UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended
MARCH 31, 2003 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 200
Atlanta, Georgia 30339-2119

(Address of principal executive offices)

(770) 693-5950

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes   x   No       

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

     Yes   x   No       

As of April 9, 2003, an aggregate of 10,784,859 shares of the registrant’s Class A Common Stock, no par value (being the registrant’s only class of common stock outstanding), were outstanding.

1

TABLE OF CONTENTS

EX-99.1 SECTION 906 CERTIFICATION OF THE CEO

EX-99.2 SECTION 906 CERTIFICATION OF THE CFO

NUMEREX CORP. AND SUBSIDIARIES

INDEX

	Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets at March 31, 2003 (unaudited) and December 31, 2002		4
Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) for the three-month period ended March 31, 2003 and 2002		5
Condensed Consolidated Statements of Cash Flows (unaudited) for the three-month Periods ended March 31, 2003 and 2002		6
Notes to Condensed Consolidated Financial Statements (unaudited)		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3. Quantitative and Qualitative Disclosures about Market Risks		18
Item 4. Disclosure Controls and Procedures		18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		19
Item 2. Changes in Securities and Use of Proceeds		19
Item 3. Defaults Upon Senior Securities		19
Item 4. Submission of Matters to a Vote of Security Holders		19
Item 5. Other Information		19
Item 6. Exhibits and Reports on Form 8-K		19
Signature Page		20
Certifications		21
Exhibits

2

Forward-looking Statements

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

Any one or any combination of factors could have a material adverse effect on the Company’s results of operations or could cause actual results to differ materially from forward-looking statements or historical performance. These factors include: the pace of technological change; variations in quarterly operating results; delays in the development, introduction and marketing of new wireless products and services; customer acceptance of products and services; economic conditions; the inability to attain revenue and earnings growth; changes in interest rates; inflation; deflation; loss of key personnel; loss of key strategic contracts; product failures; the introduction, withdrawal, success and timing of business initiatives and strategies; competitive conditions; the extent and timing of technological changes; changes in customer spending; the loss of intellectual property protection; general economic conditions and conditions affecting the capital markets. Actual events, developments and results could differ materially from those anticipated or projected in the forward-looking statements as a result of certain uncertainties set forth below and elsewhere in this document. Subsequent written or oral statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this report and those in the Company’s reports previously and subsequently filed with the Securities and Exchange Commission.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

3

NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Number of Shares)

			March 31,			December 31,
			2003			2002
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note B-3)			$	700		$	2,137
Accounts receivable, net of allowances of $1,026 and $1,272, respectively (Note B-10)				3,524			4,459
Notes receivable, net (Notes B-9 and B-10)				590			823
Inventory, net of reserves of $776 and $905, respectively (Note B-8)				5,002			5,189
Prepaid expenses & interest receivable				759			976
		TOTAL CURRENT ASSETS		10,575			13,584
Property and equipment, net (Note B-5)				2,186			2,475
Goodwill, net (Note B-4)				15,059			10,983
Intangible assets, net (Note B-4)				8,449			8,050
Software, net (Note B-4)				1,823			1,963
Other assets				58			56
		TOTAL ASSETS	$	38,150		$	37,111
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable			$	3,836		$	5,238
Income taxes (Note B-7)				—			—
Other current liabilities
	Deferred revenues			955			819
	Other accrued liabilities			1,360			1,866
	Note payable, current portion (Note B-11)			3,500			—
	Obligations under capital leases, current portion			710			710
		TOTAL CURRENT LIABILITIES		10,361			8,633
LONG-TERM DEBT
Obligations under capital leases and other long term liabilities				760			863
Note payable, long-term portion (Note B-11)				1,500			—
		TOTAL LONG TERM LIABILITIES		2,260			863
SHAREHOLDERS’ EQUITY
Preferred stock — no par value; authorized, none issued				—			—
Class A common stock — no par value; authorized 30,000,000 shares; issued 13,171,399 and 13,168,889 shares				36,775			36,769
Class B common stock — no par value; authorized 5,000,000 shares; none issued				—			—
Additional paid-in capital				439			439
Treasury stock, at cost, 2,391,400 on March 31, 2003, and 1,766,400 shares on December 31, 2002 (Note B-12)				(10,197	)		(9,222	)
Accumulated other comprehensive income				(9	)		(9	)
Retained earnings				(1,479	)		(362	)
		TOTAL SHAREHOLDERS’ EQUITY		25,529			27,615
	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	38,150		$	37,111

The accompanying notes are an integral part of these statements.

