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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended SEPTEMBER 30, 2004 or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to ___________
Commission File Number: 0-13124
---------------------------------
COVER-ALL TECHNOLOGIES INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-2698053
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(State or other jurisdiction of (I.R.S. Employer
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)
(201) 794-4800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: [X] No: [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 1, 2004, the registrant had 15,732,084 shares of common stock,
par value $.01 per share, outstanding.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2004
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PART I: FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2004 (Unaudited)
and December 31, 2003 (Audited)..................................... 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 2004 and 2003 (Unaudited)................ 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2004 and 2003 (Unaudited)................ 6
Notes to Consolidated Financial Statements (Unaudited).............. 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................. 13
ITEM 3. Quantitative and Qualitative Disclosures
About Market Risk................................................... 17
ITEM 4. Controls and Procedures............................................. 18
PART II: OTHER INFORMATION
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds......... 19
ITEM 6. Exhibits............................................................ 19
SIGNATURES ............................................................... 20
. . . . . . . . . .
- 2 -
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30, DECEMBER 31,
2004 2003
------------------- -------------------
(UNAUDITED) (AUDITED)
ASSETS:
Current Assets:
Cash and Cash Equivalents......................................... $ 388,819 $ 1,193,173
Accounts Receivable (Less Allowance for Doubtful Accounts
of $25,000 and $25,000 in 2004 and 2003, respectively)......... 782,377 1,680,082
Other Receivable.................................................. 5,000 309
Prepaid Expenses.................................................. 443,066 353,063
------------------- -------------------
Total Current Assets.............................................. 1,619,262 3,226,627
------------------- -------------------
Property and Equipment - At Cost:
Furniture, Fixtures and Equipment................................. 1,387,440 1,376,998
Less: Accumulated Depreciation................................... (1,242,729) (1,245,631)
------------------- -------------------
Property and Equipment - Net...................................... 144,711 131,367
------------------- -------------------
Capitalized Software (Less Accumulated Amortization of
$6,935,215 and $6,197,478, respectively).......................... 1,989,123 1,903,470
------------------- -------------------
Deferred Financing Costs (Net of Accumulated Amortization of
$103,000 and $77,146, respectively)............................... 138,311 164,165
------------------- -------------------
Other Assets......................................................... 59,335 59,335
------------------- -------------------
Total Assets...................................................... $ 3,950,742 $ 5,484,964
=================== ===================
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEETS
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SEPTEMBER 30, DECEMBER 31,
2004 2003
------------------- -------------------
(UNAUDITED) (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Accounts Payable.................................................. $ 455,302 $ 122,146
Accrued Liabilities............................................... 363,823 375,546
Convertible Debentures ........................................... 145,416 99,484
Convertible Debentures - Related Party............................ 8,142 5,852
Unearned Revenue.................................................. 1,090,625 2,446,280
------------------- -------------------
Total Current Liabilities......................................... 2,063,308 3,049,308
------------------- -------------------
Long-Term Liabilities:
Convertible Debentures............................................ 2,155,101 2,300,516
Convertible Debentures - Related Party............................ 86,006 94,148
------------------- -------------------
Total Long-Term Liabilities....................................... 2,241,107 2,394,664
------------------- -------------------
Total Liabilities................................................. 4,304,415 5,443,972
------------------- -------------------
Commitments and Contingencies........................................ -- --
------------------- -------------------
Stockholders' Equity:
Common Stock, $.01 Par Value, Authorized 75,000,000 Shares;
18,223,084 and 17,846,218 Shares Issued and 15,723,084 and
15,346,218 Shares Outstanding, Respectively..................... 182,231 178,462
Capital In Excess Of Par Value....................................... 26,259,726 26,150,447
Accumulated Deficit.................................................. (26,092,630) (25,584,917)
Treasury Stock - At Cost - 2,500,000 Shares.......................... (703,000) (703,000)
------------------- -------------------
Total Stockholders' Equity (Deficit)................................. (353,673) 40,992
------------------- -------------------
Total Liabilities and Stockholders' Equity (Deficit)................. $ 3,950,742 $ 5,484,964
=================== ===================
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
2004 2003 2004 2003
--------------- --------------- --------------- ---------------
REVENUES:
Licenses.................................... $ 240,106 $ 195,000 $ 1,027,114 $ 483,100
Maintenance................................. 1,059,753 1,111,836 3,362,243 3,347,641
Professional Services....................... 185,575 325,300 608,836 1,264,775
Applications Service Provider ("ASP")
Services................................. 154,198 140,956 462,594 459,929
--------------- --------------- --------------- ---------------
TOTAL REVENUES.............................. 1,639,632 1,773,092 5,460,787 5,555,445
