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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 March 31, 2008
 Commission File Number 0-13898
 Veramark Technologies, Inc.
  Delaware
    
    16-1192368(State or other jurisdiction of Incorporation
    
    (IRS Employer Identification Number)or Organization)
  (Address of principal executive offices)(Zip Code)
  (Registrants telephone number, including area code)
  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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INDEX
 PagePART I FINANCIAL INFORMATIONItem 1 Financial StatementsCondensed Balance Sheets -
March 31, 2008 (Unaudited) and December 31, 2007
    
    3 - 4Condensed Statements of Operations (Unaudited)
Three Months Ended March 31, 2008 and 2007
    
    5Condensed Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2008 and 2007
    
    6 - 7Notes To Condensed Financial Statements (Unaudited)
    
    8 - 12Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13- 21Item 3 Quantative and Qualitative Disclosures About Market Risk
    
    22Item 4 Controls and Procedures
    
    22PART II OTHER INFORMATIONItem 5 Certification of Chief Executive Officer and Chief Financial Officer
    
    23Item 6 Exhibits
    
    23Officers Certifications and Signatures
    
    24  28EX-31.1EX-31.2EX-32.1EX-32.2
  2




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PART I  FINANCIAL INFORMATION
 VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED BALANCE SHEETS
 (Unaudited)March 31,
    
    
    December 31,2008
    
    
    2007ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    372,010
    
    
    $
    713,342Investments
    
    
    1,676,914
    
    
    
    1,492,288Accounts receivable, trade (net
of allowance for doubtful accounts
of $32,826 and $30,000, respectively)
    
    
    1,112,625
    
    
    
    1,303,240Inventories, net
    
    
    13,794
    
    
    
    31,764Prepaid expenses and other current assets
    
    
    259,598
    
    
    
    254,274Total Current Assets
    
    
    3,434,941
    
    
    
    3,794,908PROPERTY AND EQUIPMENTCost
    
    
    3,832,076
    
    
    
    5,955,064Less accumulated depreciation
    
    
    (3,338,013
    )
    
    
    (5,433,650
    )Property and Equipment (Net)
    
    
    494,063
    
    
    
    521,414OTHER ASSETS:Software development costs (net of
accumulated amortization of $2,442,754
and $2,179,290, respectively)
    
    
    2,975,410
    
    
    
    3,038,410Pension assets
    
    
    3,234,027
    
    
    
    3,210,204Deposits and other assets
    
    
    815,756
    
    
    
    830,756Total Other Assets
    
    
    7,025,193
    
    
    
    7,079,370TOTAL ASSETS
    
    $
    10,954,197
    
    
    $
    11,395,692
 The accompanying notes are an integral part of these financial statements.
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VERAMARK TECHNOLOGIES, INC.
 CONDENSED BALANCE SHEETS
 (Unaudited)March 31,
    
    
    December 31,2008
    
    
    2007LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    258,273
    
    
    $
    317,127Accrued compensation and related taxes
    
    
    594,744
    
    
    
    934,387Deferred revenue
    
    
    3,491,664
    
    
    
    3,369,324Current portion of pension obligation
    
    
    450,565
    
    
    
    440,084Other accrued liabilities
    
    
    181,381
    
    
    
    270,524Total Current Liabilities
    
    
    4,976,627
    
    
    
    5,331,446Pension obligation
    
    
    5,105,558
    
    
    
    5,072,447Total Liabilities
    
    
    10,082,185
    
    
    
    10,403,893STOCKHOLDERS EQUITY:Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding,
9,546,593 and 9,169,093
    
    
    954,659
    
    
    
    916,909Additional paid-in capital
    
    
    22,180,996
    
    
    
    22,171,341Accumulated deficit
    
    
    (21,801,912
    )
    
    
    (21,607,785
    )Treasury stock (80,225 shares, at cost)
    
    
    (385,757
    )
    
    
    (385,757
    )Accumulated other comprehensive income
    
    
    (75,974
    )
    