4

NUMEREX CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In Thousands, Except Per Share Data)

			For the three month period
			ended March 31,
			2003			2002
			(UNAUDITED)			(UNAUDITED)
Net sales			$	4,687		$	7,094
Cost of sales				2,454			3,535
Depreciation and amortization				180			49
	Gross profit			2,053			3,510
Selling, general, administrative and other expenses				2,387			2,456
Research and development expenses				298			602
Depreciation and amortization				489			518
	Operating loss			(1,121	)		(66	)
Interest and other income, net				23			(1	)
Minority interest				—			326
	Earnings (loss) before income taxes			(1,098	)		259
Income taxes (Note B-7)				19			—
	Net earnings (loss)			(1,117	)		259
Preferred stock dividend				—			60
Net earnings (loss) applicable to common Shareholders			$	(1,117	)	$	199
Other comprehensive earnings (loss), net of income taxes
Foreign currency translation adjustment (Note B-17)				—			—
Comprehensive earnings (loss)			$	(1,117	)	$	199
Basic earnings (loss) per share (Note B-21)			$	(0.10	)	$	0.02
Diluted earnings (loss) per share			$	(0.10	)	$	0.02
Number of shares used in per share calculation (Note B-21):
		Basic		11,384			10,582
		Diluted		11,384			11,512

The accompanying notes are an integral part of these statements.

5

NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

					For the three month period
					ended March 31,
					2003			2002
Cash flows from operating activities:
	Net earnings (loss)				$	(1,117	)	$	259
	Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
		Depreciation				294			371
		Amortization				375			192
		Bad debt reserves				150			—
		Minority interest				—			(326	)
		Changes in assets and liabilities which provided (used) cash:
			Accounts and notes receivable			1,018			(2,813	)
			Inventory			187			1,291
			Prepaid expenses & interest receivable			217			(1,118	)
			Other assets			—			(385	)
			Accounts payable			(1,402	)		233
			Income taxes			—			36
			Other accrued liabilities			110			(60	)
				Net cash provided by (used in) operating activities		(168	)		(2,320	)
Cash flows from investing activities:
	Purchase of property and equipment					(6	)		(239	)
	Purchase of intangible and other assets					(686	)		(49	)
	Increase (decrease) in deposit and long term receivables					(2	)		—
				Net cash provided by (used in) investing activities		(694	)		(288	)

The accompanying notes are an integral part of these statements.

6

NUMEREX CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-CONTINUED
(In Thousands)

				For the three month period
				ended March 31,
				2003			2002
Cash flows from financing activities:
	Proceeds from exercise of stock options			$	14		$	845
	Principal payments on capital lease obligations				(103	)		—
	Proceeds from capital lease obligations				—			591
	Payment of preferred stock dividends				(480	)		—
			Net cash provided by (used in) financing activities		(569	)		1,436
Effect of exchange differences on cash					(6	)		(6	)
Net (decrease) in cash and cash equivalents					(1,437	)		(1,178	)
Cash and cash equivalents, beginning of period					2,137			5,401
Cash and cash equivalents, end of period				$	700		$	4,223
Supplemental Disclosure of Cash Flow Information Disclosure of non-cash:
		Note Payable		$	5,000		$	—
		Purchase of Treasury Stock		$	975		$	—
		Purchase of minority interest in Cellemetry		$	4,025		$	—

The accompanying notes are an integral part of these statements.

7

NUMEREX CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE A – BASIS OF FINANCIAL STATEMENT PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2003 may not be indicative of the results that may be expected for the year ending December 31, 2003. For further information, reference is also made to the Numerex Corp.’s (the “Company’s”) Annual Report on Form 10-K for the year ended December 31, 2002 and the consolidated financial statements contained therein.

NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:

1. Nature of Business

Numerex Corp. (the “Company”) is a technology company comprised of operating subsidiaries that develop and market a wide range of communications products and services. The Company’s primary focus is wireless data communications utilizing proprietary network technologies. The Company primarily offers products and services in wireless data communications through Cellemetry® and Data1Source™, and digital multimedia networking through PowerPlay™. These services enable customers around the globe to monitor and move information for a variety of applications from home and business security to distance learning. In addition, the Company offers wireline alarm security products and services, as well as telecommunications network operational support systems.

2. Principles of Consolidation

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

3. Cash and Cash Equivalents

For purposes of financial reporting, the Company considers all highly liquid investments purchased with original maturities of less than three months to be cash equivalents. As of March 31, 2003, cash and cash equivalents include $231,000 restricted cash to support letters of credits. This cash is held in the form of a time deposit maturing in November 2004, when it will become accessible.

