Form 10-Q
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.
(Exact name of registrant as specified in its charter)
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Delaware
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16-1192368 |
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(State or other jurisdiction of Incorporation
or Organization)
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(IRS Employer Identification Number) |
3750 Monroe Avenue, Pittsford, NY 14534
(Address of principal executive offices)(Zip Code)
(585) 381-6000
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,
if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). YES o NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES o NO þ
The number of shares of Common Stock, $.10 par value, outstanding on June 30, 2009 was 9,913,731.
PART I FINANCIAL INFORMATION
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
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(Unaudited) |
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June 30, |
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December 31, |
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2009 |
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|
2008 |
|
ASSETS |
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CURRENT ASSETS: |
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|
|
|
|
|
|
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|
|
|
|
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Cash and cash equivalents |
|
$ |
734,300 |
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$ |
1,014,669 |
|
Investments |
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643,657 |
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|
982,331 |
|
Accounts receivable, trade (net
of allowance for doubtful accounts
of $19,000 and $30,000, respectively) |
|
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873,835 |
|
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|
1,047,527 |
|
Inventories, net |
|
|
26,588 |
|
|
|
35,055 |
|
Prepaid expenses and other current assets |
|
|
377,419 |
|
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|
244,511 |
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|
|
|
|
|
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Total Current Assets |
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2,655,799 |
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3,324,093 |
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PROPERTY AND EQUIPMENT |
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Cost |
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3,567,717 |
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|
3,862,879 |
|
Less accumulated depreciation |
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(3,150,537 |
) |
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|
(3,406,882 |
) |
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|
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Property and Equipment (Net) |
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|
417,180 |
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|
455,997 |
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OTHER ASSETS: |
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Software development costs (net of
accumulated amortization of $2,695,863
and $3,332,886, respectively) |
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2,756,118 |
|
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|
2,719,787 |
|
Pension assets |
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2,861,479 |
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|
3,160,639 |
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Deposits and other assets |
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995,766 |
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|
905,761 |
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Total Other Assets |
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6,613,363 |
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6,786,187 |
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TOTAL ASSETS |
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$ |
9,686,342 |
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$ |
10,566,277 |
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The accompanying notes are an integral part of these financial statements.
3
VERAMARK TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
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(Unaudited) |
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June 30, |
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December 31, |
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2009 |
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2008 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
278,423 |
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$ |
270,842 |
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Accrued compensation and related taxes |
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558,659 |
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|
466,150 |
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Deferred revenue |
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3,425,197 |
|
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3,746,488 |
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Current portion of pension obligation |
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502,059 |
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|
486,059 |
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Other accrued liabilities |
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86,857 |
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94,954 |
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Total Current Liabilities |
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4,851,195 |
|
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5,064,493 |
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Pension obligation |
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4,795,664 |
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5,000,010 |
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Total Liabilities |
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9,646,859 |
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10,064,503 |
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STOCKHOLDERS EQUITY: |
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Common Stock, par value $.10; shares authorized,
40,000,000; shares issued and outstanding,
9,993,956 and 9,852,954 |
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999,396 |
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985,295 |
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Additional paid-in capital |
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22,355,801 |
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22,293,688 |
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Accumulated deficit |
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(22,761,247 |
) |
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|
(22,039,196 |
) |
Treasury stock (80,225 shares, at cost) |
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(385,757 |
) |
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|
(385,757 |
) |
Accumulated other comprehensive income |
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(168,710 |
) |
|
|
(352,256 |
) |
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Total Stockholders Equity |
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39,483 |
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501,774 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
|
$ |
9,686,342 |
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|
$ |
10,566,277 |
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|
|
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|
The accompanying notes are an integral part of these financial statements.
