##### Table of Contents



FORM 10-Q
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
 For Quarter Ended June 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 o NO o
 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 
June 30, 2009 (Unaudited) and December 31, 2008
    
    
    3 - 4Condensed Statements of Operations (Unaudited) 
Three and Six Months Ended June 30, 2009 and 2008
    
    
    5Condensed Statements of Cash Flows (Unaudited) 

Six Months Ended June 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
    
    
    24 - 29Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I   FINANCIAL INFORMATION
 VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED BALANCE SHEETS
 (Unaudited)June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    734,300
    
    
    $
    1,014,669Investments
    
    
    643,657
    
    
    
    982,331Accounts receivable, trade (net
of allowance for doubtful accounts
of $19,000 and $30,000, respectively)
    
    
    873,835
    
    
    
    1,047,527Inventories, net
    
    
    26,588
    
    
    
    35,055Prepaid expenses and other current assets
    
    
    377,419
    
    
    
    244,511Total Current Assets
    
    
    2,655,799
    
    
    
    3,324,093PROPERTY AND EQUIPMENTCost
    
    
    3,567,717
    
    
    
    3,862,879Less accumulated depreciation
    
    
    (3,150,537
    )
    
    
    (3,406,882
    )Property and Equipment (Net)
    
    
    417,180
    
    
    
    455,997OTHER ASSETS:Software development costs (net of
accumulated amortization of $2,695,863
and $3,332,886, respectively)
    
    
    2,756,118
    
    
    
    2,719,787Pension assets
    
    
    2,861,479
    
    
    
    3,160,639Deposits and other assets
    
    
    995,766
    
    
    
    905,761Total Other Assets
    
    
    6,613,363
    
    
    
    6,786,187TOTAL ASSETS
    
    $
    9,686,342
    
    
    $
    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)June 30,
    
    
    December 31,2009
    
    
    2008LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    278,423
    
    
    $
    270,842Accrued compensation and related taxes
    
    
    558,659
    
    
    
    466,150Deferred revenue
    
    
    3,425,197
    
    
    
    3,746,488Current portion of pension obligation
    
    
    502,059
    
    
    
    486,059Other accrued liabilities
    
    
    86,857
    
    
    
    94,954Total Current Liabilities
    
    
    4,851,195
    
    
    
    5,064,493Pension obligation
    
    
    4,795,664
    
    
    
    5,000,010Total Liabilities
    
    
    9,646,859
    
    
    
    10,064,503STOCKHOLDERS 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
    
    
    22,355,801
    
    
    
    22,293,688Accumulated deficit
    
    
    (22,761,247
    )
    
    
    (22,039,196
    )Treasury stock (80,225 shares, at cost)
    
    
    (385,757
    )
    
    
    (385,757
    )Accumulated other comprehensive income
    
    
    (168,710
    )
    
    
    (352,256
    )Total Stockholders Equity
    
    
    39,483
    
    
    
    501,774TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    9,686,342
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008NET SALESProduct sales
    
    $
    382,259
    
    
    $
    542,661
    
    
    $
    850,528
    
    
    $
    1,154,161Service sales
    
    
    2,097,131
    
    
    
    1,995,622
    
    
    
    4,151,541
    
    
    
    4,055,768Total Net Sales
    
    
    2,479,390
    
    
    
    2,538,283
    
    
    
    5,002,069
    
    
    
    5,209,929COSTS AND OPERATING EXPENSES:Cost of sales
    
    
    677,651
    
    
    
    707,944
    
    
    
    1,321,870
    
    
    
    1,422,907Engineering and software development
    
    
    278,648
    
    
    
    334,243
    
    
    
    573,164
    
    
    
    632,101Selling, general and administrative
    
    
    2,049,105
    
    
    
    1,771,230
    
    
    
    3,822,732
    
    
    
    3,642,903Total Costs and Operating Expenses
    
    
    3,005,404
    
    
    
    2,813,417
    
    
    
    5,717,766
    
    
    
    5,697,911LOSS FROM OPERATIONS
    
    
    (526,014
    )
    
    
    (275,134
    )
    
    
    (715,697
    )
    
