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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 quarter ended September 30, 1996
Commission file number 0-13124
COVER-ALL TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2698053
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
18-01 Pollitt Drive, Fair Lawn, New Jersey 07410
(Address of principal executive office) (Zip Code)
(201)794-4800
(Registrant's telephone number, including area code)
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
---- ----
Number of shares outstanding at November 4, 1996:
16,716,897 shares of Common Stock, par value $.01 per share.
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<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
INDEX TO FORM 10-Q FOR THE QUARTER ENDED
September 30, 1996
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 . . . 2 -3
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . 5 - 6
Notes to Consolidated Financial Statements. . 7 - 11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results
of Operations . . . . . . . . . . . . . . . 12 - 14
PART II - OTHER INFORMATION . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
------------- ------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents . $ 1,585,544 $1,576,745
Accounts receivable,
less allowance for
doubtful accounts of
$284,132 and none . . . . 865,548 1,763,890
Income taxes receivable . . - 2,300,000
Prepaid expenses . . . . . 130,674 5,355
----------- -----------
Total current assets . . 2,581,766 5,645,990
----------- -----------
Property and equipment, at cost:
Furniture, fixtures and
equipment . . . . . . . . . 3,068,124 3,095,529
Less accumulated
depreciation . . . . . . . (2,582,738) (2,369,873)
----------- -----------
Property and
equipment-net . . . 485,386 725,656
----------- -----------
Software license, less
amortization of $250,000 . 4,750,000 -
Capitalized software,
less amortization
of $1,059,572 and $489,227 2,048,977 1,510,782
Other assets . . . . . . . . 172,073 486,726
----------- -----------
. . . . . . . . . $10,038,202 $ 8,369,154
=========== ===========
See accompanying notes.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
September 30, December 31,
1996 1995
------------- ------------
(unaudited) (audited)
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities
Accounts payable . . . . . 676,167 955,060
Accrued liabilities. . . . 2,372,908 4,123,641
Unearned revenue . . . . . 803,406 635,564
Liabilities in excess of
assets of ISD business
discontinued in 1996 . . -- 8,648,368
---------- ----------
Total current liabilities 3,852,481 14,362,633
---------- ----------
Deferred income taxes. . . . -- 20,000
---------- ----------
Commitments and contingencies
(Note 4)
Stockholders' equity (deficit):
Common stock, $.01 par value;
authorized 30,000,000 shares,
issued 17,350,883 and
9,194,890 shares . . . . . 173,509 91,949
Warrants outstanding . . . 455,729 --
Capital in excess of par
value . . . . . . . . . . 26,593,799 10,414,253
Accumulated (deficit). . . (18,470,109) (13,952,474)
Treasury stock at cost
633,986 shares. . . . . . . (2,567,207) (2,567,207)
---------- ----------
Total stockholders'
equity (deficit). . . . . 6,185,721 (6,013,479)
---------- ----------
$ 10,038,202 $ 8,369,154
========== ==========
See accompanying notes.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
September 30,
1996 1995
----------- -----------
Revenues:
Licenses. . . . . . . . . . . $ 27,941 $ 389,542
Maintenance . . . . . . . . . 490,908 422,726
Professional services . . . . 533,609 323,245
----------- -----------
1,052,458 1,135,513
----------- -----------
Costs and expenses:
Research and development. . . 996,822 405,743
Cost of sales . . . . . . . . 542,789 373,344
Sales and marketing . . . . . 489,155 121,198
General and administrative. . 1,069,983 623,286
Special charges . . . . . . . -- --
------------ -----------
3,098,749 1,523,571
------------ -----------
Loss from continuing operations (2,046,291) (388,058)
Loss from discontinued
operations. . . . . . . . . . ( 392,872) (1,127,762)
------------ -----------
Net loss. . . . . . . . . . . . $(2,439,163) (1,515,820)
