##### 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 September 30, 2009
 Commission File Number 0-13898
 Veramark Technologies, Inc.
  Delaware
    
    16-1192368(State or other jurisdiction of Incorporation or Organization)
    
    (IRS Employer Identification Number)
 (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




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##### 



INDEX
 PagePART I FINANCIAL INFORMATIONItem 1 Financial StatementsCondensed Balance Sheets 
September 30, 2009 (Unaudited) and December 31, 2008
    
    
    3  4Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2009 and 2008
    
    
    5Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2009 and 2008
    
    
    6Notes To Condensed Financial Statements (Unaudited)
    
    
    7  11Item 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 Other Information
    
    
    22Item 6 Exhibits
    
    
    22  23Officers Certifications and Signatures
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
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PART I  FINANCIAL INFORMATION
 VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    612,231
    
    
    $
    1,014,669Short-term Investments
    
    
    445,154
    
    
    
    982,331Accounts receivable, trade (net
of allowance for doubtful accounts
of $21,000 and $30,000, respectively)
    
    
    1,148,064
    
    
    
    1,047,527Inventories, net
    
    
    25,231
    
    
    
    35,055Prepaid expenses and other current assets
    
    
    438,321
    
    
    
    244,511Total Current Assets
    
    
    2,669,001
    
    
    
    3,324,093PROPERTY AND EQUIPMENTCost
    
    
    3,535,043
    
    
    
    3,862,879Less accumulated depreciation
    
    
    (3,176,612
    )
    
    
    (3,406,882
    )Property and Equipment (Net)
    
    
    358,431
    
    
    
    455,997OTHER ASSETS:Software development costs (net of
accumulated amortization of $2,958,639
and $3,332,886, respectively)
    
    
    2,896,932
    
    
    
    2,719,787Pension assets
    
    
    2,875,354
    
    
    
    3,160,639Deposits and other assets
    
    
    995,766
    
    
    
    905,761Total Other Assets
    
    
    6,768,052
    
    
    
    6,786,187TOTAL ASSETS
    
    $
    9,795,484
    
    
    $
    10,566,277
 The accompanying notes are an integral part of these financial statements.
  3




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VERAMARK TECHNOLOGIES, INC.
 CONDENSED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2009
    
    
    2008LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    468,016
    
    
    $
    270,842Accrued compensation and related taxes
    
    
    553,686
    
    
    
    466,150Deferred revenue
    
    
    3,615,028
    
    
    
    3,746,488Current portion of pension obligation
    
    
    502,059
    
    
    
    486,059Other accrued liabilities
    
    
    86,676
    
    
    
    94,954Total Current Liabilities
    
    
    5,225,465
    
    
    
    5,064,493Pension obligation
    
    
    4,800,149
    
    
    
    5,000,010Total Liabilities
    
    
    10,025,614
    
    
    
    10,064,503STOCKHOLDERS (DEFICIT) EQUITY:Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding,
9,993,956 and 9,852,954
    
    
    999,396
    
    
    
    985,295Additional paid-in capital
    
    
    22,363,118
    
    
    
    22,293,688Accumulated deficit
    
    
    (23,111,572
    )
    
    
    (22,039,196
    )Treasury stock (80,225 shares, at cost)
    
    
    (385,757
    )
    
    
    (385,757
    )Accumulated other comprehensive income
    
    
    (95,315
    )
    
    
    (352,256
    )Total Stockholders (Deficit) Equity
    
    
    (230,130
    )
    
    
    501,774TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    9,795,484
    
    
    $
    10,566,277
 The accompanying notes are an integral part of these financial statements.
  4




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VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008NET SALESProduct sales
    
    $
    382,445
    
    
    $
    777,691
    
    
    $
    1,232,973
    
    
    $
    1,931,852Service sales
    
    
    2,128,070
    
    
    
    1,946,605
    
    
    
    6,279,611
    
    
    
    6,002,373Total Net Sales
    
    
    2,510,515
    
    
    
    2,724,296
    
    
    
    7,512,584
    
    
    
    7,934,225COSTS AND OPERATING EXPENSES:Cost of sales
    
    
    720,212
    
    
    
    721,239
    
    
    
    2,042,082
    
    
    
    2,144,146Engineering and software development
    
    
    220,571
    
    
    
    385,836
    
    
    
    793,735
    
    
    
    1,017,937Selling, general and administrative
    
    
    1,936,556
    
    
    
    1,682,512
    
    
    
    5,759,288
    
    
    
    5,325,415Total Costs and Operating Expenses
    
    
    2,877,339
    
    
    
    2,789,587
    
    
    
