UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December
31, 2014.
| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 |
For the transition period from
to
.
Commission file number 1-09228
COVER-ALL TECHNOLOGIES INC.
(Exact name of Registrant as specified in
its charter)
|
Delaware
(State or other jurisdiction of incorporation
or organization)
|
13-2698053
(I.R.S. Employer Identification No.)
|
| |
|
|
412 Mt. Kemble Avenue, Suite 110C, Morristown,
New Jersey
(Address of principal executive office) |
07960
(Zip Code) |
(973) 461-5200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section
12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o
No x
Indicate by check mark
if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o
No x
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes x
No o
Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “larger accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o |
Accelerated filer o |
| |
|
| Non-accelerated filer (Do not check if a smaller reporting company) o |
Smaller reporting company x |
Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o
No x
The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant as of June 30, 2014, the last business day of the registrant’s
most recently completed second fiscal quarter, was approximately $21,677,000.
As of March 16, 2015, there were 26,961,991
shares outstanding of our common stock.
PART
I
In this annual report
on Form 10-K, “Cover-All,” “the Registrant,” “the Company,” “our Company,” “we,”
“us” and “our” refer to Cover-All Technologies Inc. and its wholly-owned subsidiary, Cover-All Systems,
Inc. Cover-All®, My Insurance Center™ (MIC) NexGen and Insurance Policy Database™ (IPD) are trademarks
of Cover-All Technologies Inc.
GENERAL
We provide advanced,
cost-effective business-focused solutions to the property and casualty insurance industry. Our customers include insurance companies,
agents, brokers and managing general agents (MGAs). Our proprietary technology solutions and services are designed to enable our
customers to introduce new products quickly, expand their distribution channels, reduce costs and improve service to their customers.
In addition, we also offer an innovative Business Intelligence suite of products to enable our customers to leverage their information
assets for real time business insights and for better risk selection, pricing and financial reporting.
In December 2013, we
announced general availability of Cover-All Dev Studio, a visual configuration platform for building new and maintaining existing
pre-built commercial insurance products for Cover-All Policy.
In December 2011, we
expanded our portfolio of insurance solutions by acquiring the assets of a recognized claims solution provider, Ho’ike Services,
Inc., doing business as BlueWave Technology (“BlueWave”). The acquisition of claims software marked another milestone
in our goal of becoming a leading full solution provider to the property and casualty insurance industry.
Our software products
and services focus on the functions required to underwrite, rate, quote, issue, print, bill and support the entire lifecycle of
insurance policies and with the BlueWave acquisition, the important claims functions. Our products and services combine an in-depth
knowledge of property and casualty insurance with an innovative and proprietary state-of-the-art technology platform. Our products
provide advanced insurance functionality available on an “off-the-shelf” basis yet also provide additional flexibility
for accommodating a high degree of customization for our customers to compete in the marketplace through differentiation. Our software
is licensed for use in the customer’s data centers or can be provided through an ASP, SaaS or the Cloud using third party
technology platforms and support.
We generate revenue
from software contract licenses, professional services fees from ongoing software customization and continuing support fees for
technical and regulatory software updates on a monthly basis. We provide a wide range of professional services including Cover-All
software implementations, ongoing product customizations, conversion from existing systems, data integration with other software
or reporting agencies and technical services related to Cover-All software. We also offer ongoing support services including incorporating
recent insurance rates, rules and forms changes. These support services provide turnkey solutions to our customers as we perform
analysis, development, quality assurance, documentation and distribution for delivering changes in a timely fashion.
Our ongoing maintenance
and support services, usually through five-year minimum customer contracts, typically generate significant recurring revenue of
approximately 25 to 35 cents for every dollar spent on licensing fees. In addition to the traditional pricing model of license,
support and professional services, we also offer subscription pricing based on customer size.
We were incorporated
in Delaware in April 1985 as Warner Computer Systems, Inc. and changed our name to Warner Insurance Services, Inc. in March 1992.
In June 1996, we changed our name to Cover-All Technologies Inc. Our products and services are offered through our wholly-owned
subsidiary, Cover-All Systems, Inc., also a Delaware corporation.
Merger agreement
with majesco
On December 14, 2014,
the Company and Majesco, a California corporation (“Majesco”), entered into an Agreement and Plan of Merger (as it
may be amended or modified, the “Merger Agreement”), pursuant to which the
Company will merge with
and into Majesco, with Majesco surviving the merger (the “Merger”). The board of directors of the Company has unanimously
approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. In addition, the board
of directors of Majesco has unanimously approved the Merger Agreement, the Merger and the other transactions contemplated by the
Merger Agreement. The Merger is subject to certain closing conditions, including the approval of the Merger by the Company’s stockholders, and is expected to be consummated in June, 2015.
Pursuant to the terms of the Merger Agreement, at the effective time of the Merger
(the “Effective Time”), each share of common stock of Cover-All, par value $0.01 per share (“Cover-All common stock”), issued and outstanding immediately prior to the
Effective Time (other than treasury shares) will be automatically cancelled and extinguished and converted into the right to receive the number of shares of common stock of Majesco, par
value $0.002 per share (“Majesco common stock”), multiplied by the Exchange Ratio. The “Exchange Ratio” is 0.21466, which is the exchange ratio expected to result
in a number of shares of common stock of the combined company such that, at the Effective Time, holders of the issued and outstanding Cover-All common stock and outstanding options and
restricted stock units and other equity awards of Cover-All will in the aggregate hold approximately 16.5% of the total capitalization of the combined company. The Exchange Ratio
gives effect to a planned reverse stock split of Majesco’s outstanding shares of common stock.
Immediately following the completion of the Merger, the holders of common stock,
options and restricted units and other equity awards of Cover-All are expected to own approximately 16.5% of the outstanding common stock of Majesco as a corporate entity following the
completion of the Merger (the “combined company”) calculated on a fully diluted basis, and the current shareholders of Majesco are expected to own approximately 83.5% of the
outstanding common stock of the combined company calculated on a fully diluted basis.
The Cover-All common stock is currently listed on the NYSE MKT (formerly, NYSE
Amex) under the symbol “COVR.” Following the Merger, all Cover-All common stock will be de-listed from the NYSE MKT and de-registered under the Exchange Act of 1934, as amended
(the “Exchange Act”).
Currently, Majesco is 100% owned (directly or indirectly) by Mastek Limited
(“Mastek”), a public limited company domiciled in India whose equity shares are listed on the BSE Limited (also known as the Bombay Stock Exchange) and the National Stock
Exchange of India Limited. Mastek is currently undergoing a de-merger through a scheme of arrangement under India’s Companies Act, 1956, pursuant to which its
insurance-related business will be separated from Mastek’s non-insurance related businesses and all insurance-related operations of Mastek that were not directly owned by
Majesco will be contributed to Majesco (except certain India-based insurance-related operations). These operations include Mastek’s insurance-related businesses in Canada,
Malaysia, Thailand and the United Kingdom and the India-based offshore insurance-related business. In connection with the de-merger, all of Mastek’s equity ownership interest
in Majesco (except for the equity stake indirectly held by Mastek through its 100% owned subsidiary, Mastek UK) will be transferred to a newly-formed publicly-traded company in
India, called Majesco Limited, which will be spun-off and initially owned by the current shareholders of Mastek and Mastek will continue to own an indirect minority interest in
Majesco through Mastek UK. The de-merger and inter-company reorganization currently being conducted by Mastek and its affiliates are referred to in this Form 10-K as the “Majesco
Reorganization.” It is a condition to the closing of the Merger that this Majesco Reorganization be completed prior to the consummation of the Merger.
Products
Cover-All is focused
on core systems and data analytics for the property and casualty insurance marketplace. We offer three categories of product suites.
Core system products include Policy and Claims that are part of a modular integrated suite. Studio products include Dev Studio,
Test Studio and Conversion Studio for managing development, testing and configuration aspects of insurance products for Cover-All
Policy. Finally, data analytics products include various data repositories specifically designed for property and casualty insurance
as well as business intelligence capabilities such as reports, KPIs and dashboards and other analytics. These system are designed
be sold and operate as standalone platforms as well as an integrated suite. In order to support this strategy, Cover-All has also
created a number of reusable foundational software components such as Cover-All Security and Cover-All Content Management Systems
which are used in various Cover-All products.
Our latest product,
Cover-All Dev Studio, was announced in 2012 and was released in the fourth quarter of 2013. Dev Studio enables Cover-All customers
to create new products or change existing products through a powerful set of “rules and tools.” This product works
in conjunction with Cover-All’s pre-built, out-of-the-box ISO products (Commercial Auto,
Commercial Package,
Business Owners Policy (BOP) and Workers Compensation to give Cover-All customers shorter implementation times with less risk by
providing them with the choice of buying versus building and the option to do both as business conditions dictate.
Cover-All Policy
Cover-All Policy platform
is a customizable and configurable web-based, data-centric “hub and spoke” software platform built around a shared
“information hub” and a suite of pre-built commercial insurance products. Cover-All Policy is designed for insurance
agents, brokers and carriers with integrated workflows and access to real-time information. By centralizing the data in the Policy
platform and using customized components to enable processes, we can quickly build a unique solution for each customer.
Cover-All Policy is
designed to efficiently and rapidly adapt to changes in our customer’s business needs as well as to address the complexity
and rate of change of the insurance business, state regulation and technology innovation. The first version of the architecture
concept was originally introduced in 2001 and it has been significantly enhanced and expanded every year since. An early version
of the product, formerly known as My Insurance Center, utilized our then-existing rating and issuance products. In 2009, we announced
MIC NexGen, a set of capabilities designed and built to support the entire policy issuance process to add significant functionality,
enhance performance and position Cover-All to introduce new service offerings. Significant development and expansion of both the
policy platform and the products in 2010 and extending into 2013 resulted in a new significantly expanded policy administration
platform offering called Cover-All Policy and pre-built commercial insurance products including ISO® Commercial Automobile,
Commercial Package and Business Owners Policy (BOP) as well as Workers Compensation, collectively known as Cover-All Products.
Our new Cover-All Policy
platform is a powerful set of tools and capabilities providing full policy support (data capture, rate, quote, issue, statistical
reporting, print, audits and complete policy lifecycle management) for customized products that we believe is unparalleled in the
insurance industry. We have also developed a set of processes and tools that enable us to work together with our customers in an
interactive development process that, when combined with our offshore development resources, deliver these products in short time
frames. These capabilities have been redesigned and expanded into a revolutionary “Rules and Tools” product called
Cover-All Dev Studio, announced in 2012 and released in the fourth quarter of 2013.
In addition to our ability
to create and support custom products, we offer off-the-shelf products including full support for complex products as ISO’s
(Insurance Services Office) Commercial Automobile, Commercial Package and BOP for all states as well as full support for Workers
Compensation. All of these products were available in 2012. With the delivery of the new pre-built commercial insurance products,
we have completely replaced all our older platforms, collectively known as Classic, with new, fully integrated state-of-the-art
technologies.
Cover-All’s Policy
platform and pre-built commercial insurance products have been redesigned by us to enable us to provide services to our customers
that can be measured in terms of quality, speed and value. In addition, we are able to provide a significant number of capabilities
to our customers to enable them to customize, personalize and control their Policy platform in real time.
Cover-All Policy is
designed to be the platform to serve players throughout the entire insurance value chain, including the insured, agents, brokers,
insurance companies and reinsurers. Because it is scalable, Cover-All Policy is able to serve both large and small organizations.
It can be accessed securely over the Internet. Cover-All Policy is designed to be deployed globally in the future to adapt to different
languages and currencies and to support different insurance products in other countries.
Cover-All Policy provides
an integrated platform with baseline common insurance functions that can be customized by us for customers’ business needs.
It also provides many configuration capabilities that are used by customers for further tailoring the application. Finally, Cover-All
Policy allows end users to personalize screens and content for meeting their roles and responsibilities. In addition, Cover-All
Dev Studio can be added to bring even more powerful tools to customers who want more control over development or support alternatives.
Cover-All Policy is
designed to fully support STP (Straight-Through-Processing). Cover-All Policy enables our customers to utilize our rating, policy
issuance, billing and other software components into a fully-integrated platform that, among other things, eliminates redundant
data entry. Information is stored in a client-centric database and becomes
immediately available
to other users or functions. Cover-All Policy may be customized to generate user alerts when a user-specified condition occurs.
Additionally, Cover-All Policy has been designed to allow the customer to configure features according to their own look and feel
preferences and workflow processes. For instance, the browser-based user interface allows employees, agents and other end users
to personalize their desktops so they see only the information they need or desire. We believe that Cover-All Policy allows our
customers to reduce costs, leverage the latest technologies, better manage risk, provide better service to their customers, enter
new markets, introduce new products and grow premiums.
We are investing in
research and development for evolving the Policy platform to meet customers’ business needs in a rapidly changing marketplace.
We have added new and advanced capabilities to Cover-All Policy including rules-based underwriting, financial modules for determining
profitability by policy, account-centric and policy-centric views, integration with partners’ accounting, claims processing
systems, mass update, geocoding for all locations, advanced policy audits and certain other new components. Cover-All Policy is
being made available to users either for in-house implementation or through our ASP. We also support “Software as a Service”
(SaaS) to meet emerging customer requirements.
Cover-All Policy offers
the following benefits to our customers:
| · | Straight-Through-Processing – Business acquisition and the processing side of commercial
property and casualty insurance is not only complex but it is highly regulated and spans across multiple constituents in the value
chain. Straight-Through-Processing helps customers to reduce expenses, provide faster service times and obtain a higher degree
of compliance. Policy provides Straight-Through-Processing through browser-based accessibility, roles-based security, rules-based
underwriting, advanced workflow referrals and comprehensive insurance processing functions such as rating, issuance, printing and
statistical coding. |
| · | Speed To Market – In a highly competitive insurance marketplace, insurers seek to
maintain competitive advantage and high profit margins through innovation and introduction of new insurance products. The information-hub
architecture of Policy enables development of complex and custom products in rapid timeframes. |
| · | Regulatory Compliance – In highly state regulated insurance industry, compliance requires
frequent software updates and audit capabilities. Policy provides regulatory updates, which are delivered on a monthly basis through
our support services. |
| · | Security – Policy provides roles-based security with fine-grained access control,
and encryption with data auditing helps enterprise data centers meet their security requirements. |
| · | Configurability – Policy provides a wide scope of customization to allow Policy to
meet customers’ business and operational needs while taking advantage of its baseline common capabilities for achieving cost-effective
and rapid implementation. |
| · | Integration – Policy provides real-time integration with audit logs for seamlessly
integrating Cover-All software with other systems in our customers’ technical ecosystem. |
| · | Openness and Scalability – Policy is based on open technologies such as J2EE, XML,
Oracle and Web 2.0 (AJAX, GWT) through which we can deliver technological changes. Policy is designed to scale “horizontally”
without adding significant cost to meet customers’ growing business needs. |
The Cover-All Policy
software uses a unique design that separates the “insurance product definition” from the actual technology “engines.”
The sophistication of this design is intended to enable us to stay current with technology innovations while preserving our “insurance
knowledge” investment. In addition, by centralizing many of the complexities of insurance in the core (similar to a video
game console), we are able to create metadata-driven “cartridges” that define the actual insurance product (rates,
rules, forms, etc.) very quickly. In addition, Policy is designed for change and flexibility.
The Cover-All Policy
software and products support the following policy functions:
| · | Data capture and editing |
| · | Policy issuance including multiple recipient print |
| · | All policy transactions including quotes, new lines, endorsements, renewals, audits and cancellations |
| · | Full Policy Print (with variable data) |
| · | Out of Sequence Processing |
| · | Full Policy Life Cycle support |
Cover-All Policy is
designed to accommodate all lines of property and casualty insurance. We believe that it is especially effective in coping with
the complexity and variability of commercial lines of insurance.
We believe that this
flexibility of Cover-All Policy is a competitive advantage, and we have utilized its capabilities to develop many custom products
as well as all state support for NCCI-based Workers Compensation and ISO-based Commercial Automobile, Commercial Package and Businessowners
Policy. The new Cover-All Policy and pre-built commercial insurance products replaced our earlier MIC Rating & Issuance products
that have been in use by our customers for many years. Today, we offer off-the-shelf support for most commercial business in all
50 states, the District of Columbia and Puerto Rico.
Both the older Rating
& Issuance and the new Cover-All Policy platform leverage the Engine/Metadata design and are fully integrated. The innovative
design of the product isolates insurance product knowledge from the application itself in data files, referred to as “Metadata.”
We have built an extensive knowledge base, estimated at more than 100 person-years of effort, in this Metadata that defines the
details of virtually hundreds of insurance policy types and coverages.
The Cover-All Policy
and the older MIC Rating & Insurance product are in use in over 30 companies.
The new Cover-All Policy
administration platform provides the following advanced capabilities:
| · | Dynamic data capture for reducing data entry and different views for brokers and underwriters |
| · | Improved user interface and features for boosting user productivity |
| · | Custom and complex rating algorithm |
| · | Custom or branded document generation capability |
| · | Rapid development of new products and changes in existing products |
| · | Better audit support for compliance checks |
| · | Out of Sequence endorsement processing |
Cover-All
Policy – Functional Capabilities
We have a deep inventory
of insurance software components combined with a sophisticated implementation platform. Policy includes the following critical
components:
| |
· |
Cover-All Policy Portal |
|
· |
Templates to reduce data entry time |
| |
· |
Enterprise, Customer-centric Oracle database |
|
· |
Advanced Billing Capabilities – integrating with NetSuite |
| |
· |
Underwriting Tools |
|
· |
Claims Repository |
| |
· |
End User access to information in real time – Straight-Through-Processing |
|
· |
Customer Relationship Management |
| |
· |
Rating and Issuance |
|
· |
Agency and Program Management |
| |
· |
Full policy lifecycle support |
|
· |
Advanced Administration Tools |
| |
· |
Clear and comprehensive data collection with extensive real time edits |
|
· |
Access to Web Services and Information Providers |
| |
· |
Policy history – easy policy changes and useful for activities such as coverage inquiries |
|
· |
Policy Dashboard – premium and loss information |
| |
· |
On-line system, screen and field level look-ups |
|
· |
Advanced Workflows, Diaries |
| |
· |
On-line Commercial Lines Manual Tables and Footnotes |
|
· |
Electronic Underwriting files |
| |
· |
Easy and direct system navigation |
|
· |
Compliance Assist, Help Desk |
| |
· |
Standard ISO (Insurance Service Office)/NCCI coverages and rates support |
|
· |
Interfaces to “back end” accounting and reporting systems |
| |
· |
Company customized coverages and rates support |
|
· |
Policy-level Premium and Loss Information for profitability tracking/accounting |
| · | Fully automated recipient-driven issuance of insurance policies,
worksheets, ID cards, etc., including print preview |
| · | Quote, Binder, Policy Lifecycle support |
| · | Policy database |
| · | Multiple company/program/state/coverage support |
Cover-All
Business Intelligence
Access to accurate and
timely information can be a significant competitive advantage for better pricing, risk selection and service. With this access
to information, our customers can develop insights and tools to create competitive advantage. The nimbleness of Cover-All Policy
can then be leveraged to open new markets, develop new products, or implement new predictive modeling tools to improve underwriting.
In order to exploit
these information-driven opportunities, in April 2010 we purchased certain assets of Moore Stephens Business Solutions LLC (“MSBS”),
a provider of custom business intelligence solutions for the property and casualty insurance industry. While creating custom business
intelligence solutions for a number of insurance clients, MSBS had developed a template for new customers that created a starting
point for new implementations. Utilizing our experience in creating customizable, out-of-the-box products, we developed a new product
that, while utilizing some of the design concepts of MSBS, is designed to be both fully integrated with Cover-All Policy and BlueWave
Claims (in progress) and a stand-alone product with interfaces to other policy administration, claims and reinsurance systems.
This new product will be sold as an additional component to Policy customers and will “plug in” to their existing Cover-All
Policy, as well as to other customers to interface with their existing infrastructure of systems.
Cover-All
Claims
In December 2011, Cover-All
purchased the assets of BlueWave Claims, an innovative software solution designed to provide full support for Claims processing
using modern technology. BlueWave Claims was in use at two companies at the time of our acquisition and is still in use there today.
Cover-All is currently in the process of expanding and redesigning the functionality and technology platform to take advantage
of the capabilities built for Policy. In addition, we are in the process of integrating Policy, Business Intelligence and Claims.
We continue to utilize
and expand these capabilities to expand and leverage our ability to respond to broadening marketplace and new customer opportunities
with solutions that address the special needs of carriers, managing general agents, agents, brokers and third party providers with
both off-the-shelf and custom solutions.
We are also increasing
and enhancing our services portfolio. We have expanded our professional services with conversion and interface offerings. We developed
new rules-based capabilities to enable us to implement data exchange services that will save our customers time and effort converting
to our products or linking our products to existing systems. We also have developed a “custom” service offering for
customers who desire specially-tailored services, service level agreements and other services that enable them to achieve their
business objectives.
We believe that our
business-focused approach allows customers to accelerate their time to market, solve ongoing business challenges and achieve sustainable
competitive advantages during periods of economic uncertainty.
Competition
The computer software
and services industry is highly competitive and rapidly changing, as current competitors expand their product offerings and new
companies enter the marketplace. Cover-All leverages their experience and knowledge of insurance combined with in-depth understanding
of software architectures and technology to create software and solutions that are innovative, flexible and functionally rich.
Because of our extensive base of knowledge in the insurance industry combined with innovative uses of technology we believe that
our products offer customers certain advantages not available from our competitors. We offer both tools and fully built solutions
enabling our customers to choose. Our customers have access to our extensive experience and software inventory in the area of rating
and policy issuance of commercial lines policies, among the most complex of insurance transactions. We have expanded our solution
suite to include Business Intelligence and Claims (Billing in design) which will give our customers access to an integrated suite
of core system needs.
There are a number of
larger companies, including computer software, services and outsourcing companies, consulting firms, computer manufacturers and
insurance companies that have greater financial resources than we have and possess the technological ability to develop software
products similar to those we offer. These companies represent a significant competitive challenge to our business. Very large insurers
that internally develop systems similar to ours may or may not become our major customers for software or services. We compete
on the basis of our insurance knowledge, products, service, price, system functionality and performance and technological advances.
Marketing
We maintain an in-house
sales and marketing staff. We also utilize outside consultants and other complimentary service providers to market our products.
We are redesigning our Internet site and are establishing linkages to portals and other websites. We will continue to expand as
we focus on the Internet as a valuable source of information for current and potential customers interested in our products and
services. We participate in, display and demonstrate our software products at industry trade shows. Our consulting staff, business
partners and other third parties also generate sales leads. We also communicate with our existing customers in a variety of ways.
Research
and Development
Our business is characterized
by rapid business and technological change. We believe our success will depend, in part, on our ability to meet the new needs of
our customers and the marketplace as well as continuing to enhance our products based on new technologies. Accordingly, we must
maintain ongoing research and development programs to add value to our suite of products, as well as any possible expansion of
our product lines.
Our goal with all of
our products and services is to enhance the ease of implementation, functionality, long-term flexibility and the ability to provide
improved customer service.
Research and development
expenses were $1,130,000, $2,315,000 and $912,000 for the years ended December 31, 2014, 2013 and 2012, respectively.
Intellectual
Property
We rely on a combination
of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect
our proprietary rights. We currently have no patents or patent applications pending.
Backlog
We had no unrecognized
licenses, support services or professional services backlog of unbilled work of as of December 31, 2014.
Major
Customers
Our product line is
in use in over 30 companies. For the years ended December 31, 2014, 2013 and 2012, we had two, two and four customers who contributed
revenues in excess of 10% of our total revenues for the respective years.
For the years ended
December 31, 2014, 2013 and 2012, one customer, a unit of American International Group, Inc. (“AIG”), generated approximately
18%, 24% and 12% of our revenues, respectively. The aggregate percentage of our total revenues generated by AIG, including certain
other units which were former customers, for the years ended December 31, 2014, 2013 and 2012, respectively, is 18%, 24% and 19%.
For the years ended December 31, 2014, 2013 and 2012, Secura, a second customer, which is not affiliated with AIG, generated approximately
24%, 11% and 11% of our revenues, respectively.
As our business has
grown, we have become less reliant on any one major customer, including AIG or its affiliates.
LEGAL
PROCEEDINGS
From time to time, Cover-All
is party to ordinary and routine litigation incidental to its business. Cover-All does not expect the outcome of such litigation
to have a material effect on its business or results of operations.
EMPLOYEES
As of December 31, 2014,
we had 60 employees, all of whom were full-time employees, and approximately 115 independent contractors primarily providing technical
services under a contract with Synechron in India. None of our employees is represented by a labor union, and we have not experienced
any work stoppages. We believe that relations with our employees are good.
AVAILABLE INFORMATION
We are subject to the
reporting requirements of the Exchange Act, and the rules and regulations promulgated thereunder, and accordingly file reports,
information statements or other information with the Securities and Exchange Commission (“SEC”), including annual reports
on Form 10-K, quarterly reports on Form 10-Q, reports of current events on Form 8-K and proxy or information statements. The public
may read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, NE, Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains
an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically
with the SEC.
Our website address
is www.cover-all.com. We make available, free of charge, through our website our annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon
as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website
is not incorporated by reference into this annual report on Form 10-K.
FORWARD-LOOKING STATEMENTS
This annual report on
Form 10-K and the other documents referred to or incorporated by reference in this annual report on Form 10-K, including, without
limitation, matters discussed under Item 1 – “Business”, Item 1A – “Risk Factors” and Item
7 – “Management Discussion and Analysis of Financial Condition and Results of Operations”, contain forward-looking
statements. All statements other than statements of historical fact could be deemed forward-looking statements. Statements that
include words such as “may,” “will,” “might,” “projects,” “expects,”
“plans,” “believes,” “anticipates,” “targets,” “intends,” “hopes,”
“aims,” “can,” “should,” “could,” “would,” “goal,” “potential,”
“approximately,” “estimate,” “pro forma,” “continue” or “pursue” or
the negative of these words or other words or expressions of similar meaning may identify forward-looking statements. For example,
forward-looking statements include any statements of the plans, strategies and objectives of management for future operations,
including the execution of integration and restructuring plans and the anticipated timing of filings; any statements concerning
proposed new products, services or developments; any statements regarding future economic conditions or performance; statements
of belief and any statement of assumptions underlying any of the foregoing.
These forward-looking
statements are found at various places throughout this annual report on Form 10-K and the other documents referred to and relate
to a variety of matters, including, but not limited to, (i) the timing and anticipated completion of the Merger, (ii) the benefits
expected to result from the Merger, (iii) the anticipated business of the combined company following the completion of the Merger,
and (iv) other statements that are not purely statements of historical fact. These forward-looking statements are made on the basis
of the current beliefs, expectations and assumptions of management, are not guarantees of performance and are subject to significant
risks and uncertainty. These forward-looking statements should not be relied upon as predictions of future events and we cannot
assure you that the events or circumstances discussed or reflected in these statements will be achieved or will occur. Furthermore,
if such forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties
in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other
person that we will achieve our objectives and plans in any specified timeframe, or at all.
These forward-looking
statements should, therefore, be considered in light of various important factors, including those set forth in this annual report
on Form 10-K and those that are referred to in this in this annual report on Form 10-K.
Important factors that
could cause actual results to differ materially from those described in forward-looking statements contained herein include, but
are not limited to:
| · | the expected timetable for completing the Merger and the transactions contemplated by the Merger
Agreement; |
| · | the possibility that the Merger does not close, including, but not limited to, due to the failure
to satisfy the closing conditions, such as obtaining regulatory approval; |
| · | the potential value created by the Merger for Cover-All’s and Majesco’s stockholders
and the possibility that the projected value creation and efficiencies from the Merger will not be realized, or will not be realized
within the expected time period; |
| · | the combined company’s ability to raise future capital as needed to fund its operations and
business plan; |
| · | the risk that the respective businesses of Cover-All and Majesco will not be integrated successfully; |
| · | the risk that unexpected costs will be incurred in connection with the Merger; |
| · | changes in economic conditions, political conditions, trade protection measures, licensing requirements
and tax matters; |
| · | the ability to successfully obtain authorization for the listing of the combined company’s
securities on the NYSE MKT; |
| · | the potential of the combined company’s technology platform; |
| · | the combined company’s ability to achieve increased market acceptance for its product and
service offerings and penetrate new markets; |
| · | the ability of the combined company to protect its intellectual property rights; |
| · | competition from other providers and products; |
| · | disruption from the Merger making it more difficult to maintain business, customer, supplier and
operational relationships; |
| · | the combined company’s exposure to additional scrutiny and increased expenses as a result
of being a public company that is no longer a small reporting issuer; and |
| · | the combined company’s ability to identify and complete acquisitions, manage growth and integrate
future acquisitions. |
In addition to the risk
factors identified elsewhere, various important risks and uncertainties affecting each of Cover-All and Majesco may cause the actual
results of the combined company to differ materially from the results indicated by the forward-looking statement in this annual
report on Form 10-K, including those factors or conditions described in the section entitled “Risk Factors” on page
11 and, without limitation:
| · | the financial condition, financing requirements, prospects and cash flow of Cover-All and Majesco; |
| · | expectations regarding potential growth and ability to implement short and long-term strategies; |
| · | the risk of loss of strategic relationships; |
| · | Cover-All’s and Majesco’s ability to compete successfully; |
| · | dependence on a limited number of key customers; |
| · | worldwide political, economic or business conditions; |
| · | changes in laws or regulations affecting the insurance industry in particular; |
| · | restrictions on immigration; |
| · | the inability to achieve sustained profitability; |
| · | the ability to obtain, use or successfully integrate third-party licensed technology; |
| · | the ability and cost of retaining and recruiting key personnel or the risk of loss of such key
personnel; |
| · | ability to attract new clients and retain them and the risk of loss of large customers; |
| · | continued compliance with evolving laws; |
| · | ability to maintain or protect intellectual property; |
| · | unauthorized disclosure of sensitive or confidential client and customer data and cybersecurity; |
| · | ability of our customers to internally develop new inventions and competitive products; |
| · | potential adverse judgments or results in connection with any litigation brought against Majesco
and/or Cover-All challenging the Merger; and |
| · | diversion of management’s attention to the Merger rather than regular operation of the business. |
You are cautioned not
to place undue reliance on these forward-looking statements, which speak only as of the date of this annual report on Form 10-K
or, in the case of documents referred to in this in this annual report on Form 10-K, as of the date of those documents. Cover-All
disclaims any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of
new information, future events or otherwise, after the date of this annual report on Form 10-K or to reflect the occurrence of
unanticipated events, except as required by law.
