##### Table of Contents



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 þ
    
    Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934
 or
 o
    
    Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
 For Quarter Ended March 31, 2010
 Commission File Number 0-13898
 Veramark Technologies, Inc.
  Delaware
    
    16-1192368(State or other jurisdiction of Incorporation
    
    (IRS Employer Identification Number)or Organization)
 (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
 YES
þ NO
o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ
 o þ




---



##### 



INDEX
 PagePART I FINANCIAL INFORMATIONItem 1 Financial StatementsCondensed Balance Sheets  
March 31, 2010 (Unaudited) and December 31, 2009
    
    
    3Condensed Statements of Operations (Unaudited) Three Months Ended March 31, 2010 and 2009
    
    
    4Condensed Statements of Cash Flows (Unaudited) Three Months Ended March 31, 2010 and 2009
    
    
    5Notes To Condensed Financial Statements (Unaudited)
    
    
    6   10Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11  17Item 3
Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4 Controls and Procedures
    
    
    18PART II OTHER INFORMATIONItem 5 Other Information
    
    
    19Item 6 Exhibits
    
    
    19  20Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED BALANCE SHEETS
 (Unaudited)March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    601,402
    
    
    $
    488,381Investments
    
    
    420,963
    
    
    
    457,520Accounts receivable, trade (net of allowance for
doubtful accounts of $25,000 and $24,000, respectively)
    
    
    1,378,552
    
    
    
    1,314,986Inventories, net
    
    
    10,275
    
    
    
    13,510Prepaid expenses
    
    
    444,851
    
    
    
    389,267Other current assets
    
    
    384,930
    
    
    
    509,590Total Current Assets
    
    
    3,240,973
    
    
    
    3,173,254PROPERTY AND EQUIPMENTCost
    
    
    3,638,361
    
    
    
    3,520,903Less accumulated depreciation
    
    
    (3,249,883
    )
    
    
    (3,207,550
    )Property and Equipment (Net)
    
    
    388,478
    
    
    
    313,353OTHER ASSETS:Software development costs (net of accumulated
amortization of $2,817,887 and $2,497,948, respectively)
    
    
    2,889,377
    
    
    
    2,906,505Pension assets
    
    
    3,015,777
    
    
    
    2,995,657Deposits and other assets
    
    
    1,037,988
    
    
    
    995,766Total Other Assets
    
    
    6,943,142
    
    
    
    6,897,928TOTAL ASSETS
    
    $
    10,572,593
    
    
    $
    10,384,535LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    354,008
    
    
    $
    325,204Accrued compensation and related taxes
    
    
    506,702
    
    
    
    457,332Deferred revenue
    
    
    4,008,442
    
    
    
    3,790,856Current portion of pension obligation
    
    
    502,059
    
    
    
    502,059Other accrued liabilities
    
    
    504,156
    
    
    
    632,061Total Current Liabilities
    
    
    5,875,367
    
    
    
    5,707,512Pension obligation
    
    
    4,640,455
    
    
    
    4,674,071Total Liabilities
    
    
    10,515,822
    
    
    
    10,381,583STOCKHOLDERS EQUITY:Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding,
9,908,952 and 10,028,952
    
    
    990,895
    
    
    
    1,002,895Additional paid-in capital
    
    
    22,440,365
    
    
    
    22,398,110Accumulated deficit
    
    
    (23,112,826
    )
    
    
    (23,179,337
    )Treasury stock (80,225 shares, at cost)
    
    
    (385,757
    )
    
    
    (385,757
    )Accumulated other comprehensive income
    
    
    124,094
    
    
    
    167,041Total Stockholders Equity
    
    
    56,771
    
    
    
    2,952TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    10,572,593
    
    
    $
    10,384,535
 The accompanying notes are an integral part of these financial statements.
  3




---



##### Table of Contents



VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009NET REVENUESProduct sales
    
    $
    532,406
    
    
    $
    468,269Service sales
    
    
    2,249,323
    
    
    
