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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number: 0-13124
-------------------------------
COVER-ALL TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-2698053
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18-01 Pollitt Drive, Fair Lawn, New Jersey 07410
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(Address of principal executive offices) (Zip Code)
(201) 794-4800
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(Registrant's telephone number, including area code)
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(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: [X] No: [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
As of November 3, 2003, the registrant had 15,346,218 shares of common stock,
par value $.01 per share, outstanding.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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INDEX TO FORM 10-Q FOR THE QUARTER ENDED September 30, 2003.
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2003 (Unaudited)
and December 31, 2002 (Audited).................................... 2
Consolidated Statements of Operations for the three and nine
months ended September 30, 2003 and 2002 (Unaudited)............... 4
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2003 and 2002 (Unaudited)............... 5
Notes to Consolidated Financial Statements (Unaudited)............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.................................................. 12
Item 4. Controls and Procedures............................................ 12
PART II: OTHER INFORMATION.................................................. 14
Item 6. Exhibits and Reports on Form 8-K................................... 14
SIGNATURES.................................................................. 15
1
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
--------------------
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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September 30, December 31,
2003 2002
------------ ------------
(Unaudited) (Audited)
Assets:
Current Assets:
Cash and Cash Equivalents ............................... $ 772,570 $ 2,063,411
Accounts Receivable (Less Allowance for Doubtful Accounts
of $25,000 and $25,000 in 2003 and 2002, respectively) 1,013,797 1,021,873
Other Receivable ........................................ -- 240,672
Prepaid Expenses ........................................ 508,289 453,007
------------ ------------
Total Current Assets .................................... 2,294,656 3,778,963
------------ ------------
Property and Equipment -- At Cost:
Furniture, Fixtures and Equipment ....................... 1,365,983 1,309,938
Less: Accumulated Depreciation .......................... (1,222,400) (1,156,338)
------------ ------------
Property and Equipment-- Net ............................ 143,583 153,600
------------ ------------
Capitalized Software (Less Accumulated Amortization of
$6,036,180 and $5,675,257, respectively) ................ 1,802,698 1,398,333
------------ ------------
Deferred Financing Costs (Net of Accumulated Amortization of
$68,527 and $42,673, respectively) ...................... 172,784 198,638
------------ ------------
Other Assets ............................................... 59,335 59,335
------------ ------------
Total Assets ............................................ $ 4,473,056 $ 5,588,869
============ ============
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements.
2
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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September 30, December 31,
2003 2002
------------ ------------
(Unaudited) (Audited)
Liabilities and Stockholders' Equity (Deficit):
Current Liabilities:
Accounts Payable .......................................... $ 161,360 $ 276,618
Income Taxes Payable ...................................... 37,477 90,000
Accrued Liabilities ....................................... 324,138 723,688
Unearned Revenue .......................................... 1,524,122 2,352,462
------------ ------------
Total Current Liabilities ................................. 2,047,097 3,442,768
------------ ------------
Long-Term Liabilities:
Convertible Debentures .................................... 2,500,000 2,500,000
------------ ------------
Total Liabilities ......................................... 4,547,097 5,942,768
------------ ------------
Commitments and Contingencies ................................ -- --
------------ ------------
Stockholders' Equity (Deficit):
Common Stock, $.01 Par Value, Authorized 75,000,000 Shares;
17,846,218 and 17,835,718 Shares Issued and 15,346,218 and
15,335,718 Shares Outstanding, Respectively .............. 178,462 178,357
Capital In Excess Of Par Value ............................ 26,150,447 26,147,517
Accumulated Deficit ....................................... (25,699,950) (25,976,773)
Treasury Stock - At Cost - 2,500,000 Shares ............... (703,000) (703,000)
------------ ------------
Total Stockholders' Equity (Deficit) ...................... (74,041) (353,899)
------------ ------------
Total Liabilities and Stockholders' Equity (Deficit) ...... $ 4,473,056 $ 5,588,869
============ ============
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements.