4
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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NET SALES |
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Product sales |
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$ |
382,259 |
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$ |
542,661 |
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$ |
850,528 |
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$ |
1,154,161 |
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Service sales |
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2,097,131 |
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1,995,622 |
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4,151,541 |
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|
4,055,768 |
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Total Net Sales |
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2,479,390 |
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2,538,283 |
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5,002,069 |
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5,209,929 |
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COSTS AND OPERATING EXPENSES: |
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Cost of sales |
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677,651 |
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|
707,944 |
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1,321,870 |
|
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|
1,422,907 |
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Engineering and software development |
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|
278,648 |
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|
334,243 |
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|
573,164 |
|
|
|
632,101 |
|
Selling, general and administrative |
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2,049,105 |
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1,771,230 |
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3,822,732 |
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3,642,903 |
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Total Costs and Operating Expenses |
|
|
3,005,404 |
|
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|
2,813,417 |
|
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5,717,766 |
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5,697,911 |
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LOSS FROM OPERATIONS |
|
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(526,014 |
) |
|
|
(275,134 |
) |
|
|
(715,697 |
) |
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(487,982 |
) |
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NET INTEREST INCOME (LOSS) |
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|
(15,918 |
) |
|
|
15,425 |
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(6,354 |
) |
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|
34,146 |
|
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LOSS BEFORE INCOME TAXES |
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(541,932 |
) |
|
|
(259,709 |
) |
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(722,051 |
) |
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|
(453,836 |
) |
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INCOME TAXES |
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|
NET LOSS |
|
$ |
(541,932 |
) |
|
$ |
(259,709 |
) |
|
$ |
(722,051 |
) |
|
$ |
(453,836 |
) |
|
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|
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NET LOSS PER SHARE |
|
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|
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|
|
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|
Basic |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.05 |
) |
|
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|
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|
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|
Diluted |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these financial statements.
5
VERAMARK TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
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Six Months Ended
June 30, |
|
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|
2009 |
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|
2008 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(722,051 |
) |
|
$ |
(453,836 |
) |
Adjustments to reconcile net loss to net cash flows provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
773,896 |
|
|
|
690,427 |
|
Bad debt expense (recovery) |
|
|
(11,339 |
) |
|
|
3,332 |
|
Share based compensation expense |
|
|
61,933 |
|
|
|
47,116 |
|
Pension assets |
|
|
(10,840 |
) |
|
|
(70,985 |
) |
Loss on disposal of fixed assets |
|
|
20 |
|
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|
14,571 |
|
Unrealized gain (loss) on sale of investments |
|
|
229 |
|
|
|
7,068 |
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|
|
|
|
|
|
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Changes in assets and liabilities |
|
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|
|
|
|
|
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Accounts receivable |
|
|
185,031 |
|
|
|
339,561 |
|
Inventories |
|
|
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 |
|
|
|
63,725 |
|
Accrued compensation and related taxes |
|
|
92,509 |
|
|
|
(210,543 |
) |
Deferred revenue |
|
|
(321,291 |
) |
|
|
117,643 |
|
Other accrued liabilities |
|
|
(8,097 |
) |
|
|
(75,731 |
) |
Pension obligation |
|
|
(5,029 |
) |
|
|
(51,219 |
) |
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Net cash flows provided by operating activities |
|
|
(171,894 |
) |
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|
294,397 |
|
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INVESTING ACTIVITIES: |
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Sale (purchase) of investments |
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|
338,674 |
|
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|
121,917 |
|
Capitalized software development costs |
|
|
(636,833 |
) |
|
|
(412,824 |
) |
Additions to property and equipment |
|
|
(134,597 |
) |
|
|
(130,048 |
) |
|
|
|
|
|
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|
Net cash flows used by investing activities |
|
|
(432,756 |
) |
|
|
(420,955 |
) |
|
|
|
|
|
|
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|
FINANCING ACTIVITY: |
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|
|
|
|
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|
Transfer of Cash Surrender Values |
|
|
310,000 |
|
|
|
|
|
Exercise of stock options |
|
|
|
|
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|
57,150 |
|
Proceeds from employee stock purchase plan |
|
|
14,281 |
|
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|
11,743 |
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|
|
|
|
|
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|
Net cash flows provided by financing activities |
|
|
324,281 |
|
|
|
68,893 |
|
|
|
|
|
|
|
|
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|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(280,369 |
) |
|
|
(57,665 |
) |
|
|
|
|
|
|
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|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
|
|
1,014,669 |
|
|
|
713,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
|
$ |
734,300 |
|
|
$ |
655,677 |
|
|
|
|
|
|
|
|
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|
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SUPPLEMENTAL CASH FLOW INFORMATION |
|
|
|
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Cash Transactions: |
|
|
|
|
|
|
|
|
Income taxes paid, net |
|
$ |
4,350 |
|
|
$ |
7,725 |
|
Interest paid |
|
$ |
(202) |
|
|
$ |
874 |
|
The accompanying notes are an integral part of these financial statements.
6
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited financial statements include all adjustments of a normal and
recurring nature which, in the opinion of Companys management, are necessary to present fairly the
Companys financial position as of June 30, 2009, the results of its operations for the three and
six months ended June 30, 2009 and 2008, and cash flows for the six months ended June 30, 2009 and
2008.