    
    (487,982
    )NET INTEREST INCOME (LOSS)
    
    
    (15,918
    )
    
    
    15,425
    
    
    
    (6,354
    )
    
    
    34,146LOSS BEFORE INCOME TAXES
    
    
    (541,932
    )
    
    
    (259,709
    )
    
    
    (722,051
    )
    
    
    (453,836
    )INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (541,932
    )
    
    $
    (259,709
    )
    
    $
    (722,051
    )
    
    $
    (453,836
    )NET LOSS PER SHAREBasic
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (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)
 Six Months Ended 
June 30,2009
    
    
    2008OPERATING ACTIVITIES:Net Loss
    
    $
    (722,051
    )
    
    $
    (453,836
    )Adjustments to reconcile net loss to net cash flows provided by operating activitiesDepreciation and amortization
    
    
    773,896
    
    
    
    690,427Bad debt expense (recovery)
    
    
    (11,339
    )
    
    
    3,332Share based compensation expense
    
    
    61,933
    
    
    
    47,116Pension assets
    
    
    (10,840
    )
    
    
    (70,985
    )Loss on disposal of fixed assets
    
    
    20
    
    
    
    14,571Unrealized gain (loss) on sale of investments
    
    
    229
    
    
    
    7,068Changes in assets and liabilitiesAccounts receivable
    
    
    185,031
    
    
    
    339,561Inventories
    
    
    8,467
    
    
    
    (3,229
    )Prepaid expenses and other current assets
    
    
    (132,908
    )
    
    
    (48,498
    )Deposits and other assets
    
    
    (90,005
    )
    
    
    (75,005
    )Accounts payable
    
    
    7,581
    
    
    
    63,725Accrued compensation and related taxes
    
    
    92,509
    
    
    
    (210,543
    )Deferred revenue
    
    
    (321,291
    )
    
    
    117,643Other accrued liabilities
    
    
    (8,097
    )
    
    
    (75,731
    )Pension obligation
    
    
    (5,029
    )
    
    
    (51,219
    )Net cash flows provided by operating activities
    
    
    (171,894
    )
    
    
    294,397INVESTING ACTIVITIES:Sale (purchase) of investments
    
    
    338,674
    
    
    
    121,917Capitalized software development costs
    
    
    (636,833
    )
    
    
    (412,824
    )Additions to property and equipment
    
    
    (134,597
    )
    
    
    (130,048
    )Net cash flows used by investing activities
    
    
    (432,756
    )
    
    
    (420,955
    )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
    
    
    (280,369
    )
    
    
    (57,665
    )CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    1,014,669
    
    
    
    713,342CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    734,300
    
    
    $
    655,677SUPPLEMENTAL CASH FLOW INFORMATIONCash Transactions:Income taxes paid, net
    
    $
    4,350
    
    
    $
    7,725Interest paid
    
    $
    (202)
    
    
    $
    874
 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 June 30, 2009, and December 31, 2008
were:
 June 30,
    
    
    December 31,2009
    
    
    2008Machinery and equipment
    
    $
    128,390
    
    
    $
    128,390Computer hardware and software
    
    
    1,200,397
    
    
    
    1,224,343Furniture and fixtures
    
    
    853,133
    
    
    
    1,124,349Leasehold improvements
    
    
    1,385,797
    
    
    
    1,385,797$
    3,567,717
    
    
    $
    3,862,879
 For the six months ended June 30, 2009, the Company recorded depreciation expense of
$173,393. Depreciation expense for the six months ended June 30, 2008 was $140,682.
 (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 six months ended June
30, 2009, the Company awarded restricted stock grants totaling 99,000 shares vesting over
three years, and 35,500 of stock options vesting over four years. During the first six months
of 2008 the Company awarded 320,000 restricted shares, and 134,500 stock options.
  7




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A summary of the status of the Companys stock option plan as of June 30, 2009 is presented
below:
 Weighted
    
    
    WeightedAverage
    
    
    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
    
    
    35,500
    
    
    $
    0.39
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    (122,915
    )
    
    
    5.73
    
    
    
    
    
    
    
    
    
    
    