--------------- --------------- --------------- ---------------
COST OF REVENUES:
Licenses.................................... 353,658 202,732 1,022,824 607,848
Maintenance................................. 690,223 654,559 2,060,578 1,948,996
Professional Services....................... 102,845 97,701 332,597 356,805
ASP Services................................ 22,552 41,866 65,199 154,561
--------------- --------------- --------------- ---------------
TOTAL COST OF REVENUES...................... 1,169,278 996,858 3,481,198 3,068,210
--------------- --------------- --------------- ---------------
DIRECT MARGIN............................... 470,354 776,234 1,979,589 2,487,235
--------------- --------------- --------------- ---------------
OPERATING EXPENSES:
Sales and Marketing......................... 249,278 230,589 919,256 728,770
General and Administrative.................. 327,274 323,482 915,076 907,012
Research and Development.................... 194,151 137,231 507,065 403,805
--------------- --------------- --------------- ---------------
TOTAL OPERATING EXPENSES.................... 770,703 691,302 2,341,397 2,039,587
--------------- --------------- --------------- ---------------
OPERATING INCOME (LOSS)..................... (300,349) 84,932 (361,808) 447,648
--------------- --------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest Expense............................ (48,014) (49,136) (143,751) (146,573)
Interest Expense - Related Party............ (1,977) (2,017) (5,966) (5,984)
Interest Income............................. 320 1,682 3,812 9,109
--------------- --------------- --------------- ---------------
TOTAL OTHER INCOME (EXPENSE)................ (49,671) (49,471) (145,905) (143,448)
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE INCOME TAXES........... (350,020) 35,461 (507,713) 304,200
--------------- --------------- --------------- ---------------
INCOME TAXES..................................... -- 3,191 -- 27,377
--------------- --------------- --------------- ---------------
NET INCOME (LOSS)................................ $ (350,020) $ 32,270 $ (507,713) $ 276,823
=============== =============== =============== ===============
BASIC EARNINGS (LOSS) PER COMMON SHARE........... $ (0.02) $ 0.00 $ (0.03) $ 0.02
=============== =============== =============== ===============
DILUTED EARNINGS (LOSS) PER COMMON SHARE......... $ (0.02) $ 0.00 $ (0.03) $ 0.02
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING FOR BASIC EARNINGS (LOSS) PER
COMMON SHARE................................ 15,618,000 15,345,000 15,445,000 15,339,000
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING FOR DILUTED EARNINGS (LOSS) PER
COMMON SHARE................................ 15,618,000 24,342,000 15,445,000 24,219,000
=============== =============== =============== ===============
The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
2004 2003
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss).................................................... $ (507,713) $ 276,823
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided From (Used For) Operating Activities:
Depreciation.................................................. 59,774 66,062
Amortization of Capitalized Software.......................... 737,737 360,923
Amortization of Deferred Financing Costs...................... 25,854 25,854
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable........................................... 897,705 8,076
Prepaid Expenses.............................................. (90,003) (55,282)
Other Receivable.............................................. (4,691) 240,672
Other Assets.................................................. -- --
Increase (Decrease) in:
Accounts Payable.............................................. 333,156 (115,258)
Taxes Payable................................................. -- (52,523)
Accrued Liabilities........................................... (11,723) (399,550)
Unearned Revenue.............................................. (1,355,655) (828,340)
---------------- ----------------
Net Cash Provided From (Used For) Operating Activities.............. 84,441 (472,543)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures................................................ (73,118) (56,045)
Capitalized Software Expenditures................................... (823,390) (765,288)
---------------- ----------------
Net Cash (Used For) Provided From Investing Activities.............. (896,508) (821,333)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options............................. 7,713 3,035
---------------- ----------------
Net Cash Provided From (Used For) Financing Activities.............. 7,713 3,035
---------------- ----------------
CHANGE IN CASH AND CASH EQUIVALENTS....................................... (804,354) (1,290,841)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD........................... 1,193,173 2,063,411
---------------- ----------------
CASH AND CASH EQUIVALENTS - END OF PERIOD................................. $ 388,819 $ 772,570
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIODS FOR:
Interest.......................................................... $ 143,751 $ 146,573
Interest - Related Party.......................................... 5,966 5,984
Income Taxes...................................................... -- 79,900
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES
In July 2004, the holders of our 8% convertible debentures due 2008 elected
to convert an aggregate of $90,780 in principal of such debentures, representing
their monthly installments of principal under such debentures (in lieu of
receiving such installment payments in cash), for shares of our common stock at
the conversion price of $0.30 per share. In September 2004, certain of the
holders of these convertible debentures due 2008 elected to convert an aggregate
of $14,555 in principal of such debentures, representing their monthly
installments of principal under such debentures (in lieu of receiving such
installment payments in cash), for shares of our common stock at the conversion
price of $0.30 per share.
The Accompanying Notes are an Integral Part of These Consolidated Financial
Statements.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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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, 2003.
