Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statement

This document contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Any statements in this document that do not describe historical facts are forward-looking statements. Forward-looking statements in this document (including forward-looking statements regarding the continued health of the Hospitality industry, future information technology outsourcing opportunities, an expected increase in contract funding by the U.S. Government, the impact of current world events on our results of operations, the effects of inflation on our margins, and the effects of interest rate and foreign currency fluctuations on our results of operations) are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. When we use words such as "intend," "anticipate," "believe," "estimate," "plan," "will," or "expect", we are making forward-looking statements. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, based on information available to us on the date hereof, but we cannot assure you that these assumptions and expectations will prove to have been correct or that we will take any action that we presently may be planning. We have disclosed certain important factors that could cause our actual future results to differ materially from our current expectations, including a decline in the volume of purchases made by one or a group of our major customers; risks in technology development and commercialization; risks of downturns in economic conditions generally, and in the quick-service sector of the hospitality market specifically; risks associated with government contracts; risks associated with competition and competitive pricing pressures; and risks related to foreign operations. Forward-looking statements made in connection with this report are necessarily qualified by these factors. We are not undertaking to update or revise publicly any forward-looking statements if we obtain new information or upon the occurrence of future events or otherwise.

Overview

PAR Technology is a leading provider of hospitality technology solutions including software, hardware and professional/lifecycle support services to several industries including: restaurants, hotels/resorts/spas, cruise lines, movie theaters and specialty retailers. In addition, the Company provides the Federal Government, and its agencies, applied technology and technical outsourcing services primarily with the Department of Defense. PAR also provides best of breed tracking systems that focus upon cold chain technologies for road rail, and shipping markets by providing advanced integrated solutions for all types of refrigerated and dry assets.

The Company's hospitality technology products are used in a variety of applications by thousands of customers. PAR faces competition in all of its

markets (restaurants, hotels, spas, etc.) and competes primarily on the basis of product design/features/functions, product quality/reliability, price, customer service, and deployment capability. The most recent trend in the hospitality industry has been to reduce the number of approved vendors in a specific concept to companies that have global capabilities and reach in sales, service and installations, can achieve quality and delivery standards, have multiple product offerings, R&D capability, and can be competitive with their pricing. The Company's international scope as a technology provider to hospitality customers is a strategic competitive advantage as the Company can provide innovative solutions, with significant global reach, to its multinational customers like McDonald's, Yum! Brands, Subway, CKE Restaurants and the Mandarin Oriental Hotel Group. PAR's focus is to provide totally integrated technology products and services with industry leading customer service in the market segments in which it competes. The Company continually initiates new research and development efforts to create innovative technology that meets and exceeds our customers' requirements and also has high probability for broader market appeal and success. PAR's business focuses upon operating efficiencies and controlling costs. This is achieved through investment in modern production technologies, and by managing purchasing processes and functions.

The Company is currently focusing upon enhancing three distinct areas of its Hospitality segment. First, PAR has been investing in its development of next generation software. Second, the Company is building a highly capable and further reaching distribution channel. Third, as the Company's customers continue their expansion into international markets, PAR is creating a global infrastructure, initially focusing on the Asia/Pacific rim due to the new restaurant growth and concentration of PAR's customers in that region, but also one that will enhance our deployment and support internationally.

Approximately 34% of the Company's revenues are generated in our Government segment. PAR provides IT and communications support services to the U.S. Department of Defense. The Company also offers its services to several non-military U.S. federal, state and local agencies by providing applied technology including radar, image and signal processing and geospatial services and products. PAR's Government performance rating translates into the Company consistently winning add-on and renewal business, and building long-term client-vendor relationships. PAR can provide its clients the technical expertise necessary to operate and maintain complex technology systems utilized by government agencies.

PAR's logistics management business continues to realize a positive trend in its results. This past quarter the Company announced a large new customer in KLLM Transport Services. PAR continues to anticipate more acceleration in this business as they expand the customer base. As the market realizes the value proposition associated with the real time use of location and environmental information in both asset management and cargo quality assurance, PAR is well positioned in this emerging market.