    
    (102,909
    )Total Stockholders Equity
    
    
    872,012
    
    
    
    991,799TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    10,954,197
    
    
    $
    11,395,692
 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 EndedMarch 31,2008
    
    
    2007NET SALESProduct sales
    
    $
    611,500
    
    
    $
    736,475Service sales
    
    
    2,060,146
    
    
    
    2,612,167Total Net Sales
    
    
    2,671,646
    
    
    
    3,348,642COSTS AND OPERATING EXPENSES:Cost of sales
    
    
    714,963
    
    
    
    987,944Engineering and software development
    
    
    297,858
    
    
    
    250,947Selling, general and administrative
    
    
    1,871,673
    
    
    
    2,004,491Total Costs and Operating Expenses
    
    
    2,884,494
    
    
    
    3,243,382INCOME (LOSS) FROM OPERATIONS
    
    
    (212,848
    )
    
    
    105,260NET INTEREST INCOME
    
    
    18,721
    
    
    
    12,252INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (194,127
    )
    
    
    117,512INCOME TAXES
    
    
    
    
    
    
    NET INCOME (LOSS)
    
    $
    (194,127
    )
    
    $
    117,512NET INCOME (LOSS) PER SHAREBasic
    
    $
    (0.02
    )
    
    $
    0.01Diluted
    
    $
    (0.02
    )
    
    $
    0.01
 The accompanying notes are an integral part of these financial statements.
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VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 Three Months Ended March 31,2008
    
    
    2007OPERATING ACTIVITIES:Net income (loss)
    
    $
    (194,127
    )
    
    $
    117,512Adjustments to reconcile net income (loss) to net cash flows
provided by operating activitiesDepreciation and amortization
    
    
    331,589
    
    
    
    276,659Bad debt expense
    
    
    3,000
    
    
    
    7,470Share based compensation expense
    
    
    21,500
    
    
    
    3,000Pension assets
    
    
    (23,823
    )Loss on disposal of fixed assets
    
    
    14,571
    
    
    
    (23,823
    )Unrealized gain on sale of investments
    
    
    41,060
    
    
    
    5,373Changes in assets and liabilitiesAccounts receivable
    
    
    187,615
    
    
    
    (12,642
    )Inventories
    
    
    17,970
    
    
    
    (5,539
    )Prepaid expenses and other current assets
    
    
    (5,324
    )
    
    
    (46,444
    )Deposits and other assets
    
    
    15,000
    
    
    
    Accounts payable
    
    
    (58,854
    )
    
    
    (9,480
    )Accrued compensation and related taxes
    
    
    (339,643
    )
    
    
    24,979Deferred revenue
    
    
    122,340
    
    
    
    104,404Other accrued liabilities
    
    
    (89,143
    )
    
    
    (15,277
    )Pension obligation
    
    
    29,467
    
    
    
    113,067Net cash flows provided by operating activities
    
    
    73,198
    
    
    
    539,259INVESTING ACTIVITIES:Purchase of investments
    
    
    (184,626
    )
    
    
    (121,113
    )Capitalized software development costs
    
    
    (200,464
    )
    
    
    (304,197
    )Additions to property and equipment
    
    
    (55,345
    )
    
    
    (20,390
    )Net cash flows used by investing activities:
    
    
    (440,435
    )
    
    
    (445,700
    )FINANCING ACTIVITY:Exercise of stock options
    
    
    25,905
    
    
    
    172Net cash flows provided by financing activities
    
    
    25,905
    
    
    
    172NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (341,332
    )
    
    
    93,731CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    713,342
    
    
    
    845,384CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    372,010
    
    
    $
    939,115
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Three Months Ended March 31,2008
    
    
    2007SUPPLEMENTAL CASH FLOW INFORMATIONCash Transactions:Income taxes paid, net
    
    $
    4,425
    
    
    $
    404Interest paid
    
    $
    1,401
    
    
    $
    453
 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 EQUIPMENTThe major classifications of property and equipment at March 31, 2008, and December 31, 2007
were:
 March 31,
    