============ ===========
Loss per share from continuing
operations. . . . . . . . . . $( 0.12) $( 0.05)
============ ===========
Net loss per share. . . . . . . $( 0.15) $( 0.18)
============ ===========
Weighted average number of
common shares outstanding. . . 16,716,700 8,560,904
============ ===========
Nine Months Ended
September 30,
1996 1995
----------- -----------
Revenues:
Licenses. . . . . . . . . . . $ 735,183 $ 1,227,864
Maintenance . . . . . . . . . 1,526,345 924,292
Professional services . . . . 1,807,994 962,443
----------- -----------
4,069,522 3,114,599
----------- -----------
Costs and expenses:
Research and development. . . 3,173,714 1,742,478
Cost of sales . . . . . . . . 1,459,556 968,405
Sales and marketing . . . . . 810,891 338,485
General and administrative. . 2,750,124 1,726,739
Special charges . . . . . . . -- 1,165,000
------------ -----------
8,194,285 5,941,107
------------ -----------
Loss from continuing operations (4,124,763) (2,826,508)
Loss from discontinued
operations. . . . . . . . . . ( 392,872) (5,560,101)
------------ ------------
Net loss. . . . . . . . . . . . $(4,517,635) $(8,386,609)
============ ===========
Loss per share from continuing
operations. . . . . . . . . . $( 0.29) $( 0.33)
============ ===========
Net loss per share. . . . . . . $( 0.32) $( 0.98)
============ ===========
Weighted average number of
common shares outstanding. . . 14,248,605 8,558,774
============ ===========
See accompanying notes.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
1996 1995
----------- -----------
Cash flows from operating activities:
Net loss from continuing
operations . . . . . . . . . . . . . $(4,124,763) $(2,826,508)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation . . . . . . . . . . 261,823 254,619
Amortization of capitalized
software and software license . 820,345 324,902
Accounts receivable . . . . . . 898,342 (434,438)
Income taxes receivable. . . . . 2,300,000 136,028
Deferred income taxes. . . . . . (20,000) 2,500,000
Prepaid expenses . . . . . . . . (125,319) (211,627)
Other assets . . . . . . . . . . 314,653 3,890
Accounts payable . . . . . . . . (278,893) 43,634
Accrued liabilities. . . . . . . (1,691,008) 865,063
Unearned revenue . . . . . . . . 167,842 (27,411)
----------- -----------
Net cash (used for) provided
by continuing
operating activities . . . . . . . (1,476,978) 628,152
----------- -----------
Loss from discontinued
operations . . . . . . . . . . . . (392,872) (5,560,101)
(Decrease) increase in net
liabilities of discontinued
operations. . . . . . . . . . . . . . (1,670,028) 1,715,950
----------- -----------
Net cash used for discontinued
operating activities . . . . . . . 2,062,900) (3,844,151)
----------- -----------
Net cash used for operating
activities . . . . . . . . . . . . (3,539,878) (3,215,999)
----------- -----------
Cash flows from investing
activities:
Proceeds from sale of fixed
maturity investments . . . . . . -- 3,872,500
Capital expenditures . . . . . . . (81,278) (29,557)
Capitalized software
expenditures . . . . . . . . . . (1,108,540) (956,826)
----------- -----------
Net cash (used for) provided
by investing activities . . . . . (1,189,818) 2,886,117
----------- -----------
Cash flows from financing
activities:
Payments on credit lines . . . . . -- (2,000,000)
Net proceeds from issuance of
common stock. . . . . . . . . . . 4,738,495 12,335
------------ -----------
Net cash provided by (used for)
financing activities . . . . . . . 4,738,495 (1,987,665)
------------ -----------
Change in cash and cash
equivalents. . . . . . . . . . . . 8,799 (2,317,547)
Cash and cash equivalents
beginning of period. . . . . . . . . 1,576,745 6,407,801
------------ -----------
Cash and cash equivalents
end of period . . . . . . . . . . . . $ 1,585,544 $ 4,090,254
============ ===========
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
Supplemental disclosures of noncash investing and financing
activities:
Financing:
---------
The Company in connection with the discontinuance of ISD issued
Common Stock and Warrants for $6,978,340 as a result of the
restructuring agreement. (See Note 2.)
