##### Table of Contents






FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2003

Commission File Number 0-13898

Veramark Technologies, Inc.(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 16-1192368                          
|                                                               |  |                                     
|(State or other jurisdiction of Incorporation
or Organization) |  | (IRS Employer Identification Number)
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               |  |                                     
|                                                              
|                                                              
|                                                              
|                                                              
|3750 Monroe Avenue, Pittsford, NY                              |  | 14534                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

(585) 381-6000(Registrants telephone number, including area code)

N.A.(Former name, former address and former fiscal year, if changed since last report)

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 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
requirement for the past 90 days.

Yes X   No

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

Yes
   NoX

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of September 30, 2003

|                                 |  |                 
|-------------------------------- |  | ----------------
|Common stock, par value $.10     |  | 8,516,751 shares
|                                
|This report consists of 23 pages |  |                 

1



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TABLE OF CONTENTS



|                                                                 |                                                                                              |  |  |  |  |  |  | 
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|FORM 10-Q                                                       
|PART I  FINANCIAL INFORMATION                                  
|CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)               
|CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)               
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)     
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)     
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
|                                                                 | Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                 | Item 3 Quantitative and Qualitative Disclosures About Market Risk                           
|                                                                 | Item 4 Controls and Procedures                                                              
|PART II  OTHER INFORMATION                                     
|                                                                 | Item 5 Sections 302 and 906                                                                 
|                                                                 | Item 6 Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                      
|EX-31.1 CERTIFICATION OF CEO PURSUANT TO RULE 302               
|EX-31.2 CERTIFICATION OF CFO PURSUANT TO RULE 302               
|EX-32.1 CERTIFICATION OF CEO PURSUANT TO RULE 906               
|EX-32.2 CERTIFICATION OF CFO PURSUANT TO RULE 906               



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##### Table of Contents



INDEX

|        |  |                                                                                       |  |                                                                                                            |         |       |        | 
|------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- | ------- | ----- | ------ | 
|        |  |                                                                                       |  |                                                                                                            |         | Pages
|        |  |                                                                                       |  |                                                                                                            |         |      
|PART I  |  | FINANCIAL INFORMATION                                                                 |  |                                                                                                            |         |      
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|Item 1  |  | Financial Statements                                                                  |  |                                                                                                            |         |      
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|        |  |                                                                                       |  | Condensed
Consolidated Balance Sheets -

September 30, 2003 and December 31, 2002                          |         |       | 3 - 4  | 
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|        |  |                                                                                       |  | Condensed
Consolidated Statements of Operations -

Three and Nine Months Ended September 30, 2003 and 2002 |         |       | 5      | 
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|        |  |                                                                                       |  | Condensed
Consolidated Statements of Cash Flows -

Nine Months Ended September 30, 2003 and 2002           |         |       | 6      | 
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|        |  |                                                                                       |  | Notes To Condensed Consolidated Financial Statements                                                       |         |       | 7 - 10 | 
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|Item 2  |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  |                                                                                                            | 11 - 15 |      
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|Item 3  |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |                                                                                                            | 16      |      
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|Item 4  |  | Controls and Procedures                                                               |  |                                                                                                            | 16      |      
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|PART II |  | OTHER INFORMATION                                                                     |  |                                                                                                            |         |      
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|Item 5  |  | Certification of Chief Executive Officer and Chief Accounting Officer                 |  |                                                                                                            | 17      |      
|       
|       
|       
|       
|        |  |                                                                                      
|       
|       
|       
|       
|Item 6  |  | Exhibits and Reports on Form 8-K                                                      |  |                                                                                                            | 17      |      

2



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##### Table of Contents









PART I  FINANCIAL INFORMATION

VERAMARK TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

|                       |                                                                                                         |                              |   |               |           |              |   |            |           | 
|---------------------- | ------------------------------------------------------------------------------------------------------- | ---------------------------- | - | ------------- | --------- | ------------ | - | ---------- | --------- | 
|                       |                                                                                                         |                              |   | September 30, |           | December 31,
|                       |                                                                                                         |                              |   | 2003          |           | 2002        
|                       |                                                                                                         |                              |   |               |           |             
|ASSETS                 |                                                                                                         |                              |   |               |           |              |   |           
|                      
|CURRENT ASSETS:        |                                                                                                         |                              |   |               |           |              |   |           
|                      
|                       | Cash and cash equivalents                                                                               |                              | $ | 744,612       |           |              | $ | 623,194    |          
|                      
|                      
|                      
|                      
|                       | Investments                                                                                             |                              |   | 997,314       |           |              |   | 924,682    |          
|                      
|                      
|                      
|                      
|                       | Accounts receivable, trade (net
of allowance for doubtful accounts
of $70,000 and $80,000 respectively) |                              |   | 1,339,841     |           |              |   | 1,135,776  |          
|                      
|                      
|                      
|                      
|                       | Inventories, net                                                                                        |                              |   | 25,488        |           |              |   | 92,276     |          
|                      
|                      
|                      
|                      
|                       | Prepaid expenses                                                                                        |                              |   | 178,860       |           |              |   | 182,630    |          
|                       |                                                                                                         |                              |   |               |           |              |   |           
|                       |                                                                                                         | Total Current Assets         |   |               | 3,286,115 |              |   |            | 2,958,558 | 
|                       |                                                                                                         |                              |   |               |           |              |   |           
|                      
|PROPERTY AND EQUIPMENT |                                                                                                         |                              |   |               |           |              |   |           
|                      
|                       | Cost                                                                                                    |                              |   | 5,830,855     |           |              |   | 6,656,249  |          
|                      
|                      
|                      
|                      
|                       | Less accumulated depreciation                                                                           |                              |   | (4,763,067    | )         |              |   | (5,404,203 | )        
|                       |                                                                                                         |                              |   |               |           |              |   |           
|                       |                                                                                                         | Property and Equipment (Net) |   |               | 1,067,788 |              |   |            | 1,252,046 | 
|                       |                                                                                                         |                              |   |               |           |              |   |           
|                      
|OTHER ASSETS:          |                                                                                                         |                              |   |               |           |              |   |           
|                      
|                       | Software development costs (net of
accumulated amortization of $825,707
and $2,985,453, respectively)   |                              |   | 1,451,034     |           |              |   | 1,590,054  |          
|                      
|                      
|                      
|                      
|                       | Pension related assets                                                                                  |                              |   | 2,424,083     |           |              |   | 2,303,580  |          
|                      
|                      
|                      
|                      
|                       | Deposits and other assets                                                                               |                              |   | 838,674       |           |              |   | 742,474    |          
|                       |                                                                                                         |                              |   |               |           |              |   |           
|                       | Total other assets                                                                                      |                              |   | 4,713,791     |           |              |   | 4,636,108  |          
|                       |                                                                                                         |                              |   |               |           |              |   |           
|                       | TOTAL ASSETS                                                                                            |                              | $ | 9,067,694     |           |              | $ | 8,846,712  |          
|                       |                                                                                                         |                              |   |               |           |              |   |           

|                                                         |  |            
|-------------------------------------------------------- |  | -----------
|See notes to Condensed Consolidated Financial Statements |  | (Continued)