3
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three months ended September 30, Nine months ended September 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues:
Licenses ............................ $ 195,000 $ 72,000 $ 483,100 $ 408,500
Maintenance ......................... 1,111,836 1,096,332 3,347,641 3,280,971
Professional Services ............... 325,300 163,385 1,264,775 692,448
Applications Service Provider ("ASP")
Services ......................... 140,956 132,870 459,929 379,804
------------ ------------ ------------ ------------
Total Revenues ...................... 1,773,092 1,464,587 5,555,445 4,761,723
------------ ------------ ------------ ------------
Cost of Revenues:
Licenses ............................ 202,732 319,435 607,848 925,424
Maintenance ......................... 654,559 570,012 1,948,996 1,585,590
Professional Services ............... 97,701 68,969 356,805 319,311
ASP Services ........................ 41,866 77,204 154,561 162,907
------------ ------------ ------------ ------------
Total Cost of Revenues .............. 996,858 1,035,620 3,068,210 2,993,232
------------ ------------ ------------ ------------
Direct Margin ....................... 776,234 428,967 2,487,235 1,768,491
------------ ------------ ------------ ------------
Operating Expenses:
Sales and Marketing ................. 230,589 186,337 728,770 696,759
General and Administrative .......... 323,482 348,420 907,012 930,404
Research and Development ............ 137,231 204,881 403,805 444,697
------------ ------------ ------------ ------------
Total Operating Expenses ............ 691,302 739,638 2,039,587 2,071,860
------------ ------------ ------------ ------------
Operating Income (Loss) ............. 84,932 (310,671) 447,648 (303,369)
------------ ------------ ------------ ------------
Other Income (Expense):
Interest Expense .................... (51,153) (43,927) (152,557) (118,109)
Interest Income ..................... 1,682 65 9,109 804
------------ ------------ ------------ ------------
Total Other Income (Expense) ........ (49,471) (43,862) (143,448) (117,305)
------------ ------------ ------------ ------------
Income (Loss) Before Income Taxes ... 35,461 (354,533) 304,200 (420,674)
------------ ------------ ------------ ------------
Income Taxes ........................... 3,191 -- 27,377 --
------------ ------------ ------------ ------------
Net Income (Loss) ...................... $ 32,270 $ (354,533) $ 276,823 $ (420,674)
============ ============ ============ ============
Basic Earnings (Loss) Per Common
Share ............................... $ 0.00 $ (0.02) $ 0.02 $ (0.03)
============ ============ ============ ============
Diluted Earnings (Loss) Per Common
Share ............................... $ 0.00 $ (0.02) $ 0.02 $ (0.03)
============ ============ ============ ============
Weighted Average Number of Common
Shares Outstanding for Basic
Earnings (Loss) Per Common Share .... 15,345,000 15,336,000 15,339,000 15,336,000
============ ============ ============ ============
Weighted Average Number of Common
Shares Outstanding for Diluted
Earnings (Loss) Per Common Share .... 24,342,000 15,336,000 24,219,000 15,336,000
============ ============ ============ ============
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements.
4
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine months ended September 30,
-------------------------------
2003 2002
------------ ------------
Cash Flows from Operating Activities:
Net Income (Loss) ........................................ $ 276,823 $ (420,674)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used For) From Operating Activities:
Depreciation ....................................... 66,062 78,649
Amortization of Capitalized Software ............... 360,923 616,403
Amortization of Deferred Financing Costs ........... 25,854 20,690
Non-cash Financing Cost ............................ -- 16,913
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable ................................ 8,076 213,168
Prepaid Expenses ................................... (55,282) (133,677)
Other Receivable ................................... 240,672 3,433
Increase (Decrease) in:
Accounts Payable ................................... (115,258) (60,497)
Taxes Payable ...................................... (52,523) --
Accrued Liabilities ................................ (399,550) (140,246)
Unearned Revenue ................................... (828,340) (168,711)
------------ ------------
Net Cash (Used For) Provided From Operating Activities ... (472,543) 25,451
------------ ------------
Cash Flows from Investing Activities:
Capital Expenditures ..................................... (56,045) (16,884)
Capitalized Software Expenditures ........................ (765,288) (772,376)
------------ ------------
Net Cash (Used For) Provided From Investing Activities ... (821,333) (789,260)
------------ ------------
Cash Flows from Financing Activities:
Proceeds from Convertible Debentures ..................... -- 700,000
Deferred Financing Costs ................................. -- (54,220)
Principal Payments on Capital Lease ...................... -- (17,980)
Proceeds from Exercise of Stock Options .................. 3,035 --
------------ ------------
Net Cash Provided From (Used For) Financing Activities ... 3,035 627,800
------------ ------------
Change in Cash and Cash Equivalents .......................... (1,290,841) (136,009)
Cash and Cash Equivalents - Beginning of Period .............. 2,063,411 430,545
------------ ------------
Cash and Cash Equivalents - End of Period .................... $ 772,570 $ 294,536
============ ============
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Periods for:
Interest ................................................. $ 152,557 $ 118,109
Income Taxes ............................................. 79,900 --
The Accompanying Notes are an Integral Part of These
Consolidated Financial Statements.