4. Intangible Assets

Intangible assets consist of developed software, patents and acquired intellectual property, and goodwill. These assets, except for goodwill, are amortized over its expected useful life. Developed software is amortized using the straight-line method over 3 to 5 years. Patents and acquired intellectual property is amortized using the straight-line method over 7 to 16 years. In accordance with the Statement of Financial Accounting Standards No. 142 (“SFAS 142”), there is no goodwill amortization in 2002.

The Company capitalizes software development costs when project technical feasibility is established and concludes capitalization when the product is ready for release. Software development costs incurred prior to the establishments of technical feasibility are expensed as incurred.

The Company adopted SFAS 142 on January 1, 2002. In connection with the adoption, the Company reviewed the classification of its goodwill and other tangible assets, reassessed the useful lives previously assigned to other intangible assets, and discontinued amortization of goodwill, which resulted in reduced expense of approximately of $192,000 for the quarters ended March 31, 2003 and 2002 and will result in reduced expense of approximately

8

$768,000 on an annualized basis. The Company also tested goodwill for impairment by comparing the fair values of the Company’s reporting units to their carrying values as of January 1, 2001 and at December 31, 2002 and determined that there was no goodwill impairment at that time. The goodwill will be tested at least annually for impairment.

On March 28, 2003, the Company acquired Cingular’s interest in Cellemetry and the 625,000 shares of the Company’s stock owned by Cingular for $5 million (see Notes B-11 Note Payable and B-12 Shareholders’ Equity). Of the $5 million, $4.0 million was added to Cellemetry’s goodwill. In addition, there were $51,000 in transaction costs capitalized as goodwill.

5. Property and Equipment

Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leased property under capital leases is amortized over the lives of the respective leases or over the service lives of the assets for those leases, whichever is shorter. Depreciation for property, equipment and buildings is calculated using the straight-line method over the following estimated lives.

•	Short-term leasehold improvements over the term of the lease	3-10 years
•	Plant and machinery	4-10 years
•	Equipment, fixtures and fittings	3-10 years

6. Impairment of Long-lived Assets

The Company periodically evaluates the recoverability of its long-lived assets or when a specific event indicates that the carrying value of a long-lived asset may not be recoverable. Recoverability is assessed based on estimates of future cash flows expected to result from the use and eventual disposition of the asset. If the sum of expected undiscounted cash flows is less than the carrying value of the asset, an impairment loss is recognized for the amount of such deficiency, using discounted cash methodologies. No such impairment losses have been recognized during the years three month periods ended March 31, 2003 and 2002, respectively.

7. Income Taxes

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

8. Inventory

Inventory and work-in progress are stated at the lower of cost (first-in, first-out method) or market.

The components of inventory are as follows:

(in thousands)
	March 31,		December 31,
	2003		2002
Raw materials	$	1,178	$	1,346
Work-in-progress		9		20
Finished goods		3,815		3,823
	$	5,002	$	5,189

9. Notes Receivable

In 2002, the company converted $612,000 of accounts receivable to notes receivable. There were no new notes receivable in the three-month period ended March 31, 2003. These notes are payable to the company in installments for periods ranging from 9 to 18 months. For purposes of valuation, notes receivable and accounts receivable are considered in total in determining the allowance for doubtful accounts.

9

10. Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts based upon the expected collectibility of the accounts receivable and notes receivable. When amounts are determined to be uncollectible, they will be charged to operations when that determination is made.

11. Note Payable

On March 28, 2003, the Company acquired Cingular’s interest in Cellemetry and the 625,000 shares of the Company’s stock owned by Cingular for $5 million (the “Cellemetry Transaction”). Under the terms of the agreement, the Company has agreed to pay Cingular $1.5 million by December 15, 2003, $2.0 million by March 31, 2004 and $1.5 million by December 15, 2004. The Company’s obligation is secured by a pledge of the stock of all the Company’s subsidiaries (except Digilog) and a lien on the assets of all the Company’s subsidiaries (except Digilog) and bears interest at a rate of eight percent (8%) per annum.

12. Shareholders’ Equity

Shareholders’ Equity decreased by $2,086,000 in the three-month period ending March 31, 2003. The decrease in Shareholders’ Equity is attributable to the net loss recorded of $1,117,000, the purchase of 625,000 shares of common stock in the Cellemetry Transaction valued at $975,000 offset by the receipt of $6,000 following the issue of 1,541 shares of Class A Common Stock of the Company resulting from an election under the Directors’ Stock Plan.