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 its subsidiary. All material intercompany
transactions and balances have been eliminated.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments which are necessary to present fairly the Company's
consolidated financial position as of September 30, 2004, and the results of
their operations for the three and nine month periods ended September 30, 2004
and 2003, and their cash flows for the nine month periods ended September 30,
2004 and 2003. Such adjustments are of a normal and recurring nature. The
results of operations for the three and nine month periods ended September 30,
2004 and 2003 are not necessarily indicative of the results to be expected for a
full year.
[2] CONVERTIBLE DEBENTURES
On March 31, 1997, we 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 our common stock at $1.25 per share, subject to
adjustment.
On June 28, 2001, we raised $1,800,000 through a private placement of 8.00%
convertible debentures due 2008 (the "2008 Debentures") with investors headed by
the Renaissance Capital Group, Inc. of Dallas, Texas pursuant to Convertible
Loan Agreements entered into with each of the investors. An aggregate of
$1,400,000 was sold to the Renaissance US Growth and Income Trust PLC (traded on
the London Stock Exchange) and BFS US Special Opportunities Trust PLC, which are
managed by Renaissance. Also, an aggregate of $400,000 was sold to three other
private investors including John Roblin, our Chairman of the Board, President
and Chief Executive Officer. The related financing costs incurred of $187,090 in
connection with establishing these debentures have been deferred and are being
amortized over the life of the debt.
Immediately upon receipt of the funds, we used $1,660,000 of the proceeds to
fully settle the remaining principal amount of the 1997 Debentures. We
recognized a gain on the extinguishment of debt of $1,340,000 in June 2001. The
balance of the funds raised from the transaction were used for working capital
purposes. The 2008 Debentures are convertible into shares of our common stock,
initially at $0.50 per share, subject to adjustment in accordance with the terms
of the parties' respective loan agreements.
In March 2002, the holders under the Convertible Loan Agreements agreed to amend
one of the financial covenants for the quarters ending March 31, June 30 and
September 30, 2002. As consideration for such amendments, we issued to such
holders an aggregate of 128,572 warrants to purchase such number of shares of
our common stock at an exercise price of $0.22 per share. The warrants expire in
2007 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 have been charged to deferred financing costs
and were amortized over the amendment period.
On August 21, 2002, we, by amendment to the 2008 Debentures, raised an
additional $700,000 through the sale of 8.00% convertible debentures due 2009
(the "2009 Debentures") to Renaissance US Growth and Income Trust PLC and BFS US
Special Opportunities Trust PLC. The funds raised from the transaction were used
for working capital purposes. The 2009 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
2009 Debentures
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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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 2009 Debentures caused a reduction in the conversion price
of the 2008 Debentures from $0.50 per share to $0.30 per share.
As of September 30, 2004, we were not in compliance with one of the financial
covenants of the Convertible Loan Agreements, and as of such date, we received
limited waivers to the Convertible Loan Agreements under which the holders of
the debentures waived such non-compliance.
The 2008 Debentures and 2009 Debentures mature on July 1, 2008 and September 1,
2009, respectively, unless the debentures are earlier redeemed by us or the
holder upon the occurrence of certain events specified in the debentures or
converted into shares of our common stock at the holder's option.
We may redeem the debentures for cash at 101% of the principal amount, together
with accrued and unpaid interest through the redemption date, upon the
occurrence of certain events specified in the debentures.
If the 2008 Debentures and 2009 Debentures are not sooner redeemed or converted,
we will be required to pay, commencing on July 1, 2004 and July 1, 2005,
respectively, monthly principal installments in the amount of ten dollars ($10)
per thousand dollars ($1,000) of the then remaining principal amount of such
debentures, and at maturity we will be required to pay the remaining unpaid
principal amount.
In July 2004, the holders of the 2008 Debentures elected to convert an aggregate
of $90,780 in principal of such debentures, representing their monthly
installments of principal under such debentures (in lieu of receiving such
installment payments in cash), for shares of our common stock at the conversion
price of $0.30 per share. In September 2004, certain of the holders of the 2008
Debentures elected to convert an aggregate of $14,555 in principal of such
debentures, representing their monthly installments of principal under such
debentures (in lieu of receiving such installment payments in cash), for shares
of our common stock at the conversion price of $0.30 per share.