5
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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[1] General
For a summary of significant accounting policies, refer to Note 1 of Notes to
Consolidated Financial Statements included in Cover-All Technologies Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended December 31, 2002.
While we believe that the disclosures herein presented are adequate to make the
information not misleading, these consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in our latest annual report. Certain amounts for the prior
period have been reclassified to conform with the current period's financial
statement presentation. The financial statements include on a consolidated basis
the results of all subsidiaries. All material intercompany transactions have
been eliminated.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments which are necessary to present fairly the Company's
consolidated financial position as of September 30, 2003, and the results of
their operations for the three and nine month periods ended September 30, 2003
and 2002, and their cash flows for the nine month periods ended September 30,
2003 and 2002. Such adjustments are of a normal and recurring nature. The
results of operations for the three and nine month periods ended September 30,
2003 and 2002 are not necessarily indicative of the results to be expected for a
full year.
[2] Convertible Debentures
On March 31, 1997, the Company sold $3,000,000 of 12.5% Convertible Debentures
due March 2002 (the "1997 Debentures") to an institutional investor. The 1997
Debentures were sold at face value, paid interest quarterly and were
convertible, in whole or in part, into shares of our common stock at $1.25 per
share, subject to adjustment.
On June 28, 2001, the Company raised $1,800,000 through a private placement of
8.00% convertible debentures due 2008 (the "2001 Debentures") with investors
headed by the Renaissance Capital Group, Inc. of Dallas, Texas pursuant to
Convertible Loan Agreements entered into with each of the investors. An
aggregate of $1,400,000 was sold to the Renaissance US Growth and Income Trust
PLC (traded on the London Stock Exchange) and BFS US Special Opportunities Trust
PLC, which are managed by Renaissance. Also, an aggregate of $400,000 was sold
to three other private investors including John Roblin, our Chairman of the
Board, President and Chief Executive Officer. The related financing costs
incurred of $187,090 in connection with establishing these debentures have been
deferred and are being amortized over the life of the debt.
Immediately upon receipt of the funds, we used $1,660,000 of the proceeds to
fully settle the remaining principal amount of the 1997 Debentures. We
recognized a gain on the extinguishment of debt of $1,340,000 in June 2001. The
balance of the funds raised from the transaction were used for working capital
purposes. The 2001 Debentures are convertible into shares of our common stock,
initially at $0.50 per share, subject to adjustment in accordance with the terms
of the parties' respective loan agreements.
In March 2002, the holders under the Convertible Loan Agreements agreed to amend
one of the financial covenants for the quarters ending March 31, June 30 and
September 30, 2002. As consideration for such amendments, we issued to such
holders an aggregate of 128,572 warrants to purchase such number of shares of
our common stock at an exercise price of $0.22 per share. The warrants expire in
five years and became exercisable in equal monthly installments on each of March
31, 2002, June 30, 2002 and September 30, 2002, respectively. The $16,913
estimated fair market value of the warrants has been charged to deferred
financing costs and will be amortized over the amendment period.
On August 21, 2002, we, by amendment to the 2001 Debentures, raised an
additional $700,000 through a private placement of 8.00% convertible debentures
with Renaissance (the "2002 Debentures"). An aggregate of $700,000 was sold to
Renaissance US Growth and Income Trust PLC and BFSUS Special Opportunities Trust
PLC. The funds raised from the transaction were used for working capital
purposes. The 2002 Debentures are convertible into shares of our common stock
initially at $0.30 per share, subject to adjustment. The related financing costs
incurred of $54,220 in connection with establishing the 2002 Debentures have
been deferred and are being amortized over the life of the debt. The Convertible
Loan Agreements currently prohibit the payment of dividends without written
consent of the holders.
6
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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The issuance of the 2002 Debentures caused a reduction in the conversion price
of the 2001 Debentures from $0.50 per share to $0.30 per share.