    (124,084
    )Outstanding as of June 30, 2009
    
    
    1,812,168
    
    
    $
    0.96
    
    
    $
    0.86
    
    
    
    4.6
    
    
    $
    220,216Options exercisable at June 30, 2009
    
    
    1,687,918
    
    
    $
    0.99
    
    
    $
    0.89
    
    
    
    4.3
    
    
    $
    220,216
  (4)
    
    TOTAL COMPREHENSIVE INCOME (LOSS)
  Three Months Ended 
June 30,
    
    
    Six Months Ended 
June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (541,932
    )
    
    $
    (259,709
    )
    
    $
    (722,051
    )
    
    $
    (453,836
    )Reclassification to net periodic benefit cost
    
    
    
    
    
    
    22,123
    
    
    
    
    
    
    
    44,245Unrealized change  pension
    
    
    80,000
    
    
    
    (36,247
    )
    
    
    183,317
    
    
    
    (72,494
    )Unrealized change on investments
    
    
    5,580
    
    
    
    (33,992
    )
    
    
    229
    
    
    
    7,068Total comprehensive loss
    
    $
    (456,352
    )
    
    $
    (307,825
    )
    
    $
    (538,505
    )
    
    $
    (475,017
    )
 (5)
    
    NET INCOME (LOSS) PER SHARE (EPS)
 SFAS 128 Earnings Per Share requires the Company to calculate net income (loss) per share
based on basic and diluted net income (loss) per share, as defined. Basic EPS excludes
dilution and is computed by dividing net income (loss) by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or converted into
common stock. The dilutive effect of outstanding options issued by the Company are reflected
in diluted EPS using the treasury stock method. Under the treasury stock method, options
will only have a dilutive effect when the average market price of common stock during the
period exceeds the exercise price of the options.
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Calculations of Earnings (Loss) Per Share
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008BasicNet Loss
    
    $
    (541,932
    )
    
    $
    (259,709
    )
    
    $
    (722,051
    )
    
    $
    (453,836
    )Weighted average common shares outstanding
    
    
    9,869,026
    
    
    
    9,504,989
    
    
    
    9,826,878
    
    
    
    9,425,951Net loss per common share
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (0.05
    )DilutedNet loss
    
    $
    (541,932
    )
    
    $
    (259,709
    )
    
    $
    (722,051
    )
    
    $
    (453,836
    )Weighted average common shares outstanding
    
    
    9,869,026
    
    
    
    9,504,989
    
    
    
    9,826,878
    
    
    
    9,425,951Additional dilutive effect of stock options and warrants after application of treasury stock method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average dilutive shares outstanding
    
    
    9,869,026
    
    
    
    9,504,989
    
    
    
    9,826,878
    
    
    
    9,425,951Net loss per common share assuming full obligation
    
    $
    (0.05
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )
    
    $
    (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 June
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
quarter of 2009 the Company contributed $23,868 to employees 401k accounts. There were no
contributions to the plan during the first six months of 2008.
  9




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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 six months ended June 30, 2009 and 2008 consists
of the following:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Current Service Cost
    
    
    
    
    
    $
    10,270
    
    
    
    
    
    
    $
    24,708Amortization of Prior Service Cost
    
    
    
    
    
    
    22,123
    
    
    
    
    
    
    
    44,245Interest Cost
    
    
    55,000
    
    
    
    82,688
    
    
    
    46,683
    
    
    
    165,376Unrealized change
    
    
    80,000
    
    
    
    (36,247
    )
    
    
    183,317
    
    
    
    (72,494
    )Pension Expense
    
    $
    135,000
    
    
    $
    78,834
    
    
    $
    230,000
    
    
    $
    161,835
 The Company paid pension obligations of $235,030 for the six months ended June 30, 2009 and
$114,055 for the six months ended June 30, 2008.
 The discount rate used in determining the actuarial present value of the projected benefit
obligation was 6.0% for the six month periods ended June 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 $2,861,000 at June 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,
 Q3 - Q4 2009
    
    
    251,0302010
    
    
    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 six months
ended June 30, 2009 and 2008 consists of the following:
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Current Service Cost
    
