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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
COMMISSION FILE NUMBER 0-13124
COVER-ALL TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-2698053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18-01 POLLITT DRIVE, FAIR LAWN, NEW JERSEY 07410
(Address of principal executive office) (Zip Code)
(201) 794-4800
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Each Class Name of Each Exchange On Which Registered
------------------- -----------------------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
- --------------------------------------------------------------------------------
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 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 the Registrant's 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at March 18, 2002 was $2,815,000.
NUMBER OF SHARES OUTSTANDING AT MARCH 18, 2002:
15,335,718 shares of Common Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE:
The definitive Proxy Statement for the 2002 Annual Meeting of Stockholders, to
be filed with the Commission not later than 120 days after the close of the
Registrant's fiscal year, has been incorporated by reference in whole or in part
for Part III, Items 10, 11, 12 and 13, of the Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.
PART I
------
ITEM 1. BUSINESS
--------
GENERAL
- -------
Cover-All Technologies Inc. (the "Company" or "Cover-All"), a Delaware
corporation formed in 1971, is a provider of state-of-the-art software products
and services to the property/casualty insurance industry through its
wholly-owned subsidiary, Cover-All Systems, Inc., a Delaware corporation.
Cover-All offers sophisticated software products and services to the
property and casualty insurance industry. The Company focuses on the functions
required to market, rate, issue, print, bill and support the entire life cycle
of insurance policies. The products and services offered combine an in-depth
knowledge of property and casualty insurance with innovative solution designs
utilizing state-of-the-art technology. Products are available fully configured
("off-the-shelf") or customized to specific customer needs utilizing Cover-All's
unique tool set. The software can be licensed for customer use on their own
platforms or can be licensed through an ASP (Application Services Provider)
utilizing third party technology platforms and support.
Cover-All also offers on-going support services, including insurance rate
and rule changes, in a cost-effective manner. These support services include
analyzing the changes, development, quality assurance, documentation and
distribution of insurance rate and rule changes.
The Company also provides a wide range of professional services that
support product customization, conversion from existing systems and data
integration with other software or reporting agencies.
The Company derives revenue from software contract licenses to new and
existing customers, service fees from the ASP, continuing maintenance fees for
servicing the product and professional services.
MY INSURANCE CENTER
- -------------------
In December 2001, the Company announced the availability of My Insurance
Center, a customizable and configurable Internet portal that was developed to
provide insurance agents, brokers and carriers with leading edge integrated
workflows and access to real-time information. My Insurance Center links
Cover-All's rating, policy issuance, billing and other components into a fully
integrated platform that eliminates redundant data entry. Information is stored
in a Client-centric data base and becomes immediately available to other users
or functions and, utilizing advanced technologies, MIC generates alerts to users
when certain conditions exist. My Insurance Center has also been designed to
allow the customer to configure everything from their own look and feel to
custom workflow processes. My Insurance Center's design includes security and
"single-sign-on" capabilities.
My Insurance Center is available to users on Cover-All's ASP and is
also available to be licensed by new and existing customers. Combined with
Cover-All's Client-centric database, My Insurance Center enables Cover-All to
have an integrated and flexible architecture that is specially designed to
enable Cover-All customers to make rapid business and technological changes.
CLASSIC
- -------
In December 1989, the Company purchased, through its subsidiary, the assets
related to the exclusive proprietary rights to a PC-based software application
for policy rating and issuance for property/casualty insurance companies. This
software utilizes a unique design that separates the "insurance product
definition"
-2-
from the actual technology "engines." The sophistication of this design has
enabled the Company to stay current with technology innovations while preserving
its "insurance knowledge" investment. This concept has evolved into what is
known today as the Classic product.
The Classic product line is a self-contained full policy life cycle suite
that supports the following functions:
o Data capture and editing
o Rating
o Policy issuance including multiple recipient print
o All policy transactions including quotes, new lines,
endorsements, renewals, audits and cancellations
o Full Policy data base aligned with industry standards
The Classic product was designed to accommodate all lines of property and
casualty insurance but is especially effective in coping with the complexity and
variability of commercial lines insurance. Cover-All today offers off-the-shelf
support for more than 20 lines of commercial business in virtually all states
and Puerto Rico. Cover-All's extensive experience in creating custom products
combined with its proprietary tool set enables the Company to deliver support
for new insurance products in short time frames.
Significant new functionality was added to Classic in 2001. Cover-All
announced the availability of the Insurance Policy Database (IPD) in December.
IPD is designed to provide a sophisticated data repository based upon insurance
industry data standards that would enable Classic customers easy and immediate
access to their policy information. IPD is also a key component of My Insurance
Center as well as enabling Cover-All and its customers to build sophisticated
interfaces to other components or systems.
A strength of the Classic product is that it has been designed to reduce
the complexity of the insurance process for the user. Classic's user interface
asks the user for only the information necessary for the task at hand. The
product performs complete editing as the data is entered so that errors can be
corrected immediately. The software can run on stand-alone PCs, over a LAN
utilizing a shared database or over the Internet utilizing a browser.
The Classic software was originally developed using the MicroFocus COBOL
language, and the Company upgraded this product line for use in the Windows 95,
Windows 98 and NT operating systems. During 1999, the Classic product was also
upgraded to utilize a graphical user interface ("GUI"). During 2000 it has also
been implemented in an Internet or thin client environment. This feature enables
customers to allow remote access to their customers or partners. The Internet is
also the platform utilized by the ASP offering.
The Classic Rating and Policy Issuance Product has been and continues to be
enhanced and updated with new technology. The sophisticated design of the
product isolates insurance product knowledge from the application itself in
datafiles (Metadata). Cover-All has built an extensive knowledge base, estimated
at more than 100 person years of effort, in this Metadata that defines the
details of virtually hundreds of insurance policy types and coverages for the
Classic product.
The Classic product is in use in over 60 companies. Total Classic revenues
were $5,585,000 for 2001 as compared to $6,772,000 for 2000 and $7,144,000 for
1999.
-3-
TAS 2000
- --------
Since 1993, Cover-All has been developing a second product line known as
Total Administrative Solution ("TAS 2000") and, as of December 31, 2000,
Cover-All has developed a suite of functionality including billing, full policy
life-cycle support, Customer Relationship Management (CRM) and financial and
statistical reporting. The entire suite of functional components is fully
integrated through a client-centric Oracle(TM) Insurance Enterprise database.
These functional components have been built out and implemented for workers
compensation. This product suite, called TAS Comp, is currently in production at
one customer site.
These components are also being marketed separately and are being
integrated with My Insurance Center and Classic for deployment in the ASP and in
other new product or service offerings currently being developed. Utilizing My
Insurance Center, Classic and the TAS 2000 components, Cover-All can deliver a
fully integrated platform for quoting/rating, policy issuance, policy
administration, billing, and reporting.
The TAS 2000 product is built upon a comprehensive Oracle(TM) database
designed to meet the data requirements for an insurance enterprise. The data is
organized around customers and is designed to meet the complex data requirements
of the property/casualty insurance industry. The current TAS 2000 product
includes several functionally rich components including billing,
client-management, agent/broker management, rating, policy issuance and print
and financial/statistical reporting. It also includes a number of application
development tools for property/casualty insurers designed to enable faster
implementation of new or reengineered business processes.TAS 2000 applications
run on commodity priced open computer systems and use state-of-the-art software
technology provided by Oracle Corporation. Total TAS 2000 revenues were $678,000
for 2001, $1,191,000 for 2000 and $3,884,000 for 1999.
PRODUCT DESCRIPTION
- -------------------
MY INSURANCE CENTER
- -------------------
My Insurance Center (MIC) is a sophisticated Internet portal software
product that provides comprehensive business processing and an information
access platform for the property and casualty insurance industry. The
browser-based user interface allows employees, agents and other end-users to
personalize their desktops so they see only the information they may need. The
technology underlying MIC is the Insurance Policy Database (IPD), a relational
database that holds the full transactional data for all lines of Property and
Casualty Insurance. IPD has been designed to bring powerful data access and
reporting capabilities to the desktop.
MIC offers the following features and benefits:
o DATA INTEGRATION - IPD is an integrated data repository that
provides optimum quality information to MIC quickly and
inexpensively. Data is shared by multiple systems to help
integrate business functions, manage workflow and avoid duplicate
data problems.
o APPLICATION INTEGRATION - MIC allows the end user to switch back
and forth among applications without having to log in to
individual applications increasing their productivity. MIC
provides a consolidated view of data from disparate systems and
provides hotlinks with single sign-on to connect quickly to the
specific module of the specific system.
o BROAD ACCESSIBILITY - MIC is a true Internet portal application
which can be accessed over the Internet/Intranet by using any
browser on a thin client.
-4-
o INTEGRATED DATA REPRESENTATION - Data can be represented from
various databases of different types in a single component of
MIC. It provides a consolidated view of information and their
servers as a "library" with all available information.
o SINGLE SIGN-ON - Using Oracle(R) 9iAS Single Sign-On framework
eliminates the need to sign-on to different applications and to
remember different user-ids and password{. Users can jump
directly to any application from MIC.
o PERSONALIZATION & CUSTOMIZATION - MIC allows each user to
personalize his/her view similar to other Internet portals, to
meet the needs and the stylistic preferences of each individual
user. MIC personalization allows one to hide or show content,
filter the content and also change color and page styles.
Customization in MIC allows the host to control the accessibility
to content for each user and also facilitates change to content
in MIC, as business needs change, without additional programming.
o SECURITY - MIC can be configured to be used over SSL to achieve
security on data transfer over the internet. It is also designed
to adapt almost any organizational hierarchy and data level
security needs with minimal effort.
My Insurance Center is built-on Oracle(R)9iAS Portal Server and Cover-All's
Portlet Framework.
CLASSIC PRODUCT LINE
--------------------
The Classic product is a software package that was designed to function on
a variety of technology platforms including PC, client/server and Internet (thin
client). Classic is designed to automate the rating, policy issuance and policy
administration tasks for the property and casualty insurance industry.
Functionality includes data capture/editing, rating, policy issuance and policy
administration (including generation of statistical and financial data) for
quoting, new business, mid-term changes, cancellations, reinstatements and
renewals. The system's print engine creates multiple recipient copies of all
relevant documentation for each of these transactions, including quote
summaries, declaration pages and mandatory and optional manuscript forms. This
product supports full policy life cycle functionality for property and casualty
lines of business in a user-friendly system.
Other optional features include the Insurance Policy Database (IPD) which
is an ODBC compliant database built utilizing industry data standards. IPD is
delivered with a number of data "views" that make the access to information easy
and quick. IPD also facilitates interface to other systems.
The Company believes that the Classic product line brings to the customer
many useful functions, features and capabilities. Some are line-of-business
specific and some are line-of-business independent. These include:
o Clear and comprehensive data collection with extensive real time
edits
o Policy history - easy policy changes and useful for activities
such as coverage inquiries
o On-line system, screen and field level help
o On-line ISO Commercial Lines Manual Tables and Footnotes
o Easy and direct system navigation
o Standard ISO coverages and rates support
o Company customized coverages and rates support
o Fully automated recipient driven issuance of declaration pages,
worksheets, ID card, etc., including print preview
o Full Policy data base aligned with industry standards
-5-
o Help Desk assistance
o Remote diagnostic and fix capabilities
The Classic product technology design was created with an understanding of
the complexity and constantly changing nature of property and casualty
insurance. The Classic product consists of several "engines" that perform driven
by a series of external "rules" or metadata that contain the insurance
specifics. This metadata has been developed over the last 10 years and has been
enhanced and expanded throughout this period. Today this Metadata supports more
than 20 commercial coverages in virtually all states and Puerto Rico as well as
many custom products. Utilizing this proprietary tool set allows Cover-All to
effectively and efficiently modify existing insurance coverages or add new
products in very short time frames.
The design of Classic also allows Cover-All to stay current with changes in
technology while reusing the intellectual capital represented in the insurance
rules. The Classic product line has also been upgraded to run on a LAN where any
number of users can contribute to the common data store. Over the past few
years, Cover-All has upgraded the Classic product line to utilize a graphical
user interface, or GUI, and modified the system to run as a 32-bit application.
It is also operating on the Internet in a Citrix environment. The Internet is
also the platform utilized by the ASP offering. The Company has invested in
additional upgrades to newer, native Internet technologies as well as
integrating this product to the TAS 2000 database and My Insurance Center.
Additionally, Cover-All has developed and implemented a number of processes over
the years that streamline the support process with the goal to improve quality
to our customers.
TAS 2000 PRODUCT LINE
---------------------
The TAS 2000 product line was designed to bring new technology and
additional functional capability to the property and casualty insurance
industry. The product was built around an Oracle database that has been designed
to meet the needs of an insurance enterprise. The data is organized around
customers and integrates rating, billing, demographic, policy issuance,
statistical and financial reporting functions so that information is only
captured once. This is designed to reduce expenses and errors as well as improve
timeliness and service quality to the customer. The data is accessible for
creating management reports utilizing custom or general-purpose tools. The
functional components are designed to deliver a wide range of capabilities built
with the needs of the insurance enterprise in mind. These functional components
have been built out and implemented for workers compensation, and this product
suite is known as TAS Comp.
All TAS 2000 products were developed as client/server applications using
the Oracle Designer 2000 and Developer 2000 tool sets. The client/server
architectural concept allows companies to take advantage of the power of
distributed processing and the flexibility of the thin client and Internet
platforms. Companies utilizing TAS 2000 that are growing or want to utilize
additional functionality can "scale" their technology to more powerful platforms
utilizing the same applications and companies currently relying on expensive
mainframe technology can "rightsize" their hardware and software. TAS 2000
enables customers to scale their equipment in accordance with the changing
demands of their organizations.