For a more complete
discussion of the factors that may cause Cover-All or the combined company’s actual results, performance or achievements
to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements,
or for a discussion of risk associated with the ability of Cover-All to complete the Merger and the effect of the Merger on the
business of Cover-All and the combined company, see “Risk Factors” beginning on page 11.
RISK
FACTORS
In addition to
the other information described elsewhere in this annual report on Form 10-K, you should carefully consider the following risk
factors, which could materially adversely affect our business, financial condition and results of operations. The risks described
below are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently
deem to be immaterial may materially adversely affect our business, financial condition and results of operations.
RISKS RELATED
TO OUR BUSINESS AND OUR INDUSTRY
If we do
not continue to innovate and provide products and services that are useful to insurance companies in a cost-effective way, we may
not remain competitive, and our revenues and operating results could suffer.
Our future success depends
on our ability to provide innovative and quality products and services for the insurance marketplace. Because our products and
services represent the core functionality that powers the businesses of our customers, our competitors are constantly developing
innovations in similar products and services. As a result, we must continue to invest significant resources in research and development
in order to enhance our existing products and services and introduce new products and services that insurance companies can easily
and effectively use. If we are unsuccessful in these endeavors, we may not remain competitive, and our revenues and operating results
could suffer. Additionally, we rely on our references from existing customers for new sales. If we are unable to provide quality
products and services, then our customers may become dissatisfied and may not provide these references. We also rely on an offshore
software development vendor for developing and servicing our products, and our operating results would suffer if we cannot maintain
our current cost structure through offshore development resources in the future.
We depend
on product introductions in order to remain competitive in our industry.
We are currently investing
resources in product development and expect to continue to do so in the future. Our future success will depend on our ability to
continue to enhance our current product line and to continue to develop and introduce new products that keep pace with competitive
product introductions and technological developments, satisfy diverse and evolving insurance industry requirements and otherwise
achieve market acceptance. We may not be successful in continuing to introduce and market, on a timely and cost-effective basis,
product enhancements or new products that respond to technological advances by others. Any failure by us to anticipate or respond
adequately to changes in technology and insurance industry preferences, or any significant delays in product development or introduction,
would significantly and adversely affect our business, operating results and financial condition.
Our products
may not achieve market acceptance, which may make it difficult for us to compete.
Our future success will
depend upon our ability to increase the number of insurance companies that license our software products. As a result of the intense
competition in our industry and the rapid technological changes which characterize it, our products may not achieve significant
market acceptance. Further, insurance companies are typically characterized by slow decision-making and numerous bureaucratic and
institutional obstacles which will make our efforts to significantly expand our customer base difficult.
We depend
on key personnel.
Our success depends
to a significant extent upon a limited number of members of senior management and other key employees, including Manish D. Shah,
our President and Chief Executive Officer. We maintain “key-man” life insurance on Mr. Shah in the amount of $1,000,000
per individual. The loss of the service of one or more key managers or other key employees could have a significant and adverse
effect upon our business, operating results or financial condition. In addition, we believe that our future success will depend
in large part upon our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel.
Competition for such personnel in the computer software industry is intense. We may not be successful in attracting and retaining
such personnel, and the failure to do so could have a material adverse effect on our business, operating results or financial condition.
We may be subject
to information technology system failures and network disruptions.
Information technology
system failures, network disruptions and breaches of data security caused by such factors, including, but not limited to, earthquakes,
hurricanes, fire, flood, theft, fraud, malicious attack, acts of terrorism or other causes could disrupt our operations. While
we have taken steps to address these concerns by implementing internal control measures, there can be no assurance that such a
system failure, disruption or breach will not materially adversely affect our financial condition and operating results, including
loss of revenue due to adverse customer reaction or required corrective action. In addition, our property and business interruption
insurance coverage may not be adequate to fully compensate us for losses that may occur.
Our market
is highly competitive.
Both the computer software
and the insurance software systems industries are highly competitive. There are a number of larger companies, including computer
manufacturers, computer service and software companies and insurance companies, that have greater financial resources than we have.
These companies currently offer and have the technological ability to develop software products that are core to the business of
insurance companies and similar to those offered by us. These companies present a significant competitive challenge to our business.
Because we do not have the same financial resources as these competitors, we may have a difficult time in the future in competing
with these companies. In addition, very large insurers internally develop systems similar to our systems and as a result, they
may not become customers of our software. We compete on the basis of our insurance knowledge, products, service, price, system
functionality and performance and technological advances. Although we believe we can continue to compete on the basis of these
factors, some of our current competitors have longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than we do. Our current competitors may be able to:
| · | undertake more extensive marketing campaigns for their brands and services; |
| · | devote more resources to product development; |
| · | adopt more aggressive pricing policies; and |
| · | make more attractive offers to potential employees and third-party service providers. |
If we are
unable to attract new customers and increase business with existing customers, our growth and results of operations will be adversely
affected.
Our success depends
on our ability to attract new customers and develop new revenue streams. We generate revenue from software contract licenses, professional
services fees from ongoing software customization and continuing support fees for technical and regulatory software updates on
a monthly basis. To sustain or increase our revenue, we must add new customers and encourage existing to purchase additional licenses
from us, including our integrated solutions. In addition to license revenue, we receive significant revenues from support services
and professional services. However, we cannot assure you that we will be able to maintain or increase our revenues from these services.
We have experienced a decline in license revenue since the first quarter of 2014, which could continue in future periods. Our ability
to slow or reverse this declining rate of growth will depend in part upon our ability to successfully attract new customers and
increase revenue from existing clients (including our ability to cross-sell our full suite of offerings). However, we operate in
a highly competitive market, and there can be no assurance that we will be able to do so.
If the Merger
is not completed, our debt service obligations under our Credit Agreement with Imperium could have an adverse effect on our financial
condition and results of operations.
Our Credit Agreement
with Imperium provides for a three-year term loan facility to the Cover-All Subsidiary of $2 million and a three-year revolving
credit line to the Cover-All Subsidiary of up to $250,000. As of December 31, 2014, we had $2 million outstanding under the term
loan and no amounts outstanding under the revolving credit line. Our Credit Agreement imposes on us certain restrictions and contains
financial covenants. Our debt service obligations and the amortization of deferred financing costs associated with entering into
the Credit Agreement could have important consequences to us and our financial condition and results of operations. If we do not
generate sufficient cash from our operations to service our debt obligations under the Credit Agreement, we may need to take one
or more actions, including refinancing our debt, obtaining additional financing, selling assets, obtaining additional equity capital,
restructuring our operations or reducing or delaying capital or other expenditures. We cannot be certain that our cash flow will
be sufficient to allow us to pay the principal and interest on our debt obligations under the Credit Agreement and meet our other
obligations.
Under the Credit Agreement,
the Cover-All Subsidiary granted a security interest in substantially all of its assets to Imperium. In addition, we guaranteed
the Cover-All Subsidiary’s performance under the Credit Agreement and pledged all of the outstanding shares of the Cover-All
Subsidiary in support of such guarantee. The Credit Agreement contains covenants that, among other things, require us to maintain
minimum revenues and EBITDA (determined on a consolidated basis), tested annually, commencing with the twelve months ending September
30, 2013. As of September 30, 2014, we were in compliance with our minimum revenue and EBITDA covenants under the Credit Agreement.
If we or the Cover-All Subsidiary default on the covenants or other obligations under the Credit Agreement and are unable to cure
any such default, Imperium could elect to declare all borrowings outstanding under the Credit Agreement, together with accumulated
and unpaid interest and other fees, immediately due and payable. Pursuant to the Merger Agreement, all amounts outstanding under
the Credit Agreement will be repaid in full and the indebtedness thereunder discharged.
We depend
upon proprietary technology and we are subject to the risk of third party claims of infringement.
Our success and ability
to compete depends in part upon our proprietary software technology. We also rely on certain software that we license from others.
We rely on a combination of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical
measures to protect our proprietary rights. We currently have no patents or patent applications pending. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. The steps we take to protect our proprietary technology may not prevent misappropriation of our
technology, and this protection may not stop competitors from developing products which function or have features similar to our
products.
While we believe that
our products and trademarks do not infringe upon the proprietary rights of third parties, third parties may claim that our products
infringe, or may infringe, upon their proprietary rights. Any infringement claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management personnel, cause product shipment delays or require us to
develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all. If a claim of product infringement against us is successful and we fail
or are unable to develop non-infringing technology or license the infringed or similar technology, our business, operating results
and financial condition could be significantly and adversely affected.
We depend
on existing major customers, the loss of one or more of which could have a material adverse effect on our results of operations
and financial condition.
We anticipate that our
operations will continue to depend upon the continuing business of our existing customers, and the ability to attract new customers.
In 2014, our software products operations depended primarily on certain existing major customers. Two customers generated approximately
24% and 18%, respectively, of our revenues in 2014, and 24% and 11%, respectively, of our revenues in 2013. The loss of such customers
or one or more of our other existing major customers or our inability to continue to attract new customers could adversely affect
our business, operating results and financial condition significantly.
A decline
in computer software spending may result in a decrease in our revenues or lower our growth rate.
A decline in the demand
for computer software among our current and prospective customers may result in decreased revenues or a lower growth rate for us
because our sales depend, in part, on our customers’ level of funding for new or additional computer software systems and
services. Moreover, demand for our solutions may be reduced by a decline in overall demand for computer software and services.
The current decline in overall technology spending may cause our customers to reduce or eliminate software and services spending
and cause price erosion for our solutions, which would substantially affect our sales of new software licenses and the average
sales price for these licenses. Because of these market and economic conditions, we believe there will continue to be uncertainty
in the level of demand for our products and services. Accordingly, we cannot assure you that we will be able to increase or maintain
our revenues.
We may not
get the full benefit of our tax loss carry forwards.
Under the Code, companies
that have not been operating profitably are allowed to apply certain of their past losses to offset future taxable income liabilities
they may incur once they reach profitability. These amounts are known as net operating tax loss carryforwards, or NOLs. As of December
31, 2014, we had a total of approximately $9.9 million of federal NOLs expiring at various dates through 2032. Because of certain
provisions of the Tax Reform Act of 1986 related to
change of control, however,
we may not get the full benefit of these NOLs. If we are limited from using NOLs to offset any of our income, this would increase
our taxes owed and reduce our cash for operations. If the Merger is completed, the vast majority of the tax benefits from the use
of these NOLs are not expected to be transferrable to the combined company following completion of the Merger.
If we are
unable to maintain the listing standards of the NYSE MKT, our common stock may be delisted, which may have a material adverse effect
on the liquidity and value of our common stock.
Our common stock is
traded on the NYSE MKT. To maintain our listing on the NYSE MKT, we must meet certain financial and liquidity criteria. The market
price of our common stock has been and may continue to be subject to significant fluctuation as a result of periodic variations
in our revenues and results of operations. If we fail to meet any of the NYSE MKT’s listing standards, we may be delisted.
In the event of delisting, trading of our common stock would most likely be conducted in the over the counter market on an electronic
bulletin board established for unlisted securities, which could have a material adverse effect on the market liquidity and value
of our common stock.
Holders
of our common stock may have difficulty in selling those shares.
While our common shares
trade on the NYSE MKT, our stock is thinly traded and investors may have difficulty in selling their shares. The low trading volume
of our common stock is outside of our control, and may not increase in the near future or, even if it does increase in the future,
may not be maintained. In addition, because our common stock trades at a price less than $5.00 per share, brokers effecting transactions
in our common stock may be subject to additional customer disclosure and record keeping obligations, including disclosure of the
risks associated with low price stocks, stock quote information and broker compensation. Brokers effecting transactions in our
common stock may also be subject to additional sales practice requirements under certain Exchange Act rules, including making inquiries
into the suitability of investments for each customer or obtaining a prior written agreement for the specific stock purchase. Because
of these additional obligations, some brokers will not effect transactions in our common stock.
Our stock
price has been volatile.
Quarterly operating
results have fluctuated and are likely to continue to fluctuate. The market price of our common stock has been and may continue
to be volatile. Factors that are difficult to predict, such as quarterly revenues and operating results, limited trading volumes
and overall market performance, may have a significant effect on the price of our common stock. Revenues and operating results
have varied considerably in the past from period to period and are likely to vary considerably in the future. We plan product development
and other expenses based on anticipated future revenue. If revenue falls below expectations, financial performance is likely to
be adversely affected because only small portions of expenses vary with revenue. As a result, quarterly period-to-period comparisons
of operating results are not necessarily meaningful and should not be relied upon to predict future performance.
We may not
pay any cash dividends on our common stock in the future.
Declaration and payment
of any dividend on our common stock is subject to the discretion of our board of directors. The timing and amount of dividend payments
will be dependent upon factors such as our earnings, financial condition, cash requirements and availability, and restrictions
in our credit facilities. While we paid a special cash dividend in April 2009, we have not paid any dividends since 2009 and the
payment of future dividends is not guaranteed or assured. Accordingly, it is likely that investors may have to rely on sales of
their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Provisions
of our certificate of incorporation, as amended, and by-laws and Delaware law might discourage, delay or prevent a change of control
of or changes in our management and, as a result, depress the trading price of our common stock.
Our certificate of incorporation,
as amended (the “Certificate of Incorporation”), and bylaws contain provisions that could discourage, delay or prevent
a change in control or changes in our management that our stockholders may deem advantageous. These provisions:
| · | require super-majority voting to amend some provisions in our Certificate of Incorporation and
bylaws; |
| · | establish a staggered board of directors; |
| · | limit the ability of our stockholders to call special meetings of stockholders; |
| · | prohibit stockholder action by written consent, which requires all stockholder actions to be taken
at a meeting of our stockholders; |
| · | provide that the board of directors is expressly authorized to make, alter or repeal our bylaws;
and |
| · | establish advance notice requirements for nominations for election to our board of directors or
for proposing matters that can be acted upon by stockholders at stockholder meetings. |
In addition, we are
subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits “business combinations”
between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes
a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that
the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change
in control that our stockholders might consider to be in their best interests.
These anti-takeover
defenses could discourage, delay or prevent a transaction involving a change in control. These provisions could also discourage
proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take
corporate actions other than those you desire.
If research analysts
do not continue to publish research about our business or if they issue unfavorable commentary or downgrade our common stock, our
stock price and trading volume could decline.
The trading market for
our common stock will depend in part on the research and reports that research analysts publish about us and our business. If we
do not establish and maintain adequate research coverage or if one or more analysts who covers us downgrades our stock or publishes
inaccurate or unfavorable research about our business, the price of our common stock could decline. If one or more of the research
analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our common stock could decrease,
which could cause our stock price or trading volume to decline.
RISKS RELATED TO THE MERGER AND THE
COMBINED COMPANY
Currently,
there is no public market for Majesco’s common stock. Cover-All stockholders cannot be sure that an active trading market
will develop for or of the market price of the shares of Majesco common stock they will receive or that the combined company will
successfully obtain authorization for listing on the NYSE MKT or a national securities exchange.
Under the Merger Agreement,
each share of Cover-All common stock will be converted into the right to receive shares of Majesco common stock in an amount equal
to such number of shares of Cover-All common stock multiplied by the Exchange Ratio. Majesco is an indirectly wholly owned subsidiary
of Mastek and prior to this transaction it has not issued any securities in the U.S. markets or elsewhere nor has there been extensive
information about it, its businesses or operations publicly available. Majesco has agreed to use its commercially reasonable efforts
to cause the shares of Majesco common stock to be issued in the Merger to be approved for listing on the NYSE MKT prior to the
effective time of the Merger and the approval of the listing on the NYSE MKT of the Majesco common stock to be issued in the Merger
is a condition to the closing of the Merger. However, the listing of shares on the NYSE MKT does not assure that a market for the
Majesco common stock will develop or the price at which the shares will trade. No assurance can be provided as to the demand for
or trading price of Majesco common stock following the closing of the Merger and the Majesco shares may trade at a price less than
the current market price of Cover-All common stock.
Even if the combined
company is successful in developing a public market, there may not be enough liquidity in such market to enable shareholders to
sell their shares of common stock. If a public market for the combined company’s common stock does not develop, investors
may not be able to re-sell the shares of their common stock, rendering their shares illiquid and possibly resulting in a complete
loss of their investment. Majesco cannot predict the extent to which investor interest in the combined company will lead to the
development of an active, liquid trading market. The trading price of and demand for Majesco common stock following completion
of the Merger and the development and continued existence of a market and favorable price for the Majesco common stock will depend
on a number of conditions, including the development of a market following, including by analysts and other investment professionals,
the businesses, operations, results and prospects of Majesco, general market and economic conditions, governmental actions, regulatory
considerations, legal
proceedings and developments or other factors. These and other factors may impair the development of a liquid market and the ability
of investors to sell shares at an attractive price. These factors also could cause the market price and demand for Majesco common
stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares and may otherwise affect
negatively the price and liquidity of Majesco common stock. Many of these factors and conditions are beyond the control of Majesco
or Majesco shareholders. Upon completion of the Merger, Mastek will own approximately 83.5% of Majesco’s common stock on
a fully diluted basis. Sales by Mastek or the perception that sales may be made by it could significantly reduce the market price
of the Majesco common stock.
Because
the Exchange Ratio is not generally adjustable and the market price of Cover-All common stock will fluctuate, Cover-All shareholders
cannot be certain of the precise value of the consideration they will receive at the closing of the Merger.
The Merger Agreement
has set the Exchange Ratio for each share of Cover-All common stock as described in “The Merger — Merger Consideration
and Adjustment.” The Exchange Ratio will not change to reflect changes in the value or market price of Majesco or Cover-All
common stock. The market price of Cover-All common stock at the time of completion of the Merger may vary significantly from the
market prices of Cover-All common stock on the date the Merger Agreement was executed and the date of this in this annual report
on Form 10-K. Stock price changes may result from, among other things, changes in the business, operations or prospects of Majesco
or Cover-All prior to or following the Merger, litigation or regulatory considerations, general business, market, industry or economic
conditions and other factors both within and beyond the control of Cover-All and Majesco.
Therefore, if before
the completion of the Merger the market price of Cover-All common stock declines from the market price on the date of the Merger
Agreement, then the Cover-All stockholders could receive consideration in the Merger with substantially lower value. Neither Cover-All
nor Majesco is permitted to terminate the Merger Agreement solely because of changes in the market price of their common stock.
Accordingly, at the time of the Cover-All special meeting, you will not know or be able to calculate the market value of the Merger
consideration you will receive upon completion of the Merger.
Failure
to complete the Merger could harm Cover-All’s future business and operations.
If the Merger is not
completed, Cover-All is subject to the following risks, among others:
| · | costs related to the Merger, such as legal and accounting fees, must be paid even if the Merger
is not completed; |
| · | if the Merger Agreement is terminated under certain circumstances, Cover-All may be required to
pay Majesco a termination fee of $2.5 million; |
| · | the attention of management of Cover-All may have been diverted to the Merger rather than to the
company’s operations and the pursuit of other opportunities that could have been beneficial to it; |
| · | the potential loss of key personnel during the pendency of the Merger as employees may experience
uncertainty about their future roles with the combined company; |
| · | the price of Cover-All stock may decline and remain volatile; |
| · | Cover-All will have been subject to certain restrictions on the conduct of its business which may
have prevented it from making certain acquisitions or dispositions or pursuing certain business opportunities while the Merger
was pending; and |
| · | Cover-All may be subject to litigation related to the Merger or any failure to complete the Merger. |
In addition, if the
Merger Agreement is terminated and the board of directors of Majesco determines to seek another business combination, there can
be no assurance that Cover-All will be able to find a partner willing to provide equivalent or more attractive consideration than
the consideration to be provided by Majesco in the Merger. Furthermore, Cover-All may still be required to pay Majesco a $2.5 million
termination fee if it consummates another business combination within six months of the termination of the Merger under certain
circumstances.
The Merger may
be completed even though material adverse changes may result from the announcement of the Merger, industry-wide changes and other
causes.
In general, either Cover-All
or Majesco can refuse to complete the Merger if there is a material adverse change affecting the other party between the signing
date of the Merger Agreement, and the planned closing. However, certain types of changes do not permit either party to refuse to
complete the Merger, even if such change could be said to have a material adverse effect on Cover-All or Majesco, including the
following events (except, in some cases, where the change has a disproportionate effect on a party):
| · | changes generally affecting the economy, financial or securities markets; |
| · | the announcement of the Merger and the transactions contemplated by the Merger Agreement, including
the impact thereof on the relationships of a party with its employees, customers, suppliers or partners; |
| · | the outbreak or escalation of war or any act of terrorism, civil unrest or natural disasters; |
| · | changes (including changes in law) or general conditions in the industry in which the party operates; |
| · | changes in GAAP (or the authoritative interpretation of GAAP); or |
| · | compliance with the terms of, or the taking of any action required by the Merger Agreement. |
If adverse changes occur
and Cover-All and Majesco still complete the Merger, the combined company’s stock price may suffer. This in turn may reduce
the value of the Merger to the stockholders of Cover-All.
The pendency
of the Merger could materially adversely affect the business and operations of Cover-All or result in a loss of its employees,
which, consequently, could materially adversely affect the business and operations of the combined company.
Uncertainty about the
effect of the Merger on employees, customers and suppliers may have an adverse effect on Cover-All and its business and, consequently,
on the combined company. These uncertainties may impair Cover-All’s ability to attract, retain and motivate employees until
the completion of the Merger, which may have a material adverse effect on Cover-All if the Merger is not completed. If employees
depart because of issues concerning employment security and difficulty of integration or a desire not to remain with the combined
company, Majesco’s business could be adversely affected. Similarly, uncertainties about the effect of the Merger could cause
customers, suppliers and others who deal with Cover-All to change their existing business relationships, which could negatively
affect revenues, earnings and cash flows of Cover-All, as well as the market price of Cover-All common stock, regardless of whether
the Merger is completed. The realization of any of these risks may materially adversely affect the business and financial results
of the combined company.
Current
shareholders will have a reduced ownership and voting interest in the combined company after the Merger.
As a result of the Merger,
current Majesco shareholders and Cover-All stockholders are expected to hold approximately 83.5% and 16.5% on a fully diluted basis,
respectively, of the combined company’s outstanding common stock immediately following completion of the Merger, calculated
on a fully diluted basis. Majesco shareholders and Cover-All stockholders currently have the right to vote for their respective
directors and on other matters affecting the applicable company. When the Merger occurs, each Cover-All stockholder that receives
shares of the combined company’s common stock will hold a percentage ownership of the combined company that will be significantly
smaller than the stockholder’s current percentage ownership of Cover-All. The combined company will be controlled by Mastek
and its affiliates, which will own approximately 83.5% of all shares of the combined company on a fully diluted basis. As further
discussed below, Mastek and its affiliates, including Mastek UK, will be able to exercise significant influence over the combined
company’s business policies and affairs due to its large ownership percentage. As a result of their reduced ownership percentages,
former Cover-All stockholders will have less voting power in the combined company than they now have with respect to Cover-All.
Mastek and
its affiliates will exercise significant influence over the combined company, and their interests in the combined company may be
different than yours.
Following the completion
of the Merger, Mastek and its affiliates, including Mastek UK, will beneficially own approximately 83.5% of the outstanding common
stock of the combined company calculated on a fully diluted basis.
Accordingly, Mastek
and its affiliates will be able to exercise significant influence over the combined company’s business policies and affairs,
including the composition of the combined company’s board of directors and any action requiring the approval of the combined
company’s stockholders, including the adoption of amendments to the articles of incorporation and the approval of a merger
or sale of substantially all of the combined company’s assets. The interests of Mastek and its affiliates may conflict with
your interests. For example, these shareholders may support certain long-term strategies or objectives for the combined company
which may not be accretive to shareholders in the short term. The concentration of ownership may also delay, defer or even prevent
a change in control of the combined company, even if such a change in control would benefit our other stockholders, and may make
some transactions more difficult or impossible without the support of these parties. This significant concentration of share ownership
may adversely affect the trading price for the combined company’s common stock because investors often perceive disadvantages
in owning stock in companies with shareholders who own significant percentages of a company’s outstanding stock.
Some of
the Majesco and Cover-All officers and directors have interests in the Merger that are different from yours and that may influence
them to support or approve the Merger without regard to your interests.
Certain officers of
Majesco and Cover-All participate in arrangements that provide them with interests in the Merger that are different from yours,
including, among others, continued service as an executive officer or director of the combined company and the right to continued
indemnification for directors, executive officers and former directors and executive officers of Cover-All following the completion
of the Merger.
The combined
company will be a “controlled company” within the meaning of the NYSE MKT rules and, as a result, will qualify for,
and intends to rely on, exemptions from certain corporate governance requirements.
In addition to the consequences
of the concentration of share ownership and possible conflicts between the interests of Mastek and its affiliates, including Mastek
UK, and your interests discussed above, the combined company will be a “controlled company” within the meaning of the
rules of the NYSE MKT. Under these rules, a company in which over 50% of the voting power is held by an individual, a group or
another company is a “controlled company” and is not obligated to comply with certain corporate governance requirements,
including requirements that:
| · | a majority of its board of directors consist of independent directors; |
| · | the combined company have a nominating committee or a compensation committee; |
| · | the combined company have a nominating committee that is composed entirely of independent directors; |
| · | the combined company have a compensation committee that is composed entirely of independent directors;
and |
| · | the compensation of the chief executive officer be determined, or recommended to the board of directors
for determination, either by a compensation committee comprised of independent directors or by a majority of the independent directors
on the board of directors. |
Following the Merger,
the combined company intends to rely on some of these exemptions. As a result, the combined company may not have a majority of
independent directors and its nominating and corporate governance committee and compensation committee may not consist entirely
of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject
to all of the corporate governance requirements.
Majesco
and Cover-All will incur substantial transaction fees and costs in connection with the Merger.
Majesco and Cover-All
expect to incur material non-recurring expenses in connection with the Merger and consummation of the transactions contemplated
by the Merger. Additional unanticipated costs may be incurred in the course of the integration of the businesses of Majesco and
Cover-All. The parties cannot be certain that the elimination of duplicative costs or the realization of other efficiencies related
to the integration of the two businesses will offset the transaction and integration costs in the near term, or at all.
The Merger
Agreement limits Cover-All’s ability to pursue alternatives to the Merger, which could discourage a potential acquirer of
Cover-All from making an alternative transaction proposal and, in certain circumstances, could require Cover-All to pay to Majesco
a significant termination fee.
Under the Merger Agreement,
Cover-All is restricted, subject to limited exceptions, from pursuing or entering into alternative transactions in lieu of the
Merger. In general, unless and until the Merger Agreement is terminated, Cover-All is restricted from, among other things, soliciting,
initiating or knowingly taking any action to facilitate or encourage a competing acquisition proposal. The board of directors of
Cover-All is limited in its ability to change its recommendation with respect to the Merger. Cover-All may terminate the Merger
Agreement and enter into an agreement with respect to a superior offer only if specified conditions have been satisfied, including
(i) compliance with the non-solicitation provisions of the Merger Agreement, (ii) the expiration of certain waiting periods during
which Majesco may propose changes to the Merger Agreement so the superior offer is no longer a superior offer and (iii) the payment
of a termination fee in the amount of $2.5 million.
Furthermore,
Cover-All may also be required to pay Majesco a $2.5 million termination fee if it consummates another business combination within
six months of the termination of the Merger under certain circumstances.
These provisions could
discourage a third party that may have an interest in acquiring all or a significant part of Cover-All from considering or proposing
such an acquisition, even if such third party were prepared to pay consideration with a higher per share cash or market value than
the consideration proposed to be received or realized in the Merger, or might result in a potential acquirer proposing to pay a
lower price than it would otherwise have proposed to pay because of the added expense of the termination fee that may become payable.
As a result of these restrictions, Cover-All may not be able to enter into an agreement with respect to a more favorable alternative
transaction without incurring potentially significant liability to Majesco.
After consummation
of the merger, the combined company will recognize identifiable assets acquired and liabilities assumed at their fair values which
could be significantly lower than book values.
After consummation of
the merger, the combined company will recognize and measure the identifiable assets acquired and liabilities assumed in the Merger
at their fair values. The fair value is the price that would be received from the sale of an asset or paid to transfer the liability
in an orderly transaction between market participants, irrespective of its intended use after consummation of the merger. In the
process, a valuation of any intangible assets acquired, including internally developed software, will be performed and it could
result in a fair value amount significantly lower than the Cover-All book value basis of capitalized software as at closing date
of the merger.
The fairness
opinion rendered to the board of directors of Cover-All by BVA will not reflect changes in circumstances, including general market
and economic conditions or the prospects of Cover-All or Majesco, between the signing the Merger Agreement and the completion of
the Merger.