    $
    2,005
    
    
    $
    1,892
    
    
    $
    4,010
    
    
    $
    3,784Interest Cost
    
    
    1,407
    
    
    
    1,521
    
    
    
    2,814
    
    
    
    3,042PRHB Expense
    
    $
    3,412
    
    
    $
    3,413
    
    
    $
    6,824
    
    
    $
    6,826
 The projected PRHB paid or expected to be paid are as follows:
 Period Ending December 31, Unless Stated Otherwise,
 Q3 - Q4 2009
    
    
    6,8252010
    
    
    13,6492011
    
    
    13,6492012
    
    
    13,6492013
    
    
    13,6492014 - 2018
    
    
    36,745
 (8)
    
    SUBSEQUENT EVENTS
 Subsequent events were evaluated through August 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
   Sales
   12




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Cost of Sales and Gross Margin
  Operating Expenses
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Gross expenditures for engineering & software
development
    
    $
    618,000
    
    
    $
    547,000
    
    
    $
    1,210,000
    
    
    $
    1,045,000Less: Software development costs capitalized
    
    
    (339,000
    )
    
    
    (213,000
    )
    
    
    (637,000
    )
    
    
    (413,000
    )Net expense for engineering and software
    
    $
    279,000
    
    
    $
    334,000
    
    
    $
    573,000
    
    
    $
    632,000
   Liquidity and Capital Resources
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Accounting Pronouncements
 1)
    
    In December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 141(R), Business Combinations. SFAS 141(R)
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. SFAS 141(R) 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 SFAS 141(R) did not have a material effect on the Companys
financial statements.
 2)
    
    In December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51. SFAS 160 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 SFAS 160 did not have a material effect on the Companys financial
statements.
 3)
    
    In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 161, Disclosures about Derivative Instruments
and Hedging Activitiesan amendment of FASB Statement No. 133. SFAS 161 requires
enhanced disclosures about an entitys derivative and hedging activities. SFAS 161 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
SFAS 161 did not have a material effect on the Companys financial statements.
 4)
    
    In May 2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (SFAS) No. 162, The Hierarchy of Generally Accepted Accounting
Principles. SFAS 162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting principles
(GAAP) in the United States. SFAS 162 is effective 60 days following the SECs approval of
the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company is
currently evaluating the impact of SFAS 162 on its financial statements, but does not
expect it to have a material effect.
 5)
    
    In May 2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 163, Accounting for Financial Guarantee
Insurance Contractsan interpretation of FASB Statement No. 60 (SFAS 163). SFAS 163
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. SFAS 163 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 SFAS 163 did not have a material effect on the Companys
financial statements.
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6)
    
    In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment
Transactions are Participating Securities. FSP EITF 03-6-1 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 FSP EITF 03-6-1.
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. FSP EITF 03-6-1 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 FSP EITF 03-6-1 did not have a material
effect on the Companys financial statements.
 7)
    
    In December 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) SFAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan
Assets, (FSP SFAS 132(R)-1). FSP SFAS 132(R)-1 requires additional disclosures about
assets held in an employers defined benefit pension or other postretirement plan. FSP SFAS
132(R)-1 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 FSP SFAS 132(R)-1 did not have a material effect on the Companys financial
statements.
 8)
    
    In May 2009, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 165, Subsequent Events (SFAS 165). SFAS 165
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. SFAS 165 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 SFAS
165 did not have a material effect on the Companys financial statements.
 9)
    
    In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 168,  The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally Accepted Accounting Principles 
a replacement of FASB Statement No. 162 (SFAS 168). SFAS 168 replaces Statement 162 and
to establish 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. SFAS 168 is effective for financial statements issued for fiscal years and interim
periods ending after September 15, 2009. As such, the Company is required to adopt these
provisions at the beginning of the interim period ending September 30, 2009. The Company
does not expect adoption of SFAS 168 to have a material effect its 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
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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)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)
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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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Date: August 12, 2009/s/ Anthony C. Mazzullo

Anthony C. Mazzullo
President and CEODate: August 12, 2009/s/ Ronald C. Lundy

Ronald C. Lundy
Vice President of Finance and CFO
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ExhibitNo.
    
    Description31.1
    
    
    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
  25