The TAS 2000 product line currently includes the following application
modules:
-6-
o Enterprise, Customer-centric Oracle database
o Client Management
o End User Tools
o Agency Profile Management
o Policy Administration
o Workers Compensation Rating and Issuance
o Billing, Cash and Commissions
o Statistical Reporting
o Financial Reporting
TAS 2000 has a Windows compliant graphical user interface and is also
available utilizing a browser over the Internet. TAS 2000 can be used on many
different client/server hardware platforms and offers capability to process the
voluminous transactions that are common to large-scale insurance operations.
Cover-All originally created the TAS 2000 product line to better position itself
for penetration into the larger insurance carrier market segment.
The design of My Insurance Center, Classic and TAS 2000, which consists of
separate but integrated functional components built on client/server and
Internet technology, enables Cover-All to market these functional components
(such as billing) either separately, in "custom groupings," or as a service in
an ASP environment.
PRODUCTS AND SERVICES IN DEVELOPMENT
- ------------------------------------
Cover-All has, in My Insurance Center, Classic and TAS 2000 components, a
deep inventory of insurance software components combined with a leading edge
implementation platform. The combination of these capabilities enables both
existing and new customers to obtain custom solutions to their business needs
today and enhance their systems as future needs dictate. The Company expects to
utilize these capabilities to expand and leverage its ability to respond to
broadening marketplace and new customer opportunities with solutions that
address the special needs of carriers, MGAs (Managing General Agents), agents,
brokers and third party providers with both off-the-shelf and custom solutions.
The user interface capabilities of Cover-All's My Insurance Center product are
being enhanced with even more functionality as well as the addition of highly
sophisticated Web-services and information access tools. The Company also
intends to continue to enhance its functional components based upon market
demand, existing customer needs and changes in technology (for example, support
for PDA's), especially Internet technologies.
Cover-All is also increasing and enhancing its services portfolio. The
Company has expanded its professional services with conversion and interface
offerings. New rule-based capabilities are in development to enable Cover-All to
implement data exchange services that will save our customers time and effort
converting to Cover-All products or linking Cover-All products to existing
systems. The ASP will continue to be enhanced with additional functionality and
customer options.
COMPETITIVE PRODUCTS
- --------------------
The computer software and services industry is highly competitive. Because
of Cover-All's extensive knowledge of the insurance industry, however, the
Company believes that its products offer customers certain advantages not
available from Cover-All's competitors. Cover-All customers have access to the
Company's extensive experience and software inventory in the area of rating and
policy issuance of commercial lines policies, among the most complex of
insurance transactions.
There are a number of larger companies, including computer software,
services and outsourcing companies, consulting firms, computer manufacturers and
insurance companies that have greater financial
-7-
resources than the Company and possess the technological ability to develop
software products similar to those offered by the Company. These companies
represent a significant competitive challenge to the Company's business. Very
large insurers that internally develop systems similar to those of the Company
may or may not become major customers of the Company for software or services.
The Company competes on the basis of its insurance knowledge and products,
service, performance, flexibility, ability to customize, system functionality,
technology architecture and price.
MARKETING
- ---------
The Company maintains a sales staff at its principal executive offices in
Fair Lawn, New Jersey. The Company also utilizes distributors, outside
consultants and other complimentary service providers to market its products.
The Company is in the process of redesigning its Internet site and establishing
linkages to portals and other web sites. This is an on-going effort that will
expand rapidly in 2002 as the Company focuses on the Internet as the primary
source of information about its products and services. The Company also
participates in and displays its software products at trade shows organized by
industry trade groups.
RESEARCH AND DEVELOPMENT
- ------------------------
Cover-All's business is characterized by rapid business and technological
change. The Company's success will depend, in part, on its ability to meet the
new needs of our customers and the marketplace as well as continuing to enhance
its products based on new technologies. Accordingly, the Company must maintain
ongoing research and development programs to continually add value to its suite
of products, as well as any possible expansion of its product lines.
During 2000, the Company focused on delivering the remaining functionality
of TAS 2000. Additional time and effort was spent designing and building an
Internet presentation tool as well as expanded security and print capabilities
that will be utilized in upcoming products. Research and development expenses
for Cover-All were $413,000, $875,000 and $1,009,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.
BACKLOG
- -------
The Company has no license, professional services and maintenance backlog
of unbilled work, as of December 31, 2001.
MAJOR CUSTOMERS
- ---------------
The Classic product line is in use in over 60 companies while the TAS 2000
product line is currently in use in one property/casualty insurance company. The
Company's revenues from major customers (more than 10 percent of total revenues)
for the years ended December 31, 2001, 2000 and 1999 as a percentage of total
revenue were as follows:
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
CUSTOMER 2001 2000 1999
- ------------------------------------- -------------- -------------- --------------
Accident Fund 11% 11%
Sierra Health Services, Inc. 14%
Cornhill Insurance Co. 12%
Employers Reinsurance Corp. 11%
-8-
In 2001, 2000 and 1999, export sales were made to a U.K. customer of
approximately $0, $284,000 and $1,336,000, respectively. The Company is not
currently active in the U.K. market.
EMPLOYEES
- ---------
The Company had on average 50 employees during 2001. None of the Company's
employees are represented by a labor union, and the Company has not experienced
any work stoppages. The Company believes that relations with its employees are
good.
ITEM 2. PROPERTIES
----------
The Company's headquarters is located in Fair Lawn, New Jersey where it
occupies approximately 21,000 square feet under a lease which expires at May 31,
2005 at a current annual rental expense of approximately $325,000. This facility
is currently fully utilized by the Company.
The Company believes that its headquarters is well maintained and adequate
to meet its needs in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
-----------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the Company's security holders
through the solicitation of proxies or otherwise during the fourth quarter ended
December 31, 2001.
-9-
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
Since November 1, 2000, the Company's common stock has been traded in the
over-the-counter market on the OTC Bulletin Board under the symbol "COVR.OB".
From May 23, 1996 through October 31, 2000, the Company's common stock was
traded on The NASDAQ SmallCap Market tier of The NASDAQ Stock Market, and since
July 1, 1996, the symbol for the Company's common stock on The NASDAQ SmallCap
Market was "COVR." From August 2, 1996 until December 28, 2001, the Company's
common stock was also listed on the Philadelphia Stock Exchange under the symbol
"CVA."
The quotations below reflect the high and low bid prices for the Company's
common stock since January 1, 2000 as traded on The NASDAQ SmallCap until
October 31, 2000 and in the over-the-counter market on the OTC Bulletin Board
thereafter. The quotations below reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
HIGH LOW
2001: ---- ---
1st Quarter $0.50 $0.23
2nd Quarter 0.46 0.25
3rd Quarter 0.51 0.23
4th Quarter 0.31 0.17
2000:
1st Quarter $1.94 $1.00
2nd Quarter 1.34 0.56
3rd Quarter 0.75 0.41
4th Quarter 0.78 0.19
As of March 18, 2002, there were 592 holders of record of the Company's
common stock. This number does not include beneficial owners who may hold their
shares in street name.
The Company has not paid any dividends on its common stock and does not
anticipate paying any dividends in the foreseeable future. In addition, the
purchase agreement governing the 8.00% debentures sold to the Renaissance US
Growth and Income Trust PLC, BFS US Special Opportunities Trust PLC and three
other private investors including John Roblin, Chairman of the Board, President
and Chief Executive Officer of the Company, for an aggregate of $1,800,000 on
June 28, 2001, currently prohibits the payment of dividends without the prior
written consent of the holders of such debentures.
The closing sales price for the Company's common stock on March 18, 2002
was $0.22, as reported by the OTC Bulletin Board.
-10-
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following selected financial data of the Company have been derived from
the audited consolidated financial statements of the Company. The data should be
read in conjunction with the audited consolidated financial statements, related
notes and other financial information of the Company included herein.
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues: $ 6,263 $ 7,963 $ 11,028 $ 12,268 $ 7,938
Income (loss) before income tax................ (1,612) (2,916) (3,255) 548 (2,640)
Extraordinary item - gain on
extinguishment of debt (net of income
tax of $536, $0, $0, $0 and $0)............. 804 -- -- -- --
Net income (loss).............................. 55 (2,412) (2,820) 918 (2,640)
Income (loss) per share before
extraordinary items......................... (.05) (.14) (.17) .05 (.16)
Extraordinary item per share................... .05 -- -- -- --
Net income (loss) per share.................... .00 (.14) (.17) .05 (.16)
Cash dividends per share....................... $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Working capital (deficiency)................... $ (1,114) $ 78 $ 1,172 $ 4,203 $ 1,647
Total assets................................... 3,417 5,141 9,147 11,425 8,484
Short-term debt................................ 18 64 59 -- --
Stockholders' equity (deficit)................. (1,247) (1,370) 2,437 5,217 2,847
-11-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
THE FOLLOWING FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT) ARE SUBJECT TO THE OCCURRENCE OF
CERTAIN CONTINGENCIES WHICH MAY NOT OCCUR IN THE TIME FRAMES ANTICIPATED OR
OTHERWISE, AND, AS A RESULT, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM SUCH STATEMENTS. THESE CONTINGENCIES INCLUDE, AMONG OTHER THINGS, RISKS
ASSOCIATED WITH INCREASED COMPETITION, CUSTOMER DECISIONS, THE SUCCESSFUL
COMPLETION OF CONTINUING DEVELOPMENT WITHIN ANTICIPATED TIME FRAMES OR
OTHERWISE, THE SUCCESSFUL NEGOTIATION, EXECUTION AND IMPLEMENTATION OF
ANTICIPATED NEW SOFTWARE CONTRACTS, THE SUCCESSFUL UTILIZATION OF ADDITIONAL
PERSONNEL IN THE MARKETING AND TECHNICAL AREAS AND THE COMPANY'S ABILITY TO
COMPLETE DEVELOPMENT AND SELL AND LICENSE ITS PRODUCTS AT PRICES WHICH RESULT IN
SUFFICIENT REVENUES TO REALIZE PROFITS.
GENERAL
- -------
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
- ------------------------------------------
This discussion and analysis of the Company's financial condition and
results of operations are based on their consolidated financial statements that
have been prepared under accounting principles generally accepted in the United
States. The preparation of financial statements requires Management to make
estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could
materially differ from those estimates. We have disclosed all significant
accounting policies in Note 1 to the consolidated financial statements included
in this Form 10-K. The consolidated financial statements and the related notes
thereto should be read in conjunction with the following discussion of the
Company's critical accounting policies. Critical accounting policies and
estimates are:
o Revenue recognition
o Valuation of Capitalized Software
o Valuation of Allowance for Doubtful Accounts Receivable
REVENUE RECOGNITION
- -------------------
The Company's revenues are recognized in accordance with SOP 97-2,
"Software Revenue Recognition" ["SOP 97-2"], as amended by SOP 98-4, "Deferral
of the Effective Date of SOP 97-2, Software Revenue Recognition" and SOP 98-9,
"Modification of SOP 97-2 with Respect to Certain Transactions." Revenue from
the sale of software licenses is predominately from standardized software and is
recognized when standard software modules are delivered and accepted by the
customer, the fee is fixed or determinable and collectibility is probable.
Revenue from software maintenance contracts is recognized ratably over the life
of the contract. Revenue from professional consulting services is recognized
when the service is provided.
CAPITALIZED SOFTWARE
- --------------------
Costs for the internal development of new software products and
substantial enhancements to existing software products are expensed as incurred
until technological feasibility has been established, at which time any
additional costs are capitalized. As the Company has completed its software
development concurrently with the establishment of technological feasibility, it
has commenced capitalizing these costs. Amortization is calculated on a
product-by-product basis as the greater of the amount computed using (a) the
ratio that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product or (b) the straight-line
method over the remaining estimated economic life of the product. At each
balance sheet date, the unamortized capitalized costs of each computer software
product is compared to the net realizable value of that product. If an amount of
unamortized capitalized costs of a computer software
-12-
product is found to exceed the net realizable value of that asset, such amount
will be written off. The net realizable value is the estimated future gross
revenues from that product reduced by the estimated future costs of completing
and disposing of that product, including the costs of performing maintenance and
customer support required to satisfy the Company's responsibility set forth at
the time of sale.
VALUATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
- -------------------------------------------------------
Management's estimate of the allowance for doubtful accounts is based on
historical information, historical loss levels, and an analysis of the
collectibility of individual accounts. The Company routinely assesses the
financial strength of its customers and based upon factors concerning credit
risk, establishes an allowance for uncollectible accounts. Management believes
that accounts receivable credit risk exposure beyond such allowance is limited.
RESULTS OF OPERATIONS
- ---------------------
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000
- -----------------------------------------------------------------------
Total revenues were $6,263,000 for the year ended December 31, 2001
compared to $7,963,000 for the year ended December 31, 2000, a decrease of 21%.
License fees were $298,000 for the year ended December 31, 2001 compared to
$1,919,000 in the same period in 2000 as a result of fewer new Classic sales in
2001. For the year ended December 31, 2001, maintenance revenues were
$4,716,000 compared to $4,023,000 in the same period of the prior year as a
result of new Classic contracts signed in 2000. Professional services revenue
contributed $1,249,000 for the year ended December 31, 2001 compared to
$2,021,000 for the year ended December 31, 2000 as a result of fewer new Classic
sales in 2001.
Cost of revenues decreased to $4,863,000 for the year ended December 31,
2001 as compared to $6,942,000 for 2000 due to staff and other cost reductions
in the TAS 2000 division. Non-cash capitalized software amortization was
$861,000 for the year ended December 31, 2001 as compared to $899,000 in 2000.