The BVA Group LLC (“BVA”)
has issued to the Cover-All board of directors a written opinion, as to the fairness, from a financial point of view, as of the
date of execution of the Merger Agreement, of the terms of the Merger to the shareholders of Cover-All. Cover-All’s board
of directors has not obtained an updated fairness opinion as of the date of this annual report on Form 10-K. Importantly, the BVA
opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes in the operations,
performance and prospects of Cover-All or Majesco, general market and economic conditions and other factors that may be beyond
the control of Cover-All or Majesco, and on which the fairness opinion was based, that may alter the value of Cover-All or Majesco
or the prices of shares of Cover-All common stock or Majesco common stock by the time the Merger is completed. The BVA opinion
does not speak as of the time the Merger will be completed or as of any date other than the opinion date. Because Cover-All does
not anticipate asking BVA to update its opinion, the opinion will not address the fairness of the terms of the Merger, including
the Merger consideration, from a financial point of view, at the time the Merger is completed.
Litigation
may be instituted against Cover-All, members of the Cover-All board of directors, Majesco and members of the Majesco board of directors
challenging the Merger, and adverse judgments in these lawsuits may prevent the Merger from becoming effective within the expected
timeframe or at all.
Cover-All, members of
the Cover-All board of directors, Majesco and members of the Majesco board of directors may be named as defendants in class action
lawsuits or other proceedings that may be brought by Cover-All stockholders
challenging the Merger.
If the plaintiffs in any actions that may be brought are successful, these adverse judgments may prevent the parties from completing
the Merger in the expected timeframe, if at all. Even if the plaintiffs in these potential actions are not successful, the costs
of defending against such claims could adversely affect the financial condition of Cover-All or Majesco and such actions could
adversely affect the reputations of Cover-All and Majesco and members of their respective boards of directors or management.
Majesco
and Cover-All will be subject to various uncertainties and contractual restrictions while the Merger is pending that could adversely
affect the financial results of Cover-All, Majesco and/or the combined company.
Uncertainty about the
effect of the Merger on employees, suppliers and customers may have an adverse effect on Cover-All and/or Majesco. These uncertainties
may impair Cover-All’s and/or Majesco’s ability to attract, retain and motivate key personnel until the Merger is completed
and for a period of time thereafter, and could cause customers, suppliers and others who deal with Cover-All or Majesco to seek
to change existing business relationships with Cover-All or Majesco. Employee retention and recruitment may be particularly challenging
prior to completion of the Merger, as employees and prospective employees may experience uncertainty about their future roles with
the combined company. The pursuit of the Merger and the preparation for the integration of the two companies may place a significant
burden on management and internal resources of Cover-All and Majesco. Any significant diversion of Cover-All’s and Majesco’s
management attention away from their respective ongoing businesses, and any difficulties encountered in the transition and integration
process, could affect the financial results of Cover-All, Majesco and/or the combined company.
In addition, the Merger
Agreement restricts Cover-All, without the consent of Majesco, from making certain acquisitions and dispositions and taking other
specified actions while the Merger is pending. These restrictions may prevent Cover-All from pursuing attractive business opportunities
and making other changes to their respective businesses prior to completion of the Merger or termination of the Merger Agreement.
The financial
performance, and price of the common stock, of the combined company may be affected by factors different from those that historically
have affected Cover-All.
Upon completion of the
Merger, holders of Cover-All common stock will become holders of common stock of the combined company. The business and target
markets of the Majesco and the combined company differ from those of Cover-All, and accordingly the results of operations and the
price of the common stock of the combined company will be affected by some factors that are different from those currently affecting
the results of operations and stock price of Cover-All.
The shares
of Majesco common stock to be received by Cover-All shareholders as a result of the Merger will have different rights from the
shares of Cover-All common stock.
Upon completion of the
Merger, Cover-All shareholders will become stockholders of the combined company and their rights as stockholders will be governed
by Majesco’s articles of incorporation and bylaws. The combined company will be a California corporation and certain of the
rights associated with the combined company common stock will be different from the rights associated with Cover-All common stock.
The combined
company may not experience the anticipated strategic benefits of the Merger.
The respective management
of Cover-All and Majesco believe that the Merger would provide certain strategic benefits that may not be realized by each of the
companies operating as standalones. Specifically, we believe the Merger would provide certain strategic benefits which would enable
each of Cover-All and Majesco to accelerate their respective business plans through an increased access to capital in the public
equity markets, increased management strength and management expertise, access to a larger customer base for the combined sales
organization and ability to develop and acquire new solutions targeting significant trends in the convergence between technology
and insurance. There can be no assurance that these anticipated benefits of the Merger will materialize or that if they materialize
will result in increased shareholder value or revenue stream to the combined company.
Cover-All
and Majesco may be unable to successfully integrate their operations following the Merger.
It is possible that
the integration process could take longer than anticipated and could result in the loss of valuable employees, the disruption of
each company’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices,
policies and compensation arrangements, any of which could adversely affect the combined
company’s ability
to achieve the anticipated benefits of the Merger. The combined company’s results of operations could also be adversely affected
by any issues attributable to either company’s operations that arise or are based on events or actions that occur prior to
the closing of the Merger. The companies may have difficulty addressing possible differences in corporate cultures and management
philosophies. The integration process is subject to a number of uncertainties, and no assurance can be given that the anticipated
benefits will be realized or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could
result in increased costs or decreases in the amount of expected revenues and could adversely affect the combined company’s
future business, financial condition, operating results and prospects.
The lack
of a public market for Majesco’s shares makes it difficult to evaluate the fairness of the Merger, thus the stockholders
of Cover-All may receive consideration in the Merger that is greater than or less than the fair market value of their Cover-All
shares.
The outstanding common
stock of Majesco is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult
to determine the fair market value of Majesco. Because the percentage of Cover-All common stock to be issued to Majesco stockholders
was determined based on negotiations between the parties, it is possible that the value of the combined company common stock to
be issued in connection with the Merger may be less than expected.
If the conditions
to the completion of the Merger are not met, the Merger will not occur.
Even if the Merger is
approved by the stockholders of Cover-All, additional specific conditions must be satisfied or waived (to the extent permitted
under applicable law) in order to complete the Merger, including, among others:
| · | Majesco’s Registration Statement on Form S-4 shall have become effective, and no stop order
suspending effectiveness shall have been issued and remain in effect, |
| · | the completion of the Majesco Reorganization, |
| · | the shares of Majesco common stock issuable to Cover-All’s stockholders in the Merger in
accordance with the Merger Agreement will have been authorized for listing on the NYSE MKT, |
| · | no governmental entity shall have enacted any law or order making illegal or otherwise restricting,
preventing or prohibiting consummation of the Merger or the other transactions by the Merger Agreement and no such law or order
shall be pending, |
| · | the representations and warranties of each party to the Merger Agreement shall be true and correct
subject to certain materiality qualifiers, |
| · | there shall be no material adverse effect on either party, |
| · | tax legal opinions shall have been obtained, |
| · | the affirmative vote of the holders of the outstanding shares of Majesco common stock in accordance
with California law and Majesco’s Articles of Incorporation and Bylaws will have been obtained, and |
| · | Manish D. Shah shall remain with Cover-All and shall have entered into a new employment agreement
at the Effective Time. |
These and other conditions
are described in detail in the Merger Agreement. We cannot assure you that all of the conditions to the Merger will be satisfied.
If the conditions to the Merger are not satisfied or waived (to the extent permitted under applicable law), the Merger will not
occur or will be delayed, and Cover-All may lose some or all of the intended benefits of the Merger.
Delays in completing
the Merger may substantially reduce the expected benefits of the Merger.
Satisfying the conditions
to, and completion of, the Merger may take longer than, and could cost more than, Majesco and Cover-All expect. Any delay in completing
or any additional conditions imposed in order to complete the Merger may materially adversely affect the benefits that Majesco
and Cover-All expect to achieve from the Merger and the integration of
their respective businesses.
In addition, either of Cover-All and Majesco may terminate the Merger Agreement on notice to the other if the Merger is not completed
by July 30, 2015.
Should the
Merger not qualify as tax free reorganization, for U.S. federal income tax purposes, Cover-All stockholders and the combined company
may recognize income, gain or loss in connection with the Merger.
It is expected that
the Merger will qualify as a tax-free reorganization for U.S. federal income tax purposes. The parties, however, did not seek a
ruling from the IRS regarding the tax consequences of the Merger. The failure of the Merger to qualify as a tax-free reorganization
for U.S. federal income tax purposes could result in a Cover-All stockholder recognizing income, gain or loss with respect to the
shares of Cover-All common stock surrendered by such stockholder. The failure of the Merger to qualify as a tax-free reorganization
for U.S. federal income tax purposes also could result in the recognition of income and gain by Cover-All, which could adversely
affect the performance of the business of the combined company following the Merger.
Failure
or delay in obtaining any necessary regulatory approvals could cause the Merger not to be completed or to be postponed.
To complete the Merger
and all transactions contemplated by the Merger Agreement and the Merger, Majesco must comply with applicable federal and state
securities laws and the rules and regulations of the NYSE MKT in connection with the issuance and listing of shares of Majesco
common stock and the filing of this annual report on Form 10-K with the Securities and Exchange Commission. Cover-All must also
comply with such securities laws in connection with the filing of this annual report on Form 10-K and the solicitation of proxies
from its shareholders. Additionally, Majesco must obtain approval of the High Courts in Mumbai and Gujarat, India for the consummation of
the Majesco Reorganization and such consummation is a condition to the completion of the Merger. All such approvals are currently
expected to be obtained by May 2015, but neither Cover-All nor Majesco can assure you that such approvals will be obtained by such
date, or at all. Failure or delay in obtaining any necessary approvals could cause the Merger not to be completed or to be postponed,
which may materially adversely affect the benefits that Majesco and Cover-All expect to achieve from the Merger and the integration
of their respective businesses.
Cover-All
stockholders will not be entitled to appraisal rights in the Merger.
Current holders of Cover-All
common stock will not be entitled to dissenters’ or appraisal rights in the Merger with respect to their shares of Cover-All
common stock under Delaware law. Pursuant to the terms of the Merger Agreement, at the Effective Time, each share of Cover-All
common stock issued and outstanding immediately prior to the Effective Time (other than shares owned by Cover-All or its wholly-owned
subsidiary, Cover-All Subsidiary, which will be cancelled at the Effective Time without further consideration) will be automatically
cancelled and extinguished and converted into the right to receive the number of shares of Majesco common stock multiplied by the
Exchange Ratio.
The combined
company may expand through acquisitions of or partnerships with other companies, which may divert management’s attention
and result in unexpected operating and technology integration difficulties, increased costs and dilution to our stockholders.
The combined company’s
business strategy may include additional acquisitions of complementary software, technologies or businesses or alliances with other
companies offering related services or products. Acquisitions and alliances may result in unforeseen operating difficulties and
expenditures. In particular, the combined company may encounter difficulties in assimilating or integrating the businesses, technologies,
services, products, personnel or operations of the acquired companies, the key personnel of the acquired company may choose not
to work for the combined company. The combined company may also have difficulty retaining existing customers or signing new customers
of any acquired business. Acquisitions and alliances may also disrupt the combined company’s ongoing business, divert resources
and require significant management attention that would otherwise be available for ongoing development of its current business.
The combined
company may not be able to meet the listing standards to trade on the NYSE MKT or other national securities exchange, which could
adversely affect the liquidity and price of the combined company’s common stock.
It is a condition to
the consummation of the Merger that the stock of the combined company be listed on the NYSE MKT following the Merger. The listing
qualification standards for new issuers are stringent and, although the combined
company may explore
various actions to meet the minimum listing requirements, there is no guarantee that any such actions will be successful in bringing
it into compliance with the requirements of the NYSE MKT or other national securities exchange. Even if the stock of the combined
company is listed on the NYSE MKT, no assurance can be given that the combined company will comply with the requirements for continued
listing set by the NYSE MKT at all times in the future. If the combined company fails to comply with the requirements for continued
listing set by the NYSE MKT, the combined company could be delisted from the NYSE MKT, which could have a material adverse effect
on its business and financial condition.
If the combined company
fails to achieve listing of its common stock on the NYSE MKT or a national securities exchange, the Merger may not close. If it
closes, the combined company’s common shares may be traded on the OTC Bulletin Board or other over-the-counter markets in
the United States, although there can be no assurance that its common shares will be eligible for trading on any such alternative
markets or exchanges in the United States. In the event that the Merger closes but the combined company is not able to obtain a
listing on a national securities exchange or quotation on the OTC Bulletin Board or other quotation service for its common shares,
it may be extremely difficult or impossible for stockholders to sell their common shares in the United States. Moreover, if the
common stock of the combined company is quoted on the OTC Bulletin Board or other over-the-counter market, the liquidity will likely
be less, and therefore the price will be more volatile, than if its common stock were listed on a national securities exchange.
Stockholders may not be able to sell their common shares in the quantities, at the times, or at the prices that could potentially
be available on a more liquid trading market. As a result of these factors, if the combined company’s common shares fail
to achieve listing on a national securities exchange, the price of its common shares is likely to decline. In addition, a decline
in the price of the combined company’s common shares could impair its ability to achieve a national securities exchange listing
or to obtain financing in the future.
The combined
company’s stock price is expected to be volatile, and the market price of the combined company common stock may drop following
the Merger.
The market price of
the combined company’s common stock could be subject to significant fluctuations following the Merger. Moreover, stock markets
generally have experienced substantial volatility that has often been unrelated to the operating performance of individual companies.
Such market fluctuations may also adversely affect the trading price of the combined company’s common stock. Declines in
the combined company’s stock price after the Merger may result for a number of reasons including if:
| · | investors react negatively to the prospects of the combined company’s business and prospects
from the Merger; |
| · | the effects of the Merger on the combined company’s business and prospects are not consistent
with the expectations of financial or industry analysts; |
| · | the combined company does not achieve the perceived benefits of the Merger as rapidly or to the
extent anticipated by financial or industry analysts; or |
| · | other factors beyond the combined company’s control, including but not limited to fluctuations
in the valuation of companies perceived by investors to be comparable to the combined company. |
Furthermore, the stock
markets have experienced price and volume fluctuations that have affected and continue to affect the market prices of equity securities
of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies.
These broad market and industry fluctuations, as well as general economic, political and market conditions, such as recessions,
interest rate changes or international currency fluctuations, have and may continue to negatively affect the market price of our
common stock.
Declines
in the combined company’s stock price or financial results could give rise to stockholder litigation and potential liability.
In the past, following
periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities
litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management
attention and resources, which could significantly harm the combined company’s profitability and reputation.
A significant
portion of the combined company’s unaudited pro forma total assets consists of deferred tax assets, which is subject to a
management estimates, and a significant change in business operation may affect any future realization of the deferred tax assets.
As part of the process
of preparing consolidated pro forma statements, the combined company will be required to estimate our provision for income taxes
in each of the tax jurisdictions in which we conduct business, in accordance with Topic 740 (Income Taxes) of the Financial Accounting
Standards Board’s Accounting Standards Codification. Income taxes are accounted for using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have
been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized
in income in the period that includes the enactment date. A valuation allowance is provided when it is more likely than not that
some portion or all of the net deferred tax assets will not be realized. The factors the combined company will use to assess the
likelihood of realization include management’s forecast of the reversal of temporary differences, future taxable income and
available tax planning strategies that could be implemented to realize the net deferred tax assets. Should a change in circumstances
lead to a change in judgment about the utilization of deferred tax assets in future years, the combined company would adjust related
valuation allowances in the period that the change in circumstances occurs, along with a corresponding increase or charge to income.
Changes in recognized tax benefits and changes in valuation allowances could be material to the combined company’s results
of operations for any period, but is not expected to be material to our consolidated financial position.
Due to the
Merger, the ability of the combined company to use the net operating losses (“NOLs”) of Cover-All to offset future
taxable income may be restricted and a vast majority of the tax benefits from these NOLs are not expected to be transferrable to
the combined company following the Merger.
As of December 31, 2014,
Cover-All had federal net operating loss carryforwards, or NOLs, of approximately $9.9 million due to prior period losses. In general,
under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its
ability to utilize its NOLs to offset future taxable income. If the Merger is completed, Cover-All’s existing NOLs may be
subject to limitations and the combined company may not be able to fully use these NOLs to offset future taxable income. In addition,
if the combined company undergoes any subsequent ownership change, its ability to utilize NOLs could be further limited. There
is also a risk that, due to regulatory changes, such as suspensions on the use of NOLs, or for other unforeseen reasons, existing
NOLs could expire or otherwise be unavailable to offset future income tax liabilities. Moreover, the ability to use Cover-All’s
NOLs may be further limited by ownership changes of Cover-All that arose prior to the Merger. For these reasons, the vast majority
of the tax benefits from the use of Cover-All’s NOLs are not expected to be transferrable to the combined company following
completion of the Merger.
Holders
of the combined company’s common stock will experience dilution as a result of the exercise of the Loan Transaction Warrants.
Under the Merger Agreement,
any issued and outstanding warrants to purchase shares of Cover-All common stock that are not exercised or cancelled prior to the
Effective Time will be assumed by the combined company in accordance with their terms. In connection with a loan transaction with
Imperium, Cover-All issued five-year warrants to purchase, in the aggregate, 1,442,000 shares of Cover-All common stock to Imperium
and Cover-All’s financial advisor (collectively, the “Loan Transaction Warrants”). Each Loan Transaction Warrant
provides (x) for adjustments to the exercise price and the number of shares issuable upon exercise in certain events to protect
against dilution and (y) for cashless exercise. The Loan Transaction Warrants will become exercisable upon consummation of the
Merger. The issuance of additional shares of common stock of the combined company as a consequence of the exercise of any of the
Loan Transaction Warrants may result in significant dilution to stockholders of the combined company.
Sales or
new issuances of a substantial number of shares of the combined company’s common stock in the public market could cause its
stock price to fall.
Sales by shareholders,
or new issuances by the combined company, of a substantial number of shares of our common stock in the public market could occur
at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could
reduce the market price of the combined company’s common stock. Majesco’s management also intends to register all shares
of common stock that the combined company may issue under its
equity compensation
plans. Once the combined company registers these shares, they can be freely sold in the public market upon issuance, subject to
volume limitations applicable to affiliates and other requirements of applicable law.
A significant
portion of the combined company’s unaudited pro forma total assets consists of goodwill, which is subject to a periodic impairment
analysis, and a significant impairment determination in any future period could have an adverse effect on the combined company’s
results of operations even without a significant loss of revenue or increase in cash expenses attributable to such period.
The combined company
will have significant goodwill upon consummation of the Merger. The combined company will be required to evaluate this goodwill
for impairment based on the fair value of the operating business units to which this goodwill relates at least once a year. This
estimated fair value could change if the combined company is unable to achieve operating results at the levels that have been forecasted,
the market valuation of those business units decreases based on transactions involving similar companies, or there is a permanent,
negative change in the market demand for the services offered by the business units. These changes could result in an impairment
of the existing goodwill balance that could require a material non-cash charge to our results of operations.
The combined
company is not expected to pay dividends on its shares of common stock in the foreseeable future.
The combined company
is not expected to pay dividends on its shares of common stock in the foreseeable future. Instead, for the foreseeable future,
it is expected that the combined company will continue to retain any earnings to finance the development and expansion of its business,
and not to pay any cash dividends on its common stock. Consequently, your only opportunity to achieve a return on your investment
in the combined company will be if the market price of the common stock appreciates and you sell your shares at a profit. There
is no guarantee that the price of the combined company common stock that will prevail in the market after the Merger will ever
exceed the value of the Cover-All common stock exchanged in the Merger.
Majesco, the surviving corporation in the Merger, has never previously been a US reporting company.
Majesco, which will be the surviving corporation in the Merger, has never
previously been a reporting company in the United States subject to U.S. federal and state securities laws,
including the reporting obligations of the Exchange Act and other requirements of the Sarbanes-Oxley Act. The combined company will be required to increase its compliance efforts and
incur significant costs in connection with complying with public company requirements under U.S. federal and state securities laws. The attention of management may be diverted on a
frequent basis in order to carry out public company reporting and related obligations, rather than directing their full time and attention to the operation and growth of the business.
Employees and some members of the management team have had limited experience working for a US reporting company, increasing the risk of non-compliance. The combined company’s disclosure
controls and procedures may not prevent or detect all errors or acts of fraud or misconduct by persons inside or outside the combined company. Similarly, if the combined company fails to
maintain an effective system of internal control over financial reporting, the combined company may not be able to accurately report its financial condition, results of operations or cash
flows. Noncompliance with U.S. federal and state securities laws and other regulatory requirements could result in administrative or other penalties or civil or criminal judgments against
the combined company or harm to the combined company’s reputation. These consequences could affect investor confidence in the combined company and cause the price of the stock to decline,
result in the delisting of the combined company’s shares from the NYSE MKT, require the payment of fines or other amounts, distract management’s time and attention to the business or result
in the loss of customer or supplier relationships, thus reducing the value of the combined company’s common stock.
The combined
company will incur increased costs as a result of operating as a larger public company, and its management will be required to
devote substantial time to new compliance initiatives.
As a public company
that is no longer a smaller reporting company, the combined company will incur higher legal, accounting and other expenses than
before, and these expenses may increase even more in the future. The combined company will be subject to the reporting requirements
of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and
to be adopted, by the SEC and the NYSE MKT, except to the extent certain exemptions apply during the period the combined company
is an emerging growth company (an “emerging growth company”) under the Jumpstart Our Business Startups Act of 2012
(the “JOBS Act”). The combined company’s management and other personnel will need to devote a substantial amount
of time to these compliance initiatives. Majesco’s management estimates that the combined company may incur approximately
$1.5 to $2.0 million in incremental costs per year associated with being a publicly traded company, although it is possible that
the combined company’s actual incremental costs will be higher than management currently estimates. These expenses may increase
even more after the combined company is no longer an emerging growth company and is therefore no longer eligible for certain exemptions
or reduced reporting requirements.
The combined
company’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Majesco as a private
company was has never been subject to the periodic reporting requirements of the Exchange Act. Therefore, there can be no assurances
that the combined company will be fully compliant with its disclosure controls and procedures under the Exchange Act. Any disclosure
controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of
the controls. Accordingly, because of the inherent limitations in the combined company’s control system, misstatements or
insufficient disclosures due to error or fraud may occur and not be detected.
If the combined
company fails to maintain an effective system of internal control over financial reporting in the future, the combined company
may not be able to accurately report its financial condition, results of operations or cash flows, which may adversely affect investor
confidence in the combined company and, as a result, the value of its common stock.
The Sarbanes-Oxley Act
requires, among other things, that the combined company maintain effective internal controls for financial reporting and disclosure
controls and procedures. The combined company will be required to furnish a report by management on, among other things, the effectiveness
of its internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified
by its management in the combined company’s internal control over financial reporting. A material weakness is a deficiency,
or combination of deficiencies, in internal control over financial reporting that results in more than a reasonable possibility
that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section
404 of the Sarbanes-Oxley Act also generally requires an attestation from the combined company’s independent registered public
accounting firm on the effectiveness of its internal control over financial reporting. However, for as long as the combined company
remains an emerging growth company under the JOBS Act, the combined company may take advantage of the exemption permitting it not
to comply with the independent registered public accounting firm attestation requirement.
The combined company’s
compliance with Section 404 of the Sarbanes-Oxley Act will require that it incur substantial accounting expense and expend significant
management efforts. The combined company may not be able to complete its evaluation, testing and any required remediation in a
timely fashion. During the evaluation and testing process, if the combined company identifies one or more material weaknesses in
its internal control over financial reporting, the combined company will be unable to assert that its internal control over financial
reporting is effective. The combined company cannot assure you that there will not be material weaknesses or significant deficiencies
in its internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting
could severely inhibit the combined company’s ability to accurately report its financial condition, results of operations
or cash flows. If the combined company is unable to conclude that its internal control over financial reporting is effective, or
if its independent registered public accounting firm determines the combined company has a material weakness or significant
deficiency in its internal control over financial reporting once that firm begin its Section 404 reviews, the combined company
could lose investor confidence in the accuracy and completeness of its financial reports, the market price of its common stock
could decline, and the combined company could be subject to sanctions or investigations by the NYSE MKT, the SEC or other regulatory
authorities. Failure to remedy any material weakness in the combined company’s internal control over financial reporting,
or to implement or maintain other effective control systems required of public companies, could also restrict its future access
to the capital markets.
The combined
company will be an emerging growth company under U.S. securities laws and intends to take advantage of reduced disclosure and governance
requirements applicable to emerging growth companies, which could result in its common stock being less attractive to investors.
The combined company
will be an emerging growth company, and may take advantage of certain exemptions from various reporting requirements that are otherwise
applicable to public companies that are not emerging growth companies including, but not limited to:
| · | a requirement to provide only two years of audited financial statements and only two years of related
selected financial data and management’s discussion and analysis of financial condition and results of operations disclosure; |
| · | not being required to comply with the auditor attestation requirements regarding internal controls
under Section 404 of the Sarbanes-Oxley Act; |
| · | reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements;
and |
| · | exemptions from the requirements of holding a non-binding shareholder advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. |
The combined company
also intends to take advantage of the extended transition period for complying with new or revised accounting standards until those
standards would otherwise apply to private companies provided under the JOBS Act. Section 102 of the JOBS Act provides that our
decision to elect the extended transition period for complying with new or revised financial accounting standards is irrevocable.
As a result, the combined company’s financial statements may not be
comparable to those
of companies that comply with public company effective dates for complying with new or revised accounting standards.
Moreover, the combined
company will also be eligible under the JOBS Act for an exemption from compliance with any requirement that the Public Company
Accounting Oversight Board may adopt regarding mandatory audit firm rotation or supplements to the auditor’s report providing
additional information about the audit and the financial statements.
The combined company
cannot predict if investors will find its common stock less attractive because the combined company will rely on these exemptions.
If some investors find the combined company’s common stock less attractive as a result, there may be a less active trading
market for its common stock and its stock price may be more volatile.
The combined company
may take advantage of these reporting exemptions until the combined company is no longer an emerging growth company, which in certain
circumstances could be for up to five years.
The combined
company’s status as an emerging growth company may make it more difficult to raise capital as and when the combined company
needs it.
Because of the exemptions
from various reporting requirements available to it as an emerging growth company the combined company may be less attractive to
investors and it may be difficult for it to raise additional capital as and when the combined company needs it. Investors may be
unable to compare the combined company’s business with other companies in its industry if they believe that its financial
accounting is not as transparent as other companies in its industry. If the combined company is unable to raise additional capital
as and when the combined company needs it, the combined company’s financial condition and results of operations may be materially
and adversely affected.
The combined company
will remain an emerging growth company until the earliest of (a) the last day of the first fiscal year in which its annual gross
revenues exceed $1.0 billion, (b) the date that it becomes a “large accelerated filer” as defined in Rule 12b-2 under
the Exchange Act, which would occur if the market value of its shares that are held by non-affiliates exceeds $700 million as of
the last business day of the combined company’s most recently completed second fiscal quarter, (c) the date on which it has
issued more than $1.0 billion in nonconvertible debt securities during the preceding three-year period and (d) the last day of
the combined company’s fiscal year containing the fifth anniversary of the date on which shares of its common stock are offered
in connection with the completion of the Merger.
If securities
or industry analysts do not publish research or publish inaccurate or unfavorable research about the combined company or its business,
its common stock price and trading volume could decline.
The trading market for
the combined company’s common stock will depend in part on the research and reports that securities or industry analysts
publish about the combined company or its business. Securities and industry analysts do not currently, and may never, publish research
on the combined company. If no securities or industry analysts commence coverage of the combined company, the trading price for
its common stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or
more of the analysts who cover the combined company downgrade its securities or publish inaccurate or unfavorable research about
its business, its stock price would likely decline. If one or more of these analysts cease coverage of the combined company or
fail to publish reports on the combined company regularly, demand for its common stock could decrease, which might cause its common
stock price and trading volume to decline.
Our product
development and continuing planned operations require a substantial amount of capital. Future sales and issuances of common stock
or rights to purchase common stock by the combined company, including pursuant to equity incentive plans, could result in additional
dilution of the percentage ownership of stockholders and could cause the common stock price to fall.
The combined company
expects that significant additional capital will be needed in the future to continue planned operations, including product development,
which requires consistent high levels of investments. To raise capital, the combined company may sell substantial amounts of common
stock or securities convertible into or exchangeable for common stock. These future issuances of common stock or common stock-related
securities, together with the exercise of stock options, warrants, RSUs and any additional shares issued in connection with acquisitions,
if any, may result in material dilution to investors. Such sales may also result in material dilution to the combined company’s
existing stockholders, and
new investors could
gain rights, preferences and privileges senior to those of holders of the combined company’s common stock, including shares
of common stock sold in this offering.
Raising
capital for ongoing operations and product development by issuing securities may cause dilution to existing stockholders, restrict
the combined company’s business or require the combined company to relinquish rights.
Additional financing
for ongoing operations may not be available to the combined company when it needs it or may not be available on favorable terms.
To the extent that the combined company raises additional capital by issuing equity securities, existing stockholders’ ownership
will be diluted and the terms of any new equity securities may have preferences over its common stock. Any debt financing may involve
covenants that restrict operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions
on the use of the combined company’s assets, as well as prohibitions on its ability to create additional liens, pay dividends,
redeem its stock or make investments.
Anti-takeover
and similar provisions of California law and Majesco’s governing documents may deter or prevent a future acquisition or change
of control of the combined company that our shareholders may consider favorable.