Our convertible debentures mature as follows:
Maturity Principal Due
-------- -------------
2001 Debentures 2008 $ 1,800,000
2002 Debentures 2009 700,000
-------------
$ 2,500,000
=============
[3] Segment Information
As of January 1, 2003, we merged the management teams and infrastructures of our
two business units, Classic and TAS, into one comprehensive unit. As a result,
we will no longer separately assess the performance of these products.
[4] Earnings Per Share Disclosures
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations:
For the three months ended
September 30, 2003
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS:
Income Available to Common
Stockholders ......................... $ 32,270 15,345,348 $ 0.00
Interest Reversal Convertible Debentures
(Net of Tax) .......................... 30,000 -- --
Effect of Dilutive Securities: ......... --
Exercise of Options ................... -- 580,785 --
Exercise of Warrants .................. -- 82,950 --
Conversion of Convertible Debentures ... -- 8,333,333 --
------------ ------------ ------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions ............. $ 62,270 24,342,416 $ 0.00
============ ============ ============
7
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
For the nine months ended
September 30, 2003
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS:
Income Available to Common
Stockholders ......................... $ 276,823 15,339,143 $ 0.02
Interest Reversal Convertible Debentures
(Net of Tax) .......................... 90,000 -- --
Effect of Dilutive Securities:
Exercise of Options ................... -- 471,575 --
Exercise of Warrants .................. -- 75,202 --
Conversion of Convertible Debentures ... -- 8,333,333 --
------------ ------------ ------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions ............. $ 366,823 24,219,253 $ 0.02
============ ============ ============
For the three months ended
September 30, 2002
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS:
Income Available to Common
Stockholders ......................... $ (354,533) 15,335,718 $ (0.02)
Effect of Dilutive Securities:
Exercise of Options ................... -- -- --
Exercise of Warrants .................. -- -- --
------------ ------------ ------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions ............. $ (354,533) 15,335,718 $ (0.02)
============ ============ ============
For the nine months ended
September 30, 2002
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS:
Income Available to Common
Stockholders ......................... $ (420,674) 15,335,718 $ (0.03)
Effect of Dilutive Securities:
Exercise of Options ................... -- -- --
Exercise of Warrants .................. -- -- --
------------ ------------ ------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions ............. $ (420,674) 15,335,718 $ (0.03)
============ ============ ============
Options to purchase 1,281,750 shares of common stock at prices ranging from
$0.60 to $4.00 per share were outstanding at September 30, 2003, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares for the period
($0.53).
Our options and warrants were not included in the computation of EPS for the
periods ended September 30, 2002 because to do so would be antidilutive. Our
convertible debt does not affect the EPS calculation for the periods ended
September 30, 2002 because it would be antidilutive.
8
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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[5] Stock Option and Stock Purchase Plans
We have adopted several stock-based compensation plans that provide for the
grant of options to our employees and non-employee directors. All options under
these plans vest over terms of zero to three years. Options may be granted as
incentive or non-qualified stock options and are exercisable at a price and time
as determined by the Board of Directors on the grant date.
We account for stock-based employee compensation using the intrinsic value
method in accordance with APB Opinion No. 25 and related interpretations which
generally require that the amount of compensation cost that must be recognized,
if any, is the quoted market price of the stock on the measurement date, which
is generally the grant date, less the amount the grantee is required to pay to
acquire the stock. Alternatively, Statement of Financial Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," employs fair value-based
measurement and generally results in the recognition of compensation expense for
all stock-based awards to employees. SFAS No. 123 does not require an entity to
adopt those provisions, but, rather, permits continued application of APB
Opinion No. 25. We have elected not to adopt the recognition and measurement
provisions of SFAS No. 123 and continue to account for our stock-based employee
compensation plans under APB Opinion No. 25 and related interpretations. In
accordance with APB Opinion No. 25, deferred compensation is generally recorded
for stock-based employee compensation grants based on the excess of the market
value of the common stock on the measurement date over the exercise price. If
the exercise price of the stock-based compensation is equal to or exceeds the
market price of our common stock on the grant date, no compensation expense is
recorded.
For the three and nine months ended September 30, 2003 and 2002, we were not
required to record compensation expense for stock option grants.
