##### 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 June 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)
  (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 - June 30, 2007 (Unaudited) and December 31, 2006
    
    3 - 4Condensed Statements of Operations (Unaudited) Three and Six Months Ended June 30, 2007 and 2006
    
    5Condensed Statements of Cash Flows (Unaudited) Six Months Ended June 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 4
    
    Submission of Matters to a Vote of Security Holders
    
    21Item 5
    
    Certification of Chief Executive Officer and Chief Financial Officer
    
    21Item 6
    
    Exhibits
    
    22Officers' Certifications and Signatures
    
    23 - 27EX-31.1EX-31.2EX-32.1EX-32.2
  2




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VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED BALANCE SHEETS
 (Unaudited)June 30,
    
    
    December 31,2007
    
    
    2006ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    600,443
    
    
    $
    845,384Investments
    
    
    1,575,675
    
    
    
    849,655Accounts receivable, trade (net
of allowance for doubtful accounts
of $35,000 and $30,000, respectively)
    
    
    1,291,351
    
    
    
    1,443,685Inventories, net
    
    
    29,845
    
    
    
    32,898Prepaid expenses and other current assets
    
    
    285,409
    
    
    
    262,133Total Current Assets
    
    
    3,782,723
    
    
    
    3,433,755PROPERTY AND EQUIPMENTCost
    
    
    5,894,188
    
    
    
    5,904,647Less accumulated depreciation
    
    
    (5,310,529
    )
    
    
    (5,235,398
    )Property and Equipment (Net)
    
    
    583,659
    
    
    
    669,249OTHER ASSETS:Software development costs (net of
accumulated amortization of $1,691,497
and $1,246,121, respectively)
    
    
    3,254,856
    
    
    
    3,175,385Pension assets
    
    
    2,937,455
    
    
    
    2,866,470Deposits and other assets
    
    
    830,756
    
    
    
    788,534Total Other Assets
    
    
    7,023,067
    
    
    
    6,830,389TOTAL ASSETS
    
    $
    11,389,449
    
    
    $
    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)June 30,
    
    
    December 31,2007
    
    
    2006LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable
    
    $
    231,370
    
    
    $
    317,158Accrued compensation and related taxes
    
    
    824,148
    
    
    
    680,930Deferred revenue
    
    
    3,395,637
    
    
    
    3,317,119Current portion of pension obligation
    
    
    313,134
    
    
    
    195,767Other accrued liabilities
    
    
    292,201
    
    
    
    323,222Total Current Liabilities
    
    
    5,056,490
    
    
    
    4,834,196Pension obligation
    
    
    5,169,397
    
    
    
    5,096,031Total Liabilities
    
    
    10,225,887
    
    
    
    9,930,227STOCKHOLDERS EQUITY:Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding,
9,047,296 and 8,935,026
    
    
    904,730
    
    
    
    893,503Additional paid-in capital
    
    
    22,045,774
    
    
    
    21,724,250Accumulated deficit
    
    
    (21,104,368
    )
    
    
    (20,901,736
    )Treasury stock (80,225 shares, at cost)
    
    
    (385,757
    )
    
    
    (385,757
    )Accumulated other comprehensive income
    
    
    (296,817
    )
    
    
    (327,094
    )Total Stockholders Equity
    
    
    1,163,562
    
    
    
    1,003,166TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    11,389,449
    
    
    $
    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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006NET SALESProduct sales
    
    $
    828,542
    
    
    $
    829,043
    
    
    $
    1,565,016
    
    
    $
    1,568,687Service sales
    
    
    2,219,541
    
    
    
    1,777,238
    
    
    
    4,831,709
    
    
    
    3,481,790Total Net Sales
    
    
    3,048,083
    
    
    
    2,606,281
    
    
    
    6,396,725
    
    
    
    5,050,477COSTS AND OPERATING EXPENSES:Cost of sales
    
    
    749,835
    
    
    
    574,093
    
    
    
    1,737,779
    
    
    
    1,098,432Engineering and software development
    
    
    296,500
    
    
    
    198,301
    
    
    
    547,447
    
    
    
    351,010Selling, general and administrative
    
    
    2,334,527
    
    
    
    2,048,755
    
    
    
    4,339,018
    
    
    
    3,881,394Total Costs and Operating Expenses
    
    
    3,380,862
    
    
    
    2,821,149
    
    
    
    6,624,244
    
    
    