    2,054,410Total Net Sales
    
    
    2,781,729
    
    
    
    2,522,679COSTS AND OPERATING EXPENSES:Cost of sales
    
    
    736,058
    
    
    
    644,219Engineering and software development
    
    
    320,039
    
    
    
    294,516Selling, general and administrative
    
    
    1,676,344
    
    
    
    1,773,627Total Costs and Operating Expenses
    
    
    2,732,441
    
    
    
    2,712,362INCOME (LOSS) FROM OPERATIONS
    
    
    49,288
    
    
    
    (189,683
    )NET INTEREST INCOME
    
    
    17,223
    
    
    
    9,564INCOME (LOSS) BEFORE INCOME TAXES
    
    
    66,511
    
    
    
    (180,119
    )INCOME TAXES
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    $
    66,511
    
    
    $
    (180,119
    )NET INCOME (LOSS) PER SHAREBasic
    
    $
    0.01
    
    
    $
    (0.02
    )Diluted
    
    $
    0.01
    
    
    $
    (0.02
    )
 The accompanying notes are an integral part of these financial statements.
  4




---



##### Table of Contents



VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Three Months Ended March 31,2010
    
    
    2009OPERATING ACTIVITIES:Net income (loss)
    
    $
    66,511
    
    
    $
    (180,119
    )Adjustments to reconcile net income or loss to net cash flows
provided by operating activitiesDepreciation and amortization
    
    
    371,611
    
    
    
    406,213Bad debt expense
    
    
    3,859
    
    
    
    (14,000
    )Share based compensation expense
    
    
    30,255
    
    
    
    27,067Pension assets
    
    
    (20,120
    )
    
    
    (7,500
    )Loss on disposal of fixed assets
    
    
    140
    
    
    
    0Unrealized gain (losses) on investments
    
    
    (13,547
    )
    
    
    (5,351
    )Changes in assets and liabilities:Accounts receivable
    
    
    (67,425
    )
    
    
    (49,166
    )Inventories
    
    
    3,235
    
    
    
    6,770Prepaid expenses and other current assets
    
    
    69,076
    
    
    
    (215,982
    )Deposits and other assets
    
    
    (42,222
    )
    
    
    0Accounts payable
    
    
    28,804
    
    
    
    107,380Accrued compensation and related taxes
    
    
    49,370
    
    
    
    50,656Deferred revenue
    
    
    217,586
    
    
    
    (36,515
    )Other accrued liabilities
    
    
    (127,905
    )
    
    
    (26,017
    )Pension obligation
    
    
    (63,016
    )
    
    
    (18,515
    )Net cash provided by operating activities
    
    
    506,212
    
    
    
    44,921INVESTING ACTIVITIES:Sale of investments
    
    
    36,557
    
    
    
    10,473Capitalized software development costs
    
    
    (302,811
    )
    
    
    (297,983
    )Additions to property and equipment
    
    
    (126,937
    )
    
    
    (124,300
    )Net cash flows used by investing activities
    
    
    (393,191
    )
    
    
    (411,810
    )FINANCING ACTIVITY:Exercise of stock options
    
    
    0
    
    
    
    0Net cash provided by financing activities
    
    
    0
    
    
    
    0NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    113,021
    
    
    
    (366,889
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    488,381
    
    
    
    1,014,669CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    601,402
    
    
    $
    647,7802010
    
    
    2009SUPPLEMENTAL CASH FLOW INFORMATIONCash Transactions:Income taxes paid, net
    
    $
    250
    
    
    $
    2,750Interest paid
    
    $
    488
    
    
    $
    226
 The accompanying notes are an integral part of these financial statements.
  5




---



##### Table of Contents



NOTES TO CONDENSED FINANCIAL STATEMENTS
  (1)
    
    GENERAL
    (2)
    
    PROPERTY AND EQUIPMENT
  March 31,
    
    
    December 31,2010
    
    
    2009Machinery and equipment
    
    $
    117,541
    
    
    $
    117,541Computer hardware and software
    
    
    1,281,889
    
    
    