The Company capitalized software development costs of $866,000 in 2001 compared
to none in 2000.
Research and development expenses in 2001 were $413,000 compared to
$875,000 for the year ended December 31, 2000. The Company is continuing to
enhance the functionality of its products and to define its processes in
response to customer needs.
Sales and marketing expenses increased to $1,264,000 in 2001 compared to
$900,000 in 2000. This increase was primarily due to an increase in the sales
effort and the hiring of a new chief marketing officer in 2001.
General and administrative expenses decreased to $1,366,000 in 2001
compared to $1,962,000 for the year ended December 31, 2000 primarily as a
result of decreased consulting and legal expenses.
Other income was $225,000 for the year ended December 31, 2001 as compared
to none in the same period of 2000 due to the settlement of an outstanding
customer dispute and a favorable resolution of a liability related to the
customer dispute.
Extraordinary gain on extinguishment of debt was $804,000, net of income
taxes of $536,000, for the year ended December 31, 2001 as compared to none in
the same period of 2000 due to the settlement of $3,000,000 principal amount
12.5% convertible debentures due in 2002 for $1,660,000.
-13-
Allowance for Doubtful Accounts increased to $(58,000) in 2001 compared to
$(333,000) for the year ended December 31, 2000 due to the collection of one
account receivable in 2001 reserved for in 1999 and collections of various
accounts receivable in 2000 reserved for in 1999.
YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999
- -----------------------------------------------------------------------
Total revenues were $7,963,000 for the year ended December 31, 2000
compared to $11,028,000 for the year ended December 31, 1999, a decrease of 28%.
License fees were $1,919,000 for the year ended December 31, 2000 compared to
$2,638,000 in the same period in 1999 primarily because of no new sales of TAS
2000 in 2000 as a result of the Company making a strategic decision to focus on
completing the deliveries to the one TAS 2000 customer and developing an ongoing
relationship with that customer, who is now in production. The decrease in
revenue is primarily a result of reduced activity in TAS 2000.
For the year ended December 31, 2000, maintenance revenues were $4,023,000
compared to $4,371,000 in the same period of the prior year primarily due to the
termination of support services by one Classic customer and reduced TAS 2000
maintenance caused by late deliveries in 1999 and the Company's decision to
withdraw from the UK. Professional services revenue contributed $2,021,000 for
the year ended December 31, 2000 compared to $4,019,000 for the year ended
December 31, 1999 as a result of no new TAS 2000 implementations and the
Company's decision to focus on completing its contractual obligations to the
existing TAS 2000 commitments.
Cost of revenues decreased to $6,942,000 for the year ended December 31,
2000 as compared to $8,462,000 for 1999 as a result of the Company deciding in
2000 to implement certain measures to eliminate or reduce expenses on activities
that were not directly creating value, staff reductions in the TAS 2000 division
and combining the support structures for Classic and TAS 2000. Non-cash
capitalized software amortization was $899,000 for the year ended December 31,
2000 as compared to $479,000 in 1999. The Company did not capitalize any
software development in 2000.
Research and development expenses in 2000 were $875,000 compared to
$1,009,000 for the year ended December 31, 1999. Significant effort was expended
in 2000 to complete remaining functionality and refine our processes in order to
satisfy our customers before we refocused and increased our sales efforts.
Sales and marketing expenses decreased to $900,000 in 2000 compared to
$1,778,000 in 1999. This decrease was due to the closing of the UK operation,
reallocation of some expenses into general and administrative and turnover in
the sales force in 2000.
General and administrative expenses increased to $1,962,000 in 2000
compared to $1,550,000 for the year ended December 31, 1999 primarily as a
result of increased legal fees.
Allowance for Doubtful Accounts decreased to $(333,000) in 2000 compared to
$1,240,000 for the year ended December 31, 2000 due to collections of various
accounts receivable reserved for in 1999 and no new reserves required in 2000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 2001, the Company had working capital of $(1,114,000)
compared to a working capital of $78,000 in 2000.
On June 21, 2000, the Company entered into an agreement with Vault
Management Limited ("Vault") to purchase between 640,000 and 1,600,000 shares of
the Company's common stock at $.625 per share, which
-14-
was the closing price per share of the Company's common stock on May 30, 2000,
the date the agreement was reached.
The agreement would generate a minimum of $400,000 and a maximum of $1
million in proceeds to the Company. The proceeds would be used for general
working capital purposes.
The agreement also called for the equivalent number of the Company's
detachable five-year warrants to be issued to Vault at an exercise price of
$.625 per share. The agreement provided that Vault shall have the option to make
payments beyond the required $400,000 in $200,000 installments each on August
31, 2000, October 31, 2000 and November 30, 2000. Vault did not exercise its
option to make a payment of $200,000 on any of August 31, 2000, October 31, 2000
or November 30, 2000. The decision not to exercise Vault's options was mutually
agreed upon by Vault and the Company.
As part of the Vault transaction, the Company also agreed to modify the
terms of the Care note such that the semi-annual principal payment of $500,000
due and payable on September 30, 2000 shall be due and payable as to $250,000 on
September 30, 2000 and as to $250,000 on December 31, 2000. The Company received
the $250,000 payment on September 29, 2000. The Company did not receive the
payment due on December 31, 2000. At the time of the Vault transaction, Mr. Mark
Johnston was the Company's Chairman and Interim Chief Financial Officer and also
a director of both Vault and Care.
On June 28, 2001, the Company raised $1,800,000 through a private placement
of 8.00% convertible debentures with investors headed by the Renaissance Capital
Group, Inc. of Dallas, Texas. 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, Chairman of the Board, President and Chief Executive
Officer of the Company.
Immediately upon its receipt of the funds, the Company used $1,660,000 of
the proceeds to fully settle its $3,000,000 principal amount 12.5% convertible
debentures, due in 2002. The remainder of the funds raised from the transaction
were to be used for working capital purposes. The new debentures, maturing in
2008, are convertible into shares of the Company's common stock, $.01 par value
per share, initially at $0.50 per share, subject to adjustment in accordance
with the terms of the parties' respective loan agreements. The Company
recognized an extraordinary gain on the extinguishment of debt of $804,000, net
of income taxes of $536,000, in June 2001.
At December 31, 2001, the Company had approximately $26,500,000 of federal
net operating tax loss carryforwards expiring at various dates through 2016.
The Company believes that its current cash balances and anticipated cash
flows from operations will be sufficient to meet its normal operating needs in
2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
In August 2001, the Financial Accounting Standards Board ("FASB") approved
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144"). The Statement requires that long-lived assets to be disposed
of other than by sale be considered held and used until they are disposed of.
SFAS No. 144 requires that long-lived assets to be disposed of by sale be
accounted for under the requirements of SFAS No. 121. SFAS No. 121 requires that
such assets be measured at the lower of carrying amounts or fair value less cost
to sell and to cease depreciation (amortization). SFAS No. 144 requires a
probability-weighted cash flow estimation approach in situations where
alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration or a range of possible
-15-
future cash flow amounts are estimated. As a result, discontinued operations
will no longer be measured on a net realizable basis, and future operating
losses will no longer be recognized before they occur. Additionally, goodwill
will be removed from the scope of SFAS No. 144. As a result goodwill will no
longer be required to be allocated to long-lived assets to be tested for
impairment. SFAS No. 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001, and interim periods within those fiscal
years. We are currently in the process of evaluating the effect this new
standard will have on its consolidated financial position or results of
operations.
On August 15, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 will be effective for
financial statements issued for fiscal years beginning after June 15, 2002. An
entity shall recognize the cumulative effect of adoption of SFAS No. 143 as a
change in accounting principle. The Company is not currently affected by this
Statement's requirements.
In June 2001, the FASB issued SFAS No. 141 ("SFAS 141"), "Business
Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets",
collectively referred to as the "Standards". SFAS 141 supersedes Accounting
Principles Board Opinion (APB) No. 16, "Business Combinations". SFAS 141 (1)
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) provides specific criteria for
the initial recognition and measurement of intangible assets apart from goodwill
and (3) requires that unamortized negative goodwill be written off immediately
as an extraordinary gain. SFAS 142 supersedes APB 17, "Intangible Assets," and
is effective for fiscal years beginning after December 15, 2001. SFAS 142
primarily addresses the accounting for goodwill and intangible assets subsequent
to their initial recognition. SFAS 142 (1) prohibits the amortization of
goodwill and indefinite-lived intangible assets, (2) requires testing of
goodwill and indefinite-lived intangible assets on an annual basis for
impairment (and more frequently if the occurrence of an event or circumstance
indicates an impairment), (3) requires that reporting units be identified for
the purpose of assessing potential future impairments of goodwill and (4)
removes the forty-year limitation on the amortization period of intangible
assets that have finite lives. The provisions of the Standards also apply to
equity-method investments made both before and after June 30, 2001. SFAS 141
requires that the unamortized deferred credit related to an excess over cost
arising from an investment acquired prior to July 1, 2001 accounted for using
the equity method (equity-method negative goodwill), must be written-off
immediately and recognized as the cumulative effect of a change in accounting
principle. Equity-method negative goodwill arising from equity investments made
after June 30, 2001 must be written-off immediately and recorded as an
extraordinary gain. The adoption of SFAS 141 did not have a material impact on
the Company's consolidated financial statements. The Company will adopt SFAS 142
on January 1, 2002. The Company does not believe that the adoption of the SFAS
142 will have a significant impact on its results of operations or financial
position.
The FASB is also considering the rescission of SFAS 4, "Recording Gains or
Losses for Extinguishment of Debt." When finally issued the pronouncement may
prohibit classification of such gains or losses as extraordinary items.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is exposed to the impact of interest rate changes and changes
in the market value of its investments.
INTEREST RATE RISK. The Company's exposure to market rate risk for changes
in interest rates relates primarily to the Company's investment portfolio. The
Company has not used derivative financial instruments
-16-
in its investment portfolio. The Company invests its excess cash in a major bank
money market account. The Company protects and preserves its 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, the
Company's future investment income may fall short of expectations due to changes
in interest rates or the Company may suffer losses in principal if forced to
sell securities which have declined in market value due to changes in interest
rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The financial statements and supplementary data listed in Item 14(a)(1)
and (2) are included in this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
--------
The information called for by Part III (Items 10, 11, 12 and 13) of this
Report is hereby incorporated by reference from the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A under the Securities Exchange
Act of 1934 in connection with the election of directors at the 2002 Annual
Meeting of Stockholders of the Company, which definitive Proxy Statement will be
filed with the Securities and Exchange Commission not later than 120 days after
the end of the Company's fiscal year ended December 31, 2001.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) THE FOLLOWING ARE FILED AS A PART OF THIS REPORT.
(1) FINANCIAL STATEMENTS
Reference is made to the Index to Financial Statements on Page 23.
(2) FINANCIAL STATEMENT SCHEDULE
II - Valuation and qualifying accounts........................ F-25
All other schedules are omitted since the required information is
not present or is not present in amounts sufficient to require
submission of the schedules, or because the information required is
included in the financial statements and notes thereto.
-17-
(3) EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2 Certificate of Merger of the Company Computer Systems, Inc. (a
New York corporation) into the Registrant, filed on June 11,
1985 [incorporated by reference to Exhibit 2 to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 29, 1986].
3(a) Certificate of Incorporation of the Registrant filed on April
22, 1985 [incorporated by reference to Exhibit 3(a) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 29, 1986].
3(b) Certificate of Amendment of Certificate of Incorporation of
the Registrant filed on May 6, 1987 [incorporated by reference
to Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1 (Commission File No. 33-17533) filed on September 29,
1987].
3(c) Certificate of Amendment of Certificate of Incorporation of
the Registrant filed on March 26, 1990 [incorporated by
reference to Exhibit 3(d) to the Registrant's Quarterly Report
on Form 10-Q (Commission File No. 0-13124) filed on June 14,
1990].
3(d) Certificate of Amendment of Certificate of Incorporation of
the Registrant filed on March 18, 1992 [incorporated by
reference to Exhibit 1 to the Registrant's Current Report on
Form 8-K (Commission File No. 0-13124) filed on March 30,
1992].
3(e) Certificate of Amendment of Certificate of Incorporation of
the Registrant [incorporated by reference to Exhibit 3(e) to
the Registrant's Amendment No. 1 to Registration Statement on
Form S-3 (Commission File No. 0-13124) filed on July 10,
1996].
3(f) Certificate of Amendment of Certificate of Incorporation of
the Registrant filed on July 12, 2000 [incorporated by
reference to Exhibit 3(g) to the Registrant's Quarterly Report
on Form 10-Q (Commission File No. 0-13124) filed on August 11,
2000].
3(g) Bylaws of the Registrant, as amended [incorporated by
reference to Exhibit 3(g) to the Registrant's Amendment No. 1
to Registration Statement on Form S-3 (Commission file No.
0-13124) filed on July 10, 1996].
4 Form of Common Stock Certificate of the Registrant
[incorporated by reference to Exhibit 4(a) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 29, 1986].
10(a) Warner Insurance Services, Inc. Tax Saver 401(k) Salary
Reduction Plan adopted May 31, 1985 and restated as of August
11, 1992 [incorporated by reference to Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on January 28, 1993].
10(b)(1) 1994 Stock Option Plan for Independent Directors adopted by
the Board of Directors of the Registrant on November 10, 1994
[incorporated by reference to Exhibit 10(n)(1) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 17, 1995].
