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 March 31, 1999 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 May 10, 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 MARCH 31, 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 May 14, 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 March 31, 1999 [Unaudited] and
December 31, 1998 [Audited]............................................ 3
Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998 [Unaudited].................................... 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 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.................................................. 14
SIGNATURES................................................................... 15
. . . . . . . . . .
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<PAGE>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents ............................... $ 2,155,738 $ 2,286,610
Accounts Receivable (Less Allowance for Doubtful Accounts
of $451,000 and $476,000) ............................ 3,980,537 3,493,192
Note Receivable -- Related Party ........................ 1,000,000 947,413
Deferred Tax Asset ...................................... 600,000 400,000
Prepaid Expenses ........................................ 407,220 231,442
Accrued Interest -- Related Party Receivable ............ -- 52,587
------------ ------------
Total Current Assets .................................... 8,143,495 7,411,244
------------ ------------
Property and Equipment -- At Cost:
Furniture, Fixtures and Equipment ....................... 2,884,177 2,760,070
Less: Accumulated Depreciation ......................... (2,604,343) (2,557,313)
------------ ------------
Property and Equipment -- Net ............................ 279,834 202,757
------------ ------------
Note Receivable -- Related Party
(Net of Unearned Interest of $384,647 and $436,853) 2,115,353 2,563,147
------------ ------------
Capitalized Software (Less Accumulated Amortization of
$2,710,667 and $2,605,581) .............................. 1,539,447 1,187,378
------------ ------------
Other Assets ............................................... 67,735 60,910
------------ ------------
Total Assets ............................................ $ 12,145,864 $ 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>
March 31, December 31,
1999 1998
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts Payable .................................................... $ 800,635 $ 896,417
Accrued Liabilities ................................................. 1,551,566 1,447,025
Unearned Revenue .................................................... 1,573,074 865,094
------------ ------------
Total Current Liabilities ........................................... 3,925,275 3,208,536
Convertible Debentures ................................................. 3,000,000 3,000,000
------------ ------------
Total Liabilities ................................................... 6,925,275 6,208,536
------------ ------------
Commitments and Contingencies .......................................... -- --
------------ ------------
Stockholders' Equity:
Common Stock, $.01 Par Value, Authorized 30,000,000 Shares,
Issued 16,993,672 and 16,983,672 Shares, Respectively ............ 169,937 169,837
Capital In Excess of Par Value ......................................... 26,743,297 26,723,397
Accumulated Deficit .................................................... (21,692,645) (21,676,334)
------------ ------------
Total Stockholders' Equity ............................................. 5,220,589 5,216,900
------------ ------------
Total Liabilities and Stockholders' Equity ............................. $ 12,145,864 $ 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 March 31,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues:
Licenses ............................................... $ 1,199,555 $ 1,409,035
Maintenance ............................................ 1,020,402 895,133
Professional Services .................................. 909,551 566,788
------------ ------------
Total Revenues ......................................... 3,129,508 2,870,956
------------ ------------
Cost of Revenues:
Licenses ............................................... 1,470,072 896,682
Maintenance ............................................ 461,586 341,325
Professional Services .................................. 350,746 175,893
------------ ------------
Total Cost of Revenues ................................. 2,282,404 1,413,900
------------ ------------
Gross Profit ........................................... 847,104 1,457,056
------------ ------------
Operating Expenses:
Sales and Marketing .................................... 469,717 336,183
General and Administrative ............................. 313,799 417,029
Research and Development ............................... 240,042 264,278
------------ ------------
Total Operating Expenses ............................... 1,023,558 1,017,490
------------ ------------
Operating Income ....................................... (176,454) 439,566
------------ ------------
Interest Expense (Income):
Interest Expense ....................................... 95,943 93,750
Interest Income - Related Party (Imputed) .............. (52,206) --
Interest Income ........................................ (7,055) (16,675)
------------ ------------
Interest Expense (Income) .............................. 36,682 77,075
------------ ------------
Income Before Income Tax Benefit ....................... (213,136) 362,491
Income Tax Benefit ........................................ 196,825 --
