##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2006
 Commission File Number 0-13898
 Veramark Technologies, Inc.
  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)
  (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year, if changed since last report)
  þ o
 o
  o o þ
  o þ




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##### 



INDEX
 PagePART I
    
    FINANCIAL INFORMATIONItem 1
    
    Financial StatementsCondensed Balance Sheets 
September 30, 2006 (Unaudited) and December 31, 2005
    
    
    3  4Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2006 and 2005
    
    
    5Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2006 and 2005
    
    
    6  7Notes To Condensed Financial Statements (Unaudited)
    
    
    8  12Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12  20Item 3
    
    Quantative and Qualitative Disclosures About Market Risk
    
    
    21Item 4
    
    Controls and Procedures
    
    
    21PART II
    
    OTHER INFORMATIONItem 5
    
    Certification of Chief Executive Officer and Chief Accounting Officer
    
    
    22Item 6
    
    Exhibits
    
    
    23EX-31.1EX-31.2EX-32.1EX-32.2
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PART I   FINANCIAL INFORMATION
 VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2006
    
    
    2005ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    666,942
    
    
    $
    911,310Investments
    
    
    834,417
    
    
    
    600,324Accounts receivable, trade (net
of allowance for doubtful accounts
of $33,000 and $32,000, respectively)
    
    
    1,300,584
    
    
    
    1,522,190Inventories, net
    
    
    12,918
    
    
    
    31,724Prepaid expenses and other current assets
    
    
    259,628
    
    
    
    161,127Total Current Assets
    
    
    3,074,489
    
    
    
    3,226,675PROPERTY AND EQUIPMENTCost
    
    
    5,841,849
    
    
    
    5,796,427Less accumulated depreciation
    
    
    (5,172,506
    )
    
    
    (5,025,761
    )Property and Equipment (Net)
    
    
    669,343
    
    
    
    770,666OTHER ASSETS:Software development costs (net of
accumulated amortization of $1,055,167
and $2,373,896, respectively)
    
    
    3,134,800
    
    
    
    2,826,644Pension assets
    
    
    2,644,712
    
    
    
    2,501,636Deposits and other assets
    
    
    789,534
    
    
    
    797,745Total Other Assets
    
    
    6,569,046
    
    
    
    6,126,025TOTAL ASSETS
    
    $
    10,312,878
    
    
    $
    10,123,366
 The accompanying notes are an integral part of these financial statements.
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VERAMARK TECHNOLOGIES, INC.
 CONDENSED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2006
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    325,251
    
    
    $
    275,756Accrued compensation and related taxes
    
    
    480,430
    
    
    
    565,096Deferred revenue
    
    
    3,198,198
    
    
    
    2,936,466Other accrued liabilities
    
    
    125,161
    
    
    
    135,430Total Current Liabilities
    
    
    4,129,040
    
    
    
    3,912,748Pension obligation
    
    
    4,794,704
    
    
    
    4,424,304Total Liabilities
    
    
    8,923,744
    
    
    
    8,337,052STOCKHOLDERS EQUITY:Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding
8,927,498 and 8,917,840
    
    
    892,750
    
    
    
    891,784Additional paid-in capital
    
    
    21,715,524
    
    
    
    21,686,152Accumulated deficit
    
    
    (20,850,797
    )
    
    
    (20,413,395
    )Treasury stock (80,225 shares, at cost)
    
    
    (385,757
    )
    
    
    (385,757
    )Accumulated other comprehensive income
    
    
    17,414
    
    
    
    7,530Total Stockholders Equity
    
    
    1,389,134
    
    
    
    1,786,314TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    10,312,878
    
    
    $
    10,123,366
 The accompanying notes are an integral part of these financial statements.
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VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005NET SALESProduct sales
    
    $
    876,781
    
    
    $
    963,216
    
    
    $
    2,445,467
    
    
    $
    2,797,851Service sales
    
    
    1,712,856
    
    
    
    1,705,605
    
    
    
    5,194,647
    
    
    
    5,158,698Total Net Sales
    
    
    2,589,637
    
    
    
    2,668,821
    
    
    