    8,595,105
    
    
    
    8,487,498LOSS FROM OPERATIONS
    
    
    (366,824
    )
    
    
    (65,291
    )
    
    
    (1,082,521
    )
    
    
    (553,273
    )NET INTEREST INCOME
    
    
    16,499
    
    
    
    29,032
    
    
    
    10,145
    
    
    
    63,178LOSS BEFORE INCOME TAXES
    
    
    (350,325
    )
    
    
    (36,259
    )
    
    
    (1,072,376
    )
    
    
    (490,095
    )INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (350,325
    )
    
    $
    (36,259
    )
    
    $
    (1,072,376
    )
    
    $
    (490,095
    )NET LOSS PER SHAREBasic
    
    $
    (0.04
    )
    
    $
    0.00
    
    
    $
    (0.11
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.04
    )
    
    $
    0.00
    
    
    $
    (0.11
    )
    
    $
    (0.05
    )
 The accompanying notes are an integral part of these financial statements.
  5




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VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008OPERATING ACTIVITIES:Net Loss
    
    $
    (1,072,376
    )
    
    $
    (490,095
    )Adjustments to reconcile net loss to net cash flows
provided by operating activitiesDepreciation and amortization
    
    
    1,096,417
    
    
    
    1,067,467Bad debt expense (recovery)
    
    
    (7,738
    )
    
    
    11,333Share based compensation expense
    
    
    69,250
    
    
    
    76,882Pension assets
    
    
    (24,715
    )
    
    
    4,015Loss on disposal of fixed assets
    
    
    1,096
    
    
    
    17,623Unrealized gain on sale of investments
    
    
    (6,376
    )
    
    
    (29,879
    )Changes in assets and liabilitiesAccounts receivable
    
    
    (92,799
    )
    
    
    (41,329
    )Inventories
    
    
    9,824
    
    
    
    (8,099
    )Prepaid expenses and other current assets
    
    
    (193,810
    )
    
    
    (91,911
    )Deposits and other assets
    
    
    (90,005
    )
    
    
    (75,005
    )Accounts payable
    
    
    197,174
    
    
    
    (51,160
    )Accrued compensation and related taxes
    
    
    87,536
    
    
    
    (344,943
    )Deferred revenue
    
    
    (131,460
    )
    
    
    258,758Other accrued liabilities
    
    
    (8,278
    )
    
    
    (106,062
    )Pension obligation
    
    
    79,456
    
    
    
    (134,234
    )Net cash flows provided (used) by operating activities
    
    
    (86,804
    )
    
    
    63,361INVESTING ACTIVITIES:Sale of investments
    
    
    537,177
    
    
    
    493,290Capitalized software development costs
    
    
    (1,040,423
    )
    
    
    (635,488
    )Additions to property and equipment
    
    
    (136,669
    )
    
    
    (151,485
    )Net cash flows used by investing activities:
    
    
    (639,915
    )
    
    
    (293,683
    )FINANCING ACTIVITY:Transfer of Cash Surrender Values
    
    
    310,000
    
    
    
    Exercise of stock options
    
    
    
    
    
    
    57,150Proceeds from employee stock purchase plan
    
    
    14,281
    
    
    
    11,743Net cash flows provided by financing activities
    
    
    324,281
    
    
    
    68,893NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (402,438
    )
    
    
    (161,429
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,014,669
    
    
    
    713,342CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    612,231
    
    
    $
    551,913SUPPLEMENTAL CASH FLOW INFORMATIONCash Transactions:Income taxes paid, net
    
    $
    4,350
    
    
    $
    13,129Interest paid
    
    $
    1,462
    
    
    $
    553
 The accompanying notes are an integral part of these financial statements.
  6




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NOTES TO CONDENSED FINANCIAL STATEMENTS
  (1)
    
    GENERAL
    (2)
    
    PROPERTY AND EQUIPMENT
 The major classifications of property and equipment at September 30, 2009, and December 31, 2008
were:
 September 30,
    
    
    December 31,2009
    
    
    2008Machinery and equipment
    
    $
    125,607
    
    
    $
    128,390Computer hardware and software
    
    
    1,170,506
    
    
    
    1,224,343Furniture and fixtures
    
    
    853,133
    
    
    
    1,124,349Leasehold improvements
    
    
    1,385,797
    
    
    
    1,385,797$
    3,535,043
    
    
    $
    3,862,879
 For the nine months ended September 30, 2009, the Company recorded depreciation expense of
$233,139. Depreciation expense for the nine months ended September 30, 2008 was $215,783.
 (3)
    