Certain information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission. These condensed financial
statements should be read in conjunction with the financial statements and related notes contained
in the Companys Annual Report on Form 10-K to the Securities and Exchange Commission for the year
ended December 31, 2008.
The results of operations and cash flows for the three and six months ended June 30, 2009 are
not necessarily indicative of the results to be expected for the full years operation.
(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 |
|
|
2008 |
|
|
Machinery and equipment |
|
$ |
128,390 |
|
|
$ |
128,390 |
|
Computer hardware and software |
|
|
1,200,397 |
|
|
|
1,224,343 |
|
Furniture and fixtures |
|
|
853,133 |
|
|
|
1,124,349 |
|
Leasehold 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 Companys 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
|
|
A summary of the status of the Companys stock option plan as of June 30, 2009 is presented
below: |
|
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|
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|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
Remaining |
|
|
|
|
|
|
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|
|
|
Exercise |
|
|
Grant-Date |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Fair Value |
|
|
Term (Yrs) |
|
|
Value |
|
Outstanding as of December 31, 2008 |
|
|
1,899,583 |
|
|
$ |
1.28 |
|
|
$ |
1.07 |
|
|
|
4.7 |
|
|
$ |
344,300 |
|
Granted |
|
|
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 |
|
|
$ |
220,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2009 |
|
|
1,687,918 |
|
|
$ |
0.99 |
|
|
$ |
0.89 |
|
|
|
4.3 |
|
|
$ |
220,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009, there was $42,842 of total unrecognized compensation cost related to
non-vested stock options granted under the Plan and $211,373 of unrecognized compensation cost
related to non-vested restricted stock grants. The compensation cost for stock options will be
recognized over a weighted-average period of 1.4 years. The compensation costs of restricted stock
will be recognized over a weighted-average period of 1.1 years.
(4) |
|
TOTAL COMPREHENSIVE INCOME (LOSS) |
Total comprehensive income (loss) for the three and six months ended June 30, 2009 and 2008
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30, |
|
|
Six Months Ended
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Net loss |
|
$ |
(541,932 |
) |
|
$ |
(259,709 |
) |
|
$ |
(722,051 |
) |
|
$ |
(453,836 |
) |
Reclassification to net periodic benefit cost |
|
|
|
|
|
|
22,123 |
|
|
|
|
|
|
|
44,245 |
|
Unrealized change pension |
|
|
80,000 |
|
|
|
(36,247 |
) |
|
|
183,317 |
|
|
|
(72,494 |
) |
Unrealized change on investments |
|
|
5,580 |
|
|
|
(33,992 |
) |
|
|
229 |
|
|
|
7,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 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. |
8
Calculations of Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(541,932 |
) |
|
$ |
(259,709 |
) |
|
$ |
(722,051 |
) |
|
$ |
(453,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
9,869,026 |
|
|
|
9,504,989 |
|
|
|
9,826,878 |
|
|
|
9,425,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(541,932 |
) |
|
$ |
(259,709 |
) |
|
$ |
(722,051 |
) |
|
$ |
(453,836 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
9,869,026 |
|
|
|
9,504,989 |
|
|
|
9,826,878 |
|
|
|
9,425,951 |
|
Additional 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 |
|
|
|
9,425,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share assuming full obligation |
|
$ |
(0.05 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.05 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no dilutive effects of stock options in the first and second quarters of 2009 or 2008,
as the effect would have been anti-dilutive.
