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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 March 31, 2007
 Commission File Number 0-13898
 Veramark Technologies, Inc.
  Delaware
    
    16-1192368(State or other jurisdiction of Incorporation
or Organization)
    
    (IRS Employer Identification Number)
 
 
 
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  o
 
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INDEX
 PagePART I
    
    FINANCIAL INFORMATIONItem 1
    
    Financial StatementsCondensed Balance Sheets -March 31, 2007 (Unaudited) and December 31, 2006
    
    3  4Condensed Statements of Operations (Unaudited)Three Months Ended March 31, 2007 and 2006
    
    5Condensed Statements of Cash Flows (Unaudited)Three Months Ended March 31, 2007 and 2006
    
    6  7Notes To Condensed Financial Statements (Unaudited)
    
    8  11Item 2
    
    Managements Discussion and Analysis of FinancialCondition and Results of Operations
    
    12  20Item 3
    
    Quantative and Qualitative Disclosures About MarketRisk
    
    21Item 4
    
    Controls and Procedures
    
    21PART II
    
    OTHER INFORMATIONItem 5
    
    Certification of Chief Executive Officer and ChiefFinancial Officer
    
    22Item 6
    
    Exhibits
    
    22Officers Certifications and Signatures
    
    23  27
 2




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VERAMARK TECHNOLOGIES, INC.
 CONDENSED BALANCE SHEETS
 (Unaudited)March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    939,115
    
    
    $
    845,384Investments
    
    
    970,768
    
    
    
    849,655Accounts receivable, trade (net
of allowance for doubtful accounts
of $38,000 and $30,000, respectively)
    
    
    1,448,857
    
    
    
    1,443,685Inventories, net
    
    
    38,437
    
    
    
    32,898Prepaid expenses and other current
assets
    
    
    308,577
    
    
    
    262,133Total Current Assets
    
    
    3,705,754
    
    
    
    3,433,755PROPERTY AND EQUIPMENTCost
    
    
    5,876,825
    
    
    
    5,904,647Less accumulated depreciation
    
    
    (5,250,063
    )
    
    
    (5,235,398
    )Property and Equipment (Net)
    
    
    626,762
    
    
    
    669,249OTHER ASSETS:Software development costs (net of
accumulated amortization of
$1,459,903
and $1,246,121, respectively)
    
    
    3,265,800
    
    
    
    3,175,385Pension assets
    
    
    2,890,293
    
    
    
    2,866,470Deposits and other assets
    
    
    788,534
    
    
    
    788,534Total Other Assets
    
    
    6,944,627
    
    
    
    6,830,389TOTAL ASSETS
    
    $
    11,277,143
    
    
    $
    10,933,393
 The accompanying notes are an integral part of these financial statements.
 3




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VERAMARK TECHNOLOGIES, INC.
 CONDENSED BALANCE SHEETS
 (Unaudited)March 31,
    
    
    December 31,2007
    
    
    2006LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    307,678
    
    
    $
    317,158Accrued compensation and related taxes
    
    
    705,909
    
    
    
    680,930Deferred revenue
    
    
    3,421,523
    
    
    
    3,317,119Current portion of pension obligation
    
    
    263,634
    
    
    
    195,767Other accrued liabilities
    
    
    307,945
    
    
    
    323,222Total Current Liabilities
    
    
    5,006,689
    
    
    
    4,834,196Pension obligation
    
    
    5,141,231
    
    
    
    5,096,031Total Liabilities
    
    
    10,147,920
    
    
    
    9,930,227STOCKHOLDERS EQUITY:Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding,
8,935,426 and 8,935,026
    
    
    893,543
    
    
    
    893,503Additional paid-in capital
    
    
    21,727,382
    
    
    
    21,724,250Accumulated deficit
    
    
    (20,784,224
    )
    
    
    (20,901,736
    )Treasury stock (80,225 shares, at cost)
    
    
    (385,757
    )
    