    STOCK-BASED COMPENSATION
 The Companys share-based compensation consists of restricted stock and stock options,
generally vesting over periods ranging from one to four years. For the nine months ended
September 30, 2009, the Company awarded restricted stock grants totaling 107,000 shares
vesting over three years, and 40,000 stock options vesting over four years. During the first
nine months of 2008 the Company awarded 470,000 restricted shares, and 140,500 stock options.
  7




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A summary of the status of the Companys stock option plan as of September 30, 2009 is
presented below:
 Average
    
    
    Average
    
    
    RemainingExercise
    
    
    Grant-Date
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Fair Value
    
    
    Term (Yrs)
    
    
    ValueOutstanding as of December 31, 2008
    
    
    1,899,583
    
    
    $
    1.28
    
    
    $
    1.07
    
    
    
    4.7
    
    
    $
    344,300Granted
    
    
    40,000
    
    
    $
    0.40
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    (133,040
    )
    
    
    5.76
    
    
    
    
    
    
    
    
    
    
    
    (134,934
    )Outstanding as of September 30, 2009
    
    
    1,806,543
    
    
    $
    0.93
    
    
    $
    0.84
    
    
    
    4.4
    
    
    $
    209,366Options exercisable at September 30, 2009
    
    
    1,679,293
    
    
    $
    0.96
    
    
    $
    0.87
    
    
    
    4.0
    
    
    $
    209,366
  (4)
    
    TOTAL COMPREHENSIVE INCOME (LOSS)
 Total comprehensive income (loss) for the three and nine months ended September 30, 2009
and 2008 were as follows:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (350,325
    )
    
    $
    (36,259
    )
    
    $
    (1,072,376
    )
    
    $
    (490,095
    )Reclassification to net
periodic benefit cost
    
    
    
    
    
    
    22,122
    
    
    
    
    
    
    
    66,367Unrealized change  pension
    
    
    80,000
    
    
    
    (36,247
    )
    
    
    263,317
    
    
    
    (108,741
    )Unrealized change on investments
    
    
    (6,605
    )
    
    
    (36,947
    )
    
    
    (6,376
    )
    
    
    (29,879
    )Total comprehensive loss
    
    $
    (276,930
    )
    
    $
    (87,331
    )
    
    $
    (815,435
    )
    
    $
    (562,348
    )
 (5)
    
    NET INCOME (LOSS) PER SHARE (EPS)
 ASC 260-10 (SFAS 128) Earnings Per Share as amended in September 2009, 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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008BasicNet Loss
    
    $
    (350,325
    )
    
    $
    (36,259
    )
    
    $
    (1,072,376
    )
    
    $
    (490,095
    )Weighted average common shares outstanding
    
    
    9,913,731
    
    
    
    9,620,814
    
    
    
    9,855,829
    
    
    
    9,490,905Net loss per common share
    
    $
    (0.04
    )
    
    $
    0.00
    
    
    $
    (0.11
    )
    
    $
    (0.05
    )DilutedNet loss
    
    $
    (350,325
    )
    
    $
    (36,259
    )
    
    $
    (1,072,376
    )
    
    $
    (490,095
    )Weighted average common shares outstanding
    
    
    9,913,731
    
    
    
    9,620,814
    
    
    
    9,855,829
    
    
    
    9,490,905Additional dilutive effect of stock options and
warrants after application of treasury stock method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average dilutive shares outstanding
    
    
    9,913,731
    
    
    
    9,620,814
    
    
    
    9,855,829
    
    
    
    9,490,905Net loss per common share assuming full obligation
    
    $
    (0.04
    )
    
    $
    0.00
    
    
    $
    (0.11
    )
    
    $
    (0.05
    )
  (6)
    
    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, 2009 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 PLANS
 The Company sponsors an employee incentive savings plan under Section 401(k) for all eligible
employees. The Companys contributions to the plan are discretionary. During the first nine
months of 2009, the Company contributed $23,868 to employees 401k accounts. There were no
contributions to the plan during the first nine months of 2008.
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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 expense for the three and nine months ended September 30, 2009 and 2008
consists of the following:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Current Service Cost
    
    
    
    
    
    $
    (38,063
    )
    
    
    
    
    
    $
    (13,355
    )Amortization of Prior Service Cost
    
    
    
    
    
    
    22,122
    
    
    
    
    
    
    
    66,367Interest Cost
    
    
    130,000
    
    
    
    82,688
    
    
    
    176,683
    
    
    
    248,064Unrealized change
    
    
    80,000
    
    
    
    (36,247
    )
    
    
    263,317
    
    
    