------------ ------------
Net Income ................................................ $ (16,311) $ 362,491
============ ============
Basic and Diluted Earnings Per
Common Share ........................................... (0.00) $ 0.02
============ ============
Weighted Average Number of Common
Shares Outstanding for Basic
Earnings Per Common Share .............................. 16,987,000 16,814,000
============ ============
</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>
Three months ended March 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Income (Loss) from Operations ....................................... $ (16,311) $ 362,491
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided From (Used for) Operating Activities:
Depreciation ................................................. 47,030 38,458
Amortization of Capitalized Software ......................... 105,087 171,632
Imputed Interest Income ...................................... (52,206) --
Deferred Tax Asset ........................................... (200,000) --
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable .......................................... (487,345) (1,775,107)
Prepaid Expenses ............................................. (175,778) (95,081)
Other Assets ................................................. (6,825) (6,400)
Increase (Decrease) in:
Accounts Payable ............................................. (95,783) 94,614
Accrued Liabilities .......................................... 104,541 153,600
Unearned Revenue ............................................. 707,980 361,983
----------- -----------
Net Cash (Used For) Operating Activities ............................ (69,610) (693,810)
----------- -----------
Cash Flows from Investing Activities:
Repayment of Notes Receivable - Related Party ....................... 500,000 500,000
Capital Expenditures ................................................ (124,107) (25,222)
Capitalized Software Expenditures ................................... (457,155) (50,000)
----------- -----------
Net Cash (Used For) Investing Activities ............................ (81,262) 424,778
----------- -----------
Cash Flows from Financing Activities:
Proceeds from Exercise of Stock Options ............................. 20,000 123,925
----------- -----------
Net Cash Provided from Financing Activities ............................... 20,000 123,925
----------- -----------
Change in Cash and Cash Equivalents ....................................... (130,872) (145,107)
Cash and Cash Equivalents - Beginning of Period ........................... 2,286,610 2,908,167
----------- -----------
Cash and Cash Equivalents - End of Period ................................. $ 2,155,738 $ 2,763,060
=========== ===========
</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 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 March 31, 1999, and the results of operations for the
three month periods ended March 31, 1999 and 1998, and the cash flows for the
three month periods ended March 31, 1999 and 1998. Such adjustments are of a
normal and recurring nature. The results of operations for the three month
period ended March 31, 1999 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. 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, 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. Based on the market
price of the
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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)
Company's common stock on March 30, 1999, approximately 1,909,000 shares were
pledged as collateral.
The balance of the undiscounted Care Note at March 31, 1999 is $3,500,000, of
which $1,000,000 is classified as currently due. The undiscounted long-term
portion of the Care Note at March 31, 1999 of $2,500,000 is shown at $2,115,353,
net of unearned interest of $384,647.
[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:
Three Months
Ended
March 31, 1999
--------------
Computed Federal Statutory Tax (Benefit) .................... $ --
Related Party Gain Charged to Paid-In-Capital ............... --
Alternative Minimum Tax Liability ........................... --
Utilization of Net Operating Loss Carryforward .............. (196,825)
Reduction in Deferred Tax Valuation Allowance ............... --
-----------
Actual Provision (Benefit) ............................ $ (196,825)
===========
The components of the net deferred tax asset and liability were as follows:
Three Months
Ended
March 31, 1999
--------------
Deferred Tax Assets -- Current:
Net Operating Loss Carryforward ....................... $ 347,000
Accounts Receivable Allowance ......................... 180,000
Reserve for Loss on Disposal .......................... 89,000
Vacation Accrual ...................................... 21,000
Related Party Gain .................................... (37,000)
Valuation Allowance ................................... --
-----------
Current Deferred Tax Asset ......................... $ 600,000
===========
Deferred Tax Asset (Liability) -- Long-Term:
Net Operating Loss Carryforward ....................... $ 7,500,000
Stock Options ......................................... 128,000
Capitalized Software .................................. (616,000)
Depreciation and Amortization ......................... 112,000
Related Party Gain .................................... (116,000)
Valuation Allowance ................................... (7,008,000)
-----------
Long-Term Deferred Tax Liability ................... $ --
===========
The net change (decrease) during 1999 in the total valuation allowance is
$570,000.