10(b)(2) Form of Stock Option Agreement under the 1994 Stock Option
Plan for Independent Directors [incorporated by reference to
Exhibit 10(n)(2) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on April 17, 1995].
-18-
10(c)(1) The 1995 Employee Stock Option Plan, adopted by the Board of
Directors of the Registrant on March 22, 1995 [incorporated
by reference to Exhibit 10(o)(1) to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on
April 17, 1995].
10(c)(2) Form of Incentive Stock Option Agreement under the 1995
Employee Stock Option Plan [incorporated by reference to
Exhibit 10(o)(2) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on April 17, 1995].
10(c)(3) Form of Non-Qualified Stock Option Agreement under the 1995
Employee Stock Option Plan [incorporated by reference to
Exhibit 10(o)(3) to the Registrant's Annual Report on Form
10-K (Commission File No. 0-13124) filed on April 17, 1995].
10(c)(4) The 1995 Employee Stock Option Plan, as amended on April 29,
1997 by the stockholders of the Registrant [incorporated by
reference to Exhibit 10(o)(4) to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on
March 31, 1998].
10(d)(1) Lease Agreement, dated as of March 2, 1990, between the
Registrant and Polevoy Associates for premises located at
18-01 Pollitt Drive, Fair Lawn, New Jersey [incorporated by
reference to Exhibit 10(z) to the Registrant's Annual Report
on Form 10-K (Commission File No. 0-13124) filed on January
24, 1991].
10(d)(2) Modification to Lease, dated February 23, 1994, by and
between the Registrant and Polevoy Associates [incorporated
by reference to Exhibit 10(e)(2) to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on
April 30, 2001].
10(d)(3) Second Modification to Lease, dated April 12, 2000, by and
between the Registrant and Polevoy Associates [incorporated by
reference to Exhibit 10(e)(3) to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on
April 30, 2001].
10(e) Exclusive Software License Agreement, dated as of March 31,
1996, by and among the Registrant, Care Corporation Limited
and Cover-All Systems, Inc. [incorporated by reference to
Exhibit 10.4 to the Registrant's Form 8-K (Commission File
No. 0-13124) filed on April 8, 1996].
10(f)(1) Amendment to Stock Purchase Agreement, dated as of March 14,
1997, among the Registrant, Software Investments Limited and
Care Corporation Limited [incorporated by reference to Exhibit
10(aa)(iii) to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on April 15, 1997].
10(f)(2) Amendment to Exclusive Software License Agreement, dated as
of March 14, 1997, among the Registrant, Care Corporation
Limited and, for certain purposes, Cover-All Systems, Inc.
[incorporated by reference to Exhibit 10(aa)(iv) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 15, 1997].
10(g)(1) Reseller Agreement, dated March 31, 1998, by and between
Cover-All Systems, Inc. and Care Corporation Limited
[incorporated by reference to Exhibit 10(bb)(iv) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on March 31, 1998].
10(g)(2) Reseller Agreement, dated March 31, 1998, by and between
Cover-all Systems, Inc. and Care Corporation Limited
[incorporated by reference to Exhibit 10(bb)(v) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on March 31, 1998].
10(g)(3) Letter Agreement, dated as of June 9, 2000, from the
Registrant amending Secured Promissory Note of Care
Corporation Limited, dated as of March 31, 1998 [incorporated
by reference to Exhibit 10(1)(8) to the Registrant's Quarterly
Report on Form 10-Q/A (Commission File No. 0-13124) filed on
August 24, 2000].
-19-
10(h) Separation and Release Letter Agreement, dated February 28,
2000, by and between the Registrant and Brian Magowan
[incorporated by reference to Exhibit 10(n) to the
Registrant's Annual Report on Form 10-K (Commission File No.
0-13124) filed on April 14, 2000].
10(i)(1) Employment Agreement, dated December 20, 1999, by and
between the Registrant and John Roblin [incorporated by
reference to Exhibit 10(o)(3) to the Registrant's Annual
Report on Form 10-K (Commission File No. 0-13124) filed on
April 14, 2000].
10(i)(2) Employment Agreement, dated January 25, 2001, by and between
the Registrant and John Roblin [incorporated by reference to
Exhibit 99.2 to the Registrant's Form 8-K (Commission File
No. 0-13124) filed on February 8, 2001].
10(j)(1) Form of Warrant issued by the Registrant to Vault Management
Limited [incorporated by reference to Exhibit 10(p)(1) to
the Registrant's Quarterly Report on Form 10-Q/A (Commission
File No. 0-13124) filed on August 24, 2000].
10(j)(2) Stock Purchase Agreement, dated as of June 9, 2000, between
the Registrant and Vault Management Limited [incorporated by
reference to Exhibit 10(p)(2) to the Registrant's Quarterly
Report on Form 10-Q/A (Commission File No. 0-13124) filed on
August 24, 2000].
10(k)(1) Convertible Loan Agreement, dated June 28, 2001, by and among
the Company, Renaissance US Growth & Income Trust PLC, a
public limited company registered in England and Wales, BFSUS
Special Opportunities Trust PLC, a public limited company
registered in England and Wales, as lenders, and Renaissance
Capital Group, Inc., a Texas corporation, as agent
[incorporated by reference to Exhibit 10(q)(1) to the
Registrant's Form 8-K (Commission File No. 0-13124) filed on
July 11, 2001].
10(k)(2) Convertible Debenture No. 1, dated June 28, 2001, issued to
Renaissance US Growth & Income [incorporated by reference to
Exhibit 10(q)(2) to the Registrant's Form 8-K (Commission
File No. 0-13124) filed on July 11, 2001].
10(k)(3) Convertible Debenture No. 2, dated June 28, 2001, issued to
BFSUS Special Opportunities Trust PLC [incorporated by
reference to Exhibit 10(q)(3) to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on July 11, 2001].
10(k)(4) Pledge Agreement, dated as of June 28, 2001, between the
Company, Renaissance US Growth & Income Trust PLC and BFSUS
Special Opportunities Trust PLC [incorporated by reference
to Exhibit 10(q)(4) to the Registrant's Form 8-K (Commission
File No. 0-13124) filed on July 11, 2001].
10(k)(5) Security Agreement, dated as of June 28, 2001, among the
Company, Renaissance US Growth & Income Trust PLC and BFSUS
Special Opportunities Trust PLC [incorporated by reference
to Exhibit 10(q)(5) to the Registrant's Form 8-K (Commission
File No. 0-13124) filed on July 11, 2001].
10(k)(6) Subsidiary Guaranty, dated as of June 28, 2001, by Cover-All
Systems, Inc. in favor of Renaissance US Growth & Income
Trust PLC and BFSUS Special Opportunities Trust PLC
[incorporated by reference to Exhibit 10(q)(6) to the
Registrant's Form 8-K (Commission File No. 0-13124) filed on
July 11, 2001].
10(k)(7) Subsidiary Security Agreement, dated as of June 28, 2001,
among Cover-All Systems, Inc. in favor of Renaissance US
Growth & Income Trust PLC and BFSUS Special Opportunities
Trust PLC [incorporated by reference to Exhibit 10(q)(7) to
the Registrant's Form 8-K (Commission File No. 0-13124)
filed on July 11, 2001].
-20-
10(l)(1) Convertible Loan Agreement, dated June 28, 2001, by and
among the Company, John Roblin, Arnold Schumsky and Stuart
Sternberg, and Stuart Sternberg, as agent [incorporated by
reference to Exhibit 10(r)(1) to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on July 11, 2001].
10(l)(2) Convertible Debenture No. 3, dated June 28, 2001, issued to
John Roblin [incorporated by reference to Exhibit 10(r)(2)
to the Registrant's Form 8-K (Commission File No. 0-13124)
filed on July 11, 2001].
10(l)(3) Convertible Debenture No. 4, dated June 28, 2001, issued to
Arnold Schumsky [incorporated by reference to Exhibit
10(r)(3) to the Registrant's Form 8-K (Commission File No.
0-13124) filed on July 11, 2001].
10(l)(4) Convertible Debenture No. 5, dated June 28, 2001, issued to
Stuart Sternberg [incorporated by reference to Exhibit
10(r)(4) to the Registrant's Form 8-K (Commission File No.
0-13124) filed on July 11, 2001].
10(l)(5) Security Agreement, dated as of June 28, 2001, among the
Company, John Roblin, Arnold Schumsky and Stuart Sternberg
[incorporated by reference to Exhibit 10(r)(5) to the
Registrant's Form 8-K (Commission File No. 0-13124) filed on
July 11, 2001].
10(l)(6) Subsidiary Guaranty, dated as of June 28, 2001, by Cover-All
Systems, Inc. in favor of John Roblin, Arnold Schumsky and
Stuart Sternberg [incorporated by reference to Exhibit
10(r)(6) to the Registrant's Form 8-K (Commission File No.
0-13124) filed on July 11, 2001].
10(l)(7) Subsidiary Security Agreement, dated as of June 28, 2001,
among Cover-All Systems, Inc. in favor of John Roblin,
Arnold Schumsky and Stuart Sternberg [incorporated by
reference to Exhibit 10(r)(7) to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on July 11, 2001].
10(l)(8) Limited Waiver to Convertible Loan Agreements, dated as of
September 30, 2001, by Renaissance US Growth & Income Trust
PLC and BFSUS Special Opportunities Trust PLC [incorporated by
reference to Exhibit 10(r)(8) to the Registrant's Form 10-Q
(Commission File No. 0-13124) filed on November 14, 2001].
*10(l)(9) Limited Waiver to Convertible Loan Agreements, dated as of
December 31, 2001, by Renaissance US Growth & Income Trust PLC
and BFSUS Special Opportunities Trust PLC.
10(m)(1) Lock-Up Agreement, dated June 28, 2001, by and among
Renaissance US Growth & Income Trust PLC and BFSUS Special
Opportunities Trust PLC, as lenders, and Renaissance Capital
Group, Inc., as agent, and John Roblin [incorporated by
reference to Exhibit 10(s)(1) to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on July 11, 2001].
10(m)(2) Lock-Up Agreement, dated June 28, 2001 by and among
Renaissance US Growth & Income Trust PLC and BFSUS Special
Opportunities Trust PLC, as lenders, and Renaissance Capital
Group, Inc., as agent, and Maryanne Z. Gallagher [incorporated
by reference to Exhibit 10(s)(2) to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on July 11, 2001].
10(m)(3) Lock-Up Agreement, dated June 28, 2001, by and among
Renaissance US Growth & Income Trust PLC and BFSUS Special
Opportunities Trust PLC, as lenders, and Renaissance Capital
Group, Inc., as agent, and Frank Orzell [incorporated by
reference to Exhibit 10(s)(3) to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on July 11, 2001].
10(m)(4) Lock-Up Agreement, dated June 28, 2001 by and among
Renaissance US Growth & Income Trust PLC and BFSUS Special
Opportunities Trust PLC, as lenders, and Renaissance Capital
Group, Inc., as agent, and Ann Massey [incorporated by
reference to Exhibit 10(s)(4) to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on July 11, 2001].
-21-
10(n) Settlement Agreement, dated June 29, 2001, by and between the
Company and FINOVA Mezzanine Capital Inc. [incorporated by
reference to Exhibit 10(t) to the Registrant's Form 8-K
(Commission File No. 0-13124) filed on July 11, 2001].
21 Subsidiaries of the Registrant [incorporated by reference to
Exhibit 21 to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-13124) filed on April 11, 1996].
*23 Consent of Moore Stephens, P.C.
- ------------------------------
* Filed herewith
(b) REPORTS ON FORM 8-K
None.
-22-
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Independent Auditor...................................................................F-1
Consolidated Balance Sheets - December 31, 2001 and 2000........................................F-2
Consolidated Statements of Operations - Years ended December 31, 2001, 2000
and 1999........................................................................................F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) - Years ended
December 31, 2001, 2000 and 1999................................................................F-6
Consolidated Statements of Cash Flows - Years ended December 31, 2001,
2000 and 1999...................................................................................F-7
Notes to Consolidated Financial Statements......................................................F-9
Financial Statement Schedule II - Valuation and Qualifying Accounts............................F-25
-23-
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and the Board of Directors of
Cover-All Technologies Inc.
We have audited the accompanying consolidated balance sheets of Cover-All
Technologies Inc. and its subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2001. These consolidated financial statements and consolidated financial
statement schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Cover-All Technologies Inc. and its subsidiaries as of December 31, 2001 and
2000, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index to financial statements is
the responsibility of Cover-All Technologies Inc.'s management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
MOORE STEPHENS, P. C.
Certified Public Accountants.
New York, New York
March 15, 2002
F-1
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
------------
2 0 0 1 2 0 0 0
------- -------
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 430,545 $ 421,938
Accounts Receivable [Less Allowance for Doubtful Accounts
of $25,000 and $1,805,168 in 2001 and 2000, Respectively] 1,007,194 2,613,295
Other Receivable 5,101 285,000
Prepaid Expenses 306,999 251,272
--------------- ---------------
TOTAL CURRENT ASSETS 1,749,839 3,571,505
--------------- ---------------
PROPERTY AND EQUIPMENT - AT COST:
Furniture, Fixtures and Equipment 1,286,122 3,213,623
Less: Accumulated Depreciation (1,054,968) (2,901,335)
--------------- ---------------
PROPERTY AND EQUIPMENT - NET 231,154 312,288
--------------- ---------------
CAPITALIZED SOFTWARE [LESS ACCUMULATED AMORTIZATION OF
$4,844,612 AND $3,983,811 IN 2001 AND 2000, RESPECTIVELY] 1,202,818 1,197,821
--------------- ---------------
DEFERRED FINANCING COSTS [NET OF ACCUMULATED AMORTIZATION OF
$13,364 AND $-0-] 173,726 --
--------------- ---------------
OTHER ASSETS 59,335 59,335
--------------- ---------------
TOTAL ASSETS $ 3,416,872 $ 5,140,949
=============== ===============
See Notes to Consolidated Financial Statements.
