX-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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d-15(f)) for the registrant and we 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)  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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: November 15, 2010

/s/ Alan B. Catherall                                                      

Alan B. Catherall

Chief Financial Officer,

Executive Vice President, and

Principal Financial and Accounting Officer

EX-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 2002

In connection with the Quarterly Report of Numerex Corp. (the “Company”) on Form 10-Q for the period ended September 30, 2010, 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 2002, to the best of my knowledge, that:

(1)           The Report fully complies with the requirements of Section 13(a)  or Section 15(d) 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.

November 15, 2010	/s/ ­­­­Stratton J. Nicolaides
	Stratton J. Nicolaides
	Chief Executive Officer  and Chairman

EX-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 2002

In connection with the Quarterly Report of Numerex Corp (the “Company”) on Form 10-Q for the period ended September 30, 2010, 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 2002, to the best of my knowledge, that:

(1)           The Report fully complies with the requirements of Section 13(a) or Section 15(d) 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.

November 15, 2010	/s/ ­­­­­­­­­­­­­­­­­­Alan B. Catherall
	Alan B. Catherall
	Chief Financial Officer, Executive Vice President, and Principal Financial and Accounting Officer