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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 March 31, 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.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months ended March 31, 1999
----------------------------------------------------------
Classic TAS Care Consolidated
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues..................................... 1,701 1,429 -- 3,130
Operating Profit (Loss)...................... 724 (900) -- (176)
<CAPTION>
(Dollars in Thousands)
Three Months ended March 31, 1998
----------------------------------------------------------
Classic TAS Care Consolidated
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues..................................... 1,744 1,127 -- 2,871
Operating Profit (Loss)...................... 841 (300) (101) 440
</TABLE>
[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 three months ended
March 31, 1999
-------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
<S> <C> <C> <C>
Basic EPS:
Income Available to Common
Stockholders ....................................... $ (16,311) 16,987,000 $ 0.00
Effect of Dilutive Securities:
Options ............................................. -- 637,888 --
Warrants ............................................ -- 411,327 --
---------- ---------- --------
Diluted EPS:
Income Available to Common Stockholders
Plus Assumed Conversions .......................... (16,311) 18,036,215 $ 0.00
========== ========== ========
</TABLE>
Options to purchase 100,000 shares of common stock at prices ranging from $3.50
to $5.00 per share were outstanding at March 31, 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 ($2.79). 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>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Item 2:
Total revenues for the three months ended March 31, 1999 were $3,130,000 as
compared to $2,871,000 for the same period in 1998, an increase of 9%. Licenses
fees were $1,200,000 for the three months ended March 31, 1999 compared to
$1,409,000 in the same period in 1998, as the result of fewer new Classic
license deliveries in the first quarter of 1999 compared to the first quarter of
1998. For the three months ended March 31, 1999, maintenance revenues were
$1,020,000 compared to $895,000 in the same period of the prior year due to an
increased customer base. Professional services revenue contributed $910,000 in
the three months ended March 31, 1999 compared to $567,000 in the first quarter
of 1998 as a result of a new contract signed in the fourth quarter of 1998.
Total Classic revenues were $1,701,000 for the three months ended March 31, 1999
as compared to $1,744,000 for the three months ended March 31, 1998. Total TAS
2000 revenues were $1,429,000 for the three months ended March 31, 1999 as
compared to $1,127,000 for the three months ended March 31, 1998.
Cost of sales increased to $2,282,000 for the three months ended March 31, 1999
as compared to $1,414,000 for the same period in 1998 due to software purchased
related to new contracts and an increase in quality control costs. There was no
license fee amortization for the three months ended March 31, 1998 due to the
sale of the Care Software License back to Care Corporation Limited. Non-cash
capitalized software amortization was $105,000 for the three months ended March
31, 1999 as compared to $172,000 in the same period in 1998.
Research and development expenses were $240,000 for the three months ended March
31, 1999 compared to $264,000 for the same period in 1998.
Sales and marketing expenses were $470,000 for the three months ended March 31,
1999 as compared to $336,000 in the same period of 1998 due to an additional
marketing and sales effort to improve the market share of the Company's product
line, TAS 2000.
General and administrative expenses decreased to $314,000 in the three months
ended March 31, 1999 as compared to $417,000 primarily due to accounting and
legal fees incurred for the Care Software License sale in the first quarter of
1998.
Liquidity and Capital Resources
At March 31, 1999, the Company had working capital of $4,218,000 compared to a
working capital of $3,761,000 in 1998. The improvement in working capital was
due primarily to the recording of a deferred tax asset recognizing the benefit
of a net operating loss carryforward as a result of the signing of new
contracts.
