UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
----------------
FORM 10-Q/A
AMENDMENT NO. 1
TO
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
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Commission File Number 0-13124
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COVER-ALL TECHNOLOGIES INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2698053
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18-01 Pollitt Drive
Fair Lawn, New Jersey 07410
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 794-4800
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Number of shares outstanding at November 8, 1999:
17,003,672 shares of Common Stock, par value $.01 per share.
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q/A FOR THE QUARTER ENDED SEPTEMBER 30, 1999.
EXPLANATORY NOTE
Cover-All Technologies Inc., a Delaware corporation (the "Company"),
hereby amends Items 1 and 2 of Part I and Item 6 of Part II of its Quarterly
Report on Form 10-Q, which was filed with the Securities and Exchange Commission
on November 15, 1999. Items 1 and 2 of Part I are hereby amended to reflect the
restated financial information of the Company as a result of a recent detailed
review of the Company's compliance with its revenue recognition and
capitalization policies undertaken by new management. Item 6 of Part II is
hereby amended to reflect such restated financial information on the financial
data schedule.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
and December 31, 1998 (Audited) ........................................ 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1999 and 1998 (Unaudited) ................... 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998 (Unaudited) ................... 6
Notes to Consolidated Financial Statements (Unaudited) ................. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 10
PART II: OTHER INFORMATION ................................................ 13
SIGNATURES ................................................................ 14
. . . . . . . . . .
- 2 -
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents ..................... $ 395,460 $ 2,286,610
Accounts Receivable (Less Allowance for
Doubtful Accounts of $345,000 and $476,000) . 4,181,991 3,493,192
Note Receivable -- Related Party .............. 1,406,486 947,413
Deferred Tax Asset ............................ 600,000 400,000
Prepaid Expenses .............................. 339,385 231,442
Accrued Interest -- Related Party Receivable .. 93,514 52,587
------------ ------------
Total Current Assets .......................... 7,016,836 7,411,244
------------ ------------
Property and Equipment -- At Cost:
Furniture, Fixtures and Equipment ............. 3,128,653 2,760,070
Less: Accumulated Depreciation ............... (2,709,254) (2,557,313)
------------ ------------
Property and Equipment -- Net .................. 419,399 202,757
------------ ------------
Note Receivable -- Related Party
(Net of Unearned Interest of $291,133) ........ 1,708,867 2,563,147
------------ ------------
Capitalized Software (Less Accumulated
Amortization of $2,953,694 and $2,605,581) .... 2,025,427 1,187,378
------------ ------------
Other Assets ..................................... 65,878 60,910
------------ ------------
Total Assets .................................. $ 11,236,407 $ 11,425,436
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of
These Consolidated Financial Statements.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable .......................................... $ 734,422 $ 896,417
Accrued Liabilities ....................................... 1,002,045 1,447,025
Unearned Revenue .......................................... 1,911,938 865,094
------------ ------------
Total Current Liabilities ................................. 3,648,405 3,208,536
Convertible Debentures ....................................... 3,000,000 3,000,000
------------ ------------
Total Liabilities ......................................... 6,648,405 6,208,536
------------ ------------
Commitments and Contingencies ................................ -- --
------------ ------------
Stockholders' Equity:
Common Stock, $.01 Par Value, Authorized 30,000,000 Shares,
Issued 17,003,672 and 16,983,672 Shares, Respectively .. 170,037 169,837
Capital In Excess of Par Value ............................... 26,763,197 26,723,397
Accumulated Deficit .......................................... (22,345,232) (21,676,334)
------------ ------------
Total Stockholders' Equity ................................... 4,588,002 5,216,900
------------ ------------
Total Liabilities and Stockholders' Equity ................... $ 11,236,407 $ 11,425,436
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of
These Consolidated Financial Statements.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Licenses .......................... $ 301,500 $ 1,527,105 $ 2,504,690 $ 4,951,494
Maintenance ....................... 1,132,966 956,089 3,235,451 2,761,420