3



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##### Table of Contents






VERAMARK TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

|                                     |                                                                                                                                  |                           |   |               |           |              |   |             |           | 
|------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | - | ------------- | --------- | ------------ | - | ----------- | --------- | 
|                                     |                                                                                                                                  |                           |   | September 30, |           | December 31,
|                                     |                                                                                                                                  |                           |   | 2003          |           | 2002        
|                                     |                                                                                                                                  |                           |   |               |           |             
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                  |                           |   |               |           |              |   |            
|                                    
|CURRENT LIABILITIES:                 |                                                                                                                                  |                           |   |               |           |              |   |            
|                                    
|                                    
|                                    
|                                    
|                                     | Accounts payable                                                                                                                 |                           | $ | 273,820       |           |              | $ | 265,184     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Accrued compensation and related taxes                                                                                           |                           |   | 586,074       |           |              |   | 392,808     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Deferred revenue                                                                                                                 |                           |   | 2,977,227     |           |              |   | 3,200,145   |          
|                                    
|                                    
|                                    
|                                    
|                                     | Capital lease obligation  current                                                                                               |                           |   | 10,868        |           |              |   | 17,334      |          
|                                    
|                                    
|                                    
|                                    
|                                     | Other accrued liabilities                                                                                                        |                           |   | 176,709       |           |              |   | 167,808     |          
|                                     |                                                                                                                                  |                           |   |               |           |              |   |            
|                                     |                                                                                                                                  | Total Current Liabilities |   |               | 4,024,698 |              |   |             | 4,043,279 | 
|                                    
|                                     | Long term portion of capital lease obligation                                                                                    |                           |   |              |           |              |   | 7,400       |          
|                                    
|                                    
|                                    
|                                    
|                                     | Pension obligation                                                                                                               |                           |   | 3,915,646     |           |              |   | 3,625,000   |          
|                                     |                                                                                                                                  |                           |   |               |           |              |   |            
|                                     | Total Liabilities                                                                                                                |                           |   | 7,940,344     |           |              |   | 7,675,679   |          
|                                     |                                                                                                                                  |                           |   |               |           |              |   |            
|                                     | STOCKHOLDERS EQUITY:                                                                                                            |                           |   |               |           |              |   |             |          
|                                    
|                                    
|                                    
|                                    
|                                     | Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding
8,596,976 and 8,470,959, respectively |                           |   | 859,698       |           |              |   | 847,096     |          
|                                    
|                                    
|                                    
|                                    
|                                     | Additional paid-in capital                                                                                                       |                           |   | 21,788,946    |           |              |   | 21,686,196  |          
|                                    
|                                    
|                                    
|                                    
|                                     | Retained deficit                                                                                                                 |                           |   | (21,147,503   | )         |              |   | (20,976,502 | )        
|                                    
|                                    
|                                    
|                                    
|                                     | Accumulated other comprehensive income                                                                                           |                           |   | 11,966        |           |              |   |            |          
|                                    
|                                    
|                                    
|                                    
|                                     | Treasury stock (80,225 shares, at cost)                                                                                          |                           |   | (385,757      | )         |              |   | (385,757    | )        
|                                     |                                                                                                                                  |                           |   |               |           |              |   |            
|                                     | Total Stockholders Equity                                                                                                       |                           |   | 1,127,350     |           |              |   | 1,171,033   |          
|                                     |                                                                                                                                  |                           |   |               |           |              |   |            
|                                     | TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                       |                           | $ | 9,067,694     |           |              | $ | 8,846,712   |          
|                                     |                                                                                                                                  |                           |   |               |           |              |   |            

|                                                         |  |            
|-------------------------------------------------------- |  | -----------
|See notes to Condensed Consolidated Financial Statements |  | (Concluded)