    1,164,431Furniture and fixtures
    
    
    853,134
    
    
    
    853,134Leasehold improvements
    
    
    1,385,797
    
    
    
    1,385,797$
    3,638,361
    
    
    $
    3,520,903
  (3)
    
    STOCK-BASED COMPENSATION
   6




---



##### Table of Contents



Average
    
    
    Average
    
    
    RemainingExercise
    
    
    Grant-Date
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Fair Value
    
    
    Term (Yrs)
    
    
    ValueOutstanding as of December 31, 2009
    
    
    1,740,793
    
    
    $
    0.94
    
    
    $
    0.84
    
    
    
    4.2
    
    
    $
    201,626Granted
    
    
    3,000
    
    
    $
    0.42
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    (19,275
    )
    
    
    8.19
    
    
    
    
    
    
    
    
    
    
    
    (27,682
    )Outstanding as of March 31, 2010
    
    
    1,724,518
    
    
    $
    0.85
    
    
    $
    0.78
    
    
    
    4.0
    
    
    $
    173,944Options exercisable at March 31, 2010
    
    
    1,612,643
    
    
    $
    0.87
    
    
    $
    0.80
    
    
    
    3.7
    
    
    $
    173,944
  (4)
    
    TOTAL COMPREHENSIVE INCOME (LOSS)
  Three Months Ended March 31,2010
    
    
    2009Net income (loss)
    
    $
    66,511
    
    
    $
    (180,119
    )Unrealized change  pension
    
    
    (29,400
    )
    
    
    103,317Unrealized change on investments
    
    
    (13,547
    )
    
    
    (5,351
    )Total comprehensive income (loss)
    
    $
    23,564
    
    
    $
    (82,153
    )
 (5)
    
    NET INCOME (LOSS) PER SHARE (EPS)
   7




---



##### Table of Contents



Calculations of Earnings (Loss) Per Share
 Three Months EndedMarch 31,2010
    
    
    2009BasicNet Income (loss)
    
    $
    66,511
    
    
    $
    (180,119
    )Weighted average common shares outstanding
    
    
    9,828,727
    
    
    
    9,784,729Net Income (loss) per common share
    
    $
    0.01
    
    
    $
    (0.02
    )DilutedNet Income (loss)
    
    $
    66,511
    
    
    $
    (180,119
    )Weighted average common shares outstanding
    
    
    9,828,727
    
    
    
    9,784,729Additional dilutive effect of stock options and
warrants after application of treasury stock method
    
    
    18,850
    
    
    
    Weighted average dilutive shares outstanding
    
    
    9,847,577
    
    
    
    9,784,729Net Income (loss) per common share assuming full dilution
    
    $
    0.01
    
    
    $
    (0.02
    )
  (6)
    
    INDEMNIFICATION OF CUSTOMERS
  (7)
    
    BENEFIT PLANS
   8




---



##### Table of Contents



Three Months Ended March 31,2010
    
    
    2009Interest Cost
    
    $
    91,899
    
    
    $
    (8,317
    )Unrealized Actuarial Gain
    
    
    (29,400
    )
    
    
    103,317Pension Expense
    
    $
    62,499
    
    
    $
    95,000
     Period Ending December 31, Unless Stated Otherwise,
 Q2  Q4 2010
    
    
    376,5442011
    
    
    471,9252012
    
    
    477,0052013
    
    
    487,1662014
    
    
    487,1662015  2019
    
    
    2,329,859
  9




---



##### Table of Contents



The Company has a contractual obligation to maintain certain health benefits for two of its
former executive officers. These benefits are accounted for as Post Retirement Healthcare
Benefits, (PRHB). Periodic PRHB expensed and paid for the three months ended March 31,
2010 and 2009 consists of the following:
 Three Months Ended March 31,2010
    
    
    2009Current Service Cost
    
    $
    2,125
    
    
    $
    2,005Interest Cost
    
    
    1,287
    
    
    