Professional Services ............. 699,584 1,328,009 3,020,184 2,600,850
------------ ------------ ------------ ------------
Total Revenues .................... 2,134,050 3,811,203 8,760,325 10,313,764
------------ ------------ ------------ ------------
Cost of Revenues:
Licenses .......................... 1,157,537 1,026,898 4,257,839 3,151,508
Maintenance ....................... 405,471 455,157 1,235,249 1,171,774
Professional Services ............. 288,522 155,215 947,325 522,025
------------ ------------ ------------ ------------
Total Cost of Revenues ............ 1,851,530 1,637,270 6,440,413 4,845,307
------------ ------------ ------------ ------------
Direct Margin ..................... 282,520 2,173,933 2,319,912 5,468,457
------------ ------------ ------------ ------------
Operating Expenses:
Sales and Marketing ............... 354,612 575,233 1,339,318 1,408,661
General and Administrative ........ 475,795 567,775 882,498 1,432,200
Research and Development .......... 291,356 239,593 777,735 782,434
------------ ------------ ------------ ------------
Total Operating Expenses .......... 1,121,763 1,382,601 2,999,551 3,623,295
------------ ------------ ------------ ------------
Operating Income (Loss) ........... (839,243) 791,332 (679,639) 1,845,162
------------ ------------ ------------ ------------
Interest Expense (Income):
Interest Expense .................. 98,619 94,437 292,861 281,937
Interest Income - Related
Party (Imputed) ................. (46,757) (14,563) (145,720) (14,563)
Interest Income ................... (3,249) (16,217) (16,696) (52,494)
------------ ------------ ------------ ------------
Interest Expense (Income) ......... 48,613 63,657 130,445 214,880
------------ ------------ ------------ ------------
Foreign Currency Transaction
Gain (Loss) ..................... (16,161) -- (58,814) --
------------ ------------ ------------ ------------
Income (Loss) Before Income
Tax Benefit .................... (904,017) 727,675 (868,898) 1,630,282
Income Tax Benefit ................... -- -- 200,000 --
------------ ------------ ------------ ------------
Net Income (Loss) .................... $ (904,017) $ 727,675 $ (668,898) $ 1,630,282
============ ============ ============ ============
Basic and Diluted Earnings
(Loss) Per Common Share ........... $ (0.05) $ 0.04 $ (0.04) $ 0.10
============ ============ ============ ============
Weighted Average Number of
Common Shares Outstanding for Basic
Earnings (Loss) Per Common Share .. 17,000,000 16,982,000 16,997,000 16,920,000
============ ============ ============ ============
</TABLE>
The Accompanying Notes are an Integral Part of
These Consolidated Financial Statements.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Income (Loss) from Operations ................ $ (668,898) $ 1,630,282
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided From (Used for) Operating
Activities:
Depreciation ............................ 151,941 116,932
Amortization of Capitalized Software .... 348,113 504,417
Provision for Uncollectible Accounts
Receivable .............................. 76,000 40,172
Imputed Interest Income ................. (104,793) (14,563)
Deferred Tax Asset ...................... (200,000) --
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable ..................... (764,799) (3,598,654)
Prepaid Expenses ........................ (107,943) (52,251)
Accrued Interest-- Related Party Note
Receivable .............................. (40,927) --
Other Assets ............................ (4,968) (6,400)
Increase (Decrease) in:
Accounts Payable ........................ (161,995) 325,978
Accrued Liabilities ..................... (444,980) 82,875
Unearned Revenue ........................ 1,046,844 (90,820)
----------- -----------
Net Cash (Used For) Operating Activities ..... (876,405) (1,062,032)
----------- -----------
Cash Flows from Investing Activities:
Repayment of Notes Receivable - Related Party 500,000 1,000,000
Capital Expenditures ......................... (368,583) (109,179)
Capitalized Software Expenditures ............ (1,186,162) (767,763)
----------- -----------
Net Cash (Used For) Investing Activities ..... (1,054,745) 123,058
----------- -----------
Cash Flows from Financing Activities:
Proceeds from Exercise of Stock Options ...... 40,000 309,237
----------- -----------
Net Cash Provided from Financing Activities ...... 40,000 309,237
----------- -----------
Change in Cash and Cash Equivalents .............. (1,891,150) (629,737)
Cash and Cash Equivalents - Beginning of Period .. 2,286,610 2,908,167
----------- -----------
Cash and Cash Equivalents - End of Period ........ $ 395,460 $ 2,278,430
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of
These Consolidated Financial Statements.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
[1] General
For a summary of significant accounting policies, refer to Note 1 of Notes to
Consolidated Financial Statements included in Cover-All Technologies Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended December 31, 1998.