    
    December 31,2008
    
    
    2007Machinery and equipment
    
    $
    128,390
    
    
    $
    795,905Computer hardware and software
    
    
    1,276,377
    
    
    
    2,093,026Furniture and fixtures
    
    
    1,041,512
    
    
    
    1,677,783Leasehold improvements
    
    
    1,385,797
    
    
    
    1,388,350$
    3,832,076
    
    
    $
    5,955,064
 For the quarter ended March 31, 2008, the Company recorded depreciation expense of $68,125.
Depreciation expense for the quarter ended March 31, 2007 was $62,877.(3)
    
    STOCK-BASED COMPENSATIONThe Companys share-based compensation consists of restricted stock and stock options,
generally vesting over periods ranging from one to four years. For the quarter ended March 31,
2008, the company awarded restricted stock grants totaling 320,000 shares vesting over three
years. There were no grants of stock options. During the first quarter of 2007 there were no
awards of restricted stock or stock option grants.A summary of the status of the Companys stock option plan as of March 31, 2008 is presented
below:
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Average
    
    
    Average
    
    
    RemainingExercise
    
    
    Grant-Date
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Fair Value
    
    
    Term (Yrs)
    
    
    ValueOutstanding as of December 31, 2007
    
    
    2,257,943
    
    
    $
    1.60
    
    
    $
    1.32
    
    
    
    5.1
    
    
    $
    548,550Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (57,500
    )
    
    
    0.45
    
    
    
    
    
    
    
    
    
    
    
    (4,630
    )Canceled
    
    
    (36,280
    )
    
    
    4.81
    
    
    
    
    
    
    
    
    
    
    
    (30,506
    )Outstanding as of March 31, 2008
    
    
    2,164,163
    
    
    $
    1.57
    
    
    $
    1.30
    
    
    
    4.9
    
    
    $
    513,414Options exercisable at March 31, 2008
    
    
    2,037,878
    
    
    $
    1.62
    
    
    $
    1.33
    
    
    
    4.7
    
    
    $
    512,853
  (4)
    
    TOTAL COMPREHENSIVE INCOME (LOSS)Total comprehensive income (loss) for the first quarter of 2008 and 2007 was as follows:
 Three Months Ended March 31,2008
    
    
    2007Net income (loss)
    
    $
    (194,127
    )
    
    $
    117,512Reclassification to net periodic benefit cost
    
    
    22,122
    
    
    
    Unrealized change  pension
    
    
    (36,247
    )
    
    
    Unrealized change on investments
    
    
    41,060
    
    
    
    5,373Total comprehensive loss
    
    $
    (167,192
    )
    
    $
    122,885
 (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 EndedMarch 31,2008
    
    
    2007BasicNet income (loss)
    
    $
    (194,127
    )
    
    $
    117,512Weighted average common shares outstanding
    
    
    9,346,912
    
    
    
    8,855,134Net income (loss) per common share
    
    $
    (0.02
    )
    
    $
    0.01DilutedNet income (loss)
    
    $
    (194,127
    )
    
    $
    117,512Weighted average common shares outstanding
    
    
    9,346,912
    
    
    
    8,855,134Additional dilutive effect of stock options and
warrants after application of treasury stock method
    
    
    
    
    
    
    567,361Weighted average dilutive shares outstanding
    
    
    9,346,912
    
    
    
    9,422,495Net income (loss) per common share assuming full obligation
    
    $
    (0.02
    )
    
    $
    0.01
  (6)
    
    INDEMNIFICATION OF CUSTOMERSOur 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 March
31, 2008 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 PLANSThe Company sponsors an employee incentive savings plan under Section 401(k) for all eligible
employees. The Companys contributions to the plan are discretionary. There were no
contributions to the plan for the three months ended March 31, 2008 and 2007.
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Three Months Ended March 31,2008
    