Investing:
---------
The Company acquired a software license from Care by issuing
Common Stock valued at $5,000,000. (See Note 6.)
See accompanying notes.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
For a summary of significant accounting policies, refer to Note 2
of Notes to Consolidated Financial Statements included in Cover-
All Technologies Inc. (the "Company") Annual Report on Form 10-K
for the year ended December 31, 1995. While the Company believes
that the disclosures 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
year 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 financial position as of
September 30, 1996 and December 31, 1995 and the results of
operations for the three-and nine-month periods ended September
30, 1996 and 1995, and the cash flows for the nine-month periods
ended September 30, 1996 and 1995. Such adjustments are of a
normal and recurring nature. The results of operations for the
nine-month period ended September 30, 1996 are not necessarily
indicative of the results to be expected for a full year.
NOTE 2 - DISCONTINUED OPERATIONS
Insurance Services Division ("ISD") revenues decreased
substantially in 1995 because of lower fees attributable to the
reduced number of policies and claims being handled on contracts
that were winding down or were completed. As a result, ISD had
been suffering losses and operating under considerable
uncertainty as a result of the pendency of lawsuits with certain
affiliates of The Robert Plan Corporation as described in Note 4.
In March 1996, the Company entered into a series of agreements
which provided for the transfer and discontinuance of its ISD
operations and the issuance of the Company's Common Stock and
Warrants to certain customers of the ISD business in exchange for
the release of the Company from its obligations to provide
insurance services to ISD customers and to The Robert Plan
Corporation in exchange for the settlement and dismissal of
lawsuits with The Robert Plan Corporation. Effective March 1,
1996, the Company has discontinued providing insurance processing
services to the automobile insurance industry. These agreements
have resulted in a net loss reported in 1995 of $749,758, which
included a provision for estimated ISD losses in 1996 prior to
the March 1 effective date of the settlement. A loss of $392,872
from discontinued operations was recorded in the three- and nine-
month periods ended September 30, 1996 as a result of the change in
the loss adjustment expense accrual.
As a part of the restructuring transactions, the Company
transferred certain assets, employees, contracts and leased
premises relating to its ISD business to a subsidiary of The
Robert Plan Corporation, which has replaced the Company as the
provider of insurance services to the ISD customers. In exchange
for settling the lawsuits, releasing the Company's obligations to
provide insurance services under its contracts and executing the
mutual releases, the Company issued to certain of the ISD
customers and certain parties to the litigation: (a) a total of
3,256,201 shares of the Company's Common Stock, (b) five-year
Warrants to purchase up to an additional aggregate of 1,553,125
shares of the Company's Common Stock at $2.00 per share and (c)
cash of $2.5 million. The Company had the option, exercisable
for a period of six months to (i) purchase 50 percent of the
aforementioned 3,256,201 shares at a cash price equal to the
greater of $3.00 or 50 percent of the then market price of a
share of the Company's Common Stock and (ii) acquire 50 percent
of the 1,553,125 Warrants at a cash price equal to $1.00 per
Warrant. On March 31, 1996, the Company assigned its
aforementioned repurchase option applicable to the Company's
Common Stock and Warrants to Software Investments Limited
("SIL"), which SIL subsequently exercised, all as discussed in
Note 6. As a result of the issuance of shares described in Note
<PAGE>
6, the antidilution provisions of the Warrants require an
adjustment of shares to 1,725,694 from 1,553,125 and a price
adjustment to $1.80 from $2.00 per share.
Accordingly, ISD operations for the three- and nine-month periods
ended September 30, 1995, have been reclassified and are included
in the Consolidated Statements of Operations as discontinued
operations.