Anti-takeover and similar
provisions of California law and of Majesco’s governing documents could make it more difficult for a third party, or an existing
shareholder, to engage in a business combination with or acquire control of the combined company, even if shareholders may consider
such transaction to be favorable to them. Such provisions may have the effect of discouraging a hostile bid, or delaying, preventing
or deterring a merger, acquisition or tender offer in which the combined company’s shareholders could receive a premium for
their shares, or effect a proxy contest for control of the combined company or other changes in its management, particularly if
such proposed transaction is opposed by the board of directors of the combined company.
Under Section 1203 of
the CGCL, if an “interested person” makes an offer to purchase the shares of some or all of the combined company’s
shareholders, the combined company must obtain an affirmative opinion in writing as to the fairness of the offering price prior
to completing the transaction. If after receiving an offer from such an “interested person” the combined company receives
a subsequent offer from a neutral third party, then the combined company must notify its shareholders of this offer and afford
each of them the opportunity to withdraw their consent to the “interested person” offer.
Moreover, even if shareholders
may consider such a transaction to be favorable to them, the CGCL may effectively prohibit a cash-out merger of minority shareholders
by a majority shareholder of the combined company without the unanimous approval of the merger by the combined company’s
shareholders, which is often difficult to achieve in the case of a public company. Under Sections 1101 and 1101.1 of the CGCL,
a merger with a majority shareholder for cash consideration requires unanimous shareholder approval, except where (i) the party
interested in effecting the merger already owns 90% or more of the voting power of the combined company (and could, therefore,
accomplish such a cash-out of minority shareholders by means of a “short-form” merger without the need for approval
by the combined company’s shareholders) or (ii) the California Commissioner of Corporations has granted its consent. In addition,
under the combined company’s articles of incorporation and bylaws, certain provisions may make it difficult for a third party
to acquire the combined company, or for a change in the composition of the board of directors or management to occur.
| ITEM 1B. | UNRESOLVED
STAFF COMMENTS |
Not applicable.
Our headquarters is
located in Morristown, New Jersey, where we occupy approximately 23,400 square feet under a lease that expires on April 1, 2020.
Currently, we fully utilize this facility. We believe that our headquarters is well maintained and adequate to meet our needs for
the foreseeable future.
In addition, we have
office space of approximately 2,500 square feet located in Honolulu, Hawaii, under a lease which is due to expire on July 1, 2015.
We believe that our Honolulu office space is also well maintained and will be adequate to meet our needs for the foreseeable future.
None.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
PART
II
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
MARKET
PRICE OF AND DIVIDENDS ON COMMON STOCK
Our common stock is
traded on the NYSE MKT (formerly known as NYSE Amex) under the symbol “COVR”. The table below sets forth for the periods
indicated the high and low sales prices for our common stock as reported on the NYSE MKT.
| 2014: | |
High | | |
Low | |
| 4th Quarter | |
$ | 1.37 | | |
$ | 1.05 | |
| 3rd Quarter | |
| 1.50 | | |
| 1.04 | |
| 2nd Quarter | |
| 1.55 | | |
| 1.08 | |
| 1st Quarter | |
| 1.80 | | |
| 1.41 | |
| | |
| | | |
| | |
| 2013: | |
| High | | |
| Low | |
| 4th Quarter | |
$ | 1.48 | | |
$ | 1.01 | |
| 3rd Quarter | |
| 1.45 | | |
| 1.12 | |
| 2nd Quarter | |
| 1.58 | | |
| 1.20 | |
| 1st Quarter | |
| 1.42 | | |
| 1.14 | |
As of March 16, 2015,
there were 377 holders of record of our common stock. This number does not include beneficial owners who may hold their shares
in street name.
No dividends were declared
in 2014 or 2013.
The closing sales price
for our common stock on March 16, 2015 was $1.06, as reported by the NYSE MKT.
EQUITY COMPENSATION
PLAN INFORMATION
The following table
sets forth, as of December 31, 2014, information related to our equity compensation plans. All options to acquire our equity securities
are exercisable for or represent the right to purchase our common stock.
| Plan Category | |
Number of Securities
to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights
(a) | |
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b) | |
Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans
(Excluding Securities
Referenced in Column (a))
(c) |
| Equity Compensation Plans Approved by Security Holders (1) | |
2,487,561 | |
1.54 | |
1,593,684 |
| Equity Compensation Plans Not Approved by Security Holders | |
— | |
— | |
— |
| Total | |
2,487,561 | |
1.54 | |
1,593,684 |
(1) Reflects grants
under our Amended and Restated 2005 Stock Incentive Plan. The numbers in the table include the restricted stock granted under our
Amended and Restated 2005 Stock Incentive Plan.
PERFORMANCE GRAPH
The graph below compares
the cumulative total stockholder returns (including reinvestment of dividends) from the period from December 31, 2009 through December
31, 2014 on an investment of $100 in (i) our common stock, (ii) the Russell Microcap Index (an index of microcap companies), and
(iii) an index of peer companies selected by us (the “Peer Group”), as described below. You should be aware that historical
results are not necessarily indicative of future performance.
We have selected the
Russell Microcap Index for comparative purposes. We believe that, given our current size of operations and market capitalization,
the Russell Microcap Index, which measures the performance of stocks in the microcap segment of the U.S. equity securities market,
provides an appropriate benchmark against which to measure our stock performance.
Our Peer Group consists
of Computer Sciences Corporation, Ebix Inc., Pegasystems Inc. and Sapient Corp.
| ITEM 6. | SELECTED FINANCIAL DATA |
The following selected
historical consolidated financial information as of December 31, 2014 and 2013, and for each of the years ended December 31, 2014,
2013 and 2012, have been derived from and should be read in conjunction with our audited consolidated financial statements and
related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this annual report on Form 10-K. The selected historical consolidated financial information as of December
31, 2012, 2011 and 2010 and for the years ended December 31, 2011 and 2010 have been derived from our audited consolidated financial
statements which are not included in this annual report on Form 10-K.
Selected Five-Year Consolidated
Financial Data
The following is a summary
of selected five-year consolidated financial data as of and for the years ended December 31, 2014, 2013, 2012, 2011 and 2010:
| | |
Year ended December 31, | |
| | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | |
| | |
(in thousands, except per share amounts) | |
| Statement of Operations Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Revenues | |
$ | 20,478 | | |
$ | 20,483 | | |
$ | 16,225 | | |
$ | 17,596 | | |
$ | 17,457 | |
| Income (loss) before income tax | |
| 419 | | |
| (2,868 | ) | |
| (5,232 | ) | |
| 1,185 | | |
| 2,215 | |
| Net income (loss) | |
| 366 | | |
| (2,898 | ) | |
| (4,974 | )(1) | |
| 1,185 | | |
| 2,952 | (2) |
| Net income (loss) per share – basic | |
| 0.01 | | |
| (0.11 | ) | |
| (0.19 | ) | |
| 0.05 | | |
| 0.12 | |
| Net income (loss) per share – diluted | |
| 0.01 | | |
| (0.11 | ) | |
| (0.19 | ) | |
| 0.05 | | |
| 0.12 | |
| Cash dividends per share | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
| | |
As of December 31, | |
| | |
2014 | | |
2013 | | |
2012 | | |
2011 | | |
2010 | |
| | |
(in thousands) | |
| Balance Sheet Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
$ | 4,565 | | |
$ | 1,849 | | |
$ | 1,354 | | |
$ | 3,282 | | |
$ | 5,893 | |
| Working capital (deficit) | |
| 1,057 | | |
| (19 | ) | |
| (533 | ) | |
| 3,238 | | |
| 5,013 | |
| Total assets | |
| 19,170 | | |
| 18,724 | | |
| 20,767 | | |
| 20,458 | | |
| 19,513 | |
| Short-term debt | |
| 1,843 | | |
| — | | |
| — | | |
| — | | |
| 400 | |
| Long-term debt | |
| — | | |
| 1,639 | | |
| 1,458 | | |
| — | | |
| — | |
| Stockholders’ equity | |
$ | 11,670 | | |
$ | 10,917 | | |
$ | 13,140 | | |
$ | 16,921 | | |
$ | 15,204 | |
| (1) | Net income for such year included a deferred income tax benefit of $258,000 as a result of the
Company’s reversal of a portion of its Deferral Tax Asset valuation allowance. |
| (2) | Net income for such year included a deferred income tax benefit of $0.8 million as a result of
the Company’s reversal of a portion of its Deferred Tax Asset valuation allowance. |
Selected Quarterly Financial
Data (Unaudited)
The following is a summary
of selected quarterly financial data for the years ended December 31, 2014 and 2013:
| | |
2014 | |
| | |
Q1 | | |
Q2 | | |
Q3 | | |
Q4 | |
| | |
(in thousands, except per share amounts) | |
| | |
| |
| Total revenues | |
$ | 5,208 | | |
$ | 5,001 | | |
$ | 5,004 | | |
$ | 5,266 | |
| Operating (loss) income | |
$ | 531 | | |
$ | 427 | | |
$ | 301 | | |
$ | (478 | ) |
| Net (loss) income | |
$ | 434 | | |
$ | 328 | | |
$ | 165 | | |
$ | (560 | ) |
| Net (loss) income per common share | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | 0.02 | | |
$ | 0.01 | | |
$ | 0.01 | | |
$ | (0.02 | ) |
| Diluted | |
$ | 0.02 | | |
$ | 0.01 | | |
$ | 0.01 | | |
$ | (0.02 | ) |
| | |
2013 | |
| | |
Q1 | | |
Q2 | | |
Q3 | | |
Q4 | |
| | |
(in thousands, except per share amounts) | |
| | |
| |
| Total revenues | |
$ | 6,886 | | |
$ | 4,004 | | |
$ | 5,059 | | |
$ | 4,534 | |
| Operating income (loss) | |
$ | 803 | | |
$ | (1,058 | ) | |
$ | (814 | ) | |
$ | (1,338 | ) |
| Net income (loss) | |
$ | 705 | | |
$ | (1,149 | ) | |
$ | (916 | ) | |
$ | (1,538 | ) |
| Net income (loss) per common share | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | 0.03 | | |
$ | (0.04 | ) | |
$ | (0.03 | ) | |
$ | (0.06 | ) |
| Diluted | |
$ | 0.03 | | |
$ | (0.04 | ) | |
$ | (0.03 | ) | |
$ | (0.06 | ) |
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This discussion of
Cover-All’s financial condition and results of operations should be read together with the consolidated financial statements
and notes contained elsewhere in this annual report filed on Form 10-K. Certain statements in this section and other sections are
forward-looking. While Cover-All believes these statements are accurate, its business is dependent on many factors, some of which
are discussed in the sections entitled “Risk Factors” and “Cover-All’s Business.” Many of these factors
are beyond Cover-All’s control and any of these and other factors could cause actual results to differ materially from the
forward-looking statements made in this annual report filed on Form 10-K. See the section entitled “Risk Factors” for
further information regarding these factors. Cover-All undertakes no obligation to release publicly the results of any revisions
to the statements contained in this report to reflect events or circumstances that occur subsequent to the date of this annual
report filed on Form 10-K, except as required by law. Except where context requires otherwise, references in this MD&A to “Cover-All,”
“we” or “us” are to Cover-All and its subsidiary on a consolidated basis.
OVERVIEW
We are a supplier of
software products for the property and casualty insurance industry, supplying a wide range of professional services that support
product customization, conversion from existing systems and data integration with other software or reporting agencies. We also
offer on-going support services including incorporating recent insurance rate and rule changes in our solutions. These support
services also include analyzing the changes, developments, quality assurance, documentation and distribution of insurance rate
and rule changes.
We earn revenue from
software contract licenses, fees for servicing the product, which we call support services, and professional services. Total revenue
in 2014 was $20,478,000 compared to $20,483,000 in 2013, due to an increase in support and professional services offset by a decrease
in license revenue.
The following is an
overview of the key components of our revenue and other important financial data in 2014:
Software Licenses.
License revenue was $1,101,000 in 2014 compared to $5,947,000 in 2013 as a result of fewer new customer sales and sales to existing
customers in 2014. Our new software license revenue is affected by the strength of general economic and business conditions and
the competitive position of our software products. New software license sales are characterized by long sales cycles and intense
competition. Timing of new software license sales can substantially affect our quarterly results.
Support Services.
Support services revenue was $8,428,000 in 2014 compared to $8,147,000 in 2013. The increase in maintenance revenue in 2014 was
mainly due to maintenance from new customer contracts signed 2013. Support services revenue is influenced primarily by the following
factors: the renewal rate from our existing customer base, the amount of new support services associated with new license sales
and annual price increases.
Professional Services.
The increase in professional services revenue to $10,950,000 in 2014 from $6,388,000 in 2013 was a result of increased demand for
new software capabilities and customizations from new customers and our current customer base and implementations of Cover-All
Policy for new customers and our current customer base.
Income (Loss) before
Provision for Income Taxes. Income (loss) before provision for income taxes was $419,000 in 2014 compared to $(2,868,000) in
2013, primarily due to an increase in support and professional services revenue offset by a decrease in license revenue, and a
decrease in amortization of capitalized software, support and research and development costs.
Income Taxes. We
recorded income taxes of $52,000 and $30,000 in 2014 and 2013, respectively.
Net Income (Loss).
Net income (loss) for 2014 was $366,000 compared to $(2,898,000) in 2013, mainly as a result of an increase in support and professional
services revenue offset by a decrease in license revenue and a decrease in amortization of capitalized software, support and research
and development costs.
EBITDA. Earnings
before interest, taxes, depreciation and amortization (“EBITDA”), a non-GAAP measure, was $2,594,000 for 2014 compared
to $2,604,000 for 2013.
The following is an unaudited
reconciliation of U.S. GAAP net income to EBITDA for the years ended December 31, 2014 and 2013:
| | |
2014 | |
2013 |
| | |
| |
|
| Net Income (Loss) | |
$ | 366,488 | | |
$ | (2,898,377 | ) |
| | |
| | | |
| | |
| Interest income, net | |
| 362,256 | | |
| 464,072 | |
| Income tax expense | |
| 52,479 | | |
| 30,379 | |
| Depreciation | |
| 229,540 | | |
| 251,853 | |
| Amortization | |
| 1,582,938 | | |
| 4,755,896 | |
| | |
| | | |
| | |
| EBITDA | |
$ | 2,593,701 | | |
$ | 2,603,823 | |
| | |
| | | |
| | |
| EBITDA per common share: | |
| | | |
| | |
| | |
| | | |
| | |
| Basic | |
$ | 0.10 | | |
$ | 0.10 | |
| | |
| | | |
| | |
| Diluted | |
$ | 0.10 | | |
$ | 0.10 | |
Cash Flow. We generated
$2,851,000 in positive cash flow from operations in 2014 and ended the year with $4,565,000 in cash and cash equivalents and $2,533,000
in accounts receivable.
We continue to face competition
for growth in 2015 mainly in the marketing and selling of our products and services to new customers caused by a number of factors,
including long sales cycles and general economic and business conditions. In addition, there are risks related to customers’
acceptance and implementation delays which could affect the timing and amount of license revenue we are able to recognize. However,
given the positive response to our new software from existing
customers, the significant expansion of our
relationship with a very large customer and the introduction of additional software capabilities, we are expanding our sales and
marketing efforts to both new and existing customers. Consequently, we continue to incur additional sales and marketing expense
in advance of generating the corresponding revenue.
As we shift over time from
software development to deployment, from a financial perspective, the non-cash charges for amortization of developed software will
increasingly impact our bottom line. Therefore, in order to provide more visibility to investors, we have decided to also report
EBITDA to show what we believe is the Company’s earnings power without the impact of, among other items, amortization. In
2014, the non-cash charge for amortization of capitalized software decreased to $1,491,000 from $4,646,000 in the same period in
2013. Therefore, we believe that EBITDA will be a useful measure of the true earnings power of the Company while we complete the
development and deployment cycle. As such, we expect to increasingly focus on EBITDA to evaluate our progress.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The SEC has issued cautionary
advice to elicit more precise disclosure in this Item 2, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations,” about accounting policies that management believes are most critical in portraying our financial
results and in requiring management’s most difficult subjective or complex judgments.
The preparation of financial
documents in conformity with accounting principles generally accepted in the United States of America requires management to make
judgments and estimates. On an on-going basis, we evaluate our estimates, the most significant of which include establishing allowances
for doubtful accounts, a valuation allowance for our deferred tax assets and determining the recoverability of our long-lived assets.
The basis for our estimates are historical experience and various assumptions that are believed to be reasonable under the circumstances,
given the available information at the time of the estimate, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from the
amounts estimated and recorded in our financial statements.
We believe the following
critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial
statements:
| · | Revenue recognition |
| · | Valuation of capitalized software |
| · | Valuation of allowance for doubtful accounts receivable |
| · | Deferred tax asset |
Revenue Recognition
Revenue recognition rules
are very complex, and certain judgments affect the application of our revenue policy. The amount and timing of our revenues is
difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly
from quarter to quarter. In addition to determining our results of operations for a given period, our revenue recognition determines
the timing of certain expenses, such as commissions, royalties and other variable expenses.
Our revenues are recognized
in accordance with FASB ASC 986-605, “Software Revenue Recognition,” as amended. Revenue from the sale of software
licenses is predominately related to the sale of standardized software and is recognized when these software modules are delivered
and accepted by the customer, the license term has begun, the fee is fixed or determinable, and collectability is probable. Revenue
from support services is recognized ratably over the life of the contract. Revenue from professional consulting services is recognized
when the service is provided.
Amounts invoiced to our
customers in excess of recognizable revenues are recorded as deferred revenues. The timing and amounts invoiced to customers can
vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenues in any
given period.
Our revenues are derived
from the licensing of our software products, professional services, and support services. We recognize revenue when persuasive
evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable, and
collection is probable.
License Revenue.
We recognize our license revenue upon delivery, provided that collection is determined to be probable and no significant obligations
remain.
Services and Support
Revenue. Our services and support revenue is composed of professional services (such as consulting services and training) and
support services (maintenance, support and ASP services). Our professional services revenue is recognized when the services are
performed. Our support services are recognized ratably over the term of the arrangement.
Valuation Of Capitalized
Software
Costs for the conceptual
formulation and design of new software products are expensed as incurred until technological feasibility has been established.
Once technological feasibility is established, we capitalize costs to produce the finished software products. Capitalization ceases
when the product is available for general release to customers. Costs associated with product enhancements that extend the original
product’s life or significantly improve the original product’s marketability are also capitalized once technological
feasibility for that particular enhancement has been established. Amortization is calculated on a product-by-product basis as the
greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated
future gross revenues for that product or (b) the straight-line method over the remaining economic life of the product. At each
balance sheet date, the unamortized capitalized costs of each computer software product is compared to the net realizable value
of that product. If an amount of unamortized capitalized costs of a computer software product is found to exceed the net realizable
value of that asset, such amount will be written off. The net realizable value is the estimated future gross revenues from that
product reduced by the estimated future costs of completing and deploying of that product, including the costs of performing maintenance
and customer support required to satisfy our responsibility set forth at the time of sale.
Valuation Of Allowance
For Doubtful Accounts Receivable
Management’s estimate
of the allowance for doubtful accounts is based on historical information, historical loss levels, and an analysis of the collectability
of individual accounts. We routinely assess the financial strength of our customers and, based upon factors concerning credit risk,
establish an allowance for uncollectible accounts. Management believes that accounts receivable credit risk exposure beyond such
allowance is limited.
Deferred Income Taxes
Deferred income taxes are
determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets
or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we
operate, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the
ability to implement tax planning and strategies vary, adjustments to the carrying value of deferred tax assets and liabilities
may be required. We estimate our income tax valuation allowance by assessing which deferred tax assets are more-likely-than-not
to be recovered in the future. The valuation allowance is based on our estimates of taxable income in each jurisdiction in which
we operate and the period over which the deferred tax assets will be recoverable. If it appears that we will not generate such
taxable income, we may need to increase the valuation allowance against the related deferred tax asset in a future period.
RESULTS OF OPERATIONS
The following table sets
forth, for the periods indicated, certain items from the consolidated statements of operations expressed as a percentage of total
revenues:
| | |
Year Ended December 31, |
| | |
2014 | |
2013 | |
2012 |
| Revenues: | |
| | | |
| | | |
| | |
| License | |
| 5.4 | % | |
| 29.0 | % | |
| 24.2 | % |
| Support Services | |
| 41.2 | | |
| 39.8 | | |
| 51.1 | |
| Professional Services | |
| 53.4 | | |
| 31.2 | | |
| 24.7 | |
| Total Revenues | |
| 100.0 | | |
| 100.0 | | |
| 100.0 | |
| | |
| | | |
| | | |
| | |
| Cost of Revenues: | |
| | | |
| | | |
| | |
| License | |
| — | | |
| 0.7 | | |
| 5.1 | |
| Support Services | |
| 29.5 | | |
| 34.6 | | |
| 41.2 | |
| Professional Services | |
| 24.5 | | |
| 17.1 | | |
| 28.8 | |
| Total Cost of Revenues | |
| 54.0 | | |
| 52.4 | | |
| 75.1 | |
| Direct Margin | |
| 46.0 | | |
| 47.6 | | |
| 24.9 | |
| | |
| | | |
| | | |
| | |
| Operating Expenses: | |
| | | |
| | | |
| | |
| Sales and Marketing | |
| 9.8 | | |
| 11.0 | | |
| 15.8 | |
| General and Administrative | |
| 17.6 | | |
| 12.8 | | |
| 12.5 | |
| Amortization of Capitalized Software | |
| 7.3 | | |
| 22.7 | | |
| 21.7 | |
| Acquisition Costs | |
| 2.0 | | |
| — | | |
| 0.8 | |
| Restructuring Cost | |
| — | | |
| 1.6 | | |
| — | |
| Research and Development | |
| 5.5 | | |
| 11.3 | | |
| 5.6 | |
| Total Operating Expenses | |
| 42.2 | | |
| 59.4 | | |
| 56.4 | |
| | |
| | | |
| | | |
| | |
| Operating Income (Loss) | |
| 3.8 | | |
| (11.8 | ) | |
| (31.5 | ) |
| | |
| | | |
| | | |
| | |
| Other (Income) Expense: | |
| | | |
| | | |
| | |
| Interest Expense | |
| 1.8 | | |
| 2.3 | | |
| 0.8 | |
| Interest Income | |
| — | | |
| — | | |
| — | |
| Other Expense | |
| — | | |
| — | | |
| — | |
| Other Income | |
| — | | |
| (0.1 | ) | |
| (0.1 | ) |
| Total Other (Income) Expense | |
| 1.8 | | |
| 2.2 | | |
| 0.7 | |
| | |
| | | |
| | | |
| | |
| Income (Loss) Before Income Taxes | |
| 2.0 | | |
| (14.0 | ) | |
| (32.2 | ) |
| | |
| | | |
| | | |
| | |
| Income Tax Expense (Benefit): | |
| 0.2 | | |
| 0.2 | | |
| (1.6 | ) |
| | |
| | | |
| | | |
| | |
| Net (Loss) Income | |
| 1.8 | % | |
| (14.2 | )% | |
| (30.6 | )% |
YEAR
ENDED DECEMBER 31, 2014 COMPARED WITH YEAR ENDED DECEMBER 31, 2013
Revenues
Total revenues were $20,478,000
for the year ended December 31, 2014 compared to $20,483,000 for the year ended December 31, 2013. License fees were $1,101,000
for the year ended December 31, 2014 compared to $5,947,000 in 2013 as a result of fewer new customer license sales and sales to
existing customers. For the year ended December 31, 2014, support services revenues were $8,428,000 compared to $8,147,000
of the prior year due to new license sales signed later in 2013 resulting in recognition of new maintenance in 2014. Professional
services revenue contributed $10,950,000 for the year ended December 31, 2014 compared to $6,388,000 for the year ended December
31, 2013 as a result of increased
demand for new software capabilities and customizations
from our current customer base and implementation of Cover-All Policy for our new customers.
Cost of sales was approximately
$11,065,000 for the year ended December 31, 2014 compared to $10,736,000 in 2013 due to an increase in personnel-related costs
in the year ended December 31, 2014. We are expanding our delivery bandwidth while maintaining our costs in line with our revenues
through improved productivity and new technology in order to meet our increasing demand. Non-cash capitalized software amortization
was approximately $1,491,000 for the year ended December 31, 2014 as compared to approximately $ 4,646,000 in the year ended December
31, 2013. We capitalized approximately $0 of software development costs in the year ended December 31, 2014 as compared to approximately
$2,169,000 in the same period in 2013.
The direct margin in the
year ended December 31, 2014 was 46%, compared to 48% in 2013 due to a decrease in higher gross margin license revenue in 2014.
Support services margin increased in the year ended December 31, 2014 compared to 2013 primarily due to several cost saving initiatives.
Professional services direct margin increased in the year ended December 31, 2014, compared to 2013, primarily due to use of offshore
resources to provide customizations to new and existing customers.
We expect our annual gross
margin to vary in percentage terms in future years as we experience changes in the mix between higher gross margin license revenues
and lower gross margin services revenues.
Amortization of capitalized
software was approximately $1,491,000 in the year ended December 31, 2014, as compared to approximately $4,646,000 in 2013. The
Company revised the estimated useful life of its capitalized software, effective January 1, 2014, from three years to five years.
Expenses
Research and development
expenses decreased to approximately $1,130,000, in the year ended December 31, 2014 as compared to approximately $2,315,000 in
2013, primarily as a result of work on fewer new products and capabilities. We are continuing our ongoing efforts to enhance the
functionality of our products and solutions and believe that investments in research and development are critical to our remaining
competitive in the marketplace.
Sales and marketing expenses
were approximately $2,002,000 in the year ended December 31, 2014 compared to approximately $2,255,000 in 2013. This decrease in
2014 was primarily due to a decrease in our marketing and sales staff, resulting in a decrease in personnel-related costs.
General and administrative
expenses increased to approximately $3,604,000 in the year ended December 31, 2014 as compared to approximately $2,619,000 in 2013.
This increase in 2014 was mainly due to reclassing of all facilities costs to general and administrative expenses in 2014.
Acquisition expenses were
approximately $406,000 for the year ended December 31, 2014 as compared to $0 in 2013. These expenses were in connection with the
potential merger with Majesco.
Restructuring costs were
approximately $0 for the year ended December 31, 2014 as compared to $319,000 in 2013. These expenses consisted of severance payments
to former employees of the Company, including our former Chief Executive Officer.
We had $0 of other income
for the year ended December 31, 2014 compared to $4,000 of other income for the year ended December 31, 2013.
In 2014, we recorded income
tax of $52,000. We recorded an income tax of $30,000 in 2013.
LIQUIDITY AND CAPITAL
RESOURCES
Sources of Liquidity
We have funded our operations
primarily from cash flow from operations and from debt facilities. Cash from operations results primarily from net income from
the income statement plus non-cash expenses (depreciation and amortization) and adjusted for changes in working capital from the
balance sheet.
Our largest source of operating
cash flows is cash collections from our customers following the purchase or renewal of software licenses, product support agreements
and other related services. Payments from customers for software licenses are generally received at the beginning of the contract
term. Payments from customers for product support and ASP services are generally received in advance on a quarterly basis. Payments
for professional services are generally received 30 days after the services are performed.
On September 11, 2012, we
entered into a $2.25 million credit facility with Imperium Commercial Finance Master Fund, LP, an affiliate of Imperium Partners.
The $2.25 million credit facility, which will support our product/services expansion and growth initiatives, consists of a
$2 million three-year term loan, bearing interest at a fixed rate of 8% per annum, and a $250,000 revolving credit facility,
also bearing interest at a fixed rate of 8% per annum. Imperium also received five-year warrants to purchase 1.4 million shares
of our common stock, with an exercise price of $1.48 per share.
In connection with the Imperium
Loan Agreement financing, we incurred deferred financing costs of $92,283, which will be amortized over the life of the loan (or
earlier if the loan becomes due or is repaid before its fixed maturity).
At December 31, 2014, we
had cash and cash equivalents of $4,565,000 compared to cash and cash equivalents of $1,849,000 at December 31, 2013. The increase
in cash and cash equivalents is primarily attributable to an increase in support and professional services revenue in 2014.
Cash Flows
Our ability to generate
cash has depended on a number of different factors, primarily our ability to continue to secure and retain customers and generate
new license sales and related product support agreements. In order to attract new customers and maintain or grow existing revenue
streams, we utilize our existing sources of capital to invest in sales and marketing, technology infrastructure and research and
development.
Our ability to continue
to control expenses, maintain existing revenue streams and anticipate new revenue will impact the amounts and certainty of
cash flows. We intend to maintain our expenses in line with existing revenue streams from maintenance support, ASP services and
professional services.
Balance sheet items that
should be considered in assessing our liquidity include cash and cash equivalents, accounts receivable, prepaid expenses, accounts
payable and accrued liabilities. Income statement items that should be considered in assessing our liquidity include revenue, cost
of revenue (net of depreciation and amortization), operating expenses (net of depreciation and amortization) and other expenses.
Statement of cash flows items that should be considered in assessing our liquidity include net cash flows from operating activities,
net cash flows from investing activities and net cash flows from financing activities.
At December 31, 2014, we
had a working capital of $1,057,000 compared to a working capital deficit of $(19,000) at December 31, 2013. This increase
in our working capital resulted primarily from an increase in support and professional services revenue in 2014. Net cash provided
from operating activities totaled approximately $2,851,000 in 2014 compared to approximately $2,778,000 in 2013. In 2014, cash
flow from operating activities represented our principal source of cash and results primarily from net income (loss), less non-cash
expense and changes in working capital.
In 2014, net cash used for
investing activities was approximately $21,000 compared to approximately $2,207,000 in 2013. The decrease in net cash used for
investing activities was mainly due to a significant decrease in capitalized software. We expect capital expenditures and capital
software expenditures to continue to be funded by cash generated from operations. We use cash to invest in capital and other assets
to support our growth.