    7,640,114
    
    
    
    7,956,549COSTS AND OPERATING EXPENSES:Cost of sales
    
    
    562,431
    
    
    
    454,053
    
    
    
    1,660,863
    
    
    
    1,333,988Engineering and software development
    
    
    185,202
    
    
    
    265,597
    
    
    
    536,212
    
    
    
    746,384Selling, general and administrative
    
    
    2,025,219
    
    
    
    2,001,741
    
    
    
    5,906,613
    
    
    
    5,770,737Total Costs and Operating Expenses
    
    
    2,772,852
    
    
    
    2,721,391
    
    
    
    8,103,688
    
    
    
    7,851,109INCOME (LOSS) FROM OPERATIONS
    
    
    (183,215
    )
    
    
    (52,570
    )
    
    
    (463,574
    )
    
    
    105,440INTEREST INCOME
    
    
    10,342
    
    
    
    4,163
    
    
    
    26,172
    
    
    
    10,590INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (172,873
    )
    
    
    (48,407
    )
    
    
    (437,402
    )
    
    
    116,030INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    $
    (172,873
    )
    
    $
    (48,407
    )
    
    $
    (437,402
    )
    
    $
    116,030NET INCOME (LOSS) PER SHAREBasic
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    0.01Diluted
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    0.01
 The accompanying notes are an integral part of these financial statements.
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VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months EndedSeptember 30,2006
    
    
    2005OPERATING ACTIVITIES:Net Income (loss)
    
    $
    (437,402
    )
    
    $
    116,030Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:Depreciation and amortization
    
    
    943,810
    
    
    
    805,961Expense (recovery) of bad debts
    
    
    1,494
    
    
    
    (2,776
    )Compensation expense-stock options (net of forfeitures)
    
    
    24,700
    
    
    
    (113,545
    )Increase in cash surrender value of company-owned life insurance
policies
    
    
    (143,076
    )
    
    
    (120,503
    )Realized (gain) loss on sale of investments
    
    
    (2,922
    )
    
    
    220Changes in assets and liabilitiesAccounts receivable
    
    
    220,112
    
    
    
    (119,701
    )Inventories
    
    
    18,806
    
    
    
    (10,900
    )Prepaid expenses and other current assets
    
    
    (98,501
    )
    
    
    (40,735
    )Deposits and other assets
    
    
    8,211
    
    
    
    Accounts payable
    
    
    49,495
    
    
    
    (88,631
    )Accrued compensation and related taxes
    
    
    (84,666
    )
    
    
    (149,763
    )Deferred revenue
    
    
    261,732
    
    
    
    400,315Other accrued liabilities
    
    
    (10,269
    )
    
    
    (69,753
    )Pension obligation
    
    
    370,400
    
    
    
    482,901Net cash flows provided by operating activities:
    
    
    1,121,924
    
    
    
    1,089,120INVESTING ACTIVITIES:Purchase of investments
    
    
    (221,287
    )
    
    
    (13,438
    )Capitalized software development costs
    
    
    (1,053,693
    )
    
    
    (917,032
    )Additions to property and equipment
    
    
    (96,950
    )
    
    
    (91,323
    )Net cash flows used by investing activities:
    
    
    (1,371,930
    )
    
    
    (1,021,793
    )FINANCING ACTIVITY:Exercise of stock options
    
    
    932
    
    
    
    63,841Proceeds from employee stock purchase plan
    
    
    4,706
    
    
    
    6,357Net cash flows provided by financing activities:
    
    
    5,638
    
    
    
    70,198NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (244,368
    )
    
    
    137,525CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    911,310
    
    
    
    722,020CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    666,942
    
    
    $
    859,545
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Nine Months EndedSeptember 30,2006
    
    2005SUPPLEMENTAL CASH FLOW INFORMATIONCash Transactions:Income taxes paid
    
    $
    17,141
    
    
    $
    4,756Interest paid
    
    $
    619
    
    
    $
    20
 The accompanying notes are an integral part of these financial statements.
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NOTES TO CONDENSED FINANCIAL STATEMENTS
  (1)
    