In late 1993, the Company established Alerion, a wholly-owned
property/casualty insurance subsidiary. By early 1994, the
Company had funded Alerion with approximately $10 million of cash
and securities and Alerion entered into a reinsurance agreement
with Clarendon National Insurance Company ("Clarendon") to
reinsure a portion of the risk on certain insurance policies
written by a primary insurer. In late 1994, the Company decided
to discontinue assuming any underlying insurance risk. This was
accomplished by Alerion commuting all its rights and obligations
under the reinsurance contract back to Clarendon and paying to
Clarendon all amounts received in excess of payments made since
the inception. In 1996, Alerion surrendered its Certificate of
Authority to transact insurance business in New Jersey.
NOTE 3 - SPECIAL CHARGES
With the discontinuance of ISD, COVER-ALL Systems, Inc. ("COVER-
ALL"), a wholly-owned subsidiary, is the Company's only active
operation. Accordingly, COVER-ALL operations for the three- and
nine-month periods ended September 30, 1996 and 1995 are
classified in the Consolidated Statements of Operations as
continuing operations.
In December 1994, management instituted a plan to downsize the
COVER-ALL organization and reduce the rate of product development
to a level consistent with the reduced level of customer
installations planned in 1995. Costs of $1,165,000 were incurred
and written off in the first quarter of 1995 for executive and
other severance costs as well as software development costs.
This 1995 write-off was reflected as special charges in the
Statement of Operations for the first quarter of 1995.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LITIGATION
In March 1994, Material Damage Adjustment Corporation ("MDA"), a
subsidiary of The Robert Plan Corporation and a subcontractor for
the Company performing claims processing work, instituted an
action in the Superior Court of New Jersey seeking injunctive
relief requiring that the Company turn over to MDA in excess of
$1 million that the Company had withheld from certain claims fees
allegedly owed to MDA. This action arose out of the Company's
servicing contract with the Market Transition Facility of New
Jersey ("MTF"). The Company had withheld the funds as a set off
to cover unpaid invoices for data processing services rendered by
the Company for MDA. MDA also added a claim for approximately
$2.5 million of surcharge fees paid to the Company by the MTF.
The MTF was brought into the case to resolve disputes between MTF
and MDA over refunds of claims fees paid on claims later closed
without payment ("CWP's"). The Company vigorously contested
MDA's claims and asserted counterclaims against MDA to establish
the Company's entitlement to the disputed sums.
In May 1994, the Company filed an action in the Superior Court of
New Jersey against Lion Insurance Company, National Consumer
Insurance Corporation, and The Robert Plan Corporation seeking
payment of unsatisfied invoices under an April 1991 agreement
totalling approximately $2.7 million. Under the agreement, the
Company agreed to provide data processing services for a three-
year term in support of Lion Insurance Company's "depopulation
pool" automobile insurance business in New Jersey. Lion
Insurance Company is a subsidiary of The Robert Plan Corporation
whose affiliate, National Consumer Insurance Corporation, has
taken over the "depopulation pool" business. The Robert Plan
Corporation guaranteed Lion's performance and payment.
On March 1, 1996, the two lawsuits described above were settled
as part of the overall settlement with certain of the Company's
insurance services customers. The settlement and restructuring
transactions are described in Note 2--Discontinued Operations.
On February 2, 1995, Sol M. Seltzer commenced an action in the
Supreme Court of New York against Mr. Krieger, the then Chairman
of the Board and former President of the Company, and each of the
other then members of the Board of Directors. The plaintiff, Sol
M. Seltzer, who purported to sue derivatively on behalf of the
Company and COVER-ALL, sought among other things, compensatory
damages in an amount to be determined at trial and punitive
damages in an aggregate amount of $12 million. The Company, and
the other defendants, contested Mr. Seltzer's claims and on July
23, 1996 won a motion to dismiss the case. Mr. Seltzer attempted
to file a notice of appeal from the order of dismissal, but
failed to do so in a timely manner. He has since motioned the
court to recognize his notice of appeal and it is anticipated
that the court will rule on such motion in the near future.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LITIGATION (CONTINUED)
On February 6, 1995, the Company commenced an action in the
Superior Court of New Jersey against Sol M. Seltzer, a former
vice president of the Company and a director of COVER-ALL,
alleging fraud, mismanagement, negligence, misrepresentation, and
breach of fiduciary duty with respect to the development and
implementation of COVER-ALL's TAS 2000 software product. The
Company claimed compensatory and punitive damages in an amount to
be determined at trial. The case was largely inactive pending
the motion to dismiss Seltzer's New York action. After the
dismissal of the New York case brought by Seltzer, the Company
voluntarily dismissed the New Jersey case without prejudice.