4



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##### Table of Contents






VERAMARK TECHNOLOGIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |           |           |           |           | 
|--------------------------------- | ------------------------------------ | ------------- | ---------------------------------- | --------------- | --------- | ------------------ | --------- | ----------------- | --------- | --------- | --------- | --------- | --------- | --------- | ---------- | --------- | --------- | --------- | --------- | 
|                                  |                                      |               |                                    |                 |           | Three Months Ended |           | Nine Months Ended
|                                  |                                      |               |                                    |                 |           | September 30,      |           | September 30,    
|                                  |                                      |               |                                    |                 |           |                    |           |                  
|                                  |                                      |               |                                    |                 |           | 2003               |           | 2002              |           | 2003      |           | 2002     
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |          
|NET SALES                         |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|                                 
|                                 
|                                 
|                                 
|                                  |                                      | Product Sales |                                    | $               | 1,094,131 |                    |           | $                 | 1,024,305 |           |           | $         | 3,219,868 |           |            | $         | 3,350,351 |          
|                                 
|                                 
|                                 
|                                 
|                                  |                                      | Service Sales |                                    |                 | 1,823,048 |                    |           |                   | 1,648,324 |           |           |           | 5,399,846 |           |            |           | 5,029,223 |          
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|                                  |                                      |               |                                    | Total Net Sales |           |                    | 2,917,179 |                   |           |           | 2,672,629 |           |           |           | 8,619,714  |           |           |           | 8,379,574 | 
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|COSTS AND OPERATING EXPENSES:     |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|                                 
|                                 
|                                 
|                                 
|                                  | Cost of sales                        |               |                                    | 458,332         |           |                    |           | 557,569           |           |           |           | 1,348,154 |           |           |            | 1,721,968 |          
|                                 
|                                 
|                                 
|                                 
|                                  | Engineering and software development |               |                                    | 432,449         |           |                    |           | 726,747           |           |           |           | 1,683,106 |           |           |            | 2,170,085 |          
|                                 
|                                 
|                                 
|                                 
|                                  | Selling, general and administrative  |               |                                    | 1,920,823       |           |                    |           | 2,020,180         |           |           |           | 5,772,174 |           |           |            | 6,087,946 |          
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|                                  |                                      |               | Total Costs and Operating Expenses |                 |           | 2,811,604          |           |                   |           | 3,304,496 |           |           |           | 8,803,434 |            |           |           | 9,979,999 |          
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|INCOME (LOSS) FROM OPERATIONS     |                                      |               | 105,575                            |                 |           |                    | (631,867  | )                 |           |           | (183,720  | )         |           |           | (1,600,425 | )        
|                                 
|OTHER INCOME                      |                                      |               | 3,953                              |                 |           |                    | 4,061     |                   |           |           | 12,719    |           |           |           | 5,397      |          
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|INCOME (LOSS) BEFORE INCOME TAXES |                                      |               | 109,528                            |                 |           |                    | (627,806  | )                 |           |           | (171,001  | )         |           |           | (1,595,028 | )        
|                                 
|INCOME TAXES                      |                                      |               |                                   |                 |           |                    |          |                   |           |           |          |           |           |           |           |          
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|NET INCOME (LOSS)                 |                                      | $             | 109,528                            |                 |           | $                  | (627,806  | )                 |           | $         | (171,001  | )         |           | $         | (1,595,028 | )        
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|NET INCOME (LOSS) PER SHARE       |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|                                 
|                                 
|                                 
|                                 
|                                  |                                      | Basic         |                                    | $               | 0.01      |                    |           | $                 | (0.07     | )         |           | $         | (0.02     | )         |            | $         | (0.19     | )        
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          
|                                  |                                      | Diluted       |                                    | $               | 0.01      |                    |           | $                 | (0.07     | )         |           | $         | (0.02     | )         |            | $         | (0.19     | )        
|                                  |                                      |               |                                    |                 |           |                    |           |                   |           |           |           |           |           |           |            |          

See notes to Condensed Consolidated Financial Statements.

5



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##### Table of Contents






VERAMARK TECHNOLOGIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

|                                                                                            |                                            |   |                   |          |      |   |            |           |  
|------------------------------------------------------------------------------------------- | ------------------------------------------ | - | ----------------- | -------- | ---- | - | ---------- | --------- | -
|                                                                                            |                                            |   | Nine Months Ended
|                                                                                            |                                            |   | September 30,    
|                                                                                            |                                            |   |                  
|                                                                                            |                                            |   | 2003              |          | 2002
|                                                                                            |                                            |   |                   |          |     
|OPERATING ACTIVITIES:                                                                       |                                            |   |                   |          |      |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Net loss                                                                                    |                                            | $ | (171,001          | )        |      | $ | (1,595,028 | )        
|                                                                                            |                                            |   |                   |          |      |   |            |          
|Adjustments to reconcile net loss to net cash flows (used)
provided by operating activities |                                            |   |                   |          |      |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Depreciation and amortization              |   |                   | 599,099  |      |   |            | 1,116,878 |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Provision for bad debts                    |   |                   | (14,151  | )    |   |            | 52,500    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Provision for inventory obsolescence       |   |                   | 37,494   |      |   |            | 25,750    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Loss on disposal of fixed assets           |   |                   | 1,003    |      |   |            | 18        |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Compensation expense-stock options         |   |                   | 57,953   |      |   |            | 224,000   |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Repayment of note receivable               |   |                   |         |      |   |            | 11,171    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            |                                            |   |                   |          |      |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|Changes in assets and liabilities
Accounts receivable                                       |                                            |   | (189,914          | )        |      |   | 180,592    |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Inventories                                |   |                   | 29,294   |      |   |            | (8,695    | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Prepaid expenses                           |   |                   | 3,770    |      |   |            | (258,507  | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Deposits and other assets                  |   |                   | (216,703 | )    |   |            | (100,143  | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accounts payable                           |   |                   | 8,636    |      |   |            | 47,755    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Accrued compensation and related taxes     |   |                   | 193,266  |      |   |            | 63,539    |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Deferred revenue                           |   |                   | (222,918 | )    |   |            | 507,851   |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Other accrued liabilities                  |   |                   | 8,901    |      |   |            | (63,695   | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Pension obligation                         |   |                   | 290,646  |      |   |            | 154,736   |  
|                                                                                            |                                            |   |                   |          |      |   |            |          
|Net cash flows provided by operating activities                                             |                                            |   | 415,375           |          |      |   | 358,722    |          
|                                                                                            |                                            |   |                   |          |      |   |            |          
|                                                                                            |                                            |   |                   |          |      |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|INVESTING ACTIVITIES:                                                                       |                                            |   |                   |          |      |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Purchase of investments                    |   |                   | (60,666  | )    |   |            | (329,286  | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Additions to property and equipment        |   |                   | (64,350  | )    |   |            | (27,534   | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Capitalized software development costs     |   |                   | (212,474 | )    |   |            |          |  
|                                                                                            |                                            |   |                   |          |      |   |            |          
|Net cash flows used by investing activities                                                 |                                            |   | (337,490          | )        |      |   | (356,820   | )        
|                                                                                            |                                            |   |                   |          |      |   |            |          
|                                                                                            |                                            |   |                   |          |      |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|FINANCING ACTIVITIES:                                                                       |                                            |   |                   |          |      |   |            |          
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Proceeds from exercise of stock options    |   |                   | 48,752   |      |   |            |          |  
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Repayment of capital lease obligation      |   |                   | (13,866  | )    |   |            | (11,839   | )
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                           
|                                                                                            | Proceeds from employee stock purchase plan |   |                   | 8,647    |      |   |            | 18,940    |  
|                                                                                            |                                            |   |                   |          |      |   |            |          
|Net cash flows provided by financing activities                                             |                                            |   | 43,533            |          |      |   | 7,101      |          
|                                                                                            |                                            |   |                   |          |      |   |            |          
|NET INCREASE IN CASH AND CASH EQUIVALENTS                                                   |                                            |   | 121,418           |          |      |   | 9,003      |          
|                                                                                           
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                              |                                            |   | 623,194           |          |      |   | 633,138    |          
|                                                                                            |                                            |   |                   |          |      |   |            |          
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                    |                                            | $ | 744,612           |          |      | $ | 642,141    |          
|                                                                                            |                                            |   |                   |          |      |   |            |          

See notes to Condensed Consolidated Financial Statements.