    (108,741
    )Pension Expense
    
    $
    210,000
    
    
    $
    30,500
    
    
    $
    440,000
    
    
    $
    192,335
 The Company paid pension obligations of $360,544 for the nine months ended September 30, 2009
and $326,569 for the nine months ended September 30, 2008.
 The discount rate used in determining the actuarial present value of the projected benefit
obligation was 6.0% for the nine month periods ended September 30, 2009 and 2008.
 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 $2,875,000 at September 30, 2009. The accumulated cash
surrender values of these policies at December 31, 2008 was approximately $3,161,000.
 The projected pension benefits paid or expected to be paid under this plan are as follows,
assuming retirement at 65 and a life expectancy of 80 years for all participants:
 Period Ending December 31, Unless Stated Otherwise,
 Q4 2009
    
    
    125,5152010
    
    
    502,0592011
    
    
    471,9252012
    
    
    506,9182013
    
    
    522,1592014 - 2018
    
    
    2,607,898
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The Company has a contractual obligation to maintain certain health benefits for two of its
former chief executive officers. These benefits are accounted for as Post Retirement
Healthcare Benefits, (PRHB). Periodic PRHB expensed and paid for the three and nine months
ended September 30, 2009 and 2008 consists of the following:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Current Service Cost
    
    $
    2,005
    
    
    $
    1,892
    
    
    $
    6,015
    
    
    $
    5,876Interest Cost
    
    
    1,408
    
    
    
    1,521
    
    
    
    4,222
    
    
    
    4,563PRHB Expense
    
    $
    3,413
    
    
    $
    3,413
    
    
    $
    10,237
    
    
    $
    10,439
 The projected PRHB paid or expected to be paid are as follows:
 Period Ending December 31, Unless Stated Otherwise,
 Q4 2009
    
    
    3,4132010
    
    
    13,6492011
    
    
    13,6492012
    
    
    13,6492013
    
    
    13,6492014 - 2018
    
    
    36,745
 (8)
    
    SUBSEQUENT EVENTSSubsequent events were evaluated through November 12, 2009, the date the financial statements
were issued.
  11




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Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations
  Overview
   Revenues
  Gross Margin
   12




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Operating Expenses
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Gross expenditures for engineering & software
development
    
    $
    624,000
    
    
    $
    609,000
    
    
    $
    1,834,000
    
    
    $
    1,654,000Less: Software development costs capitalized
    
    
    (403,000
    )
    
    
    (223,000
    )
    
    
    (1,040,000
    )
    
    
    (636,000
    )Net expense for engineering and software
    
    $
    221,000
    
    
    $
    386,000
    
    
    $
    794,000
    
    
    $
    1,018,000
  Liquidity and Capital Resources
    13




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Accounting Pronouncements
 1)
    
    In December 2007, the Financial Accounting Standards Board issued Accounting Standards
Codification (ASC) 805-10, formerly Statement of Financial Accounting Standards (SFAS)
No. 141(R), Business Combinations. ASC 805-10 establishes principles and requirements for
how the acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree,
recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain purchase, and determines what
information to disclose to enable users of the financial statements to evaluate the nature
and financial effects of the business combination. ASC 805-10 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or after December 15, 2008. As
such, the Company adopted these provisions at the beginning of the fiscal year ending
December 31, 2009. Adoption of ASC 805-10 did not have a material effect on the Companys
financial statements.
 2)
    
    In December 2007, the Financial Accounting Standards Board issued ASC 810-10, formerly
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment
of ARB No. 51. ASC 810-10 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS
160 is effective for fiscal years, and interim periods within those fiscal years, beginning
on or after December 15, 2008. As such, the Company adopted these provisions at the
beginning of the fiscal year ending December 31, 2009. Adoption of ASC 810-10 did not have
a material effect on the Companys financial statements.
 3)
    
    In March 2008, the Financial Accounting Standards Board issued ASC 815-10, formerly
(SFAS) No. 161, Disclosures about Derivative Instruments and Hedging Activitiesan
amendment of FASB Statement No. 133. ASC 815-10 requires enhanced disclosures about an
entitys derivative and hedging activities. ASC 815-10 is effective for financial
statements issued for fiscal years and interim periods beginning after November 15, 2008
with early application encouraged. As such, the Company adopted these provisions at the
beginning of the fiscal year ended December 31, 2009. Adoption of ASC 815-10 did not have a
material effect on the Companys financial statements.
 4)
    