    GENERAL
    (2)
    
    PROPERTY AND EQUIPMENTThe major classifications of property and equipment at September 30, 2006, and December 31,
2005 were:
 September 30,
    
    
    December 31,2006
    
    
    2005Machinery and equipment
    
    $
    794,749
    
    
    $
    794,314Computer hardware and software
    
    
    1,995,456
    
    
    
    1,991,877Furniture and fixtures
    
    
    1,669,085
    
    
    
    1,627,677Leasehold improvements
    
    
    1,382,559
    
    
    
    1,382,559$
    5,841,849
    
    
    $
    5,796,427
  (3)
    
    STOCK-BASED COMPENSATIONIn December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R
requires all share-based payments to employees, including grants of employee stock options, to
be recognized as compensation expense in the financial statements based on their fair values.
That expense will be recognized over the period during which an employee is required to
provide services in exchange for the award, known as the requisite service period (usually the
vesting period). We adopted SFAS No. 123R effective beginning January 1, 2006, using the
Modified Prospective Application. SFAS No. 123R applies
to the new awards modified, repurchased or cancelled after the effective date. The impact of
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##### Table of Contents



adopting SFAS No. 123R was an increase of $24,700 to operating expenses for the nine months
ended September 30, 2006.
For the three and nine months ended September 2005, the following table includes disclosures
required by SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure, and illustrates
the effect on net earnings and net earnings per share as if we had applied the fair value
recognition provisions of SFAS No. 123:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2005Net Income (Loss)
    
    As reported
    
    $
    (48,407
    )
    
    $
    116,030Add: total stock-based
compensation expense
included in net income,
net of forfeitures and
related tax effects
    
    
    
    
    
    
    (15,506
 )
    
    
    (113,545
    )Deduct: total
stock-based compensation
expense determined under
fair value, net of
forfeitures and related
tax effects
    
    
    
    
    
    
    (15,724
    )
    
    
    (51,729
    )Pro forma
    
    $
    (79,637
    )
    
    $
    (49,244
    )Net loss per common share
    
    As reportedBasic
    
    $
    (0.01
    )
    
    $
    0.01Diluted
    
    $
    (0.01
    )
    
    $
    0.01Pro formaBasic
    
    $
    (0.01
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.01
    )
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Average
    
    
    Average
    
    
    RemainingExercise
    
    
    Grant-Date
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Fair Value
    
    
    Term (Yrs)
    
    
    ValueOutstanding as of December 31, 2005
    
    
    2,865,028
    
    
    $
    2.37
    
    
    $
    1.93
    
    
    
    4.3
    
    
    $
    1,198,974Granted
    
    
    10,000
    
    
    $
    0.55
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,750
    )
    
    
    0.53
    
    
    
    
    
    
    
    
    
    
    
    (170
    )Canceled
    
    
    (83,000
    )
    
    
    2.82
    
    
    
    
    
    
    
    
    
    
    
    (41,179
    )Outstanding as of September 30, 2006
    
    
    2,790,278
    
    
    $
    2.35
    
    
    $
    1.92
    
    
    
    3.6
    
    
    $
    1,157,625Options exercisable at September
30, 2006
    
    
    2,723,503
    
    
    $
    2.39
    
    
    $
    1.95
    
    
    
    3.5
    
    
    $
    1,150,856
  (4)
    
    TOTAL COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005Net income (loss)
    
    $
    (172,873
    )
    
    $
    (48,407
    )
    
    $
    (437,402
    )
    
    $
    116,030Accumulated other comprehensive
income (loss)
    
    
    16,241
    
    
    
    (2,443
    )
    
    
    9,884
    
    
    
    2,929Total comprehensive income (loss)
    
    $
    (156,632
    )
    
    $
    (50,850
    )
    
    $
    (427,518
    )
    
    $
    118,959
 (5)
    
    NET INCOME (LOSS) PER SHARE (EPS)SFAS 128 Earnings Per Share requires the Company to calculate net income (loss) per share
based on basic and diluted net income (loss) per share, as defined. 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.
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Calculations of Earnings (Loss) Per Share
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005BasicNet Income (loss)
    