While the Company believes that the disclosures herein presented are adequate to
make the information not misleading, these consolidated financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's latest annual report. Certain amounts
for the prior period have been reclassified to conform with the current period's
financial statement presentation. The financial statements include on a
consolidated basis the results of all subsidiaries. All material intercompany
transactions have been eliminated.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments which are necessary to present fairly the Company's
consolidated financial position as of September 30, 1999 and December 31, 1998,
and the results of their operations for the three and nine month periods ended
September 30, 1999 and 1998, and their cash flows for the nine month periods
ended September 30, 1999 and 1998. Such adjustments are of a normal and
recurring nature. The results of operations for the three and nine month periods
ended September 30, 1999 and 1998 are not necessarily indicative of the results
to be expected for a full year.
[2] Sale of Stock and Purchase and Sale of Care Software License
On March 31, 1996, the Company was granted by Care Corporation Limited ("Care")
the exclusive license for the Care software systems for use in the workers'
compensation claims administration markets in Canada, Mexico and Central and
South America (the "Care Software License"). In exchange for this license, the
Company issued to Care 2,500,000 shares of the Company's Common Stock at $2.00
per share to value the license at $5,000,000 at March 31, 1996. Depending upon
the level of revenue reached, or not reached, the Company had the right to
repurchase all or portions of the shares issued to Care at $.01 per share.
In the fourth quarter of 1997, the Company made a strategic decision to allocate
its future resources to its TAS and Classic product lines rather than the
product line obtained via the Care Software License. In this regard, on March
31, 1998, the Company negotiated a buy back by Care of the Care Software
License.
For the buy back of Care Software License by Care, the Company received $500,000
on March 31, 1998, and a $4,500,000 non-interest bearing note (the "Care Note"),
payable in semi-annual installments of $500,000 which, when discounted at 6%,
results in a principal amount of the note of $3,893,054. Based on the above, and
due to the related party nature of the Care Software License buy back agreement,
the Company has recorded the $1,143,054 difference between the carrying value of
the Care Software License at December 31, 1997 of $3,250,000 and the discounted
$4,393,054 buy back agreement amount to capital in excess of par value in the
first quarter of 1998.
The discounted note is collateralized by unencumbered Cover-All stock owned by
Care and a Care affiliate, Software Investments Limited ("SIL"). The number of
shares required as collateral will vary, such that the market value of the
shares held as collateral must equal 150% of the outstanding balance of the
note. The number of shares required as collateral will be adjusted at each
payment date based on the market price of the Company's shares and the balance
outstanding on such date. Based on the market price of the Company's stock on
March 30, 1998, approximately 1,700,000 shares were pledged as collateral. Upon
receipt of the first $500,000 payment under the agreement on March 31, 1998, the
Company lifted the aforementioned $.01 per share stock repurchase restriction on
the 2,500,000 shares. The Company has received the subsequent payments due under
the Care Note, including the payment due by March 31, 1999. The payment due
September 30, 1999 has been deferred until November 15, 1999. Based on the
market price of the Company's common stock on March 30, 1999, approximately
1,909,000 shares were pledged as collateral.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
[2] Sale of Stock and Purchase and Sale of Care Software License (continued)
The balance of the undiscounted Care Note at September 30, 1999 is $3,500,000,
of which $1,500,000 is classified as currently due, including imputed interest
accrued of $93,514. The payment due September 30, 1999 has been deferred until
November 15, 1999. The undiscounted long-term portion of the Care Note at
September 30, 1999 of $2,000,000 is shown at $1,708,867, net of unearned
interest of $291,133.
[3] Income Taxes
An analysis of the components of the income tax provision is as follows:
The income tax provision (benefit) for continuing operations differs from the
amount computed by applying the statutory federal income tax rate as follows:
Nine Months
Ended
September 30, 1999
------------------
Computed Federal Statutory Tax (Benefit) ................. $ (295,000)
Related Party Gain Charged to Paid-In-Capital ............ --
Alternative Minimum Tax Liability ........................ --
Utilization of Net Operating Loss Carryforward ........... --
Reduction in Deferred Tax Valuation Allowance ............ 495,000
-----------
Actual Provision (Benefit) ........................... $ (200,000)
===========
The components of the net deferred tax asset and liability were as follows:
Nine Months
Ended
September 30, 1999
------------------
Deferred Tax Assets-- Current:
Net Operating Loss Carryforward .......................... $ 471,000
Accounts Receivable Allowance ............................ 138,000
Reserve for Loss on Disposal ............................. 51,000
Vacation Accrual ......................................... 10,000
Related Party Gain ....................................... (70,000)
Valuation Allowance ...................................... --
-----------
Current Deferred Tax Asset ............................. $ 600,000
===========
Deferred Tax Asset (Liability)-- Long-Term:
Net Operating Loss Carryforward .......................... $ 8,000,000
Stock Options ............................................ 128,000
Capitalized Software ..................................... (810,000)
Depreciation and Amortization ............................ 168,000
Related Party Gain ....................................... (83,000)
Valuation Allowance ...................................... (7,403,000)
-----------
Long-Term Deferred Tax Liability ....................... $ --
===========
The net change (increase) during 1999 in the total valuation allowance is
$175,000.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
[4] Segment Information
The following information is presented as a result of the Company adopting SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
At September 30, 1999 and 1998, the Company's two business units have distinct
management teams and infrastructures that offer different products and services
which are evaluated separately in assessing performance and allocating
resources. These business units have been reported as two reportable segments,
Classic and TAS.
