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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
September 30, 2002 0-22920
NUMEREX CORP.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 11-2948749
- ----------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 Parkwood Circle, Suite 200
Atlanta, Georgia 30339-2119
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(Address of principal executive offices)
(770) 693-5950
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(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 [ ]
As of November 7, 2002, an aggregate of 10,775,548 shares of the registrant's
Class A Common Stock, no par value (being the registrant's only class of common
stock outstanding), were outstanding.
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NUMEREX CORP. AND SUBSIDIARIES
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001 4
Condensed Consolidated Statements of Operations and Comprehensive Income (unaudited) for
the three-month and nine-month periods ended September 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine-month periods
ended September 30, 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risks 21
Item 4. Disclosure Controls and Procedures 21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature Page 23
Certifications 24
Exhibits
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Forward-looking Statements
This document contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements include, among other things, statements
regarding trends, strategies, plans, beliefs, intentions, expectations, goals
and opportunities. Forward-looking statements are typically identified by words
or phrases such as "believe," "expect," "anticipate," "intend," "estimate,"
"assume," "strategy," "plan," "outlook," "outcome," "continue," "remain,"
"trend," and variations of such words and similar expressions, or future or
conditional verbs such as "will," "would," "should," "could," "may," or similar
expressions. All statements and information herein and incorporated by
reference herein, other than statements of historical fact, are forward-looking
statements that are based upon a number of assumptions concerning future
conditions that ultimately may prove to be inaccurate. Many phases of the
Company's operations are subject to influences outside its control. The Company
cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, which change over time. These
forward-looking statements speak only as of the date of this report, and the
Company assumes no duty to update forward-looking statements. Actual results
could differ materially from those anticipated in these forward-looking
statements and future results could differ materially from historical
performance.
Any one or any combination of factors could have a material adverse effect on
the Company's results of operations or could cause actual results to differ
materially from forward-looking statements or historical performance. These
factors include: 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; 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.
-3-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NUMEREX CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30,
2002 DECEMBER 31,
(UNAUDITED) 2001
------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,477 $ 5,401
Accounts receivable, net 7,427 7,974
Inventory 5,321 5,077
Prepaid taxes 12 48
Prepaid expenses and other current assets 1,153 1,045
-------- --------
TOTAL CURRENT ASSETS 16,390 19,545
PROPERTY AND EQUIPMENT, NET 2,705 3,107
GOODWILL, NET 10,983 10,983
OTHER INTANGIBLES, NET 8,298 8,812
SOFTWARE, NET 1,963 410
OTHER ASSETS 307 117
-------- --------
TOTAL ASSETS $ 40,646 $ 42,974
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,905 $ 6,652
Income taxes 0 0
Other current liabilities 1,936 758
Deferred revenues 665 658
Obligations under capital leases, current portion 641 145
-------- --------
TOTAL CURRENT LIABILITIES 8,147 8,213
LONG TERM LIABILITIES
Obligations under capital leases and other long term liabilities 1,105 327
-------- --------
MINORITY INTEREST 0 326
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock - no par value; authorized 3,000,000; issued 30,000 on
September 30, 2002 and December 31, 2001 3,000 3,000
Class A common stock - no par value; authorized 30,000,000; issued
12,541,948 on September 30, 2002 and 12,286,419 on December 31, 2001 33,763 32,590
Additional paid-in-capital 439 439
Treasury stock, at cost, 1,766,400 shares on September 30, 2002 and
December 31, 2001 (9,222) (9,222)
Class B common stock - no par value; authorized 5,000,000; none issued 0 0
Accumulated other comprehensive income
(13) (27)
Retained earnings 3,427 7,328
-------- --------
31,394 34,108
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 40,646 $ 42,974
======== ========
See accompanying notes to condensed consolidated financial statements
-4-