At September 30, 2004, principal payments due on the convertible debentures are
as follows:
2005............................................ $ 153,558
2006............................................ 254,623
2007............................................ 225,694
2008............................................ 1,278,173
Thereafter...................................... 482,617
------------
TOTAL.................................. $ 2,394,665
============
[3] EARNINGS PER SHARE DISCLOSURES
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations:
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2004
------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------- ----------------- -------------
Basic EPS:
Income (Loss) Available to Common
Stockholders...................................... $ (350,020) 15,617,749 $ (0.02)
Interest Reversal Convertible Debentures
(Net of Tax)....................................... -- -- --
Effect of Dilutive Securities:
Exercise of Options................................ -- -- --
Exercise of Warrants............................... -- -- --
Conversion of Convertible Debentures............... -- -- --
-------------- ----------------- -------------
Diluted EPS:
Income (Loss) Available to Common Stockholders
Plus Assumed Conversions......................... $ (350,020) 15,617,749 $ (0.02)
============== ================= =============
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2004
------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------- ----------------- -------------
Basic EPS:
Income (Loss) Available to Common
Stockholders...................................... $ (507,713) 15,445,160 $ (0.03)
Interest Reversal Convertible Debentures
(Net of Tax)...................................... -- -- --
Effect of Dilutive Securities:
Exercise of Options................................ -- -- --
Exercise of Warrants............................... -- -- --
Conversion of Convertible Debentures............... -- -- --
-------------- ----------------- -------------
Diluted EPS:
Income (Loss) Available to Common Stockholders
Plus Assumed Conversions......................... $ (507,713) 15,445,160 $ (0.03)
============== ================= =============
The Company's options and warrants were not included in the computation of EPS
for the periods ended September 30, 2004 because to do so would be antidilutive.
The Company's convertible debt does not affect the EPS calculation for the
periods ended September 30, 2004 because it would be antidilutive.
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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2003
------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------- ----------------- -------------
Basic EPS:
Income Available to Common
Stockholders...................................... $ 32,270 15,345,348 $ 0.00
Interest Reversal Convertible Debentures
(Net of Tax)....................................... 30,000 -- --
Effect of Dilutive Securities:
Exercise of Options................................ -- 580,785 --
Exercise of Warrants............................... -- 82,950 --
Conversion of Convertible Debentures............... -- 8,333,333 --
-------------- ----------------- -------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ 62,270 24,342,416 $ 0.00
============== ================= =============
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2003
------------------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------- ----------------- -------------
Basic EPS:
Income Available to Common
Stockholders...................................... $ 276,823 15,339,143 $ 0.02
Interest Reversal Convertible Debentures
(Net of Tax)...................................... 90,000 -- --
Effect of Dilutive Securities:
Exercise of Options................................ -- 471,575 --
Exercise of Warrants............................... -- 75,202 --
Conversion of Convertible Debentures............... -- 8,333,333 --
-------------- ----------------- -------------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions......................... $ 366,823 24,219,253 $ 0.02
============== ================= =============
Options to purchase 1,281,750 shares of common stock at prices ranging from $.60
to $4.00 per share were outstanding at September 30, 2003, but were not included
in the computation of diluted EPS because the options' exercise price was
greater than the average market price of the common shares for the period
($.53).
[4] STOCK OPTION AND STOCK PURCHASE PLANS
We have adopted several stock-based compensation plans that provide for the
grant of options to our employees and non-employee directors. All options under
these plans vest over terms of zero to three years. Options may be granted as
incentive or non-qualified stock options and are exercisable at a price and time
as determined by the Board of Directors on the grant date.
We account for stock-based employee compensation using the intrinsic value
method in accordance with APB Opinion No. 25 and related interpretations which
generally require that the amount of compensation cost that must be recognized,
if any, is the quoted market price of the stock on the measurement date, which
is generally the grant date, less the amount the grantee is required to pay to
acquire the stock. Alternatively, Statement of Financial Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," employs fair value-based
measurement and generally results in the recognition of compensation expense for
all stock-based awards to employees. SFAS
- 10 -
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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No. 123 does not require an entity to adopt those provisions, but, rather,
permits continued application of APB Opinion No. 25. We have elected not to
adopt the recognition and measurement provisions of SFAS No. 123 and continue to
account for our stock-based employee compensation plans under APB Opinion No. 25
and related interpretations. In accordance with APB Opinion No. 25, compensation
is generally recorded for stock-based employee compensation grants based on the
excess of the market value of the common stock on the measurement date over the
exercise price. If the exercise price of the stock-based compensation is equal
to or exceeds the market price of our common stock on the grant date, no
compensation expense is recorded.