The following financial information is reported on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources.
(Dollars in Thousands)
Nine Months ended September 30, 1999
-------------------------------------------
Classic TAS Care Consolidated
------- --- ---- ------------
Revenues ..................... 5,735 3,025 -- 8,760
Operating Profit (Loss) ...... 2,609 (3,289) -- (680)
(Dollars in Thousands)
Nine Months ended September 30, 1998
-------------------------------------------
Classic TAS Care Consolidated
------- --- ---- ------------
Revenues ..................... 4,676 5,638 -- 10,314
Operating Profit (Loss) ...... 1,810 242 (207) 1,845
[5] Earnings Per Share Disclosures
The following is a reconciliation of the numerator and denominator of the basic
and diluted earnings per share ("EPS") computations:
<TABLE>
<CAPTION>
For the nine months ended
September 30, 1999
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -------
<S> <C> <C> <C>
Basic EPS:
Income (Loss) Available to Common
Stockholders ................................ $ (668,898) 16,996,749 $(0.04)
Effect of Dilutive Securities:
Options ...................................... -- 371,602 --
Warrants ..................................... -- 154,781 --
---------- ---------- ------
Diluted EPS:
Income (Loss) Available to Common Stockholders
Plus Assumed Conversions ................... $ (668,898) 17,523,132 $(0.04)
========== ========== ======
</TABLE>
Options to purchase 282,500 shares of common stock at prices ranging from $2.13
to $5.00 per share were outstanding at September 30, 1999, 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
($2.04). The convertible debt did not have a dilutive effect because the amount
of interest (net of tax) on a per share basis exceeds basic earnings per share.
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<PAGE>
Item 2:
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Total revenues for the three months ended September 30, 1999 were $2,134,000 as
compared to $3,811,000 for the same period in 1998. License fees were $301,000
for the three months ended September 30, 1999 compared to $1,527,000 in the same
period in 1998, as a result of no new sales of the TAS 2000 product modules due
to the Company's continued focus on completing the deliveries to the existing
TAS 2000 customers. For the three months ended September 30, 1999 maintenance
revenues were $1,133,000 compared to $956,000 in the same period of the prior
year due to an increased customer base. Professional services revenue
contributed $700,000 in the three months ended September 30, 1999 compared to
$1,328,000 in the third quarter of 1998 as a result of services completed in the
third quarter of 1999 from a contract signed in 1998. Total Classic revenues
were $1,681,000 for the three months ended September 30, 1999 as compared to
$1,417,000 for the three months ended September 30, 1998. Total TAS 2000
revenues were $453,000 for the three months ended September 30, 1999 as compared
to $2,394,000 for the three months ended September 30, 1998. For the nine months
ended September 30, 1999, total revenues were $8,760,000 compared to $10,314,000
in the same period of the prior year. Total Classic revenues were $5,735,000 for
the nine months ended September 30, 1999 as compared to $4,676,000 in the same
period in 1998. Total TAS 2000 revenues were $3,025,000 for the first nine
months of 1999 as compared to $5,638,000 in the same period in 1998.
Cost of sales increased to $1,852,000 and $6,440,000 for the three and nine
months ended September 30, 1999 as compared to $1,637,000 and $4,845,000 for the
same periods in 1998 due to software purchased related to new contracts and an
increase in staffing costs for the TAS 2000 product line. Non-cash capitalized
software amortization was $119,000 and $348,000 for the three and nine months
ended September 30, 1999 as compared to $165,000 and $504,000 in the same
periods in 1998.