NUMEREX CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(IN THOUSANDS , EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTH FOR THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, PERIOD ENDED SEPTEMBER 30,
2002 2001 2002 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
Net sales $ 6,038 $ 6,245 $ 20,640 $ 17,637
Cost of sales 3,761 3,928 10,865 10,972
Depreciation and amortization 105 64 207 209
-------- -------- -------- --------
Gross Profit 2,172 2,253 9,568 6,456
Research and development expenses (63) 584 728 2,117
Selling, general, administrative and other
expenses 3,805 2,549 9,212 8,152
Depreciation and amortization 552 689 1,620 2,032
Costs related to non-recurring acquisition
activity 185 0 1,899 0
Business restructuring charges 0 0 0 609
-------- -------- -------- --------
Operating loss (2,307) (1,569) (3,891) (6,454)
Interest and other income (expense), net (14) 234 (70) 893
Minority interest 0 714 326 2,463
-------- -------- -------- --------
Earnings (loss) before income taxes (2,321) (621) (3,635) (3,098)
Income Taxes 17 0 86 (115)
-------- -------- -------- --------
Net earnings (loss) (2,338) (621) (3,721) (2,983)
Preferred stock dividend 60 60 180 180
-------- -------- -------- --------
Net earnings (loss) applicable to
common shareholders (2,398) (681) (3,901) (3,163)
======== ======== ======== ========
Other comprehensive income (loss),
net of income taxes
Foreign currency translation adjustment (1) 7 14 0
======== ======== ======== ========
Comprehensive earnings (loss) $ (2,399) $ (674) $ (3,887) $ (3,163)
======== ======== ======== ========
Basic earnings (loss) per common share $ (0.22) $ (0.06) $ (0.36) $ (0.30)
======== ======== ======== ========
Diluted earnings (loss) per common share (0.22) (0.06) (0.36) (0.30)
======== ======== ======== ========
Number of shares used in per share
calculation
Basic 10,773 10,481 10,696 10,423
======== ======== ======== ========
Diluted 10,773 10,481 10,696 10,423
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements
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NUMEREX CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTH
PERIOD ENDED SEPTEMBER 30,
2002 2001
(UNAUDITED) (UNAUDITED)
----------- -----------
Cash flows from operating activities:
Net earnings (loss) $ (3,721) $(2,983)
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,827 2,241
Business restructuring charges 0 191
Minority interest (326) (2,463)
Changes in assets and liabilities which provided (used) cash:
Accounts receivable 547 (301)
Inventory (244) (194)
Prepaid expenses and interest receivable (108) (507)
Accounts payable (1,753) 107
Income taxes 36 (7)
Other assets and liabilities 1,005 665
-------- -------
Net cash provided by (used in) operating activities (2,737) (3,251)
-------- -------
Cash flows from investing activities
Purchase of property and equipment (577) (330)
Purchase of intangible and other assets (1,885) (201)
Long term receivables and deposits (190) 0
Investment in business 0 (789)
-------- -------
Net cash provided by (used in) investing activities (2,652) (1,320)
-------- -------
Cash flows from financing activities
Proceeds from exercise of stock options 1,173 294
Proceeds net of payments from capital lease obligations and other long
term liabilities 1,278 (209)
-------- -------
Net cash provided by (used in) financing activities 2,451 85
-------- -------
Effect of foreign exchange differences on cash 14 (18)
-------- -------
Net increase (decrease) in cash and cash equivalents
(2,924) (4,504)
Cash and cash equivalents, beginning of period 5,401 10,567
-------- -------
Cash and cash equivalents, end of period $ 2,477 $ 6,063
======== =======
See accompanying notes to condensed consolidated financial statements
-6-
NUMEREX CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. 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 and nine-month periods ended September
30, 2002 may not be indicative of the results that may be expected for the year
ending December 31, 2002. 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, 2001 and the consolidated financial statements contained
therein.
2.0 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
2.1. NATURE OF BUSINESS
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(R) and Data1Source(TM), and
digital multimedia networking through PowerPlay(TM). 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.
2.2. 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.
2.3. 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 September 30, 2002, cash and cash equivalents include
$667,000 restricted cash to support letters of credits.
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2.4. INTANGIBLE ASSETS
Amortization is provided on all intangible assets at rates calculated to write
off the cost of each over its expected life as follows:
- Patents and acquired intellectual property - straight-line
over 7 to 16 years
- Developed software - straight-line over 3 to 7 years
- Goodwill - for the three and nine month periods ending
September 30, 2001 - straight-line over 12 to 20 years.