6



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##### Table of Contents






NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) GENERAL

The accompanying unaudited consolidated financial statements include all
adjustments of a normal and recurring nature which, in the opinion of Companys
management, are necessary to present fairly the Companys financial position as
of September 30, 2003, the results of its operations for the three and nine
months ended September 30, 2003 and 2002, and cash flows for the nine months
ended September 30, 2003 and 2002.

Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes contained in the Companys annual report on Form
10-K to the Securities and Exchange Commission for the year ended December 31,
2002.

The results of operations for the three and nine months ended September
30, 2003 are not necessarily indicative of the results to be expected for the
full years operation.

(2) INVENTORIES, NET

The composition of inventories at September 30, 2003 and December 31, 2002
was as follows:

|                               |  |               |        |              |  |   |        | 
|------------------------------ |  | ------------- | ------ | ------------ |  | - | ------ | 
|                               |  | September 30, |        | December 31,
|                               |  | 2003          |        | 2002        
|                               |  |               |        |             
|Purchased parts and components |  | $             | 9,459  |              |  | $ | 75,402 | 
|                              
|                              
|                              
|                              
|Work in process                |  |               | 7,944  |              |  |   | 10,344 | 
|                              
|                              
|                              
|                              
|Finished goods                 |  |               | 8,085  |              |  |   | 6,530  | 
|                               |  |               |        |              |  |   |        | 
|                               |  | $             | 25,488 |              |  | $ | 92,276 | 
|                               |  |               |        |              |  |   |        | 

(3) PROPERTY AND EQUIPMENT

The major classifications of property and equipment at September 30, 2003,
and December 31, 2002 were:

|                               |  |               |           |              |  |   |           | 
|------------------------------ |  | ------------- | --------- | ------------ |  | - | --------- | 
|                               |  | September 30, |           | December 31,
|                               |  | 2003          |           | 2002        
|                               |  |               |           |             
|Machinery and equipment        |  | $             | 789,131   |              |  | $ | 788,131   | 
|                              
|                              
|                              
|                              
|Computer hardware and software |  |               | 1,890,353 |              |  |   | 2,715,527 | 
|                              
|                              
|                              
|                              
|Furniture and fixtures         |  |               | 1,768,812 |              |  |   | 1,770,032 | 
|                              
|                              
|                              
|                              
|Leasehold improvements         |  |               | 1,382,559 |              |  |   | 1,382,559 | 
|                               |  |               |           |              |  |   |           | 
|                               |  | $             | 5,830,855 |              |  | $ | 6,656,249 | 
|                               |  |               |           |              |  |   |           | 

7



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|(4) |  | STOCK-BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In 2002, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure. This standard provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. Additionally, the standard also
requires prominent disclosures in the Companys financial statements about
the method of accounting used for stock-based employee compensation, and
the effect of the method used when reporting financial results.                                                                                                                                     
|   
|    |  | The Company accounts for stock-based compensation in accordance with SFAS
No. 123, Accounting for Stock-Based Compensation. As permitted by SFAS
No. 123, the Company continues to measure compensation for such plans
using the intrinsic value based method of accounting, prescribed by
Accounting Principles Board (APB), Opinion No. 25, Accounting for Stock
Issued to Employees. Had compensation cost for the Companys stock-based
compensation plans been determined based on the fair value at the grant
dates for awards consistent with the method of SFAS No. 123, the Companys
net income (loss) and net income (loss) per common share would have been
adjusted to the pro forma amounts indicated below:

|                                   |  |             |  |           |         |   |                    |      |                   |   |          |       |          |   |          |       |            |   |            |       |  
|---------------------------------- |  | ----------- |  | --------- | ------- | - | ------------------ | ---- | ----------------- | - | -------- | ----- | -------- | - | -------- | ----- | ---------- | - | ---------- | ----- | -
|                                   |  |             |  |           |         |   | Three Months Ended |      | Nine Months Ended
|                                   |  |             |  |           |         |   | September 30,      |      | September 30,    
|                                   |  |             |  |           |         |   |                    |      |                  
|                                   |  |             |  |           |         |   | 2003               |      | 2002              |   | 2003     |       | 2002    
|                                   |  |             |  |           |         |   |                    |      |                   |   |          |       |         
|Net income (loss)                  |  | As reported |  | $         | 109,528 |   |                    | $    | (627,806          | ) |          | $     | (171,001 | ) |          | $     | (1,595,028 | )
|                                  
|                                  
|                                  
|                                  
|                                   |  |             |  | Pro forma |         | $ | 45,287             |      |                   | $ | (899,474 | )     |          | $ | (532,240 | )     |            | $ | (2,039,933 | )    
|                                  
|                                  
|                                  
|                                  
|Net income (loss) per common share |  | As reported |  |           |         |   |                    |      |                   |   |          |       |          |   |          |       |            |  
|                                  
|                                  
|                                  
|                                  
|                                   |  |             |  |           | Basic   |   | $                  | 0.01 |                   |   | $        | (0.07 | )        |   | $        | (0.02 | )          |   | $          | (0.19 | )
|                                  
|                                  
|                                  
|                                  
|                                   |  |             |  |           | Diluted |   | $                  | 0.01 |                   |   | $        | (0.07 | )        |   | $        | (0.02 | )          |   | $          | (0.19 | )
|                                  
|                                  
|                                  
|                                  
|                                   |  |             |  | Pro forma |         |   |                    |      |                   |   |          |       |          |   |          |       |            |   |            |      
|                                  
|                                  
|                                  
|                                  
|                                   |  |             |  |           | Basic   |   | $                  | 0.01 |                   |   | $        | (0.11 | )        |   | $        | (0.06 | )          |   | $          | (0.24 | )
|                                  
|                                  
|                                  
|                                  
|                                   |  |             |  |           | Diluted |   | $                  | 0.01 |                   |   | $        | (0.11 | )        |   | $        | (0.06 | )          |   | $          | (0.24 | )