In 2014, net cash provided
from financing activities was approximately $(115,000) compared to approximately $(76,000) in 2013. The cash used by financing
activities in 2014 consisted of the payment of debt related to the purchase of furniture in 2013.
Funding Requirements
Our primary uses of cash
are for operating expenses, including personnel-related expenditures, facilities and technology costs, and for interest only payments
under our Loan Agreement.
We may need additional funding
for any large capital expenditures and for continued product development. We lease computer equipment for terms of three years
in order to have the latest available technology to serve our customers and develop new products.
Interest on the outstanding
principal balance under the Imperium Notes accrues at a fixed rate equal to 8% per annum and is payable monthly, in arrears. The
outstanding principal and any remaining interest under the Imperium Notes will be immediately due and payable to Imperium on the
earlier of (1) September 10, 2015 and (2) the date Imperium’s obligation to advance funds under the revolving credit line
is terminated following an event of default pursuant to the terms and conditions of the Loan Agreement. Payments and prepayments
received by Imperium will be applied against principal and interest as provided for in the Loan Agreement.
On December 16, 2011, we
announced that our board of directors authorized a share buyback plan of up to 1,000,000 shares of the Company’s common stock,
in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Imperium
Loan Agreement prohibits buybacks of our common stock.
On December 30, 2011, we
completed the acquisition of the PipelineClaims assets (excluding working capital) of Ho’ike Services, Inc. dba BlueWave
Technology (“BlueWave”), a provider of enterprise claims management software to the property and casualty insurance
industry based in Honolulu, Hawaii. The aggregate purchase price for the acquisition, in addition to the assumption by us of certain
assumed liabilities, consisted of the following: (i) $1,100,000 in cash on the closing date, (x) $635,821 of which (net of adjustments
for certain prepayments to BlueWave and other prorations) was paid in cash to BlueWave, and (y) $400,000 of which was deposited
into an escrow account to be held and distributed by an escrow agent pursuant to the terms of an escrow agreement to secure possible
future indemnification claims and certain other post-closing matters in our favor; and (ii) up to an aggregate of $750,000 in an
earnout, which earnout will be based upon the performance of the acquired business in the five years following the closing. More
particularly, for each of the five years following the closing, BlueWave will be entitled to receive an amount equal to ten percent
(10%) of the PipelineClaims Free Cash Flow (as such term is defined in the purchase agreement) but in no event will we be required
to pay to BlueWave in excess of $750,000 in the aggregate for the 5-year period. For each of the first two years following the
closing of the BlueWave transaction, BlueWave was not entitled to receive any earnout payment. In December 2012, we received a
disbursement from the escrow account of $250,000 as a result of a contractual provision entitling us to such amount if PipelineClaims
was not licensed by Island Insurance by December 31, 2012.
We prepare monthly cash
flow projections on a rolling twelve-month basis based on a detailed review of anticipated receipts and revenue from licenses,
support services and professional services. We also perform a detailed review of our disbursements, including fixed costs, variable
costs, legal costs, payroll costs and other specific payments, on a rolling twelve-month basis.
We believe that our current
cash balances and anticipated cash flows from operations will be sufficient to meet our normal operating needs for at least the
next twelve months. These projections include anticipated sales of new licenses, the exact timing of which cannot be predicted
with absolute certainty and can be influenced by factors outside our control. Our ability to fund our working capital needs and
address planned capital expenditures will depend on our ability to generate cash in the future. We anticipate generating future
working capital through sales to new customers and continued sales and services to our existing customers.
Our future liquidity and
capital resource requirements will depend on many factors, including, but not limited to, the following trends and uncertainties
we face:
| · | Our
ability to generate cash is subject to general economic, financial, competitive and other
factors beyond our control. |
| · | Our
need to invest resources in product development in order to continue to enhance our current
products, develop new products, attract and retain customers and keep pace with competitive
product introductions and technological developments. |
| · | We
experience competition in our industry and continuing technological changes. |
| · | Insurance
companies typically are slow in making decisions and have numerous bureaucratic and institutional
obstacles, which can make our efforts to attain new customers difficult. |
| · | We compete with a number of larger companies who have greater resources
than ours. |
| · | We compete on the basis of insurance knowledge, products, services,
price, technological advances and system functionality and performance. |
We do not expect for there
to be a need for a change in the mix or relative cost of our sources of capital.
The New York State Department
of Taxation and Finance (the “Department”) conducted an examination of the Company for state sales and use tax for
audit periods March 1, 2009 through February 28, 2013. In February 2014, the Company received a Statement of Proposed Audit Change
from the Department. The Change asserts proposed Sales and use tax due in the amount of approximately $191,600 together with interest
of approximately $46,400. On March 11, 2014, the Company paid the Department an aggregate of approximately $238,000 in satisfaction
in full of all amounts owed in connection with such examination.
Net Operating Loss Carryforwards
The deferred tax asset from
tax net operating loss carryforwards of approximately $3,920,000 represents approximately $9,900,000 of net operating loss carryforwards
which are subject to expiration beginning in fiscal 2019 through 2032. During 2014, the deferred tax asset valuation allowance
was decreased for the assumed utilization of prior period net operating loss carryforwards utilized to offset taxable income for
the current period, subject to federal alternative minimum tax limitations. In assessing the realizability of deferred tax assets,
management considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Factors that may affect the Company’s ability to achieve sufficient
forecasted taxable income in future periods may include, but are not limited to, the following: increased competition, a decline
in sales or margins, a loss of market share, and a decrease in demand for professional services. Based upon the levels of historical
taxable income and projections for future taxable income over the years in which the deferred tax assets are deductible, at December
31, 2014, management believes that it is more likely than not that the Company will realize the benefits, net of the established
valuation allowance, of these deferred tax assets in the future.
The Tax Reform Act of 1986
enacted a complex set of rules which limits a company’s ability to utilize net operating loss carryforwards and tax credit
carryforwards in periods following an ownership change. These rules define an ownership change as a greater than 50 percent point
change in stock ownership within a defined testing period which is generally a three-year period. As a result of stock which may
be issued by us from time to time, and the conversion of outstanding warrants, the Merger or the result of other changes in ownership
of our outstanding stock, the Company may experience an ownership change and consequently our utilization of net operating loss
carryforwards could be significantly limited.
CONTRACTUAL OBLIGATIONS
The following table summarizes
our significant contractual obligations at December 31, 2014:
Payments due by period
(in thousands)
Contractual
Obligations |
|
Total |
|
Less
than
1 Year |
|
1-3 Years |
|
3-5 Years |
|
More than
5 Years |
| Capital Leases |
|
$ |
384 |
|
|
$ |
130 |
|
|
$ |
254 |
|
|
$ |
— |
|
|
$ |
— |
|
| Operating Leases |
|
|
2,893 |
|
|
|
587 |
|
|
|
1,717 |
|
|
|
589 |
|
|
|
— |
|
| Long-Term Debt |
|
|
2,000 |
|
|
|
2,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total |
|
$ |
5,277 |
|
|
$ |
2,717 |
|
|
$ |
1,971 |
|
|
$ |
589 |
|
|
$ |
— |
|
We lease one facility in
Morristown, New Jersey, which lease expires April 1, 2020 and one facility in Honolulu, Hawaii, which lease expires July 1, 2015.
We also lease various furniture and telephone and computer equipment.
OFF-BALANCE SHEET TRANSACTIONS
We do not maintain any off-balance
sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably
likely to have a material current or future effect on our condition, changes in financial condition, revenues or expenses, results
of operations, liquidity, capital expenditures or capital resources.
RECENT
ACCOUNTING AND AUDITING DEVELOPMENTS
From time to time, new accounting
pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that
are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact
of recently issued standards that are not yet effective will not have a material impact on its financial position or consolidated
results of operations upon adoption.
In July 2013, the FASB issued
an accounting standard update (“ASU”), “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss
Carryforward, a Similar Tax Loss, or Tax Credit Carryforward Exists.” This standard requires netting of unrecognized tax
benefits against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions.
This standard is effective prospectively for annual and interim periods beginning December 16, 2013. The adoption of this guidance
did not have a significant effect on the consolidated financial statements.
In May 2014, the FASB issued
ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU is the result of a joint project by the FASB and the International
Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP
and International Financial Reporting Standards that would: remove inconsistencies and weaknesses; provide a more robust framework
for addressing revenue issues; improve comparability of revenue recognition practices across entities, jurisdictions, industries,
and capital markets; improve disclosure requirements and resulting financial statements; and simplify the presentation of financial
statements. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. The ASU is effective for annual reporting periods beginning after December 15, 2016. Early adoption
is not permitted. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements
and related disclosures.
We believe there is no additional
new accounting guidance adopted, but not yet effective, that is relevant to the readers of our financial statements. However, there
are numerous new proposals under development which may have a significance impact on the Company’s financial reporting, if
and when enacted.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are a smaller reporting
company and this Item is not applicable to us.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The financial statements
and supplementary data listed in Item 15(a)(1) and (2) of this annual report on Form 10-K are included beginning on page F-1 herein.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A. |
CONTROLS AND PROCEDURES |
Disclosure Controls
and Procedures
As of the end of the period
covered by this annual report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation
of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act).
Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls
and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules
and forms, and (2) accumulated and communicated to our management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
Management’s
Report On Internal Control Over Financial Reporting
The management of the Company
is responsible for establishing and maintaining adequate internal control over financial reporting. The Exchange Act defines internal
control over financial reporting in Rule 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the company’s
principal executive and principal financial officers and effected by the company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company; |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the company’s assets that could have a material effect on the consolidated financial statements. |
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management
assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. In making
this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations, or COSO,
of the Treadway Commission in “Internal Control – Integrated Framework.”
Based upon its assessment,
management concluded that, as of December 31, 2014, the Company’s internal control over financial reporting is effective
based upon those criteria.
Changes In Internal
Control Over Financial Reporting
There has been no change
in our internal control over financial reporting during the quarter ended December 31, 2014 that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
Not applicable.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
EXECUTIVE OFFICERS
AND DIRECTORS OF THE REGISTRANT
The following table sets
forth certain information, as of March 16, 2015, regarding our executive officers and directors.
| Name | |
Age | |
Position |
| Manish D. Shah | |
43 | |
Director, President and Chief Executive Officer |
| | |
| |
|
| Ann F. Massey | |
56 | |
Senior Vice President, Chief Financial Officer and Secretary |
| | |
| |
|
| Shailesh Mehrotra | |
45 | |
Senior Vice President, Product Management & Technology |
| | |
| |
|
| Sweta Jhunjhunwala | |
43 | |
Senior Vice President, Product Support and Client Services |
| | |
| |
|
| Aaron Herman | |
45 | |
Senior Vice President, Sales and Marketing |
| | |
| |
|
| Earl Gallegos | |
57 | |
Chairman of the Board of Directors |
| | |
| |
|
| G. Russell Cleveland | |
76 | |
Director |
| | |
| |
|
| Stephen M. Mulready | |
65 | |
Director |
| | |
| |
|
| Steve R. Isaac | |
63 | |
Director |
The biographies of our executive
officers and directors are set forth below:
Manish D. Shah has
served as our Chief Executive Officer since July 1, 2013. He has served as a member of our board of directors and as our
President since November 2008 and has served as our Chief Technology Officer since May 2004. Prior to his promotion to the position
of our President, he served as our Executive Vice President since May 2008. Mr. Shah served as our Director of Technology from
December 2002 through May 2004 and served as our technology consultant from September 2000 through December 2001. He graduated
with Honors from the Columbia University Executive MBA Program in May 2008. Prior to joining us, Mr. Shah held several technology
management positions at various companies such as Andersen Consulting, P&O Nedlloyd and Tata Consultancy Services in different
industries for over 10 years. Our board of directors believes that Mr. Shah’s extensive knowledge of the Company’s
products and services, from both a technological and managerial perspective, and his prior management experience qualify him to
serve as a member of our board of directors.
Ann F. Massey has
served as our Chief Financial Officer since February 2001, our Senior Vice President of Finance since October 1, 2013, as our Secretary
since April 1997 and as our Controller since March 1997. From March 1996 to March 1997, Ms. Massey served as our Assistant Treasurer.
From 1994 until February 1996, Ms. Massey served as Assistant Controller for our insurance services division. Prior to 1994, Ms.
Massey had served as our Accounting Manager.
Shailesh Mehrotra
has served as our Senior Vice President of Product Management and Technology since October 1, 2013. Prior to SVP-Product Management
and Technology, he served as Vice President for the Business Intelligence division since joining the Company in 2010. Mr. Mehrotra
holds a Masters in Computer Science from IIT, Mumbai and Bachelors in Computer Science from SGSITS, Indore. Prior to joining us,
Mr. Mehrotra held positions at Ernst & Young and Tata Consultancy Services.
Sweta Jhunjhunwala has
served as our Senior Vice President for Client Services and Product Support since May 2014. Sweta has over fifteen years of experience
in configuring and customizing software products leveraging onshore and offshore resources. She led the project management office
for the Center of Excellence for global SAP implementation at PepsiCo International, where she worked from 2007 to 2010. Prior
to PepsiCo, Sweta was a Senior Manager at BearingPoint Inc. (formerly KPMG Consulting Inc.), where she sold and managed large Oracle
ERP implementations. Sweta started her
career with Tata Consultancy Services. Sweta
holds an M.S. in Sustainability Management from Columbia University, where she graduated in 2014, and a Bachelors in Computer Science
from Mumbai University.
Aaron Herrmann has
served as our Senior Vice President of Sales and Marketing since January 7, 2014. Prior to SVP-Sales and Marketing, he served as
Vice President in the sales division since 2012. Prior to joining us, Mr. Herrmann served as the Director of Sales and Marketing
for Systema Software for 2 years and as a Regional Sales Manager for Aon eSolutions (previously Valley Oak Systems) for 7 years.
Earl Gallegos has
served as a member of our board of directors since March 1997, and as Chairman of the Board since January 2014. Mr. Gallegos
is the principal of Earl Gallegos Management Corporation, a management consulting firm founded by him in 1994 specializing in the
insurance and software industries. Mr. Gallegos was a founder of Peak Performance Solutions Inc., a privately held insurance technology
firm. In 1997, Mr. Gallegos co-founded Regents Electronic Commerce Inc. (“REC”) with Steven R. Isaac. REC was founded
to offer workers’ compensation electronic data interchange services and compliance reporting and was merged to form ecDataFlow.com
Inc. (“ecDataFlow”) in 1999. ecDataFlow was merged with Bridium, Inc. (“Bridium”), a technology firm, in
2002. Mr. Gallegos has also served as a director of Zytalis Inc., an information technology professional services firm, from 1999
to 2006, Bridium from 1998 to 2003, Fidelity National Information Solutions, Inc., from 1997 to 2003, eGovNet, Inc., a government
technology services firm, from 2002 to 2003, PracticeOne, Inc., a medical practice management software company, from 2002
to 2005, and Fidelity National Real Estate Solutions, a company specializing in real estate and banking technology, from 1997 until
2003. Our board believes that Mr. Gallegos’ lengthy insurance and technology industry experience and technology background,
as well as his financial expertise, qualify him to serve as a member of our board of directors.
G. Russell Cleveland
has served as a member of our board of directors since July 2001. Mr. Cleveland is the founder and has been the President, Chief
Executive Officer, sole director and the majority shareholder of RENN Capital Group, Inc. since 1973. RENN Capital Group, Inc.
is the investment adviser to or the manager of three closed-end mutual funds – RENN Global Entrepreneurs Fund, Inc., RENN
Universal Growth Investment Trust PLC and Global Special Opportunities Trust PLC, and one open-end mutual fund – Premier
RENN US Emerging Growth Limited. Mr. Cleveland also serves on the board of directors of RENN Global Entrepreneurs Fund, Inc., iSatori,
Inc., and AnchorFree Inc. (private company). He is a chartered financial analyst (CFA) with more than 45 years of experience as
a specialist in investments in smaller capitalization companies. A graduate of the Wharton School of Business, Mr. Cleveland is
a past president of the Dallas Association of Investment Analysts. Our board of directors believes that Mr. Cleveland’s substantial
leadership skills and financial, management and investment expertise, including his experience serving on the boards of other publicly
traded companies, qualify him to serve as a member of our board of directors.
Stephen M. Mulready
has served as a member of our board of directors since December 2009. Mr. Mulready has over 43 years of experience in the property
and casualty insurance industry, having spent a majority of that time serving in various executive, supervisory and technical positions
with Aetna Inc. (NYSE: AET). Mr. Mulready is Chief Operating Officer and Executive Vice President of United States Fire Insurance
Company (Crum & Forster), positions he has held since February 2013 and April 2010, respectively. From 2008 to April 2010,
Mr. Mulready was the Principal of Blackpoint Associates, a firm founded by him that provided management consulting services to
small businesses. Mr. Mulready served as Chief Executive Officer of AIX Holdings, Inc., a specialty property and casualty program
insurance company, from 2005 to 2008. From 2004 to 2005, he served as a director and consultant to Alico, Inc. (NASDAQ: ALCO),
an agricultural and real estate company, where he was a member of the Audit, Compensation, Nominating and Investment Committees.
Between 1996 and 1999, Mr. Mulready was Chief Executive Officer of Orion Specialty, a division of Orion Capital. In 1999, Orion
Capital was acquired by Royal and Sun Alliance, where Mr. Mulready held several senior level positions including President and
Chief Executive Officer of U.S. Operations. Mr. Mulready served on the board of Adaptik, Inc., a provider of policy issuance systems
to insurance companies, from 2005 to January 2010. He received an MBA from the University of Hartford and a BS, Insurance Administration
from the University of Connecticut. Our board of directors believes that Mr. Mulready’s lengthy industry experience in senior
executive positions, including as the former Chief Executive Officer of one of our largest customers, AIX Holdings, Inc., and his
financial expertise qualify him to serve as a member of our board of directors.
Steven R. Isaac has
over 35 years of experience in the insurance and technology industries (public and private sectors). Mr. Isaac has served as the
Senior Vice President, Risk Division of Ebix, Inc., a NASDAQ-listed provider of on-demand software and e-commerce services to the
insurance industry, from 2009 until May 2011. In 2004, Mr. Isaac co-founded Peak Performance Solutions, Inc., a privately held
insurance technology firm, and served as its Chief Executive Officer until 2009. From 2002 to 2004 he served as the Chief Executive
Officer of Bridium, Inc., a privately held technology firm. He also founded ecDataFlow.com Inc., a privately held provider of business-to-business
electronic commerce solutions, in 1999 and served as its President and Chief Executive Officer until 2002. Mr. Isaac co-founded
Regents Electronic
Commerce, Inc., which was founded to offer
workers compensation EDI services and compliance reporting which merged with another entity to form ecDataFlow.com, in 1997 and
served as its President and Chief Executive Officer until 1999. He served as an Executive Vice President of Marketing Communications
Sector at Cadmus Communications Corporation, a provider of integrated graphic communications services, from 1997 to 1999. Mr. Isaac
served as the Chief Operating Officer of the Ohio Bureau of Workers Compensation from 1995 to 1997. Prior to that, Mr. Isaac served
as Director of EDS’s Insurance Division from 1990 to 1995. Mr. Isaac has also served as a senior executive for three large
P/C insurance companies: Merchants Insurance from 1988 to 1990 having most recently served as its Senior Vice President; Milwaukee
Insurance from 1981 to 1988, having most recently served as its Executive Vice President; and Sentry Insurance from 1977 to 1981
having most recently served as its Regional Claims Director. He has led and managed over twenty acquisitions, mostly in P/C insurance
space. He is active with multiple trade associations and committees dealing with health care, insurance, fraud, and worker’s
compensation issues. He participated in the Jackson Hole Think Tank committee addressing issues on the proposed National Healthcare
Reform. He served on the Kentucky Assigned Risk Pool Board, Board Member of the PLRB, IAIABC Director, and was an Arbitrator for
the American Insurance Arbitration Forum. He was appointed under the Clinton Administration to serve as an industry insurance resource
for the national health care reform effort. He is a graduate of Franklin University with a Bachelor’s degree in Business
and holds numerous certificates in insurance, insurance law, Harvard Business Administration MBA program, finance and human resources.
Our board of directors believes that Mr. Isaacs’ vast experience in P/C insurance technology and managing several acquisitions
qualify him to serve as a member of our board of directors.
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange
Act requires our directors, executive officers and persons who beneficially own more than 10% of our common stock to file initial
reports of beneficial ownership and reports of changes in beneficial ownership of our common stock with the SEC. Such persons are
required to furnish us with copies of all Section 16(a) reports that they file. Based solely upon our review of copies of such
reports for our 2014 fiscal year and representations from such persons, we believe that during 2014, our executive officers, directors
and holders of more than 10% of our common stock complied with all Section 16(a) filing requirements, except that one required
Form 3 was filed late on behalf of an executive officer in connection with his appointment as such.
CODE OF ETHICS
We are committed to principles
of corporate governance that promote honest, responsible and ethical business practices. Our corporate governance policies and
practices are actively reviewed and evaluated by our board of directors and our Nominating and Corporate Governance Committee.
We have adopted a Code
of Ethics and Business Conduct that applies to all of our directors, officers and employees, including our principal executive
officer and principal financial officer. The Code of Ethics and Business Conduct is available on our website at www.cover-all.com.
AUDIT COMMITTEE
Our Audit Committee is currently
composed of two directors, Messrs. Isaac and Mulready, who are independent within the meaning of the rules of the SEC and the NYSE
MKT listing standards. Mr. Isaac and Mr. Mulready currently meet the NYSE MKT financial sophistication requirements. Our board
of directors interprets “financial sophistication” to mean the ability to read and understand fundamental financial
statements, including balance sheets, income statements and cash flow statements. In 2014, the Audit Committee met four times.
The Audit Committee, along
with our board of directors, has determined that Mr. Mulready is an “audit committee financial expert” as defined under
the SEC rules. Our Board based this decision on the following experiences of Mr. Mulready:
| · | service as chief executive officer of various other companies, overseeing and/or assessing company
performance with respect to the preparation, auditing or evaluation of company financial statements; and |
| | | |
| · | serving on at least one other audit committee. |
The Audit Committee operates
under a written charter, which is available on our website at www.cover-all.com. As set forth in the written charter, the Audit
Committee’s principal functions are to assist our Board in its oversight responsibilities with respect to:
| · | the annual financial information to be provided to stockholders and the SEC; |
| | | |
| · | the establishment and monitoring of procedures to improve the quality and reliability of the disclosure
of our financial condition and results of operations; |
| | | |
| · | the appointment, compensation and retention of our independent auditors and the work performed
by the independent auditors; and |
| | | |
| · | the internal audit functions. |
In addition, the Audit Committee
provides an avenue for communication between the independent auditors, financial management and our board of directors. The Audit
Committee also has sole authority to engage, appoint, evaluate, compensate and replace the independent auditors, and it reviews
and approves in advance all audit, audit related and non-audit services performed by the independent auditors (to the extent those
services may be provided under applicable law). The Audit Committee meets with management regularly to consider the adequacy of
our internal controls and financial reporting process and the reliability of our financial reports to the public.
| ITEM 11. | EXECUTIVE COMPENSATION |
COMPENSATION OF NAMED EXECUTIVE OFFICERS
Summary Compensation Table
The following table summarizes
the total compensation earned for the years indicated below by our current chief executive officer and our two most highly compensated
executive officers other than the chief executive officer who were serving as executive officers at the end of December 31, 2014 and whose total
compensation exceeded $100,000, respectively, for the fiscal year ended December 31, 2014:
Name and Principal
Position | |
|
Year | | |
Salary | | |
Bonus | | |
Stock
Awards(1) | | |
Option
Awards(1) | | |
All other
Compensation | | |
Total | |
| Manish D. Shah(2) | |
| 2014 | | |
$ | 343,750 | | |
$ | 97,057 | | |
| 97,057 | | |
| — | | |
$ | 11,761 | (3) | |
$ | 549,625 | |
| President and Chief Executive Officer | |
| 2013 | | |
$ | 317,788 | | |
$ | 106,219 | | |
| — | | |
| — | | |
$ | 11,737 | (4) | |
$ | 435,744 | |
| Shailesh Mehrotra, | |
| 2014 | | |
$ | 236,669 | | |
$ | 36,792 | | |
| 36,792 | | |
| — | | |
$ | 5,832 | (5) | |
$ | 316,085 | |
| Senior Vice President, | |
| 2013 | | |
$ | 215,385 | | |
$ | 38,348 | | |
| — | | |
| — | | |
$ | 5,131 | (5) | |
$ | 259,314 | |
| Product Management & Technology | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Ann F. Massey | |
| 2014 | | |
$ | 210,151 | | |
$ | 32,068 | | |
| 32,068 | | |
| — | | |
$ | 4,189 | (5) | |
$ | 278,486 | |
| Senior Vice President, Finance and | |
| 2013 | | |
$ | 192,322 | | |
$ | 29,245 | | |
| — | | |
| — | | |
$ | 4,162 | | |
$ | 225,729 | |
| Chief Financial Officer | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| (1) | Reflects the aggregate grant date fair value of the restricted stock and stock options granted
in 2014 and 2013, respectively, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 718. See Note 10 to our Consolidated Financial Statements contained in this Annual Report on Form 10-K
for a discussion of all assumptions made by us in determining the valuations of the equity-based awards. |
| | |
| (2) | Mr. Shah was appointed as our Chief
Executive Officer, effective as of July 1, 2013. |
| (3) |
Consists of $6,761 of automobile allowance and $5,000 of matching contributions to the Cover-All
Technologies Inc. 401(k) Plan made by us. |
| | |
| (4) | Consists of $6,761 of automobile allowance and $4,976 of matching contributions to the Cover-All
Technologies Inc. 401(k) Plan made by us. |
| | |
| (5) |
Represents matching contributions to
the Cover-All Technologies Inc. 401(k) Plan made by us. |
Employment Agreements or Arrangements of Executive Officers
Manish D. Shah, President and Chief Executive Officer
On March 7, 2012, the
Company entered into an employment agreement with Manish D. Shah, effective as of March 1, 2012 (the “Original Agreement”).
On July 1, 2013, the Company and Mr. Shah entered into an amendment to the Original Agreement to reflect Mr. Shah’s
promotion to the position of our Chief Executive Officer and, in consideration of his new duties as Chief Executive Officer, an
increase in his annual base salary by $25,000 (the “Amendment”). The Original Agreement as amended by the Amendment
is referred to herein as the “Prior Employment Agreement.” On February 27, 2015, Mr. Shah entered into an Amended and
Restated Employment Agreement with the Company, which supersedes and replaces the Prior Employment Agreement (the “Amended
and Restated Employment Agreement”).
On March 7, 2012, we
granted Mr. Shah five-year incentive stock options to purchase an aggregate of 400,000 shares of our common stock. The options
were granted pursuant to the 2005 Stock Incentive Plan at $1.67 per share (equal to the fair market value of such shares on the
date of the grant). These options vested as to 136,000 shares on December 31, 2012 and vested as to 132,000 shares on December 31,
2013 and will vest as to the remaining 132,000 shares on December 31, 2014, or on such earlier date during that calendar year
on which Mr. Shah’s employment may be terminated.
On March 7, 2012, we
also granted Mr. Shah an aggregate of 125,000 shares of our common stock, which vested as to 42,500 shares on December 31,
2012 and vested as to 41,250 shares on December 31, 2013 and will vest as to the remaining 41,250 shares on December 31,
2014, or on such earlier date during that calendar year on which Mr. Shah’s employment may be terminated, all in accordance
with and subject to the terms and conditions set forth in the 2005 Stock Incentive Plan and a restricted stock grant agreement
entered into between us and Mr. Shah. In connection with such grant, provided that Mr. Shah makes an election in a timely manner
to include in gross income on the date the restricted shares are transferred the value of the restricted shares on such date pursuant
to Section 83(b) of the Internal Revenue Code of 1986, as amended, we will pay on behalf of Mr. Shah to the taxing authorities
as withheld taxes a “gross-up” payment equal to Mr. Shah’s estimated federal, state and local income and payroll
tax obligations (based on information provided by Mr. Shah in good faith) with respect to (i) the fair market value of the restricted
shares, as of the transfer date, and (ii) the income required to be recognized by Mr. Shah as a result of the payment by us
of such obligations.
Pursuant to the Prior Employment
Agreement, Mr. Shah received an annual base salary of $325,000 plus benefits and the use of a company car, including maintenance
and repair expenses in connection with the use of the car. Mr. Shah was also entitled to an annual cash bonus based on the financial
performance of the Company. The Prior Employment Agreement was for a term of three years, provided, that each of Mr. Shah and the
Company could terminate the agreement at any time, with or without reason or cause, upon written notice to the other party. If
the employment of Mr. Shah was terminated for any reason, including upon the expiration of the Prior Employment Agreement, Mr.
Shah would be entitled to receive (i) any accrued and unpaid base salary and accrued and unused vacation days through the date
of termination, (ii) the pro rata portion of his performance bonus based on the number of days he was employed during the year,
and (iii) any unreimbursed business expenses. In addition, Mr. Shah was entitled to receive, as severance, for a period of six
months following such termination, his base salary, benefits and continued use of the company car, including related maintenance
and repair expenses. At the conclusion of this severance period, Mr. Shah was given the option to purchase this car from the Company
at the car’s then current book value (on the Company’s books). Upon such termination, the Company and Mr. Shah agreed
to mutually release each other for all claims arising in connection with Mr. Shah’s employment with the Company.