Goodwill represents the excess of the cost of net assets acquired over fair
value. Starting January 1, 2002 goodwill is no longer amortized (see Note 7).
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.
2.5. 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
2.6. 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 nine months ended September 30, 2002, and 2001
respectively.
2.7. 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-
2.8. INVENTORY
Inventory and work-in progress are stated at the lower of cost (first-in,
first-out method) or market.
2.9. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company maintains an allowance for doubtful accounts based upon the
expected collectibility of the accounts receivable. When amounts are determined
to be uncollectible, they will be charged to operations.
2.10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable and
accounts payable. The carrying value of the financial instruments approximates
fair value due to the relatively short period to maturity.
2.11. 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.
2.12. 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.
2.13. 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.
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 which such returns
materialize.
-9-
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.
2.14. 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.
2.15. RESEARCH AND DEVELOPMENT
Research and development expenses are charged to operations in the period in
which they are incurred.
2.16. 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.
-10-
2.17. STOCK-BASED COMPENSATION
Effective November 1, 1996, the Company adopted the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does not
require, companies to record compensation cost for stock-based compensation
plans at fair value. The Company has elected to continue to account for
stock-based compensation in accordance with Accounting Principles Board ("APB")
Opinion No. 25, Accounting For Stock Issued to Employees, and related
interpretations, as permitted by SFAS 123. Compensation expense for stock
options is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay
to acquire the stock (see Note 5).
3. RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
period presentation.
4. INVENTORY
($'000's omitted) September 30, 2002 December 31, 2001
------------------ -----------------
Raw materials $1,619 $2,404
Work-in-progress 15 186
Finished goods 3,687 2,487
------ ------
$5,321 $5,077
====== ======
5. SHAREHOLDERS' EQUITY
Shareholders' Equity decreased by $2,354,000 in the three-month period ending
September 30, 2002. The decrease in Shareholders' Equity is attributable to the
net loss recorded of $2,398,000 and a foreign currency translation loss of
$1,000 offset by the receipt of $45,000 following the issue of 11,751 shares of
Class A Common Stock of the Company resulting from (i) an election under the
Directors' Stock Plan and (ii) the exercise of stock options under the 1999
Long-Term Incentive Plan.
In the nine-month period ended September 30, 2002 Shareholder's Equity
decreased by $2,714,000. The decrease in Shareholders' Equity is attributable
to the net loss recorded of $3,901,000, offset by the receipt of $1,173,000
following the issue of 255,929 shares of Class A Common Stock of the Company
resulting from (i) an election under the Directors' Stock Plan and (ii) the
exercise of stock options under the 1999 Long-Term Incentive Plan and foreign
currency translation gain of $14,000.
6. EARNINGS (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share, which supercedes APB Opinion No. 15, Earnings Per Share.
SFAS No. 128 requires dual presentation of basic and diluted earnings per share
as well as other disclosures. Basic earnings per share excludes the dilutive
impact of
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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 months and nine months ended September 30, 2002 and September 30,
2001, 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, warrants and convertible preferred that would be
used to determine diluted earning (loss) per share were 726,116 and 861,156 for
the three months and nine months ended September 30, 2002 and 2001,
respectively.
7. GOODWILL AND INTANGIBLES
In July 2001, the FASB issued SFAS 141, Business Combinations, and SFAS 142,
Goodwill and Intangible Assets. SFAS 141 is effective for all business
combinations completed after September 30, 2001. SFAS 142 is effective for
fiscal years beginning after December 15, 2001; however, certain provisions of
the statement apply to goodwill and other intangible assets acquired between
July 1, 2001, and the effective date of SFAS 142. Major provisions of these
statements and their effective dates for the Company are as follows:
- all business combinations initiated after September 30, 2001,
must use the purchase method of accounting. The pooling of
interest method of accounting is prohibited except for
transactions initiated before July 1, 2001.
- intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the
acquired entity and can be sold, transferred, licensed,
rented or exchanged, either individually or as part of a
related contract, asset or liability.
- goodwill, as well as intangible assets with indefinite lives,
acquired after September 30, 2001, will not be amortized.
Effective January 1, 2002, all previously recognized goodwill
and intangible assets with indefinite lives will no longer be
subject to amortization.
