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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002 Commission File Number 0-13124
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COVER-ALL TECHNOLOGIES INC.
---------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 13-2698053
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
18-01 Pollitt Drive
Fair Lawn, New Jersey 07410
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (201) 794-4800
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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 and 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
--- ---
Number of shares outstanding at August 5, 2002:
15,335,718 shares of Common Stock, par value $.01 per share.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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INDEX TO FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002.
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PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (Unaudited)
and December 31, 2001 (Audited)..................................... 3
Consolidated Statements of Operations for the three and six months
ended June 30, 2002 and 2001 (Unaudited)............................ 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 2002 and 2001 (Unaudited)............................ 6
Notes to Consolidated Financial Statements (Unaudited).............. 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 11
ITEM 3. Qualitative and Quantitative Disclosures
About Market Risk................................................... 14
PART II: OTHER INFORMATION................................................... 15
ITEM 4. Submission of Matters to a Vote of Security Holders................. 15
ITEM 6. Exhibits and Reports on Form 8-K.................................... 15
SIGNATURES ............................................................... 16
. . . . . . . . . .
-2-
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
--------------------
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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JUNE 30, 2002 DECEMBER 31, 2001
------------------- --------------------
(UNAUDITED) (AUDITED)
ASSETS:
Current Assets:
Cash and Cash Equivalents......................................... $ 194,845 $ 430,545
Accounts Receivable (Less Allowance for Doubtful Accounts
of $25,000 and $25,000 in 2002 and 2001, respectively)......... 685,771 1,007,194
Other Receivable.................................................. 21,753 5,101
Prepaid Expenses.................................................. 194,173 306,999
------------------- --------------------
Total Current Assets.............................................. 1,096,542 1,749,839
------------------- --------------------
Property and Equipment-- At Cost:
Furniture, Fixtures and Equipment................................. 1,300,402 1,286,122
Less: Accumulated Depreciation................................... (1,109,806) (1,054,968)
------------------- --------------------
Property and Equipment-- Net....................................... 190,596 231,154
------------------- --------------------
Capitalized Software (Less Accumulated Amortization of
$5,237,662 and $4,844,612, respectively).......................... 1,385,275 1,202,818
------------------- --------------------
Deferred Financing Costs (Net of Accumulated Amortization of
$26,728 and $13,364, respectively)................................ 160,362 173,726
------------------- --------------------
Other Assets......................................................... 59,335 59,335
------------------- --------------------
Total Assets...................................................... $ 2,892,110 $ 3,416,872
=================== ====================
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
-3-
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
2002 2001
----------------- --------------------
(UNAUDITED) (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY [DEFICIT]:
Current Liabilities:
Accounts Payable.................................................. $ 438,720 $ 582,522
Accrued Liabilities............................................... 411,237 442,524
Obligation Under Capital Lease.................................... -- 17,980
Unearned Revenue.................................................. 1,544,394 1,821,221
----------------- --------------------
Total Current Liabilities......................................... 2,394,351 2,864,247
----------------- --------------------
Long-Term Liabilities:
Convertible Debentures............................................ 1,800,000 1,800,000
----------------- --------------------
Total Long-Term Liabilities....................................... 1,800,000 1,800,000
----------------- --------------------
Total Liabilities................................................. 4,194,351 4,664,247
----------------- --------------------
Commitments and Contingencies........................................ -- --
----------------- --------------------
Stockholders' Equity (Deficit):
Common Stock, $.01 Par Value, Authorized 75,000,000 Shares; 17,835,718 and
17,835,718 Shares Issued and 15,335,718 and
15,335,718 Shares Outstanding, Respectively..................... 178,357 178,357
Capital In Excess of Par Value....................................... 26,147,517 26,130,604
Accumulated Deficit.................................................. (26,919,477) (26,853,336)
Treasury Stock - At Cost - 2,500,000 Shares.......................... (703,000) (703,000)
Deferred Financing Costs............................................. (5,638) --
----------------- --------------------
Total Stockholders' Equity (Deficit)................................. (1,302,241) (1,247,375)
----------------- --------------------
Total Liabilities and Stockholders' Equity (Deficit)................. $ 2,892,110 $ 3,416,872
================= ====================
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
-4-
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -------------------------------
2002 2001 2002 2001
----------- ------------ ----------- ------------
REVENUES:
Licenses.................................. $ 106,000 $ 51,000 $ 336,500 $ 206,000
Maintenance............................... 1,093,302 1,069,646 2,184,639 2,125,187
Professional Services..................... 227,913 307,243 529,063 725,658