    5,330,836LOSS FROM OPERATIONS
    
    
    (332,779
    )
    
    
    (214,868
    )
    
    
    (227,519
    )
    
    
    (280,359
    )NET INTEREST INCOME
    
    
    12,635
    
    
    
    7,816
    
    
    
    24,887
    
    
    
    15,830LOSS BEFORE INCOME TAXES
    
    
    (320,144
    )
    
    
    (207,052
    )
    
    
    (202,632
    )
    
    
    (264,529
    )INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (320,144
    )
    
    $
    (207,052
    )
    
    $
    (202,632
    )
    
    $
    (264,529
    )NET LOSS PER SHAREBasic
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
 The accompanying notes are an integral part of these financial statements.
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VERAMARK TECHNOLOGIES, INC.
 
 CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months Ended June 30,2007
    
    
    2006OPERATING ACTIVITIES:Net loss
    
    $
    (202,632
    )
    
    $
    (264,529
    )Adjustments to reconcile net loss to net cash flows
provided by operating activitiesDepreciation and amortization
    
    
    571,403
    
    
    
    630,749Expense of bad debts
    
    
    4,470
    
    
    
    (1,506
    )Compensation expense-stock options
    
    
    282,000
    
    
    
    18,700Increase in cash surrender value of company-owned life insurance
Policies
    
    
    (70,985
    )
    
    
    (72,446
    )Realized loss on sale of investments
    
    
    
    
    
    
    (1,356
    )Changes in assets and liabilitiesAccounts receivable
    
    
    147,864
    
    
    
    346,106Inventories
    
    
    3,053
    
    
    
    (18,145
    )Prepaid expenses and other current assets
    
    
    (23,276
    )
    
    
    (70,496
    )Deposits and other assets
    
    
    (42,222
    )
    
    
    8,211Accounts payable
    
    
    (85,788
    )
    
    
    (88,386
    )Accrued compensation and related taxes
    
    
    143,218
    
    
    
    (20,498
    )Deferred revenue
    
    
    78,518
    
    
    
    176,617Other accrued liabilities
    
    
    (31,021
    )
    
    
    (3,106
    )Pension obligation
    
    
    222,133
    
    
    
    246,933Net cash flows provided by operating activities
    
    
    996,735
    
    
    
    886,848INVESTING ACTIVITIES:Purchase of investments
    
    
    (727,143
    )
    
    
    (114,626
    )Capitalized software development costs
    
    
    (524,847
    )
    
    
    (689,486
    )Additions to property and equipment
    
    
    (40,437
    )
    
    
    (78,031
    )Net cash flows used by investing activities:
    
    
    (1,292,427
    )
    
    
    (882,143
    )FINANCING ACTIVITY:Exercise of stock options
    
    
    43,710
    
    
    
    932Proceeds from employee stock purchase plan
    
    
    7,041
    
    
    
    4,706Net cash flows provided by financing activities
    
    
    50,751
    
    
    
    5,638NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (244,941
    )
    
    
    10,343CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    845,384
    
    
    
    911,310CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    600,443
    
    
    $
    921,653
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Six Months EndedJune 30,2007
    
    
    2006SUPPLEMENTAL CASH FLOW INFORMATIONCash Transactions:Income taxes paid, net
    
    $
    1,859
    
    
    $
    4,500Interest paid
    
    $
    575
    
    
    $
    144
 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
  June 30,
    
    
    December 31,2007
    
    
    2006Machinery and equipment
    
    $
    795,905
    
    
    $
    795,905Computer hardware and software
    
    
    2,039,273
    
    
    
    2,057,099Furniture and fixtures
    
    
    1,670,659
    
    
    
    1,669,084Leasehold improvements
    
    
    1,388,351
    
    
    
    1,382,559$
    5,894,188
    
    
    $
    5,904,647
  (3) STOCK-BASED COMPENSATION
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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
    
    
    432,485
    
    
    
    0.78
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (101,650
    )
    
    
    0.43
    
    
    
    
    
    
    
    
    
    
    
    (8,132
    )Canceled
    
    
    (619,600
    )
    
    
    2.79
    
    
    
    
    
    
    
    
    
    
    
    (303,551
    )Outstanding as of June 30, 2007
    
    
    2,501,513
    
    
    $
    2.05
    
    
    $
    1.69
    
    
    
    4.6
    
    
    $
    845,942Options exercisable at June 30, 2007
    
    
    2,439,678
    
    
    $
    2.08
    
    
    $
    1.71
    
    
    