For the three and nine months ended September 30, 2004 and 2003, 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 SEPTEMBER 30,
-----------------------------------------
2004 2003
---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Income (Loss) as Reported........................... $ (350) $ 32
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................................... $ (25) $ 9
Pro Forma Net Income (Loss)............................. $ (375) $ 23
Basic Earnings (Loss) Per Share as Reported............. $ (0.02) $ 0.00
Pro Forma Basic Earnings (Loss) Per Share............... $ (0.02) $ 0.00
Diluted Earnings (Loss) Per Share as Reported........... $ (0.02) $ 0.00
Pro Forma Diluted Earnings (Loss) Per Share............. $ (0.02) $ 0.00
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
2004 2003
---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net Income (Loss) as Reported........................... $ (508) $ 277
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................................... $ (75) $ 29
Pro Forma Net Income (Loss)............................. $ (583) $ 248
Basic Earnings (Loss) Per Share as Reported............. $ (0.03) $ 0.02
Pro Forma Basic Earnings (Loss) Per Share............... $ (0.04) $ 0.02
Diluted Earnings (Loss) Per Share as Reported........... $ (0.03) $ 0.02
Pro Forma Diluted Earnings (Loss) Per Share............. $ (0.04) $ 0.02
- 11 -
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
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. We have elected not to adopt the recognition and
measurement provisions of SFAS No. 123 and continue to account for our
stock-based employee compensation plans under APB Opinion No. 25 and related
interpretations and, therefore, the transaction provisions will not have an
impact on our financial position or results of operations. The required expanded
interim disclosures are provided above.
- 12 -
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CERTAIN OF THE MATTERS DISCUSSED IN THIS REPORT, INCLUDING, WITHOUT
LIMITATION, MATTERS DISCUSSED UNDER THIS ITEM 2, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT) AND ARE SUBJECT TO THE OCCURRENCE OF CERTAIN
CONTINGENCIES WHICH MAY NOT OCCUR IN THE TIME FRAMES ANTICIPATED OR OTHERWISE,
AND, AS A RESULT, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
STATEMENTS. IN ADDITION TO OTHER FACTORS AND MATTERS DISCUSSED ELSEWHERE IN THIS
REPORT ON FORM 10-Q AND IN OUR FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 29, 2004, AS AMENDED, AND OTHER PERIODIC REPORTS FILED,
THESE RISKS, UNCERTAINTIES AND CONTINGENCY INCLUDE, BUT ARE NOT LIMITED TO,
RISKS ASSOCIATED WITH INCREASED COMPETITION, CUSTOMER DECISIONS, THE SUCCESSFUL
COMPLETION OF CONTINUING DEVELOPMENT OF NEW PRODUCTS, THE SUCCESSFUL
NEGOTIATION, EXECUTION AND IMPLEMENTATION OF ANTICIPATED NEW SOFTWARE CONTRACTS,
THE SUCCESSFUL ADDITION OF PERSONNEL IN THE MARKETING AND TECHNICAL AREAS AND
OUR ABILITY TO COMPLETE DEVELOPMENT AND SELL AND LICENSE OUR PRODUCTS AT PRICES
WHICH RESULT IN SUFFICIENT REVENUES TO REALIZE PROFITS, AND OTHER BUSINESS
FACTORS BEYOND OUR CONTROL.
OVERVIEW
We are a supplier of software products for the property and casualty
insurance industry, supplying a wide range of professional services that support
product customization, conversion from existing systems and data integration
with other software or reporting agencies. We also offer on-going support
services including incorporating recent insurance rate and rule changes in our
solutions. These support services also include analyzing the changes,
developments, quality assurance, documentation and distribution of insurance
rate and rule changes.
We earn revenue from software contract licenses, service fees from ASPs,
continuing maintenance fees for servicing the product and professional services.
Total revenue for the three and nine months ended September 30, 2004 decreased
to $1,640,000 and $5,461,000, respectively, from $1,773,000 and $5,555,000,
respectively, for the three and nine months ended September 30, 2003, mainly due
to a decrease in professional services revenue.
The following is an overview of the key components of our revenue and other
important financial data for the three and nine months ended September 30, 2004:
SOFTWARE LICENSES. We signed one new customer license in the first nine
months of 2004. Our license revenue in the three and nine months ended September
30, 2004 of $240,000 and $1,027,000, respectively, was from one new customer and
existing customers who chose to renew, add onto or extend their use of our
software. For the three and nine months ended September 30, 2003, we generated
$195,000 and $483,000, respectively, in license revenue.
MAINTENANCE. Maintenance revenue was $1,060,000 and $3,362,000,
respectively, in the three and nine months ended September 30, 2004 compared to
$1,112,000 and $3,347,000, respectively, in the same periods in 2003. The slight
increase in the first nine months of 2004 was mainly due to annual increases to
existing customers.
PROFESSIONAL SERVICES. The decrease in professional services revenue, from
$325,000 and $1,265,000, respectively, in the three and nine months ended
September 30, 2003 to $186,000 and $609,000, respectively, in the same periods
of 2004, was a result of decreased demand for customizations from our current
customer base.
ASP SERVICES. ASP services revenue was $141,000 and $460,000 in the first
three and nine months of 2003 compared to $154,000 and $463,000, respectively,
in the same periods in 2004.