(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. |
|
|
The Company sponsors an employee incentive savings plan under Section 401(k) for all eligible
employees. The Companys contributions to the plan are discretionary. During the first
quarter of 2009 the Company contributed $23,868 to employees 401k accounts. There were no
contributions to the plan during the first six months of 2008. |
9
|
|
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 Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Service Cost |
|
|
|
|
|
$ |
10,270 |
|
|
|
|
|
|
$ |
24,708 |
|
Amortization of Prior Service Cost |
|
|
|
|
|
|
22,123 |
|
|
|
|
|
|
|
44,245 |
|
Interest Cost |
|
|
55,000 |
|
|
|
82,688 |
|
|
|
46,683 |
|
|
|
165,376 |
|
Unrealized 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 |
|
|
251,030 |
|
2010 |
|
|
502,059 |
|
2011 |
|
|
471,925 |
|
2012 |
|
|
506,918 |
|
2013 |
|
|
522,159 |
|
2014 - 2018 |
|
|
2,607,898 |
|
10
|
|
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 Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Current Service Cost |
|
$ |
2,005 |
|
|
$ |
1,892 |
|
|
$ |
4,010 |
|
|
$ |
3,784 |
|
Interest Cost |
|
|
1,407 |
|
|
|
1,521 |
|
|
|
2,814 |
|
|
|
3,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRHB 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 |
|
|
6,825 |
|
2010 |
|
|
13,649 |
|
2011 |
|
|
13,649 |
|
2012 |
|
|
13,649 |
|
2013 |
|
|
13,649 |
|
2014 - 2018 |
|
|
36,745 |
|
|
|
Subsequent events were evaluated through August 12, 2009, the date the financial statements
were issued. |
11
|
|
|
Item 2 |
|
Managements Discussion and Analysis of Financial Condition and Results of Operations |
Results of Operations
Managements Discussion and Analysis contains statements that are forward-looking. Such
statements are identified by the use of words like plans, expects, intends, believes,
will, anticipates, estimates and other words of similar meaning in conjunction with, among
other things, discussions of future operations, financial performance, the Companys strategy for
growth, product development, regulatory approvals, market position and expenditures.
Forward-looking statements are based on managements expectations as of the date of this report.
The Company cannot guarantee that any forward-looking statement will be accurate, although the
Company believes that it has been reasonable in its expectations and assumptions. Forward-looking
statements are subject to the risks identified in Issues and Risks and elsewhere in this report.
Readers are cautioned not to place undue reliance on forward-looking statements and are advised to
review the risks identified in Issues and Risks and elsewhere in this report. The Company has no
obligation to update forward-looking statements.
Overview
Sales for the three months ended June 30, 2009 of $2,479,000, decreased 2% from sales of $2,538,000
for the same three months of 2008. For the six months ended June 30, 2009 sales of $5,002,000
decreased 4% from sales of $5,210,000 recognized for the six months ended June 30, 2008. The net
operating loss of $542,000, for the three months ended June 30, 2009 and $722,000 for the six
months ended June 30, 2009 compare with net operating losses of $260,000 and $454,000 for the same
three and six month periods of 2008. The loss per share for the first six month of 2009 of $0.07
per share compares with a loss per share of $0.05 per share for the first two quarters of 2008.
The higher operating loss incurred for the second quarter of 2009 results from a decrease in
revenues from the sale of premise based software products and services, coupled with an increase in
selling expenses associated with upgrading the capabilities of our direct sales force.
Orders for the first six months of 2009 increased $9,000 from the same six month period of 2008,
including a nearly 200% increase for Telecom Expense Management (TEM) and Business Process
Outsourcing (BPO) services. The increase in orders for TEM and BPO services offset a decline in
demand for premise based software and related services, a segment of the market that is more
sensitive to current economic conditions. The demand for TEM and BPO services support our stated
longer term strategy of transitioning from a provider of solely premise based software products and
services, to an organization offering a wide array of TEM and BPO solutions under multi-year
agreements. As a result of recognizing revenues over the life of the agreement, short term
revenues recognized from TEM and BPO sales will be lower than those derived from a one-time direct
sale of software. However, long term recurring revenues and cash flows are expected to be more
sustainable and predictable. Embedded revenues at June 30, 2009 total approximately $7.1 million,
an increase of 11% from embedded revenues of approximately $6.4 million at December 31, 2008.
Embedded revenues consist of the unrecognized future revenues of maintenance and managed service
contracts, for services yet to be performed.
Sales
Revenues generated from managed services contracts for TEM and BPO services increased 41% for the
quarter ended June 30, 2009 over the same quarter of 2008, and 17% for the six months ended June
30, 2009, as compared with the first six months of 2008. Revenues of premise based software and
services decreased 11% and 9% respectively, for the three and six months ended June 30, 2009 as
compared to the same three and six month periods of 2008. The lower revenues reflect a decrease in
orders received from Avaya and its master distribution channel for call accounting solutions, as
well as a decline in direct sales of larger enterprise level expense management products and
services.
12
Cost of Sales and Gross Margin
Gross margin (sales less cost of sales) for the quarter ended June 30, 2009 of $1,802,000 compares
with gross margin of $1,830,000 for the same quarter of 2008. For the six months of ended June 30,
2009 gross margin of $3,680,000, compares with $3,787,000, for the first six months of 2008. The
decrease in gross margins result from the slightly lower sales volumes achieved for the first two
quarters of 2009 as compared with the prior year. Gross margins as a percentage of revenues,
however, improved to 74% of revenues for the six months ended June 30, 2009, from 73% of revenues
for the first six months of 2008.