Had compensation cost for the stock-based employee compensation plans been
determined based on the fair values of awards on the grant date, estimated using
the Black-Scholes option pricing model, which would be consistent with the
method described in SFAS No. 123, the Company's reported net income (loss) and
earnings (loss) per share would have been reduced to the pro forma amounts shown
below:
Three months ended September 30,
----------------------------------------
2003 2002
---------- ----------
(in thousands, except per share amounts)
Net Income (Loss) as Reported ........................ $ 32 $ (355)
Deduct: Amount by which stock-based employee
compensation as determined under fair value
based method for all awards exceeds the
compensation as determined under the intrinsic
value method ................................. $ 9 $ 12
Pro Forma Net Income (Loss) .......................... $ 23 $ (367)
Basic Earnings (Loss) Per Share as Reported .......... $ 0.00 $ (0.02)
Pro Forma Basic Earnings (Loss) Per Share ............ $ 0.00 $ (0.02)
Diluted Earnings (Loss) Per Share as Reported ........ $ 0.00 $ (0.02)
Pro Forma Diluted Earnings (Loss) Per Share .......... $ 0.00 $ (0.02)
9
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Nine months ended September 30,
----------------------------------------
2003 2002
---------- ----------
(in thousands, except per share amounts)
Net Income (Loss) as Reported......................... $ 277 $ (421)
Deduct: Amount by which stock-based employee
compensation as determined under fair value
based method for all awards exceeds the
compensation as determined under the intrinsic
value method.................................. $ 29 $ 35
Pro Forma Net Income (Loss)........................... $ 248 $ (456)
Basic Earnings (Loss) Per Share as Reported........... $ 0.02 $ (0.03)
Pro Forma Basic Earnings (Loss) Per Share............. $ 0.02 $ (0.03)
Diluted Earnings (Loss) Per Share as Reported......... $ 0.02 $ (0.03)
Pro Forma Diluted Earnings (Loss) Per Share........... $ 0.02 $ (0.03)
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - An
Amendment of FASB Statement No. 123." This Statement provides alternative
accounting for stock-based employee compensation and requires prominent
disclosures in both annual and interim financial statements about the method
used in reporting results. We have elected not to adopt the recognition and
measurement provisions of SFAS No. 123 and continue to account for our
stock-based employee compensation plans under APB Opinion No. 25 and related
interpretations and, therefore, the transition provisions will not have an
impact on our financial position or results of operations. The required expanded
interim disclosures are provided above.
10
Item 2:
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Total revenues for the three months ended September 30, 2003 were $1,773,000 as
compared to $1,465,000 for the same period in 2002, an increase of 21%. License
fees were $195,000 for the three months ended September 30, 2003 compared to
$72,000 in the same period in 2002 as a result of a license renewal by one of
our existing customers. For the three months ended September 30, 2003,
maintenance revenues were $1,112,000 compared to $1,096,000 in the same period
of the prior year. Professional services revenue contributed $325,000 in the
three months ended September 30, 2003 compared to $163,000 in the third quarter
of 2002, as a result of increased demand for customizations from our current
customer base. For the three months ended September 30, 2003, ASP revenues were
$141,000 as compared to $133,000 in the same period of the prior year.
For the nine months ended September 30, 2003, total revenues were $5,555,000
compared to $4,762,000 in the same period of the prior year. License fees were
$483,000 for the nine months ended September 30, 2003 compared to $409,000 in
the same period in 2002. For the nine months ended September 30, 2003,
maintenance revenues were $3,347,000 compared to $3,281,000 in the same period
of the prior year. Professional services revenue contributed $1,265,000 in the
nine months ended September 30, 2003 compared to $692,000 in the same period in
2002, as a result of increased demand for modifications from our existing
customer base. For the nine months ended September 30, 2003, ASP revenues were
$460,000 as compared to $380,000 in the same period of the prior year.
Cost of sales were $997,000 and $3,068,000 for the three and nine months ended
September 30, 2003 as compared to $1,036,000 and $2,993,000 for the same periods
in 2002 as a result of our continuing efforts to manage costs effectively.
Non-cash capitalized software amortization was $120,000 and $361,000 for the
three and nine months ended September 30, 2003 as compared to $223,000 and
$616,000 for the same periods in 2002. We capitalized $321,000 and $765,000 of
software development costs in the three and nine months ended September 30, 2003
as compared to $197,000 and $772,000 in the same periods in 2002.
