UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
---------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended September 30, 1997 Commission File Number 0-13124
COVER-ALL TECHNOLOGIES, INC. AND SUBSIDIARIES
(Exact name of registrant as specified in its charter)
Delaware 13-2698053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18-01 Pollitt Drive
Fair Lawn, New Jersey 07410
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 794-4800
----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares outstanding at November 10, 1997:
16,751,822 shares of Common Stock, par value $.01 per share.
<PAGE>
COVER-ALL TECHNOLOGIES, INC. AND SUBSIDIARIES
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INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1997.
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PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 [Unaudited]
and December 31, 1996 [Audited].................................. 1..... 2
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996 [Unaudited].................... 3.....
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 [Unaudited].......................... 4.....
Notes to Consolidated Financial Statements [Unaudited]........... 5..... 8
Item 2. Managements' Discussion and Analysis of the Financial
Condition and Results of Operations........................ 9..... 10
PART II: OTHER INFORMATION..........................................11.....
SIGNATURES..........................................................12.....
. . . . . . . . . . . . . . .
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
COVER-ALL TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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<TABLE>
September 30, December 31,
1 9 9 7 1 9 9 6
[Unaudited] [Audited]
Assets:
Current Assets:
<S> <C> <C>
Cash and Cash Equivalents $1,102,698 $ 446,672
Accounts Receivable [Less Allowance for Doubtful Accounts
of $76,969 and $43,870] 1,659,981 1,585,398
Prepaid Expenses 244,957 7,161
---------- -----------
Total Current Assets 3,007,636 2,039,231
---------- -----------
Property and Equipment - At Cost:
Furniture, Fixtures and Equipment 2,625,678 3,072,706
Less: Accumulated Depreciation (2,358,238) (2,662,713)
---------- -----------
Property and Equipment - Net 267,440 409,993
---------- -----------
Software License [Less Amortization of $1,500,000
and $750,000] 3,500,000 4,250,000
---------- -----------
Capitalized Software [Less Amortization of $1,617,142
and $1,005,964] 866,772 1,477,950
---------- -----------
Other Assets 59,335 66,181
---------- -----------
Total Assets $7,701,183 $ 8,243,355
========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
1
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COVER-ALL TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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<TABLE>
September 30, December 31,
1 9 9 7 1 9 9 6
[Unaudited] [Audited]
Liabilities and Stockholders' Equity:
Current Liabilities:
<S> <C> <C>
Accounts Payable $ 452,099 $ 536,172
Accrued Liabilities 1,156,379 1,614,612
Unearned Revenue 640,364 1,181,575
---------- -----------
Total Current Liabilities 2,248,842 3,332,359
---------- -----------
Convertible Debentures 3,000,000 --
---------- -----------
Commitments and Contingencies -- --
---------- -----------
Stockholders' Equity:
Common Stock, $.01 Par Value, Authorized 30,000,000 Shares,
Issued 17,356,308 and 17,351,883 Shares 173,563 173,519
Capital In Excess of Par Value 27,635,989 27,258,352
Accumulated Deficit (22,790,004) (19,953,668)
Treasury Stock - At Cost - 633,986 Shares (2,567,207) (2,567,207)
---------- -----------
Total Stockholders' Equity 2,452,341 4,910,996
---------- -----------
Total Liabilities and Stockholders' Equity $7,701,183 $ 8,243,355
========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
2
<PAGE>
COVER-ALL TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
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<TABLE>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
------- ------- ------- -------
Revenues:
<S> <C> <C> <C> <C>
Licenses $ 994,203 $ 27,941 $ 1,480,711 $ 735,183
Maintenance 674,397 490,908 1,889,575 1,526,345
Professional Services 389,606 533,609 908,834 1,807,994
---------- ---------- ----------- -----------
Total Revenues 2,058,206 1,052,458 4,279,120 4,069,522
---------- ---------- ----------- -----------
Costs and Expenses:
Cost of Sales 1,030,003 863,223 3,579,068 2,253,849
Research and Development -- 676,388 -- 2,379,421
