Back to GetFilings.com
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 March 31, 2003 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 OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (201) 794-4800
--------------
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 May 5, 2003:
15,336,218 shares of Common Stock, par value $.01 per share.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------
INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003.
- ---------------------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2003 (Unaudited)
and December 31, 2002 (Audited).............................................. 3
Consolidated Statements of Operations for the three
months ended March 31, 2003 and 2002 (Unaudited)............................. 5
Consolidated Statements of Cash Flows for the three
months ended March 31, 2003 and 2002 (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............................................................ 13
ITEM 4. Controls and Procedures...................................................... 13
PART II: OTHER INFORMATION............................................................ 14
ITEM 6. Exhibits and Reports on Form 8-K............................................. 14
SIGNATURES............................................................................ 15
ADDENDUM: Sarbanes-Oxley Section 302(a) Certifications:
Certification of John Roblin................................................. 16
Certification of Ann Massey.................................................. 17
. . . . . . . . . .
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
--------------------
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2003 2002
-------------- --------------
(UNAUDITED) (AUDITED)
ASSETS:
Current Assets:
Cash and Cash Equivalents......................................... $ 1,495,783 $ 2,063,411
Accounts Receivable (Less Allowance for Doubtful Accounts
of $25,000 and $25,000 in 2003 and 2002, respectively)......... 1,052,196 1,021,873
Other Receivable.................................................. -- 240,672
Prepaid Expenses.................................................. 350,312 453,007
-------------- --------------
Total Current Assets.............................................. 2,898,291 3,778,963
-------------- --------------
Property and Equipment -- At Cost:
Furniture, Fixtures and Equipment................................. 1,350,988 1,309,938
Less: Accumulated Depreciation................................... (1,176,840) (1,156,338)
-------------- --------------
Property and Equipment -- Net...................................... 174,148 153,600
-------------- --------------
Capitalized Software (Less Accumulated Amortization of
$5,795,564 and $5,675,257, respectively).......................... 1,429,328 1,398,333
-------------- --------------
Deferred Financing Costs (Net of Accumulated Amortization of
$51,291 and $42,673, respectively)................................ 190,020 198,638
-------------- --------------
Other Assets......................................................... 59,335 59,335
-------------- --------------
Total Assets...................................................... $ 4,751,122 $ 5,588,869
============== ===============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
3
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2003 2002
-------------- --------------
(UNAUDITED) (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Accounts Payable.................................................. $ 80,985 $ 276,618
Income Taxes Payable.............................................. 113,968 90,000
Accrued Liabilities............................................... 329,228 723,688
Unearned Revenue.................................................. 1,838,356 2,352,462
-------------- --------------
Total Current Liabilities......................................... 2,362,537 3,442,768
-------------- --------------
Long-Term Liabilities:
Convertible Debentures............................................ 2,500,000 2,500,000
-------------- --------------
Total Liabilities................................................. 4,862,537 5,942,768
-------------- --------------
Commitments and Contingencies........................................ -- --
-------------- --------------
Stockholders' Equity (Deficit):
Common Stock, $.01 Par Value, Authorized 75,000,000 Shares;
17,836,218 and 17,835,718 Shares Issued and 15,336,218 and
15,335,718 Shares Outstanding, Respectively..................... 178,362 178,357
Capital In Excess of Par Value....................................... 26,147,647 26,147,517
Accumulated Deficit.................................................. (25,734,424) (25,976,773)
Treasury Stock - At Cost - 2,500,000 Shares.......................... (703,000) (703,000)
-------------- --------------
Total Stockholders' Equity (Deficit)................................. (111,415) (353,899)
-------------- --------------
Total Liabilities and Stockholders' Equity (Deficit)................. $ 4,751,122 $ 5,588,869
============== ==============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
4
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
-----------------------------------
2003 2002
--------------- ---------------
REVENUES:
Licenses................................................. $ 230,500 $ 230,500
Maintenance.............................................. 1,121,343 1,091,337
Professional Services.................................... 541,000 301,150
Applications Service Provider ("ASP") Services........... 165,500 113,983
--------------- ---------------
TOTAL REVENUES........................................... 2,058,343 1,736,970