Under the Amended and Restated
Employment Agreement, Mr. Shah will be employed by Company as its President and Chief Executive Officer before the Closing of the
Merger. After the Closing, Mr. Shah will serve as an Executive Vice President of Majesco, reporting to Majesco’s Chief Executive
Officer for North America. Pursuant to the Amended and Restated Employment Agreement, Mr.
Shah will receive an annual base salary of $325,000 plus benefits and the use of a
company car, including
maintenance and repair expenses in connection with the use of the car. Mr. Shah will be eligible to earn an annual target bonus
equal to 30% of his annual salary subject to the attainment of annual company and/or individual performance goals as determined
by the board of directors. In addition, prior to the closing of the Merger, Mr. Shah will be eligible to receive equity grants,
as determined by the board of directors (or a committee thereof).
The Amended and Restated
Employment Agreement is for a term of three years, provided, however, that each of Mr. Shah and the Company may terminate the agreement
at any time, with or without reason or cause, upon written notice to the other party. The term will automatically be extended for
an additional one year period on the third anniversary of the date of the agreement and on each such subsequent anniversary date
thereafter unless, not later than 90 days prior to any such anniversary, either party gives notice to the other party that the
term will not be extended or further extended beyond its then automatically extended term. If
the Company terminates Mr. Shah’s employment without “Cause” (as defined in the Agreement) or if Mr. Shah terminates
the agreement for “Good Reason” (as defined in the Amended and Restated Employment Agreement), Mr. Shah will be entitled
to receive (i) any and all earned but unpaid annual salary and earned but unused vacation and other earned paid time off through
and including the termination date; (ii) reimbursement for unreimbursed business expenses incurred by Mr. Shah through and including
the termination date; (iii) such employee benefits (including equity compensation), if any, as to which Mr. Shah may be entitled
under Company’s employee benefit plans as of the termination date; and (iv) a pro rata portion of the bonus payment based
upon the number of days Mr. Shah was employed during the Company’s fiscal year for which such bonus is computed to the extent
the goals applicable to such bonus are actually met for the fiscal year in question. In addition, Mr. Shah will be entitled to
receive a severance payment equal to an amount by (x) dividing Mr. Shah’s highest annual salary over the past 12 months prior
to an applicable termination of employment by twelve to determine the monthly salary and then (y) multiplying such monthly salary
by six. The Amended and Restated Employment Agreement also contains a confidentiality provision, a non-solicitation covenant and
a mutual non-disparagement clause.
Outstanding Equity Awards at December 31, 2014
The following table provides information concerning
outstanding equity awards as of December 31, 2014, by each of our named executive officers:
| | |
| |
Option Awards | |
Stock Awards |
|
| Name | |
| |
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable | |
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable | |
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#) | |
Option
Exercise
Price ($) | |
Option
Expiration
Date | |
Number of
Shares or Units
of Stock
That
Have Not
Vested (#) | |
Market
Value of
Shares or
Units of
Stock
That
Have not
Vested ($) | |
Equity
Incentive Plan
Awards:
Number of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested (#) | |
Equity
Incentive Plan
Awards:
Market or
Payout
Value
of
Unearned
Shares,
Units
or Other
Rights
That
Have Not
Vested ($) | |
| Manish D. Shah | |
2013 | |
300,000 | |
— | | |
— | |
1.00 | |
3/2/14 | |
41,250 | (1) | |
57,750 | (2) | |
— | |
— | |
| | |
| |
125,000 | |
— | | |
— | |
1.55 | |
6/1/15 | |
| | |
| | |
| |
| |
| | |
| |
268,000 | |
132,000 | (3) | |
— | |
1.67 | |
3/6/17 | |
| | |
| | |
| |
| |
| | |
2014 | |
125,000 | |
— | | |
— | |
1.55 | |
6/1/15 | |
41,250 | (1) | |
51,563 | (5) | |
— | |
— | |
| | |
| |
268,000 | |
132,000 | (3) | |
— | |
1.67 | |
3/6/17 | |
| | |
| | |
| |
| |
| Ann Massey | |
2014 | |
30,000 | |
— | | |
— | |
1.55 | |
6/1/15
| |
| | |
| | |
| |
| |
| | |
| |
— | |
50,000 | (4) | |
— | |
1.63 | |
2/27/17 | |
| | |
| | |
| |
| |
| Shailesh Mehrotra | |
2013 | |
10,000 | |
— | | |
— | |
1.50 | |
11/9/15 | |
| | |
| | |
| |
| |
| | |
| |
| |
50,000 | (4) | |
— | |
1.63 | |
2/27/17 | |
| | |
| | |
| |
| |
| | |
2014 | |
10,000 | |
— | | |
— | |
1.50 | |
11/9/15 | |
| | |
| | |
| |
| |
| | |
| |
| |
50,000 | (4) | |
— | |
1.63 | |
2/27/17 | |
| | |
| | |
| |
| |
| (1) | These shares of restricted stock vest as to 41,250 shares on December 31, 2014, or
on such earlier date during that calendar year on which Mr. Shah’s employment may be terminated. |
| | |
| (2) | Based on a market value of $1.40 per share, which was the closing price per share of our common
stock on December 31, 2013. |
| | |
| (3) | These options vest as to 132,000 shares on December 31, 2014, or on such earlier date during that
calendar year on which Mr. Shah’s employment may be terminated. |
| | |
| (4) | These options vest on February 26, 2015. |
| | |
| (5) | Based on a market value of $1.25 per share, which was the closing price per share of our common
stock on December 31, 2014. |
COMPENSATION OF DIRECTORS
The following table shows
the compensation we paid in 2014 to our non-employee directors:
| Name | |
Fees earned or paid in
cash | |
Stock Awards(1) | |
Total |
| G. Russell Cleveland | |
$ | 24,000 | | |
$ | 29,000 | | |
$ | 53,000 | |
| Earl Gallegos | |
$ | 26,000 | | |
$ | 76,945 | | |
$ | 102,945 | |
| Stephen M. Mulready | |
$ | 30,000 | | |
$ | 29,000 | | |
$ | 59,000 | |
| Steven R. Isaac | |
$ | 18,500 | | |
$ | 21,750 | | |
$ | 40,250 | |
(1) Reflects the aggregate grant date fair
value of the restricted stock and stock option awards granted in accordance with FASB ASC Topic 718.
For 2014, each of our non-employee
directors received: (i) an annual stipend of $22,000; and (ii) an award of 20,139 shares of our common stock, representing
such number of shares of common stock having a fair market value equal to $29,000 on March 26, 2014, the date of the grant.
Such shares vested on November 30, 2014. Non-employee directors serving on our Audit Committee received an additional $1,000
per quarter. Non-employee directors serving on our Compensation Committee received an additional $1,000 per quarter. We make all
such payments to our non-employee directors quarterly and in arrears. In addition, the Non-executive Chairman of our board of directors
received an additional number of shares of our common stock having a Fair Market Value of $50,000 (35,780 shares) on June 12,
2014, the date of the approval of the amended Plan. We awarded the Non-executive Chairman 35,780 shares of the Company’s
common stock on June 12, 2014, an amount which was pro-rated based on the date of the commencement of the Non-executive Chairman’s
service. All such shares are restricted shares and vested on November 30, 2014.
| ITEM 12. | SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets
forth the beneficial ownership of our common stock as of March 16, 2015, by (i) each person we know to own beneficially more than
5% of the outstanding shares of our capital stock, (ii) each of our directors, (iii) each of our named executive officers and (iv)
all of our directors and executive officers as a group.
Percentage of beneficial
ownership is calculated based on 26,961,991 shares of our common stock that were outstanding as of March 16, 2015. Beneficial ownership
is determined in accordance with the rules of the SEC, which generally attribute beneficial ownership of securities to persons
who possess sole or shared voting or investment power with respect to those securities, and includes shares of our capital stock
issuable pursuant to the exercise of stock options or other securities that are exercisable or convertible into shares of our common
stock within 60 days. Options to purchase shares of our common stock that are exercisable within 60 days are considered beneficially
owned by the person holding such options for the purpose of computing ownership of such person, but are not treated as outstanding
for the purpose of computing the beneficial ownership of any other person. Notes convertible into shares of our capital stock that
are convertible within 60 days are considered beneficially owned by the person holding such notes for the purpose of computing
ownership of such person, but are not treated as outstanding for the purpose of computing the beneficial ownership of any other
person. Unless
otherwise indicated, to our knowledge, the persons or entities identified in the table below have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
| Name and Address of Beneficial Owner | |
Common Stock
Amount of Beneficial Ownership | | |
Percent of Class |
|
| 5% Stockholders | |
| | | |
| | |
RENN Universal Growth Investment Trust plc
c/o RENN Capital Group, Inc.
8080 N. Central Expressway
Suite 210, LB-59, Dallas, TX 75206 | |
| 7,634,400 | (1) | |
| 28.3 | % |
| | |
| | | |
| | |
| Named Executive Officers and Directors | |
| | | |
| | |
| Manish D. Shah | |
| 1,038,650 | | |
| 3.8 | % |
| Earl Gallegos | |
| 285,737 | | |
| 1.1 | % |
| G. Russell Cleveland | |
| 215,684 | (1) | |
| | (2) |
| Ann F. Massey | |
| 200,145 | | |
| | (2) |
| Stephen M. Mulready | |
| 159,961 | | |
| | (2) |
| Shailesh Mehrotra | |
| 96,717 | | |
| | (2) |
| Steven R. Isaac | |
| 18,210 | | |
| | (2) |
| Sweta Jhunjhunwala | |
| 32,266 | | |
| | (2) |
| All executive officers and directors as a group (9 persons) | |
| 2,047,370 | | |
| 7.4 | % |
(1) Pursuant to the Voting Agreement, RENN
Universal Growth Investment Trust plc shares beneficial ownership, voting power and dispositive power with respect to the 7,634,400
shares of our common stock with Majesco and Majesco’s current shareholders, Mastek and Mastek UK.
RENN shares voting and dispositive power over these shares with RENN Capital Group, Inc., its investment adviser, pursuant to an
investment advisory agreement. G. Russell Cleveland is the President and Chief Executive Officer of RENN Capital Group, Inc. and
serves on the board of RENN but disclaims beneficial ownership of these shares.
(2) Holds less than 1% of the outstanding shares of the class.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
TRANSACTIONS WITH RELATED PERSONS
None.
DIRECTOR INDEPENDENCE
Our board of directors has determined that Messrs.
Cleveland, Gallegos, Mulready and Isaac are independent within the meaning of the NYSE MKT listing standards.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
MSPC, Certified Public Accountants
and Advisors, A Professional Corporation, New York, New York, was selected by our Audit Committee as the principal independent
auditors for 2014. MSPC has served as our independent auditors since 1997.
FEES
The following table sets
forth the fees paid for professional services rendered by MSPC for audit services, audit-related services, tax services and all
other services in 2014 and 2013.
| Fee Category | |
| 2014 | | |
| 2013 | |
| Audit Fees (1) | |
$ | 138,000 | | |
$ | 138,000 | |
| Audit-Related Fees (2) | |
| — | | |
| — | |
| Tax Fees (3) | |
$ | 24,250 | | |
$ | 10,000 | |
| All Other Fees (4) | |
| — | | |
| — | |
| Total Fees | |
$ | 162,250 | | |
$ | 148,000 | |
| (1) | For professional services rendered in connection with the audit of our annual financial
statements and the reviews of the financial statements included in each of our quarterly reports on Form 10-Q. |
| | |
| (2) | For assurance and related services that are reasonably related to the performance
of the audit or review of our financial statements. |
| | |
| (3) | For professional services rendered for tax compliance, tax advice, tax return preparation
and tax planning. |
| | |
| (4) | For other services rendered, including attendance at board and stockholder meetings and review
of our proxy statement relating to our annual stockholders meetings. |
POLICY ON PRE-APPROVAL BY AUDIT COMMITTEE OF SERVICES PERFORMED
BY INDEPENDENT AUDITORS
The policy of the Audit
Committee is to pre-approve all audit and permissible non-audit services to be performed by our independent auditors.
PART
IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
| (a) | | The following documents are filed as a part of this annual report on Form 10-K: |
| (1) |
| Financial Statements: |
| | Reference is made to the Index to Consolidated Financial Statements on Page 55 of this annual report
on Form 10-K. |
| (2) | | Financial Statement Schedule: |
| | | |
| | | All other schedules
are omitted since the required information is not present or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the financial statements and notes thereto. |
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Index to Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cover-All Technologies Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets
of Cover-All Technologies Inc. and Subsidiary as of December 31, 2014 and 2013, and the related consolidated statements of operations,
changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Cover-All Technologies Inc. and Subsidiary as of December
31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.
Certified Public Accountants and Advisors,
A Professional Corporation
New York, New York
February 19, 2015
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Consolidated Balance Sheets
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| Assets: | |
| | | |
| | |
| Current Assets: | |
| | | |
| | |
| Cash and Cash Equivalents | |
$ | 4,564,595 | | |
$ | 1,848,571 | |
| Accounts Receivable (Less Allowance for Doubtful Accounts of $25,000 in 2014 and 2013) | |
| 2,532,853 | | |
| 2,604,489 | |
| Prepaid Expenses | |
| 361,930 | | |
| 491,905 | |
| Deferred Tax Asset | |
| 864,037 | | |
| 850,500 | |
| | |
| | | |
| | |
| Total Current Assets | |
| 8,323,415 | | |
| 5,795,465 | |
| | |
| | | |
| | |
| Property and Equipment - Net | |
| 499,639 | | |
| 708,590 | |
| | |
| | | |
| | |
| Goodwill | |
| 1,039,114 | | |
| 1,039,114 | |
| | |
| | | |
| | |
| Customer Lists/Relationships (Less Accumulated Amortization of $402,000 and $341,333 in 2014 and 2013, Respectively) | |
| — | | |
| 60,667 | |
| | |
| | | |
| | |
| Capitalized Software (Less Accumulated Amortization of $23,795,743 and $22,305,191 in 2014 and 2013, Respectively) | |
| 6,474,031 | | |
| 7,964,583 | |
| | |
| | | |
| | |
| Deferred Tax Asset | |
| 2,661,391 | | |
| 2,674,928 | |
| | |
| | | |
| | |
| Deferred Financing Costs (Net Amortization of $67,800 and $36,082, Respectively) | |
| 24,483 | | |
| 56,201 | |
| | |
| | | |
| | |
| Other Assets | |
| 148,290 | | |
| 424,522 | |
| | |
| | | |
| | |
| Total Assets | |
$ | 19,170,363 | | |
$ | 18,724,070 | |
See Accompanying Notes to Consolidated
Financial Statements.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Consolidated Balance Sheets
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| Liabilities and Stockholders’ Equity: | |
| | | |
| | |
| Current Liabilities: | |
| | | |
| | |
| Accounts Payable | |
$ | 1,413,353 | | |
$ | 1,059,238 | |
| Accrued Expenses | |
| 1,253,298 | | |
| 1,412,400 | |
| Deferred Charges | |
| 183,219 | | |
| 231,051 | |
| Short-Term Debt | |
| 1,842,780 | | |
| — | |
| Current Portion of Capital Lease | |
| 119,608 | | |
| 114,640 | |
| Deferred Revenue | |
| 2,454,435 | | |
| 2,997,455 | |
| | |
| | | |
| | |
| Total Current Liabilities | |
| 7,266,693 | | |
| 5,814,784 | |
| | |
| | | |
| | |
| Long-Term Liabilities: | |
| | | |
| | |
| Long-Term Debt | |
| — | | |
| 1,639,109 | |
| Long-Term Portion of Capital Lease | |
| 233,531 | | |
| 353,139 | |
| | |
| | | |
| | |
| Total Long-Term Liabilities | |
| 233,531 | | |
| 1,992,248 | |
| | |
| | | |
| | |
| Total Liabilities | |
| 7,500,224 | | |
| 7,807,032 | |
| | |
| | | |
| | |
| Commitments and Contingencies | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders’ Equity: | |
| | | |
| | |
| Common Stock, $.01 Par Value, Authorized 75,000,000
Shares; 26,786,693 and 26,402,227 Shares Issued and Outstanding in 2014 and 2013, Respectively | |
| 267,867 | | |
| 264,022 | |
| | |
| | | |
| | |
| Additional Paid-in Capital | |
| 33,057,142 | | |
| 32,674,374 | |
| | |
| | | |
| | |
| Accumulated Deficit | |
| (21,654,870 | ) | |
| (22,021,358 | ) |
| | |
| | | |
| | |
| Total Stockholders’ Equity | |
| 11,670,139 | | |
| 10,917,038 | |
| | |
| | | |
| | |
| Total Liabilities and Stockholders’ Equity | |
$ | 19,170,363 | | |
$ | 18,724,070 | |
See Accompanying Notes to Consolidated
Financial Statements.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Consolidated Statements of Operations
| | |
Years ended | |
| | |
December 31, | |
| | |
2014 | | |
2013 | | |
2012 | |
| Revenues: | |
| | | |
| | | |
| | |
| Licenses | |
$ | 1,101,231 | | |
$ | 5,947,225 | | |
$ | 3,921,171 | |
| Support Services | |
| 8,427,649 | | |
| 8,147,108 | | |
| 8,296,263 | |
| Professional Services | |
| 10,949,550 | | |
| 6,388,403 | | |
| 4,007,405 | |
| | |
| | | |
| | | |
| | |
| Total Revenues | |
| 20,478,430 | | |
| 20,482,736 | | |
| 16,224,839 | |
| | |
| | | |
| | | |
| | |
| Costs of Revenues: | |
| | | |
| | | |
| | |
| Licenses | |
| — | | |
| 147,670 | | |
| 820,113 | |
| Support Services | |
| 6,049,385 | | |
| 7,089,456 | | |
| 6,687,683 | |
| Professional Services | |
| 5,015,313 | | |
| 3,499,100 | | |
| 4,681,203 | |
| | |
| | | |
| | | |
| | |
| Total Costs of Revenues | |
| 11,064,698 | | |
| 10,736,226 | | |
| 12,188,999 | |
| | |
| | | |
| | | |
| | |
| Direct Margin | |
| 9,413,732 | | |
| 9,746,510 | | |
| 4,035,840 | |
| | |
| | | |
| | | |
| | |
| Operating Expenses: | |
| | | |
| | | |
| | |
| Sales and Marketing | |
| 2,002,036 | | |
| 2,255,059 | | |
| 2,557,273 | |
| General and Administrative | |
| 3,603,553 | | |
| 2,618,543 | | |
| 2,026,180 | |
| Amortization of Capitalized Software | |
| 1,490,552 | | |
| 4,646,443 | | |
| 3,524,724 | |
| Acquisition Costs | |
| 406,298 | | |
| — | | |
| 136,957 | |
| Restructuring Costs | |
| — | | |
| 319,014 | | |
| — | |
| Research and Development | |
| 1,130,070 | | |
| 2,315,198 | | |
| 911,688 | |
| | |
| | | |
| | | |
| | |
| Total Operating Expenses | |
| 8,632,509 | | |
| 12,154,257 | | |
| 9,156,822 | |
| | |
| | | |
| | | |
| | |
| Operating Income (Loss) | |
| 781,223 | | |
| (2,407,747 | ) | |
| (5,120,982 | ) |
| | |
| | | |
| | | |
| | |
| Other Expense (Income): | |
| | | |
| | | |
| | |
| Interest Expense | |
| 362,256 | | |
| 464,071 | | |
| 125,852 | |
| Interest Income | |
| — | | |
| — | | |
| (37 | ) |
| | |
| | | |
| | | |
| | |
| Other Income | |
| — | | |
| (3,821 | ) | |
| (14,638 | ) |
| | |
| | | |
| | | |
| | |
| Total Other Expense (Income) | |
| 362,256 | | |
| 460,250 | | |
| 111,177 | |
| | |
| | | |
| | | |
| | |
| Income (Loss) Before Income Taxes | |
| 418,967 | | |
| (2,867,997 | ) | |
| (5,232,159 | ) |
| | |
| | | |
| | | |
| | |
| Income Tax Expense (Benefit) | |
| 52,479 | | |
| 30,380 | | |
| (257,928 | ) |
| | |
| | | |
| | | |
| | |
| Net Income (Loss) | |
$ | 366,488 | | |
$ | (2,898,377 | ) | |
$ | (4,974,231 | ) |
See Accompanying Notes to Consolidated
Financial Statements.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Consolidated Statements of Operations
| | |
Years ended | |
| | |
December 31, | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
| | | |
| | | |
| | |
| Basic Earnings (Loss) Per Common Share | |
$ | .01 | | |
$ | (.11 | ) | |
$ | (.19 | ) |
| | |
| | | |
| | | |
| | |
| Diluted Earnings (Loss) Per Common Share | |
$ | .01 | | |
$ | (.11 | ) | |
$ | (.19 | ) |
| | |
| | | |
| | | |
| | |
| Weighted Average Number of Common Shares Outstanding for Basic Earnings Per Common Share | |
| 26,628,000 | | |
| 26,173,000 | | |
| 25,869,969 | |
| | |
| | | |
| | | |
| | |
| Weighted Average Number of Common Shares Outstanding for Diluted Earnings Per Common Share | |
| 26,628,000 | | |
| 26,173,000 | | |
| 25,869,969 | |
See Accompanying Notes to Consolidated
Financial Statements.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Consolidated Statements of Changes in
Stockholders’ Equity
| | |
| | |
Additional | | |
| | |
| | |
Total | |
| | |
| | |
Paid-in | | |
Accumulated | | |
Treasury | | |
Stockholders’ | |
| | |
Common Stock | | |
Capital | | |
Deficit | | |
Stock | | |
Equity | |
| | |
| | |
| | |
| | |
| | |
| |
| Balance at January 1, 2012 | |
$ | 257,827 | | |
$ | 30,812,058 | | |
$ | (14,148,750 | ) | |
$ | — | | |
$ | 16,921,135 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Exercise of 25,000 Stock Options | |
| 250 | | |
| 21,000 | | |
| — | | |
| — | | |
| 21,250 | |
| Vesting of 75,000 Shares of Restricted Stock to Several of Our Employees | |
| 750 | | |
| (750 | ) | |
| — | | |
| — | | |
| — | |
| Grant of 53,376 Shares of Restricted Stock to Non- Employee Directors | |
| 534 | | |
| 86,466 | | |
| — | | |
| — | | |
| 87,000 | |
| Non-Cash Stock-Based Compensation | |
| — | | |
| 543,080 | | |
| — | | |
| — | | |
| 543,080 | |
| Warrants issued in connection with Debt | |
| — | | |
| 542,055 | | |
| — | | |
| — | | |
| 542,055 | |
| Net Loss | |
| — | | |
| — | | |
| (4,974,231 | ) | |
| — | | |
| (4,974,231 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at December 31, 2012 | |
| 259,361 | | |
| 32,003,909 | | |
| (19,122,981 | ) | |
| — | | |
| 13,140,289 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Exercise of 123,601 Stock Options and Warrants | |
| 1,236 | | |
| 41,265 | | |
| — | | |
| — | | |
| 42,501 | |
| Vesting of 260,000 Shares of Restricted Stock to Several of Our Employees | |
| 2,600 | | |
| (2,600 | ) | |
| — | | |
| — | | |
| — | |
| Grant of 82,520 Shares of Restricted Stock to Non- Employee Directors | |
| 825 | | |
| 100,675 | | |
| — | | |
| — | | |
| 101,500 | |
| Non-Cash Stock-Based Compensation | |
| — | | |
| 531,125 | | |
| — | | |
| — | | |
| 531,125 | |
| Net Loss | |
| — | | |
| — | | |
| (2,898,377 | ) | |
| — | | |
| (2,898,377 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at December 31, 2013 | |
| 264,022 | | |
| 32,674,374 | | |
| (22,021,358 | ) | |
| — | | |
| 10,917,038 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Vesting of 273,059 Shares of Restricted Stock to Several of Our Employees | |
| 2,731 | | |
| (2,731 | ) | |
| — | | |
| — | | |
| — | |
| Grant of 123,218 Shares of Restricted Stock to Non- Employee Directors | |
| 1,114 | | |
| 155,582 | | |
| — | | |
| — | | |
| 156,696 | |
| Non-Cash Stock-Based Compensation | |
| — | | |
| 229,917 | | |
| — | | |
| — | | |
| 229,917 | |
| Net Income | |
| — | | |
| — | | |
| 366,488 | | |
| — | | |
| 366,488 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Balance at December 31, 2014 | |
$ | 267,867 | | |
$ | 33,057,142 | | |
$ | (21,654,870 | ) | |
$ | — | | |
$ | 11,670,139 | |
See Accompanying Notes to Consolidated
Financial Statements.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
| | |
Years ended | |
| | |
December 31, | |
| | |
2014 | | |
2013 | | |
2012 | |
| | |
| | |
| | |
| |
| Cash Flows from Operating Activities: | |
| | | |
| | | |
| | |
| Net (Loss) Income | |
$ | 366,488 | | |
$ | (2,898,377 | ) | |
$ | (4,974,231 | ) |
| | |
| | | |
| | | |
| | |
| Adjustments to Reconcile Net (Loss) Income to Net | |
| | | |
| | | |
| | |
| Cash Provided by Operating Activities: | |
| | | |
| | | |
| | |
| Depreciation | |
| 229,540 | | |
| 251,853 | | |
| 296,693 | |
| Amortization of Capitalized Software | |
| 1,490,553 | | |
| 4,646,443 | | |
| 3,524,724 | |
| Amortization of Customer Lists/Relationships | |
| 60,667 | | |
| 81,240 | | |
| 134,000 | |
| Amortization of Non-Competition Agreements | |
| — | | |
| — | | |
| 49,956 | |
| Amortization of Deferred Financing Costs | |
| 31,718 | | |
| 28,212 | | |
| 7,870 | |
| Amortization of Stock-Based Compensation | |
| 433,588 | | |
| 712,289 | | |
| 543,080 | |
| Stock-Based Compensation Provided for Services | |
| 156,696 | | |
| 101,500 | | |
| 87,000 | |
| Deferred Tax Benefit | |
| — | | |
| — | | |
| (257,928 | ) |
| | |
| | | |
| | | |
| | |
| Changes in Assets and Liabilities: | |
| | | |
| | | |
| | |
| (Increase) Decrease in: | |
| | | |
| | | |
| | |
| Accounts Receivable | |
| 71,636 | | |
| (238,739 | ) | |
| (547,957 | ) |
| | |
| | | |
| | | |
| | |
| Prepaid Expenses | |
| 129,975 | | |
| 36,493 | | |
| 61,287 | |
| Other Assets | |
| 276,232 | | |
| (61,716 | ) | |
| (145,835 | ) |
| | |
| | | |
| | | |
| | |
| Increase (Decrease) in: | |
| | | |
| | | |
| | |
| Accounts Payable | |
| 354,115 | | |
| (621,769 | ) | |
| 1,240,372 | |
| Accrued Liabilities | |
| (159,102 | ) | |
| 21,867 | | |
| 636,645 | |
| Deferred Charges | |
| (47,832 | ) | |
| 147,596 | | |
| 39,667 | |
| Unearned Revenue | |
| (543,020 | ) | |
| 570,645 | | |
| 127,825 | |
| | |
| | | |
| | | |
| | |
| Net Cash Provided by Operating Activities | |
| 2,851,254 | | |
| 2,777,537 | | |
| 823,168 | |
| | |
| | | |
| | | |
| | |
| Cash Flows from Investing Activities: | |
| | | |
| | | |
| | |
| Capital Expenditures | |
| (20,590 | ) | |
| (37,562 | ) | |
| (278,106 | ) |
| | |
| | | |
| | | |
| | |
| Capitalized Software Expenditures | |
| — | | |
| (2,169,034 | ) | |
| (4,337,005 | ) |
| | |
| | | |
| | | |
| | |
| Net Cash Used for Investing Activities | |
| (20,590 | ) | |
| (2,206,596 | ) | |
| (4,615,111 | ) |
| | |
| | | |
| | | |
| | |
| Cash Flows from Financing Activities: | |
| | | |
| | | |
| | |
| Deferred Financing Costs | |
| — | | |
| — | | |
| (92,283 | ) |
| | |
| | | |
| | | |
| | |
| Proceeds from Loan Agreement | |
| — | | |
| — | | |
| 2,000,000 | |
| Proceeds from Note Payable | |
| — | | |
| — | | |
| 400,000 | |
| Capital Lease - Principal Payments | |
| (114,640 | ) | |
| (118,763 | ) | |
| (65,097 | ) |
| | |
| | | |
| | | |
| | |
| Payment of Debt | |
| — | | |
| — | | |
| (400,000 | ) |
| | |
| | | |
| | | |
| | |
| Proceeds from Exercise of Stock Options, Restricted Stock and Warrants | |
| — | | |
| 42,501 | | |
| 21,250 | |
| | |
| | | |
| | | |
| | |
| Net Cash (Used for) Provided by Financing Activities | |
| (114,640 | ) | |
| (76,262 | ) | |
| 1,863,870 | |
| | |
| | | |
| | | |
| | |
| Net Increase (Decrease) in Cash and Cash Equivalents | |
| 2,716,024 | | |
| 494,679 | | |
| (1,928,073 | ) |
| | |
| | | |
| | | |
| | |
| Cash and Cash Equivalents - Beginning of Years | |
| 1,848,571 | | |
| 1,353,892 | | |
| 3,281,965 | |
| | |
| | | |
| | | |
| | |
| Cash and Cash Equivalents - End of Years | |
$ | 4,564,595 | | |
$ | 1,848,571 | | |
$ | 1,353,892 | |
| | |
| | | |
| | | |
| | |
| Supplemental Disclosures of Cash Flow Information: | |
| | | |
| | | |
| | |
| Cash paid during the years for: | |
| | | |
| | | |
| | |
| Interest | |
$ | 226,708 | | |
$ | 282,908 | | |
$ | 70,517 | |
| Income Taxes | |
$ | 29,259 | | |
$ | 30,380 | | |
$ | — | |
See Accompanying Notes to Consolidated
Financial Statements.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting
Policies
Description of Business -
Cover-All Technologies Inc., through its wholly-owned subsidiary, Cover-All Systems, Inc. (“we”, “our”,
or the “Company”), licenses and maintains its software products for the property/casualty insurance industry throughout
the United States and Puerto Rico. The Company also provides professional consulting services to its customers interested in customizing
their software.