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES. Income (loss) before
provision for income taxes was $(350,000) and $(508,000) in the three and nine
months ended September 30, 2004 compared to $35,000 and $304,000, respectively,
in the same periods of 2003 primarily due to a reduction in professional
services revenue and an increase in sales and marketing expenses.
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NET INCOME (LOSS). Net income (loss) for the three and nine months ended
September 30, 2004 decreased to $(350,000) and $(508,000), respectively, from
$32,000 and $277,000 in the same periods of 2003 as a result of a reduction in
professional services revenue and an increase in sales and marketing expenses.
CASH FLOW. We generated $84,000 in positive cash flow from operations in
the first nine months of 2004 and ended the period with $389,000 in cash and
cash equivalents and $782,000 in accounts receivable.
We continue to face several challenges to growth in 2004 mainly in the
marketing and selling of our products and services to new customers. In
addition, there are risks related to customers' acceptance and implementation
delays which could affect the timing and amount of license revenue we are able
to recognize. In response to these challenges, we have increased our sales and
marketing effort. Consequently, we are incurring additional sales and marketing
expense in advance of generating the corresponding revenue.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the consolidated statements of operations expressed as a percentage of
total revenues:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- -------------------------
2004 2003 2004 2003
---------- ---------- ---------- ----------
REVENUES:
License 14.7% 11.0% 18.8% 8.7%
Maintenance 64.6 62.7 61.6 60.2
Professional Services 11.3 18.3 11.1 22.8
Applications Service Provider ("ASP")
Services 9.4 8.0 8.5 8.3
---------- ---------- ---------- ----------
TOTAL REVENUES 100.0 100.0 100.0 100.0
---------- ---------- ---------- ----------
COST OF REVENUES:
License 21.5 11.4 18.7 10.9
Maintenance 42.1 36.9 37.7 35.1
Professional Services 6.3 5.5 6.1 6.4
ASP Services 1.4 2.4 1.2 2.8
---------- ---------- ---------- ----------
TOTAL COST OF REVENUES 71.3 56.2 63.7 55.2
---------- ---------- ---------- ----------
DIRECT MARGIN 28.7 43.8 36.3 44.8
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Sales and Marketing 15.2 13.0 16.8 13.1
General and Administrative 20.0 18.3 16.8 16.3
Research and Development 11.8 7.7 9.3 7.3
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 47.0 39.0 42.9 36.7
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (18.3) 4.8 (6.6) 8.1
---------- ---------- ---------- ----------
OTHER EXPENSE (INCOME):
Interest Expense (3.0) (2.9) (2.8) (2.8)
Interest Income -- 0.1 0.1 0.2
---------- ---------- ---------- ----------
TOTAL OTHER EXPENSE (INCOME) (3.0) (2.8) (2.7) (2.6)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (21.3) 2.0 (9.3) 5.5
---------- ---------- ---------- ----------
INCOME TAXES -- 0.2 -- 0.5
---------- ---------- ---------- ----------
NET INCOME (LOSS) (21.3)% 1.8% (9.3)% 5.0%
---------- ---------- ---------- ----------
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THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2003
Total revenues for the three months ended September 30, 2004 were
$1,640,000 as compared to $1,773,000 for the same period in 2003. License fees
were $240,000 for the three months ended September 30, 2004 compared to $195,000
in the same period in 2003 as a result of sales to existing customers in 2004.
For the three months ended September 30, 2004, maintenance revenues were
$1,060,000 compared to $1,112,000 in the same period of the prior year.
Professional services revenue contributed $186,000 in the three months ended
September 30, 2004 compared to $325,000 in the third quarter of 2003, as a
result of decreased demand for customizations from our current customer base.
For the three months ended September 30, 2004, ASP revenues were $154,000 as
compared to $141,000 in the same period for the prior year. For the nine months
ended September 30, 2004, total revenues were $5,461,000 compared to $5,555,000
in the same period of the prior year.
Cost of sales increased to $1,169,000 and $3,481,000 for the three and nine
months ended September 30, 2004 as compared to $997,000 and $3,068,000 for the
same periods in 2003, due to staff-related expenses. Non-cash capitalized
software amortization was $251,000 and $738,000 for the three and nine months
ended September 30, 2004 as compared to $120,000 and $361,000 for the same
periods in 2003. We capitalized $229,000 and $823,000 of software development
costs in the three and nine months ended September 30, 2004 as compared to
$321,000 and $765,000 in the same periods in 2003.
Research and development expenses were $194,000 and $507,000 for the three
and nine months ended September 30, 2004 compared to $137,000 and $404,000 for
the same periods in 2003. We continue to enhance the functionality of our
products and to refine our processes in response to customer needs.
Sales and marketing expenses were $249,000 and $919,000 for the three and
nine months ended September 30, 2004 as compared to $231,000 and $729,000 in the
same periods of 2003 primarily due to an increase in staffing and advertising
and promotion expenses in 2004.