Operating Expenses
As a result of increased capitalization of development costs, reported net engineering and software
development costs for the three and six months ended June 30, 2009 decreased 16% and 9%
respectively, as compared with the same three and six months periods ended June 30, 2008. As
depicted in the chart below, gross expenses for engineering and software development before the
effects of capitalization, increased 13% for the three months ended June 30, 2009 and 16% for the
six months ended June 30, 2009 as compared with prior year results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Gross expenditures for engineering & software
development |
|
$ |
618,000 |
|
|
$ |
547,000 |
|
|
$ |
1,210,000 |
|
|
$ |
1,045,000 |
|
Less: 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development efforts undertaken in 2009 led to the second quarter release of VeraSMART Performance
Advisor, a business intelligence solution for analyzing communication network expenses and
generating actionable information that help reduce costs and improve productivity. Performance
Advisor allows businesses to analyze expenses organizationally, department, location, vendor,
service type and inventory type, or by business unit such as IT, finance, or procurement utilizing
easy-to-comprehend dashboards, charts and graphs.
Selling, general and administrative (SG&A) expenses of $2,049,000 for the quarter ended June 30,
2009 increased $278,000 or 16% from expenses of $1,771,000 for the second quarter of 2008. For the
six months ended June 30, 2009, SG&A expense of $3,823,000 increased 5% from expenses of $3,643,000
for the first six months of 2008. The increased expense level for 2009 reflects investments
strengthening our direct sales efforts in the TEM/BPO market.
Liquidity and Capital Resources
The total cash position (cash on hand plus the value of short- term investments) of $1,378,000 at
June 30, 2009 decreased from $1,620,000 at March 31, 2009 and $1,997,000 at December 31, 2008. The
reduction in cash position stems primarily from the increase in operating expenses incurred for the
first half of 2009 as compared with the same period of 2008. During the second quarter, $300,000 of
cash surrender values were utilized to cover pension obligations.
13
Accounts receivable of $874,000 at June 30, 2009 decreased 17% from the accounts receivable balance
of $1,048,000 at December 31, 2009. Due to the lower accounts receivable balance, the reserve for
bad debts has been reduced from $30,000 at December 31, 2008 to $19,000 at June 30, 2009.
Prepaid expenses at June 30, 2009 of $377,000 decreased $83,000, or 18% from $460,000 at March 31,
2009. At December 31, 2008 prepaid expenses totaled $245,000. Prepaid expenses, which include the
unutilized portions of business insurances, maintenance and service agreements, are anticipated to
decline throughout the last two quarters of the year.
Capital expenditures for the first two quarters of 2009 totaled $135,000, which compares with
capital expenditures of $130,000 for the first half of 2008. We do not anticipate any significant
increase in the level of capital expenditures throughout the second half of the year. During the
second quarter of 2009 we retired $430,000 of fully depreciated capital assets no longer in
service, primarily unused office furniture and fixtures.
Software development costs capitalized and included in the Companys balance sheet at June 30, 2009
of $2,756,000 increased 1% from the December 31, 2008 balance of $2,720,000. During the first six
months of 2009, we capitalized $637,000 of software developments costs versus $413,000 of
development costs capitalized during the first six months of 2008. Amortization charges of $601,000
for the first six months of 2009 compare with $550,000 of amortization expensed during the first
six months of 2008.
Pension assets, consisting of the cash surrender values available under company owned life
insurance policies, decreased $300,000 from the December 31, 2008 balance of $3,161,000 to
$2,861,000 at June 30, 2009, reflecting the transfer of funds to general operating accounts to fund
pension obligations, as designed.
Total current liabilities total $4,851,195 at June 30, 2009 decreased 4%, or $213,000, from total
current liabilities of $5,064,000 at December 31, 2008. The largest component of current
liabilities is deferred revenues, which constitute a portion of the Companys embedded future
revenues. Deferred revenues, which total $3,425,000 at June 30, 2009, include the value of
maintenance, training, installation and other contracted services for which the customer has been
billed, but the service has not yet been performed. The vast majority of theses services will be
completed during the next twelve months and recorded as revenues at that time.