--------------- ---------------
COST OF REVENUES:
Licenses................................................. 207,924 301,203
Maintenance.............................................. 665,720 512,248
Professional Services.................................... 147,179 137,011
ASP Services............................................. 61,107 38,354
--------------- ---------------
TOTAL COST OF REVENUES................................... 1,081,930 988,816
--------------- ---------------
DIRECT MARGIN............................................ 976,413 748,154
--------------- ---------------
OPERATING EXPENSES:
Sales and Marketing...................................... 200,657 230,709
General and Administrative............................... 303,086 286,753
Research and Development................................. 160,344 111,928
--------------- ---------------
TOTAL OPERATING EXPENSES................................. 664,087 629,390
--------------- ---------------
OPERATING INCOME......................................... 312,326 118,764
--------------- ---------------
OTHER INCOME (EXPENSE):
Interest Expense......................................... (50,428) (37,080)
Interest Income.......................................... 4,419 38
--------------- ---------------
TOTAL OTHER INCOME (EXPENSE)............................. (46,009) (37,042)
--------------- ---------------
INCOME BEFORE INCOME TAXES............................... 266,317 81,722
INCOME TAXES.................................................. 23,968 --
--------------- ---------------
NET INCOME.................................................... $ 242,349 $ 81,722
=============== ===============
BASIC EARNINGS PER COMMON SHARE............................... $ .02 $ .01
=============== ===============
DILUTED EARNINGS PER COMMON SHARE............................. $ .01 $ .01
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING FOR BASIC EARNINGS
PER COMMON SHARE......................................... 15,336,000 15,336,000
=============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING FOR DILUTED EARNINGS
PER COMMON SHARE......................................... 23,993,000 15,338,000
=============== ===============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
5
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31,
-----------------------------------
2003 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from Operations.............................................. $ 242,349 $ 81,722
Adjustments to Reconcile Net Income to
Net Cash Provided From (Used For) Operating Activities:
Depreciation................................................. 20,502 29,750
Amortization of Capitalized Software......................... 120,307 192,255
Amortization of Deferred Financing Costs..................... 8,618 6,682
Non-cash Financing Cost...................................... -- 5,638
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable.......................................... (30,323) 158,665
Prepaid Expenses............................................. 102,695 16,106
Other Receivable............................................. 240,672 (24,311)
Increase (Decrease) in:
Accounts Payable............................................. (195,633) (192,593)
Taxes Payable................................................ 23,968 --
Accrued Liabilities.......................................... (394,460) (75,875)
Unearned Revenue............................................. (514,106) (244,423)
--------------- ---------------
Net Cash (Used For) Provided From Operating Activities.............. (375,411) (46,384)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures................................................ (41,050) (3,620)
Capitalized Software Expenditures................................... (151,302) (275,647)
--------------- ---------------
Net Cash (Used For) Provided From Investing Activities.............. (192,352) (279,267)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Capital Lease................................. -- (16,928)
Proceeds from Exercise of Stock Options............................. 135 --
--------------- ---------------
Net Cash Provided From (Used For) Financing Activities.............. 135 (16,928)
--------------- ---------------
CHANGE IN CASH AND CASH EQUIVALENTS....................................... (567,628) (342,579)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD........................... 2,063,411 430,545
--------------- ---------------
CASH AND CASH EQUIVALENTS - END OF PERIOD................................. $ 1,495,783 $ 87,966
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIODS FOR:
Interest............................................................ $ 50,428 $ 37,080
Income Taxes........................................................ -- --
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)
- --------------------------------------------------------------------------------
[1] GENERAL
For a summary of significant accounting policies, refer to Note 1 of Notes to
Consolidated Financial Statements included in Cover-All Technologies Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended December 31, 2002.
While 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 March 31, 2003, and the results of their
operations for the three month periods ended March 31, 2003 and 2002, and their
cash flows for the three month periods ended March 31, 2003 and 2002. Such
adjustments are of a normal and recurring nature. The results of operations for
the three month periods ended March 31, 2003 and 2002 are not necessarily
indicative of the results to be expected for a full year.