13. Fair Value of Financial Instruments

The Company’s financial instruments include cash, accounts receivable, notes receivable and accounts payable. The carrying value of the financial instruments approximates fair value due to the relatively short period to maturity.

14. Use of Estimates

In preparing the Company’s financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

15. Concentration of Credit Risk

The Company maintains its cash balances in financial institutions, which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

16. Revenue Recognition

The Company’s revenue is generated from three sources:

• the supply of product, under non recurring agreements,

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

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

• the provision of support and maintenance services, under recurring or multi-year contractually based agreements.

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

The Company recognizes revenue from product sales at the time of shipment and passage of title. The Company offers customers the right to return products that do not function properly within a limited time after delivery. The Company continuously monitors and tracks such product 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 product failure rates and the resulting credit returns could have a material adverse impact on operating results for the period or periods in

10

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. 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 also recognizes revenue from the provision of ‘multiple element service agreements’, which involve both the supply of product and the provision of services over a multi-year arrangement. Accounting principles for agreements involving multiple elements require the Company to allocate earned revenue to each element based on the relative fair value of the elements. The arrangement fee for multiple-element arrangements is allocated to each element, such as design, product supply, product integration, installation, maintenance, support and warranty services, based on the relative fair values of the elements. The Company determines the fair value of each element in multi-element arrangements based on vendor-specific objective evidence (“VSOE”). VSOE for each element is based on the price charged when the same element is sold separately or could be purchased from an unrelated supplier. If evidence of fair value of all delivered elements exists but evidence does not exist for one or more undelivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered element is deferred and is recognized ratably over the contract term on an earned basis. Regarding the supply of product the Company maintains title to the product and transfers title at the completion of the contract term.

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

The Company recognizes revenue from the provision of its data transportation services when the Company 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.

17. Foreign Currency Transactions

Some transactions of the Company and its subsidiaries are made in British pounds sterling, Canadian dollars and Australian dollars. Gains and losses from these transactions are included in income as they occur.

18. Research and Development

Research and development expenses are charged to operations in the period in which they are incurred.

19. Provision for Warranty Claims

Estimated warranty expense is charged over the warranty period of the warranted products. Warranty expenses have not been significant to the Company.

20. Stock-Based Compensation

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

11

(In thousands except per share data)	For the three months ended March 31,
	2003			2002
Net earnings (loss) — as reported	$	(1,117	)	$	259
Net loss — pro forma		(1,436	)		(38	)
Earnings (loss) per share — as reported		(0.10	)		0.02
Loss per share — pro forma		(0.13	)		(0.04	)

21. Earnings (Loss) Per Share

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings Per Share, and SFAS No. 128, which supersedes APB No. 15, Earnings Per Share, requires a dual presentation of basic and diluted earnings per share as well as other disclosures. Basic earnings per share excludes the dilutive impact of common stock equivalents and is computed by dividing net earnings (loss) by the weighted average number of shares of common stock outstanding for the period.

Diluted earnings (loss) per share includes the effect of potential dilution from the exercise of outstanding common stock equivalents into common stock, using the treasury stock method at the average market price of the Company’s common stock for the period.

For the three-month period ended March 31, 2003, the Company’s potential common shares have an anti-dilutive effect on earnings (loss) per share and, therefore, have not been used in determining the total weighted average number of common shares outstanding. Potential common shares resulting from options and warrants that would be used to determine diluted earnings (loss) per share were 32,000 for the three-month period ended March 31, 2003.

22. Recent Accounting Pronouncements

In November 2002, the Financial Accounting Standards Board (“FASB”) issued EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This issue addresses how to account for arrangements that may involve the delivery or performance of multiple products, services, and/or rights to use assets. The final consensus of this issue is applicable to agreements entered into in fiscal periods beginning after June 15, 2003. Additionally, companies will be permitted to apply the consensus guidance in this issue to all existing arrangements as the cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, “Accounting Changes.” The company does not believe that adoption of this issue will have a material impact on its consolidated financial position, consolidated results of operations, or liquidity.