Research and development expenses were $291,000 and $778,000 for the three and
nine months ended September 30, 1999 compared to $240,000 ad $782,000 for the
same periods in 1998.
Sales and marketing expenses were $355,000 and $1,339,000 for the three and nine
months ended September 30, 1999 as compared to $575,000 and $1,409,000 in the
same periods of 1998 due to marketing and sales efforts to improve the market
share of the Company's TAS 2000 product line and discontinuance of services of a
third party marketing firm in the U.K. in 1999.
General and administrative expenses decreased to $476,000 and $882,000 in the
three and nine months ended September 30, 1999 as compared to $568,000 and
$1,432,000 in the same periods in 1998 due to the reduction in bad debt expense
as a result of collection of funds reserved for in the fourth quarter of 1998
and legal and accounting fees incurred for the Care Software License sale in
1998.
Liquidity and Capital Resources
At September 30, 1999, the Company had working capital of $3,368,000 compared to
a working capital of $5,310,000 in 1998.
On March 30, 1999, the Company received the $500,000 scheduled payment due under
the Care Note. The $500,000 scheduled payment due under the Care Note on
September 30, 1999 has been deferred until November 15, 1999.
The Company believes that its current cash balances and anticipated cash flows
from operations will be sufficient to meet normal operating needs for the
Company in 1999.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Year 2000 Readiness
The Year 2000 issue ("Y2K") is the result of computer programs that were written
using two digits rather than four to define the applicable year. As a result,
software may recognize a date using the two digits "00" as 1900 rather than the
year 2000. Computer programs that do not recognize the proper date could
generate erroneous data or cause systems to fail. In addition, the Year 2000
problem also affects non-information technologies such as machines, equipment
and other systems that contain embedded microprocessors. The Year 2000 problem
could affect the Company's computers, software programs, equipment and other
systems used by the Company as well as such technologies of other companies with
which the Company does business.
The Company has identified four major areas determined to be critical for
successful Y2K readiness: (1) financial applications, (2) software products held
for sale, (3) customers and (4) third-party relationships.
In the first area, the Company has installed a managerial and financial
reporting system which is warranted to be Y2K ready by the vendor. The cost of
this system was approximately $40,000. Therefore, the Company believes that its
financial applications currently are capable of functioning without substantial
Year 2000 readiness problems. The Company has also completed an assessment of
its non-information technology systems and does not believe it will incur
significant costs remediating those systems for Y2K readiness.
In the second area, software products held for sale, the Company has two product
lines, TAS 2000 and Classic. TAS 2000, a recently developed product, has been
tested and is Y2K ready. Costs incurred in readying this product for the Year
2000 were treated as normal development expenses. For the Classic product line
Y2K upgrade, the Company spent approximately $192,000 in order to make the
product line Y2K ready. Moreover, the Company's products are often used by its
customers in systems that also contain third party products. Therefore, even
though the Company's current products may be Year 2000 ready, the failure of
such third party products to be Year 2000 ready, or to properly interface with
the Company's current products, may result in customer system failure.
In the third area, the Company continues to have discussions with its customers
concerning Year 2000 readiness. The Company, however, has little or no control
over the actions of these customers, and thus, there can be no assurance that
these customers will resolve any or all Year 2000 problems with their own
systems (and with their other suppliers and vendors) before the occurrence of a
material disruption or slowdown in their business which could, in turn, have a
material adverse effect on their demand for the Company's products. In the event
that any of the Company's significant customers do not successfully and timely
achieve Year 2000 readiness, there could be a material adverse effect on the
Company's business, financial condition and results of operation.
In the fourth area, the Y2K problem creates risk for the Company from unforeseen
problems from third party suppliers, vendors and service providers. The Company
has identified several major vendors that are important to its operations. The
Company has been verbally advised by, and continues to obtain written
confirmation from, these vendors regarding its Y2K readiness. The Company does
not have extensive electronic interaction with third parties. To the extent that
the Company ascertains that its suppliers, vendor and/or service providers will
be not Y2K ready, the Company expects to take remedial action such as procuring
new suppliers, vendors or service providers whose systems are Y2K ready. There
can be no assurance, however, that the Company will be successful in finding
such alternative suppliers, vendors or service providers. Such failures of these
third parties' computer systems could have a material impact on the Company's
ability to conduct its business.