[2] CONVERTIBLE DEBENTURES
On March 31, 1997, the Company sold $3,000,000 of 12.5% Convertible Debentures
due March 2002 (the "1997 Debentures") to an institutional investor. The 1997
Debentures were sold at face value, pay 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 due 2008 (the "2001 Debentures") with investors
headed by the Renaissance Capital Group, Inc. of Dallas, Texas pursuant to
Convertible Loan Agreements entered to with each of the investors. An aggregate
of $1,400,000 was sold to the Renaissance US Growth and Income Trust PLC (traded
on the London Stock Exchange) and BFS US Special Opportunities Trust PLC, which
are managed by Renaissance. Also, an aggregate of $400,000 was sold to three
other private investors including John Roblin, the Company's Chairman of the
Board, President and Chief Executive Officer. The related financing costs
incurred of $187,090 in connection with establishing these debentures have been
deferred and are being amortized over the life of the debt.
Immediately upon receipt of the funds, the Company used $1,660,000 of the
proceeds to fully settle the remaining principal amount of the 1997 Debentures.
The Company recognized a gain on the extinguishment of debt of $1,340,000 in
June 2001. The balance of the funds raised from the transaction were used for
working capital purposes. The 2001 Debentures are convertible into shares of our
common stock, initially at $0.50 per share, subject to adjustment in accordance
with the terms of the parties' respective loan agreements.
As of September 30, 2001 and December 31, 2001, the Company was not in
compliance with the financial covenants of the Convertible Loan Agreements. On
September 30, 2001, the Company received limited waivers to the Convertible 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 Convertible Loan Agreements. On December 31, 2001, the Company received a
similar waiver to the Convertible Loan Agreements under which the holders waived
our non-compliance that existed up through and including December 31, 2001.
In March 2002, the holders under the Convertible Loan Agreements agreed to amend
one of the financial covenants for the quarters ending March 31, June 30 and
September 30, 2002. As consideration for such amendments, the Company issued to
such holders an aggregate of 128,572 warrants to purchase such number of shares
of our common stock at an exercise price of $0.22 per share. The warrants expire
in five years and became exercisable in equal monthly installments on each of
March 31, 2002, June 30, 2002 and September 30, 2002, respectively. The $16,913
estimated fair market value of the warrants has been charged to deferred
financing costs and will be amortized over the amendment period.
7
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
On August 21, 2002, the Company, by amendment to the 2001 Debentures, raised an
additional $700,000 through a private placement of 8% convertible debentures
with Renaissance (the "2002 Debentures"). An aggregate of $700,000 was sold to
Renaissance US Growth and Income Trust PLC and BFSUS Special Opportunities Trust
PLC. The funds raised from the transaction were used for working capital
purposes. The 2002 Debentures are convertible into shares of our common stock
initially at $0.30 per share, subject to adjustment. The related financing costs
incurred of $54,220 in connection with establishing the 2002 Debentures have
been deferred and are being amortized over the life of the debt. The Convertible
Loan Agreements currently prohibit the payment of dividends without written
consent of the holders.
The issuance of the 2002 Debentures caused a reduction in the conversion price
of the 2001 Debentures from $0.50 per share to $0.30 per share.
At December 31, 2002 and March 31, 2003, the Company was in compliance with the
financial covenants of the Convertible Loan Agreements.
The Company's convertible debentures mature as follows:
Maturity Principal Due
-------- -------------
2001 Debentures 2008 $ 1,800,000
2002 Debentures 2009 700,000
---------------
$ 2,500,000
[5] SEGMENT INFORMATION
As of January 1, 2003, the Company merged the management teams and
infrastructures of its two business units, Classic and TAS, into one
comprehensive unit. As a result, the Company will no longer separately assess
the performance of these products.
[6] 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
MARCH 31, 2003
----------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------------ ------------------ ------------------
Basic EPS:
Income Available to Common
Stockholders...................................... $242,349 15,336,218 $ 0.02
Interest Reversal Convertible Debentures
(Net of Tax)....................................... 30,000 -- --
Effect of Dilutive Securities:
Exercise of Options................................ -- 255,987 --
Exercise of Warrants............................... -- 67,081 --
Conversion of Convertible Debentures................. -- 8,333,333 --
------------- ------------- -----------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $272,349 23,992,619 $ .01
============= ============= ===========
8
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
MARCH 31, 2002
----------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------------ ------------------ ------------------
Basic EPS:
Income Available to Common
Stockholders...................................... $ 81,722 15,335,718 $ 0.01
Effect of Dilutive Securities:
Exercise of Options................................ -- 2,292 --
Exercise of Warrants............................... -- -- --
------------- ------------- -----------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ 81,722 15,338,010 $ 0.01
============= ============= ===========
Options to purchase 1,285,750 shares of common stock at prices ranging from $.60
to $4.00 per share were outstanding at March 31, 2003, but were not included in
the computation of diluted EPS because the options' exercise price was greater
than the average market price of the common shares for the period ($.46).