In December 2002, the FASB issued Statement No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (“SFAS 148”). SFAS 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. Additionally, SFAS 148 requires prominent disclosures about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. SFAS 148 also amends APB Opinion No. 28, “Interim Financial Reporting,” to require disclosures about such effects in interim financial information. The Company currently accounts for its stock-based compensation awards to employees and directors under the accounting prescribed by Accounting Principles Board Opinion No. 25 and provides the disclosures required by SFAS No. 123. The Company currently intends to continue to account for its stock-based compensation awards to employees and directors under the accounting prescribed by Accounting Principles Board Opinion No. 25. The Company adopted the additional disclosure provisions of SFAS 148 during 2002 (see Note B-20 Stock-Based Compensation).

23. Reclassification

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

NOTE C — INVESTMENTS

On March 28, 2003, the Company acquired Cingular’s interest in Cellemetry and the 625,000 shares of the Company’s stock owned by Cingular for $5 million. Under the terms of the agreement, the Company has agreed to pay Cingular $1.5 million by December 15, 2003, $2.0 million by March 31, 2004 and $1.5 million by December 15, 2004. The Company’s obligation is secured by a pledge of the stock of all the Company’s subsidiaries (except Digilog) and a lien on the assets of all the Company’s subsidiaries (except Digilog) and bears interest at a rate of eight percent (8%) per annum.

NOTE D — LIQUIDITY

In 2002, the Company used significant amounts of cash. The Company continues to add products and distribution channels for its products, but the Company’s long-term success will depend upon increased cash flow. In order to provide additional short-term liquidity to the Company, on March 28, 2003, Alethea Limited Partnership, an entity affiliated with the family of the Company’s chairman and CEO, agreed to provide to Digilog a one-year line of credit for $1 million. Under its terms, the line is secured by a pledge of the stock of Digilog and a lien on all the assets of Digilog. Interest on the line of credit is at a rate of ten percent (10%) per annum. There are no restrictions on the use of the line. The minimum amount of any draw under the line is $100,000. The Company guarantees the line of credit.

12

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

Critical Accounting Policies

For additional information regarding the Company’s critical accounting policies see Note B to the Consolidated Financial Statements included in Part 1, Item 1 above.

General

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

13

SELECTED CONSOLIDATED STATEMENTS OF OPERATIONS

					Three Month Period Ended
					March 31, (in thousands)
											%
					2003			2002			Change
Net sales:
	Wireless Data Communications
			Product		$	1,027		$	2,658			(61.4	%)
			Service			1,859			1,591			16.8	%
				Sub-total		2,886			4,249			(32.1	%)
	Digital Multimedia and Networking
			Product			504			2,199			(77.1	%)
			Service			1,042			437			138.4	%
				Sub-total		1,546			2,636			(41.4	%)
	Wireline Security
			Product			39			81			(51.9	%)
			Service			216			128			68.8	%
				Sub-total		255			209			22.0	%
	Total net sales
			Product			1,570			4,938			(68.2	%)
			Service			3,117			2,156			44.6	%
				Total net sales		4,687			7,094			(33.9	%)
Cost of sales						2,454			3,535			(30.6	%)
Depreciation and amortization						180			49			267.3	%
		Gross profit				2,053			3,510			(41.5	%)
				%		43.8	%		49.5	%
Selling, general, administrative and other expenses						2,387			2,456			(2.8	%)
Research and development expenses						298			602			(50.5	%)
Depreciation and amortization						489			518			(5.6	%)
	Operating loss					(1,121	)		(66	)		(1598.5	%)
	Net earnings (loss)					(1,117	)		259			531.3	%
	Net earnings (loss) applicable to common shareholders					(1,117	)		199			661.3	%
	Basic earnings (loss) per share					(0.10	)		0.02
	Weighted average shares outstanding					11,384			10,582

See notes to consolidated financial statements

14

					Three Month Period Ended
					March 31,
					2003			2002
Net sales:
	Wireless Data Communications
			Product			21.9	%		37.5	%
			Service			39.7	%		22.4	%
				Sub-total		61.6	%		59.9	%
	Digital Multimedia and Networking
			Product			10.8	%		31.0	%
			Service			22.2	%		6.2	%
				Sub-total		33.0	%		37.2	%
	Wireline Security
			Product			0.8	%		1.1	%
			Service			4.6	%		1.8	%
				Sub-total		5.4	%		2.9	%
	Total net sales
			Product			33.5	%		69.6	%
			Service			66.5	%		30.4	%
				Total net sales		100.0	%		100.0	%
Cost of sales						52.4	%		49.8	%
Depreciation and amortization						3.8	%		0.7	%
		Gross profit (loss)				43.8	%		49.5	%
Selling, general, administrative and other expenses						50.9	%		34.6	%
Research and development expenses						6.4	%		8.5	%
Depreciation and amortization						10.4	%		7.3	%
	Operating profit (loss)					(23.9	%)		(0.9	%)
	Net earnings (loss)					(23.8	%)		3.7	%
	Net earnings (loss) applicable to common shareholders					(23.8	%)		2.8	%