At this time, the Company does not expect to incur any significant additional
expense relating to the Y2K problem and the Company has not budgeted any
expenditures accordingly. Since the Company believes that its products are Y2K
ready, we do not expect any delays in deliveries of product related to the Y2K
problem.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has not developed a "worst case" scenario with respect to Year 2000
issues, but instead has focused its resources on identifying material,
remediable problems and reducing uncertainties generally, through the Year 2000
assessment described above. The Company is not actively engaged in preparing any
formal Year 2000 contingency plan, and does not intend to do so unless the
Company believes such plans are merited by the results of its continuing Year
2000 review.
Based on the results to date of its assessment of the Year 2000 issues of which
the Company is aware at this time, the Company does not believe Year 2000
problems will have a material adverse effect on the Company or its operations.
No assurance can be given, however, that the Company has been able to identify
all potential Year 2000 problems or that if Year 2000 problems are discovered by
the Company in the future, it will be able to resolve them satisfactorily and at
an affordable cost.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the impact of interest rate changes, foreign currency
fluctuations and changes in the market value of its investments.
Interest Rate Risk. The Company's exposure to market rate risk for changes in
interest rates relates primarily to the Company's investment portfolio. The
Company has not used derivative financial instruments in its investment
portfolio. The Company invests its excess cash in a major bank money market
account. The Company protects and preserves its invested funds by limiting
default, market and reinvestment risk.
Investments in this account carry a degree of interest rate risk. Fixed rate
securities may have their fair market value adversely impacted due to a rise in
interest rates, while floating rate securities may produce less income than
expected if interest rates fall. Due in part to these factors, the Company's
future investment income may fall short of expectations due to changes in
interest rates or the Company may suffer losses in principal if forced to sell
securities which have declined in market value due to changes in interest rates.
Foreign Currency Risk. The Company earned revenues in the U.K. The Company's
international business is subject to risks typical of an international business,
including, but not limited to differing economic conditions, changes in
political climate, differing tax structures, other regulations and restrictions,
and foreign exchange rate volatility. Accordingly, the Company's future results
could be materially adversely impacted by changes in these or other factors.
The Company's exposure to foreign exchange rate fluctuations arises from sales
made to a U.K. customer. As exchange rates vary, these results, when translated,
may vary from expectations and adversely impact overall expected profitability.
The effect of foreign exchange rate fluctuations on the Company as of September
30, 1999 was a loss of $59,000.
* * * * * * * * *
Statements in this Form 10Q, other than statements of historical information are
forward-looking statements that are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve known and unknown risks which may cause the Company's actual
results in future periods to differ materially from expected results. Those
risks include, among others, risk associated with increased competition,
customer decisions, delays in productivity programs and new product
introductions, and other business factors beyond the Company's control. Those
and other risks are described in the Company's filings with the Securities and
Exchange Commission ("SEC") over the last 12 months, copies of which are
available from the SEC or may be obtained upon request from the Company.
- 12 -
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
10(ee) Letter Agreement amending Secured Promissory Note of Care
Corporation Limited ("Care"), dated as of March 31, 1998, and
Pledge Agreement, by and between Care and the Company, dated as of
March 31, 1998.
*27. Restated Financial Data Schedule.
- ----------
* - Filed herein
(b) Reports on Form 8-K.
None.
- 13 -
<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: May 8, 2000 By: /s/ Mark Johnston
------------------------------------------
Mark Johnston, Chairman and Interim Chief
Financial Officer
Date: May 8, 2000 By: /s/ John Roblin
------------------------------------------
John Roblin, President and Chief Executive
Officer
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COVER-ALL
TECHNOLOGIES INC. FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 395,460
<SECURITIES> 0
<RECEIVABLES> 4,526,991
<ALLOWANCES> 345,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,016,386
<PP&E> 3,128,653
<DEPRECIATION> 2,705,254
<TOTAL-ASSETS> 11,236,407
<CURRENT-LIABILITIES> 3,648,405
<BONDS> 0
0
0
<COMMON> 170,037
<OTHER-SE> 4,417,965
<TOTAL-LIABILITY-AND-EQUITY> 11,236,407
<SALES> 0
<TOTAL-REVENUES> 8,760,325
<CGS> 0
<TOTAL-COSTS> 6,440,413
<OTHER-EXPENSES> 2,999,551
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 130,445
<INCOME-PRETAX> (868,898)
<INCOME-TAX> 200,000
<INCOME-CONTINUING> (668,898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (668,898)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
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