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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, 2003
------------------
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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
Number of shares outstanding at August 4, 2003:
15,346,218 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, 2003.
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PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2003 (Unaudited)
and December 31, 2002 (Audited)..................................... 2
Consolidated Statements of Operations for the three and six
months ended June 30, 2003 and 2002 (Unaudited)..................... 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 2003 and 2002 (Unaudited)..................... 5
Notes to Consolidated Financial Statements (Unaudited).............. 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 11
ITEM 3. Qualitative and Quantitative Disclosures
About Market Risk................................................... 12
ITEM 4. Controls and Procedures............................................. 12
PART II: OTHER INFORMATION................................................... 14
ITEM 4. Submission of Matters to a Vote of Security Holders................. 14
ITEM 6. Exhibits and Reports on Form 8-K.................................... 14
SIGNATURES................................................................... 15
1
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
--------------------
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
2003 2002
------------------- -------------------
(UNAUDITED) (AUDITED)
ASSETS:
Current Assets:
Cash and Cash Equivalents......................................... $ 1,416,118 $ 2,063,411
Accounts Receivable (Less Allowance for Doubtful Accounts
of $25,000 and $25,000 in 2003 and 2002, respectively)......... 725,609 1,021,873
Other Receivable.................................................. 10,467 240,672
Prepaid Expenses.................................................. 274,571 453,007
------------------- -------------------
Total Current Assets.............................................. 2,426,765 3,778,963
------------------- -------------------
Property and Equipment -- At Cost:
Furniture, Fixtures and Equipment................................. 1,362,585 1,309,938
Less: Accumulated Depreciation................................... (1,199,673) (1,156,338)
------------------- -------------------
Property and Equipment-- Net....................................... 162,912 153,600
------------------- -------------------
Capitalized Software (Less Accumulated Amortization of
$5,915,872 and $5,675,257, respectively).......................... 1,602,081 1,398,333
------------------- -------------------
Deferred Financing Costs (Net of Accumulated Amortization of
$59,909 and $42,673, respectively)................................ 181,402 198,638
------------------- -------------------
Other Assets......................................................... 59,335 59,335
------------------- -------------------
Total Assets...................................................... $ 4,432,495 $ 5,588,869
=================== ===================
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
2
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
2003 2002
------------------- -------------------
(UNAUDITED) (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Accounts Payable.................................................. $ 117,192 $ 276,618
Income Taxes Payable.............................................. 34,286 90,000
Accrued Liabilities............................................... 382,059 723,688
Unearned Revenue.................................................. 1,508,169 2,352,462
------------------- -------------------
Total Current Liabilities......................................... 2,041,706 3,442,768
------------------- -------------------
Long-Term Liabilities:
Convertible Debentures............................................ 2,500,000 2,500,000
------------------- -------------------
Total Liabilities................................................. 4,541,706 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.................................................. (25,732,220) (25,976,773)
Treasury Stock - At Cost - 2,500,000 Shares.......................... (703,000) (703,000)
------------------- -------------------
Total Stockholders' Equity (Deficit)................................. (109,211) (353,899)
------------------- -------------------
Total Liabilities and Stockholders' Equity (Deficit)................. $ 4,432,495 $ 5,588,869
=================== ===================
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
3
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
REVENUES:
Licenses..................................... $ 57,600 $ 106,000 $ 288,100 $ 336,500
Maintenance.................................. 1,114,462 1,093,302 2,235,805 2,184,639
Professional Services........................ 398,475 227,913 939,475 529,063
Applications Service Provider ("ASP")
Services.................................. 153,473 132,951 318,973 246,934
------------- ------------- ------------- -------------
TOTAL REVENUES............................... 1,724,010 1,560,166 3,782,353 3,297,136
------------- ------------- ------------- -------------
COST OF REVENUES:
Licenses..................................... 197,191 304,786 405,116 605,989
Maintenance.................................. 628,718 503,330 1,294,437 1,015,578
Professional Services........................ 111,925 113,331 259,104 250,342
ASP Services................................. 51,588 47,349 112,695 85,703
------------- ------------- ------------- -------------
TOTAL COST OF REVENUES....................... 989,422 968,796 2,071,352 1,957,612
------------- ------------- ------------- -------------