See notes to consolidated financial statements

15

Results of Operations

     Net sales decreased 33.9% to $4,687,000 for the three-month period ended March 31, 2003 as compared to $7,094,000 for the three-month period ended March 31, 2002. This decrease in total net sales was the result of a 68.2% decrease in total product net sales, partially offset by a 44.6% increase in total service net sales. As a percentage of total net sales, service revenues of the Company increased to 66.5% for the three-month period ended March 31, 2003 compared to 30.4% in the comparable period in 2002.

     Net sales from Wireless Data Communications decreased 32.1% to $2,886,000 for the three-month period ended March 31, 2003 as compared to $4,249,000 for the three-month period ended March 31, 2002 and as a percentage of the Company’s total net sales, Wireless Data Communications increased to 61.6% for the three-month period ended March 31, 2003 compared to 59.9% in the comparable period in 2002. This decrease in net sales was the result of a 61.4% decrease in product net sales, partially offset by a 16.8% increase in service net sales. The decrease in product sales was primarily the result of changes made to the Company’s distribution strategy for wireless mobile telemetry product lines, which resulted in a decline in unit sales while new markets are developed during 2003. The increase in service revenues was due to an increase in the number of connections on the Company’s Cellemetry® wireless network, primarily related to security monitoring, and an increase in digital subscribers utilizing the Company’s Data1Source™ mobile messaging service.

     Net sales from Digital Multimedia and Networking decreased 41.4% to $1,546,000 for the three-month period ended March 31, 2003 as compared to $2,636,000 for the three-month period ended March 31, 2002. This decrease in net sales was the result of a 77.1% decrease in product net sales, partially offset by a 138.4% increase in service net sales. The decrease in product sales was primarily due to a decrease in PowerPlay™ purchases by distance learning customers, while the increase in service revenues is attributable to support and maintenance agreements entered into the second half of 2002 with distance learning customers and an increase in system integrations and installations with telecommunication customers.

     Net sales from Wireline Security increased 22.0% to $ 255,000 for the three-month period ended March 31, 2003 as compared to $209,000 for the three-month period ended March 31, 2002. This increase was the result of a 68.8% increase in service revenues from support and maintenance agreements.

     Cost of sales decreased 30.6% to $2,454,000 for the three-month period ended March 31, 2003 as compared to $3,535,000 for the three-month period ended March 31, 2002. This decrease was primarily due to the lower product sales volume in both Wireless Data Communications and Digital Multimedia and Networking.

     Cost of sales depreciation and amortization expense increased 267.3% to $180,000 for the three-month period ended March 31, 2003 as compared to $49,000 for the three-month period ended March 31, 2002. This increase was primarily due to equipment purchases, the addition of a license agreement and the capitalization internally developed software in 2002.

     Gross profit, as a percentage of net sales, was 43.8% for the three-month period ended March 31, 2003 as compared to 49.5% for the three-month period ended March 31, 2002. The reason for the decrease in the gross profit rate for the period was primarily due to the decreases in product sales, partially offset by the increase in service revenues.

     Selling, general, administrative and other expenses decreased 2.8% to $2,387,000 for the three-month period ended March 31, 2003 as compared to $2,456,000 for the three-month period ended March 31, 2002. The primary reason for the decrease in expenses for the period was due to a decrease in marketing and personnel costs, partially offset by an increase in insurance costs and in allowances for doubtful accounts.

     Research and development expenses decreased 50.5% to $298,000 for the three-month period ended March 31, 2003 as compared to $602,000 for the three-month period ended March 31, 2002. The primary reasons for the decrease in research and development expenses was a reduced requirement for development efforts during the period for the Company’s products and services and, to a lesser extent, due to the capitalization of development costs.

     Operating expense depreciation and amortization expense decreased 5.6% to $489,000 for the three-month period ended March 31, 2003 as compared to $518,000 for the three-month period ended March 31, 2002.

     Interest and other income for the three-month period ended March 31, 2003 was $23,000 compared to $(1,000) for the three-month period ended March 31, 2002. This increase in net interest and other income was primarily the result of foreign currency gains, partially offset by a decrease in income earned on cash balances and an increase in interest expense from capital leases established during 2002.