    
    2007Current Service Cost
    
    $
    14,438
    
    
    $
    68,180Amortization of Prior Service Cost
    
    
    22,122
    
    
    
    15,700Interest Cost
    
    
    82,688
    
    
    
    78,720Unrealized change
    
    
    (36,247
    )
    
    
    Pension Expense
    
    $
    83,001
    
    
    $
    162,600
     Period Ending December 31, Unless Stated Otherwise,
 Q1 2008
    
    
    53,533Q2 - Q4 2008
    
    
    386,5512009
    
    
    498,1922010
    
    
    498,1922011
    
    
    468,0582012
    
    
    513,8422013 - 2016
    
    
    2,717,021
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Three Months Ended March 31,2008
    
    
    2007Current Service Cost
    
    $
    1,892
    
    
    $
    1,130Interest Cost
    
    
    1,521
    
    
    
    620PRHB Expense
    
    $
    3,413
    
    
    $
    1,750
  Period Ending December 31, Unless Stated Otherwise,
 Q1 2008
    
    
    3,413Q2 - Q4 2008
    
    
    10,2392009
    
    
    13,6492010
    
    
    13,6492011
    
    
    13,6492012
    
    
    13,6492013 - 2016
    
    
    37,096
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Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Results of Operations
  Overview
    Sales
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Cost of Sales
  Operating Expenses
  Three Months EndedMarch 31,2008
    
    
    2007Gross expenditures for engineering and software development
    
    $
    498,000
    
    
    $
    555,000Less: Software development costs capitalized
    
    
    (200,000
    )
    
    
    (304,000
    )Net expenses for engineering and software development
included in the Companys statement of operations
    
    $
    298,000
    
    
    $
    251,000
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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 Standards (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
adopted these provisions at the beginning of the fiscal year ending December 31, 2008.
Adoption of SFAS 159 did not have a material impact on the Companys financial statements.2)
    
    In September 2006, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (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 adopted
these provisions at the beginning of the fiscal year ending December 31, 2008. Adoption of
SFAS 159 did not have a material impact on the Companys financial statements.3)
    
    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 is required to adopt these provisions at the beginning of the fiscal year
ending December 31, 2009.  The Company does not expect adoption of SFAS 141(R) to have a
material effect on its financial statements.4)
    
    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 is required to adopt
these provisions at the beginning of the fiscal year ending December 31, 2009.  The Company
does not expect SFAS 160 to have a material effect on its financial statements.5)
    
    In December 2007, the SEC issued Staff Accounting Bulletin No. 110 (SAB 110).   SAB
110 permits companies to continue to use the simplified
method, under certain circumstances, in estimating the expected term of plain vanilla
options beyond December 31, 2007.  SAB 110 updates guidance provided in SAB 107 that
previously stated that the Staff would not expect a company to use the simplified method
for share option grants after December 31, 2007.    Adoption of SAB 110 did not expect to
have a material impact on the Companys financial statements.
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6)
    
    In March 2007, the Financial Accounting Standards Board ratified Emerging Issues Task
Force (EITF) Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life
Insurance Agreements. EITF 06-10 provides guidance for determining a liability for the
postretirement benefit obligation as well as recognition and measurement of the associated
asset on the basis of the terms of the collateral assignment agreement.  EITF 06-10 is
effective for fiscal years beginning after December 15, 2007.  As such, the Company adopted
these provisions at the beginning of the fiscal year ending December 31, 2008.  Adoption of
EITF 06-10 did not have a material impact 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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Issues and Risks
  Intellectual Property Rights
  20




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New Products and Services
 ®
 Declines in Demand for Software
  Product Development Schedule
 ®
 Competition
  Marketing and Sales
  21




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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: 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
      23




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/s/ Anthony C. Mazzullo

Anthony C. MazzulloPresident and CEODate: May 14, 2008/s/ Ronald C. Lundy

Ronald C. LundyVice President of Finance and CFO
 24