##### 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, 2007
 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, 2007 (Unaudited) and December 31, 2006
    
    
    3 - 4Condensed Statements of Operations (Unaudited)
Three and Nine Months Ended September 30, 2007 and 2006
    
    
    5Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2007 and 2006
    
    
    6 - 7Notes To Condensed Financial Statements (Unaudited)
    
    
    8 - 11Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12 - 19Item 3 Quantative and Qualitative Disclosures About Market Risk
    
    
    20Item 4 Controls and Procedures
    
    
    20PART II OTHER INFORMATIONItem 5 Certification of Chief Executive Officer and Chief Financial Officer
    
    
    21Item 6 Exhibits
    
    
    21Officers Certifications and Signatures
    
    
    22 - 26EX-31.1EX-31.2EX-32.1EX-32.2
  2




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VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED BALANCE SHEETS
 (Unaudited)September 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    697,000
    
    
    $
    845,384Investments
    
    
    1,566,951
    
    
    
    849,655Accounts receivable, trade (net
of allowance for doubtful accounts
of $35,000 and $30,000, respectively)
    
    
    1,171,915
    
    
    
    1,443,685Inventories, net
    
    
    30,809
    
    
    
    32,898Prepaid expenses and other current assets
    
    
    309,277
    
    
    
    262,133Total Current Assets
    
    
    3,775,952
    
    
    
    3,433,755PROPERTY AND EQUIPMENTCost
    
    
    5,926,423
    
    
    
    5,904,647Less accumulated depreciation
    
    
    (5,368,065
    )
    
    
    (5,235,398
    )Property and Equipment (Net)
    
    
    558,358
    
    
    
    669,249OTHER ASSETS:Software development costs (net of
accumulated amortization of $1,931,996
and $1,246,121, respectively)
    
    
    3,192,634
    
    
    
    3,175,385Pension assets
    
    
    2,986,973
    
    
    
    2,866,470Deposits and other assets
    
    
    830,756
    
    
    
    788,534Total Other Assets
    
    
    7,010,363
    
    
    
    6,830,389TOTAL ASSETS
    
    $
    11,344,673
    
    
    $
    10,933,393
 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 31,2007
    
    
    2006LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    267,522
    
    
    $
    317,158Accrued compensation and related taxes
    
    
    843,624
    
    
    
    680,930Deferred revenue
    
    
    3,272,456
    
    
    
    3,317,119Current portion of pension obligation
    
    
    362,634
    
    
    
    195,767Other accrued liabilities
    
    
    191,319
    
    
    
    323,222Total Current Liabilities
    
    
    4,937,555
    
    
    
    4,834,196Pension obligation
    
    
    5,213,264
    
    
    
    5,096,031Total Liabilities
    
    
    10,150,819
    
    
    
    9,930,227STOCKHOLDERS EQUITY:Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding,
9,155,796 and 8,935,026
    
    
    915,580
    
    
    
    893,503Additional paid-in capital
    
    
    22,097,193
    
    
    
    21,724,250Accumulated deficit
    
    
    (21,164,435
    )
    
    
    (20,901,736
    )Treasury stock (80,225 shares, at cost)
    
    
    (385,757
    )
    
    
    (385,757
    )Accumulated other comprehensive income
    
    
    (268,727
    )
    
    
    (327,094
    )Total Stockholders Equity
    
    
    1,193,854
    
    
    
    1,003,166TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    11,344,673
    
    
    $
    10,933,393
 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 30,2007
    
    
    2006
    
    
    2007
    
    
    2006NET SALESProduct sales
    
    $
    799,167
    
    
    $
    876,781
    
    
    $
    2,364,184
    
    
    $
    2,445,467Service sales
    
    
    2,129,073
    
    
    
    1,712,856
    
    
    
    6,960,781
    
    
    
    5,194,647Total Net Sales
    
    
    2,928,240
    
    
    
    2,589,637
    
    
    
    9,324,965
    
    
    
    7,640,114COSTS AND OPERATING EXPENSES:Cost of sales
    
    
    704,853
    
    
    
    562,431
    
    
    
    2,442,632
    
    
    
    1,660,863Engineering and software development
    
    
    322,887
    
    
    
    185,202
    
    
    