- effective January 1, 2002, goodwill and intangible assets
with indefinite lives will be tested for impairment annually
and whenever there is an impairment indicator.
- all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting.
The Company continued to amortize goodwill and intangible assets recognized
prior to July 1, 2001, under its current method until January 1, 2002, at which
time annual and quarterly goodwill amortization of $767,983 and $191,996 no
longer is recognized. As of September 30, 2002, management does not believe
there is impairment of goodwill or other intangible assets with indefinite
lives. By December 31, 2002, the Company will have completed a transitional
fair value based impairment test of goodwill as of January 1, 2002. By December
31,
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2002, the Company will have completed a transitional impairment test of all
intangible assets with indefinite lives.
8. COST RELATED TO NON-RECURRING ACQUISITION ACTIVITY
In the three-month period and nine-month period ended September 30, 2002, the
Company expensed $185,000 and $1,899,000 respectively of costs relating to a
potential business acquisition. These costs were primarily legal and accounting
services incurred during due diligence. During the three-month period ended
June 30, 2002, management determined that consummation of the business
acquisition was unlikely; as a result, the costs previously capitalized up to
June 30, 2002 were expensed.
Portions of these costs were deferred in prior periods, $727,000 was deferred
during the three-month period ended March 31, 2002 and $172,000 was deferred in
the year ended December 31, 2001. Costs of $815,000 were incurred and expensed
in the three-month period ended June 30, 2002 and $185,000 expensed in the
three-month period ended September 30, 2002.
9. BUSINESS RESTRUCTURING CHARGES
Business restructuring charges amounted to $609,000 in the nine-month period
ended September 30, 2001 and were comprised of a charge of $418,000 to cover
employee separation costs and a one-time non-cash charge of $191,000 to cover
the write down of excess and obsolete Digital Multimedia analog product
inventory.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145. This Statement rescinds FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an
amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB
Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This
Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The Company does not believe SFAS 145 will have a material effect
on its financial statements.
In September 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal. SFAS No. 146 eliminates the definition and
requirements for recognition of exit costs in EITF Issue No. 94-3. SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not
believe SFAS 146 will have a material effect on its financial statements.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CRITICAL ACCOUNTING POLICIES
For additional information regarding the Company's critical accounting policies
see Note 2 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.
-14-
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
% %
2002 2001 CHANGE 2002 2001 CHANGE
-------- -------- ------ -------- -------- ------
Net sales:
Wireless Data Communications
Product $ 2,215 $ 2,053 7.9% $ 7,086 $ 4,663 52.0%
Service 1,539 1,165 32.1% 5,434 3,309 64.2%
-------- -------- ----- -------- -------- -----
Sub-total 3,754 3,218 16.7% 12,520 7,972 57.0%
Digital Multimedia and Networking
Product 952 2,007 (52.6)% 4,919 6,936 (29.1)%
Service 1,086 852 27.5% 2,490 2,148 15.9%
-------- -------- ----- -------- -------- -----
Sub-total 2,038 2,859 (28.7)% 7,409 9,084 (18.4)%