    $
    (172,873
    )
    
    $
    (48,407
    )
    
    $
    (473,402
    )
    
    $
    116,030Weighted average common shares
outstanding
    
    
    8,847,273
    
    
    
    8,793,951
    
    
    
    8,841,699
    
    
    
    8,733,267Net Income (loss) per common share
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    0.01DilutedNet Income (loss)
    
    $
    (172,873
    )
    
    $
    (48,407
    )
    
    $
    (473,402
    )
    
    $
    116,030Weighted average common shares
outstanding
    
    
    8,847,273
    
    
    
    8,793,951
    
    
    
    8,841,699
    
    
    
    8,733,267Additional dilutive effect of stock options and
warrants after application
of treasury stock method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    652,450Weighted average dilutive shares
outstanding
    
    
    8,847,273
    
    
    
    8,793,951
    
    
    
    8,841,699
    
    
    
    9,385,717Net Income (loss) per common share
assuming full dilution
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    0.01
  (6)
    
    INDEMNIFICATION OF CUSTOMERSOur 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, 2006 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.(7)
    
    BENEFIT PLANSThe Company sponsors an employee incentive savings plan under Section 401(k) for all eligible
employees. The Companys contributions to the plan are discretionary. There were no
contributions to the plan for the nine months ended September 30, 2006 and 2005.The Company also sponsors an unfunded Supplemental Executive Retirement Program (SERP),
which is a non-qualified plan that provides certain key employees defined pension benefits.
Periodic pension
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expense for the three and nine months ended September 30, 2006 and 2005 consists of the
following:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Current Service Cost
    
    $
    69,503
    
    
    $
    114,244
    
    
    $
    208,509
    
    
    $
    342,736Amortization of
Prior Service Cost
    
    
    22,123
    
    
    
    22,650
    
    
    
    66,369
    
    
    
    67,950Interest Cost
    
    
    73,374
    
    
    
    65,605
    
    
    
    220,122
    
    
    
    196,815Pension Expense
    
    $
    165,000
    
    
    $
    202,499
    
    
    $
    495,000
    
    
    $
    607,501
 The Company paid pension obligations of $124,600 for both the nine months ended September 30,
2006 and 2005.The discount rate used in determining the actuarial present value of the projected benefit
obligation was 6% for the six months ended September 30, 2006 and 2005.The Company maintains life insurance covering certain key employees under its Supplemental
Executive Retirement Program with the Company named as beneficiary. The Company intends to
use the death benefits of these policies, as well as loans against the accumulating cash
surrender value of the policies, to fund future pension obligations. The total death benefit
associated with these policies is $10.2 million, with an associated accumulated cash
surrender value of approximately $2,645,000 at September 30, 2006. The accumulated cash
surrender values of these policies at December 31, 2005 was approximately $2,502,000.
 
 Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations
  Overview
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Sales
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Cost of Sales
  Operating Expenses
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gross expenditures
for engineering &
software
development
    
    $
    550,000
    
    
    $
    526,000
    
    
    $
    1,590,000
    
    
    $
    1,663,000Less: Software
development costs
capitalized
    
    
    (365,000
    )
    
    
    (260,000
    )
    
    
    (1,054,000
    )
    
    
    (917,000
    )Net expense for
engineering and
software
    
    $
    185,000
    
    
    $
    266,000
    
    
    $
    536,000
    
    
    $
    746,000
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Liquidity and Capital Resources
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Accounting Pronouncements
 1)
    
    In December 2003, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 104, Revenue Recognition, which updates the guidance in
SAB No. 101, integrates the related set of Frequently Asked Questions, and recognizes the
role of EITF 00-21. The adoption of SAB No. 104 did not have a material effect on the
Companys financial statements.2)
    
    In November 2002, the Emerging Issues Task Force reached a consensus on Issue No.
00-21, Revenue Arrangements with Multiple Deliverables. Issue 00-21 provides guidance on
how to account for arrangements that involve the delivery or performance of multiple
products, services and/or rights to use assets. The provisions of Issue 00-21 applied to
revenue arrangements entered into in periods beginning after June 15, 2003. The adoption
of Issue 00-21 did not have a material effect on the Companys financial position or
results of operations.3)
    