Sales and Marketing 540,850 489,155 1,349,320 810,891
General and Administrative 727,246 1,069,983 2,187,068 2,750,124
---------- ---------- ----------- -----------
Total Costs and Expenses 2,298,099 3,098,749 7,115,456 8,194,285
---------- ---------- ----------- -----------
Loss from Continuing Operations (239,893) (2,046,291) (2,836,336) (4,124,763)
Loss from Discontinued Operations -- (392,872) -- (392,872)
---------- ---------- ----------- -----------
Net Loss $ (239,893) $(2,439,163) $(2,836,336)$(4,517,635)
========== =========== =========== ===========
Net Loss Per Share from
Continuing Operations $ (0.014) $ (0.122) $ (0.170)$ (0.289)
========== ========== =========== ===========
Net Loss Per Share $ (0.014) $ (0.146) $ (0.170)$ (0.317)
========== ========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 16,720,901 16,716,700 16,719,731 14,248,605
========== ========== =========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
3
<PAGE>
COVER-ALL TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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<TABLE>
Nine months ended
September 30,
1 9 9 7 1 9 9 6
------- -------
Cash Flows from Operating Activities:
<S> <C> <C>
Net Loss from Continuing Operations $(2,836,336) $(4,124,763)
Adjustments to Reconcile Net Loss to Net Cash
Used for Operating Activities
Depreciation 143,755 261,823
Amortization of Capitalized Software and Software License 1,361,178 820,345
Compensation Expense Related to Issuance of Stock Options 369,688 --
Accounts Receivable (74,583) 898,342
Income Taxes Receivable -- 2,300,000
Deferred Income Taxes -- (20,000)
Prepaid Expenses (237,796) (125,319)
Other Assets 6,846 314,653
Accounts Payable (84,073) (278,893)
Accrued Liabilities (458,233) (1,691,008)
Unearned Revenue (541,211) 167,842
---------- -----------
Net Cash Used for Continuing Operating Activities (2,350,765) (1,476,978)
---------- -----------
Loss from Discontinued Operations -- (392,872)
Decrease in Net Liabilities of Discontinued Operations -- (1,670,028)
---------- -----------
Net Cash Used for Discontinued Operating Activities -- (2,062,900)
---------- -----------
Net Cash Used for Continuing Activities (2,350,765) (3,539,878)
---------- -----------
Cash Flow from Investing Activities:
Capital Expenditures (1,202) (81,278)
Capital Software Expenditures -- (1,108,540)
---------- -----------
Net Cash Used for Investing Activities (1,202) (1,189,818)
---------- -----------
Cash Flows from Financing Activities:
Proceeds from the Bridge Financing and the Sale of
Convertible Debentures 3,750,000 --
Payments on the Bridge Financing (750,000) --
Net Proceeds from Issuance of Common Stock 7,993 4,738,495
---------- -----------
Net Cash Provided from Financing Activities 3,007,993 4,738,495
---------- -----------
Change in Cash and Cash Equivalents 656,026 8,799
Cash and Cash Equivalents - Beginning of Periods 446,672 1,576,745
---------- -----------
Cash and Cash Equivalents - End of Periods $1,102,698 $ 1,585,544
========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
4
<PAGE>
COVER-ALL TECHNOLOGIES, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
[UNAUDITED]
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Supplemental Disclosures of Non-Cash Investing and Financing Activities in 1996:
Financing
In connection with the discontinuance of ISD, the Company issued Common Stock
and Warrants for $6,978,340 as a result of the restructuring agreement [See Note
3].
Investing
The Company acquired a software license from Care by issuing Common Stock valued
at $5,000,000 [See Note 4].
The Accompanying Notes are an Integral Part of These Financial Statements.
5
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
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[1] General
For a summary of significant accounting policies, refer to Note 1 of Notes to
Consolidated Financial Statements included in Cover-All Technologies Inc. [the
"Company"] Annual Report on Form 10-K for the year ended December 31, 1996.
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, 1997 and December 31, 1996 and the
results of operations for the three and nine month periods ended September 30,
1997 and 1996, and the cash flows for the nine month periods ended September 30,
1997 and 1996. Such adjustments are of a normal and recurring nature. The
results of operations for the three and nine month period ended September 30,
1997 are not necessarily indicative of the results to be expected for a full
year.