General and administrative expenses were $328,000 and $915,000 in the three
and nine months ended September 30, 2004 as compared to $323,000 and $907,000 in
the same periods in 2003 primarily due to an increase in staffing costs in the
first nine months of 2004.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations primarily from cash flow from operations and
the proceeds from our 2008 Debentures and 2009 Debentures.
At September 30, 2004, we had cash and cash equivalents of $389,000
compared to cash and cash equivalents of $773,000 at September 30, 2003. The
decrease in cash and cash equivalents is primarily attributable to the reduction
in professional services sales and an increase in sales and marketing expenses.
The 2008 Debentures were issued with an aggregate principal amount of
$1,800,000, and the 2009 Debentures were issued with an aggregate principal
amount of $700,000. Interest on the unpaid principal amount of the debentures is
payable monthly at the rate of 8% per annum. We made approximately $150,000 of
interest payments on the debentures during the first nine months of 2004 and
2003. The 2008 Debentures and 2009 Debentures mature on July 1, 2008 and
September 1, 2009, respectively, unless the debentures are earlier redeemed by
us or the holder upon the occurrence of certain events specified in the
debentures or converted into shares of our common stock at the holder's option
at a conversion price of $0.30 per share, subject to adjustment. We may redeem
the debentures for cash at 101% of the principal amount, together with accrued
and unpaid interest through the redemption date, upon the occurrence of certain
events specified in the debentures.
As of September 30, 2004, we were not in compliance with one of the
financial covenants of the Convertible Loan Agreements, and as of such date, we
received limited waivers to the Convertible Loan Agreements under which the
holders of the debentures waived such non-compliance.
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If the 2008 Debentures and 2009 Debentures are not sooner redeemed or
converted, we will be required to pay, commencing on July 1, 2004 and July 1,
2005, respectively, monthly principal installments in the amount of ten dollars
($10) per thousand dollars ($1,000) of the then remaining principal amount of
such debentures, and at maturity we will be required to pay the remaining unpaid
principal amount.
In July 2004, the holders of the 2008 Debentures elected to convert an
aggregate of $90,780 in principal of such debentures, representing their monthly
installments of principal under such debentures (in lieu of receiving such
installment payments in cash), for shares of our common stock at the conversion
price of $0.30 per share. In September 2004, certain of the holders of the 2008
Debentures elected to convert an aggregate of $14,555 in principal of such
debentures, representing their monthly installments of principal under such
debentures (in lieu of receiving such installment payments in cash), for shares
of our common stock at the conversion price of $0.30 per share.
At September 30, 2004, we had a working capital deficit of $(444,000)
compared to working capital of $248,000 at September 30, 2003.
At December 31, 2003, we had approximately $21,900,000 of federal net
operating tax loss carryforwards expiring at various dates through 2023 The Tax
Reform Act of 1986 enacted a complex set of rules which limits a company's
ability to utilize net operating loss carryforwards and tax credit carryforwards
in periods following an ownership change. These rules define an ownership change
as a greater than 50 percent point change in stock ownership within a defined
testing period which is generally a three-year period. As a result of stock
which may be issued by us from time to time, including the stock which may be
issued related to our outstanding convertible debentures and the conversion of
outstanding warrants, or the result of other changes in ownership of our
outstanding stock, we may experience an ownership change and consequently our
utilization of net operating loss carryforwards could be significantly limited.
We believe that our current cash balances and anticipated cash flows from
operations will be sufficient to meet our normal operating needs for at least
the next twelve months. Material risks to cash flow from operations include
delayed or reduced cash payments accompanying sales of new licenses or a decline
in our services business. There can be no assurance that changes in our plans or
other events affecting our operations will not result in materially accelerated
or unexpected expenditures. In addition, there can be no assurance that
additional capital, if needed, will be available on reasonable terms, if at all,
at such time as we require.
OFF-BALANCE SHEET TRANSACTIONS
We do not maintain any off-balance sheet transactions, arrangements,
obligations or other relationships with unconsolidated entities or others that
are reasonably likely to have a material current or future effect on our
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The SEC has issued cautionary advice to elicit more precise disclosure in
this Item 2, MD&A, about accounting policies management believes are most
critical in portraying our financial results and in requiring management's most
difficult subjective or complex judgments.
The preparation of financial documents in conformity with accounting
principles generally accepted in the United States of America requires
management to make judgments and estimates. On an on-going basis, we evaluate
our estimates, the most significant of which include establishing allowances for
doubtful accounts, a valuation allowance for our deferred tax assets and
determining the recoverability of our long-lived assets. The basis for our
estimates are historical experience and various assumptions that are believed to
be reasonable under the circumstances, given the available information at the
time of the estimate, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
available from other sources. Actual results may differ from the amounts
estimated and recorded in our financial statements.
