UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ |
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE |
|
|
SECURITIES EXCHANGE ACT OF
1934 |
|
|
|
|
|
For the quarterly
period ended March 31, 2015
|
|
|
|
|
OR |
|
|
|
| ☐ |
|
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 |
13-2698053 |
| (State or other jurisdiction of |
(IRS
Employer |
| incorporation or organization) |
Identification No.) |
| |
| 412 Mt. Kemble Avenue, Suite 110C, |
07960 |
| Morristown, New Jersey |
(Zip
code) |
| (Address of principal executive
offices) |
|
973-461-5200
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal
year, if changed since last report)
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 [ ]
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 [ ]
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
“large accelerated filer,” “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer
[ ] |
Accelerated filer
[ ] |
|
Non-accelerated filer
[ ] (Do not check if a smaller reporting
company) |
Smaller reporting
company [X] |
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes [ ] No [X]
Indicate the number of
shares outstanding of each of the issuer’s classes of common stock, as of the
latest practicable date.
| Class |
|
Outstanding at May 8, 2015 |
| Common Stock, $0.01 par value per
share |
|
27,003,241
shares |
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
|
INDEX TO FORM
10-Q FOR THE QUARTER ENDED MARCH 31, 2015
|
| PART I: |
FINANCIAL
INFORMATION |
|
| |
|
|
| Item 1. |
Financial Statements |
|
| |
|
|
|
Consolidated Balance Sheets as of March 31, 2015
(Unaudited) |
|
|
and
December 31, 2014 |
3 |
| |
|
|
|
Consolidated Statements of Operations for the three |
|
|
months ended March 31, 2015 and 2014 (Unaudited) |
5 |
| |
|
|
|
Consolidated Statements of Cash Flows for the three |
|
|
months ended March 31, 2015 and 2014 (Unaudited) |
6 |
| |
|
|
| |
Notes to Consolidated Financial Statements
(Unaudited) |
7 |
| |
|
|
| Item 2. |
Management’s Discussion and Analysis of Financial |
|
|
Condition and Results of Operations |
14 |
| |
|
|
| Item 3. |
Quantitative and Qualitative Disclosures |
|
|
About Market Risk |
22 |
| |
|
|
| Item 4. |
Controls and Procedures |
22 |
| |
|
|
| PART
II: |
OTHER INFORMATION |
|
| |
|
|
| Item 1A. |
Risk
Factors |
24 |
| |
|
|
| Item 6. |
Exhibits |
24 |
| |
|
|
| SIGNATURES |
25 |
· · · · · · · · · ·
2
PART I: FINANCIAL
INFORMATION
Item 1.
Financial
Statements.
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
March 31, |
|
December 31, |
|
|
2015 |
|
2014 |
|
|
(Unaudited) |
|
|
|
| Assets: |
|
|
|
|
|
|
| Current Assets: |
|
|
|
|
|
|
| Cash
and Cash Equivalents |
|
$ |
4,303,405 |
|
$ |
4,564,595 |
| Accounts
Receivable (Less Allowance for Doubtful Accounts |
|
|
|
|
|
|
| of
$25,000) |
|
|
2,477,745 |
|
|
2,532,853 |
| Prepaid
Expenses |
|
|
614,125 |
|
|
361,930 |
| Deferred
Tax Asset |
|
|
864,037 |
|
|
864,037 |
| |
| Total
Current Assets |
|
|
8,259,312 |
|
|
8,323,415 |
| |
| Property and Equipment – Net |
|
|
454,302 |
|
|
499,639 |
| |
| Goodwill |
|
|
1,039,114 |
|
|
1,039,114 |
| |
| Capitalized Software (Less Accumulated
Amortization of |
|
|
|
|
|
|
| $24,168,382
and $23,795,743 in 2015 and 2014, respectively) |
|
|
6,101,392 |
|
|
6,474,031 |
| |
| Deferred Tax Asset |
|
|
2,661,391 |
|
|
2,661,391 |
| |
| Deferred Financing Costs (Net Amortization of
$76,327 and $67,800 |
|
|
|
|
|
|
| in
2015 and 2014, respectively) |
|
|
15,956 |
|
|
24,483 |
| |
| Other Assets |
|
|
148,290 |
|
|
148,290 |
| |
| Total Assets |
|
$ |
18,679,757 |
|
$ |
19,170,363 |
The Accompanying Notes are
an Integral Part of These Consolidated Financial Statements.