[2] Convertible Notes & Debentures
On March 14, 1997, the Company obtained $750,000 in bridge financing through the
sale of 12 1/2% Convertible Notes to three major stockholders. The principal and
accrued interest on the bridge financing was repaid in full on March 31, 1997
out of the proceeds from the financing discussed below.
On March 31, 1997, the Company issued $3,000,000 of 12 1/2% Convertible
Debentures [the "Debentures"] to an institutional investor at face value. The
Debentures are immediately convertible, in whole or in part, into shares of the
Company's Common Stock at a conversion price of $1.25 per share, subject to
adjustment, and mature on March 31, 2002. Interest is payable quarterly. The
Debentures contain certain covenants which restrict the Company's ability to
incur debt, grant liens, pay dividends or other restricted payments and make
investments and acquisitions. The Company cannot redeem the Debentures for two
years and thereafter may call the Debentures only if the closing price of the
Company's Common Stock exceeds $1.50 for the twenty days preceding the
redemption date. A portion of the proceeds from the issuance was used to repay
the bridge financing. The remaining net proceeds are being used for working
capital purposes.
[3] Discontinued Operations
In March 1996, the Company entered into a series of agreements which provided
for the transfer and discontinuance of its Insurance Services Division ["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 two
lawsuits with The Robert Plan Corporation. Effective March 1, 1996 the Company
discontinued providing insurance processing services to the automobile insurance
industry and reflected those activities as discontinued operations in its
Financial Statements in December 1995.
6
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
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[3] Discontinued Operations [Continued]
As part of the restructuring transactions ["the Restructuring"] the Company
transferred certain assets, employees, contracts and leased premises relating to
its ISD business to a subsidiary of The Robert Plan Corporation, which 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 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 holders of these securities can request the Company to register these
securities with such registration costs to be paid by the Company. The Company
had the option, exercisable for a period of six months, to (i) purchase 50% of
the aforementioned 3,256,201 shares at a cash price equal to the greater of
$3.00 or 50% of the then market price of a share of the Company's Common Stock
and (ii) acquire 50% 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"]. SIL subsequently exercised all of the
options to purchase the Company's Common Stock and Warrants as discussed in Note
4. As a result of the issuance of shares described in Note 4, the antidilution
provisions of the warrants required an adjustment of shares to 1,725,694 from
1,553,125 and a price adjustment to $1.80 from $2.00 per share. Further, as a
result of the issuance of the 12 1/2% Convertible Debentures discussed in Note
2, the Warrants required an adjustment to the number of shares purchasable to
902,979 and the exercise price to $1.72 per share.
[4] Sale of Stock and Warrants
On March 31, 1996, the Company entered into a series of transactions with
Software Investment 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 Restructuring [see Note 3] 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 required an
adjustment from 776,562 shares at $2.00 per share to 862,847 shares at $1.80 per
share. Further, as a result of the issuance of the 12 1/2% Convertible
Debentures discussed in Note 2, the Warrants required an adjustment to the
number of shares purchasable to 206,152 and the exercise price to $1.91 per
share. In July 1997 SIL assigned the Warrants to purchase 100,000 shares of the
206,152 shares at $1.91 per share to three independent investors.
On May 1, 1996, SIL acquired 1,628,100 shares of the Company's Common Stock at
$3.00 per share, and at $1.00 per Warrant, 862,847 Warrants to acquire 862,847
shares of the Company's Common Stock at $1.80 per share. SIL exercised these
Warrants on May 6, 1996, resulting in the Company receiving $1,553,124 in
additional equity.
7
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet 3
[UNAUDITED]
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[4] Sale of Stock and Warrants [Continued]
In addition, on March 31, 1996, the Company was granted by Care the exclusive
license for the Care software 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 issued to Care 2,500,000
shares of the Company's Common Stock. The agreement was revised on March 14,
1997 and the Company engaged Care as its exclusive sales agent for a monthly fee
of $10,000 against commissions of 20%. Depending upon the level of revenue
reached, the Company will have the right to repurchase at $.01 per share
portions of the shares issued to Care based upon the level of revenues actually
achieved. Under certain circumstances, based upon aggregate net sales in excess
of $10 million from a maximum of two separate sales during such three-year
period, the Company will be required to grant Care five-year warrants to buy an
additional 1,000,000 shares of the Company's Common Stock at $2.00 per share.