Wireline Security
Product 58 22 163.6% 187 220 (15.0)%
Service 188 146 28.8% 524 361 45.2%
-------- -------- ----- -------- -------- -----
Sub-total 246 168 46.4% 711 581 22.4%
Total net sales
Product 3,225 4,082 (21.0)% 12,192 11,819 3.2%
Service 2,813 2,163 30.1% 8,448 5,818 45.2%
-------- -------- ----- -------- -------- -----
Total net sales 6,038 6,245 (3.3)% 20,640 17,637 17.0%
Cost of sales 3,761 3,928 (4.3)% 10,865 10,972 (1.0)%
Depreciation and amortization 105 64 64.1% 207 209 (1.0)%
-------- -------- ----- -------- -------- -----
Gross profit (loss) 2,172 2,253 (3.6)% 9,568 6,456 48.2%
% 36.0% 36.1% 46.4% 36.6%
Research and development expenses (63) 584 (110.8)% 728 2,117 (65.6)%
Selling, general, administrative and
other expenses 3,805 2,549 49.3% 9,212 8,152 13.0%
Depreciation and amortization 552 689 (19.9)% 1,620 2,032 (20.3)%
Costs related to non-recurring
acquisition activity 185 0 100.0% 1,899 0 100.0%
Business restructuring charges 0 0 0.0% 0 609 (100.0)%
-------- -------- ----- -------- -------- -----
Operating profit (loss) (2,307) (1,569) (47.0)% (3,891) (6,454) 39.7%
======== ======== ===== ======== ======== =====
Net earnings (loss) (2,338) (621) (276.5)% (3,721) (2,983) (24.7)%
======== ======== ===== ======== ======== =====
Net earnings (loss) applicable to
common shareholders (2,398) (681) (252.1)% (3,901) (3,163) (23.3)%
======== ======== ===== ======== ======== =====
Net earnings (loss) applicable to
common shareholders excluding
non-recurring expenses (2,213) (681) (225.0)% (2,002) (2,554) 21.6%
======== ======== ===== ======== ======== =====
Basic earnings per share (0.22) (0.06) (0.36) (0.30)
======== ======== ======== ========
Basic earnings per share excluding
non-recurring expenses (0.21) (0.06) (0.19) (0.25)
======== ======== ======== ========
Weighted average shares outstanding 10,773 10,481 10,696 10,423
======== ======== ======== ========
-15-
THREE MONTH NINE MONT
PERIOD ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
2002 2001 2002 2001
----- ----- ----- -----
Net sales:
Wireless Data Communications
Product 36.7% 32.9% 34.3% 26.4%
Service 25.5% 18.7% 26.3% 18.8%
----- ----- ----- -----
Sub-total 62.2% 51.5% 60.7% 45.2%
Digital Multimedia and Networking
Product 15.8% 32.1% 23.8% 39.3%
Service 18.0% 13.6% 12.1% 12.2%
----- ----- ----- -----
Sub-total 33.8% 45.8% 35.9% 51.5%
Wireline Security
Product 1.0% 0.4% 0.9% 1.2%
Service 3.1% 2.3% 2.5% 2.0%
----- ----- ----- -----
Sub-total 4.1% 2.7% 3.4% 3.3%
Total net sales
Product 53.4% 65.4% 59.1% 67.0%
Service 46.6% 34.6% 40.9% 33.0%
----- ----- ----- -----
Total net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 62.3% 62.9% 52.6% 62.2%
Depreciation and amortization 1.7% 1.0% 1.0% 1.2%
----- ----- ----- -----
Gross profit (loss) 36.0% 36.1% 46.4% 36.6%
Research and development expenses (1.0)% 9.4% 3.5% 12.0%
Selling, general, administrative and
other expenses 63.0% 40.8% 44.6% 46.2%
Depreciation and amortization 9.1% 11.0% 7.8% 11.5%
Costs related to non-recurring
acquisition activity 3.1% 0.0% 9.2% 0.0%
Business restructuring charges 0.0% 0.0% 0.0% 3.5%
----- ----- ----- -----
Operating profit (loss) (38.2)% (25.1)% (18.9%) (36.6)%
===== ===== ===== =====
Net earnings (loss) (38.7)% (9.9%) (18.0)% (16.9)%
===== ===== ===== =====
Net earnings (loss) applicable to
common shareholders (39.7)% (10.9%) (18.9)% (17.9)%
===== ===== ===== =====
Net earnings (loss) applicable to
common shareholders excluding
non-recurring expenses (36.7)% (10.9%) (9.7)% (14.5)%
===== ===== ===== =====
-16-
RESULTS OF OPERATIONS
Net sales decreased 3.3% to $6,038,000 for the three-month period ended
September 30, 2002 as compared to $6,245,000 in the comparable period in 2001.