In addition to the above lawsuits, the Company is named as
defendant in a number of legal actions arising from its
operations. Those actions have been considered in establishing
liabilities. Management and its legal counsel are of the opinion
that the settlement of those actions will not have a material
adverse effect on the financial position or results of operations.
NOTE 5 - INCOME TAXES
For 1996 and 1995, no income tax benefit relative to the
Company's operating losses has been reflected in the Statement of
Operations. A valuation allowance was provided equal to the tax
benefit that the loss generated, since the realization of such
benefit would be dependent upon achieving future operating
profits which cannot be reasonably assured.
NOTE 6 - SALE OF STOCK AND WARRANTS ON MARCH 31, 1996
On March 31, 1996, the Company entered into a series of
transactions with Software Investments Limited ("SIL") and Care
Corporation Limited ("Care") whereby the Company:
(A) sold to SIL for total proceeds of $3,022,391: (i) 1,412,758
shares of the Company's Common Stock for $2.00 per share and (ii)
five-year Warrants to purchase an aggregate of 196,875 shares of
the Company's Common Stock exercisable at $2.00 per share for
$1.00 per Warrant ($196,875).
(B) assigned to SIL the rights it retained in the settlement (see
Note 2) to repurchase within six months 1,628,100 shares of the
Company's Common Stock for the greater of $3.00 per share or 50
percent of the then market price of the Company's Common Stock
and its rights to purchase from the Warrant holders for $1.00 per
share five-year Warrants to acquire 776,562 shares of the
Company's Common Stock at $2.00 per share. As a result of the
issuance of the above mentioned shares, the antidilution
provisions of the Warrants require an adjustment from 776,562
shares at $2.00 per share to 862,847 shares at $1.80 per share.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SALE OF STOCK AND WARRANTS ON MARCH 31, 1996 (CONTINUED)
On May 1, 1996, SIL acquired 1,628,101 shares of the Company's
Common Stock at $3.00 per share, and at $1.00 per Warrant,
776,562 Warrants to acquire 776,562 shares of the Company's
Common Stock at $2.00 per share. SIL exercised these Warrants on
May 6, 1996, resulting in the Company receiving $1,553,124 in
additional equity. An additional 86,285 shares were issued to
SIL as a result of the change in the aggregate number of shares
underlying the Warrants pursuant to the antidilution provisions
in the Warrants as described in Note 2.
In addition, the Company was granted by Care the exclusive
license for the Care software systems for use in the workers'
compensation and group health claims administration markets in
Canada, Mexico and Central and South America. In exchange for
this license, the Company has issued to Care 2,500,000 shares of
the Company's Common Stock. If during the three years after
closing, this license results in $5,000,000 or more in revenues
by the Company, then the shares will be fully earned. Otherwise,
depending upon the level of revenue reached, the Company will
have the right to repurchase portions of the shares at $.01 per
share based upon the level of revenues actually achieved. Under
certain circumstances, based upon aggregate net sales in excess
of $10,000,000 from a maximum of two separate sales during such
three-year period, the Company may be required to grant to Care
five-year Warrants to buy an additional 1,000,000 shares of the
Company's Common Stock at $2.00 per share.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Total revenues for the three months ended September 30, 1996 were
$1,052,458 as compared to $1,135,513 for the same period in 1995.
License fees were $27,941 for the three months ended September
30, 1996 compared to $389,542 in the same period in 1995. For
the three months ended September 30, 1996, maintenance revenues
were $490,908 compared to $422,726 in the same period of the
prior year due to renegotiations of all contracts resulting in
higher fees to customers and an increased customer base.