    4.5
    
    
    $
    842,381
  (4) TOTAL COMPREHENSIVE INCOME (LOSS)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net loss
    
    $
    (320,144
    )
    
    $
    (207,052
    )
    
    $
    (202,632
    )
    
    $
    (264,529
    )Amortization of Prior
Services
    
    
    31,400
    
    
    
    
    
    
    
    31,400
    
    
    
    Unrealized loss on
investments
    
    
    (6,496
    )
    
    
    (4,232
    )
    
    
    (1,123
    )
    
    
    (6,357
    )Total Comprehensive Loss
    
    $
    (295,240
    )
    
    $
    (211,284
    )
    
    $
    (172,355
    )
    
    $
    (270,886
    )
 (5) NET INCOME (LOSS) PER SHARE (EPS)
  9




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Calculations of Earnings (Loss) Per Share
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006BasicNet Loss
    
    $
    (320,144
    )
    
    $
    (207,052
    )
    
    $
    (202,632
    )
    
    $
    (264,529
    )Weighted average common
shares outstanding
    
    
    8,940,855
    
    
    
    8,839,452
    
    
    
    8,897,994
    
    
    
    8,838,913Net loss per common share
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )DilutedNet loss
    
    $
    (320,144
    )
    
    $
    (207,052
    )
    
    $
    (202,632
    )
    
    $
    (264,529
    )Weighted average common
shares outstanding
    
    
    8,940,855
    
    
    
    8,839,452
    
    
    
    8,897,994
    
    
    
    8,838,913Additional dilutive
effect of stock options
and warrants after
application of treasury
stock method
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average
dilutive shares
outstanding
    
    
    8,940,855
    
    
    
    8,839,452
    
    
    
    8,897,994
    
    
    
    8,838,913Net loss per common
share assuming full
obligation
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
  (6) INDEMNIFICATION OF CUSTOMERS
  (7) BENEFIT PLANS
  10




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Current Service Cost
    
    $
    68,180
    
    
    $
    69,503
    
    
    $
    136,360
    
    
    $
    139,006Amortization of
Prior Service Cost
    
    
    15,700
    
    
    
    22,123
    
    
    
    31,400
    
    
    
    44,246Interest Cost
    
    
    78,720
    
    
    
    73,374
    
    
    
    157,440
    
    
    
    146,748Pension Expense
    
    $
    162,600
    
    
    $
    165,000
    
    
    $
    325,200
    
    
    $
    330,000
    11




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




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Sales
    Cost of Sales
  Operating Expenses
  13




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Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Gross expenditures for engineering & software development
    
    $
    518,000
    
    
    $
    514,000
    
    
    $
    1,073,000
    
    
    $
    1,040,000Less: Software development costs capitalized
    
    
    (221,000
    )
    
    
    (316,000
    )
    
    
    (525,000
    )
    
    
    (689,000
    )Net expense for engineering and software
    
    $
    297,000
    
    
    $
    198,000
    
    
    $
    548,000
    
    
    $
    351,000
  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 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. Adoption of Fin 48 does 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.
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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 4: Submission of Matters to a Vote of Security Holders
  A. Election of Directors
 Director
    
    Votes CastFor
    
    WithheldAuthorityCharles A. Constantino
    
    
    5,904,864
    
    
    
    2,128,008John E. Gould
    
    
    5,910,464
    
    
    
    2,122,408Andrew W. Moylan
    
    
    5,901,364
    
    
    
    2,131,508David G. Mazzella
    
    
    5,925,516
    
    
    
    2,107,356William J. Reilly
    
    
    5,910,764
    
    
    
    2,122,108Michael R. Holly
    
    
    5,910,964
    
    
    
    2,121,908
 B. Ratification of the appointment of independent auditors for the year ending December
31, 2007
 For:
    
    
    6,453,238Against:
    
    
    1,482,341Abstain
    
    
    97,292
 
 Item 5: Certification of Chief Executive Officer and Chief Financial Officer
  21




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##### Table of Contents



Item 6: Exhibits and Reports on Form 8-K
 (a)
    
    Exhibits required by Item 601 of Regulation S-K
      22




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Date: August 10, 2007/s/ David G. Mazzella

David G. MazzellaPresident and CEODate: August 10, 2007/s/ Ronald C. Lundy

Ronald C. LundyVice President of Finance and CFO
 23