     Minority interest for the three-month period ended March 31, 2003 was $0 compared to $326,000 for the three-month period ended March 31, 2002. The principle reason for the decrease in minority interest was the depletion

16

of minority interest on the Company’s balance sheet related to a joint venture.

     Due to the loss position in the current period and due to a net operating loss carryforward in the comparable period last year, the Company did not record federal tax provisions. The $19,000 in income tax expense recorded during the period related the Company’s operations in Australia.

     The Company recorded a net loss of $1,117,000 for the three-month period ended March 31, 2003 compared to net earnings of $259,000 for the three-month period ended March 31, 2002.

     Preferred stock dividend cost for the three-month period ended March 31, 2003 was $0 as compared to $60,000 for the three-month period ended March 31, 2002. This decrease was due to the conversion of the preferred stock to the Company’s common stock in December 2002.

     The Company recorded a net loss applicable to common shareholders of $1,117,000 for the three-month period ended March 31, 2003 compared to net earnings applicable to common shareholders of $199,000 for the three-month period ended March 31, 2002.

     Basic and diluted earnings (loss) per common share decreased to $(0.10) for three-month period ended March 31, 2003 as compared to $.02 for the three-month period ended March 31, 2002.

     The weighted average and diluted shares outstanding increased to 11,384,000 for the three-month period ended March 31, 2003 as compared to 10,582,000 and 11,512,000 for the three-month period ended March 31, 2002. The increase in weighted average basic shares outstanding was primarily due to the conversion of preferred stock to 625,000 shares of the Company’s common stock in December 2002 and the exercise of stock options. The 625,000 shares of common stock were repurchased on March 28, 2003 (see explanation under Liquidity and Capital Resources).

Liquidity and Capital Resources

     The Company has been able to fund its operations and working capital requirements from cash flow generated by operations, the proceeds from a public offering completed in April 1995, the proceeds from the sale of its derived channel technology in November 1999, the proceeds from capital leases, and the proceeds from the exercise of stock options.

     Net cash used in operating activities decreased to $168,000 for the three-month period ended March 31, 2003 as compared to $2,320,000 for the three-month period ended March 31, 2002. The decrease in cash used in operating activities was primarily due to changes in assets and liabilities which provided cash of $130,000 in the current period and compared to a use of cash of $2,816,000 in the comparable period last year.

     Net cash used in investing activities increased to $694,000 for the three-month period ended March 31, 2003 as compared to $288,000 for the three-month period ended March 31, 2002. This increase in cash used in investing activities was primarily due to payments related to a license agreement entered into for the Company’s derived channel business in Australia and other territories.

     Net cash used by financing activities was $569,000 for the three-month period ended March 31, 2003 as compared net cash provided by financing activities of $1,436,000 for the three-month period ended March 31, 2002. The cash usage during the current period was primarily due to the payments of preferred stock dividends and payments on capital lease obligations, while the sources of cash during the comparable period last year were from the exercise of stock options, which resulted in the issuance of an additional 178,481 shares of the Company’s Class A Common Stock, and from the proceeds of capital lease obligations established during the period.

     The Company had working capital balances, including cash balances, of $214,000 and $4,951,000, respectively, as of March 31, 2003 and December 31, 2002. Included in these working capital balances were notes receivable with certain customers of $590,000 and $823,000, respectively, as of March 31, 2003 and December 31, 2002. The Company had cash balances of $700,000 and $2,137,000, respectively, as of March 31, 2003 and December 31, 2002. The majority of the reduction in working capital was due to the establishment of a note payable, $3,500,000 of which is current, in connection with the Company’s acquisition of Cingular’s interest in Cellemetry and Cingular’s common stock of the Company (see explanation of the transaction below). In order to provide additional short-term liquidity to the Company, on March 28, 2003, Alethea Limited Partnership, an entity affiliated with the family of the Company’s chairman and CEO, agreed to provide to Digilog a one-year line of credit for $1 million. Under its terms, the line is secured by a pledge of the stock of Digilog and a lien on all the assets of Digilog. Interest on the line of credit is at a rate of ten percent (10%) per annum. There are no restrictions on the use of the line. The minimum amount of any draw under the line is $100,000. The Company guarantees the line of credit.

     The Company’s business has traditionally not been capital intensive and, accordingly, capital expenditures have not been material. To date, the Company has funded all capital expenditures from working capital, capital lease and other long-term obligations, proceeds from the public offering and the proceeds from the sale of its derived

17

channel technology in November 1999.