Professional services revenue contributed $533,609 in the three
months ended September 30, 1996 compared to $323,245 in the third
quarter of 1995 as a result of new contracts signed and customers
requesting additional modifications to the existing systems. For
the nine months ended September 30, 1996, total revenues were
$4,069,522 as compared to $3,114,599 in the same period of the
prior year due to increased maintenance revenues as discussed
above and increased professional services from the Company's
newest product line entitled Total Administrative Solution ("TAS
2000"). TAS 2000 is a suite of computer applications for
property/casualty and health care insurers designed to enable a
client-driven re-engineering of the insurer's business processes.
Along with being client/server and ORACLE based, TAS 2000 is
approaching compliance with year 2000 requirements. Cover-All
and ORACLE Corporation have formed a strategic alliance which
aims to facilitate the advance of both organizations in the
property and casualty insurance marketplace. For the nine months
ended September 30, 1996, the revenues from the TAS 2000 product
line were $1,671,368 compared to $913,988 in the same period of
the prior year as a result of new contracts signed and the
successful completion of the existing contracts.
In December 1994, management adopted a plan to reduce the COVER-
ALL marketing and product development costs until revenues
increased to significantly higher levels. The total cash outlay
had grown to a level of approximately $1 million per month but
the revenues from customers continued to lag expectations. The
total head count, including employees and technical consultants,
was reduced by approximately half in the first quarter of 1995
and a business plan was adopted in 1995 which matched slowly
growing revenues with reduced costs. As a result of the
reorganization plan, costs incurred in the first quarter of 1995
for executive severance, employee severance and write-off of
software development costs totalling $1,165,000 were reflected as
special charges in the Statement of Operations for the quarter
ended March 31, 1995.
A loss from discontinued operations of $392,872 was recorded in
the Statement of Operations for the quarter ended September 30,
1996 representing the change in the loss adjustment expense accrual.
Total expenses for the three- and nine-months ended September 30,
1996 were $3,098,749 and $8,194,285 compared to $1,523,571 and
$5,941,107 for the same periods in 1995 primarily as a result of
increased research and development costs relating to the TAS 2000
product line, additional costs related to increased revenues and
selling, general and administrative expenses. COVER-ALL's
business is characterized by rapid technological change, and its
success depends on its ability to keep its products current based
on new technologies. COVER-ALL must maintain ongoing research
and development programs to add value and expand to its suite of
products resulting in research and development expenditures
constituting a significant percentage of expenses. Sales and
marketing expenses for the three- and nine-months ended September
30, 1996 were $489,155 and $810,891 compared to $121,198 and
$338,485 for the same periods in 1995 due to the hiring and
utilization of additional personnel and increased marketing
initiatives. General and administrative expenses increased for
the three- and nine-months to $1,069,983 and $2,750,124 from
$623,286 and $1,726,739 for the same periods in 1995 as a result
of costs incurred related to the negotiations with SIL and Care,
additional staffing and provision for doubtful accounts.
<PAGE>
The Company is working toward fulfilling long-term objectives.
In the Classic line, COVER-ALL has successfully installed and
tested certain modules of its system and the Company has been
pleased with growing customer interest. Because of the pipeline
of new business, revenues are expected to increase over the next
several quarters resulting in growth in its Classic line of
business. The Classic production line is a set of LAN (Local
Area Networks) based PC software packages designed to automate
the rating and issuance tasks in the property and casualty
industry.
As mentioned above, COVER-ALL has formed an alliance with ORACLE
related to the TAS 2000 product. ORACLE will provide technical
assistance, consultative services as well as sales direction and
support to the TAS 2000 market entry. The Company plans to
complete some of the major components of the TAS 2000 product
within the next several months. Future development of additional
modules will be customer driven.
COVER-ALL has commenced marketing efforts in the United Kingdom.
A contract for the TAS 2000 product successfully installed in a
large insurer in the United Kingdom is expected to expand in the
next year. This successful installation has increased customer
awareness of the TAS 2000 product in the United Kingdom and
Europe.