    In May 2008, the Financial Accounting Standards Board issued ASC 944, formerly SFAS No.
163, Accounting for Financial Guarantee Insurance Contractsan interpretation of FASB
Statement No. 60 (SFAS 163). ASC 944 interprets Statement 60 and amends existing
accounting pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that Statement. ASC 944 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and all interim
periods within those fiscal years. As such, the Company adopted these provisions at the
beginning of the fiscal year ended December 31, 2009. Adoption of ASC 944 did not have a
material effect on the Companys financial statements.
 5)
    
    In June 2008, the Financial Accounting Standards Board issued ASC 260-10, formerly FASB
Staff Position (FSP) EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities. ASC 260-10 clarifies that share-based
payment awards that entitle their holders to receive nonforfeitable dividends or dividend
equivalents before vesting should be considered participating securities. We have granted
and expect to continue to grant restricted stock that contain non-forfeitable rights to
dividends and will be considered participating securities upon adoption of ASC 260-10. As
participating securities, we will be required to include these instruments in the
calculation of our basic earnings per share (EPS), and we will need to calculate basic
EPS using the two-class method. Restricted stock is currently included in our dilutive
EPS calculation using the treasury stock method. The two-class method of computing EPS is
an earnings allocation formula that determines EPS for each class of common stock and
participating security according to dividends declared (or accumulated) and participation
rights in undistributed earnings. ASC 260-10 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and all interim periods within those
fiscal years. As such, the Company adopted these provisions at the beginning of the fiscal
year ended December 31, 2009. Adoption of ASC 260-10 did not have a material effect on the
Companys financial statements.
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6)
    
    In December 2008, the Financial Accounting Standards Board issued ASC 715-20, formerly
FASB Staff Position (FSP) SFAS 132(R)-1, Employers Disclosures about Postretirement
Benefit Plan Assets, (FSP SFAS 132(R)-1). ASC 715-20 requires additional disclosures
about assets held in an employers defined benefit pension or other postretirement plan.
ASC 715-20 is effective for fiscal years ending after December 15, 2009. As such, the
Company adopted these provisions at the beginning of the fiscal year ended December 31,
2009. Adoption of ASC 715-10 did not have a material effect on the Companys financial
statements.
 7)
    
    In May 2009, the Financial Accounting Standards Board issued ASC 855-10, formerly SFAS
No. 165, Subsequent Events (SFAS 165). ASC 855-10 establishes principles and
requirements for the reporting of events or transactions that occur after the balance sheet
date, but before financial statements are issued or are available to be issued. ASC 855-10
is effective for financial statements issued for fiscal years and interim periods ending
after June 15, 2009. As such, the Company adopted these provisions at the beginning of the
interim period ended June 30, 2009. Adoption of ASC 855-10 did not have a material effect
on the Companys financial statements.
 8)
    
    In June 2009, the Financial Accounting Standards Board issued ASC 105-10, formerly SFAS
No. 168,  The FASB Accounting Standards CodificationTMand the Hierarchy of
Generally Accepted Accounting Principles  a replacement of FASB Statement No. 162 (SFAS
168). ASC 105-10 replaces Statement 162 and establishes the FASB Accounting Standards
CodificationTM (Codification) as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements in conformity with GAAP. ASC 105-10 is effective for
financial statements issued for fiscal years and interim periods ending after September 15,
2009. As such, the Company adopted these provisions at the beginning of the interim period
ending September 30, 2009. The adoption of ASC 105-10 did not have a material effect on the
Companys financial statements.
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Critical Accounting Policies
  
    
    Revenue recognition
    
    Capitalization of software development costs
    
    Allowance for Doubtful Accounts
    
    Pension liability
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Risk Factors
  Intellectual Property Rights
  Existing Customer Base
  Product Development
  Declines in Demand for Software
  New Products and Services
   19




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Competition
  Marketing and Sales
  Security and Privacy Breaches in our Systems May Damage Client Relations and Inhibit our Growth
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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:
    
    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)10.2
    
    
    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)10.3
    
    
    Letter Agreement dated as of July 30, 2007 by and between the
Company and Martin LoBiondo (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on August 3,
2007)10.4
    *
    
    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)10.5
    
    
    Consulting Agreement dated as of December 12, 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
December 13, 2007)10.6
    *
    
    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)10.7
    *
    
    Letter Agreement dated as of February 4, 2008 by and between the
Company and Douglas F. Smith (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on February
4, 2008)10.8
    *
    
    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)10.9
    *
    
    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)
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10.10
    *
    
    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)10.11
    *
    
    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)10.12
    *
    
    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)10.13
    *
    
    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)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-XnoneAll other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
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/s/ Anthony C. MazzulloAnthony C. MazzulloPresident and CEO  /s/ Ronald C. LundyRonald C. LundyVice President of Finance and CFO  24