The Company will continue to leverage its core technical capabilities and performance into related technical areas and an expanding customer base. PAR will seek to accelerate this growth through strategic acquisitions of businesses that broaden the Company's technology and/or business base.

Summary

PAR believes it can continue to be successful in its two core business segments -Hospitality and Government - due to its global capabilities and industry expertise. The majority of the Company's business is in the quick-serve restaurant sector of the hospitality market. In regards to the current economic downturn, PAR believes that this sector will be less impacted by the current slowdown in consumer spending trends than other hospitality sectors. This is a direct correlation to the value and convenience PAR's large quick-service customers can and do provide.

It has been the Company's experience that their Government business is resistant to economic cycles including reductions in the Federal defense budgets. PAR's I/T outsourcing business focuses on cost-effective operations of technology and telecommunication facilities which must function independent of economic cycles and changing Federal defense budgets.

Results of Operations -- Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

The Company reported revenues of $54.5 million for the quarter ended June 30, 2009, a decrease of 4.8% from the $57.2 million reported for the quarter ended June 30, 2008. The Company's net income for the quarter ended June 30, 2009 was $238,000, or $.02 diluted earnings per share, compared to net income of $674,000 and a $.05 diluted earnings per share for the same period in 2008.

Product revenues were $17.2 million for the quarter ended June 30, 2009, a decrease of 17% from the $20.8 million recorded in 2008. This decrease was due to a reduction in sales to certain restaurant concepts as new store rollouts that occurred in 2008 did not recur in 2009. In addition, sales in the Company's luxury hotel, resort and spa software business experienced a decline during the current quarter. These decreases were partially offset by an increase in sales to McDonald's, as well as an increase in sales of the Company's logistics management products to several commercial customers.

Customer service revenues include installation, software maintenance, training, twenty-four hour help desk support and various depot and on-site service options. Customer service revenues were $19.1 million for the quarter ended June 30, 2009, a 7.5% increase from $17.7 million reported for the same period in 2008. This increase is primarily due to a major service initiative with a large restaurant customer. Also contributing to this growth was an increase in revenue associated with the Company's depot service center as well as service revenue associated with the Company's logistic management business.

Contract revenues were $18.2 million for the quarter ended June 30, 2009, a decrease of 2.9% when compared to the $18.8 million for the same period in 2008. This decrease was primarily due to timing; more specifically the completion of various contracts prior to the beginning of their replacement contracts.

Product margins for the quarter ended June 30, 2009 were 33.1%, a decline of 610 basis points from the 39.2% for the same period in 2008. This decrease in margins was mostly due to a shift in product mix as hardware sales increased while software revenue decreased in 2009 when compared to 2008. The lower software revenue was attributable to a drop in table service revenue as the Company fulfilled the requirements of a major customer in 2008.

Customer service margins were 29.8% for the quarter ended June 30, 2009, an increase of 240 basis points compared to 27.4% for the same period in 2008. Service margins increased primarily due to higher installation revenue from a special initiative with a major restaurant customer as well as higher volume within the depot service center.

Contract margins were 5.4% for the quarter ended June 30, 2009, a decrease of 20 basis points compared to 5.6% for the same period in 2008. This decrease was due to lower margins on certain new fixed price contracts. The most significant components of contract costs in 2009 and 2008 were labor and fringe benefits. For 2009, labor and fringe benefits were $12.8 million or 77% of contract costs compared to $12.8 million or 72% of contract costs for the same period in 2008.

Selling, general and administrative expenses for the quarter ended June 30, 2009 were $8.6 million, a decrease of 1% from the $8.7 million for the same period in 2008. This decrease was primarily due to a reduction in sales personnel, partially offset by favorable bad debt recoveries from 2008 that did not recur in 2009.

Research and development expenses were $3 million for the quarter ended June 30, 2009, a decrease of 21.6% from the $3.9 million for the same period in 2008. The decrease was primarily attributable to cost reductions achieved in outsourcing through the use of strategic restaurant product development relationships. This was partially offset by the Company's continued investment in its logistics management business.