[5] 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 totaling 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
[See Note 3].
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. Sol M. Seltzer was a vice-president of the
Company and a director of COVER-ALL until he resigned from such positions in
late 1994. The plaintiff alleged, among other things, breach of fiduciary duty,
waste and mismanagement, as well as alleged wrongful acts by the Board and the
former President, including among other things, self-dealing and misuse of
corporate funds by the former President. The Company, and the other defendants,
contested Mr. Seltzer's claims and on July 23, 1996 their motion to dismiss the
case was granted. 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.
8
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet 3
[UNAUDITED]
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[5] 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, negligent
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 the ISD operations which were transferred to
The Robert Plan Corporation in 1996. All of these actions have been considered
in establishing liabilities. Management and its legal counsel are of the
opinion that these actions will not have a material adverse effect on the
Company's financial position or results of operations.
[6] Income Taxes
For 1997 and 1996, 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.
[7] Net Loss Per Share
Net loss per share is based on the weighted average number of common shares and,
where applicable, common share equivalents outstanding during the period. In
February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share." The Statement is designed to simplify the computation
of earnings per share and is effective for year ends after December 15, 1997.
With respect to the Company's operating losses, the inclusion of certain shares
from options, warrants and Debentures would have reduced the loss per share and
thus have been excluded. As a result, the impact of Statement No. 128 on the
loss per share calculation is not expected to be material when it is
implemented.
. . . . . . . . . . . . . . .
9
<PAGE>
Item 2:
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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Total revenues for the three months ended September 30,1997 were $2,058,206 as
compared to $1,052,458 for the same period in 1996. Licenses fees were $994,203
for the three months ended September 30, 1997 compared to $27,941 in the same
period in 1996 as a result of two new Classic contracts being signed in the
third quarter of 1997 and no new contracts being signed in 1996. For the three
months ended September 30, 1997, maintenance revenues were $674,397 compared to
$490,908 due to increased fees to customers and new contract signed in 1997.
Professional services revenue contributed $389,606 in the three months ended
September 30, 1997 compared to $533,609 in the third quarter of 1996 as a result
of the completion of modifications for the one major TAS 2000 customer in 1996.
Total Classic revenues were $2,008,205 for the three months ended September 30,
1997 as compared to $652,585 for the three months ended September 30, 1996.
Total TAS 2000 revenues were $50,001 for the three months ended September 30,
1997 as compared to $399,873 for the three months ended September 30, 1996. For
the nine months ended September 30, 1997, total revenues were $4,279,120
compared to $4,069,522 in the same period of the prior year as a result of two
new Classic contracts signed in the third quarter of 1997. Total Classic
revenues were $3,829,119 for nine months ended September 30, 1997 as compared to
$2,398,154 in the same period in 1996. Total TAS 2000 revenues were $450,001 for
the first nine months of 1997 as compared to $1,671,368 in the same period in
1996.
Cost of sales increased to $1,030,003 and $3,579,068 for the three and nine
months ended September 30, 1997 as compared to $863,223 and $2,253,849 for the
same periods in 1996 as a result of significant increases in capitalized
software and license fees amortization, and compensation expense relating to
dedication of staff originally involved in research and development for the one
completed TAS 2000 contract to maintenance and professional services for the
Classic product. Non-cash capitalized software and license fees amortization was
$453,726 and $1,361,179 for the three and nine months ended September 30, 1997
as compared to $346,488 and $820,347 in the same periods in 1996.
No research and development expenses were recorded for the three and nine months
ended September 30, 1997 compared to $676,388 and $2,379,421 for the same
periods in 1996 as a result of completion of several modules of the TAS 2000
product line and significant staff reductions in the development group. Future
development of additional TAS 2000 modules will be customer driven.