    
    (385,757
    )Accumulated other comprehensive income
    
    
    (321,721
    )
    
    
    (327,094
    )Total Stockholders Equity
    
    
    1,129,223
    
    
    
    1,003,166TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    11,277,143
    
    
    $
    10,933,393
 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 EndedMarch 31,2007
    
    
    2006NET SALESProduct sales
    
    $
    736,475
    
    
    $
    739,644Service sales
    
    
    2,612,167
    
    
    
    1,704,552Total Net Sales
    
    
    3,348,642
    
    
    
    2,444,196COSTS AND OPERATING EXPENSES:Cost of sales
    
    
    987,944
    
    
    
    524,339Engineering and software development
    
    
    250,947
    
    
    
    152,709Selling, general and administrative
    
    
    2,004,491
    
    
    
    1,832,639Total Costs and Operating Expenses
    
    
    3,243,382
    
    
    
    2,509,687INCOME (LOSS) FROM OPERATIONS
    
    
    105,260
    
    
    
    (65,491
    )NET INTEREST INCOME
    
    
    12,252
    
    
    
    8,014INCOME (LOSS) BEFORE INCOME TAXES
    
    
    117,512
    
    
    
    (57,477
    )INCOME TAXES
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    $
    117,512
    
    
    $
    (57,477
    )NET INCOME (LOSS) PER SHAREBasic
    
    $
    0.01
    
    
    $
    (0.01
    )Diluted
    
    $
    0.01
    
    
    $
    (0.01
    )
 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)
 Three Months Ended March 31,2007
    
    
    2006OPERATING ACTIVITIES:Net income (loss)
    
    $
    117,512
    
    
    $
    (57,477
    )Adjustments to reconcile net income (loss) to net cash flows
provided by operating activitiesDepreciation and amortization
    
    
    276,659
    
    
    
    315,707Expense of bad debts
    
    
    7,470
    
    
    
    11,000Compensation expense-stock options
    
    
    3,000
    
    
    
    10,000Increase in cash surrender value of company-owned life insurance
Policies
    
    
    (23,823
    )
    
    
    (23,823
    )Realized gain (loss) on sale of investments
    
    
    5,373
    
    
    
    (2,125
    )Changes in assets and liabilitiesAccounts receivable
    
    
    (12,642
    )
    
    
    (70,738
    )Inventories
    
    
    (5,539
    )
    
    
    (25,452
    )Prepaid expenses and other current assets
    
    
    (46,444
    )
    
    
    (44,608
    )Accounts payable
    
    
    (9,480
    )
    
    
    (51,708
    )Accrued compensation and related taxes
    
    
    24,979
    
    
    
    (136,782
    )Deferred revenue
    
    
    104,404
    
    
    
    293,678Other accrued liabilities
    
    
    (15,277
    )
    
    
    8,163Pension obligation
    
    
    113,067
    
    
    
    123,466Net cash flows provided by operating activities
    
    
    539,259
    
    
    
    349,301INVESTING ACTIVITIES:Purchase of investments
    
    
    (121,113
    )
    
    
    (11,135
    )Capitalized software development costs
    
    
    (304,197
    )
    
    
    (373,091
    )Additions to property and equipment
    
    
    (20,390
    )
    
    
    (53,147
    )Net cash flows used by investing activities:
    
    
    (445,700
    )
    
    
    (437,373
    )FINANCING ACTIVITY:Exercise of stock options
    
    
    172
    
    
    
    933Net cash flows provided by financing activities
    
    
    172
    
    
    
    933NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    93,731
    
    
    
    (87,139
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    845,384
    
    
    
    911,310CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    939,115
    
    
    $
    824,171
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Three Months EndedMarch 31,2007
    
    
    2006SUPPLEMENTAL CASH FLOW INFORMATIONCash Transactions:Income taxes paid, net
    
    $
    404
    
    
    $
    500Interest paid
    
    $
    453
    
    
    $
    83
 The accompanying notes are an integral part of these financial statements.
 7