On December 14, 2014, the Company and Majesco,
a California corporation (“Majesco”), entered into an Agreement and Plan of Merger, pursuant to which, subject to shareholder
approval and the satisfaction or waiver of certain conditions, the Company will merge with and into Majesco (the “Merger”),
with Majesco continuing as the surviving corporation in the Merger. Upon the consummation of the Merger, each share of Company
common stock issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) will
be cancelled and automatically converted into the right to receive shares of Majesco common stock, such that, at the Effective
Time, the shares of Majesco common stock issued in respect of the issued and outstanding Company common stock and such shares of
Majesco common stock issued or issuable with respect to issued and outstanding options and other equity awards of the Company will
in the aggregate represent approximately 16.5% of the total capitalization on a fully diluted basis of Majesco at closing.
Principles of Consolidation -
The consolidated financial statements include the accounts of Cover-All Technologies Inc. and Cover-All Systems, Inc. its wholly-owned
subsidiary. All material intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates - The preparation
of financial statements in conformity with accounting principles generally accepted in the United States requires management to
make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition - Our
revenues are recognized in accordance with Accounting Standards Codification (“ASC”) 986-605, Software Revenue Recognition.
Revenue from the sale of software licenses is recognized when standardized software modules are delivered to and accepted by the
customer, the license term has begun, the fee is fixed or determinable and collectibility is probable. Revenue from support services
are recognized ratably over the lives of the contracts. Revenue from professional services is recognized when the service is provided.
We enter into revenue arrangements in which
a customer may purchase a combination of software, support, and professional services (multiple-element arrangements). When vendor-specific
objective evidence (“VSOE”) of fair value exists for all elements, we allocate revenue to each element based on the
relative fair value of each of the elements. VSOE of fair value is established by the price charged when that element is sold separately.
For support, VSOE of fair value is established by renewal rates, when they are sold separately. For arrangements where VSOE of
fair value exists only for the undelivered elements, we defer the full fair value of the undelivered elements and recognize the
difference between the total arrangement fee and the amount deferred for the undelivered items as revenue, assuming all other criteria
for revenue recognition have been met.
Cash and Cash Equivalents -
We consider all highly liquid investments, with a maturity of three months or less when purchased, to be cash equivalents.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting
Policies (Continued)
Risk Concentrations - Financial
instruments which potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents and
trade accounts receivable. We place our cash and cash equivalents with high credit quality institutions to limit credit exposure.
We believe no significant concentration of credit risk exists with respect to these deposits.
Concentrations of credit risk with respect
to trade accounts receivable are limited due to the wide variety of customers principally major insurance companies, who are dispersed
across many geographic regions. As of December 31, 2014, three customers accounted for approximately 64% of our trade accounts
receivable portfolio. As of December 31, 2013, seven customers accounted for approximately 64% of our trade accounts receivable
portfolio. We routinely assess the financial strength of customers and, based upon factors concerning credit risk, we establish
an allowance for doubtful accounts. Management believes that accounts receivable credit risk exposure beyond such allowance is
limited.
Impairment of Long-Lived Assets -
We review our long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When such factors and circumstances exist, we compare the
projected undiscounted future cash flows associated with the future use and disposal of the related asset or group of assets to
their respective carrying amounts. Impairment, if any, is measured as the excess of the carrying amount over the fair value based
on market value (when available) or discounted expected cash flows of those assets, and is recorded in the period in which the
determination is made.
Stock-Based Compensation - We
follow the guidance of ASC 718, Accounting for Stock Options and Other Stock-Based Compensation. ASC 718 requires companies
to record compensation expense for share-based awards issued to employees and directors in exchange for services provided. The
amount of the compensation expense is based on the estimated fair value of the awards on their grant dates and is recognized over
the required service periods. Our share-based awards include stock options and restricted stock awards.
For the year ended December 31, 2014, 2013
and 2012, we recognized $590,284, $813,789 and $1,172,135, respectively, of stock-based compensation expense in our consolidated
financial statements.
The estimated fair value underlying our
calculation of compensation expense for stock options is based on the Black-Scholes pricing model. Forfeitures of share-based awards
are estimated at the time of grant and revised, if necessary, in subsequent periods if our estimates change based on the actual
amount of forfeitures we have experienced.
Property and Equipment -
Property and equipment are carried at cost. Depreciation is recorded on the straight-line method over three to ten years, which
approximates the estimated useful lives of the assets.
Routine maintenance and repair costs are
charged to expense as incurred and renewals and improvements that extend the useful life of the assets are capitalized. Upon sale
or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts and any resulting gain
or loss is reported in the statement of operations.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting
Policies (Continued)
Intangible Assets - All of
the Company’s intangible assets are amortized using the straight-line method over their estimated useful lives, which ranges from
2.5 to 5 years. The Company evaluates its intangible assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Impairment is assessed by comparing the undiscounted cash flows
expected to be generated by the intangible asset to its carrying value. If an impairment exists, the Company calculates the impairment
by comparing the carrying value of the intangible asset to its fair value as determined by discounted expected cash flows. The
Company has not recorded any impairments during the years ended December 31, 2014, 2013 and 2012.
Goodwill - Goodwill represents
the excess of the purchase price of the acquired enterprise over the fair value of identifiable assets acquired and liabilities
assumed. The Company applies ASC 350, “Intangibles—Goodwill and Other,” and performs an annual goodwill impairment
test during the fourth quarter of the Company’s fiscal year and more frequently if an event or circumstance indicates that an impairment
may have occurred. For the purposes of impairment testing, the Company has determined that it has one reporting unit. A two-step
impairment test of goodwill is required pursuant to ASC 350-20-35. In the first step, the fair value of the reporting unit is compared
to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and further testing is not required.
If the carrying value exceeds the fair value, then the second step of the impairment test is required to determine the implied
fair value of the reporting unit’s goodwill. The implied fair value of goodwill is calculated by deducting the fair value of all
tangible and intangible net assets of the reporting unit, excluding goodwill, from the fair value of the reporting unit as determined
in the first step. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, then an impairment loss
must be recorded that is equal to the difference. The identification and measurement of goodwill impairment involves the estimation
of the fair value of the Company. The estimate of fair value of the Company, based on the best information available as of the
date of the assessment, is subjective and requires judgment, including management assumptions about expected future revenue forecasts
and discount rates. No impairment to the carrying value of goodwill was identified by the Company during the years ended December
31, 2014, 2013 and 2012.
The Company adopted FASB Accounting Standards
Update (“ASU”) 2012-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment , which
permits an entity to take a qualitative approach to determining whether it is more likely than not that a reporting unit’s fair
value is less than its carrying amount before applying the two-step quantitative goodwill impairment test.
Capitalized Software Development
Costs - Costs for the conceptual formulation and design of new software products are expensed as incurred until technological
feasibility has been established. Once technological feasibility has been established, we capitalize costs to produce the finished
software products. Capitalization ceases when the product is available for general release to customers. Costs associated with
product enhancements that extend the original product’s life or significantly improve the original product’s marketability are
also capitalized once technological feasibility has been established. Amortization is calculated on a product-by-product basis
using the straight-line method over the remaining economic life of the product. At each balance sheet date, the unamortized capitalized
costs of each computer software product is compared to the net realizable value of that product. If an amount of unamortized capitalized
costs of a computer software product is found to exceed the net realizable value of that asset, such amount will be written off.
The net realizable value is the estimated future gross revenues from that product reduced by the estimated future costs of completing
and deploying that product, including the costs of performing maintenance and customer support required to satisfy our responsibility
set forth at the time of sale. The Company capitalized software development costs of approximately $-0-, $2,169,000 and $4,337,000
for the years ended December 31, 2014, 2013 and 2012, respectively.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting
Policies (Continued)
Capitalized Software Development
Costs (Continued) - Amortization of capitalized software development costs in the amount of $4,646,443 and $3,524,724,
as previously reflected in the Consolidated Statement of Operations for the year ended December 31, 2013 and 2012, respectively,
have been reclassified from Cost of Revenues – Licenses to Operating Expenses – Amortization of Capitalized Software
to conform to the current year presentation. This reclassification had no effect on the previously reported Net (Loss) for the
years ended December 31, 2013 and 2012.
The Company’s policy is to periodically
review the estimated useful lives and value of its capitalized software costs. During the quarter ended March 31, 2014, this review
indicated that the revised estimated life (5 years) for capitalized software differed from the useful lives (3 years) that had
been previously used for amortization purposes in the Company’s financial statements. This revision in the estimated life
is based upon the period over which the asset is expected to contribute directly or indirectly to the future cash flows of the
Company. As a result, the Company revised the estimated useful lives of capitalized software, effective January 1, 2014. The effect
of this change in estimate was to decrease amortization expense, increase operating income, and increase net income by $993,701
for the year ended December 31, 2014.
Advertising Expense - The
Company expenses advertising costs as incurred. Advertising expense was $305,716, $253,500 and $372,134 for the years ended December
31, 2014, 2013 and 2012, respectively, and is reported as a component of sales and marketing expense.
Income Taxes - Income tax
expense (or benefit) for the year is the sum of deferred tax expense (or benefit) and income taxes currently payable (or refundable).
Deferred tax expense (or benefit) is the change during the year in a company’s deferred tax liabilities and assets. Deferred tax
liabilities and assets are determined based on differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.
The Company evaluates all significant tax
positions as required by generally accepted accounting principles in the United States. As of December 31, 2014 and 2013, the Company
does not believe that it has taken any tax positions that would require the recording of any additional tax liability nor does
it believe that there are any unrealized tax benefits that would either increase or decrease within the next 12 months. The Company’s
income tax returns are subject to examination by the appropriate tax jurisdictions. As of December 31, 2014, the Company’s federal
and various state tax returns generally remain open for the last three years.
Earnings (Loss) Per Share -
Basic earnings (loss) per share is computed by dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per share reflects the amount of earnings for the period available
to each share of common stock outstanding during the reporting period, while giving effect to all dilutive potential common shares
that were outstanding during the period, such as common shares that could result from the potential exercise or conversion of securities
into common stock.
The computation of diluted earnings per
share does not assume conversion, exercise or contingent issuance of securities that would have an antidilutive effect on per share
amounts (i.e., increasing earnings per share or reducing loss per share). The dilutive effect of outstanding options and warrants
and their equivalents are reflected in dilutive earnings per share by the application of the treasury stock method which recognizes
the use of proceeds that could be obtained upon exercise of options and warrants in computing diluted earnings per share. It assumes
that any proceeds would be used to purchase common stock at the average market price during the period. Options and warrants will
have a dilutive effect only when the average market price of the common stock during the period exceeds the exercise price of the
options or warrants.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting
Policies (Continued)
Deferred Charges - The Company’s
lease on its premises provides for periodic increases over the lease term. The Company records rent expense on a straight-line
basis. The effect of the difference between contractual cash payments and straight-line expense is recorded as a deferred charge.
Fair Value of Financial Instruments
- Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable
for financial instruments, which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments
disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement. In assessing the fair value of these financial instruments, the Company
used a variety of methods and assumptions, which were based on estimates of market conditions and risks existing at that time.
For certain instruments, including the cash accounts receivable, accounts payable and accrued expenses, it was estimated that the
carrying amount approximated fair value for the majority of these instruments because of their short maturity. The fair value of
property and equipment is estimated to approximate their net book value.
(2) Recently Issued Accounting Standards
From time to time, new accounting pronouncements
are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless
otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have
a material impact on its financial position or consolidated results of operations upon adoption.
In July 2013, the FASB issued an accounting
standard update, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss,
or Tax Credit Carryforward Exists.” This standard requires netting of unrecognized tax benefits against a deferred tax asset
for a loss or other carryforward that would apply in settlement of the uncertain tax positions. This standard is effective prospectively
for annual and interim periods beginning December 16, 2013. The adoption of this guidance did not have a significant effect on
the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606). The ASU is the result of a joint project by the FASB and the International Accounting
Standards Board (“IASB”) to clarify the principles for recognizing revenue and to develop a common revenue standard
for GAAP and International Financial Reporting Standards (“IFRS”) that would: remove inconsistencies and weaknesses;
provide a more robust framework for addressing revenue issues; improve comparability of revenue recognition practices across entities,
jurisdictions, industries, and capital markets; improve disclosure requirements and resulting financial statements; and simplify
the presentation of financial statements. The core principle of the new guidance is that an entity should recognize revenue to
depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The ASU is effective for annual reporting periods beginning after
December 15, 2016. Early adoption is not permitted. We are currently evaluating the effect that the updated standard will have
on our consolidated financial statements and related disclosures.
We believe there is no additional new accounting
guidance adopted, but not yet effective, that is relevant to the readers of our financial statements. However, there are numerous
new proposals under development which may have a significant impact on the Company’s financial reporting, if and when enacted.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Acquisition
On December 30, 2011, the Company entered
into an Asset Purchase Agreement with Ho’ike Services, Inc., dba BlueWave Technology, a Hawaii corporation. Under the terms of
the Purchase Agreement, the Company purchased from Seller certain of the assets (excluding working capital) and assumed certain
liabilities of Seller’s business of developing and servicing enterprise claims management software for use in the property and
casualty insurance industry, including for use by property and casualty insurance companies, third party administrators, managing
general agents, self-insured employers and state funds and providing certain services related thereto, which Business Seller had
marketed under the name “PipelineClaims.”
The purchase price for the Assets, in addition
to the assumption by the Company of the Assumed Liabilities, consists of the following: (i) $1,100,000 in cash (subject to adjustment)
on the Closing Date, (x) $635,821 of which (net of adjustments for certain prepayments to Seller and other prorations) was paid
in cash to Seller, and (y) $400,000 of which was deposited into an escrow account to be held and distributed by an escrow agent
pursuant to the terms of an escrow agreement to secure possible future indemnification claims and certain other post-closing matters
in favor of the Company; and (ii) up to an aggregate of $750,000 in an earnout, which earnout shall be based upon the performance
of the Business in the five (5) years following the closing of the Acquisition. More particularly, for each of the five (5) years
following the Acquisition, Seller will be entitled to receive an amount equal to ten percent (10%) of the PipelineClaims Free Cash
Flow (as such term is defined in the Purchase Agreement) but in no event will the Company be required to pay to Seller in excess
of $750,000 in the aggregate for the 5-year period. In December 2012, the Company received a disbursement from the escrow account
of $250,000 as a result of a contractual provision entitling the Company to such amount if PipelineClaims was licensed by Island
Insurance by December 31, 2012.
On December 30, 2011, the acquisition was
valued at $1,035,821. As a result of this acquisition, the Company acquired the following assets:
| Prepaid Expenses | |
$ | 13,163 | |
| Computer Equipment | |
| 10,658 | |
| Customer List | |
| 182,000 | |
| Software | |
| 830,000 | |
| | |
| | |
| Total | |
$ | 1,035,821 | |
(4) Intangible Assets
The components of our amortizable intangible
assets are as follows:
| | |
December 31, 2014 | | |
December 31, 2013 | |
| | |
Gross | | |
| | |
Net | | |
Weighted | | |
Gross | | |
| | |
Net | | |
Weighted | |
| | |
Carrying | | |
Accumulated | | |
Carrying | | |
Useful | | |
Carrying | | |
Accumulated | | |
Carrying | | |
Useful | |
| | |
Amount | | |
Amortization | | |
Amount | | |
Life | | |
Amount | | |
Amortization | | |
Amount | | |
Life | |
| | |
| | |
| | |
| | |
(In years) | | |
| | |
| | |
| | |
(In years) | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Customer List | |
$ | 402,000 | | |
$ | (402,000 | ) | |
$ | — | | |
| 3.00 | | |
$ | 402,000 | | |
$ | (341,333 | ) | |
$ | 60,667 | | |
| 3.00 | |
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) Property and Equipment
The following is a summary of property
and equipment at cost, less accumulated depreciation and amortization:
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | | |
| | |
| Computers and Equipment | |
$ | 295,650 | | |
$ | 390,220 | |
| Vehicles | |
| 72,914 | | |
| 72,914 | |
| Furniture and Fixtures | |
| 660,134 | | |
| 752,451 | |
| Leasehold Improvements | |
| 103,686 | | |
| 120,462 | |
| | |
| | | |
| | |
| Totals - At Cost | |
| 1,132,384 | | |
| 1,336,047 | |
| Less: Accumulated Depreciation and Amortization | |
| 632,745 | | |
| 627,457 | |
| | |
| | | |
| | |
| Property
and Equipment - Net | |
$ | 499,639 | | |
$ | 708,590 | |
Property and equipment includes assets
under capital lease obligations with a capitalized cost of $644,047 and $644,047 and accumulated amortization of $279,087 and $150,278
at December 31, 2014 and 2013, respectively. Depreciation expense charged to the Statements of Operations was $229,540, $251,852
and $296,693 for the years ended December 31, 2014, 2013 and 2012, respectively.
(6) Commitments, Contingencies and
Related Party Transactions
Operating Leases - The Company
leases approximately 23,400 square feet of office space under a lease which expires in April 2020 and approximately 2,500 square
feet of office space under a lease which expires in July 2015.
Rent expense was $632,699, $901,661 and
$792,805 for the years ended December 31, 2014, 2013 and 2012, respectively.
Our future minimum lease commitments under
the noncancellable operating leases for rental of our office space in effect at December 31, 2014 were as follows:
| Year ending | |
| |
| December 31, | |
| |
| 2015 | |
$ | 587,451 | |
| 2016 | |
| 558,962 | |
| 2017 | |
| 570,668 | |
| 2018 | |
| 587,251 | |
| 2019 and Thereafter | |
| 589,201 | |
| | |
| | |
| Total | |
$ | 2,893,533 | |
Employment Contracts - Effective
March 1, 2012, we have an employment contract with an executive of the Company with an expiration date of February 28, 2015. The
aggregate commitment for future salary at December 31, 2014 was approximately $54,167. The contract also includes a bonus based
on the performance of the Company. The contract also granted 400,000 stock options and 125,000 shares of restricted stock on the
effective date.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) Commitments, Contingencies and
Related Party Transactions
Sales and Use Tax Audit - The
New York State Department of Taxation and Finance (the “Department”) conducted an examination of the Company for state
sales and use tax for audit periods March 1, 2009 through February 28, 2013. In February 2014, the Company received a Statement
of Proposed Audit Change from the Department. The Change asserts proposed Sales and Use Tax due in the amount of approximately
$191,600 together with interest of approximately $46,400. Interest will continue to accrue on the proposed outstanding balances
until the date of payment. On March 11, 2014, the Company paid the Department an aggregate of approximately $238,000 in satisfaction
in full of all amounts owed in connection with such examination.
(7) Income Taxes
An analysis of the components of the income
tax expense (benefit) is as follows:
| | |
Years ended | |
| | |
December 31, | |
| | |
2014 | | |
2013 | | |
2012 | |
| Current: | |
| | | |
| | | |
| | |
| Federal | |
$ | 33,640 | | |
$ | — | | |
$ | (2,018,410 | ) |
| | |
| | | |
| | | |
| | |
| State | |
| 18,839 | | |
| 30,380 | | |
| (534,285 | ) |
| | |
| | | |
| | | |
| | |
| Totals | |
| 52,479 | | |
| 30,380 | | |
| (2,552,695 | ) |
| | |
| | | |
| | | |
| | |
| Deferred | |
| — | | |
| — | | |
| 2,294,767 | |
| | |
| | | |
| | | |
| | |
| Income
Tax Expense (Benefit) | |
$ | 52,479 | | |
$ | 30,380 | | |
$ | (257,928 | ) |
The income tax expense (benefit) differs
from the amount computed by applying the statutory federal income tax rate to (loss) income before income taxes as follows:
| | |
Years ended | |
| | |
December 31, | |
| | |
2014 | | |
2013 | | |
2012 | |
| Computed Federal Statutory Tax Expense (Benefit) | |
$ | 142,449 | | |
$ | (975,119 | ) | |
$ | (1,778,934 | ) |
| | |
| | | |
| | | |
| | |
| State Income Tax Expense (Benefit) - Net of Federal (Expenses) Benefit | |
| 33,517 | | |
| (215,100 | ) | |
| (313,930 | ) |
| | |
| | | |
| | | |
| | |
| Expired Net Operating Losses | |
| | | |
| — | | |
| 1,098,781 | |
| | |
| | | |
| | | |
| | |
| Tax Benefit of Net Operating Loss Carryforward | |
| (123,487 | ) | |
| 1,220,599 | | |
| 736,155 | |
| | |
| | | |
| | | |
| | |
| Income
Tax Expense (Benefit) | |
$ | 52,479 | | |
$ | 30,380 | | |
$ | (257,928 | ) |
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(7) Income Taxes (Continued)
The components of the net deferred tax
asset and liability were as follows:
| | |
Years ended | |
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| Deferred Tax Assets - Current: | |
| | | |
| | |
| Accounts Receivable Allowance | |
$ | 10,000 | | |
$ | 10,000 | |
| Vacation Accrual | |
| 9,200 | | |
| 9,200 | |
| Net Operating Loss Carryforwards | |
| 844,837 | | |
| 831,300 | |
| | |
| | | |
| | |
| Current
Deferred Tax Asset | |
$ | 864,037 | | |
$ | 850,500 | |
| | |
| | | |
| | |
| Deferred Tax Asset (Liability) - Long-Term: | |
| | | |
| | |
| Net Operating Loss Carryforward | |
$ | 3,075,163 | | |
$ | 3,840,896 | |
| Property, Equipment and Intangibles | |
| 2,104,271 | | |
| 3,265,889 | |
| Valuation Allowance | |
| (2,518,043 | ) | |
| (4,431,857 | ) |
| | |
| | | |
| | |
| Long-Term
Deferred Tax AssetYears ended | |
$ | 2,661,391 | | |
$ | 2,674,928 | |
The deferred tax asset at December 31,
2014 and 2013 included net operating loss carryforwards of approximately $3,920,000 and $4,673,000, respectively. This represents
approximately $9,900,000 and $11,800,000 of federal net operating loss carryforwards that are subject to expiration beginning in
fiscal 2019 through 2032. During the year ended December 31, 2014 and 2013, the deferred tax asset valuation allowance (decreased)
increased by approximately $(1,913,000) and $1,391,100, respectively. In assessing the realizability of deferred tax assets, management
considers, within each taxing jurisdiction, whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Factors that may affect the Company’s ability to achieve sufficient forecasted
taxable income in future periods may include, but are not limited to, the following: increased competition, a decline in sales
or margins, a loss of market share, and a decrease in demand for professional services. Based upon the levels of historical taxable
income and projections for future taxable income over the years in which the deferred tax assets are deductible, at December 31,
2014, management believes that it is more likely than not that the Company will realize the benefits, net of the established valuation
allowance, of these deferred tax assets in the future.
The Tax Reform Act of 1986 enacted a complex
set of rules which limits a company’s ability to utilize net operating loss carryforwards and tax credit carryforwards in periods
following an ownership change. These rules define an ownership change as a greater than 50 percent point change in stock ownership
within a defined testing period which is generally a three-year period. As a result of stock which may be issued by us from time
to time, and the conversion of outstanding warrants, or the result of other changes in ownership of our outstanding stock, the
Company may experience an ownership change and consequently our utilization of net operating loss carryforwards could be significantly
limited.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Short-Term Debt
On September 11, 2012, the Company entered
into a Loan and Security Agreement (“Loan Agreement”) between and among Imperium Commercial Finance Master Fund, LP,
a Delaware limited partnership (“Imperium”), as lender, Cover-All Systems, Inc., a wholly-owned subsidiary of the Company
(the “Subsidiary”), as borrower, and the Company, as a guarantor. The Loan Agreement provides for a three-year term
loan to the Subsidiary of $2,000,000, evidenced by a Term Note in favor of Imperium, and a three-year revolving credit line to
the Subsidiary of up to $250,000, evidenced by a Revolving Credit Note in favor of Imperium (together with the Term Note, the “Imperium
Note”). The amount available to be borrowed under the revolving credit line may not exceed 80% of Eligible Accounts (as defined
in the Loan Agreement). All amounts borrowed under the term loan and the revolving credit line are secured by a security interest
in all of the assets of the Subsidiary and guaranteed by the Company, which guarantee is secured by a pledge by the Company of
all of the outstanding shares of capital stock of the Subsidiary. As of December 31, 2014, the Company had an outstanding balance
of $2,000,000 under the term loan and no balance outstanding under the revolving credit facility.
Interest on the outstanding principal balance
under the Imperium Notes accrues at a fixed rate equal to eight percent (8%) per annum and is payable monthly. The outstanding
principal and any remaining interest under the Imperium Notes will be immediately due and payable on the earliest of (1) September 10,
2015, and (2) the date Imperium’s obligation to advance funds under the revolving credit line is terminated following an event
of default pursuant to the terms and conditions of the Loan Agreement. Payments and prepayments received by Imperium will be applied
against principal and interest as provided for in the Loan Agreement.
The Loan Agreement contains customary representations,
warranties, affirmative and negative covenants, and events of default. If an event of default occurs and is continuing, Imperium
has certain rights and remedies under the Loan Agreement. Additionally, the Loan Agreement requires the Company to maintain minimum
revenues and EBITDA, tested annually, commencing with the twelve months ending September 30, 2013.
In connection with the Loan Agreement,
the Company issued to Imperium a five-year warrant (the “Stock Purchase Warrant”) to purchase 1,400,000 shares of the
Company’s common stock at an exercise price of $1.48 per share. The Stock Purchase Warrant is not exercisable until the earliest
of (i) the date when Current Market Value (as defined therein) exceeds the exercise price multiplied by two, (ii) the date of a
Change of Control transaction (as defined therein), and (iii) the third anniversary of the date of issuance of the Stock Purchase
Warrant. The Stock Purchase Warrant provides for adjustments to the exercise price and the number of shares issuable upon exercise
in certain events to protect against dilution and for cashless exercise. The Stock Purchase Warrant also required the Company to
file a registration statement with the Securities and Exchange Commission with respect to the shares issuable upon exercise of
the Stock Purchase Warrant within 45 days of the date of issuance of the Stock Purchase Warrant, and that the Company use its best
efforts to obtain the effectiveness of such registration statement within 90 days (subject to extension to 120 days) of the date
of issuance of the Stock Purchase Warrant. The Company filed the Registration Statement and it was effective in the required timeframe.
If the Company failed to comply with its obligations to file the registration statement and obtain its effectiveness within the
specified periods, and in certain other events, the Company would have been required to pay Imperium, for each month such failure
continues, the amount of $22,500. The Stock Purchase Warrant also provides for piggyback registration rights.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) Short-Term Debt (Continued)
The proceeds from the $2,00,000 Imperium
note were allocated using the relative fair value method to both the note payable balance and fair value of the warrants as follows:
Allocation of proceeds:
| Note Payable | |
$ | 1,457,945 | |
| Warrants | |
| 542,055 | |
| | |
| | |
| Total | |
$ | 2,000,000 | |
The portion of the proceeds allocated to
the warrants is recognized as additional paid-in capital and a debt discount. The debt discount related to the warrants is accreted
into interest expense through maturity of the note payable. The note payable principal balance outstanding and remaining debt discount
is as follows:
| | |
December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Principal Balance | |
$ | 2,000,000 | | |
$ | 2,000,000 | |
| Less: Debt Discount | |
| 157,220 | | |
| 360,891 | |
| | |
| | | |
| | |
| Short-Term
Debt | |
$ | 1,842,780 | | |
$ | 1,639,109 | |
The Company also issued five-year warrants
(the “Monarch Warrants”) to purchase 42,000 shares, in the aggregate, of the Company’s common stock at an exercise
price of $1.48 per share, to Monarch Capital Group, LLC (“Monarch”), which acted as the Company’s financial adviser
in connection with the loan transaction, and an officer of Monarch. The Monarch Warrants are not exercisable until the earliest
of (i) the date when the Current Exercise Price (as defined therein) exceeds the exercise price multiplied by two, (ii) the date
of a Change of Control transaction (as defined therein), and (iii) the third anniversary of the date of issuance. The Monarch Warrants
provide for adjustment to the exercise price and the number of shares issuable upon exercise in certain events to protect against
dilution and for cashless exercise. The Monarch Warrants also provide for piggyback registration rights.
On April 10, 2013, we amended and restated
the terms of the Imperium Stock Purchase Warrant and each of the Monarch Warrants to provide that the aggregate number of shares
issuable on exercise of the Stock Purchase Warrant and the Monarch Warrants shall not exceed 19.9% of the Company’s issued and
outstanding shares of common stock at the date of original issuance (i.e., 5,171,145 shares of common stock based on 25,857,730
shares of common stock issued and outstanding at September 11, 2012) without first obtaining the approval of the Company’s stockholders.
This change, and certain other minor, technical changes, were contained in amended and restated warrants that we issued to the
holders.
In connection with the Imperium Loan Agreement
financing, the Company incurred deferred financing costs of approximately $92,000, which will be amortized over the life of the
loan (or earlier if the loan becomes due or is repaid before its fixed maturity).