Applications Service Provider ("ASP")
Services............................. 132,951 69,120 246,934 134,490
----------- ------------ ----------- ------------
TOTAL REVENUES............................ 1,560,166 1,497,009 3,297,136 3,191,335
----------- ------------ ----------- ------------
COST OF REVENUES:
Licenses.................................. 304,786 371,619 605,989 708,466
Maintenance............................... 503,330 678,546 1,015,578 1,383,852
Professional Services..................... 113,331 175,904 250,342 377,554
ASP Services.............................. 47,349 44,381 85,703 88,596
----------- ------------ ----------- ------------
TOTAL COST OF REVENUES.................... 968,796 1,270,450 1,957,612 2,558,468
----------- ------------ ----------- ------------
DIRECT MARGIN............................. 591,370 226,559 1,339,524 632,867
----------- ------------ ----------- ------------
OPERATING EXPENSES:
Sales and Marketing....................... 279,713 391,297 510,422 670,917
General and Administrative................ 295,232 385,245 581,984 704,001
Research and Development.................. 127,887 79,539 239,816 206,197
Allowance for Doubtful Accounts........... -- -- -- (83,162)
----------- ------------ ----------- ------------
TOTAL OPERATING EXPENSES.................. 702,832 856,081 1,332,222 1,497,953
----------- ------------ ----------- ------------
OPERATING INCOME (LOSS)................... (111,462) (629,522) 7,302 (865,086)
----------- ------------ ----------- ------------
OTHER INCOME (EXPENSE):
Other Income.............................. -- -- -- 225,127
Interest Expense.......................... (37,102) (93,938) (74,182) (189,233)
Interest Income........................... 701 4,629 739 12,850
----------- ------------ ----------- ------------
TOTAL OTHER INCOME (EXPENSE).............. (36,401) (89,309) (73,443) 48,744
----------- ------------ ----------- ------------
INCOME (LOSS) BEFORE INCOME TAX
BENEFIT............................... (147,863) (718,831) (66,141) (816,342)
----------- ------------ ----------- ------------
INCOME TAX BENEFIT............................. -- 536,000 -- 536,000
----------- ------------ ----------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS..................................... $ (147,863) $ (182,831) $ (66,141) $ (280,342)
=========== ============ =========== ============
EXTRAORDINARY ITEM - GAIN ON
EXTINGUISHMENT OF DEBT (NET OF
INCOME TAX OF $536,000)................... -- 804,000 -- 804,000
----------- ------------ ----------- ------------
NET INCOME (LOSS).............................. $ (147,863) $ 621,169 $ (66,141) $ 523,658
=========== ============ =========== ============
BASIC AND DILUTED EARNINGS (LOSS) PER
COMMON SHARE BEFORE
EXTRAORDINARY ITEMS....................... $ (.01) $ (.01) $ -- $ (.02)
=========== ============ =========== ============
BASIC AND DILUTED EARNINGS (LOSS) PER
COMMON SHARE.............................. $ (.01) $ .04 $ -- $ .03
=========== ============ =========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING FOR BASIC
EARNINGS (LOSS) PER COMMON SHARE.......... 15,336,000 15,181,000 15,336,000 15,181,000
=========== ============ =========== ============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
-5-
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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SIX MONTHS ENDED JUNE 30,
-------------------------------------
2002 2001
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) from Operations....................................... $ (66,141) $ 523,658
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided From (Used For) Operating Activities:
Depreciation................................................. 54,838 76,160
Amortization of Capitalized Software......................... 393,050 449,619
Amortization of Deferred Financing Costs..................... 13,364 --
Gain on Extinguishment of Convertible Debentures............. -- (1,340,000)
Provision for Uncollectible Accounts......................... -- (83,162)
Non-cash Financing Cost...................................... 11,276 --
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable.......................................... 321,423 1,476,767
Prepaid Expenses............................................. 112,826 64,073
Other Receivable............................................. (16,652) 285,000
Increase (Decrease) in:
Accounts Payable............................................. (143,802) (228,050)
Accrued Liabilities.......................................... (31,287) (90,538)
Unearned Revenue............................................. (276,827) (194,229)
---------------- -----------------
Net Cash (Used For) Provided From Operating Activities.............. 372,068 939,228
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures................................................ (14,280) (61,038)
Capitalized Software Expenditures................................... (575,508) (499,406)
---------------- -----------------
Net Cash (Used For) Provided From Investing Activities.............. (589,788) (560,444)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Convertible Debentures................................ -- 1,800,000
Payment on Convertible Debentures................................... -- (1,660,000)
Deferred Financing Costs............................................ -- (170,852)
Principal Payments on Capital Lease................................. (17,980) (31,575)
---------------- -----------------
Net Cash (Used For) Provided From Financing Activities.............. (17,980) (62,427)
---------------- -----------------
CHANGE IN CASH AND CASH EQUIVALENTS....................................... (235,700) 316,357
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD........................... 430,545 421,938
---------------- -----------------
CASH AND CASH EQUIVALENTS - END OF PERIOD................................. $ 194,845 $ 738,295
================ =================
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
-6-
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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[1] GENERAL
For a summary of significant accounting policies, refer to Note 1 of Notes to
Consolidated Financial Statements included in Cover-All Technologies Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended December 31, 2001.