| |  | For purposes of the disclosure above, the fair value of each option grant is
estimated on the date of the grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in
2003 and 2002:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                    |        |                   |  |         |        |         |  |  |        |   |  |  |        |  
|----------------------- |  | ------------------ | ------ | ----------------- |  | ------- | ------ | ------- |  |  | ------ | - |  |  | ------ | -
|                        |  | Three Months Ended |        | Nine Months Ended
|                        |  | September 30,      |        | September 30,    
|                        |  |                    |        |                  
|                        |  | 2003               |        | 2002              |  | 2003    |        | 2002   
|                        |  |                    |        |                   |  |         |        |        
|Dividend yield          |  |                    |       |                   |  |         |       |         |  |  |       |   |  |  |       |  
|                       
|                       
|                       
|                       
|                        |  |                    |        |                   |  |         |        |         |  |  |        |   |  |  |        |  
|                       
|                       
|                       
|                       
|Expected volatility     |  |                    | 145.91 | %                 |  |         | 137.65 | %       |  |  | 142.68 | % |  |  | 137.65 | %
|                       
|                       
|                       
|                       
|                        |  |                    |        |                   |  |         |        |         |  |  |        |   |  |  |        |  
|                       
|                       
|                       
|                       
|Risk-free interest rate |  |                    | 3.11   | %                 |  |         | 3.00   | %       |  |  | 2.72   | % |  |  | 4.25   | %
|                       
|                       
|                       
|                       
|                        |  |                    |        |                   |  |         |        |         |  |  |        |   |  |  |        |  
|                       
|                       
|                       
|                       
|Expected life           |  | 5 years            |        | 5 years           |  | 5 years |        | 5 years

8



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##### Table of Contents





|(5) |  | COMPREHENSIVE INCOME (LOSS)                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------
|   
|    |  | Comprehensive income (loss) for three and nine months ended September 30,
2003 and 2002 was as follows:

|                                                                          |  |                    |         |                   |  |      |          |      |  |   |          |   |  |   |            |  
|------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- |  | ---- | -------- | ---- |  | - | -------- | - |  | - | ---------- | -
|                                                                          |  | Three Months Ended |         | Nine Months Ended
|                                                                          |  | September 30,      |         | September 30,    
|                                                                          |  |                    |         |                  
|                                                                          |  | 2003               |         | 2002              |  | 2003 |          | 2002
|                                                                          |  |                    |         |                   |  |      |          |     
|Net income (loss)                                                         |  | $                  | 109,528 |                   |  | $    | (627,806 | )    |  | $ | (171,001 | ) |  | $ | (1,595,028 | )
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|Other comprehensive income (loss) -
unrealized gain (loss) on investments |  |                    | (4,839  | )                 |  |      |         |      |  |   | 11,966   |   |  |   |           |  
|                                                                          |  |                    |         |                   |  |      |          |      |  |   |          |   |  |   |            |  
|Comprehensive income (loss)                                               |  | $                  | 104,689 |                   |  | $    | (627,806 | )    |  | $ | (159,035 | ) |  | $ | (1,595,028 | )
|                                                                          |  |                    |         |                   |  |      |          |      |  |   |          |   |  |   |            |  



|(6) |  | NET INCOME (LOSS) PER SHARE (EPS)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Basic EPS excludes dilution and is computed by dividing net income (loss) by
the weighted average number of shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock. The dilutive effect of outstanding options issued by the Company are
reflected in diluted EPS using the treasury stock method. Under the treasury
stock method, options will only have a dilutive effect when the average
market price of common stock during the period exceeds the exercise price of
the options.

9



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##### Table of Contents





| |  | The Companys calculation of income (loss) per share is calculated as
follows:
| |  | ------------------------------------------------------------------------------

|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |       |  
|--------------------------------------------------------------------------------------------------- | ---------------------------------- | - | ------------------ | ---- | ----------------- | - | --------- | ----- | ---- | - | --------- | ----- | - | - | ---------- | ----- | -
|                                                                                                    |                                    |   | Three Months Ended |      | Nine Months Ended
|                                                                                                    |                                    |   | September 30,      |      | September 30,    
|                                                                                                    |                                    |   |                    |      |                  
|                                                                                                    |                                    |   | 2003               |      | 2002              |   | 2003      |       | 2002
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |     
|Basic                                                                                               |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Net Income (Loss)                                                                                   |                                    | $ | 109,528            |      |                   | $ | (627,806  | )     |      | $ | (171,001  | )     |   | $ | (1,595,028 | )    
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Weighted Average Common Shares Outstanding                                                          |                                    |   | 8,461,134          |      |                   |   | 8,360,825 |       |      |   | 8,415,394 |       |   |   | 8,337,156  |      
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Net Income (Loss) Per Common Share                                                                  |                                    | $ | 0.01               |      |                   | $ | (0.07     | )     |      | $ | (0.02     | )     |   | $ | (0.19      | )    
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Diluted                                                                                             |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Net Income (Loss)                                                                                   |                                    | $ | 109,528            |      |                   | $ | (627,806  | )     |      | $ | (171,001  | )     |   | $ | (1,595,028 | )    
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Weighted Average Common Shares Outstanding                                                          |                                    |   | 8,461,134          |      |                   |   | 8,360,825 |       |      |   | 8,415,934 |       |   |   | 8,337,156  |      
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Additional Dilutive Effect of Stock Options and
Warrants after Application of Treasury Stock Method |                                    |   | 933,524            |      |                   |   |          |       |      |   |          |       |   |   |           |      
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Weighted Average Common Shares Outstanding
Assuming Dilution                                        |                                    |   | 9,394,658          |      |                   |   | 8,360,825 |       |      |   | 8,415,394 |       |   |   | 8,337,156  |      
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|                                                                                                    | Net Income (Loss) per Common Share |   | $                  | 0.01 |                   |   | $         | (0.07 | )    |   | $         | (0.02 | ) |   | $          | (0.19 | )
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      



|(7) |  | INDEMNIFICATION OF CUSTOMERS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Our agreements with customers generally require us to indemnify the customer
against claims that our software infringes third party patent, copyright,
trademark or other proprietary rights. Such indemnification obligations are
generally limited in a variety of industry-standard respects, including our
right to replace an infringing product. As of September 30, 2003, we had not
experienced any material losses related to these indemnification obligations
and no material claims with respect thereto were outstanding. We do not
expect significant claims related to these indemnification obligations, and
consequently, we have not established any related reserves.