3
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
March 31, |
|
December 31, |
|
|
2015 |
|
2014 |
|
|
(Unaudited) |
|
|
|
|
| Liabilities and
Stockholders’ Equity: |
|
|
|
|
|
|
|
|
| Current Liabilities: |
|
|
|
|
|
|
|
|
| Accounts
Payable |
|
$ |
1,415,327 |
|
|
$ |
1,413,353 |
|
| Accrued
Expenses |
|
|
453,911 |
|
|
|
1,253,298 |
|
| Deferred
Charges |
|
|
168,510 |
|
|
|
183,219 |
|
| Short-Term
Debt |
|
|
1,897,535 |
|
|
|
1,842,780 |
|
| Current Portion of
Capital Lease |
|
|
120,883 |
|
|
|
119,608 |
|
| Unearned
Revenue |
|
|
2,254,674 |
|
|
|
2,454,435 |
|
| |
| Total Current Liabilities |
|
|
6,310,841 |
|
|
|
7,266,693 |
|
| |
| Long-Term Liabilities: |
|
|
|
|
|
|
|
|
| Long-Term Portion
of Capital Lease |
|
|
202,828 |
|
|
|
233,531 |
|
| |
| Total Liabilities |
|
|
6,513,669 |
|
|
|
7,500,224 |
|
| |
| Commitments and Contingencies |
|
|
— |
|
|
|
— |
|
| |
| Stockholders’ Equity: |
|
|
|
|
|
|
|
|
| Common Stock ($0.01 Par Value, Authorized
75,000,000 Shares; |
|
|
|
|
|
|
|
|
| 27,003,241 and
26,786,693 Shares Issued and Outstanding in |
|
|
|
|
|
|
|
|
| 2015 and 2014,
respectively) |
|
|
270,032 |
|
|
|
267,867 |
|
| |
| Additional Paid-In Capital |
|
|
33,352,114 |
|
|
|
33,057,142 |
|
| |
| Accumulated Deficit |
|
|
(21,456,059 |
) |
|
|
(21,654,870 |
) |
| |
| Total Stockholders’ Equity |
|
|
12,166,088 |
|
|
|
11,670,139 |
|
| |
| Total Liabilities and Stockholders’ Equity |
|
$ |
18,679,757 |
|
|
$ |
19,170,363 |
|
The Accompanying Notes are
an Integral Part of These Consolidated Financial Statements.
4
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
|
CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
Three months ended
March 31, |
|
|
2015 |
|
2014 |
| Revenues: |
|
|
|
|
|
|
| Licenses |
|
$ |
179,587 |
|
$ |
807,599 |
| Support
Services |
|
|
2,116,966 |
|
|
2,129,663 |
| Professional
Services |
|
|
2,992,816 |
|
|
2,270,288 |
| Total
Revenues |
|
|
5,289,369 |
|
|
5,207,550 |
| Cost of Revenues: |
|
|
|
|
|
|
| Licenses (exclusive
of Amortization of Capitalized |
|
|
|
|
|
|
| Software) |
|
|
— |
|
|
— |
| Support
Services |
|
|
1,413,263 |
|
|
1,685,454 |
| Professional
Services |
|
|
1,582,221 |
|
|
1,110,657 |
| Total Cost
of Revenues |
|
|
2,995,484 |
|
|
2,796,111 |
| Direct
Margin |
|
|
2,293,885 |
|
|
2,411,439 |
| Operating Expenses: |
|
|
|
|
|
|
| Sales and
Marketing |
|
|
339,855 |
|
|
478,358 |
| General and
Administrative |
|
|
828,928 |
|
|
733,797 |
| Amortization of
Capitalized Software |
|
|
372,638 |
|
|
372,638 |
| Acquisition
Costs |
|
|
152,546 |
|
|
— |
| Research and
Development |
|
|
239,770 |
|
|
295,437 |
| Total
Operating Expenses |
|
|
1,933,737 |
|
|
1,880,230 |
| Operating
Income |
|
|
360,148 |
|
|
531,209 |
| Other (Income) Expense: |
|
|
|
|
|
|
| Interest
Expense |
|
|
98,501 |
|
|
93,672 |
| Total Other
(Income) Expense |
|
|
98,501 |
|
|
93,672 |
| Income
Before Income Taxes |
|
|
261,648 |
|
|
437,537 |
| Income Taxes Expense |
|
|
62,836 |
|
|
3,688 |
| Net
Income |
|
$ |
198,812 |
|
$ |
433,849 |
| Basic Earnings Per Common Share |
|
$ |
0.01 |
|
$ |
0.02 |
| Diluted Earnings Per
Common Share |
|
$ |
0.01 |
|
$ |
0.02 |
| Weighted Average Number of Common Shares |
|
|
|
|
|
|
| Outstanding
for Basic Earnings |
|
|
|
|
|
|
| Per Common
Share |
|
|
26,909,000 |
|
|
26,543,000 |
| Weighted Average
Number of Common Shares |
|
|
|
|
|
|
| Outstanding
for Diluted Earnings |
|
|
|
|
|
|
| Per Common
Share |
|
|
26,909,000 |
|
|
26,555,000 |
The Accompanying Notes are
an Integral Part of These Consolidated Financial Statements.