    1,407PRHB Expense
    
    $
    3,412
    
    
    $
    3,412
 The projected PRHB paid or expected to be paid are as follows:
 Period Ending December 31, Unless Stated Otherwise,
 Q2  Q4 2010
    
    
    10,2372011
    
    
    13,6492012
    
    
    13,6492013
    
    
    13,6492014
    
    
    10,1492015  2019
    
    
    33,245
  10




---



##### Table of Contents



Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations
  Overview
     Revenues
   Gross Margin
   11




---



##### Table of Contents



Operating Expenses
   Liquidity and Capital Resources
         12




---



##### Table of Contents



Accounting Pronouncements
 
    
    In October 2009, the FASB issued Accounting Standards Update No. 2009-13,
Multiple-Deliverable Revenue Arrangements,which amends existing revenue recognition
accounting pronouncements that are currently within the scope of FASB Codification Subtopic
605-25 (previously included within EITF Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, or EITF 00-21). The consensus to EITF Issue No. 08-01, Revenue Arrangements
with Multiple Deliverables, or EITF 08-01, provides accounting principles and application
guidance on whether multiple deliverables exist, how the arrangement should be separated,
and the consideration allocated. This guidance eliminates the requirement to establish the
fair value of undelivered products and services and instead provides for separate revenue
recognition based upon managements estimate of the selling price for an undelivered item
when there is no other means to determine the fair value of that undelivered item. EITF
00-21 previously required that the fair value of the undelivered item be the price of the
item either sold in a separate transaction between unrelated third parties or the price
charged for each item when the item is sold separately by the vendor. This was difficult to
determine when the product was not individually sold because of its unique features. Under
EITF 00-21, if the fair value of all of the elements in the arrangement was not
determinable, then revenue was deferred until all of the items were delivered or fair value
was determined. This new approach is effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010.
The Company will have to evaluate the impact of this standard on future revenue
arrangements that we may enter into.
 
    
    In January 2010, the FASB issued Accounting Standards Update No. 2010-06, topic 820,
Fair Value Measurements and Disclosures, which amends existing fair value disclosure
pronouncements. This update provides amendments to Subtopic 820-10 that require new
disclosures as follows:
 1.
    
    Transfers in and out of Levels 1 and 2. A reporting entity should
disclose separately the amounts of significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons for the transfers.
 2.
    
    Activity in Level 3 fair value measurements. In the reconciliation for
fair value measurements using significant unobservable inputs (Level 3), a reporting
entity should present separately information about purchases, sales, issuances, and
settlements (that is, on a gross basis rather than as one net number).
  13




---



##### Table of Contents



This update also provides amendments to Subtopic 820-10 that clarify existing disclosures as
follows:
 1.
    
    Level of disaggregation. A reporting entity should provide fair value
measurement disclosures for each class of assets and liabilities. A class is often
a subset of assets or liabilities within a line item in the statement of financial
position. A reporting entity needs to use judgment in determining the appropriate
classes of assets and liabilities.
 2.
    
    Disclosures about inputs and valuation techniques. A reporting entity
should provide disclosures about the valuation techniques and inputs used to measure
fair value for both recurring and nonrecurring fair value measurements. Those
disclosures are required for fair value measurements that fall in either Level 2 or
Level 3.
 This update also includes conforming amendments to the guidance on employers disclosures
about postretirement benefit plan assets (Subtopic 715-20). The conforming amendments to
Subtopic 715-20 change the terminology from major categoriesof assets to classesof assets
and provide a cross reference to the guidance of Subtopic 820-10 on how to determine
appropriate classes to present fair value disclosures.This update is effective for interim and annual reporting periods beginning after December
15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in
the roll forward of activity in Level 3 fair value measurements. Those disclosures are
effective for fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The Company does not expect this to have a material effect on the
Companys financial statements.
    