    870,334
    
    
    
    536,212Selling, general and administrative
    
    
    1,980,160
    
    
    
    2,025,219
    
    
    
    6,319,178
    
    
    
    5,906,613Total Costs and Operating Expenses
    
    
    3,007,900
    
    
    
    2,772,852
    
    
    
    9,632,144
    
    
    
    8,103,688LOSS FROM OPERATIONS
    
    
    (79,660
    )
    
    
    (183,215
    )
    
    
    (307,179
    )
    
    
    (463,574
    )NET INTEREST INCOME
    
    
    19,593
    
    
    
    10,342
    
    
    
    44,480
    
    
    
    26,172LOSS BEFORE INCOME TAXES
    
    
    (60,067
    )
    
    
    (172,873
    )
    
    
    (262,699
    )
    
    
    (437,402
    )INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (60,067
    )
    
    $
    (172,873
    )
    
    $
    (262,699
    )
    
    $
    (437,402
    )NET LOSS PER SHAREBasic
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )
 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 Ended September 30,2007
    
    
    2006OPERATING ACTIVITIES:Net loss
    
    $
    (262,699
    )
    
    $
    (437,402
    )Adjustments to reconcile net loss to net cash flows
provided by operating activitiesDepreciation and amortization
    
    
    876,737
    
    
    
    943,810Expense of bad debts
    
    
    3,486
    
    
    
    1,494Compensation expense-stock options
    
    
    289,000
    
    
    
    24,700Increase in cash surrender value of company-owned life insurance
Policies
    
    
    (120,503
    )
    
    
    (143,076
    )Realized loss on sale of investments
    
    
    
    
    
    
    (2,922
    )Changes in assets and liabilitiesAccounts receivable
    
    
    268,284
    
    
    
    220,112Inventories
    
    
    2,089
    
    
    
    18,806Prepaid expenses and other current assets
    
    
    (47,144
    )
    
    
    (98,501
    )Deposits and other assets
    
    
    (42,222
    )
    
    
    8,211Accounts payable
    
    
    (49,636
    )
    
    
    49,495Accrued compensation and related taxes
    
    
    162,694
    
    
    
    (84,666
    )Deferred revenue
    
    
    (44,663
    )
    
    
    261,732Other accrued liabilities
    
    
    (131,903
    )
    
    
    (10,269
    )Pension obligation
    
    
    331,200
    
    
    
    370,400Net cash flows provided by operating activities
    
    
    1,234,720
    
    
    
    1,121,924INVESTING ACTIVITIES:Purchase of investments
    
    
    (706,030
    )
    
    
    (221,287
    )Capitalized software development costs
    
    
    (703,124
    )
    
    
    (1,053,693
    )Additions to property and equipment
    
    
    (79,970
    )
    
    
    (96,950
    )Net cash flows used by investing activities:
    
    
    (1,489,124
    )
    
    
    (1,371,930
    )FINANCING ACTIVITY:Exercise of stock options
    
    
    98,979
    
    
    
    932Proceeds from employee stock purchase plan
    
    
    7,041
    
    
    
    4,706Net cash flows provided by financing activities
    
    
    106,020
    
    
    
    5,638NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (148,384
    )
    
    
    (244,368
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    845,384
    
    
    
    911,310CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    697,000
    
    
    $
    666,942
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Nine Months EndedSeptember 30,2007
    
    2006SUPPLEMENTAL CASH FLOW INFORMATIONCash Transactions:Income taxes paid, net
    
    $
    4,042
    
    
    $
    17,141Interest paid
    
    $
    1,075
    
    
    $
    619
 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 EQUIPMENT
  September 30,
    
    
    December 31,2007
    
    
    2006Machinery and equipment
    
    $
    795,905
    
    
    $
    795,905Computer hardware and software
    
    
    2,065,380
    
    
    
    2,057,099Furniture and fixtures
    
    
    1,676,787
    
    
    
    1,669,084Leasehold improvements
    
    
    1,388,351
    
    
    
    1,382,559$
    5,926,423
    
    
    $
    5,904,647
  (3) STOCK-BASED COMPENSATION
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Weighted
    
    
    WeightedAverage
    
    
    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
    
    
    532,485
    
    
    
    0.80
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (210,150
    )
    