Amortization of identifiable intangible assets was $368,000 for the quarter ended June 30, 2009, compared to $389,000 for the same period in 2008. This decrease was due to certain intangible assets becoming fully amortized in 2008.

Other income, net, was $156,000 for the quarter ended June 30, 2009 compared to $229,000 for the same period in 2008. Other income primarily includes rental income and foreign currency gains and losses. The decrease is primarily due to a decline in currency gains.

Interest expense represents interest charged on the Company's short-term borrowing requirements from banks and from long-term debt. Interest expense was $82,000 for the quarter ended June 30, 2009 as compared to $121,000 for the same period in 2008. The decrease is primarily due to lower interest expense recognized on the Company's interest rate swap agreement that it entered into in September 2007. The decline was also due to lower borrowings and a lower average borrowing rate in 2009 compared to 2008.

For the quarters ended June 30, 2009 and 2008, the Company's expected effective income tax rate based on projected pre-tax income was 36.2% and 39.8%, respectively. The variance from the federal statutory rate in 2009 was primarily due to state income taxes and various nondeductible expenses partially offset by the research and experimental tax credit. For 2008, the increase in effective tax rate was primarily attributable to the expiration of the Research and Experimental Tax Credit at the end of 2007. Also contributing to the increase in effective tax rate was the taxable portion of the proceeds from the voluntary conversion of a Company-owned life insurance policy in 2008.

Results of Operations -- Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

The Company reported revenues of $114.9 million for the six months ended June 30, 2009, an increase of 5.1% from the $109.3 million reported for the six months ended June 30, 2008. The Company's net income for the six months ended June 30, 2009 was $485,000, or $.03 diluted earnings per share, compared to a net loss of $71,000 and a ($0.00) diluted net loss per share for the same period in 2008.

Product revenues were $37.4 million for the six months ended June 30, 2009, a decrease of 1% from the $37.6 million recorded in 2008. This decrease was due to a reduction in sales to certain restaurant concepts as new store rollouts that occurred in 2008 did not recur in 2009. In addition, sales in the Company's luxury hotel, resort and spa software business experienced a decline during the current quarter. These decreases were partially offset by an increase in sales to McDonald's, which have increased 20% globally during the first half of 2009, as well as an increase in sales of the Company's logistics management products to several commercial customers.

Customer service revenues include installation, software maintenance, training, twenty-four hour help desk support and various depot and on-site service options. Customer service revenues were $39 million for the six months ended June 30, 2009, a 14% increase from $34.1 million reported for the same

period in 2008. This increase is primarily due to a major service initiative with a large restaurant customer. Also contributing to this growth was an increase in revenue associated with the Company's depot service center as well as service revenue associated with the Company's logistic management business.

Contract revenues were $38.5 million for the six months ended June 30, 2009, an increase of 2.4% when compared to the $37.5 million recorded in the same period in 2008. This increase was primarily due to the start of new contracts in the information technology outsourcing area, including the timing of subcontract work and material purchases.

Product margins for the six months ended June 30, 2009 were 34.4%, a decline of 710 basis points from the 41.5% for the same period in 2008. This decrease in margins was due to a shift in product mix as hardware sales increased while software revenue decreased in 2009 when compared to 2008. The lower software revenue was attributable to a drop in table service revenue as the Company fulfilled the requirements of a major customer in 2008.

Customer service margins were 28.6% for the six months ended June 30, 2009, an increase of 290 basis points compared to 25.7% for the same period in 2008. Service margins increased primarily due to higher installation revenue from a special initiative with a major restaurant customer as well as an increase in margins earned by the depot service repair center due to higher volume.

Contract margins were 5.2% for the six months ended June 30, 2009, a decrease of 10 basis points compared to 5.3% for the same period in 2008. This decrease was due to lower margins on certain new fixed price contracts. The most significant components of contract costs in 2009 and 2008 were labor and fringe benefits. For 2009, labor and fringe benefits were $26.3 million or 74% of contract costs compared to $26.4 million or 74% of contract costs for the same period in 2008.