10



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##### Table of Contents






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

Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements, which involve risks
and uncertainties including, but not limited to, economic, competitive,
governmental and technological factors, affecting the Companys operations,
markets, products, services and prices, as well as other factors discussed in
the Companys filings with the Securities and Exchange Commission.

Results of Operations

For the Companys third quarter ended September 30, 2003, sales of
$2,917,179 increased 9% from sales of $2,672,629 recorded for the quarter ended
September 30, 2002. For the nine months ended September 30, 2003, sales of
$8,619,714 increased 3% from sales of $8,379,574 achieved for the same nine
month period of 2002.

The increase in overall sales continues to be attributable to strong
market acceptance of the Companys eCAS product, sales of which have increased
every quarter since its initial launch in the fourth quarter of 2001. Sales of
call accounting products and services increased 30% for the quarter ended
September 30, 2003, when compared to the same quarter of 2002, and 17% for the
nine months ended September 30, 2003, from the same nine month period of 2002.
Call accounting products and services accounted for 61% of the Companys total
sales for the nine months ended September 30, 2003, versus 54% of sales for the
nine months ended September 30, 2002.

Sales of the Companys enterprise level products continue to be adversely
impacted by the current economic conditions that have caused potential
customers to delay major capital expenditures. Sales of enterprise level
products have declined 20% and 14% respectively for the three and nine month
periods ended September 30, 2003, as compared to the same three and nine month
periods of 2002. Enterprise level products have accounted for 33% of
year-to-date 2003 sales, compared to 39% of total sales for the first nine
months of 2002. During the second quarter of 2003, the Company announced the
release of VeraSMART, the industrys first totally web-based Enterprise
Telemanagement platform. The first application available on the new VeraSMART
platform is an expansion of the Companys current call management capabilities,
allowing the Company to target significantly larger multi-site business
enterprises with very large data volumes, well above the capacity of the
current eCAS product line. Veramark is currently developing additional
modules which will expand the features and functionality of the enterprise
platform, a process which will enable the Company to eventually replace its
current Quantum Series product.

Sales generated by the Companys Service Bureau continued to grow at a
steady rate, increasing 19% for the three months ended September 30, 2003 and
15% for the nine months ended September 30, 2003, when compared to the same
three and nine month periods of 2002. Outsourcing allows companies to reap the
benefits of controls on their telemanagement expenses without significant
investment in equipment or internal staff to carry out those functions.

The company continues to experience an increasing proportion of its
revenues from post-sale activities, which typically include maintenance,
installation, training, customization, and database services. For the nine
months ended September 30, 2003, sales generated from these post-sale
activities accounted for 63% of the Companys total sales, as compared with 60%
a year ago.

11



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##### Table of Contents



Gross profit margins of 84% of sales for both the three and nine months
ended September 30, 2003 increased from 79% of sales for both the three and
nine months ended September 30, 2002. The improved margins reflect lower
amortization costs associated with development efforts capitalized in prior
years.

Net engineering and software development expenses of $432,449 for the
three months ended September 30, 2003 are 40% lower than the engineering and
development expense of $726,747 incurred for the same quarter of the prior
year, and 22% below the prior year levels for the nine months ended September
30, 2003, as compared to 2002. The reduction in net expenses reflects in part
the capitalization of $212,474 of software development costs in the third
quarter of 2003 associated with the expansion of the Companys new enterprise
level platform, which will become the Companys next generation replacement to
the existing Quantum Series product. The chart below summarizes gross
engineering and development expenses, amounts capitalized, and net engineering
and development costs included in the Companys Statements of Operations for
the three and nine months ended September 30, 2003 and 2002:

|                                                   |  |                    |          |                   |  |      |         |      |  |   |           |   |  |   |           |  
|-------------------------------------------------- |  | ------------------ | -------- | ----------------- |  | ---- | ------- | ---- |  | - | --------- | - |  | - | --------- | -
|                                                   |  | Three Months Ended |          | Nine Months Ended
|                                                   |  | September 30,      |          | September 30,    
|                                                   |  |                    |          |                  
|                                                   |  | 2003               |          | 2002              |  | 2003 |         | 2002
|                                                   |  |                    |          |                   |  |      |         |     
|Gross Engineering and Software Development
Expense |  | $                  | 644,923  |                   |  | $    | 726,747 |      |  | $ | 1,895,580 |   |  | $ | 2,170,085 |  
|                                                  
|                                                  
|                                                  
|                                                  
|Less: Development Costs Capitalized                |  |                    | (212,474 | )                 |  |      | (-      | )    |  |   | (212,474  | ) |  |   | (-        | )
|                                                   |  |                    |          |                   |  |      |         |      |  |   |           |   |  |   |           |  
|Net Engineering and Software Development Expense   |  | $                  | 432,449  |                   |  | $    | 726,747 |      |  | $ | 1,683,106 |   |  | $ | 2,170,085 |  
|                                                   |  |                    |          |                   |  |      |         |      |  |   |           |   |  |   |           |  

Selling, general and administrative expenses incurred of $1,920,823, for
the three months ended September 30, 2003 and $5,772,174 for the nine months
ended September 30, 2003 declined by 5% from expense levels of $2,020,180 and
$6,087,946, for the three and nine months ended September 30, 2002. The
decreased costs reflect a reduction in expenses for salaries, benefits and
travel costs realized as a result of lower staffing levels throughout 2003 as
compared to 2002.

The Company recorded a net profit of $109,528, or $0.01 per diluted share,
for the three months ended September 30, 2003, as compared with a net loss of
$627,806 or a loss of $0.07 per share, for the three months ended September 30,
2002. For the nine months ended September 30, 2003, the Companys accumulated
net loss of $171,001, or $0.02 per share, reflects a significant improvement
from the net loss of $1,595,028 or $0.19 per share incurred for the first nine
months of 2002.