DIRECT MARGIN................................ 734,588 591,370 1,711,001 1,339,524
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Sales and Marketing.......................... 297,525 279,713 498,181 510,422
General and Administrative................... 280,443 295,232 583,530 581,984
Research and Development..................... 106,230 127,887 266,574 239,816
------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES..................... 684,198 702,832 1,348,285 1,332,222
------------- ------------- ------------- -------------
OPERATING INCOME (LOSS)...................... 50,390 (111,462) 362,716 7,302
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest Expense............................. (50,976) (37,102) (101,404) (74,182)
Interest Income.............................. 3,008 701 7,427 739
------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE)................. (47,968) (36,401) (93,977) (73,443)
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES............ 2,422 (147,863) 268,739 (66,141)
------------- ------------- ------------- -------------
INCOME TAXES.................................... 218 -- 24,186 --
------------- ------------- ------------- -------------
NET INCOME (LOSS)............................... $ 2,204 $ (147,863) $ 244,553 $ (66,141)
============= ============= ============= =============
BASIC EARNINGS (LOSS) PER COMMON SHARE.......... $ 0.00 $ (0.01) $ 0.02 $ (0.00)
============= ============= ============= =============
DILUTED EARNINGS (LOSS) PER COMMON SHARE........ $ 0.00 $ (0.01) $ 0.01 $ (0.00)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING FOR BASIC EARNINGS (LOSS) PER
COMMON SHARE................................. 15,336,000 15,336,000 15,336,000 15,336,000
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING FOR DILUTED EARNINGS (LOSS) PER
COMMON SHARE................................. 24,180,000 15,336,000 24,112,000 15,336,000
============= ============= ============= =============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
4
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
---------------------------------
2003 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) from Operations....................................... $ 244,553 $ (66,141)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided From (Used For) Operating Activities:
Depreciation................................................. 43,335 54,838
Amortization of Capitalized Software......................... 240,615 393,050
Amortization of Deferred Financing Costs..................... 17,236 13,364
Non-cash Financing Cost...................................... -- 11,276
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable.......................................... 296,264 321,423
Prepaid Expenses............................................. 178,436 112,826
Other Receivable............................................. 230,205 (16,652)
Increase (Decrease) in:
Accounts Payable............................................. (159,426) (143,802)
Taxes Payable................................................ (55,714) --
Accrued Liabilities.......................................... (341,629) (31,287)
Unearned Revenue............................................. (844,293) (276,827)
--------------- ---------------
Net Cash (Used For) Provided From Operating Activities.............. (150,418) 372,068
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures................................................ (52,647) (14,280)
Capitalized Software Expenditures................................... (444,363) (575,508)
--------------- ---------------
Net Cash (Used For) Provided From Investing Activities.............. (497,010) (589,788)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments on Capital Lease................................. -- (17,980)
Proceeds from Exercise of Stock Options............................. 135 --
--------------- ---------------
Net Cash Provided From (Used For) Financing Activities.............. 135 (17,980)
--------------- ---------------
CHANGE IN CASH AND CASH EQUIVALENTS....................................... (647,293) (235,700)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD........................... 2,063,411 430,545
--------------- ---------------
CASH AND CASH EQUIVALENTS - END OF PERIOD................................. $ 1,416,118 $ 194,845
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIODS FOR:
Interest............................................................ $ 101,404 $ 74,182
Income Taxes........................................................ 79,900 --
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
5
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
[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 June 30, 2003, and the results of their
operations for the three and six month periods ended June 30, 2003 and 2002, and
their cash flows for the six month periods ended June 30, 2003 and 2002. Such
adjustments are of a normal and recurring nature. The results of operations for
the three and six month periods ended June 30, 2003 and 2002 are not necessarily
indicative of the results to be expected for a full year.
[2] CONVERTIBLE DEBENTURES
On March 31, 1997, the Company sold $3,000,000 of 12.5% Convertible Debentures
due March 2002 (the "1997 Debentures") to an institutional investor. The 1997
Debentures were sold at face value, 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 into with each of the investors. An
aggregate of $1,400,000 was sold to the Renaissance US Growth and Income Trust
PLC (traded on the London Stock Exchange) and BFS US Special Opportunities Trust
PLC, which are managed by Renaissance. Also, an aggregate of $400,000 was sold
to three other private investors including John Roblin, 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.