On July 17, 2013, the Company issued a
promissory note, in the aggregate principal amount of $400,000, to John W. Roblin, our former Chairman and Chief Executive Officer
(the “Roblin Note”). The Roblin Note bore interest at a rate equal to 9% per annum and was repayable by us upon our
receipt of a payment from a certain customer in the amount of $896,000, which was due October 31, 2012 or sooner if the customer
payment was received. The Company received the customer payment and, on November 13, 2012, the Roblin Note was fully repaid.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Capital Lease Obligation
In September, the Company acquired office
furniture under a capital lease agreement with Lakeland Bank. The interest rate implicit in the lease is 4.25%. The following is
a schedule by years of future minimum lease payments under capital lease with the present value of the net minimum lease payment
as of December 31, 2014.
| Years Ended | |
| |
| 2015 | |
$ | 130,195 | |
| 2016 | |
| 130,195 | |
| 2017 | |
| 123,649 | |
| Thereafter | |
| — | |
| | |
| | |
| Total Minimum Lease Payments | |
| 384,039 | |
| Less: Amounts Representing Interest | |
| (30,900 | ) |
| | |
| | |
| Present Value of Minimum Lease Payment | |
| 353,139 | |
| Less: Current Portion of Obligation Under Capital Lease | |
| (119,608 | ) |
| | |
| | |
| Total
Capital Lease Obligations - Net of Current Portion | |
$ | 233,531 | |
(10) Stock-Based Compensation
Stock Options
In June 2005, the Company adopted the 2005
Stock Incentive Plan (which was amended in 2006 and in 2008). Options and stock awards for the purchase of up to 5,000,000 shares
may be granted by the Board of Directors to our employees and consultants at an exercise or grant price determined by the Board
of Directors on the date of grant. Options may be granted as incentive or nonqualified stock options with a term of not more than
ten years. The 2005 Plan allows the Board of Directors to grant restricted or unrestricted stock awards or awards denominated in
stock equivalent units, securities or debentures convertible into common stock, or any combination of the foregoing and may be
paid in common stock or other securities, in cash, or in a combination of common stock or other securities and cash. At December
31, 2014 and 2013, an aggregate of 1,593,684 and 1,716,902 shares, respectively, were available for grant under the 2005 Stock
Incentive Plan.
The Company uses the Black-Scholes-Merton
option-pricing model (“Black-Scholes”) to measure fair value of the share-based awards. The Black-Scholes model requires
us to make significant judgments regarding the assumptions used within the model, the most significant of which are the expected
stock price volatility, the expected life of the option award, the risk-free interest rate of return and dividends during the expected
term.
- Expected volatilities are based on
historical volatility of the Company’s stock during the preceding periods. The Company uses “Level 1” inputs, which
are our trading market values in active markets.
- The Company uses historical data to
estimate expected life of the option award. The expected term of options granted is derived from the output of the option valuation
model and represents the period of time that options granted are expected to be outstanding.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) Stock-Based Compensation (Continued)
- The risk-free interest rate for periods
within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
- The Company does not anticipate issuance
of dividends during the expected term.
| | |
2014 | | |
2013 | |
| Expected volatility | |
| 41 %–50 | % | |
| 41%–50 | % |
| Weighted-average volatility | |
| 41 | % | |
| 41 | % |
| Expected dividends | |
| 0 | % | |
| 0 | % |
| Expected term (in years) | |
| 3-5 |
|
| 3-5 |
| Risk-free interest rate | |
| .46 | % | |
| .46 | % |
As of December 31, 2014, there was approximately
$49,292 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted by the Company.
That cost is expected to be recognized over a weighted-average period of 2.4 years.
A summary of the changes in outstanding
common stock options for all outstanding plans is as follows:
| | |
Shares | | |
Exercise
Price
Per Share | | |
Weighted-Average
Remaining
Contractual Life | |
Weighted-Average
Exercise Price | |
| | |
| | | |
| | | |
| |
| | |
| Balance, December 31, 2011 | |
| 1,524,963 | | |
| $ 0.85 - 1.55 | | |
2.0 Years | |
$ | 1.21 | |
| | |
| | | |
| | | |
| |
| | |
| Granted | |
| 1,055,000 | | |
| 1.63 - 1.67 | | |
4.2 Years | |
| 1.65 | |
| Exercised | |
| (25,000 | ) | |
| .85 | | |
| |
| .85 | |
| Canceled | |
| (75,000 | ) | |
| 1.05 - 1.63 | | |
| |
| 1.24 | |
| Expired | |
| (375,000 | ) | |
| 1.40 | | |
| |
| 1.40 | |
| | |
| | | |
| | | |
| |
| | |
| Balance, December 31, 2012 | |
| 2,104,963 | | |
| $ .85 - 1.67 | | |
2.8 Years | |
$ | 1.40 | |
| | |
| | | |
| | | |
| |
| | |
| Granted | |
| 10,000 | | |
| 1.50 | | |
| |
| 1.50 | |
| Exercised | |
| (250,000 | ) | |
| .85 | | |
| |
| .85 | |
| Canceled | |
| (5,000 | ) | |
| 1.55 | | |
| |
| 1.55 | |
| Expired | |
| (72,463 | ) | |
| 1.38 | | |
| |
| 1.38 | |
| | |
| | | |
| | | |
| |
| | |
| Balance, December 31, 2013 | |
| 1,787,500 | | |
| $ 1.00 - 1.67 | | |
2.2 Years | |
$ | 1.48 | |
| | |
| | | |
| | | |
| |
| | |
| Granted | |
| — | | |
| — | | |
| |
| — | |
| Exercised | |
| (450,000 | ) | |
| 1.04 | | |
| |
| 1.04 | |
| Canceled | |
| (345,000 | ) | |
| 1.61 | | |
| |
| 1.61 | |
| Expired | |
| — | | |
| — | | |
| |
| — | |
| | |
| | | |
| | | |
| |
| | |
| Balance, December 31, 2014 | |
| 992,500 | | |
| $ 1.50 - 1.67 | | |
1.76 Years | |
$ | 1.63 | |
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) Stock-Based Compensation (Continued)
The options granted during 2014 are distributed
as follows, relative to the difference between the exercise price and the stock price at grant date:
| | |
Number | | |
Weighted-Average | | |
Weighted-Average | |
| | |
Granted | | |
Exercise Price | | |
Fair Value | |
| | |
| | | |
| | | |
| | |
| Exercise Price at Stock Price | |
| — | | |
$ | — | | |
$ | — | |
The options granted during 2013 are distributed
as follows:
| | |
Number | | |
Weighted-Average | | |
Weighted-Average | |
| | |
Granted | | |
Exercise Price | | |
Fair Value | |
| | |
| | | |
| | | |
| | |
| Exercise Price at Stock Price | |
| 10,000 | | |
$ | 1.50 | | |
$ | .63 | |
The options granted during 2012 are distributed
as follows:
| | |
Number | | |
Weighted-Average | | |
Weighted-Average | |
| | |
Granted | | |
Exercise Price | | |
Fair Value | |
| | |
| | | |
| | | |
| | |
| Exercise Price at Stock Price | |
| 1,055,000 | | |
$ | 1.65 | | |
$ | .61 | |
Exercisable options at December 31, 2014,
2013 and 2012 were as follows:
| December 31, | |
Number of
Exercisable Options | | |
Weighted-Average
Exercise Price | |
| 2014 | |
| 237,500 | | |
$ | 1.55 | |
| 2013 | |
| 1,225,500 | | |
$ | 1.40 | |
| 2012 | |
| 876,110 | | |
$ | 1.20 | |
The following table summarizes information
about stock options at December 31, 2014:
| | | |
Outstanding Stock Options | | |
Exercisable
Stock Options | |
Range of
Exercise Prices | |
Shares | | |
Weighted-Average
Remaining
Contractual Life | |
Weighted-Average
Exercise Price | | |
Shares | | |
Weighted-Average
Exercise Price | |
| | | |
| | |
| |
| | |
| | |
| |
| | $1.50 - $1.67 | | |
| 992,500 | | |
1.8 Years | |
$ | 1.63 | | |
| 237,500 | | |
$ | 1.55 | |
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) Stock-Based Compensation (Continued)
Warrants - There were 1,442,000
warrants outstanding at December 31, 2014.
A summary of the changes in outstanding
warrants is as follows:
| | |
Outstanding
and Exercisable
Warrants | | |
Exercise
Price
Per Warrant | | |
Weighted-Average
Remaining
Contractual Life | | |
Weighted-Average
Exercise Price | |
| Balance, December 31, 2011 | |
— | | |
| | |
| | |
— | |
| | |
| | |
| | |
| | |
| |
| Granted | |
| 1,442,000 | | |
| 1.48 | | |
| 4.70 | | |
| 1.48 | |
| | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2012 | |
| 1,442,000 | | |
| | | |
| | | |
| 1.48 | |
| | |
| | | |
| | | |
| | | |
| | |
| Granted | |
| — | | |
| | | |
| | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2013 | |
| 1,442,000 | | |
| | | |
| | | |
$ | 1.48 | |
| | |
| | | |
| | | |
| | | |
| | |
| Granted | |
| — | | |
| | | |
| | | |
| — | |
| | |
| | | |
| | | |
| | | |
| | |
| Balance, December 31, 2014 | |
| 1,442,000 | | |
| | | |
| | | |
$ | 1.48 | |
Exercisable Warrants at December 31, 2014,
2013 and 2012 were as follows:
| | |
Number of | | |
Weighted-Average | |
| December 31, | |
Exercisable Warrants | | |
Exercise Price | |
| 2014 | |
| 1,442,000 | | |
$ | 1.48 | |
| 2013 | |
| 1,442,000 | | |
$ | 1.48 | |
| 2012 | |
| 1,442,000 | | |
$ | 1.48 | |
Time-Based Restricted Stock Units
- During the years ended December 31, 2014, 2013 and 2012, we granted 123,218, 119,329 and 278,376, respectively, time-based
RSUs vesting through June 4, 2017.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) Stock-Based Compensation (Continued)
A summary of our time-based RSUs for the
years ended December 31, 2014, 2013 and 2012 are as follows:
| | |
Shares | | |
Weighted-Average Grant Date
Fair Value | |
| Balance, January 1, 2012 | |
| 252,500 | | |
$ | 1.42 | |
| | |
| | | |
| | |
| Granted | |
| 278,376 | | |
$ | 1.65 | |
| Vested | |
| (128,376 | ) | |
| — | |
| Forfeited or Expired | |
| — | | |
| — | |
| | |
| | | |
| | |
| Balance, December 31, 2012 | |
| 402,500 | | |
$ | 1.61 | |
| | |
| | | |
| | |
| Granted | |
| 119,329 | | |
$ | 1.35 | |
| Vested | |
| (342,520 | ) | |
| — | |
| Forfeited or Expired | |
| (10,000 | ) | |
| — | |
| | |
| | | |
| | |
| Balance, December 31, 2013 | |
| 169,309 | | |
$ | 1.65 | |
| | |
| | | |
| | |
| Granted | |
| 123,218 | | |
$ | 1.39 | |
| Vested | |
| (239,466 | ) | |
| — | |
| Forfeited or Expired | |
| — | | |
| — | |
| | |
| | | |
| | |
| Balance, December 31, 2014 | |
| 53,061 | | |
$ | 1.58 | |
(11) Basic Earnings (Loss) Per Share
Disclosures
The following is a reconciliation of the
numerators and denominators of the basic and diluted earnings per share (“EPS”) computations:
| | |
2014 | | |
2013 | | |
2012 | |
| Numerator: | |
| | | |
| | | |
| | |
| Net (Loss) Income | |
$ | 366,488 | | |
$ | (2,898,377 | ) | |
$ | (4,974,231 | ) |
| | |
| | | |
| | | |
| | |
| Numerator
for Diluted (Loss) Earnings Per Common Share | |
$ | 366,488 | | |
$ | (2,898,377 | ) | |
$ | (4,974,231 | ) |
| | |
| | | |
| | | |
| | |
| Denominator: | |
| | | |
| | | |
| | |
| Weighted Average Number of Common Shares Outstanding for Basic (Loss) Earnings Per Common Share | |
| 26,628,000 | | |
| 26,173,000 | | |
| 25,869,969 | |
| | |
| | | |
| | | |
| | |
| Effect of Dilutive Securities: | |
| | | |
| | | |
| | |
| Exercise of Options and Restricted Stock | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | |
| Exercise of Warrants | |
| — | | |
| — | | |
| — | |
| | |
| | | |
| | | |
| | |
| Denominator
for Diluted (Loss) Earnings Per Common Share | |
| 26,628,000 | | |
| 26,173,000 | | |
| 25,869,969 | |
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11) Basic Earnings (Loss) Per Share
Disclosures (Continued)
| Basic (Loss) Earnings Per Common Share | |
$ | .01 | | |
$ | (.11 | ) | |
$ | (.19 | ) |
| | |
| | | |
| | | |
| | |
| Diluted (Loss) Earnings Per Common Share | |
$ | .01 | | |
$ | (.11 | ) | |
$ | (.19 | ) |
We use the treasury stock method to compute
diluted earnings per share, whereby the proceeds from the exercise of dilutive instruments are hypothetically used to repurchase
outstanding shares at market prices. The Company’s options and warrants were not included in the computation of EPS at December 31,
2013 and 2012 because to do so would be antidilutive.
(12) Accrued Expenses
Accrued expense consist of the following:
| | |
Years ended
December 31, | |
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Accrued Bonuses, Payroll, Commissions, Benefits, Temporary Help and Consulting | |
$ | 907,894 | | |
$ | 962,937 | |
| Accrued Professional Fees | |
| 222,377 | | |
| 246,733 | |
| Other | |
| 123,027 | | |
| 202,730 | |
| | |
| | | |
| | |
| Totals | |
$ | 1,253,298 | | |
$ | 1,412,400 | |
(13) 401(k) Plan
Upon date of hire, employees are eligible
to participate in the Cover-All Technologies, Inc. 401(k) Plan (the “Plan”). Employees can contribute a portion of
their salary on a pre-tax basis subject to annual IRS limitations for the year ended December 31, 2014. The Company provides
for a matching contribution of $.50 for each $1.00 of the first 5% of pay employees elect to defer. The Company contribution to
the Plan in 2014, 2013 and 2012 was approximately $102,116, $122,380 and $134,598, respectively.
(14) Stockholders’ Equity
In December 2011, the Board of Directors
authorized a share buyback plan of up to 1,000,000 shares of the Company’s common stock.
In February 2009, we announced that our
Board of Directors declared a special cash dividend in the amount of $0.03 per share on our common stock. This dividend was paid
on April 7, 2009 to common stockholders of record as of the close of business on March 27, 2009. The Company also announced that,
in light of their decision to declare a special cash dividend, the Board of Directors had determined that the Company would suspend
its common stock buyback plan until further notice.
In June 2008, the Board of Directors authorized
a share buyback plan of up to 1,000,000 shares of the Company’s Common Stock.
In 2008, we purchased an aggregate of 201,870
shares of treasury stock on the open market at an average purchase price of $0.82 per share for a total purchase price of approximately
$164,894, which were subsequently retired.
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(15) Customer Concentration
For the year ended December 31, 2014, sales
to two customers amounted to approximately 24% and 18% of revenues, respectively.
For the year ended December 31, 2013, sales
to two customers amounted to approximately 24% and 11% of revenues, respectively.
For the year ended December 31, 2012, sales
to four customers amounted to approximately 12%, 12%, 11% and 11% of revenues, respectively.
All of the major customers referred to
above, other than the one customers in 2014 with 24%, one customers in 2013 with 11% of revenues and one customer in 2012 with
12% of revenues and are units of CHARTIS, Inc., formerly associated with American International Group, Inc.
. . . . . . . . . .
SIGNATURES
Pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
| |
COVER-ALL TECHNOLOGIES INC. |
|
| |
|
|
| Date: March 31, 2015 |
By: |
/s/ Manish D. Shah |
|
| |
|
Manish D. Shah |
|
| |
|
Chief Executive Officer |
|
Pursuant to the requirements
of the Securities Exchange Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
| Signatures |
|
Title |
|
Date |
| |
|
|
|
|
| /s/ Manish D. Shah |
|
Director, President and Chief Executive Officer |
|
March 31, 2015 |
| Manish D. Shah |
|
|
|
|
| |
|
|
|
|
| /s/ Ann F. Massey |
|
Chief Financial Officer, Controller and |
|
March 31, 2015 |
| Ann F. Massey |
|
Secretary (Principal Financial Officer |
|
|
| |
|
and Principal Accounting Officer) |
|
|
| |
|
|
|
|
| /s/ Earl Gallegos |
|
Chairman of the Board of Directors |
|
March 31, 2015 |
| Earl Gallegos |
|
|
|
|
| |
|
|
|
|
| /s/ Russell Cleveland |
|
Director |
|
March 31, 2015 |
| Russell Cleveland |
|
|
|
|
| |
|
|
|
|
| /s/ Stephen M. Mulready |
|
Director |
|
March 31, 2015 |
| Stephen M. Mulready |
|
|
|
|
| |
|
|
|
|
| /s/ Steven R. Isaac |
|
Director |
|
March 31, 2015 |
| Steven R. Isaac |
|
|
|
|
Exhibit
IndeX
The following is a list
of exhibits required by Item 601 of Regulation S-K filed as part of this Form 10-K. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parentheses.
| 2 |
|
Certificate of Merger of the Company Computer Systems, Inc. (a New York corporation) into the Registrant, filed on June 11, 1985 [incorporated by reference to Exhibit 2 to the Registrant’s Annual Report on Form 10-K (Commission File No. 0-13124) filed on January 29, 1986]. |
| |
|
|
| 3(a) |
|
Certificate of Incorporation of the Registrant filed on April 22, 1985 [incorporated by reference to Exhibit 3 (a) to the Registrant’s Annual Report on Form 10-K (Commission File No. 0-13124) filed on January 29, 1986]. |
| |
|
|
| 3(b) |
|
Certificate of Amendment of Certificate of Incorporation of the Registrant filed on May 6, 1987 [incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1 (Commission File No. 33-17533) filed on September 29, 1987]. |
| |
|
|
| 3(c) |
|
Certificate of Amendment of Certificate of Incorporation of the Registrant filed on March 26, 1990 [incorporated by reference to Exhibit 3(d) to the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on June 14, 1990]. |
| |
|
|
| 3(d) |
|
Certificate of Amendment of Certificate of Incorporation of the Registrant filed on March 18, 1992 [incorporated by reference to Exhibit 1 to the Registrant’s Current Report on Form 8-K (Commission File No. 0-13124) filed on March 30, 1992]. |
| |
|
|
| 3(e) |
|
Certificate of Amendment of Certificate of Incorporation of the Registrant [incorporated by reference to Exhibit 3(e) to the Registrant’s Amendment No. 1 to Registration Statement on Form S-3 (Commission File No. 0-13124) filed on July 10, 1996]. |
| |
|
|
| 3(f) |
|
Certificate of Amendment of Certificate of Incorporation of the Registrant filed on July 12, 2000 [incorporated by reference to Exhibit 3(g) to the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on August 11, 2000]. |
| |
|
|
| 3(g) |
|
By-laws of the Registrant, as amended [incorporated by reference to Exhibit 3(g) to the Registrant’s Amendment No. 1 to Registration Statement on Form S-3 (Commission File No. 0-13124) filed on July 10, 1996]. |
| |
|
|
| 4 |
|
Form of Common Stock Certificate of the Registrant [incorporated by reference to Exhibit 4(a) to the Registrant’s Annual Report on Form 10-K (Commission File No. 0-13124) filed on January 29, 1986]. |
| |
|
|
| 10(a) |
|
Warner Insurance Services, Inc. Tax Saver 401(k) Salary Reduction Plan adopted May 31, 1985 and restated as of August 11, 1992 [incorporated by reference to Exhibit 10(k) to the Registrant’s Annual Report on Form 10-K (Commission File No. 0-13124) filed on January 28, 1993]. |
| |
|
|
| 10(c)(14)† |
|
Form of Non-Qualified Stock Option Agreement [incorporated by reference to Exhibit 10(c)(14) the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on May 15, 2006]. |
| |
|
|
| 10(c)(15)† |
|
Form of Incentive Stock Option Agreement [incorporated by reference to Exhibit 10(c)(15) the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on May 15, 2006]. |
| |
|
|
| 10(c)(16)† |
|
Form of Restricted Stock Grant Agreement [incorporated by reference to Exhibit 10(c)(16) the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on May 15, 2006]. |
| |
|
|
| 10(c)(17)† |
|
Form of Non-Qualified Stock Option Agreement (for Consultants) [incorporated by reference to Exhibit 10 (c)(13) the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on May 15, 2006]. |
| |
|
|
| 10(c)(18)† |
|
Cover-All Technologies, Inc. Amended and Restated 2005 Stock Incentive Plan [incorporated by reference to Exhibit 10(c)(18) to the Registrant’s Form 8-K (Commission File No. 0-13124) filed on March 27, 2008]. |
| 10(c)(21)† |
|
Amendment No. 1 to the Cover-All Technologies Inc. Amended and Restated 2005 Stock Incentive Plan [incorporated by reference to Exhibit 10(c)(21) to the Registrant’s Form 8-K (Commission File No. 0-13124) filed on January 3, 2011]. |
| |
|
|
| 10(c)(25)† |
|
Summary of 2013 Non-Employee Director Compensation, dated March 26, 2013 [incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on March 27, 2013]. |
| |
|
|
| 10(c)(26)† |
|
Summary of 2014 Non-Employee Director Compensation, dated March 7, 2014 [incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on March 10, 2014]. |
| |
|
|
| 10(c)(27)† |
|
Summary of Acquisition Committee Non-Employee Director Compensation, dated January 5, 2015 [incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on January 8, 2015]. |
| |
|
|
| 10(c)(28)† |
|
Summary of 2015 Non-Employee Director Compensation, dated January 12, 2015 [incorporated by reference to Exhibit 99.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on January 15, 2015]. |
| |
|
|
| 10(d)(3) |
|
Lease, dated April 12, 2012, by and between the Company and Kemble Plaza II Realty L.L.C [incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 1-09228) filed on May 15, 2012]. |
| |
|
|
| 10(e)(9)† |
|
Employment Agreement, dated December 30, 2011, by and between the Registrant and John Roblin [incorporated by reference to Exhibit 10(e)(9) to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on January 6, 2012]. |
| |
|
|
| 10(e)(10)† |
|
Employment Agreement, dated March 7, 2012, by and between the Registrant and Manish D. Shah [incorporated by reference to Exhibit 10(e)(10) to the Registrant’s Form 8-K (Commission File No. 1- 09228) filed on March 12, 2012]. |
| |
|
|
| 10(e)(11)† |
|
First Amendment to Employment Agreement, effective as of July 1, 2013, by and between the Registrant and Manish D. Shah [incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on July 5, 2013]. |
| |
|
|
| 10(e)(12)† |
|
Amended and Restated Employment Agreement, effective as of February 27, 2015 by and between the Registrant and Manish D. Shah [incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on March 3, 2015. |
| |
|
|
| 10(n)(1) |
|
Asset Purchase Agreement, dated December 30, 2011, between Cover-All Systems, Inc. and Ho’ike Services, Inc., dba BlueWave Technology [incorporated by reference to Exhibit 10(n)(1) to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on January 6, 2012]. |
| |
|
|
| 10(n)(2) |
|
Agreement and Plan of Merger, dated December 14, 2014, between Cover-All Technologies Inc. and Majesco [incorporated by reference to Exhibit 2.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on December 15, 2014]. |
| |
|
|
| 10(n)(3)* |
|
Amendment No. 1 to Agreement and Plan of Merger, dated February 18, 2015, between Cover-All Technologies Inc. and Majesco. |
| |
|
|
| 10(n)(4) |
|
Voting Agreement, dated December 14, 2014, by and among Majesco and RENN Universal Growth Investment Trust PLC and Russell Cleveland [incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on December 15, 2014]. |
| |
|
|
| 10(n)(5) |
|
Form of Indemnification Agreement [incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (Commission File No. 1-09228) filed on December 17, 2014]. |
| |
|
|
| 10(o)(1) |
|
Loan and Security Agreement, dated as of September 11, 2012, by and between Cover-All Systems, Inc., as borrower, Imperium Commercial Finance Master Fund, LP, as lender, and the Registrant, as a guarantor [incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 001-09228) filed on November 14, 2012]. |
| |
|
|
| 10(o)(2) |
|
Revolving Credit Note in the principal amount of $250,000, dated September 11, 2012, by and between Cover All Systems, Inc., as borrower, and Imperium Commercial Finance Master Fund, LP, as lender [incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 001-09228) filed on November 14, 2012]. |
| 10(o)(3) |
|
Term Note in the principal amount of $2,000,000, dated September 11, 2012, by and between Cover All Systems, Inc., as borrower, and Imperium Commercial Finance Master Fund, LP, as lender [incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 001-09228) filed on November 14, 2012]. |
| |
|
|
| 10(o)(4) |
|
Guarantee, dated as of September 11, 2012, made by the Registrant in favor of Imperium Commercial Finance Master Fund, LP [incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 001-09228) filed on November 14, 2012]. |
| |
|
|
| 10(o)(5) |
|
Pledge Agreement, dated as of September 11, 2012, between the Registrant and Imperium Commercial Finance Master Fund, LP [incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (Commission File No. 001-09228) filed on November 14, 2012]. |
| |
|
|
| 10(o)(6) |
|
Stock Purchase Warrant, dated September 11, 2012, issued by the Registrant to Imperium Commercial Finance Master Fund, LP [incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 001-09228) filed on September 14, 2012]. |
| |
|
|
| 10(o)(7) |
|
Form of Finder’s Warrant, dated September 11, 2012 [incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (Commission File No. 001-09228) filed on September 14, 2012]. |
| |
|
|
| 10(o)(8) |
|
Amended and Restated Stock Purchase Warrant, dated as of September 11, 2012, issued by the Registrant to Imperium Commercial Finance Master Fund, LP [incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (Commission File No. 001-09228) filed on April 18, 2013]. |
| |
|
|
| 10(o)(9) |
|
Form of Amended and Restated Finder’s Warrant, dated as of September 11, 2012 [incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (Commission File No. 001-09228) filed on April 18, 2013]. |
| |
|
|
| 14 |
|
Code of Ethics and Business Conduct [incorporated by reference to Exhibit 14 to the Registrant’s Annual Report on Form 10-K (Commission File No. 0-13124) filed on March 31, 2006]. |
| |
|
|
| 21 |
|
Subsidiaries of the Registrant [incorporated by reference to Exhibit 21 to the Registrant’s Annual Report on Form 10-K (Commission File No. 0-13124) filed on April 11, 1996]. |
| |
|
|
| 23.1* |
|
Consent of MSPC. |
| |
|
|
| 31.1* |
|
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
| 31.2* |
|
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
| 32.1* |
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
| 32.2* |
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
| 101.1** |
|
The following materials from the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the related Notes to Consolidated Financial Statements. |
| * |
Filed herewith. |
| |
|
| ** |
Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101.1 hereto are not to be deemed “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, and are not to be deemed “filed” for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under those sections, except as shall be expressly set forth by specific reference in such filing. |
| |
|
| † |
Denotes a management contract or compensatory plan or arrangement. |
Exhibit 23.1
Consent of Independent Registered
Public Accounting Firm
We consent to the incorporation
by reference in the Registration Statements on Forms S-3 Nos. 333-156397 and 333-184563 and Forms S-8 Nos. 333-02567, 333-44119,
333-86616, 333-141470 and 333-146393 and in the related prospectuses of Cover-All Technologies Inc. and subsidiary of our report
dated February 19, 2015, with respect to the 2014, 2013 and 2012 consolidated financial statements of Cover-All Technologies Inc.
and subsidiary, included in its Annual Report on Form 10-K for the year ended December 31, 2014.
/s/ MSPC
Certified Public Accountants and Advisors,
A Professional Corporation
New York, New York
March 31, 2015
Exhibit 31.1
Certification of Chief Executive
Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Manish D. Shah, certify that:
| 1. |
I have reviewed this annual report on Form 10-K of Cover-All Technologies Inc.; |
| |
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| |
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| |
|
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
|
| |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
|
| |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
|
| |
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| |
|
| |
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| |
|
| 5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| |
|
| |
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| |
|
| |
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 31, 2015
| /s/ Manish D. Shah |
|
| Name: |
Manish D. Shah |
|
| Title: |
Chief Executive Officer |
|
Exhibit
31.2
Certification of Chief Financial
Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Ann F. Massey, certify that:
| 1. |
I have reviewed this annual report on Form 10-K of Cover-All Technologies Inc.; |
| |
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| |
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| |
|
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
|
| |
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
|
| |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
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(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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| 5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 31, 2015
| /s/ Ann F. Massey |
|
| Name: |
Ann F. Massey |
|
| Title: |
Chief Financial Officer |
|
Exhibit
32.1
Certification of Chief Executive
Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the
Annual Report of Cover-All Technologies Inc., a Delaware corporation (the “Company”), on Form 10-K for the period
ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I,
Manish D. Shah, Chief Executive Officer (principal executive officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: |
March 31, 2015 |
|
| |
|
|
| /s/ Manish D. Shah |
|
| Name: |
Manish D. Shah |
|
| Title: |
Chief Executive Officer |
|
Exhibit
32.2
Certification of Chief Financial
Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the
Annual Report of Cover-All Technologies Inc., a Delaware corporation (the “Company”), on Form 10-K for the period ended
December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ann F.
Massey, Chief Financial Officer (principal financial officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) the Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information
contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: |
March 31, 2015 |
|
| |
|
|
| /s/ Ann F. Massey |
|
| Name: |
Ann F. Massey |
|
| Title: |
Chief Financial Officer |
|