Liquidity and Capital Resources

As of September 30, 2003, the Companys total cash and investment position
was $1,741,926, an increase of $351,432, or 25%, from the June 30, 2003 total
cash and investment position of $1,390,494, and an increase of 13% from the
December 31, 2002 balance of $1,547,876.

Accounts receivable at September 30, 2003 of $1,339,841 have increased 18%
from the December 31, 2003 balance of $1,135,776, due to increased sales
volumes in the third quarter of 2003. The increase in accounts receivable does
not reflect any negative change in payment trends from customers. The
allowance for bad debts has been reduced from $80,000 at December 31, 2002 to
$70,000 at September 30, 2003 based on an improvement in the overall aging of
receivables.

12



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##### Table of Contents



Prepaid expenses, which consist primarily of maintenance contracts on
specified equipment used throughout the Company and the unutilized portion of
current business insurance premiums have decreased from $182,630 at December
31, 2002 to $178,860 at September 30, 2002. This balance is expected to
decline further in the fourth quarter of 2003, as the costs of those contracts
and policies are charged against income.

During the third quarter of 2003, the Company purchased capital equipment
at a cost of $9,777. Year to date through September 30, 2003, capital
expenditures total $64,350. The Company has recently begun a program of
replacing and upgrading computer equipment within engineering, development, and
sales and support functions, the result of which will be a higher level of
capital spending throughout the next two quarters. Earlier in 2003 the Company
wrote-off $874,281, representing the original purchase price of obsolete
equipment, no longer in use, recording a loss of approximately $1,000 on the
disposal of that equipment.

Software development costs of $1,451,034 at September 30, 2003 have
declined from $1,590,054 at December 31, 2002; these costs, however, will
increase throughout the fourth quarter of 2003, due to the requirement to
capitalize development costs of the Companys new enterprise level platform.
For the nine months ended September 30, 2003, the Company has amortized
$351,494 of previously capitalized development costs, and capitalized $212,474
of current third quarter 2003 development costs.

Pension related assets, which consist of the cash surrender value of life
insurance policies and an intangible asset required to account for past service
costs associated with the Companys executive retirement plan, increased from
$2,303,580 at December 31, 2002, to $2,424,083 at September 30, 2003. The
increase is attributable to a growth in the cash surrender value of those
policies.

Accounts payable at September 30, 2003 of $273,820 were reduced from the
June 30, 2003 balance of $340,529, and are comparable to the December 31, 2002
balance of $265,184. The Company continues to remain current with all vendors
and suppliers.

Accrued compensation and related taxes, which consists primarily of
accruals for salaries payable, commissions payable, and fringe benefits, has
increased from $392,808 at December 31, 2002 to $586,074 at September 30, 2003.
The increase is attributable to the timing of the Companys bi-weekly payroll
processing, and an increase in accruals required for fringe benefits and
commissions payable. The Company expects the balance in accrued compensation to
decline during the fourth quarter of 2003.

Deferred revenue, which represents services for which the Company has
billed customers, but for which it has not yet performed the associated
services, decreased $222,918 from the December 31, 2002 balance of $3,200,145
to $2,977,227 at September 30, 2003. These services typically include
training, installation and maintenance and support. All services currently
deferred, are expected to be provided over the next twelve months, and recorded
as sales revenue at the time service is actually rendered. The decrease in
deferred revenue reflects the reduced sales of the Companys Quantum Series
enterprise level product, which typically include significant amounts of
follow-on services for training, installation, customization and consulting
services.

Other accrued liabilities total $176,709 at September 30, 2003 and have
increased from $167,808 at December 31, 2002 due to an increase in provisions
required for state sales taxes due as a result of a recent audit of sales and
use tax by the State of New York.

Long-term obligations of the Company, which consist solely of an accrual
to cover future expected pension costs of the Companys executive retirement
program increased from $3,625,000 at December 31, 2002

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to $3,915,646 at September 30, 2003. As of September 30, 2003, the
Company continues to remain free of debt.

Stockholders Equity of $1,127,350 at September 30, 2003 compares with
$1,171,033 at December 31, 2002. The reduction includes the net loss incurred
for the nine months ended September 30, 2003 of $171,001, offset by additions
to equity from the exercise of employee stock options and stock purchased by
employees through the Companys Employee Stock Purchase Plan. During the third
quarter of 2003, there were 84,700 stock options exercised, yielding proceeds
to the Company of $36,421.

Despite the net loss incurred for the first nine months of 2003, the
Company believes that at its current operating expense levels, the current cash
and investments on hand, and the absence of borrowed debt, sufficient resources
are available to meet all financial obligations, as well as support current
operating plans.

Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities. This amends
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement clarifies the accounting guidance on derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The standard is effective for contracts entered into or
modified after June 30, 2003. The adoption of this standard has not had a
material impact on the Companys financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with characteristics of both Liabilities and Equity.
This statement establishes standards for how an issuer classifies and measures
in its statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within the scope of SFAS No. 150 as a
liability (or an asset in some circumstances) because that financial instrument
embodies an obligation of the issuer. This statement is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003, except for mandatorily redeemable financial instruments of nonpublic
entities. The adoption of this standard has not had a material impact on the
Companys financial condition or results of operations.

On January 17, 2003 the FASB issued Financial Interpretation No. 46,
Consolidation of Variable Interest Entities. The objective of Financial
Interpretation No. 46 is to improve financial reporting by companies involved
with variable interest entities. Financial Interpretation No. 46 changes
certain consolidation requirements by requiring a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entitys activities or entitled to
receive a majority of the entitys residual returns or both. The consolidation
requirements apply to entities created before February 1, 2003, no later than
the beginning of the first fiscal year or interim period beginning after
December 15, 2003, as amended by FASB Staff Position Financial Interpretation
46-6. The Company does not expect the adoption of this standard to have a
material impact on its financial condition or results of operations.

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Critical Accounting Policies

The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported therein. The most
significant of these involving difficult or complex judgments in 2003 include:



| |  |  | Revenue recognition                         
| | - |  | --------------------------------------------
|
| |  |  | Capitalization of software development costs

In each situation, management is required to make estimates about the
effects of matters or future events that are inherently uncertain.