Sales and marketing expenses increased to $540,850 and $1,349,320 in the three
and nine months ended September 30, 1997 as compared to $489,155 and $810,891 in
the same periods of 1996 due to an increased marketing and sales effort to
improve the market share of all the Company's product lines. The Company is now
utilizing distributors and outside consultants to market its products.
General and administrative expenses decreased to $727,246 and $2,187,068 in the
three and nine months ended September 30, 1997 as compared to $1,069,983 and
$2,750,124 in the same periods in 1996 due to the ongoing effort to reduce
overhead costs.
The Company is working toward continued growth in 1997 and beyond. In the
Classic line, the Company is positioned to increase market share as a result of
completion of the project making it Windows 95 compliant and maintaining the
strengths upon which its current market acceptance is based. A sales force is
being recruited to market the Classic product line nationwide. The Classic
product line is a set of Local Area Network ["LAN"] based PC software packages
designed to automate the rating and issuance tasks in the property and casualty
insurance industry.
The TAS 2000 product line offers a complete set of policy administration
applications development products. The TAS 2000 products are being marketed in
both the domestic marketplace and in the United Kingdom, through systems
integrators.
10
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
The Company is also marketing the Care software in Canada. The Care software is
an integrated suite of computer applications for the administration of claims
processing of workers' compensation. The software utilizes the "open system"
environment and, in particular, relational database technology. A feature of the
software is the integration of advanced managed care algorithms and databases.
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. These contingencies include 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 realize profits.
Liquidity and Capital Resources
On March 31, 1997, the Company sold $3,000,000 of 12 1/2% Convertible Debentures
due March 2002 [the "Debentures"] to an institutional investor. The Debentures
were sold at face value, pay interest quarterly and are convertible, in whole or
in part, into shares of Common Stock of the Company at $1.25 per share, subject
to adjustment. The Debentures contain certain covenants which restrict the
Company's ability to incur indebtedness, grant liens, pay dividends or other
defined restricted payments and make investments and acquisitions. The Company
cannot redeem the Debentures for two years and thereafter may only call the
Debentures if the closing price of the Company's Common Stock for the twenty
business days preceding the redemption date exceeds $1.50. The net proceeds from
this financing is being used for working capital purposes.
Cash flows from continuing operations were negative in the first nine months of
1997 by approximately $2.4 million as compared with negative cash flow of
approximately $1.5 million in the same period in 1996 primarily due to the fact
that an income tax refund of $2.3 million was received in the first quarter of
1996.
The Company believes that the proceeds from the sale of the Debentures, its
current cash balances and anticipated cash flows from continuing operations will
be sufficient to meet normal operating needs for the continuing COVER-ALL
business in 1997. The company is evaluating alternatives for raising additional
working capital.
11
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
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.
The Company filed a Form 8-K on August 11, 1997 under Item 4 to reflect the
engagement of Moore Stephens, P. C. as the Company's auditors to replace
Ernst & Young, LLP effective August 4, 1997 and under Item 5 to reflect the
events of the annual meeting of stockholders.
12
<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.
Date: November 14, 1997 By:/s/ Brian Magowan
Brian Magowan, Chairman and Chief
Executive Officer
Date: November 14, 1997 By:/s/ Mark D. Johnston
--------------------
Mark D. Johnston, Chief Financial Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and the consolidated statement of operations and is
qualified in its entirety by referene to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> dec-31-1997
<PERIOD-END> sep-30-1997
<CASH> 1,102,698
<SECURITIES> 0
<RECEIVABLES> 1,736,950
<ALLOWANCES> 76,969
<INVENTORY> 0
<CURRENT-ASSETS> 3,007,636
<PP&E> 2,625,678
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,701,183
<CURRENT-LIABILITIES> 2,248,842
<BONDS> 3,000,000
0
0
<COMMON> 173,563
<OTHER-SE> 2,278,778
<TOTAL-LIABILITY-AND-EQUITY> 7,701,183
<SALES> 0
<TOTAL-REVENUES> 4,279,120
<CGS> 0
<TOTAL-COSTS> 3,579,068
<OTHER-EXPENSES> 3,536,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,836,336)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,836,336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,826,336)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
