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 theatres, theme parks 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.

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, etc.) and competes primarily on the basis of product design/features/functions, product quality/reliability, price, customer service, and delivery capability. Recently, the trend in the hospitality

industry has been to reduce the number of approved vendors in a specific concept to companies that have global capabilities in sales, service and deployment, 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 deployment capability, 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 an 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 an internal investment strategy in three distinct areas of its Hospitality segment. First, PAR has been significantly investing in its development of next generation software. Second, the Company concentrates on building a highly capable and further reaching distribution channel. Third, as the Company's customers continue their expansion into international markets, PAR has been 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 33% of the Company's revenues are generated in our Government segment. PAR provides IT and communications support services to the U.S. Navy, Air Force and Army. The Company also offers its services to several non-military U.S. federal, state and local agencies by providing applied technology services 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.

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 resistant to the current slowdown in consumer spending trends during this period of uncertainty. This is a direct correlation to the value and convenience PAR's large quick-service customers can and do provide.

A smaller sector of PAR's Hospitality segment is its hotel, resort and spa business. This sector is being impacted by the current economic downturn and, as a result, is experiencing a business slowdown which is expected to continue through 2009.

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.

Results of Operations --
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

The Company reported revenues of $60.5 million for the quarter ended March 31, 2009, an increase of 16% from the $52.1 million reported for the quarter ended March 31, 2008. The Company's net income for the quarter ended March 31, 2009 was $247,000, or $.02 diluted earnings per share, compared to a net loss of $744,000 and a $.05 diluted net loss per share for the same period in 2008.

Product revenues were $20.2 million for the quarter ended March 31, 2009, an increase of 20% from the $16.9 million recorded in 2008. This increase was due to a 31% improvement in domestic product sales primarily due to sales to McDonald's and Subway restaurants. The increase was also due to sales of the Company's logistics management products to several commercial customers. This increase in domestic revenue was partially offset by a 13% decrease in international product sales, due to the impact of a stronger U.S. dollar.

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 $20 million for the quarter ended March 31, 2009, a 22% increase from $16.4 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 a rise in software maintenance and professional services revenue.

Contract revenues were $20.2 million for the quarter ended March 31, 2009, an increase of 8% when compared to the $18.8 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. These outsourcing operations provided by the Company directly support U.S. Navy, Air Force and Army operations as they seek to convert their military information technology communications facilities into contractor-run operations and to meet new requirements with contractor support.

Product margins for the quarter ended March 31, 2009 were 35.4%, a decline of 880 basis points from the 44.2% for the quarter ended March 31, 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 27.5% for the quarter ended March 31, 2009, an increase of 350 basis points compared to 24% for the same period in 2008. Service margins increased primarily due to higher software maintenance and professional services revenue and due to a special initiative with a major restaurant customer.

Contract margins were 5% for the quarter ended March 31, 2009, a decrease of 10 basis points compared to 5.1% for the same period in 2008. This minor decline 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 $13.6 million or 71% of contract costs compared to $13.6 million or 76% of contract costs for the same period in 2008.

Selling, general and administrative expenses for the quarter ended March 31, 2009 were $9.6 million, an increase of 6% from the $9.1 million for the same period in 2008. This increase was primarily due to expenses associated with the Company's Logistics Management business and an increase in stock-based compensation expense under FAS 123R.

Research and development expenses were $3.3 million for the quarter ended March 31, 2009, a decrease of 20% from the $4.1 million recorded in 2008. The decrease was primarily attributable to cost reductions achieved in outsourcing through strategic relationships. This was partially offset by the Company's investment in its Logistics Management business.

Amortization of identifiable intangible assets was $365,000 for the quarter ended March 31, 2009, compared to $390,000 reported in 2008. This decrease was due to certain intangible assets becoming fully amortized in 2008.

Other income, net, was $107,000 for the quarter ended March 31, 2009 compared to $314,000 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 $139,000 for the quarter ended March 31, 2009 as compared to $348,000 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 a lower average borrowing rate in 2009 compared to 2008.

For the quarters ended March 31, 2009 and 2008, the Company's expected effective income tax rate based on projected pre-tax income was 36.0% and 40.3%, 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 $738,000 for the three months ended March 31, 2009 compared to cash used by operations of $4.1 million for 2008. In 2009, cash was generated by collection of accounts receivable partially offset by an increase in inventory and a decline in customer deposits. In 2008, cash was impacted by the operating loss for the period and the timing of vendor and salary and benefit payments.

Cash used in investing activities was $554,000 for the three months ended March 31, 2009 versus cash generated by investing activities of $1 million for

the same period in 2008. In 2009, capital expenditures were $294,000 and were primarily for manufacturing and computer equipment. Capitalized software costs relating to software development of Hospitality segment products were $206,000 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 $178,000 and were principally for computer equipment. Capitalized software costs relating to software development of Hospitality segment products were $250,000 in 2008.

Cash used in financing activities was $1.4 million for the three months ended March 31, 2009 versus cash provided of $1.9 million in 2008. In 2009, the Company decreased its short-term borrowings by $1.1 million and decreased its long-term debt by $267,000. In 2008, the Company increased its short-term bank borrowings by $2.1 million and decreased its long-term debt by $174,000. The Company also benefited $20,000 from the exercise of employee stock options in 2008.

The Company has a credit agreement with a bank under which the Company has a borrowing availability up to $20,000,000 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 (2% at March 31, 2009) or at the bank's prime lending rate plus the applicable interest rate spread (3.25% at March 31, 2009). This agreement expires in June 2011. At March 31, 2009, there was $7,700,000 outstanding under this agreement. The weighted average interest rate paid by the Company was 2.5% during the first 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 March 31, 2009. This credit facility is secured by certain assets of the Company.

In 2006, the Company borrowed $6,000,000 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 or at the bank's prime lending rate plus the applicable interest rate spread (2% at March 31, 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 $6,000,000 loan, with principal and interest payments due through August 2012. At March 31, 2009, the notional principal amount totaled $4,950,000. 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 within the consolidated statements of operations for the three months ended March 31, 2009 was $21,700 and is recorded as a reduction in interest expense.

The Company has a $1,731,000 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 usually 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.

Recent Accounting Pronouncements

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 as well as annual financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. FSP FAS 107-1, APB 28-1 is effective for interim and annual periods ending after June 15, 2009 and will be adopted by us in the second quarter of 2009. We currently do not expect adoption of this standard to have a material effect on our consolidated financial position or results of operations.

Critical Accounting Policies

In our Annual Report on Form 10-K for the year ended December 31, 2008, we disclose accounting policies, referred to as critical accounting policies, that require management to use significant judgment or that require significant estimates. Management regularly reviews the selection and application of our critical accounting policies. There have been no updates to the critical accounting policies contained in our Annual Report on Form 10-K for the year ended December 31, 2008.

Off-Balance Sheet Arrangements

The Company did not have any off-balance sheet arrangements.