While the Company believes that the disclosures herein presented are adequate to
make the information not misleading, these consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's latest annual report. Certain amounts
for the prior period have been reclassified to conform with the current period's
financial statement presentation. The financial statements include on a
consolidated basis the results of all subsidiaries. All material intercompany
transactions have been eliminated.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments which are necessary to present fairly the Company's
consolidated financial position as of June 30, 2002, and the results of their
operations for the three and six month periods ended June 30, 2002 and 2001, and
their cash flows for the six month periods ended June 30, 2002 and 2001. Such
adjustments are of a normal and recurring nature. The results of operations for
the three and six month periods ended June 30, 2002 and 2001 are not necessarily
indicative of the results to be expected for a full year.
[2] CONVERTIBLE DEBENTURES
On March 31, 1997, the Company sold $3,000,000 of 12.5% Convertible Debentures
due March 2002 to an institutional investor. The debentures were sold at face
value, paid interest quarterly and were 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. ("Renaissance") 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.
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 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 (the "Loan Agreements"). On
September 30, 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.
In March 2002, the holders under the Loan Agreements agreed to an amendment of
the Loan Agreements pursuant to which one of the financial covenants was amended
for the quarters ending March 31, June 30 and September 30, 2002. As
consideration for such amendments, the Company issued to such holders an
aggregate of 128,572 warrants to purchase such number of shares of the Company's
Common Stock at an exercise price of $0.22 per share. The warrants shall expire
in five years and shall become exercisable in equal installments on each of
March 31, 2002, June 30, 2002 and September 30, 2002, respectively. The $16,913
estimated fair market value of the warrants have been charged to deferred
financing costs and will be amortized over the amendment period.
-7-
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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[3] SEGMENT INFORMATION
At March 31, 2000, the Company merged the management teams and infrastructures
of its two business units, Classic and TAS, to improve customer service. The
Company will continue to separately assess the performance of each of these
products.
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)
THREE MONTHS ENDED JUNE 30, 2002
--------------------------------------------------------------
CLASSIC TAS CONSOLIDATED
-------------------- --------------------- -------------------
Revenues..................................... $ 1,351 $ 209 $ 1,560
Operating Profit (Loss)...................... 92 (204) (112)
Interest Income.............................. 1 -- 1
Interest Expense............................. 32 5 37
Depreciation and Amortization................ 69 163 232
Capital Expenditures......................... 9 1 10
Capitalized Software Expenditures............ 300 -- 300
Income (Loss) before Income Tax Benefit...... 60 (208) (148)
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 2002
--------------------------------------------------------------
CLASSIC TAS CONSOLIDATED
-------------------- --------------------- -------------------
Revenues..................................... $ 2,852 $ 445 $ 3,297
Operating Profit (Loss)...................... 484 (477) 7
Interest Income.............................. 1 -- 1
Interest Expense............................. 64 10 74
Depreciation and Amortization................ 127 334 461
Capital Expenditures......................... 13 1 14
Capitalized Software Expenditures............ 576 -- 576
Income (Loss) before Income Tax Benefit...... 420 (486) (66)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED JUNE 30, 2001
--------------------------------------------------------------
CLASSIC TAS CONSOLIDATED
-------------------- --------------------- -------------------
Revenues..................................... $ 1,350 $ 147 $ 1,497
Operating Profit (Loss)...................... 13 (643) (630)
Interest Income.............................. 5 -- 5
Interest Expense............................. 85 9 94
Depreciation and Amortization................ 21 244 265
Capital Expenditures......................... 55 6 61
Capitalized Software Expenditures............ -- 254 254
Income (Loss) before Income Tax Benefit...... (67) (652) (719)
-8-
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 2001
--------------------------------------------------------------
CLASSIC TAS CONSOLIDATED
-------------------- --------------------- -------------------
Revenues..................................... $ 2,864 $ 327 $ 3,191
Operating Profit (Loss)...................... 428 (1,293) (865)
Interest Income.............................. 12 1 13
Interest Expense............................. 170 19 189
Depreciation and Amortization................ 38 488 526