Selling, general and administrative expenses for the six months ended June 30, 2009 were $18.2 million, an increase of 2.5% from the $17.8 million for the same period in 2008. This increase was primarily due to expenses associated with the Company's logistics management business, partially offset by decreases in selling expenses associated with the Company's restaurant and hotel and spa businesses.

Research and development expenses were $6.4 million for the six months ended June 30, 2009, a decrease of 20.6% from the $8 million for the same period in 2008. The decrease was primarily attributable to cost reductions achieved in outsourcing through strategic relationships, which was partially offset by the Company's investment in its logistics management business.

Amortization of identifiable intangible assets was $733,000 for the six months ended June 30, 2009, compared to $779,000 for the same period in 2008. This decrease was due to certain intangible assets becoming fully amortized in 2008.

Other income, net, was $263,000 for the six months ended June 30, 2009 compared to $543,000 for the same period in 2008. Other income primarily includes rental income and foreign currency gains and losses. The decrease is primarily due to a decline in currency gains.

Interest expense represents interest charged on the Company's short-term borrowing requirements from banks and from long-term debt. Interest expense was $222,000 for the six months ended June 30, 2009 as compared to $470,000 for the same period in 2008. The decrease is primarily due to lower interest expense recognized on the Company's interest rate swap agreement that it entered into in September 2007. The decline was also due to lower borrowings and a lower average borrowing rate in 2009 compared to 2008.

For the six months ended June 30, 2009 and 2008, the Company's expected effective income tax rate based on projected pre-tax income was 36% and 45%, respectively. The variance from the federal statutory rate in 2009 was primarily due to state income taxes and various nondeductible expenses partially offset by the research and experimental tax credit. For 2008, the increase in effective tax rate was primarily attributable to the expiration of the Research and Experimental Tax Credit at the end of 2007. Also contributing to the increase in effective tax rate was the taxable portion of the proceeds from the voluntary conversion of a Company-owned life insurance policy in 2008.

Liquidity and Capital Resources

The Company's primary sources of liquidity have been cash flow from operations and lines of credit with various banks. Cash provided by operations was $6.6 million for the six months ended June 30, 2009 compared to cash used by operations of $6.7 million for 2008. In 2009, cash was generated by collection of accounts receivable partially offset by a decline in accounts payable, accrued expenses and customer deposits. In 2008, cash was impacted by the timing of payments to vendors and a growth in accounts receivable.

Cash used in investing activities was $1.3 million for the six months ended June 30, 2009 versus cash generated by investing activities of $233,000 for the same period in 2008. In 2009, capital expenditures were $769,000 and were primarily for manufacturing, office and computer equipment. Capitalized software costs relating to software development of Hospitality segment products were $464,000 in 2009. In 2008, the Company received $1.6 million from the voluntary conversion of a Company-owned life insurance policy. In 2008, capital expenditures were $695,000 and were principally for computer equipment. Capitalized software costs relating to software development of Hospitality segment products were $487,000 in 2008.

Cash used in financing activities was $3.6 million for the six months ended June 30, 2009 versus cash provided of $5.2 million in 2008. In 2009, the Company decreased its short-term borrowings by $3.3 million, decreased its long-term

debt by $501,000 and also benefited $190,000 from the exercise of employee stock options. In 2008, the Company increased its short-term bank borrowings by $5.4 million, decreased its long-term debt by $357,000 and benefited $195,000 from the exercise of employee stock options.

The Company has a credit agreement with a bank under which the Company has a borrowing availability up to $20 million in the form of a line of credit. This agreement allows the Company, at its option, to borrow funds at the LIBOR rate plus the applicable interest rate spread (1.57% at June 30, 2009) or at the bank's prime lending rate plus the applicable interest rate spread (3.25% at June 30, 2009). This agreement expires in June 2011. At June 30, 2009, there was $5.5 million outstanding under this agreement. The weighted average interest rate paid by the Company was 2.21% during the second quarter of 2009. This agreement contains certain loan covenants including leverage and fixed charge coverage ratios. The Company is in compliance with these covenants at June 30, 2009. This credit facility is secured by certain assets of the Company.