Future long-term pension obligations of $4,796,000 at June 30, 2009 decreased 4% from the December
31, 2008 balance of $5,000,000. Future pension obligation will be funded via a series of
company-owned life insurance policies utilizing the associated death benefits and cash surrender
values.
Stockholders equity of $39,000 at June 30, 2009 compares with stockholders equity of $502,000 at
December 31, 2008. The reduction in equity includes the net operating loss for the first six months
of 2009. Through the first six months of 2009, employees have purchased 42,002 shares of Veramark
common stock via the employee stock purchase plan.
Given our current cash position, projected future cash flows, the absence of debt, access to credit
lines and the availability of cash surrender values to augment cash flows when necessary, it is
managements opinion that sufficient resources are in place to support the Companys operational
and strategic objectives for the next twelve months.
14
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 Companys
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 Companys 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 Activitiesan amendment of FASB Statement No. 133. SFAS 161 requires
enhanced disclosures about an entitys 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 Companys 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 SECs 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 Contractsan 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 Companys
financial statements. |
15
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 Companys financial statements. |
7) |
|
In December 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) SFAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan
Assets, (FSP SFAS 132(R)-1). FSP SFAS 132(R)-1 requires additional disclosures about
assets held in an employers 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 Companys 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 Companys 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
Codification TM and 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. |
16
Critical Accounting Policies
The preparation of financial statements requires management to make estimates and assumptions
that affect amounts reported therein. The most significant of these involving difficult or complex
judgments include:
|
|
|
Capitalization of software development costs |
|
|
|
Allowance for Doubtful Accounts |
In each situation, management is required to make estimates about the effects of matters or
future events that are inherently uncertain.
The Companys revenue consists of revenues from the licensing of software to resellers and end
user customers; fees for services rendered to include installation, training, implementation, and
customer maintenance contracts; and the outsourcing or hosting of services.
The Company recognizes software license revenue under Statement of Position No 97-2 Software
Revenue Recognition as amended by Statement of Position No. 98-9, Software Revenue Recognition
With Respect to Certain Transactions, Emerging Issues Task Force 00-21, Revenue Arrangements with
Multiple Deliverables, and related interpretations.
Sales of licensed software sold directly to an end user customer are recognized as revenue
upon delivery and installation of the software at the customer site. Sales of licensed software to
a reseller are recognized as revenue when delivery is made to the reseller. Regardless of the form
of sale no revenue is recognized without persuasive evidence of an arrangement existing. Persuasive
evidence is determined to be a signed purchase order received from the customer or an equivalent
form for those customers lacking a formalized purchase order system. In the case of VeraSMART
sales, a software license agreement signed by both parties is often required in addition to a
purchase order or equivalent. Additionally, revenue is only recognized when a selling price is
fixed or determinable and collectability of the receivable is deemed to be probable.
Service revenues such as training, installation and implementation are recognized when the
service is complete and acknowledged by the customer, regardless as to whether the sale is on a
direct basis or through a reseller arrangement.
Fees charged to customers for post-contract Customer Support are recognized ratably over the
term of the contract. Costs related to maintenance obligations are expensed as incurred.
Sales which constitute a multiple-element arrangement are accounted for by determining if the
elements can be accounted for as separate accounting units, and if so, by applying values to those
units for which there is vendor specific objective evidence of their fair value. We use the
residual method to apply any remaining balance to the remaining elements of the arrangement. More
specifically, this methodology applies when there is embedded maintenance (post-contract customer
support) involved in the sale of a software license, or when the sale of a software license is made
in conjunction with installation services. In the latter case, the recognition of the software
license is deferred until installation is completed.
17
The Companys revenues generated through hosting solutions are recognized using the
proportional performance method. Revenues are recognized in the month services are rendered and
earned under service agreements with clients where service fees are fixed or determinable.
Contracts can be terminated with 90 days written notice. All services provided by us through the
date of cancellation are due and payable under the contract terms.
The Company believes its revenue recognition policies are appropriate, in all circumstances,
and that its policies are reflective of complexities arising from customer arrangements involving
such features as maintenance, warranty agreements, license agreements, and other normal course of
business arrangements.
The Company capitalizes software development costs when technological feasibility has been
established for the software in accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed. Such capitalized costs are amortized on a
product-by-product basis over their economic life or the ratio of current revenues to current and
anticipated revenues from such software, whichever provides the greater amortization. The Company
periodically reviews the carrying value of capitalized software development costs and impairments
are recognized in the results of operations when the expected future undiscounted operating cash
flow derived from the capitalized software is less than its carrying value. Should the Company
inaccurately determine when a product reaches technological feasibility or the economic life of a
product, results could differ materially from those reported. Veramark uses what it believes are
reasonable assumptions and where applicable, established valuation techniques in making its
estimates.