The Company's convertible debt does not affect the EPS calculation for the
period ended March 31, 2002 because it would be antidilutive.
[7] STOCK OPTION AND STOCK PURCHASE PLANS
The Company has adopted several stock-based compensation plans that provide for
the grant of options to employees and non-employee directors of the Company. All
options under these plans vest over terms of zero to three years. Options may be
granted as incentive or non-qualified stock options and are exercisable at a
price and time as determined by the Board of Directors on the grant date.
The Company accounts for stock-based employee compensation using the intrinsic
value method in accordance with APB Opinion No. 25 and related interpretations
which generally require that the amount of compensation cost that must be
recognized, if any, is the quoted market price of the stock on the measurement
date, which is generally the grant date, less the amount the grantee is required
to pay to acquire the stock. Alternatively, Statement of Financial Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation," employs fair
value-based measurement and generally results in the recognition of compensation
expense for all stock-based awards to employees. SFAS No. 123 does not require
an entity to adopt those provisions, but, rather, permits continued application
of APB Opinion No.25. The Company has elected not to adopt the recognition and
measurement provisions of SFAS No. 123 and continues to account for its
stock-based employee compensation plans under APB Opinion and related
interpretations. In accordance with APB Opinion No. 25, deferred compensation is
generally recorded for stock-based employee compensation grants based on the
excess of the market value of the common stock on the measurement date over the
exercise price. If the exercise price of the stock-based compensation is equal
to or exceeds the market price of the Company's common stock on the grant date,
no compensation expense is recorded.
For the three months ended March 31, 2003 and 2002, the Company was not required
to record compensation expense for stock option grants.
9
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
Had compensation cost for the stock-based employee compensation plans been
determined based on the fair values of awards on the grant date, estimated using
the Black-Scholes option pricing model, which would be consistent with the
method described in SFAS No. 123, the Company's reported net income (loss) and
earnings (loss) per share would have been reduced to the pro forma amounts shown
below:
THREE MONTHS ENDED MARCH 31,
----------------------------------------
2003 2002
---------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Income (Loss) as Reported........................... $ 242 $ 82
Pro Forma Net Income (Loss)............................. $ 186 $ 51
Basic Earnings (Loss) Per Share as Reported............. $ 0.02 $ 0.01
Pro Forma Basic Earnings (Loss) Per Share............... $ 0.01 $ 0.00
Diluted Earnings (Loss) Per Share As Reported........... $ 0.01 $ 0.01
Pro Forma Diluted Earnings (Loss) Per Share............. $ 0.01 $ 0.00
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transaction and Disclosure - An
Amendment of FASB Statement No. 123." This Statement provides alternative
accounting for stock-based employee compensation and requires prominent
disclosures in both annual and interim financial statements about the method
used in reporting results. The Company has elected not to adopt the recognition
and measurement provisions of SFAS No. 123 and continues to account for its
stock-based employee compensation plans under APB Opinion No. 25 and related
interpretations and, therefore, the transaction provisions will not have an
impact on the Company's financial position or results of operations. The
required expanded interim disclosures are provided above.
10
ITEM 2:
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Total revenues for the three months ended March 31, 2003 were $2,058,000 as
compared to $1,737,000 for the same period in 2002. License fees were $231,000
for the three months ended March 31, 2003 compared to $231,000 in the same
period in 2002. For the three months ended March 31, 2003, maintenance revenues
were $1,121,000 compared to $1,091,000 in the same period of the prior year.
Professional services revenue contributed $541,000 in the three months ended
March 31, 2003 compared to $301,000 in the first quarter of 2002, as a result of
increased demand for customization from the Company's current customer base. For
the three months ended March 31, 2003, ASP revenues were $165,000 as compared to
$114,000 in the same period for the prior year.
Cost of sales increased to $1,082,000 for the three months ended March 31, 2003
as compared to $989,000 for the same period in 2002 due to staff related
expenses. Non-cash capitalized software amortization was $120,000 for the three
months ended March 31, 2003 as compared to $192,000 for the same period in 2002.