In the nine-month period ended September 30, 2002 net sales increased 17.0% to
$20,640,000 as compared to $17,637,000 in the comparable period in 2001. Net
sales from Wireless Data Communications increased 16.7% to $3,754,000 for the
three-month period ended September 30, 2002 as compared to $3,218,000 in the
comparable period in 2001. In the nine-month period ended September 30, 2002,
net sales from Wireless Data Communication increased 57.0% to $12,520,000 as
compared to $7,972,000 in the comparable period in 2001. These increases in net
sales were offset by a decrease in net sales from Digital Multimedia and
Networking of 28.7% to $2,038,000 for the three-month period ended September
30, 2002 as compared to $2,859,000 in the comparable period in 2001 and 18.4%
to $7,409,000 for the first nine months of the year compared to $9,804,000 in
the comparable period in 2001. As a percentage of total net sales, Wireless
Data Communications increased to 62.2% for the three-month period ended
September 30, 2002 compared to 51.5% in the comparable period in 2001 and to
60.7% for the first nine months of this year compared to 45.2% for the first
nine months of last year.
The Wireless Data Communications net sales increases were primarily due to
higher product sales of fixed wireless devices, the introduction of a mobile
wireless device in the beginning of 2002 and higher services revenues from
increased network connections and mobile message services, with both new and
existing customers. The decrease in Digital Multimedia and Networking net sales
was due to lower product sales due to decreases in capital spending in the
telecommunication industry and with distant learning customers, partially
offset by an increase in service revenues from system integrations and network
monitoring. Net sales of Wireline Security for both periods reported for this
year were slightly higher than those of the prior year.
Gross profit, as a percentage of net sales, was 36.0% in the three-month period
ended September 30, 2002 as compared to 36.1% for the comparable period in
2001. In the nine-month period ended September 30, 2002 gross profit as a
percentage of sales increased to 46.4% as compared to 36.6% in the comparable
period in 2001. While the gross profit rate for the third quarter was
comparable to the same period in the prior year, it was lower than the gross
profit rate for the first six months of the year primarily due to the
repossession of customer product during the quarter, along with lower Wireless
Data Communications and Digital Multimedia and Networking sales volume during
the three months. The reason for the increase in the gross profit rate for the
year to date was primarily attributable to the higher product and service sales
activities of Wireless Data Communications, lower product costs due to the
redesign of certain wireless devices, the introduction of a mobile wireless
product, and to a lesser extent, higher gross profit service sales activity in
Digital Multimedia and Networking.
Research and development expenses decreased 110.8% to $(63,000) in the
three-month period ended September 30, 2002 as compared to $584,000 for the
comparable period in 2001. In the nine-month period ended September 30, 2002
research and development expenses decreased 65.6% to $728,000 as compared to
$2,117,000 in the comparable period in 2001. The principal reasons for the
decrease in research and development expenses for both periods was a reduced
requirement for development efforts in 2002 and the capitalization of
development costs of $208,000 in the third quarter and $774,000 in the first
nine months of this year for new products that reached technical feasibility
and for internal use software developed during these periods. In addition,
$332,000 of expenses reported as research and development expenses in the first
six months of this year were reclassified to selling, general and
administrative expenses in the third quarter.
Selling, general, administrative and other expenses increased 49.3% to
$3,805,000 in the three-month period ended September 30, 2002 as compared to
$2,549,000 for the comparable period in 2001. In the nine-month period ended
September 30, 2002 selling, general, administrative and other expenses
increased 13.0% to $9,212,000 as compared to $8,152,000 in the comparable
period in 2001. As a percentage of sales, selling, general, administrative and
other expenses increased to 63.0% for the third quarter of this year compared
to
-17-
40.8% for the third quarter of last year and to 44.6% for the first nine months
of this year compared to 46.2% for the first nine months of last year. The
primary reason for the increase for was $655,000 in bad debt expense related to
a write-off for customer product repossessed and an increase in allowances for
doubtful accounts. The remainder of the increase was due to the
reclassification of $332,000 of expenses reported as research and development
expense if the first six months of this year, as described above.
Depreciation and amortization expense decreased 19.9% to $552,000 for the
three-month period ended September 30, 2002 compared to $689,000 for the
comparable period of 2001. In the nine-month period ended September 30, 2002
depreciation and amortization expenses decreased 20.3% to $1,620,000 as
compared to $2,032,000 in the comparable period in 2001. The principal reason
for the decrease is due to the reduction in goodwill amortization expense
resulting from the implementation of SFAS 142 on January 1, 2002.