The preceding forward-looking statements (as such term is defined
in the Private Securities Litigation Reform Act) are subject to
the occurrence of certain contingencies which may not occur in
the time frames anticipated or otherwise, and, as a result, could
cause actual results to differ materially from such statements.
The Company's continued success in the near future is dependent
on certain contingencies which may not occur in the time frames
anticipated. These contingencies include the successful
completion of continuing developmental efforts under existing
software contracts within anticipated time frames or otherwise,
the successful negotiation, execution and implementation of
anticipated new software contracts, the successful utilization of
additional personnel in the marketing and technical areas, the
continuing favorable responses to the Company's products from
existing and potential new customers, and the Company's ability
to complete development and sell and license its products at
prices which result in sufficient revenues to cover costs and
realize profits.
Liquidity and Capital Resources
-------------------------------
In January 1996, the Company obtained approval from the New
Jersey Department of Insurance to dissolve its insurance
subsidiary, Alerion. As a result, plans were implemented to
remove the remaining approximately $2.5 million of statutory
minimum capital from Alerion. In January 1996, approximately
$2.4 million was distributed to the Company from Alerion.
There was a $1 million letter of credit outstanding with a bank
at December 31, 1995 issued in connection with certain of the
Company's contractual obligations. The letter of credit expired
in February 1996 and the $1 million of cash collateral was
returned to the Company, $887,500 of these funds were utilized by
the Company as the cash portion of the settlement distributed to
certain ISD customers and The Robert Plan Corporation. In
addition, $1.6 million was paid by the Company to the one ISD
customer who did not participate in the settlement.
In March 1996, the Company received a $2.3 million refund of
federal income taxes paid prior to 1995.
As a result of the restructuring transactions described in Note 2
and the series of transactions with Software Investment Limited
and Care Corporation Limited that are described in Note 6, the
Company has a positive net worth at September 30, 1996 of
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
approximately $6 million compared to a deficit of $6 million at
December 31, 1995, a $12 million increase to stockholders'
equity.
Cash flows from continuing operations were negative in the first
nine months of 1996 by $1.5 million as compared with positive
cash flows of $.6 million in the same period in 1995 primarily
due to payment of certain liabilities related to the discontinued
operations not transferred by the Company to a subsidiary of The
Robert Plan Corporation.
The Company believes that current cash balances and anticipated
cash flows from operations will be sufficient to meet normal
operating needs for the near term.
PART II OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
--------
27. Financial Data Schedule.
(b) Reports on Form 8-K.
-------------------
None.
<PAGE>
COVER-ALL TECHNOLOGIES INC.
AND SUBSIDIARIES
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
COVER-ALL TECHNOLOGIES INC.
November 14, 1996 By: /s/ Alfred J. Moccia
---------------------
Alfred J. Moccia
Chairman and Chief
Executive Officer
November 14, 1996 By: /s/ Raul F. Calvo
--------------------
Raul F. Calvo
Corporate Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
COVER-ALL TECHNOLOGIES INC.
FINANCIAL DATA SCHEDULE
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM COVER-ALL TECHNOLOGIES INC. FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,585,544
<SECURITIES> 0
<RECEIVABLES> 1,149,680
<ALLOWANCES> 284,132
<INVENTORY> 0
<CURRENT-ASSETS> 2,581,766
<PP&E> 3,068,124
<DEPRECIATION> 2,582,738
<TOTAL-ASSETS> 10,038,202
<CURRENT-LIABILITIES> 3,852,481
<BONDS> 0
0
0
<COMMON> 173,509
<OTHER-SE> 6,012,212
<TOTAL-LIABILITY-AND-EQUITY> 10,038,202
<SALES> 0
<TOTAL-REVENUES> 4,069,522
<CGS> 0
<TOTAL-COSTS> 1,459,556
<OTHER-EXPENSES> 6,734,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,124,763)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,124,763)
<DISCONTINUED> (392,872)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,517,635)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
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