F-2
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
------------
2 0 0 1 2 0 0 0
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY [DEFICIT]:
CURRENT LIABILITIES:
Accounts Payable $ 582,522 $ 1,023,316
Accrued Liabilities 442,524 616,980
Obligation Under Capital Lease 17,980 64,435
Unearned Revenue 1,821,221 1,788,324
--------------- ---------------
TOTAL CURRENT LIABILITIES 2,864,247 3,493,055
--------------- ---------------
LONG-TERM LIABILITIES:
Obligation Under Capital Lease -- 17,980
Convertible Debentures 1,800,000 3,000,000
--------------- ---------------
TOTAL LONG-TERM LIABILITIES 1,800,000 3,017,980
--------------- ---------------
TOTAL LIABILITIES 4,664,247 6,511,035
--------------- ---------------
COMMITMENTS AND CONTINGENCIES -- --
--------------- ---------------
STOCKHOLDERS' EQUITY [DEFICIT]:
Common Stock, $.01 Par Value, Authorized 75,000,000 Shares; 17,835,718 and
17,681,172 Shares Issued and 15,335,718 and 15,181,172 Shares Outstanding
in 2001 and 2000, Respectively 178,357 176,812
Capital In Excess of Par Value 26,130,604 26,064,149
Accumulated Deficit (26,853,336) (26,908,047)
Treasury Stock - At Cost - 2,500,000 Shares (703,000) (703,000)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY [DEFICIT] (1,247,375) (1,370,086)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY [DEFICIT] $ 3,416,872 $ 5,140,949
=============== ===============
See Notes to Consolidated Financial Statements.
F-3
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Y E A R S E N D E D
----------------------------------------------------
D E C E M B E R 3 1,
----------------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
REVENUES:
Licenses $ 297,980 $ 1,919,046 $ 2,638,190
Maintenance 4,716,074 4,023,304 4,371,273
Professional Services 1,248,893 2,020,822 4,018,684
--------------- ---------------- ---------------
TOTAL REVENUES 6,262,947 7,963,172 11,028,147
--------------- ---------------- ---------------
COSTS OF REVENUES:
Licenses 1,324,399 2,820,038 5,689,998
Maintenance 2,826,796 3,195,699 1,621,056
Professional Services 711,809 926,599 1,150,883
--------------- ---------------- ---------------
TOTAL COSTS OF REVENUES 4,863,004 6,942,336 8,461,937
--------------- ---------------- ---------------
DIRECT MARGIN 1,399,943 1,020,836 2,566,210
--------------- ---------------- ---------------
OPERATING EXPENSES:
Sales and Marketing 1,264,285 899,607 1,778,026
General and Administrative 1,365,821 1,961,716 1,550,040
Research and Development 413,364 875,114 1,008,770
Provision for Doubtful Accounts (58,161) (333,222) 1,239,843
Loss on Default of Note Receivable - Related Party -- 262,870 --
--------------- ---------------- ---------------
TOTAL OPERATING EXPENSES 2,985,309 3,666,085 5,576,679
--------------- ---------------- ---------------
OPERATING LOSS (1,585,366) (2,645,249) (3,010,469)
--------------- ---------------- ---------------
OTHER EXPENSE [INCOME]:
Interest Expense 266,226 385,003 389,939
Interest Income - Related Party Imputed -- (109,401) (186,375)
Interest Income (14,404) (8,633) (19,505)
Other Income [See Note 15] (225,127) -- --
--------------- ---------------- ---------------
TOTAL OTHER EXPENSE 26,695 266,969 184,059
--------------- ---------------- ---------------
FOREIGN CURRENCY TRANSACTION LOSS -- (3,898) (60,071)
--------------- ---------------- ---------------
LOSS BEFORE INCOME TAX BENEFIT (1,612,061) (2,916,116) (3,254,599)
INCOME TAX BENEFIT 862,772 503,936 435,066
--------------- ---------------- ---------------
NET LOSS BEFORE EXTRAORDINARY ITEM (749,289) (2,412,180) (2,819,533)
EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT
NET OF INCOME TAX OF $536,000 804,000 -- --
--------------- ---------------- ---------------
NET INCOME [LOSS] $ 54,711 $ (2,412,180) $ (2,819,533)
=============== ================ ===============
See Notes to Consolidated Financial Statements.
F-4
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------
Y E A R S E N D E D
----------------------------------------------------
D E C E M B E R 3 1,
----------------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
BASIC AND DILUTED EARNINGS [LOSS] PER
COMMON SHARE BEFORE EXTRAORDINARY ITEMS $ (.05) $ (.14) $ (.17)
EXTRAORDINARY ITEM .05 -- --
--------------- ---------------- ---------------
BASIC AND DILUTED EARNINGS [LOSS] PER COMMON
SHARE $ -- $ (.14) $ (.17)
=============== ================ ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING FOR BASIC EARNINGS [LOSS] PER
COMMON SHARE 15,246,000 17,386,000 16,998,000
=============== ================ ===============
See Notes to Consolidated Financial Statements.
F-5
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [DEFICIT]
- -------------------------------------------------------------------------------------------------------------------------
TOTAL
-----
CAPITAL IN STOCKHOLDERS'
---------- -------------
EXCESS OF ACCUMULATED TREASURY EQUITY
--------- ----------- -------- ------
COMMON STOCK PAR VALUE DEFICIT STOCK [DEFICIT]
------------ --------- ------- ----- ---------
BALANCE AT DECEMBER 31, 1998 $ 169,837 $ 26,723,397 $ (21,676,334) $ -- $ 5,216,900
Exercise of 20,000 Stock Options 200 39,800 -- -- 40,000
Net [Loss] -- -- (2,819,533) -- (2,819,533)
----------- ---------------- --------------- --------------- ---------------
BALANCE AT DECEMBER 31, 1999 170,037 26,763,197 (24,495,867) -- 2,437,367
Exercise of 12,500 Stock Options 125 19,406 -- -- 19,531
Issuance of 25,000 Shares 250 31,000 -- -- 31,250
Issuance of 640,000 Shares of Common
Stock Under the Vault Agreement
[See Note 11] 6,400 393,600 -- -- 400,000
Loss on Default of Care Note
[See Note 8] -- (1,143,054) -- -- (1,143,054)
Recording of 2,500,000 Shares of
Common Stock following Default of
Care Note [See Note 8] -- -- -- (703,000) (703,000)
Net [Loss] -- -- (2,412,180) -- (2,412,180)
----------- ---------------- --------------- --------------- ---------------
BALANCE AT DECEMBER 31, 2000 176,812 26,064,149 (26,908,047) (703,000) (1,370,086)
Issuance of 154,546 Shares of
Common Stock [See Note 13] 1,545 66,455 -- -- 68,000
Net Income -- -- 54,711 -- 54,711
----------- ---------------- --------------- --------------- ---------------
BALANCE AT DECEMBER 31, 2001 $ 178,357 $ 26,130,604 $ (26,853,336) $ (703,000) $ (1,247,375)
=========== ================ =============== =============== ===============
See Notes to Consolidated Financial Statements.
F-6
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
Y E A R S E N D E D
----------------------------------------------------
D E C E M B E R 3 1,
----------------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income [Loss] from Continuing Operations $ 54,711 $ (2,412,180) $ (2,819,533)
Adjustments to Reconcile Net Income [Loss] to Net
Cash Provided by [Used for] Operating Activities:
Depreciation 146,400 152,238 192,276
Amortization of Capitalized Software 860,801 899,240 478,990
Amortization of Deferred Financing Costs 13,364 -- --
Gain on Extinguishment of Convertible Debentures (1,340,000) -- --
Provision for Uncollectible Accounts (58,161) (333,222) 1,239,843
Imputed Interest Income -- (150,057) (198,307)
Deferred Tax Asset -- -- 400,000
Loss on Default of Note Receivable - Related Party -- 262,870 --
Changes in Assets and Liabilities:
[Increase] Decrease in:
Accounts Receivable 1,664,262 88,200 (114,923)
Prepaid Expenses (55,727) 113,920 (133,752)
Accrued Interest - Related Party Note Receivable -- 40,656 11,931
Other Receivable 279,899 (285,000) --
Other Assets -- -- 1,575
Increase [Decrease] in:
Accounts Payable (440,794) (62,079) 188,978
Accrued Liabilities (174,456) (269,870) (560,175)
Unearned Revenue 32,897 193,107 730,123
--------------- ---------------- ---------------
NET CASH PROVIDED FROM [USED FOR] CONTINUING
OPERATING ACTIVITIES 983,196 (1,762,177) (582,974)
--------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Repayment of Note Receivable - Related Party -- 750,000 1,000,000
Capital Expenditures (65,267) (22,961) (252,062)
Capitalized Software Expenditures (865,798) -- (1,388,672)
--------------- ---------------- ---------------
NET CASH [USED FOR] PROVIDED FROM INVESTING
ACTIVITIES (931,065) 727,039 (640,734)
--------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Convertible Debentures 1,800,000 -- --
Payment on Convertible Debentures (1,660,000) -- --
Deferred Financing Costs (187,090) -- --
Net Proceeds from the Issuance of Common Stock 68,000 431,250 --
Principal Payments on Capital Lease (64,434) (59,498) (37,109)
Proceeds from Exercise of Stock Options -- 19,531 40,000
--------------- ---------------- ---------------
NET CASH [USED FOR] PROVIDED FROM
FINANCING ACTIVITIES (43,524) 391,283 2,891
--------------- ---------------- ---------------
CHANGE IN CASH AND CASH EQUIVALENTS - FORWARD $ 8,607 $ (643,855) $ (1,220,817)
See Notes to Consolidated Financial Statements.
F-7
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
Y E A R S E N D E D
----------------------------------------------------
D E C E M B E R 3 1,
----------------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
CHANGE IN CASH AND CASH EQUIVALENTS - FORWARDED $ 8,607 $ (643,855) $ (1,220,817)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEARS 421,938 1,065,793 2,286,610
--------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS - END OF YEARS $ 430,545 $ 421,938 $ 1,065,793
=============== ================ ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the years for:
Interest $ 266,226 $ 385,003 $ 389,939
Income Taxes $ -- $ -- $ --
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In December 2000, Care defaulted on its obligation to pay to the Company
its semi-annual principal payment owed under the promissory note dated March 31,
1998. As result of Care's default, the Company wrote off the outstanding balance
of the Care note as of December 31, 2000. In accordance with the terms of the
agreement, the Company recorded the pledged 2,500,000 shares of its common stock
received from Care as treasury stock valued at approximately $703,000 based upon
the market price of the shares. The difference between the value of treasury
stock and the outstanding balance of the Care note as of December31, 2000, was
recorded as a loss of $262,870 in the fourth quarter of 2000 and $1,143,054 was
charged to additional paid-in capital [See Note 8].
During 1999, the Company entered into a capital lease for computer
equipment totaling $179,022.
See Notes to Consolidated Financial Statements.
F-8
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Cover-All Technologies Inc., through its wholly-owned
subsidiaries, licenses and maintains its software products for the
property/casualty insurance industry throughout the United States and Puerto
Rico. Cover-All Systems, Inc., a subsidiary, also provides professional
consulting services to its customers interested in customizing their software.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements are prepared
on the basis of generally accepted accounting principles and include the
accounts of Cover-All Technologies Inc. and its wholly-owned subsidiaries [the
"Company"]. All material intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES - Preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION - The Company's revenues are recognized in accordance with
SOP 97-2, "Software Revenue Recognition" ["SOP 97-2"], as amended by SOP 98-4,
"Deferral of the Effective Date of SOP 97-2, Software Revenue Recognition" and
SOP 98-9, "Modification of SOP 97-2 with Respect to Certain Transactions."
Revenue from the sale of software licenses is predominately from standardized
software and is recognized when standard software modules are delivered and
accepted by the customer, the fee is fixed or determinable and collectibility is
probable. Revenue from software maintenance contracts is recognized ratably over
the life of the contract. Revenue from professional consulting services is
recognized when the service is provided.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments,
with a maturity of three months or less when purchased, to be cash equivalents.
The Company has $291,000 and $78,000 of repurchase agreements at December 31,
2001 and 2000, respectively, with First Union National Bank. The repurchase
agreements are collateralized by at least an equal amount of U.S. Treasury
securities or U.S. Government agency securities. These agreements are usually
placed on an overnight basis.
RISK CONCENTRATIONS - Financial instruments which potentially subject the
Company to concentrations of credit risk consist principally of cash and cash
equivalents and trade accounts receivable. The amount of cash beyond insured
amounts at December 31, 2001 and 2000 was approximately $502,100 and $243,500,
respectively. The Company generally does not require collateral for its
financial instruments, other than repurchase agreements.
The Company places its cash and cash equivalents with high credit quality
institutions to limit its credit exposure. The Company believes no significant
concentration of credit risk exists with respect to these investments.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the wide variety of customers, principally major insurance
companies, who are dispersed across many geographic regions. As of December 31,
2001, seven customers accounted for approximately 52% of the Company's trade
accounts receivable portfolio. The Company routinely assesses the financial
strength of its customers and based upon factors concerning credit risk,
establishes an allowance for uncollectible accounts. Management believes that
accounts receivable credit risk exposure beyond such allowance is limited.