Capital Expenditures......................... 55 6 61
Capitalized Software Expenditures............ -- 499 499
Income (Loss) before Income Tax Benefit...... 270 (1,086) (816)
[4] EARNINGS PER SHARE DISCLOSURES
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations:
FOR THE THREE MONTHS ENDED
JUNE 30, 2002
-------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ----------------- ---------------
Basic EPS:
Income Available to Common
Stockholders...................................... $ (147,863) 15,335,718 $ (0.01)
Effect of Dilutive Securities:
Options............................................ -- -- --
Warrants........................................... -- -- --
------------ ----------- ------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ (147,863) 15,335,718 $ (0.01)
============ =========== =============
FOR THE SIX MONTHS ENDED
JUNE 30, 2002
-------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ----------------- ---------------
Basic EPS:
Income Available to Common
Stockholders...................................... $ (66,141) 15,335,718 $ (0.00)
Effect of Dilutive Securities:
Options............................................ -- -- --
Warrants........................................... -- -- --
------------ ----------- ------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ (66,141) 15,335,718 $ (0.00)
============ =========== ============
-9-
FOR THE THREE MONTHS ENDED
JUNE 30, 2001
-------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ----------------- ---------------
Basic EPS:
Income Available to Common
Stockholders...................................... $ 621,169 15,181,172 $ 0.04
Effect of Dilutive Securities:
Options............................................ -- 5,073 --
Warrants........................................... -- -- --
------------ ----------- ------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ 621,169 15,186,245 $ 0.04
============ =========== ============
FOR THE SIX MONTHS ENDED
JUNE 30, 2001
-------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ----------------- ---------------
Basic EPS:
Income Available to Common
Stockholders...................................... $ 523,658 15,181,172 $ 0.03
Effect of Dilutive Securities:
Options............................................ -- 1,932 --
Warrants........................................... -- -- --
------------ ----------- ------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ 523,658 15,183,104 $ 0.03
============ =========== ============
The Company's options and warrants were not included in the computation of EPS
for the periods ended June 30, 2002 because to do so would be antidilutive. The
Company's convertible debt does not affect the EPS calculation for the periods
ended June 30, 2002 because it would be antidilutive.
Options to purchase 2,586,000 shares of common stock at prices ranging from $.34
to $4.00 per share were outstanding at June 30, 2001, but were not included in
the computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares for the period ($.33). The
Company's convertible debt does not affect the EPS calculation for the periods
ended June 30, 2001 because it would be antidilutive.
[5] 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.
[6] EXTRAORDINARY ITEMS
On June 28, 2001, the Company settled its $3,000,000 principal amount 12.5%
convertible debentures due in 2002 for $1,660,000. The transaction resulted in
an extraordinary gain of $804,000, net of income taxes of $536,000. Earnings per
share for the extraordinary gain was $.05.
-10-
ITEM 2:
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Total revenues for the three months ended June 30, 2002 were $1,560,000 as
compared to $1,497,000 for the same period in 2001. License fees were $106,000
for the three months ended June 30, 2002 compared to $51,000 in the same period
in 2001, as a result of new product sales in the second quarter of 2002. For the
three months ended June 30, 2002, maintenance revenues were $1,093,000 compared
to $1,070,000 in the same period of the prior year due to an increased Classic
customer base. Professional services revenue contributed $228,000 in the three
months ended June 30, 2002 compared to $307,000 in the second quarter of 2001.
For the three months ended June 30, 2002, ASP revenues were $133,000 as compared
to $69,000 in the same period for the prior year. Total Classic revenues were
$1,351,000 for the three months ended June 30, 2002 as compared to $1,350,000
for the three months ended June 30, 2001. Total TAS 2000 revenues were $209,000
for the three months ended June 30, 2002 as compared to $147,000 for the three
months ended June 30, 2001. For the six months ended June 30, 2002, total
revenues were $3,297,000 compared to $3,191,000 in the same period of the prior
year. Total Classic revenues were $2,852,000 for the six months ended June 30,
2002 as compared to $2,864,000 in the same period in 2001. Total TAS 2000
revenues were $445,000 for the first six months of 2002 as compared to $327,000
in the same period in 2001.
Cost of sales decreased to $969,000and $1,958,000 for the three and six months
ended June 30, 2002 as compared to $1,270,000 and $2,558,000 for the same
periods in 2001 due to staff and other cost reductions in the TAS 2000 division.