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.
6
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 June 30, 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
JUNE 30, 2003
-------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
Basic EPS:
Income Available to Common
Stockholders...................................... $ 2,204 15,336,218 $ 0.00
Interest Reversal Convertible Debentures
(Net of Tax)....................................... 30,000 -- --
Effect of Dilutive Securities:
Exercise of Options................................ -- 431,018 --
Exercise of Warrants............................... -- 79,803 --
Conversion of Convertible Debentures................. -- 8,333,333 --
---------- ---------- --------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ 32,204 24,180,372 $ 0.00
========== ========== ========
7
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
JUNE 30, 2003
-------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
Basic EPS:
Income Available to Common
Stockholders...................................... $ 244,553 15,336,218 $ 0.02
Interest Reversal Convertible Debentures
(Net of Tax)....................................... 60,000 -- --
Effect of Dilutive Securities:
Exercise of Options................................ -- 368,129 --
Exercise of Warrants............................... -- 74,176 --
Conversion of Convertible Debentures................. -- 8,333,333 --
---------- ---------- --------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ 304,553 24,111,856 $ 0.01
========== ========== ========
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:
Exercise of Options................................ -- -- --
Exercise of 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:
Exercise of Options................................ -- -- --
Exercise of Warrants............................... -- -- --
---------- ---------- --------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ (66,141) 15,335,718 $ (0.00)
========== ========== ========
Options to purchase 1,282,250 shares of common stock at prices ranging from
$0.60 to $4.00 per share were outstanding at June 30, 2003, but were not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares for the period
($0.52).
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.
8
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
[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 and six months ended June 30, 2003 and 2002, the Company was not
required to record compensation expense for stock option grants.
Had compensation cost for the stock-based employee compensation plans been
determined based on the fair values of awards on the grant date, estimated using
the Black-Scholes option pricing model, which would be consistent with the
method described in SFAS No. 123, the Company's reported net income (loss) and
earnings (loss) per share would have been reduced to the pro forma amounts shown
below:
THREE MONTHS ENDED JUNE 30,
------------------------------------------
2003 2002
-------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Income (Loss) as Reported........................... $ 2 $ (148)
Deduct: Amount by which stock-based employee
compensation as determined under fair value based
method for all awards exceeds the compensation as
determined under the intrinsic value method.......... $ (1) $ (4)
Pro Forma Net Income (Loss)............................. $ 1 $ (152)
Basic Earnings (Loss) Per Share as Reported............. $ 0.00 $ (0.01)
Pro Forma Basic Earnings (Loss) Per Share............... $ 0.00 $ (0.01)
Diluted Earnings (Loss) Per Share as Reported........... $ 0.00 $ (0.01)
Pro Forma Diluted Earnings (Loss) Per Share............. $ 0.00 $ (0.01)
9
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
------------------------------------------
2003 2002
-------------------- --------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Income (Loss) as Reported........................... $ 245 $ (66)
Deduct: Amount by which stock-based employee
compensation as determined under fair value based
method for all awards exceeds the compensation as
determined under the intrinsic value method.......... $ (58) $ (35)
Pro Forma Net Income (Loss)............................. $ 187 $ (101)
Basic Earnings (Loss) Per Share as Reported............. $ 0.02 $ 0.00
Pro Forma Basic Earnings (Loss) Per Share............... $ 0.01 $ (0.01)
Diluted Earnings (Loss) Per Share as Reported........... $ 0.01 $ 0.00
Pro Forma Diluted Earnings (Loss) Per Share............. $ 0.01 $ (0.01)
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - An
Amendment of FASB Statement No. 123." This Statement provides alternative
accounting for stock-based employee compensation and requires prominent
disclosures in both annual and interim financial statements about the method
used in reporting results. 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 transition 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 June 30, 2003 were $1,724,000 as
compared to $1,560,000 for the same period in 2002, an increase of 10.5%.
License fees were $58,000 for the three months ended June 30, 2003 compared to
$106,000 in the same period in 2002. For the three months ended June 30, 2003,
maintenance revenues were $1,114,000 compared to $1,093,000 in the same period
of the prior year. Professional services revenue contributed $399,000 in the
three months ended June 30, 2003 compared to $228,000 in the second quarter of
2002, as a result of increased demand for customizations from the Company's
current customer base. For the three months ended June 30, 2003, ASP revenues
were $153,000 as compared to $133,000 in the same period for the prior year. For
the six months ended June 30, 2003, total revenues were $3,782,000 compared to
$3,297,000 in the same period of the prior year.