In 2006, the Company borrowed $6 million under an unsecured term loan agreement, executed as an amendment to one of its then bank line of credit agreements, in connection with the asset acquisition of SIVA Corporation. The loan provides for interest only payments in the first year and escalating principal payments through 2012. The loan bears interest at the LIBOR rate plus the applicable interest rate spread (3.25% at June 30, 2009) or at the bank's prime lending rate plus the applicable interest rate spread (1.57% at June 30, 2009). The terms and conditions of the line of credit agreement described in the preceding paragraph also apply to the term loan.

In September 2007, the Company entered into an interest rate swap agreement associated with the above $6 million loan, with principal and interest payments due through August 2012. At June 30, 2009, the notional principal amount totaled $4.7 million. This instrument was utilized by the Company to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Company did not adopt hedge accounting under the provision of FASB Statement No 133, Accounting for Derivative Instruments and Hedging Activities, but rather records the fair market value adjustments through the consolidated statements of operations each period. The associated fair value adjustment for the three and six months ended June 30, 2009, respectively, are:
$65,800 and $87,600 and are included as a decrease to interest expense.

The Company has a $1.7 million mortgage collateralized by certain real estate. The annual mortgage payment including interest totals $226,000. The mortgage bears interest at a fixed rate of 7% and matures in 2010.

During fiscal year 2009, the Company anticipates that its capital requirements will be approximately $1 to $2 million. The Company does not enter into long term contracts with its major Hospitality segment customers. The Company commits to purchasing inventory from its suppliers based on a combination of internal forecasts and the actual orders from customers. This process, along with good relations with suppliers, minimizes the working capital investment required by the Company. Although the Company lists two major customers, McDonald's and Yum! Brands, it sells to hundreds of individual franchisees of these corporations, each of which is individually responsible for its own debts. These broadly made sales substantially reduce the impact on the Company's liquidity if one individual franchisee reduces the volume of its purchases from the Company in a given year. The Company, based on internal forecasts, believes its existing cash, line of credit facilities and its anticipated operating cash flow will be sufficient to meet its cash requirements through at least the next twelve months. However, the Company may be required, or could elect, to seek additional funding prior to that time. The Company's future capital requirements will depend on many factors including its rate of revenue growth, the timing and extent of spending to support product development efforts, expansion of sales and marketing, the timing of introductions of new products and enhancements to existing products, and market acceptance of its products. The Company cannot assure that additional equity or debt financing will be available on acceptable terms or at all. The Company's sources of liquidity beyond twelve months, in management's opinion, will be its cash balances on hand at that time, funds provided by operations, funds available through its lines of credit and the long-term credit facilities that it can arrange.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2009, the FASB issued SFAS No. 168, "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles: a replacement of FASB Statement No. 162." This Statement establishes two levels of U.S. generally accepted accounting principles (GAAP) - authoritative and nonauthoritative. The FASB Accounting Standards Codification (ASC) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission (SEC). SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009, and will be adopted by the Company in the third quarter of 2009. The adoption of SFAS No. 168 will not have any impact on the Company's Consolidated Financial Statements.

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)." This Statement requires entities to perform a qualitative analysis to determine whether a variable interest gives the entity a controlling financial interest in a variable interest entity. This Statement also requires an ongoing reassessment of variable interests and eliminates the quantitative approach previously required for determining whether an entity is

the primary beneficiary. SFAS No. 167 is effective as of the beginning of an entity's first annual reporting period that begins after November 15, 2009 (the Company's 2010 fiscal year). The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 167 on its Consolidated Financial Statements.

Recently Adopted Accounting Pronouncements

In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." This Statement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 was effective for interim or annual financial periods ending after June 15, 2009, and the adoption did not have any impact on the Company's Consolidated Financial Statements.

In April 2009, the FASB issued FSP FAS 107-1, APB 28-1, "Interim Disclosures About Fair Value of Financial Instruments" ("FSP FAS 107-1, APB 28-1"). FSP FAS 107-1, APB 28-1 requires fair value disclosures in both interim . . .