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We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
o Revenue Recognition
o Valuation of Capitalized Software
o Valuation of Allowance for Doubtful Accounts Receivable
REVENUE RECOGNITION
Our revenues are recognized in accordance with SOP 97-2, "Software Revenue
Recognition" ("SOP 97-2"), as amended by SOP 98-4, "Deferral of the Effective
Date of SOP 97-2, Software Revenue Recognition" and SOP 98-9, "Modification of
SOP 97-2 with Respect to Certain Transactions." Revenue from the sale of
software licenses is predominately from standardized software and is recognized
when standard software modules are delivered and collectibility is probable.
Revenue from software maintenance contracts is recognized ratably over the life
of the contract. Revenue from professional consulting services is recognized
when the service is provided.
VALUATION OF CAPITALIZED SOFTWARE
Costs for the internal development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs are capitalized. As we have completed its software development
concurrently with the establishment of technological feasibility, it has
commenced capitalizing these costs. Amortization is calculated on a
product-by-product basis as the greater of the amount computed using (a) the
ration that current gross revenues for a product bear to the total of current
and anticipated future gross revenues for that product or (b) the straight-line
method over the remaining economic life of the product. At each balance sheet
date, the unamortized capitalized costs of each computer software product is
compared to the net realizable value of that product. If an amount of
unamortized capitalized costs of a computer software product is found to exceed
the net realizable value of that asset, such amount will be written off. The net
realizable value is the estimated future gross revenues from that product
reduced by the estimated future costs of completing and disposing of that
product, including the costs of performing maintenance and customer support
required to satisfy our responsibility set forth at the time of sale.
VALUATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
Management's estimate of the allowance for doubtful accounts is based on
historical information, historical loss levels, and an analysis of the
collectibility of individual accounts. We routinely assess the financial
strength of our customers and based upon factors concerning credit risk,
establish an allowance for uncollectible accounts. Management believes that
accounts receivable credit risk exposure beyond such allowance is limited.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to the impact of interest rate changes and changes in the
market value of our investments.
INTEREST RATE RISK. Our exposure to market rate risk for changes in
interest rates relates primarily to our investment portfolio. We have not used
derivative financial instruments in our investment portfolio. We invest our
excess cash in a major bank money market account. We protect and preserve our
invested funds by limiting default, market and reinvestment risk.
Investments in this account carry a degree of interest rate risk. Fixed
rate securities may have their fair market value adversely impacted due to a
rise in interest rates, while floating rate securities may produce less income
than expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest
rates or we may suffer losses in principal if forced to sell securities which
have declined in market value due to changes in interest rates.
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ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and our Chief Financial Officer, of the
effectiveness of the design and operation of the Company's "disclosure controls
and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, as amended). Based upon that evaluation, our Chief Executive Officer
and our Chief Financial Officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission (the "SEC") rules and forms, and include
controls and procedures designed to ensure that information required to be
disclosed by us in such reports is accumulated and communicated to our
management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
There has been no change in our internal control over financial reporting
during the quarter ended September 30, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
* * * * * * * * *
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, risks associated with increased
competition, customer decisions, the successful completion of continuing
development of new products, the successful negotiation, execution and
implementation of anticipated new software contracts, the successful addition of
personnel in the marketing and technical areas and our ability to complete
development and sell and license our products at prices which result in
sufficient revenues to realize profits, and other business factors beyond our
control. Those and other risks are described in the Company's filings with the
SEC over the last 12 months, including our Form 10-K filed with the SEC on March
29, 2004, as amended, copies of which are available from the SEC or may be
obtained upon request from the Company.
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PART II: OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
The partial conversion in September of 2004 of an aggregate of $14,555 in
principal of our 2008 Debentures resulted in the issuance of a total of 48,519
shares of our common stock to the converting holders of such debentures. No cash
proceeds were received by us in connection with the partial conversion of the
2008 Debentures. The shares of our common stock issued upon the conversion of
the debentures were issued exempt from registration in reliance on Section
3(a)(9) of the Securities Act of 1933 as an exchange of securities by an issuer
with its existing security holders where no commission or other renumeration was
paid or given directly or indirectly for soliciting such exchange.
ITEM 6. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
10(i)(15) Limited Waiver to Convertible Loan Agreements, dated as of
September 30, 2004, by and between Renaissance US Growth
Investment Trust PLC and BFSUS Special Opportunities Trust PLC.
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 F. Massey pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COVER-ALL TECHNOLOGIES INC.
Date: November 15, 2004 By: /s/ John W. Roblin
-----------------------------------------------------
John W. Roblin, Chairman of the Board of Directors,
President and Chief Executive Officer
Date: November 15, 2004 By: /s/ Ann F. Massey
-----------------------------------------------------
Ann F. Massey, Chief Financial Officer
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