The Company maintains allowances for doubtful accounts for estimated losses resulting from the
potential inability of its customers to make required payments. Management specifically analyzes
accounts receivable, historical bad debts, credit concentrations and customer payment terms when
evaluating the adequacy of the allowance for doubtful accounts.
The Company sponsors an unfunded Supplemental Executive Retirement Program (SERP), which is a
nonqualified plan that provides certain key employees a defined pension benefit. In order to
properly record the net present value of future pension obligations a number of assumptions are
required to be made by Companys management. These assumptions include years of service, life
expectancies, and projected future salary increases for each participant. In addition, management
must make assumptions with regard to the proper long-term interest and liability discount rates to
be applied to these future obligations.
Should the Company need to alter any of these assumptions, there is the potential for
significant adjustments to future projected pension liabilities.
18
Risk Factors
The following factors, among others discussed herein and in the Companys filings under the Act,
could cause actual results and future events to differ materially from those set forth or
contemplated in this report: economic, competitive, governmental and technological factors,
increased operating costs, failure to obtain necessary financing, risks related to natural
disasters and financial market fluctuations. Such factors also include:
Intellectual Property Rights
Veramark regards its products as proprietary and attempts to protect them with a combination of
copyright, trademark and trade secret protections, employee and third-party non-disclosure
agreements and other methods of protection. Despite those precautions, it may be possible for
unauthorized third parties to copy certain portions of Veramarks products, reverse engineer or
obtain and use information that Veramark regards as proprietary. The laws of some foreign
countries do not protect Veramarks proprietary rights to the same extent as the laws of the United
States. Any misappropriation of Veramarks intellectual property could have a material adverse
effect on its business and results of operations. Furthermore, although Veramark take steps to
prevent unlawful infringement of others intellectual property, there can be no assurance that
third parties will not assert infringement claims against Veramark in the future with respect to
current or future products. Any such assertion could require Veramark to enter into royalty
arrangements or result in costly litigation.
Existing Customer Base
We derive an increasingly significant portion of our revenues from multi- year managed service
contracts. As a result, if we lose a major customer, or if a managed service contract is delayed,
reduced, or cancelled, our revenues could be adversely affected. In addition, customers who have
accounted for significant revenues in the past may not generate the same amount of revenues in
future periods.
Product Development
Veramark has made significant investments in research, development and marketing for new products,
services and technologies, including the VeraSMART software offering and its hosted or managed
solutions. Significant revenue from new product and service investments may not be achieved for a
number of years, if at all. Moreover, if such products or services are profitable, operating
margins may not be as high as the margins historically experienced by Veramark. The development of
software products is a complex and time-consuming process. New products and enhancements to
existing products can require long development and testing periods. Significant delays in new
product releases or significant problems in creating new products, particularly any delays in
future releases of the VeraSMART suite of products or services, could adversely affect Veramark
revenues.
Declines in Demand for Software
If overall market demands for software and computer devices generally, as well as call accounting
software or enterprise level products and services specifically, declines, or corporate spending
for such products declines, Veramarks revenue will be adversely affected. Additionally, Veramarks
revenues would be unfavorably impacted if customers reduce their purchases of new software products
or upgrades to existing products.
New Products and Services
Veramark is in the process of transforming its business model from a company selling largely
premise based software products and services, to one offering hosted solutions providing a wide
variety of TEM/BPO processes, such as wireless management, invoice processing and payment, and
expanded reporting capabilities. These services are generally provided under multi-year
arrangements, and revenues are generally recognized over the life of the arrangements.
Consequently, such sales are expected to result in less revenue being recognized at the beginning
of a multi-year arrangement than would be recognized with a one-time sale of software.
19
Competition
Veramark experiences intense competition across all markets for its products and services. Some
competing firms have greater name recognition and more financial, marketing and technological
resources than Veramark. These competitive pressures may result in decreased sales volumes, price
reductions, and/or increased operating costs, such as for marketing and sales incentives, resulting
in lower revenues, gross margins and operating income.
Marketing and Sales
Veramarks marketing and distribution strategy is founded on building mutually beneficial
relationships with companies that have established distribution networks. Some sell privately
labeled, customized products developed and manufactured by Veramark to their specific
specifications, while others resell Veramarks products. Any loss of the continued availability of
those relationships could have a material adverse effect on Veramarks business and results of
operations.