IMPAIRMENT - Long-lived assets of the Company are reviewed at least annually as
to whether their carrying value has become impaired pursuant to Statement of
Financial Accounting Standards ["SFAS"] No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No 121
requires long-lived assets, if impaired, to be remeasured at fair value,
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Management also reevaluates the periods of
amortization of long-lived assets to determine whether events and circumstances
warrant revised estimates of useful lives.
F-9
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
- --------------------------------------------------------------------------------
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
PROPERTY AND EQUIPMENT - Furniture, fixtures and equipment are carried at cost.
Depreciation is recorded on the straight-line method over three to ten years,
which approximates the estimated useful lives of the assets. Depreciation
expense in 2001, 2000 and 1999 was $146,400, $152,238 and $192,276,
respectively.
Routine maintenance and repair costs are charged to expense as incurred and
renewals and improvements that extend the useful life of the assets are
capitalized. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective account and any resulting gain
or losses reported as income and expense.
CAPITALIZED SOFTWARE - Costs for the internal development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs are capitalized. As the Company has completed its software
development concurrently with the establishment of technological feasibility, it
has commenced capitalizing these costs. Software development costs are the
Company's only research and development expenditures. During 2001, 2000 and
1999, qualifying software development costs of $865,798, $-0- and $1,388,672,
respectively, were capitalized and are amortized over a three-year period at the
greater of the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues for that product or the
straight-line method over the remaining estimated economic life of the product.
Amortization expense in 2001, 2000 and 1999 was $860,801, $899,240 and $478,990,
respectively.At each balance sheet date, the unamortized capitalized costs of
each computer software product is compared to the net realizable value of that
product. If an amount of unamortized capitalized costs of a computer software
product is found to exceed the net realizable value of that asset, such amount
will be written off. The net realizable value is the estimated future gross
revenues from that product reduced by the estimated future costs of completing
and disposing of that product, including the costs of performing maintenance and
customer support required to satisfy the Company's responsibility set forth at
the time of sale.
ADVERTISING EXPENSE - It is the Company's policy to expense advertising costs as
incurred. Advertising expense in 2001, 2000 and 1999 was $219,081, $132,297 and
$291,979, respectively.
INCOME TAXES - Pursuant to SFAS No. 109, "Accounting for Income Taxes," income
tax expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable]. Deferred tax
expense [or benefit] is the change during the year in a company's deferred tax
liabilities and assets. Deferred tax liabilities and assets are determined based
on differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
INCOME [LOSS] PER SHARE - The Company has adopted the provisions of SFAS No.
128. Basic earnings [loss] per share is computed by dividing income [loss]
available to common stockholders by the weighted average number of common shares
outstanding during the period. SFAS No. 128 also requires a dual presentation of
basic and diluted earnings per share on the face of the statement of operations
for all companies with complex capital structures. Diluted earnings per share
reflects the amount of earnings for the period available to each share of common
stock outstanding during the reporting period, while giving effect to all
dilutive potential common shares that were outstanding during the period, such
as common shares that could result from the potential exercise or conversion of
securities into common stock.
F-10
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
- --------------------------------------------------------------------------------
[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [CONTINUED]
INCOME [LOSS] PER SHARE [CONTINUED] - The computation of diluted earnings per
share does not assume conversion, exercise, or contingent issuance of securities
that would have an antidilutive effect on per share amounts [i.e., increasing
earnings per share or reducing loss per share]. The dilutive effect of
outstanding options and warrants and their equivalents are reflected in dilutive
earnings per share by the application of the treasury stock method which
recognizes the use of proceeds that could be obtained upon exercise of options
and warrants in computing diluted earnings per share. It assumes that any
proceeds would be used to purchase common stock at the average market price
during the period. Options and warrants will have a dilutive effect only when
the average market price of the common stock during the period exceeds the
exercise price of the options or warrants. The Company's options and warrants
were not included in the computation of loss per share for 2000 and 1999 because
to do so would have been antidilutive for these years.
The dilutive effect of convertible debt is reflected in diluted earnings per
share by the application of the if-converted method. The Company's convertible
debt does not affect the income [loss] per share calculation for 2001, 2000 and
1999 because it would be antidilutive for those years [See Note 6]. The
convertible debt could potentially dilute basic earnings per share in the
future.
STOCK-BASED COMPENSATION - The Company follows Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" [APB No. 25] with
regard to the accounting for its employee stock options. Under APB No. 25,
compensation expense is recognized only when the exercise price of options is
below the market price of the underlying stock on the date of grant. The Company
applies the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" to non-employee stock-based compensation and the pro forma
disclosure provisions of SFAS No. 123 to employee stock-based compensation.
[2] RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board ("FASB") approved SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
No. 144"). The Statement requires that long-lived assets to be disposed of other
than by sale be considered held and used until they are disposed of. SFAS No.
144 requires that long-lived assets to be disposed of by sale be accounted for
under the requirements of SFAS No. 121. SFAS No. 121 requires that such assets
be measured at the lower of carrying amounts or fair value less cost to sell and
to cease depreciation (amortization). SFAS No. 144 requires a
probability-weighted cash flow estimation approach in situations where
alternative courses of action to recover the carrying amount of a long-lived
asset are under consideration or a range of possible future cash flow amounts
are estimated. As a result, discontinued operations will no longer be measured
on a net realizable basis, and future operating losses will no longer be
recognized before they occur. Additionally, goodwill will be removed from the
scope of SFAS No. 144. As a result goodwill will no longer be required to be
allocated to long-lived assets to be tested for impairment. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. We are
currently in the process of evaluating the effect this new standard will have on
its consolidated financial position or results of operations.
On August 15, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations ("SFAS No. 143"). SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in the
period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 will be effective for
financial statements issued for fiscal years beginning after June 15, 2002. An
entity shall recognize the cumulative effect of adoption of SFAS No. 143 as a
change in accounting principle. The Company is not currently affected by this
Statement's requirements.
F-11
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
- --------------------------------------------------------------------------------
[2] RECENTLY ISSUED ACCOUNTING STANDARDS [CONTINUED]
In June 2001, the FASB issued SFAS No. 141 ("SFAS 141"), "Business
Combinations", and No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets",
collectively referred to as the "Standards". SFAS 141 supersedes Accounting
Principles Board Opinion (APB) No. 16, "Business Combinations". SFAS 141 (1)
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, (2) provides specific criteria for
the initial recognition and measurement of intangible assets apart from goodwill
and (3) requires that unamortized negative goodwill be written off immediately
as an extraordinary gain. SFAS 142 supersedes APB 17, "Intangible Assets," and
is effective for fiscal years beginning after December 15, 2001. SFAS 142
primarily addresses the accounting for goodwill and intangible assets subsequent
to their initial recognition. SFAS 142 (1) prohibits the amortization of
goodwill and indefinite-lived intangible assets, (2) requires testing of
goodwill and indefinite-lived intangible assets on an annual basis for
impairment (and more frequently if the occurrence of an event or circumstance
indicates an impairment), (3) requires that reporting units be identified for
the purpose of assessing potential future impairments of goodwill and (4)
removes the forty-year limitation on the amortization period of intangible
assets that have finite lives. The provisions of the Standards also apply to
equity-method investments made both before and after June 30, 2001. SFAS 141
requires that the unamortized deferred credit related to an excess over cost
arising from an investment acquired prior to July 1, 2001 accounted for using
the equity method (equity-method negative goodwill), must be written-off
immediately and recognized as the cumulative effect of a change in accounting
principle. Equity-method negative goodwill arising from equity investments made
after June 30, 2001 must be written-off immediately and recorded as an
extraordinary gain. The adoption of SFAS 141 did not have a material impact on
the Company's consolidated financial statements. The Company will adopt SFAS 142
on January 1, 2002. The Company does not believe that the adoption of the SFAS
142 will have a significant impact on its results of operations or financial
position.
The FASB is also considering the rescission of SFAS 4, "Recording Gains or
Losses for Extinguishment of Debt." When finally issued, the pronouncement may
prohibit classification of such gains or losses as extraordinary items.
[3] OBLIGATION UNDER CAPITAL LEASE
In April 1999, the Company acquired equipment under the provisions of a
long-term lease. For financial reporting purposes, minimum lease payments
relating to the equipment have been capitalized. The lease expires in April
2002. As of December 31, 2001, the leased equipment under capital lease had a
cost of $179,022 and accumulated depreciation of $92,504.
Amortization expense on lease assets which is included in depreciation expense
for the years ended December 31, 2001, 2000 and 1999 was $35,808, $35,808 and
$20,888, respectively.
The future minimum lease payments under capital lease and the net present value
of the future minimum lease payments as of December 31, 2001, for the next five
years and in the aggregate are as follows:
2002 $ 18,234
2003 --
2004 --
2005 --
2006 --
---------------
Total Minimum Lease Payments 18,234
Amount Representing Interest 254
---------------
Present Value of Net Minimum Lease Payments 17,980
Less: Current Portion 17,980
---------------
LONG-TERM CAPITAL LEASE OBLIGATION $ --
---------------------------------- ===============
F-12
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
- --------------------------------------------------------------------------------
[4] COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
OPERATING LEASES - The Company leases approximately 21,000 square feet of office
space under a lease which expires in May 2005. The lease includes escalation
clauses for increased real estate taxes, insurance and maintenance expenses. The
lease provides for a renewal period of five years.
Rent expense was $320,561, $308,853 and $289,720 for the years ended December
31, 2001, 2000 and 1999, respectively.
The Company's future minimum rental commitments under its noncancellable
operating lease in effect at December 31, 2001 were as follows: year ending 2002
- -- $325,250, 2003 -- $325,250, 2004 -- $325,250, 2005 -- $135,521, 2006 -- $-0-;
thereafter -- none.
EMPLOYMENT CONTRACTS - The Company has an employment contract with one of its
executives with an expiration date of December 31, 2003. This contract may be
renewed by the consent of both parties for an additional two year period. The
aggregate commitment for future salary at December 31, 2001 was approximately
$542,000. In accordance with a previous contract, the executive was issued
25,000 shares of the Company's common stock in January 2000.
RELATED PARTY TRANSACTIONS - An attorney associated with a former Chairman
provided legal services to the Company for which the Company incurred
approximately $-0-, $-0- and $15,000 in legal costs during 2001, 2000 and 1999,
respectively.
In 1998, the Company had an agreement with a consulting firm, in which a former
Chairman was Managing Partner, pursuant to which the Company paid the consulting
firm for the services of the former Chairman $12,500 per month, plus expenses
and a bonus payment of $50,000. In November 1999, the former Chairman resigned
and Mark Johnston, a director of the Company, was appointed Chairman.
In 1999, a director of the Company provided project management services for a
fee of approximately $307,000.
In 2001, 2000 and 1999, the Company paid Mark Johnston total consulting fees
plus expenses of approximately $100,000, $247,000 and $58,000, respectively [See
Notes 8 and 11 for additional related party disclosures].
[5] INCOME TAXES
An analysis of the components of the income tax provision [benefit] is as
follows:
Y e a r s e n d e d
-----------------------------------------------
D e c e m b e r 31,
-----------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Current:
Federal $ 455,600 $ -- $ --
State -- -- --
Utilization of Net Operating Loss Carryforward 80,400 -- --
------------- ------------- ---------------
Totals 536,000 -- --
------------- ------------- ---------------
Deferred:
Federal -- -- (340,000)
State 326,772 503,936 775,066
------------- ------------- ---------------
Totals 326,772 503,936 435,066
------------- ------------- ---------------
NET BENEFIT $ 862,772 $ 503,936 $ 435,066
----------- ============= ============= ===============
F-13
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
- --------------------------------------------------------------------------------
[5] INCOME TAXES [CONTINUED]
During 2001, 2000 and 1999, the Company availed itself of a program offered by
the State of New Jersey whereby it sold state net operating losses of
$4,173,333, $6,439,122 and $11,178,111, respectively, for $326,772, $503,936 and
$835,066, respectively. As of December 31, 2000, the amount due to the Company
under the program was $285,000 which is classified as other receivable and was
collected in February 2001.
The income tax [provision] benefit for continuing operations differs from the
amount computed by applying the statutory federal income tax rate as follows:
Y e a r s e n d e d
-------------------------------------------------
D e c e m b e r 31,
-------------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Computed Federal Statutory Tax Benefit $ 645,000 $ 928,000 $ 1,110,000
Valuation Allowance to Reduce Deferred Tax Asset (645,000) (928,000) (1,110,000)
Gain on Extraordinary Item 536,000 -- --
Increase [Reduction] in Deferred Tax Valuation
Allowance -- -- (400,000)
Sale of State Net Operating Loss Carryforward 326,772 503,936 835,066
--------------- -------------- ---------------
ACTUAL [PROVISION] BENEFIT $ 862,772 $ 503,936 $ 435,066
-------------------------- =============== ============== ===============
The components of the net deferred tax asset and liability were as follows:
Y e a r s e n d e d
-------------------------------------------------
D e c e m b e r 31,
-------------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Deferred Tax Assets - Current:
Accounts Receivable Allowance $ 10,000 $ 722,000 $ 630,000
Reserve for Loss on Disposal -- -- 32,000
Vacation Accrual 10,000 10,000 10,000
Valuation Allowance (20,000) (732,000) (672,000)
--------------- ------------- ---------------
CURRENT DEFERRED TAX ASSET $ -- $ -- $ --
-------------------------- =============== ============= ===============
Deferred Tax Asset [Liability] - Long-Term:
Net Operating Loss Carryforward $ 10,750,000 $ 9,030,000 $ 8,240,000
Stock Options 90,000 90,000 128,000
Capitalized Software (480,000) (554,000) (840,000)
Depreciation and Amortization 40,000 61,000 70,000
Valuation Allowance (10,400,000) (8,627,000) (7,598,000)
--------------- ------------- ---------------
LONG-TERM DEFERRED TAX LIABILITY $ -- $ -- $ --
-------------------------------- =============== ============= ===============
The net change increase during 2001 and 2000 in the total valuation allowance is
$1,061,000 and $1,089,000, respectively.