    In December 2004, the FASB issued SFAS 123(R), Share-Based Payment, which establishes
standards for transactions in which an entity exchanges its equity instruments for goods or
services. This standard requires an issuer to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value
of the award and the recording of such expense in the consolidated financial statements.
This eliminates the exception to account for such awards using the intrinsic value method
previously allowable under Accounting Principles Board (APB) Opinion No. 25. Pro forma
disclosure of fair value recognition will no longer be an alternative. In addition, the
adoption of SFAS No. 123(R) will require additional accounting related to the income tax
effects and disclosure regarding the cash flow effects resulting from share-based payment
arrangements.SFAS 123(R) permits public companies to adopt its requirements using one of two methods:
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SFAS 123(R) became effective for our fiscal year 2006 and we utilized the modified
prospective method. We have selected the Black-Scholes option-pricing model as the most
appropriate fair-value method for our awards and will recognize compensation cost on a
straight-line basis over our awards vesting periods. Although the adoption of SFAS No.
123(R) had no adverse impact on our balance sheet or total cash flows, it is expected to
negatively impact our net income and earnings per share for 2006 by less than $50,000. The
actual effects of adopting SFAS No. 123(R) will depend on numerous factors including the
amounts of share-based payments granted in the future, our stock price volatility, estimated
forfeiture rates and employee stock option exercise behavior.4)
    
    In December 2004, FASB issued SFAS 153, Exchanges of Nonmonetary Assetsan
amendment to APB Opinion No. 29. This statement amends APB 29 to eliminate the exception
for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. Adoption of this statement
did not have a material impact on our results of operations or financial condition.5)
    
    In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections 
a replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). SFAS 154
changes the requirements for the accounting for and reporting of a change in accounting
principle. These requirements apply to all voluntary changes and changes required by an
accounting pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. SFAS 154 is effective for fiscal years beginning after
December 15, 2005. Adoption of this statement did not have a material impact on our
results of operations or financial condition.6)
    
    In September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements. SFAS 157
defines fair value, establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. SFAS 157 is effective as of the beginning of
the first fiscal year that begins after November 15, 2007. As such, the Company is
required to adopt these provisions at the beginning of the fiscal year ended December 31,
2008. The Company is currently evaluating the impact of SFAS 157 on its consolidated
financial statements.7)
    
    In September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87,
88, 106, and 132(R) (SFAS 158). SFAS 158 requires an employer to recognize the
overfunded or underfunded status of a defined benefit postretirement plan (other than a
multiemployer plan) as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the changes occur through
comprehensive income. SFAS 158 is effective for an employer with publicly traded equity
securities as of the end of the first fiscal year ending after December 15, 2006, SFAS 158
also requires an employer to measure the funded status of a plan as of the date of its
year-end statement of financial position, effective for fiscal years ending after December
15, 2008 As such, the Company is required to recognize the funded status of its defined
benefit postretirement plan and to provide the required
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disclosures at the beginning of the
fiscal year ended December 31, 2006. The Company is currently evaluating the impact of SFAS
158 on its consolidated financial statements.
 Critical Accounting Policies
  
    
    Revenue recognition
    
    Capitalization of software development costs
    
    Allowance for Doubtful Accounts
    
    Pension liability
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Issues and Risks
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Intellectual Property Rights
  New Products and Services
 ®
 Declines in Demand for Software
  Product Development Schedule
  Competition
  Marketing and Sales
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Item 3 Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4 Controls and Procedures
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PART II  OTHER INFORMATION
 
 Item 5: Certification of Chief Executive Officer and Chief Accounting Officer
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##### Table of Contents



Item 6: Exhibits
 (a)
    
    Exhibits required by Item 601 of Regulation S-K
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Date: November 10, 2006/s/ David G. Mazzella

David G. MazzellaPresident and CEODate: November 10, 2006/s/ Ronald C. Lundy

Ronald C. LundyTreasurer (Chief Accounting Officer)
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