Costs of non-recurring acquisition activity were $185,000 for the three-month
period ended September 30, 2002 and $1,899,000 for the nine-month period ended
September 30, 2002. This write-off was the result of the Company reaching an
impasse in the second quarter in its negotiations with BT Group plc to acquire
their RedCARE division, its security products and service business. These costs
were primarily related to legal and accounting expenses incurred during
diligence and negotiations.
Business restructuring charges amounted to $609,000 in the nine-month period
ended September 30, 2001 and related to a charge of $418,000 to cover employee
separation costs and a one-time non-cash charge of $191,000 to cover the write
down of excess and obsolete Digital Multimedia analog product inventory.
Interest and other income for the three-month period ended September 30, 2002
was $(14,000) compared to $234,000 in the comparable period in 2001. In the
nine-month period ended September 30, 2002 interest and other income was
$(70,000) as compared to $893,000 in the comparable period in 2001. These
decreases in interest and other income were primarily the result of a decrease
in income earned on cash balances and an increase in interest expense from
capital leases.
Minority interest in the three-month period ended September 30, 2002 was $0 as
compared to $714,000 in the comparable period in 2001. In the nine-month period
ended September 30, 2002 minority interest was $326,000 as compared to
$2,463,000 in the comparable period in 2001. The principle reason for the
decrease in Minority interest is the depletion of Minority Interest on the
Company's balance sheet.
The Company, due to the loss position from operations, did not record a tax
provision in the three-month and nine-month periods ended September 30, 2002
and 2001, respectively. The $86,000 in income tax recorded during the
nine-month period ended September 30, 2002 relates principally to an income tax
withholding on an international product and service sale. A provision for the
recovery of income tax of $115,000 was recorded in the nine-month period ended
September 30, 2001 following the completion and submittal of the Company's
federal income tax returns in connection with an assessed over payment of
federal income tax installments in connection with the sale of the Company's
Derived Channel technology.
The Company recorded a net loss of $2,338,000 in the three-month period ended
September 30, 2002 as compared to net loss of $621,000 in the comparable period
in 2001. In the nine-month period ended September 30, 2002 the Company recorded
a net loss of $3,721,000 as compared to a net loss $2,983,000 in the comparable
period in 2001.
The Company recorded a net loss applicable to common shareholders of $2,398,000
in the three-month period ended September 30, 2002 as compared to net loss
applicable to common shareholders of $681,000 in the comparable period in 2001.
In the nine-month period ended September 30, 2002 the Company recorded a net
loss applicable to common shareholders of $3,901,000 as compared to a net loss
applicable to common shareholders of $3,163,000 in the comparable period in
2001.
-18-
Excluding the $185,000 in cost related to non-recurring acquisition activity
the Company would have recorded net loss applicable to common shareholders of
$2,213,000 for the three-month period ended September 30, 2002 as compared to a
net loss of $681,000 in the comparable period in 2001. In the nine-month period
ended September 30, 2002 the Company would have recorded a net loss applicable
to common shareholders of $2,002,000 as compared to a net loss $2,554,000 in
the comparable period in 2001.
Basic and diluted earnings (loss) per common share decreased to $(0.22) in the
three-month period ended September 30, 2002 as compared to $(0.06) in the
comparable period in 2001. In the nine-month period ended September 30, 2002
basic and diluted earnings (loss) per share decreased to $(0.36) as compared to
$(0.30) in the comparable period in 2001.
Excluding the cost related to non-recurring acquisition activity and business
restructuring charges, basic and diluted earnings (loss) per common share
decreased to $(0.21) in the three-month period ended September 30, 2002 as
compared to $(0.06) in the comparable period in 2001. In the nine-month period
ended September 30, 2002 basic and diluted earnings (loss) per share decreased
to $(0.19) as compared to $(0.25) in the comparable period in 2001.
The weighted average and diluted shares outstanding increased to 10,773,000 for
the period ended September 30, 2002 as compared to 10,481,000 in the comparable
period in 2001. In the nine-month period ended September 30, 2002 weighted
average and diluted shares outstanding increased to 10,696,000 as compared to
10,423,000 in the comparable period in 2001. For both periods the increase in
shares was due to the exercise of stock options.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
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 $2,737,000 for the
nine-month period ended September 30, 2002 as compared to $3,251,000 in the
comparable period in 2001. The decrease in cash used was primarily due to a
reduction in minority interest to $326,000 this year to date compared to
$2,463,000 last year to date, partially offset by an increase in net losses to
$3,721,000 this year to date compared to a net loss of $2,983,000 last year to
date and, to a lesser extent, working capital usage of $517,000 and $237,000
for the same periods, respectively.