At December 31, 2001, the Company had approximately $26,500,000 of federal net
operating tax loss carryforwards expiring at various dates through 2016. The Tax
Reform Act of 1986 enacted a complex set of rules which limit a company's
ability to utilize net operating loss carryforwards and tax credit carryforwards
in periods following an ownership change. These rules define an ownership change
as a greater than 50 percent point change in stock ownership within a defined
testing period which is generally a three-year period. As a result of stock
which may be issued by the Company from time to time, including the stock which
may be issued related to the Company's outstanding convertible debentures [See
Note 10] and the conversion of the Company's warrants issued to Vault [See Note
11], or the result of other changes in ownership of the Company's outstanding
stock, the Company may experience an ownership change and consequently the
Company's utilization of its net operating loss carryforwards could be
significantly limited.
F-14
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
- --------------------------------------------------------------------------------
[6] STOCK OPTION AND STOCK PURCHASE PLANS
In March 1995, the Company adopted the 1995 Employee Stock Option Plan, which
was amended in April 1997 and June 2000. Options for the purchase of up to
5,000,000 shares may be granted by the Board of Directors to employees of the
Company at an exercise price determined by the Board of Directors on the date of
grant. Options may be granted as incentive or non-qualified stock options with a
term of not more than ten years. At December 31, 2001, 2000 and 1999, 2,340,525,
3,230,275 and 16,775 shares, respectively, were available for grant.
On November 15, 1994 the Company adopted the 1994 Stock Option Plan for
Independent Directors. Options for the purchase of up to 300,000 shares may be
granted to directors of the Company who are not employees ["non-employee
director"]. The Plan was amended in June 2000 to increase the aggregate number
of shares of common stock from 300,000 to 750,000. Each non-employee director
who is serving on "Date of Grant" shall automatically be granted an option to
purchase 10,000 shares of Common Stock at the fair market value of Common Stock
on the date the option is granted. Dates of Grant are November 15, 1994, 1999,
2004, and 2009 for non-employee directors serving on November 15, 1994. For
individuals who become non-employee directors after November 15, 1994, such
directors' Dates of Grant will be the date such individual becomes a director
and the fifth, tenth and fifteenth anniversaries of such date. Options are
exercisable in full 6 months after the applicable date of grant and expire 5
years after the date of grant. At December 31, 2001, 2000 and 1999, 740,000,
710,000 and 240,000 shares, respectively, were available for grant.
In October 1994, the Company adopted the 1994 Non-Qualified Stock Option Plan
for Consultants. Options for the purchase of up to 200,000 shares may be granted
by the Board of Directors to any individual who has entered into a written
consulting contract with the Company. The non-qualified stock options will have
up to a 5 year term from date of grant and will be exercisable at a price and
time as determined by the Board of Directors on the date of grant. At December
31, 2001, 2000 and 1999, 105,000, 105,000 and 105,000 shares, respectively, were
available for grant.
A summary of the changes in outstanding common stock options for all outstanding
plans is as follows:
Weighted-Average
----------------
Remaining Weighted-Average
--------- ----------------
Shares Per Share Contractual Life Exercise Price
------ --------- ---------------- --------------
Balance, December 31, 1998 1,580,500 1.25 - 5.00 2.8 years $ 1.77
Granted 275,000 1.25 - 1.75 4.9 years 1.30
Exercised (20,000) 2.00 - 2.00 2.00
Expired (90,000) 1.38 - 2.00 1.93
Balance, December 31, 1999 1,745,500 1.25 - 5.00 3.1 years $ 1.68
Granted 537,000 .63 - 1.25 2.9 years .95
Exercised (12,500) 1.56 - 1.56 1.56
Canceled (783,000) .63 - 5.00 1.84
Balance, December 31, 2000 1,487,000 .63 - 5.00 2.2 Years $ 1.34
Granted 949,000 .23 - .34 4.1 Years .32
Exercised -- -- --
Canceled (64,250) .63 - 1.94 1.22
Expired (25,000) 4.50 - 5.00 4.60
Balance, December 31, 2001 2,346,750 .23 - 4.00 2.30 Years $ .90
F-15
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
- --------------------------------------------------------------------------------
[6] STOCK OPTION AND STOCK PURCHASE PLANS [CONTINUED]
The options granted during 2001 are distributed as follows, relative to the
difference between the exercise price and the stock price at grant date:
Number Weighted-Average Weighted-Average
------ ---------------- ----------------
Granted Exercise Price Fair Value
------- -------------- ----------
Exercise Price at Stock Price 949,000 $ .32 $ .20
=============== ============ ===============
The options granted during 2000 are distributed as follows, relative to the
difference between the exercise price and the stock price at grant date:
Number Weighted-Average Weighted-Average
------ ---------------- ----------------
Granted Exercise Price Fair Value
------- -------------- ----------
Exercise Price at Stock Price 537,000 $ .95 $ .58
=============== ============ ===============
The options granted during 1999 are distributed as follows, relative to the
difference between the exercise price and the stock price at grant date:
Number Weighted-Average Weighted-Average
------ ---------------- ----------------
Granted Exercise Price Fair Value
------- -------------- ----------
Exercise Price at Stock Price 275,000 $ 1.30 $ .92
=============== ============ ===============
Exercisable options at December 31, 2001, 2000 and 1999 were as follows:
Number of Weighted-Average
--------- ----------------
December 31, Exercisable Options Exercise Price
- ------------ ------------------- --------------
2001 1,635,575 $ 1.13
2000 1,258,000 $ 1.43
1999 1,598,833 $ 1.71
The following table summarizes information about stock options at December 31,
2001:
Exercisable
Outstanding Stock Options Stock Options
------------------------------------------------------------- -----------------------------
Weighted-Average
----------------
Range of Remaining Weighted-Average Weighted-Average
-------- --------- ---------------- ----------------
Exercise Prices Shares Contractual Life Exercise Price Shares Exercise Price
--------------- ------ ---------------- -------------- ------ --------------
$ .23 - $ .34 949,000 4.1 Years $ .32 295,200 $ .33
$ .63 - $1.13 294,750 2.4 Years $ .84 237,375 $ .89
$ 1.25 - $1.25 893,000 .9 Years $ 1.25 893,000 $ 1.25
$ 2.00 - $2.13 205,000 .2 Years $ 2.00 205,000 $ 2.00
$ 4.00 - $4.00 5,000 4.3 Years $ 4.00 5,000 $ 4.00
---------- --------- -------- ---------- -------
2,346,750 2.3 Years $ .90 1,635,575 $ 1.13
========== ========= ======== ========== =======
F-16
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
- --------------------------------------------------------------------------------
[6] STOCK OPTION AND STOCK PURCHASE PLANS [CONTINUED]
The Company applies Accounting Principles Board Opinion No.25, Accounting for
Stock Issued to Employees, and related interpretations, for stock options issued
to employees in accounting for its stock option plans. The exercise price for
all stock options issued during 2001, 2000 and 1999 was equal to or greater than
the market price of the Company's stock at the date of grant. Accordingly, no
compensation expense has been recognized for the Company's stock-based
compensation plans for fiscal years 2001, 2000 and 1999.
There are approximately 640,000 warrants outstanding at December 31, 2001, at a
weighted-average exercise price of $.63.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The weighted average
fair value of stock options granted to employees used in determining pro forma
amounts is estimated at $.20, $.58 and $.92 during 2001, 2000 and 1999,
respectively.
Pro forma information regarding net income or loss and net income or loss per
share has been determined as if the Company had accounted for its employee stock
options under the fair value method prescribed under SFAS No. 123, Accounting
for Stock Based Compensation. The fair value of these options was estimated at
the date of grant using the Black-Scholes option-pricing model for the pro forma
amounts with the following weighted average assumptions:
D e c e m b e r 3 1,
-----------------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Risk-Free Interest Rate 3.00% 6.30% 5.97%
Expected Life 4.0 Years 4.0 Years 3.0 Years
Expected Volatility 86% 81% 81%
Expected Dividends None None None
The pro forma amounts are indicated below [in thousands, except per share
amounts]:
Y e a r s e n d e d
-----------------------------------------------------
D e c e m b e r 31,
-----------------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Net Income [Loss] as Reported $ .55 $ (2,412) $ (2,820)
Pro Forma Net [Loss] $ (1.25) $ (2,657) $ (2,915)
Income [Loss] Earnings Per Share as Reported $ -- $ (.14) $ (.17)
Pro Forma Income [Loss] Earnings Per Share $ (.01) $ (.14) $ (.17)
F-17
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
- --------------------------------------------------------------------------------
[7] EARNINGS PER SHARE DISCLOSURES
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ["EPS"] computations.
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
Numerator:
Net Income [Loss] $ 54,711 $ (2,412,180) $ (2,819,533)
Effect of Dilutive Securities:
Options -- -- --
Warrants -- -- --
-------------- -------------- --------------
NUMERATOR FOR DILUTED EARNINGS [LOSS] PER COMMON SHARE $ 54,711 $ (2,412,180) $ (2,819,533)
------------------------------------------------------ ============== ============== ==============
Denominator:
Weighted Average Number of Common Shares Outstanding
for Basic Earnings Per Common Share 15,246,000 17,386,000 16,998,000
Effect of Dilutive Securities:
Options 18,226 -- --
Warrants -- -- --
-------------- -------------- --------------
DENOMINATOR FOR DILUTED EARNINGS PER COMMON SHARE 15,264,226 17,386,000 16,998,000
------------------------------------------------- ============== ============== ==============
BASIC AND DILUTED EARNINGS [LOSS] PER COMMON SHARE $ -- $ (.14) $ .(17)
- -------------------------------------------------- ============== ============== ==============
Equity instruments that may dilute earnings per share in the future are listed
in Note 6.
Options to purchase 2,266,750 shares of common stock at prices ranging from $.31
to $4.00 per share were outstanding at December 31, 2001, but were not included
in the computation of diluted EPS because the options's exercise price was
greater than the average market price of the common shares.
[8] SALE OF STOCK AND WARRANTS, AND PURCHASE AND SALE OF CARE SOFTWARE LICENSE
On March 31, 1996, the Company was granted by Care the exclusive license for the
Care software systems for use in the workers' compensation claims administration
markets in Canada, Mexico and Central and South America. In exchange for this
license, the Company issued to Care 2,500,000 shares of the Company's Common
Stock at $2.00 per share to value the license as $5,000,000 at March 31, 1996.
The license agreement was revised on March 14, 1997, and the Company engaged
Care as its exclusive sales agent for a monthly fee of $10,000 against
commissions of 20%. Depending upon the level of revenue reached, or not reached,
under the license agreement, the Company had the right to repurchase all or
portions of the shares issued to Care at $.01 per share.
In the fourth quarter of 1997, the Company made a strategic decision to allocate
its future resources to its TAS and Classic product lines rather than the
product line obtained via the Care Software License. In this regard, on March
31, 1998, the Company negotiated a buy back by Care of the Care Software
License.
F-18
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
- --------------------------------------------------------------------------------
[8] SALE OF STOCK AND WARRANTS, AND PURCHASE AND SALE OF CARE SOFTWARE LICENSE
[CONTINUED]
For the buy back of Care Software License by Care, the Company received $500,000
on March 31, 1998, and a $4,500,000 non-interest bearing note, [the "Care Note"]
payable in semi-annual installments of $500,000 which, when discounted at 6%,
resulted in a principal amount of the note of $3,893,054. The discounted note
was collateralized by unencumbered Cover-All stock owned by Care and a Care
affiliate, Software Investments Limited ["SIL"]. The number of shares required
as collateral would vary, such that the market value of the shares held as
collateral must equal 150% of the outstanding balance. The number of shares
required as collateral was adjusted at each payment date based on the market
price of the Company's shares and the balance outstanding on the date. Based on
the market price of the Company's stock on March 30, 1998, approximately
1,700,000 shares were pledged as collateral. Upon receipt of the first $500,000
payment under the agreement on March 31, 1998, the Company lifted the
aforementioned $.01 per share stock repurchase restriction on the 2,500,000
shares. In November 1999, the Board of Directors decided that due to the undue
hardship placed upon Care by the pledged share requirement of the pledge
agreement given the then current price of the Company's common stock, and
because of Care's history of making each of the $500,000 payments on the
promissory note in a timely manner, that it would be in the best interests of
the Company to agree to allow Care to cap the number of shares of the Company's
common stock required to be pledged to the Company pursuant to the pledge
agreement to 2,500,000.
Based on the above, and due to the related party nature of the Care Software
License buy back agreement, the Company recorded the $1,143,054 difference
between the carrying value of the Care Software License at December 31, 1997 of
$3,250,000 and the discounted $4,393,054 buy back agreement amount to capital in
excess of par value.