     On March 28, 2003, the Company acquired Cingular’s interest in Cellemetry and the 625,000 shares of the Company’s stock owned by Cingular for $5 million (the “Cellemetry Transaction”). Under the terms of the agreement, the Company has agreed to pay Cingular $1.5 million by December 15, 2003, $2.0 million by March 31, 2004 and $1.5 million by December 15, 2004. The Company’s obligation is secured by a pledge of the stock of all Company’s subsidiaries (except Digilog) and a lien on the assets of all the Company’s subsidiaries (except Digilog) and bears interest at a rate of eight percent (8%) per annum.

     The Company intends to fund the Cellemetry Transaction through a combination of operating cash flow, cash on hand, and additional funding sources. Such additional funding sources could include the public or private sale of securities or proceeds from the sale of assets. If the Company is successful in raising additional funds through the issuance of equity securities, stockholders may experience dilution, or the equity securities may have rights, preferences or privileges senior to those of the common stock holders. If the Company raises funds through the issuance of debt securities, those securities would have rights, preferences and privileges senior to those of the common stock holders. There can be no assurance, however, that additional funding will be available on terms favorable to the Company or at all or that the Company will raise significant or sufficient proceeds from the sale of assets.

     The Company’s operations used significant amounts of cash in 2002. The Company continues to add products and distribution channels for its products, but the Company’s longer-term success will depend upon increased cash flow. The Company believes that the additional funding provided by establishment of the March 28, 2003 $1 million line of credit, along with existing resources and cash generated from future operations, will be sufficient to meet the Company’s operating requirements through at least December 31, 2003, assuming no material adverse change in the operation of the Company’s business. The Company is also considering other sources of funding, including the sale of certain non-core assets.

     Additionally, cash requirements for future expansion of the Company’s operations will be evaluated on an as-needed basis and may involve additional external financing. The Company does not expect that such additional financing, should it occur, will have a materially negative impact on the Company’s ability to fund its existing operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risks.

     At March 31, 2003 the Company was not invested in any material balances of market risk sensitive instruments held for either trading purposes or for purposes other than trading. As a result, the Company is not subject to interest rate risk, foreign currency rate risk, commodity price risk, or other relevant market risks, such as equity price risk, other than risks created in the ordinary course of business through its operations.

     The Company invests cash balances in excess of operating requirements. At March 31, 2003 the Company has obligations under a note payable and under capital leases, of which both have fixed interest rates. The Company believes that the effect, if any, of reasonably possible near-term changes in interest rates or foreign currency exchange rates on the Company’s financial position, results of operations and cash flows should not be material.

Item 4. Disclosure Controls and Procedures.

     Under the supervision and with the participation of the Company’s Chairman and Chief Executive Officer, and Executive Vice President, Chief Financial Officer and Principal Financial and Accounting Officer (its principal executive officer and principal financial officer), management has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures within 90 days of the filing date of this quarterly report. Based on that evaluation, the Chairman and Chief Executive Officer, and Executive Vice President, Chief Financial Officer and Principal Financial and Accounting Officer have concluded that these disclosure controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

18

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company is involved in routine legal proceedings in the normal course of its business. The Company believes that no currently pending legal proceedings will have a materially adverse effect on its business, its financial condition, or its results of operations.

Item 2. Changes in Securities and Use of Proceeds.

None — not applicable.

Item 3. Defaults Upon Senior Securities.

None — not applicable.

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

None — not applicable.

Item 5. Other Information.

None — not applicable.

Item 6. Exhibits and Reports of Form 8-K.

a.	Exhibits
		Exhibit 99.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		Exhibit 99.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

      b.          Reports on Form 8-K during the quarter ended March 31, 2003.

                                                                          None – not applicable.

19

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		NUMEREX CORP. (Registrant)
Date:	May 15, 2003		/s/ Stratton J. Nicolaides STRATTON J. NICOLAIDES Chairman and Chief Executive Officer
Date:	May 15, 2003		/s/ Kenneth W. Taylor KENNETH W. TAYLOR Chief Financial Officer, Executive Vice President, and Principal Financial and Accounting Officer

20

Certifications

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 quarterly 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 quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003 /s/ Stratton J. Nicolaides
Stratton J. Nicolaides
Chief Executive Officer and
Chairman

21

I, Kenneth W. Taylor, certify that:

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

2.     Based on my knowledge, this quarterly 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 quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures 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 quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

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

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: May 15, 2003 /s/ Kenneth W. Taylor
Kenneth W. Taylor
Chief Financial Officer,
Executive Vice President, and
Principal Financial and Accounting Officer

22