The Companys overall policies with regard to revenue recognition are
based on the terms of sale with the customer. The terms and arrangements vary
by product and services provided, owing to the differing nature of the
customers and channels. The Company believes its revenue recognition policies
are appropriate in all circumstances, and that its policies are reflective of
complexities arising from customer arrangements involving such features as
maintenance, warranty agreements, license agreements, and other normal course
of business arrangements.

The Company capitalizes software development costs when technological
feasibility has been established for the software in accordance with Statement
of Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed. Such capitalized
costs are amortized on a product-by-product basis over their economic life or
the ratio of current revenues to current and anticipated revenues from such
software, whichever provides the greater amortization. Should the Company
inaccurately determine when a product reaches technological feasibility or the
economic life of a product, results could differ materially from those
reported. The Company used what it believes are reasonable assumptions and
where applicable, established valuation techniques in making its estimates.

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Item 3 Quantitative and Qualitative Disclosures About Market Risk

The Company has no long-term bank debt obligations. The Company has no
foreign currency exchange risk and has no foreign currency exchange contracts.




Item 4 Controls and Procedures

Based upon an evaluation as of the end of the period covered by this
quarterly report, the Companys Chief Executive Officer and Treasurer (Chief
Accounting Officer) concluded that the Companys disclosure controls and
procedures are effective to provide reasonable assurance that information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is (i) recorded, processed,
summarized and reported, within the time periods specified in the SECs rules
and forms and (ii) accumulated and communicated to the Companys management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure. There have been no changes in the Companys
internal controls over financial reporting, that occurred during the period
covered by this quarterly report, that have materially affected, or are
reasonably likely to materially affect the Companys internal controls over
financial reporting.

The Companys disclosure controls and procedures and internal controls
over financial reporting provide reasonable, but not absolute, assurance that
all deficiencies in design or operation of those control systems, or all
instances of errors or fraud, will be prevented or detected. Those control
systems are designed to provide reasonable assurance of achieving the goals of
those systems in light of the Companys resources and nature of the Companys
business operations. The Companys disclosure controls and procedures and
internal control over financial reporting remain subject to risks of human
error and the risk that controls can be circumvented for wrongful purposes by
one or more individuals in management or non-management positions.

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PART II  OTHER INFORMATION









|Item 5: |  | The Companys Chief Executive Officer and Chief Accounting Officer
have provided the certifications with respect to this Form 10-Q
that are required by Sections 302 and 906 of the Sarbanes-Oxley
Act of 2002. These certifications have been filed as Exhibits
31.1 and 31.2 and Exhibits 32.1 and 32.2, respectively.
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|Item 6: |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                                        

(a)  Exhibits required by Item 601 of Regulation S-K



| |                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (I) Registrants Condensed Financial Statements for the three and
nine months ended September 30, 2003 and 2002 are set forth in Part
I, Item 1 of this Quarterly Report on Form 10-Q.
|
| | (II) Calculation of income (loss) per share for the three and nine
months ended September 30, 2003 and 2002, as set forth as Exhibit
II.                                            
|
| | (31.1) CEO Certification Pursuant to Rule 13a-14(a) and 15d-14(a),
As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.                                              
|
| | (31.2) Treasurer Certification Pursuant to Rule 13a-14(a) and
15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.                                        
|
| | (32.1) CEO Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                    
|
| | (32.2) Treasurer Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                              

(b)  Reports filed on 8-K during quarter for which report is filed



| | (1) |  | On August 15, 2003, the Company filed a Current
Report on Form 8-K reporting that the Company issued a press
release announcing the Companys financial results for the
second fiscal quarter ended June 30, 2003, a copy of such press
release, which was attached as Exhibit 99.1.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

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

VERAMARK TECHNOLOGIES, INC.

REGISTRANT

Date: November 13, 2003

/s/ David G. Mazzella
David G. Mazzella
Chairman and Chief Executive Officer

Date: November 13, 2003

/s/ Ronald C. Lundy
Ronald C. Lundy
Treasurer and Chief Accounting Officer

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Exhibit II

VERAMARK TECHNOLOGIES, INC.Calculations of Income (Loss) Per Common Share

|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |       |  
|--------------------------------------------------------------------------------------------------- | ---------------------------------- | - | ------------------ | ---- | ----------------- | - | --------- | ----- | ---- | - | --------- | ----- | - | - | ---------- | ----- | -
|                                                                                                    |                                    |   | Three Months Ended |      | Nine Months Ended
|                                                                                                    |                                    |   | September 30,      |      | September 30,    
|                                                                                                    |                                    |   |                    |      |                  
|                                                                                                    |                                    |   | 2003               |      | 2002              |   | 2003      |       | 2002
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |     
|Basic                                                                                               |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Net Income (Loss)                                                                                   |                                    | $ | 109,528            |      |                   | $ | (627,806  | )     |      | $ | (171,001  | )     |   | $ | (1,595,028 | )    
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Weighted Average Common Shares Outstanding                                                          |                                    |   | 8,461,134          |      |                   |   | 8,360,825 |       |      |   | 8,415,394 |       |   |   | 8,337,156  |      
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Net Income (Loss) Per Common Share                                                                  |                                    | $ | 0.01               |      |                   | $ | (0.07     | )     |      | $ | (0.02     | )     |   | $ | (0.19      | )    
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Diluted                                                                                             |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Net Income (Loss)                                                                                   |                                    | $ | 109,528            |      |                   | $ | (627,806  | )     |      | $ | (171,001  | )     |   | $ | (1,595,028 | )    
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Weighted Average Common Shares Outstanding                                                          |                                    |   | 8,461,134          |      |                   |   | 8,360,825 |       |      |   | 8,415,934 |       |   |   | 8,337,156  |      
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Additional Dilutive Effect of Stock Options and
Warrants after Application of Treasury Stock
Method |                                    |   | 933,524            |      |                   |   |          |       |      |   |          |       |   |   |           |      
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|Weighted Average Common Shares Outstanding
Assuming Dilution                                        |                                    |   | 9,394,658          |      |                   |   | 8,360,825 |       |      |   | 8,415,394 |       |   |   | 8,337,156  |      
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      
|                                                                                                    | Net Income (Loss) per Common Share |   | $                  | 0.01 |                   |   | $         | (0.07 | )    |   | $         | (0.02 | ) |   | $          | (0.19 | )
|                                                                                                    |                                    |   |                    |      |                   |   |           |       |      |   |           |       |   |   |            |      

19