Cost of sales increased to $989,000 and $2,071,000 for the three and six months
ended June 30, 2003 as compared to $969,000 and $1,958,000 for the same periods
in 2002 due to staff related expenses. Non-cash capitalized software
amortization was $120,000 and $241,000 for the three and six months ended June
30, 2003 as compared to $201,000 and $393,000 for the same periods in 2002. The
Company capitalized $293,000 and $444,000 of software development costs in the
three and six months ended June 30, 2003 as compared to $300,000 and $576,000 in
the same periods in 2002.
Research and development expenses were $106,000 and $267,000 for the three and
six months ended June 30, 2003 compared to $128,000 and $240,000 for the same
periods in 2002. 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 $298,000 and $498,000 for the three and six
months ended June 30, 2003 as compared to $279,000 and $510,000 in the same
periods of 2002 primarily due to an increase in advertising and promotion
expenses in 2003.
General and administrative expenses were $280,000 and $584,000 in the three and
six months ended June 30, 2003 as compared to $295,000 and $582,000 in the same
periods in 2002 primarily due to a decrease in auditing and legal costs in the
first six months of 2003.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 2003, the Company had a working capital of $385,000 compared to
working capital deficit of $(1,298,000) at June 30, 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
- ------------------------------------
In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities -
an interpretation of ARB No. 51. FIN 46 requires existing unconsolidated
variable interest entities to be consolidated by their primary beneficiaries if
the entities do not effectively disperse risks among parties involved. FIN 46
applies immediately to variable interest entities created after January 31, 2003
and to variable interest entities in which an enterprise obtains an interest
after that date. It applies in the first fiscal year or interim period beginning
after June 15, 2003 to variable interest entities in which an enterprise holds a
variable interest that it acquired before February 1, 2003. We believe that we
have no unconsolidated variable interest entities that would be considered under
the requirements of FIN 46.
11
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
In April 2003, the FASB issued Statement of Financial Accounting Standards No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("SFAS 149"), which clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities under FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003.
In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("SFAS 150"), which established standards for how an
issuer classifies and measures certain financial instruments. SFAS 150 requires
that an issuer classify certain financial instruments as liabilities (or assets
in some circumstances) that were previously classified as equity. Financial
instruments which embody an unconditional obligation requiring the issuer to
redeem or repurchase it by the transfer of assets or by issuing a variable
number of its equity shares must be classified as a liability. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003.
The company expects that the adoption of the new statements will not have a
significant impact on its financial statements.
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.
------------------------
a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The President
and Chief Executive Officer as well as the Chief Financial Officer have
evaluated the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this quarterly report. Based on this evaluation, the President and Chief
Executive Officer and the Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of such date.
b) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. There has
been no change in the Company's internal control over financial reporting that
occurred during the fiscal quarter covered by this quarterly report that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
12
* * * * * * * * *
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
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PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The Annual Meeting of Stockholders of Cover-All Technologies Inc. was held on
June 26, 2003 (the "Meeting"). At the Meeting, the stockholders of the Company
elected two directors, John W. Roblin and Robert A. Marshall, 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
- -------- --------- ------------- --------------
John W. Roblin 12,750,483 -- 8,087
Robert A. Marshall 12,744,489 -- 14,081
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits.
---------
EXHIBIT
NO. DESCRIPTION
31.1 Chief Executive Officer Certification Pursuant to Section
13a-15(e) of the Securities Exchange Act.
31.2 Chief Financial Officer Certification Pursuant to Section
13a-15(e) of the Securities Exchange Act.
32.1 Certification of John W. Roblin pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Ann Massey pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
--------------------
On May 14, 2003, the Company filed a Form 8-K under Item 9 announcing
its first quarter 2003 results.
14
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 13, 2003 By: /s/ John Roblin
----------------------------------------
John Roblin, Chairman of the Board of
Directors, President and Chief Executive
Officer
Date: August 13, 2003 By: /s/ Ann Massey
----------------------------------------
Ann Massey, Chief Financial Officer
15