On March 30, 1999, the Company received the $500,000 scheduled payment due under
the Care Note.
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.
New Authoritative Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and how it is designated, for
example, gains or losses related to changes in the fair value of a derivative
not designated as a hedging instrument is recognized in earnings in the period
of the change, while certain types of hedges may be initially reported as a
component of other comprehensive income (outside earnings) until the
consummation of the underlying transaction.
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<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods. The
Company does not currently have any derivative instruments and is not currently
engaged in any hedging activities.
On March 31, 1999, the FASB released a proposal for public comment that would
resolve certain practice issues raised when accounting for stock options. Since
the issuance of APB Opinion 25, "Accounting for Stock Issued to Employees,"
questions have surfaced about its application and differing practices have
developed. The FASB's broad reconsideration of the stock compensation issue
culminated in the issuance of SFAS No. 123, "Accounting for Stock-Based
Compensation," in 1995. SFAS No. 123 permits the continued application of APB
Opinion 25 for employees. However, questions remain about the proper application
of APB Opinion 25 in a number of circumstances. The FASB's proposed
interpretation would clarify how to apply APB Opinion 25 in certain situations.
The proposed Interpretation includes the following conclusions:
o Once an option is repriced, that option must be accounted for as a
variable plan from the time it is repriced to the time it is exercised.
Consequently, the final measurement of compensation expense would occur at
the date of exercise.
o Employees would be defined as they are under common law for purposes of
applying APB Opinion 25.
o APB Opinion 25 does not apply to outside directors because, by definition,
an outside director cannot be an employee. Accordingly, the cost of
issuing stock options to outside board members will have to be determined
on a fair value basis in accordance with SFAS No. 123, and recorded as an
expense in the period of the grant (the service period could be
prospective, however).
o Since APB Opinion 25 was issued in 1972, the terms of many "section 423"
tax plans have changed from those in existence at the time. Many of those
plans now provide that employees can purchase an employer's stock at the
lesser of 85 percent of the stock price at the date of grant or 85 percent
of the price at the date of exercise. This provision is referred to as a
"look-back" option. The FASB decided that plans with a look-back option do
not, in and of themselves, create a compensatory plan.
o A subsidiary may account for parent company stock issued to its employees
under APB Opinion 25 in their separately issued financial statements,
provided the subsidiary is part of the parent's consolidated financial
statements.
The FASB's proposed Interpretation would be effective upon issuance, which is
expected in September 1999, but generally would cover plan grants and
modifications that occur after December 15, 1998.
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.
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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 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 and the Company believes that the modifications to the
Classic product line will achieve Y2K readiness. 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
is currently in the process of identifying those suppliers, vendors and service
providers that are believed to be critical to the Company's business operations.
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 concerning the Y2K
problem.
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
-12-
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 March 31,
1999 was not material.
* * * * * * * * *
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.
-13-
<PAGE>
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
27. Restated Financial Data Schedule.
(b) Reports on Form 8-K.
None.
-14-
<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
-15-
<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 MARCH 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,155,738
<SECURITIES> 0
<RECEIVABLES> 5,431,537
<ALLOWANCES> 451,000
<INVENTORY> 0
<CURRENT-ASSETS> 8,143,495
<PP&E> 2,884,177
<DEPRECIATION> 2,604,343
<TOTAL-ASSETS> 12,145,864
<CURRENT-LIABILITIES> 3,925,275
<BONDS> 0
0
0
<COMMON> 169,937
<OTHER-SE> 5,050,652
<TOTAL-LIABILITY-AND-EQUITY> 12,145,864
<SALES> 0
<TOTAL-REVENUES> 3,129,508
<CGS> 0
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<OTHER-EXPENSES> 1,023,558
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<INCOME-PRETAX> (213,136)
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