The Company capitalized $151,000 of software development costs in the first
three months of 2003 as compared to $276,000 in the same period in 2002.
Research and development expenses were $160,000 for the three months ended March
31, 2003 compared to $112,000 for the same period in 2002. The increase in
research and development expenses is primarily due to staff related expenses.
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 $201,000 for the three months ended March 31,
2003 as compared to $231,000 in the same period of 2002 primarily due to a
decrease in staff related expenses in 2003.
General and administrative expenses increased to $303,000 in the three months
ended March 31, 2003 as compared to $287,000 in the same period in 2002
primarily due to an increase in legal costs in the first three months of 2003.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, the Company had a working capital of $536,000 compared to
working capital deficit of $(1,078,000) in 2002.
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 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
On April 30, 2002, the "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 FASB's goal of requiring similar accounting treatment for
transactions that have similar economic effects.
11
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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.
FASB has issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS
No. 146 addresses significant issues regarding the recognition, measurement, and
reporting of costs that are associated with exit and disposal activities,
including restructuring activities that are currently accounted for pursuant to
the guidance that the Emerging Issues Task Force ("EITF") of the FASB as set
forth in EITF Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The scope of SFAS No. 146 also includes (1)
costs related to terminating a contract that is not a capital lease and (2)
termination benefits that employees who are involuntarily terminated receive
under the terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred compensation contract. SFAS No. 146 will
be effective for exit or disposal activities initiated after December 31, 2002.
We believe that the adoption of SFAS No. 146 will not have a material effect on
our financial position or results of operations.
The FASB has issued SFAS No. 147, "Acquisitions of Certain Financial
Institutions," which is effective for certain transactions arising on or after
October 1, 2002. SFAS No. 147 will have no impact on us.
The FASB has issued SFAS No. 148 "Accounting for Stock-Based Compensation -
Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
Company has adopted the disclosure requirements of SFAS No. 148. The Company
currently accounts for stock-based employee compensation in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, the alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation mandated by SFAS No. 148 are not applicable to us at this
time.
FASB Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of
FASN Interpretation No. 34," was issued in November 2002. FIN 45 elaborates on
the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. FIN 45 does not prescribe a specific approach for
subsequently measuring the guarantor's recognized liability over the term of the
related guarantee. The initial recognition and initial measurement provisions of
FIN 45 are applicable on a prospective basis to guarantees issued or modified
after December 31, 2002, irrespective of the guarantor's fiscal year end. The
disclosure requirements in FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. We have made the
disclosures required by FIN 45.
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities - an interpretation of ARB No. 51," was issued in January 2003. FIN 46
requires existing unconsolidated variable interest entities to be consolidated
by their primary beneficiaries if the entities do not effectively disperse risks
among parties involved. FIN 46 applies immediately to variable interest entities
created after January 31, 2003 and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003 to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. We believe that we have no unconsolidated variable
interest entities that would be considered under the requirements of FIN 46.
12
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
ITEM 3. 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 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 4. CONTROLS AND PROCEDURES.
------------------------
Within the 90 days prior to the date of filing this Quarterly Report on Form
10-Q, the Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
and the Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive
Officer and the Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic SEC filings.
Subsequent to the date of that evaluation, there have been no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, nor were any corrective actions required
with regard to significant deficiencies and material weaknesses.
* * * * * * * * *
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.
13
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART II: OTHER INFORMATION
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.
On March 4, 2003, the Company filed a Form 8-K under Item 5 announcing
its fourth quarter and year ended 2002 results.
14
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
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: May 13, 2003 By: /s/ John Roblin
-----------------------------------------
John Roblin, Chairman of the Board of
Directors, President and Chief Executive
Officer
Date: May 13, 2003 By: /s/ Ann Massey
-----------------------------------------
Ann Massey, Chief Financial Officer
15
SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, John Roblin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cover-All
Technologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003
/s/ John Roblin
- -------------------------------------------
John Roblin
President and Chief Executive Officer
16
SARBANES-OXLEY SECTION 302(a) CERTIFICATION
I, Ann Massey, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cover-All
Technologies Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003
/s/ Ann Massey
- ---------------------------------------
Ann Massey
Chief Financial Officer
17