Non-cash capitalized software amortization was $201,000 and $393,000 for the
three and six months ended June 30, 2002 as compared to $225,000 and $450,000
for the same periods in 2001. The Company capitalized $300,000 and $576,000 of
software development costs in the three and six months ended June 30, 2002 as
compared to $254,000 and $499,000 in the same periods in 2001.
Research and development expenses were $128,000 and $240,000 for the three and
six months ended June 30, 2002 compared to $80,000 and $206,000 for the same
periods in 2001. The Company is continuing to enhance the functionality of its
products and to refine its processes in response to customer needs.
Sales and marketing expenses were $279,000 and $510,000 for the three and six
months ended June 30, 2002 as compared to $391,000 and $671,000 in the same
periods of 2001 primarily due to a decrease in advertising and promotion
expenses in 2002.
General and administrative expenses decreased to $295,000 and $582,000 in the
three and six months ended June 30, 2002 as compared to $385,000 and $704,000 in
the same periods in 2001 primarily due to a decrease in consulting and legal
costs in the first six months of 2002.
Other income was none for the three and six months ended June 30, 2002 as
compared to none and $225,000 in the same periods of 2001 due to the settlement
of an outstanding customer dispute and a favorable resolution of a liability
related to the customer dispute in 2001.
Extraordinary gain on extinguishment of debt was none for the three and six
months ended June 30, 2002 as compared to $804,000, net of income taxes of
$536,000, in the same periods of 2001 due to the settlement of $3,000,000
principal amount 12.5% convertible debenture due in 2002 for $1,660,000.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 2002, the Company had a working capital deficit of $(1,298,000)
compared to working capital deficit of $(821,000) in 2001.
-11-
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company believes that its current cash balances and anticipated cash flows
from operations will be sufficient to meet normal operating needs for the
Company in 2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
- ------------------------------------
On April 30, 2002, the Financial Accounting Standards Board ("FASB") issued
Statement No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13 and Technical Corrections."
Statement 145 rescinds Statement 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of any income tax effect. As a result the criteria in
Opinion No. 30 will now be used to classify those gains and losses. Statement 64
amended Statement 4 and is no longer necessary because Statement 4 has been
rescinded.
Statement 145 amended Statement 13 to require that certain lease modifications
that have economic effects similar to sale-leaseback transactions be accounted
for in the same manner as sale-leaseback transactions. This amendment is
consistent with the FASB's goal of requiring similar accounting treatment for
transactions that have similar economic effects.
This Statement also makes technical corrections to existing pronouncements.
While those corrections are not substantive in nature, in some instances, they
may change accounting practice.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities."
The Company expects that the adoption of these new statements will not have a
significant impact on its financial statements. It is not possible to quantify
the impact until the newly issued statements have been further studied.
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. The Company is
not currently affected by this Statement's requirements.
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
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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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 has adopted 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 for
Losses for Extinguishment of Debt." When initially issued, the pronouncement may
prohibit classification of such gains or losses as extraordinary items.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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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 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.
* * * * * * * * *
Statements in this Form 10-Q, other than statements of historical information
are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks which may cause the
Company's actual results in future periods to differ materially from expected
results. Those risks include, among others, risk associated with increased
competition, customer decisions, delays in productivity programs and new product
introductions, and other business factors beyond the Company's control. Those
and other risks are described in the Company's filings with the Securities and
Exchange Commission ("SEC") over the last 12 months, copies of which are
available from the SEC or may be obtained upon request from the Company.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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The Annual Meeting of Stockholders of Cover-All Technologies Inc. was held on
June 20, 2002 (the "Meeting"). At the Meeting, the stockholders of the Company
elected two directors, Earl Gallegos and Mark D. Johnston, to serve for a
three-year term and until their successors have been duly elected and qualified.
Indicated below are the total votes cast in favor of each of the director
nominees and the total votes withheld:
Director Votes for Votes Against Votes Withheld
- -------- --------- ------------- --------------
Earl Gallegos 12,723,440 -- 18,445
Mark D. Johnston 12,713,728 -- 28,157
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) EXHIBITS.
99.1 Certification of John W. Roblin pursuant to 18 U.S.C 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification of Ann Massey pursuant to 18 U.S.C 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) REPORTS ON FORM 8-K.
None.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COVER-ALL TECHNOLOGIES INC.
Date: August 14, 2002 By: /s/ John Roblin
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John Roblin, Chairman of the Board of Directors,
President and Chief Executive Officer
Date: August 14, 2002 By: /s/ Ann Massey
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Ann Massey, Chief Financial Officer
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