In connection with the investment by Vault Management Limited [see Note 11],
one-half of the payment due September 30, 2000 on the Care note was deferred
until December 31, 2000. Care failed to make the scheduled payment of $250,000
due December 31, 2000 and on January 16, 2001, the Company announced that Care
had defaulted on its obligation to pay the Company its semi-annual principal
payment owed under the promissory note dated March 31, 1998. The Company
exercised its right to accelerate all remaining amounts due under the note,
which totaled $2,250,000. The Pledge Agreement between the Company and Care
provided that in the event of a default by Care, the Company can look to and
proceed against Care for payment. Care's 2,500,000 shares of the Company's
common stock were pledged to and held by the Company as collateral on the Care
note. In addition, the Company announced that, pursuant to the Pledge Agreement,
the Company on January 16, 2001 transferred and registered in its name the
2,500,000 shares of the Company's common stock owned by Care.
The balance of the undiscounted Care note at December 31, 2000 was $2,250,000,
of which $1,250,000 was classified as currently due. The discounted long-term
portion of the Care note at December 31, 2000 of $1,000,000 was $858,924, net of
unearned interest of $141,076. As a result of Care's default, the Company wrote
off the undiscounted current and discounted long-term portions of the Care note
for these amounts. The Company recorded 2,500,000 shares of its common stock
received from Care as treasury stock valued at the cost of $703,000. The
difference between the value of the treasury stock and the undiscounted current
and discounted long-term portions of the Care note of $1,405,924 was recorded as
a loss of $262,870 in the fourth quarter of 2000 and $1,143,054 to capital in
excess of par value at December 31, 2000 to offset the same amount recorded in
March 31, 1998.
F-19
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
- --------------------------------------------------------------------------------
[9] SUPPLEMENTAL DATA
Accrued liabilities consist of the following:
Years ended
-----------
December 31,
------------
2 0 0 1 2 0 0 0
------- -------
Accrued Payroll, Benefits, Temporary Help and Consulting $ 204,236 $ 230,874
Accrued Interest Costs -- 93,750
Accrued Professional Fees 183,637 185,923
Other 54,651 106,433
---------------- ---------------
TOTALS $ 442,524 $ 616,980
------ ================ ===============
[10] CONVERTIBLE DEBENTURES
On March 31, 1997, the Company sold $3,000,000 of 12.5% Convertible Debentures
due March 2002 [the "Debentures"] to an institutional investor. The Debentures
were sold at face value, pay interest quarterly and are convertible, in whole or
in part, into shares of Common Stock of the Company 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 with investors headed by the Renaissance Capital
Group, Inc. of Dallas, Texas. 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, Chairman of the Board, President and Chief Executive
Officer of the Company. 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. Amortization expense for the year ended
December 31, 2001 was $13,364.
Immediately upon its receipt of the funds, the Company used $1,660,000 of the
proceeds to fully settle its $3,000,000 principal amount 12.5% convertible
debentures, due in 2002. The remainder of the funds raised from the transaction
were to be used for working capital purposes. The new debentures, maturing in
2008, are convertible into shares of the Company's common stock, $.01 par value
per share, initially at $0.50 per share, subject to adjustment in accordance
with the terms of the parties' respective loan agreements. The Company
recognized an extraordinary gain on the extinguishment of debt of $804,000, net
of income taxes of $536,000, in June 2001.
As of September 30, 2001 and December 31, 2001, the Company was not in
compliance with the financial covenants of the Convertible Loan Agreements
pursuant to which an aggregate of $1.8 million of 8% convertible debentures were
issued and sold by the Company in June 2001. On September30, 2001, the Company
received Limited Waivers to the Loan Agreements under which the holders waived
the Company's non-compliance that existed up through and including September 30,
2001 under the financial covenant in the Loan Agreements. On December 31, 2001,
the Company received a similar waiver to the Loan Agreements under which the
holders waived the Company's non-compliance that existed up through and
including December 31, 2001.
F-20
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
- --------------------------------------------------------------------------------
[11] SALE OF STOCK AND WARRANTS, VAULT MANAGEMENT LIMITED
On June 21, 2000, the Company entered into an agreement with Vault Management
Limited ["Vault"] to purchase between 640,000 and 1,600,000 shares of the
Company's common stock at $.625 per share, which was the closing price per share
of the Company's common stock on May 30, 2000, the date the agreement was
reached.
The agreement would generate a minimum of $400,000 and a maximum of $1 million
in proceeds to the Company. The proceeds would be used for general working
capital purposes.
The agreement also called for the equivalent number of the Company's detachable
five-year warrants to be issued to Vault at an exercise price of $.625 per
share. The agreement provided that Vault shall have the option to make payments
beyond the required $400,000 in $200,000 installments each on August 31, 2000,
October 31, 2000 and November 30, 2000. Vault did not exercise its option to
make a payment of $200,000 on August 31, 2000, October 31, 2000 or November 30,
2000. The decision not to exercise Vault's options was mutually agreed upon by
Vault and the Company.
As part of the Vault transaction, the Company also agreed to modify the terms of
the Care Note such that the semi-annual principal payment of $500,000 due and
payable on September 30, 2000 shall be due and payable as to $250,000 on
September 30, 2000 and as to $250,000 on December 31, 2000. The Company received
the $250,000 payment on September 29, 2000. The Company did not receive the
payment due on December 31, 2000 [See Note 8]. Mr. Mark Johnston, the Company's
Chairman and Interim Chief Financial Officer at the time, was a director of both
Vault and Care.
[12] 401(K) PLAN
After completing a year of service and working 1,000 hours, employees age 21 and
over are eligible to participate in the Company's Tax Saver 401(k) Salary
Reduction Plan. Employees can save 1% to 15% of pay on a pre-tax basis to a
current annual maximum of $11,000. The Company matches $.50 for each $1.00 of
the first 5% of pay employees elect to defer. Expenses associated with this plan
in 2001, 2000 and 1999 were approximately $43,800, $77,400 and $70,300,
respectively.
[13] STOCKHOLDERS' EQUITY [DEFICIT]
During 2001, the Company issued 154,546 shares of common stock in exchange for
services rendered in connection with the debt restructuring described in Note
10. The cost of $68,000 for the services have been included in deferred
financing costs, and capital in excess of par value has been increased by
$66,455, representing the excess of the cost of the services over the par value
of the common stock issued.
[14] FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. In
assessing the fair value of its cash and cash equivalents, trade receivables and
accounts payables and accrued expenses, management concluded that the carrying
amount of these financial instruments approximates fair value because of their
short maturities. Management estimates that the carrying amount of its
convertible debentures, based on current rates and terms at which the Company
could borrow funds, is approximately $1,800,000 and $3,000,000 at December 31,
2001 and 2000, respectively.
F-21
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
- --------------------------------------------------------------------------------
[15] OTHER INCOME
Other income is comprised of a settlement of an outstanding customer dispute and
a favorable resolution of a liability related to the customer dispute.
[16] SEGMENT INFORMATION
At March 31, 2000, the Company merged the management teams and infrastructures
of its two business units to improve customer service. The Company will continue
to separately assess the performance of each of these products.
At December 31, 1999, the Company's two business units had distinct management
teams and infrastructures that offered different products and services which
were evaluated separately in assessing performance and allocating resources.
These business units have been reflected as two reportable segments, Classic and
TAS.
CLASSIC - The Classic product line is a self-contained rating, issuance and
transaction management application system utilized in the property/casualty
insurance industry.
TAS - TAS 2000 comprises an architecture and suite of application development
tools for property/casualty insurers designed to enable a client-driven
re-engineering of an insurer's business processes.
The following financial information is reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources. Interest income and interest expense are allocated based on revenues.
(Dollars in Thousands)
Year ended December 31, 2001
-------------------------------------------
Classic TAS Consolidated
------- --- ------------
Revenues $ 5,585 $ 678 $ 6,263
Operating Profit [Loss] 902 (2,487) (1,585)
Interest Expense 237 29 266
Interest Income 13 1 14
Depreciation and Amortization 85 936 1,021
Capital Expenditures 58 7 65
Capitalized Software Expenditures -- 866 866
Total Assets 3,047 370 3,417
(Dollars in Thousands)
Year ended December 31, 2000
-------------------------------------------
Classic TAS Consolidated
------- --- ------------
Revenues $ 6,772 $ 1,191 $ 7,963
Operating Profit [Loss] 1,787 (4,432) (2,645)
Interest Expense 327 58 385
Interest Income (100) (18) (118)
Depreciation and Amortization 59 992 1,051
Capital Expenditures 12 11 23
Capitalized Software Expenditures -- -- --
Total Assets 4,372 769 5,141
F-22
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #15
- --------------------------------------------------------------------------------
[16] SEGMENT INFORMATION [CONTINUED]
(Dollars in Thousands)
Year ended December 31, 1999
-------------------------------------------
Classic TAS Consolidated
------- --- ------------
Revenues $ 7,144 $ 3,884 $ 11,028
Operating Profit [Loss] 1,922 (4,932) (3,010)
Interest Expense 244 146 390
Interest Income 129 77 206
Depreciation and Amortization 63 608 671
Capital Expenditures 74 357 431
Capitalized Software Expenditures -- 1,389 1,389
Total Assets 5,925 3,222 9,147
MAJOR CUSTOMERS - The Company had a portion of its revenues from one major
customer in 2001 and 2000 and three major customers in 1999.
Y e a r s e n d e d
--------------------------------------------------------------------------------
D e c e m b e r 3 1,
--------------------------------------------------------------------------------
Customer 2 0 0 1 2 0 0 0 1 9 9 9
-------- ------- ------- -------
Classic TAS Classic TAS Classic TAS
------- --- ------- --- ------- ---
Accident Fund $ -- $ 678,147 $ -- $ 905,475 $ -- $ --
Cornhill Insurance Co. -- -- -- -- -- 1,335,559
Employers Reinsurance Corp. -- -- -- -- 1,245,777 --
Sierra Insurance Co. -- -- -- -- -- 1,558,572
The following table presents revenues by country based on the location of the
use of the product or service:
(Dollars in Thousands)
Y e a r s e n d e d
------------------------------------------
D e c e m b e r 3 1,
------------------------------------------
2 0 0 1 2 0 0 0 1 9 9 9
------- ------- -------
United Kingdom $ -- $ 284 $ 1,336
United States 6,263 7,679 9,692
-------------- ------------ -------------
TOTAL SALES $ 6,263 $ 7,963 $ 11,028
----------- ============== ============ =============
[17] SELECTED QUARTERLY FINANCIAL DATA [UNAUDITED]
The following is a summary of the selected quarterly financial data for the
years ended December 31, 2001 and 2000:
Quarter
----------------------------------------------------------
1st 2nd 3rd 4th
--- --- --- ---
Fiscal 2001:
Total Revenues $ 1,694 $ 1,497 $ 1,528 $ 1,544
Operating [Loss] (236) (629) (458) (262)
Extraordinary Item -- 804 -- --
Net Income [Loss] (98) 621 (495) 27
Basic and Diluted Earnings [Loss] Per
Common Share $ (0.01) $ 0.04 $ (0.03) $ --
============= =========== =========== ============
F-23
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #16
- --------------------------------------------------------------------------------
[17] SELECTED QUARTERLY FINANCIAL DATA [UNAUDITED] [CONTINUED]
QUARTER
-----------------------------------------------------------
1ST 2ND 3RD 4TH
--- --- --- ---
Fiscal 2000:
Total Revenues $ 2,279 $ 1,555 $ 2,233 $ 1,896
Operating [Loss] (725) (907) (137) (876)
Net Income [Loss] (778) (999) (215) (420)
Basic and Diluted Earnings [Loss] Per
Common Share $ (0.05) $ (0.06) $ (0.01) $ (0.02)
=========== =========== =========== ==========
. . . . . . . . . .
F-24
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
- -----------------------------------------------------------------------------------------------------------------------
Balance at
----------
Beginning Balance at
--------- ----------
of Period Additions Deductions End of Period
--------- --------- ---------- -------------
Accumulated amortization of
capitalized software and
software license:
Year Ended December 31, 2001 $ 3,983,811 $ 860,801 $ -- $ 4,844,612
Year Ended December 31, 2000 $ 3,084,571 $ 899,240 $ -- $ 3,983,811
Year Ended December 31, 1999 $ 2,605,581 $ 478,990 $ -- $ 3,084,571
Allowance for Doubtful Accounts:
Year Ended December 31, 2001 $ 1,805,168 $ (58,161) $ 1,722,007 $ 25,000
Year Ended December 31, 2000 $ 1,730,249 $ (333,222) $ (408,141) $ 1,805,168
Year Ended December 31, 1999 $ 476,000 $ 1,239,843 $ (14,406) $ 1,730,249
F-25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COVER-ALL TECHNOLOGIES INC.
Date: March 29, 2002 By: /s/ John Roblin
--------------------------------
John Roblin
Chairman of the Board of
Directors, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURES TITLE DATE
---------- ----- ----
/s/ John Roblin Chairman of the Board, President and March 29, 2002
- ------------------------------------ Chief Executive Officer
John Roblin (Principal Executive Officer)
/s/ Ann F. Massey Chief Financial Officer, Controller and March 29, 2002
- ------------------------------------ Secretary (Principal Financial Officer
Ann F. Massey and Principal Accounting Officer)
/s/ Russell Cleveland Director March 29, 2002
- ------------------------------------
Russell Cleveland
/s/ Earl Gallegos Director March 29, 2002
- ------------------------------------
Earl Gallegos
/s/ Mark D. Johnston Director March 29, 2002
- ------------------------------------
Mark D. Johnston
/s/ Robert A. Marshall Director March 29, 2002
- ------------------------------------
Robert A. Marshall
EXHIBIT INDEX
10(l)(9) Limited Waiver to Convertible Loan Agreements, dated as of
December 31, 2001, by Renaissance US Growth & Income Trust PLC
and BFSUS Special Opportunities Trust PLC.
23 Consent of Moore Stephens, P.C.