    In April 2010, the FASB issued Accounting Standards Update No. 2010-13, topic 718,
Compensation  Stock Compensation, which adds clarification that an employee share-based
award with an exercise price denominated in the currency of a market in which a substantial
portion of the entitys equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an entity
would not classify such an award as a liability if it otherwise qualifies as an equity.
This update is effective for fiscal years, and interim periods within those fiscal years
beginning on or after December 15, 2010. The Company does not expect this to have a
material effect on the Companys financial statements.
 Critical Accounting Policies
  Revenue Recognition
   14




---



##### Table of Contents



Capitalization of Software Development
   15




---



##### Table of Contents



Allowance For Doubtful Accounts
  Pension Liability
   Risk Factors
  Intellectual Property Rights
  Existing Customer Base
   16




---



##### Table of Contents



Product Development
 
 Declines in Demand for Software
  New Products and Services
  Competition
   17




---



##### Table of Contents



Marketing and Sales
  Security and Privacy Breaches in the Company Systems May Damage Client Relations and Inhibit our
Growth
   18




---



##### Table of Contents



Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4
    
    Controls and Procedures
    19




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 5:
    
    Other Information
  
 Item 6:
    
    Exhibits
 (a)
    
    Financial Statements as set forth under Item 1 of this report on Form 10-Q
 (b)
    
    Exhibits required to be filed by Item 601 of Regulation S-K
 3.1
    
    
    Restated Certificate of Incorporation (incorporated by reference to
Exhibit 4.1 to the Companys Registration Statement on Form S-18
(File No. 2-96787) filed on March 22, 1985)3.2
    
    
    Bylaws (incorporated by reference to Exhibit 3 to the Companys
Registration Statement on Form S-8 filed on October 5, 1992)10.1
    
    
    Letter Agreement dated as of March 29, 2007 by and between the
Company and David G. Mazzella (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on April 3,
2007)10.2
    *
    
    Amended and Restated Board of Directors Deferred Compensation Plan
(incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on November 26, 2007)10.3
    *
    
    Employment Agreement dated as of December 17, 2007 by and between
the Company and Anthony C. Mazzullo (incorporated by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
December 19, 2007)10.4
    *
    
    Restricted Stock Award Agreement dated as of January 1, 2008 by and
between the Company and Anthony C. Mazzullo (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on March 25, 2008)10.5
    *
    
    2008 Incentive Plan for Management and Key Employees (incorporated
by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed on April 2, 2008)10.6
    *
    
    2008 Employee Stock Purchase Plan (incorporated by reference to
Exhibit F to the Companys Proxy Statement for its 2008 Annual
Meeting of Shareholders filed on April 29, 2008)10.7
    *
    
    Description of non-employee director compensation (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on August 18, 2008)10.8
    *
    
    Amended Salary Continuation Agreement dated as of October 10, 2008
by and between the Company and Ronald C. Lundy (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on October 17, 2008)
  20




---



##### Table of Contents



10.9
    *
    
    Form of 2008 Employee Stock Purchase Plan Enrollment Agreement
(incorporated by reference to Exhibit 4.2 to the Companys
Registration Statement on Form S-8 (File No. 333-155286) filed on
November 12, 2008)10.10
    *
    
    2010 Bonus Compensation Plan dated as of March 1, 2010 by and
between the Company and Anthony C. Mazzullo (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on Form
8-K filed on March 5, 2010)10.11
    *
    
    2010 Incentive Plan for Management and Key Employees (incorporated
by reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K filed on March 5, 2010)14
    
    
    Code of Business Conduct and Ethics (incorporated by reference to
Exhibit E to the Companys Proxy Statement for its 2008 Annual
Meeting of Shareholders filed on April 29, 2008)31.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 200232.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 *
    
    Management contract or compensatory plan or arrangement (c)
    
    Schedules required to be filed by Regulation S-X
    21




---



##### Table of Contents



/s/ Anthony C. Mazzullo

Anthony C. MazzulloPresident and CEO
  /s/ Ronald C. Lundy

Ronald C. LundyVice President of Finance and CFO
  22