5
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
Three months ended March
31, |
|
|
2015 |
|
2014 |
| Cash Flows Provided By (Used For) Operating
Activities: |
|
|
|
|
|
|
|
|
| Net Income |
|
$ |
198,812 |
|
|
$ |
433,849 |
|
| Adjustments to Reconcile
Net Income to |
|
|
|
|
|
|
|
|
| Net
Cash Provided By Operating Activities: |
|
|
|
|
|
|
|
|
| Depreciation |
|
|
46,338 |
|
|
|
81,829 |
|
| Amortization
of Capitalized Software |
|
|
372,638 |
|
|
|
372,638 |
|
| Amortization
of Customer Lists/Relationships |
|
|
— |
|
|
|
15,167 |
|
| Amortization
of Stock Based Compensation |
|
|
93,213 |
|
|
|
107,017 |
|
| Amortization
of Deferred Financing Costs |
|
|
8,527 |
|
|
|
7,585 |
|
| Stock
Based Compensation Provided for Services |
|
|
55,333 |
|
|
|
12,083 |
|
| Changes in Assets and
Liabilities: |
|
|
|
|
|
|
|
|
| (Increase)
Decrease in: |
|
|
|
|
|
|
|
|
| Accounts
Receivable |
|
|
55,108 |
|
|
|
766,167 |
|
| Prepaid
Expenses |
|
|
(252,195 |
) |
|
|
(131,548 |
) |
| Other
Assets |
|
|
— |
|
|
|
96,522 |
|
| Increase
(Decrease) in: |
|
|
|
|
|
|
|
|
| Accounts
Payable |
|
|
1,974 |
|
|
|
(105,626 |
) |
| Accrued
Liabilities |
|
|
(596,040 |
) |
|
|
(781,179 |
) |
| Deferred
Charges |
|
|
(14,709 |
) |
|
|
(11,372 |
) |
| Unearned
Revenue |
|
|
(199,761 |
) |
|
|
(504,247 |
) |
| Net Cash Provided
By (Used For) Operating Activities |
|
|
(230,762 |
) |
|
|
358,885 |
|
| |
| Cash Flows (Used For) Investing
Activities: |
|
|
|
|
|
|
|
|
| Capitalized
Expenditures |
|
|
(1,000 |
) |
|
|
(7,895 |
) |
| Net Cash (Used
For) Investing Activities |
|
|
(1,000 |
) |
|
|
(7,895 |
) |
| |
| Cash Flows (Used For) Financing
Activities: |
|
|
|
|
|
|
|
|
| Capital Lease – Principal
Payments |
|
|
(29,428 |
) |
|
|
(28,206 |
) |
| Net Cash (Used
for) Financing Activities |
|
|
(29,428 |
) |
|
|
(28,206 |
) |
| |
| Net (Decrease)
Increase in Cash and Cash Equivalents |
|
|
(261,190 |
) |
|
|
322,784 |
|
| |
| Cash and Cash Equivalents – Beginning of
Periods |
|
|
4,564,595 |
|
|
|
1,848,571 |
|
| Cash and Cash Equivalents – End of
Periods |
|
$ |
4,303,405 |
|
|
$ |
2,171,355 |
|
| |
| Supplemental Disclosures of Cash Flow
Information |
|
|
|
|
|
|
|
|
| Cash Paid During the Periods
for: |
|
|
|
|
|
|
|
|
| Interest |
|
$ |
43,746 |
|
|
$ |
44,968 |
|
| Income Taxes |
|
$ |
102,263 |
|
|
$ |
3,688 |
|
The Accompanying Notes are
an Integral Part of These Consolidated Financial Statements.
6
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
| NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) |
[1] Description of
Business
Cover-All Technologies
Inc., through its wholly-owned subsidiary, Cover-All Systems, Inc.
(collectively, the “Company”), licenses and maintains its software products for
the property/casualty insurance industry throughout the United States and Puerto
Rico. The subsidiary 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.
[2] Basis of
Presentation
The consolidated balance
sheet as of December 31, 2014 has been derived from audited financial
statements, and the unaudited interim financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to
those rules and regulations, although the Company believes that the disclosures
made are adequate to make the information not misleading. It is suggested that
these consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company’s latest shareholders’ annual report on Form 10-K filed with the SEC on
March 31, 2015 for the fiscal year ended December 31, 2014 (“Form 10-K”).
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 by $248,000 and to increase operating income and net income
by $248,000 for the quarter ended March 31, 2014.
In the opinion of
management, all adjustments (which include normal and recurring nature
adjustments) necessary to present a fair statement of the Company’s financial
position as of March 31, 2015, and results of operations for the three months
ended March 31, 2015 and 2014 and the cash flows for the three months ended
March 31, 2015 and 2014, as applicable, have been made.