Net cash used in investing activities increased to $2,652,000 in the nine-month
period ended September 30, 2002 as compared to $1,320,000 in the comparable
period in 2001. The increase in cash used was primarily the result of increased
investment in intangible assets, including the purchase of a software license
and the capitalization of internally developed software for customer product
and service applications and for internal use.
Net cash provided by financing activities increased to $2,451,000 in the
nine-month period ended September 30, 2002 as compared to $85,000 in the
comparable period in 2001. The increase in cash was primarily due to the
receipt of $1,177,000 in the nine-month period to September 30, 2002 from the
exercise of stock options which resulted in the issuance of an additional
255,529 shares of the Company's Class A Common Stock against the receipt of
$294,000 in the nine-month period to September 30, 2001 from the exercise of
stock options which resulted in the issuance of an additional 112,452 shares of
the Company's Class A Common Stock, respectively.
-19-
In addition, the Company received proceeds, net of payments, of $1,274,000
during the first nine months of the year from capital leases and other
obligations related to assets purchases.
The Company had working capital balances of $8,243,000 and $11,332,000,
respectively, as of September 30, 2002 and December 31, 2001.
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 Channel technology in November 1999.
The Company is obligated under the First Amendment to the Operating Agreement
of Cellemetry LLC ("Cellemetry") to fund the operations of Cellemetry to an
amount of $5,500,000 by way of interest bearing debt financing to be available
to fund the operations of Cellemetry and its wholly owned subsidiary Uplink
Security, Inc.
The Company has provided the full amount of the facility to Cellemetry and the
Company may, but is not obligated to continue to fund Cellemetry with
additional interest bearing debt financing. All borrowings carry the Prime Rate
of interest. At September 30, 2002 the Company had provided total interest
bearing debt-financing amounting to $18,080,000.
Under the terms of the Cellemetry LLC ("Cellemetry") operating agreement, as
amended by the First Amendment to the Operating Agreement of Cellemetry LLC,
dated November 1, 1999, as of November 1, 2002, Cingular Wireless LLC
("Cingular") may have certain rights, at the Company's option, with respect to
Cingular's interest in Cellemetry LLC. The Company is currently in discussions
with Cingular regarding its interest in Cellemetry and the Company.
Expansion of the Company's business in fiscal 2002, including increased market
penetration and increased product and service sales based on recurring revenue,
may require greater working capital needs and capital investments than in the
past. While the Company believes that its balance of cash and cash equivalents
are sufficient to meet its present operating and capital requirements, it does
plan to secure access to additional funding sources. Therefore, it is in
discussions with financial institutions to establish a line of credit to be
used for future growth in working capital and capital expenditures.
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, beyond the establishment of a line of credit. 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.
-20-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
At September 30, 2002 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.
The Company invests cash balances in excess of operating requirements. At
September 30, 2002 the Company had no outstanding borrowings payable except for
obligations under capital leases. 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 the evaluation.
-21-
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 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 September 30,
2002.
None - not applicable.
-22-
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: November 13, 2002 By: /s/ Stratton J. Nicolaides
---------------------- ------------------------------
STRATTON J. NICOLAIDES
Chairman and Chief Executive Officer
Date: November 13, 2002 By: /s/ Kenneth W. Taylor
---------------------- ------------------------------
KENNETH W. TAYLOR
Executive Vice President,
Chief Financial Officer, and
Principal Financial and Accounting
Officer
-23-
CERTIFICATIONS
CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
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: November 13, 2002
/s/ Stratton J. Nicolaides
---------------------------------------
Stratton J. Nicolaides
Chief Executive Officer and
Chairman
-24-
CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
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: November 13, 2002
/s/ Kenneth W. Taylor
-----------------------------------
Kenneth W. Taylor
Chief Financial Officer,
Executive Vice President, and
Principal Financial and Accounting Officer
-25-