    
    0.47
    
    
    
    
    
    
    
    
    
    
    
    (17,772
    )Canceled
    
    
    (658,170
    )
    
    
    2.89
    
    
    
    
    
    
    
    
    
    
    
    (334,943
    )Outstanding as of September 30, 2007
    
    
    2,454,443
    
    
    $
    2.03
    
    
    $
    1.67
    
    
    
    4.6
    
    
    $
    804,910Options exercisable at September 30, 2007
    
    
    2,316,408
    
    
    $
    2.10
    
    
    $
    1.73
    
    
    
    4.3
    
    
    $
    803,609
  (4) TOTAL COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (60,067
    )
    
    $
    (172,873
    )
    
    $
    (262,699
    )
    
    $
    (437,402
    )Amortization of Prior Service
Costs
    
    
    15,700
    
    
    
    
    
    
    
    47,100
    
    
    
    Unrealized
gain on investments
    
    
    12,390
    
    
    
    16,241
    
    
    
    11,267
    
    
    
    9,884Total Comprehensive Loss
    
    $
    (31,977
    )
    
    $
    (156,632
    )
    
    $
    (204,332
    )
    
    $
    (427,518
    )
 (5) NET INCOME (LOSS) PER SHARE (EPS)
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Calculations of Earnings (Loss) Per Share
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006BasicNet Loss
    
    $
    (60,067
    )
    
    $
    (172,873
    )
    
    $
    (262,699
    )
    
    $
    (437,402
    )Weighted average common shares outstanding
    
    
    9,004,789
    
    
    
    8,847,273
    
    
    
    8,933,593
    
    
    
    8,841,699Net loss per common share
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )DilutedNet loss
    
    $
    (60,067
    )
    
    $
    (172,873
    )
    
    $
    (262,699
    )
    
    $
    (437,402
    )Weighted average common shares outstanding
    
    
    9,004,789
    
    
    
    8,847,273
    
    
    
    8,933,593
    
    
    
    8,841,699Additional dilutive effect of stock options and
warrants after application of treasury stock method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average dilutive shares outstanding
    
    
    9,004,789
    
    
    
    8,847,273
    
    
    
    8,933,593
    
    
    
    8,841,699Net loss per common share assuming full obligation
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )
  (6) INDEMNIFICATION OF CUSTOMERS
  (7) BENEFIT PLANS
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Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Current Service Cost
    
    $
    68,180
    
    
    $
    69,503
    
    
    $
    204,540
    
    
    $
    208,509Amortization of
Prior Service Cost
    
    
    15,700
    
    
    
    22,123
    
    
    
    47,100
    
    
    
    66,369Interest Cost
    
    
    78,720
    
    
    
    73,374
    
    
    
    236,160
    
    
    
    220,122Pension Expense
    
    $
    162,600
    
    
    $
    165,000
    
    
    $
    487,800
    
    
    $
    495,000
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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 Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Gross expenditures
for engineering &
software
development
    
    $
    501,000
    
    
    $
    550,000
    
    
    $
    1,573,000
    
    
    $
    1,590,000Less: Software
development costs
capitalized
    
    
    (178,000
    )
    
    
    (365,000
    )
    
    
    (703,000
    )
    
    
    (1,054,000
    )Net expense for
engineering and
software
    
    $
    323,000
    
    
    $
    185,000
    
    
    $
    870,000
    
    
    $
    536,000
  Liquidity and Capital Resources
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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 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 adopted these provisions at the beginning of the fiscal year
ended December 31, 2007. Adoption of Fin 48 did not have a significant effect on the
Companys financial statements.
 3)
    
    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. Adoption of SAB 108 did not have a
significant effect on the Companys financial statements.
 4)
    
    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.
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Critical Accounting Policies
  
    
    Revenue recognition
    
    Capitalization of software development costs
    
    Allowance for Doubtful Accounts
    
    Pension liability
        17




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Issues and Risks
  Intellectual Property Rights
  18




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New Products and Services
 
 Declines in Demand for Software
  Product Development Schedule
  Competition
  Marketing and Sales
  19




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Item 3 Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4 Controls and Procedures
   20




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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
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/s/ David G. Mazzella
  /s/ Ronald C. Lundy
 22