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NOTES TO CONDENSED FINANCIAL STATEMENTS
  (1) GENERAL
    (2) PROPERTY AND EQUIPMENT
  March 31,
    
    
    December 31,2007
    
    
    2006Machinery and equipment
    
    $
    795,905
    
    
    $
    795,905Computer hardware and software
    
    
    2,027,702
    
    
    
    2,057,099Furniture and fixtures
    
    
    1,670,659
    
    
    
    1,669,084Leasehold improvements
    
    
    1,382,559
    
    
    
    1,382,559$
    5,876,825
    
    
    $
    5,904,647
  (3) STOCK-BASED COMPENSATION
   8




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Average
    
    
    Average
    
    
    RemainingExercise
    
    
    Grant-Date
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Fair Value
    
    
    Term (Yrs)
    
    
    ValueOutstanding as of December 31, 2006
    
    
    2,790,278
    
    
    $
    2.35
    
    
    $
    1.92
    
    
    
    3.3
    
    
    $
    1,157,625Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (400
    )
    
    
    0.43
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Canceled
    
    
    (1,900
    )
    
    
    4.68
    
    
    
    
    
    
    
    
    
    
    
    (1,577
    )Outstanding as of March 31, 2007
    
    
    2,787,978
    
    
    $
    2.35
    
    
    $
    1.92
    
    
    
    3.1
    
    
    $
    1,156,016Options exercisable at March 31, 2007
    
    
    2,730,828
    
    
    $
    2.38
    
    
    $
    1.94
    
    
    
    3.0
    
    
    $
    1,150,195
  (4) TOTAL COMPREHENSIVE INCOME (LOSS)
  Three Months Ended March 31,2007
    
    
    2006Net income (loss)
    
    $
    117,512
    
    
    $
    (57,477
    )Unrealized gain (loss) on investments
    
    
    5,373
    
    
    
    (2,125
    )Total comprehensive loss
    
    $
    122,885
    
    
    $
    (59,602
    )
 (5) NET INCOME (LOSS) PER SHARE (EPS)
  9




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Calculations of Earnings (Loss) Per Share
 Three Months EndedMarch 31,2007
    
    
    2006BasicNet income (loss)
    
    $
    117,512
    
    
    $
    (57,477
    )Weighted average common shares outstanding
    
    
    8,855,134
    
    
    
    8,838,373Net income (loss) per common share
    
    $
    0.01
    
    
    $
    (0.01
    )DilutedNet income (loss)
    
    $
    117,512
    
    
    $
    (57,477
    )Weighted average common shares outstanding
    
    
    8,855,134
    
    
    
    8,838,373Additional dilutive effect of stock options and
warrants after application of treasury stock method
    
    
    567,361
    
    
    
    Weighted average dilutive shares outstanding
    
    
    9,422,495
    
    
    
    8,838,373Net income (loss) per common share assuming full
obligation
    
    $
    0.01
    
    
    $
    (0.01
    )
  (6) INDEMNIFICATION OF CUSTOMERS
  (7) BENEFIT PLANS
  10




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Three Months Ended March 31,2007
    
    
    2006Current Service Cost
    
    $
    68,180
    
    
    $
    69,503Amortization of Prior Service Cost
    
    
    15,700
    
    
    
    22,123Interest Cost
    
    
    78,720
    
    
    
    73,374Pension Expense
    
    $
    162,600
    
    
    $
    165,000
    11




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Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations
  Overview
     Sales
  12




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Cost of Sales
  Operating Expenses
  13




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Three Months EndedMarch 31,2007
    
    
    2006Gross expenditures for engineering and software development
    
    $
    555,000
    
    
    $
    526,000Less: Software development costs capitalized
    
    
    (304,000
    )
    
    
    (373,000
    )Net expenses for engineering and software development included in the
Companys statement of operations
    