Research and development expenses were $137,000 and $404,000 for the three and
nine months ended September 30, 2003 compared to $205,000 and $445,000 for the
same periods in 2002. We are continuing to enhance the functionality of our
products and to refine its processes in response to customer needs.
Sales and marketing expenses were $231,000 and $729,000 for the three and nine
months ended September 30, 2003 as compared to $186,000 and $697,000 in the same
periods of 2002 due to an increase in a marketing and sales effort to improve
the market share of our solution set.
General and administrative expenses were $323,000 and $907,000 in the three and
nine months ended September 30, 2003 as compared to $348,000 and $930,000 in the
same periods in 2002 primarily due to our continuing efforts to reduce overhead
costs.
Liquidity and Capital Resources
- -------------------------------
At September 30, 2003, we had a working capital of $248,000 compared to working
capital deficit of $(946,000) at September 30, 2002.
We believe that our current cash balances and anticipated cash flows from
operations will be sufficient to meet normal operating needs for us in 2003.
Recently Issued Accounting Standards
- ------------------------------------
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities -
an interpretation of ARB No. 51." FIN 46 requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among parties involved. FIN 46
applies immediately to variable interest entities created after January 31, 2003
and to variable interest entities in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003 to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. We believe that we
have no unconsolidated variable interest entities that would be considered under
the requirements of FIN 46.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("SFAS 149"), which clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is
effective for contracts entered into or modified after September 30, 2003 and
for hedging relationships designated after September 30, 2003.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS 150"), which established standards for how an
issuer classifies and measures certain financial instruments. SFAS 150 requires
that an issuer classify certain financial instruments as liabilities (or assets
in some circumstances) that were previously classified as equity. Financial
instruments which embody an unconditional obligation requiring the issuer to
redeem or repurchase it by the transfer of assets or by issuing a variable
number of its equity shares must be classified as a liability. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003.
We expect that the adoption of the new statements will not have a significant
impact on our financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
We are exposed to the impact of interest rate changes and changes in the market
value of our investments.
Interest Rate Risk. Our exposure to market rate risk for changes in interest
rates relates primarily to our investment portfolio. We have not used derivative
financial instruments in our investment portfolio. We invest our excess cash in
a major bank money market account. We protect and preserve our invested funds by
limiting default, market and reinvestment risk.
Investments in this account carry a degree of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted due to a rise in
interest rates, while floating rate securities may produce less income than
expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest
rates or we may suffer losses in principal if forced to sell securities which
have declined in market value due to changes in interest rates.
Item 4. Controls and Procedures.
-----------------------
a) Evaluation Of Disclosure Controls And Procedures. The
President and Chief Executive Officer as well as the Chief Financial Officer
have evaluated our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
quarterly report. Based on this evaluation, the President and Chief Executive
Officer and the Chief Financial Officer concluded that our disclosure controls
and procedures were effective as of such date.
b) Changes In Internal Control Over Financial Reporting. There
has been no change in our internal control over financial reporting that
occurred during the fiscal quarter covered by this quarterly report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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* * * * * * * * *
Statements in this Form 10-Q, other than statements of historical information
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks which may cause our
actual results in future periods to differ materially from expected results.
Those risks include, among others, risk associated with increased competition,
customer decisions, delays in productivity programs and new product
introductions, and other business factors beyond our control. Those and other
risks are described in our filings with the Securities and Exchange Commission
("SEC") over the last 12 months, copies of which are available from the SEC or
may be obtained upon request from us.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
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Exhibit
No. Description
31.1 Chief Executive Officer Certification Pursuant to Section
13a-15(e) of the Securities Exchange Act.
31.2 Chief Financial Officer Certification Pursuant to Section
13a-15(e) of the Securities Exchange Act.
32.1 Certification of John W. Roblin pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification of Ann Massey pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K.
-------------------
A Current Report on Form 8-K was filed August 14, 2003, reporting under
Item 12, Results of Operations and Financial Condition, Cover-All
Technologies Inc.'s revenues and earnings from operations for the
quarter ended June 30, 2003.
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SIGNATURES
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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.
COVER-ALL TECHNOLOGIES INC.
Date: November 13, 2003 By: /s/ John Roblin
-------------------------------------
John Roblin, Chairman of the Board of
Directors, President and Chief
Executive Officer
Date: November 13, 2003 By: /s/ Ann Massey
-------------------------------------
Ann Massey, Chief Financial Officer
15