Security and Privacy Breaches in our Systems May Damage Client Relations and Inhibit our Growth
The uninterrupted operation of our hosted solutions and the confidentiality of third party
information that resides on our systems is critical to our business. We have what we believe to be
sufficient security in place to prevent major interruptions in service and to prevent unauthorized
access. Any failure in our security and privacy measures could have a material adverse impact on
our financial position and results of operations.
20
|
|
|
Item 3 |
|
Quantitative and Qualitative Disclosures About Market Risk |
The Company has no long-term bank debt obligations. The Company has no foreign currency
exchange risk and has no foreign currency exchange contracts.
|
|
|
Item 4 |
|
Controls and Procedures |
Our management evaluated, with the participation of our Chief Executive Officer and Chief
Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)),
as of the end of such period, are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission rules and forms.
There have been no significant changes in the Companys internal controls over financial reporting,
that occurred during the period covered by this report, that have materially affected, or are
reasonably likely to materially affect the Companys internal controls over financial reporting.
The Companys disclosure controls and procedures and internal controls over financial
reporting provide reasonable, but not absolute, assurance that all deficiencies in design or
operation of those control systems, or all instances of errors or fraud, will be prevented or
detected. Those control systems are designed to provide reasonable assurance of achieving the goals
of those systems in light of the Companys resources and nature of the Companys business
operations. The Companys disclosure controls and procedures and internal control over financial
reporting remain subject to risks of human error and the risk that controls can be circumvented for
wrongful purposes by one or more individuals in management or non-management positions.
This Quarterly Report does not include an attestation report of the Companys registered
public accounting firm regarding internal control over financial reporting. Managements report
was not subject to attestation by the Companys registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the Company to provide only
managements report in the Quarterly Report.
21
PART II OTHER INFORMATION
None
(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 |
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|
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|
|
3.1 |
|
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Restated Certificate of Incorporation (incorporated by reference to Exhibit 4.1 to the Companys Registration Statement on Form S-18 (File No. 2-96787) filed on March 22, 1985) |
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3.2 |
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Bylaws (incorporated by reference to Exhibit 3 to the Companys Registration Statement on Form S-8 filed on October 5, 1992) |
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10.2 |
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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 Companys Current Report on Form 8-K filed on April 3, 2007) |
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10.3 |
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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 Companys Current Report on Form 8-K filed on August 3, 2007) |
|
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|
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10.4 |
* |
|
Amended and Restated Board of Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on November 26, 2007) |
|
|
|
|
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|
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 Companys Current Report on Form 8-K filed on December 13, 2007) |
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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 Companys Current Report on Form 8-K filed on December 19, 2007) |
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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 Companys Current Report on Form 8-K filed on February 4, 2008) |
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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 Companys Current Report on Form 8-K filed on March 25, 2008) |
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10.9 |
* |
|
2008 Incentive Plan for Management and Key Employees (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on April 2, 2008) |
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10.10 |
* |
|
2008 Employee Stock Purchase Plan (incorporated by reference to Exhibit F to the Companys Proxy Statement for its 2008 Annual Meeting of Shareholders filed on April 29, 2008) |
22
|
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10.11 |
* |
|
Description of non-employee director compensation (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on August 18, 2008) |
|
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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 Companys Current Report on Form 8-K filed on October 17, 2008) |
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10.13 |
* |
|
Form of 2008 Employee Stock Purchase Plan Enrollment Agreement (incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-8 (File No. 333-155286) filed on November 12, 2008) |
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14 |
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Code of Business Conduct and Ethics (incorporated by reference to Exhibit E to the Companys Proxy Statement for its 2008 Annual Meeting of Shareholders filed on April 29, 2008) |
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31.1 |
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
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|
* |
|
Management contract or compensatory plan or arrangement |
(c) |
|
Schedules required to be filed by Regulation S-X |
|
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|
none |
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|
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto. |
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
VERAMARK TECHNOLOGIES, INC.
REGISTRANT
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Date: August 12, 2009 |
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/s/ Anthony C. Mazzullo
Anthony C. Mazzullo
President and CEO
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|
Date: August 12, 2009 |
|
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|
|
/s/ Ronald C. Lundy
Ronald C. Lundy
Vice President of Finance and CFO
|
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24
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
31.1 |
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
31.2 |
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.1 |
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
|
|
|
32.2 |
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
25