    
    251,000
    
    
    
    153,000Plus: Software development costs amortized and charged to cost of sales
    
    
    214,000
    
    
    
    249,000Total Expense Recognized
    
    $
    465,000
    
    
    $
    402,000
  Liquidity and Capital Resources
      14




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15




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Accounting Pronouncements
 1)
    
    In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities, including an amendment of FASB Statement No. 115. SFAS 159
permits entities to choose to measure many financial instruments and certain other items at
fair value at specified election dates. This Statement applies to all entities, including
not-for-profit organizations. SFAS 159 is effective as of the beginning of an entitys
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 159 on its financial statements.2)
    
    In December 2004, the FASB issued SFAS 123®, Share-Based Payment, which established
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 eliminated 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® required additional accounting related to the income tax effects
and disclosure regarding the cash flow effects resulting from share-based payment
arrangements.SFAS 123® permits public companies to adopt its requirements using one of two methods:
 ®
  In March 2005, the SEC released Staff Accounting Bulletin (SAB) 107, Share-Based Payment,
which expresses views of the SEC Staff about the application of SFAS No. 123®. In April 2005,
the SEC issued a rule that SFAS No. 123® will be effective for annual reporting periods
beginning on or after June 15, 2005.
 3)
    
    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
 16




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exchange. Adoption of this statement did not have
a significant impact on our results of operations or financial condition.
 4)
    
    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. As such, the Company was required to adopt these provisions at the
beginning of the fiscal year ended December 31, 2006. The Adoption of SFAS 154 did not
have to have a significant impact on the Companys financial statements.
 5)
    
    In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes-an
Interpretation of FASB Statement NO. 109.This interpretation clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements. This
interpretation prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This Interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and
transition. Fin 48 is effective for fiscal years beginning after December 15, 2006. As
such, the Company is required to adopt these provisions at the beginning of the fiscal year
ended December 31, 2007. The Company is currently evaluating the impact of adopting Fin 48
on its financial statements, but does not expect adoption to have a significant effect.
 6)
    
    In September 2006, SEC Staff Accounting Bulletin No. 108 (SAB 108) was issued to
provide guidance on Quantifying Financial Statement Misstatements. SAB 108 addresses how
the effects of prior-year uncorrected misstatements should be considered when quantifying
misstatements in current-year financial statements. The SAB 108 requires registrants to
quantify misstatements using both the balance sheet and income statement approaches and to
evaluate whether either approach results in quantifying an error that is material in light
of relevant quantitative and qualitative factors. When the effect of initial adoption is
determined to be material, the SAB 108 allows registrants to record that effect as a
cumulative-effect to beginning-of-year retained earnings. SAB 108 is effective for fiscal
years ending after November 15, 2006 and early application is encouraged for any interim
period of the first fiscal year ending after that date. The Company will adopt SAB 108 in
January, 2007 and is currently evaluating the impact of adopting SAB 108 on its financial
statements, but does not expect adoption to have a significant effect.
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Critical Accounting Policies
  
    
    Revenue recognition
    
    Capitalization of software development costs
    
    Allowance for Doubtful Accounts
    
    Pension liability
        18




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Issues and Risks
  Intellectual Property Rights
 19




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New Products and Services
 ®
 Declines in Demand for Software
  Product Development Schedule
 ®
 Competition
  Marketing and Sales
  20




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Item 3 Quantitative and Qualitative Disclosures About Market Risk
  Item 4 Controls and Procedures
   21




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PART II  OTHER INFORMATION
 Item 5: Certification of Chief Executive Officer and Chief Financial Officer
  Item 6: Exhibits and Reports on Form 8-K
 (a)
    
    Exhibits required by Item 601 of Regulation S-K
      22




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/s/ David G. MazzellaDavid G. MazzellaPresident and CEO  /s/ Ronald C. LundyRonald C. LundyVice President of Finance and CFO 23