The results of operations
for the three months ended March 31, 2015 and 2014 are not necessarily
indicative of the operating results for the full fiscal year or any future
periods.
[3] 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. The Company has not capitalized any software
development costs during the three months ended March 31, 2015 and 2014,
respectively. Amortization of capitalized software development costs was
approximately $373,000 and $373,000 for the three months ended March 31, 2015
and 2014, respectively.
7
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
| NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) |
[4] Earnings Per
Share
The following is a
reconciliation of the numerators and denominators of the basic and diluted
earnings per share (“EPS”) computations:
|
|
For the three months ended |
|
|
March 31,
2015 |
|
|
Income |
|
Shares |
|
Per Share |
|
|
(Numerator) |
|
(Denominator) |
|
Amount |
| Basic EPS: |
|
|
|
|
|
|
|
|
| Income Available to Common Stockholders |
|
$ |
198,812 |
|
26,909,403 |
|
$ |
0.01 |
| Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
| Options and Restricted
Stock |
|
|
— |
|
— |
|
|
— |
| Diluted EPS: |
|
|
|
|
|
|
|
|
| Income Available to Common Stockholders |
|
|
|
|
|
|
|
|
| Plus Assumed
Exercises |
|
$ |
198,812 |
|
26,909,403 |
|
$ |
0.01 |
|
|
For the three months ended |
|
|
March 31,
2014 |
|
|
Income |
|
Shares |
|
Per Share |
|
|
(Numerator) |
|
(Denominator) |
|
Amount |
| Basic EPS: |
|
|
|
|
|
|
|
|
| Income Available to Common Stockholders |
|
$ |
433,849 |
|
26,542,644 |
|
$ |
0.02 |
| Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
| Options and Restricted
Stock |
|
|
— |
|
12,318 |
|
|
— |
| Diluted EPS: |
|
|
|
|
|
|
|
|
| Income Available to Common Stockholders |
|
|
|
|
|
|
|
|
| Plus Assumed
Exercises |
|
$ |
433,849 |
|
26,554,962 |
|
$ |
0.02 |
[5] Stock-Based
Compensation and Stock Purchase Plans
Stock Options
In the three months ended
March 31, 2015 and 2014, we recognized $93,791 and $70,396, respectively, of
stock-based compensation expense in our consolidated financial statements.
In June 2005, we 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. On March 31,
2015, an aggregate of $1,459,814 shares were available for grant under the 2005
Stock Incentive Plan.
8
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
| NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) |
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 historical data to estimate the expected life of option
awards. The expected term of options granted represents the period of time
that options granted are expected to be outstanding. |
| |
|
- |
The
risk-free interest rate for periods within the contractual life of the
option is based on the U.S. Treasury yields for an
equivalent term at the time of grant. |
|
|
- |
The Company does not anticipate issuance of dividends during the expected
term. |
|
2015 |
|
2014 |
| 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 |
0.46 |
% |
|
0.46 |
% |
As of March 31, 2015, there
was $121,499 of total unrecognized compensation cost related to nonvested
share-based compensation arrangements previously granted by the Company. That
cost is expected to be recognized over a weighted-average period of 2.9 years.
A summary of the changes in
outstanding common stock options for all outstanding plans is as follows:
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
Exercise Price |
|
Remaining |
|
Weighted-Average |
| |
|
Shares |
|
Per Share |
|
Contractual
Life |
|
Exercise Price |
| Balance, January 1, 2015 |
|
992,500 |
|
$ |
1.50
– 1.67 |
|
1.76
years |
|
$ |
1.63 |
| Exercised |
|
— |
|
|
— |
|
— |
|
|
— |
| Cancelled |
|
— |
|
|
— |
|
— |
|
|
— |
| Balance, March 31, 2015 |
|
992,500 |
|
$ |
1.50
– 1.67 |
|
1.5
years |
|
$ |
1.63 |
Of the stock options
outstanding, an aggregate of 992,500 are currently exercisable.
The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options which have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. Because our employee
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management’s opinion the existing models do
not necessarily provide a reliable single measure of the fair value of our
employee stock options.
9
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
| NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) |
Warrants
As of March 31, 2015, there
were 1,442,000 warrants outstanding. A summary of the changes in outstanding
warrants is as follows:
|
|
Outstanding |
|
|
|
|
Weighted-Average |
|
|
|
|
|
and Exercisable |
|
Exercise Price |
|
Remaining |
|
Weighted-Average |
|
|
Warrants |
|
Per
Warrant |
|
Contractual
Life |
|
Exercise
Price |
| Balance, January 1, 2015 |
|
1,442,000 |
|
$ |
1.48 |
|
0.7 |
|
$ |
1.48 |
| Balance, March 31, 2015 |
|
1,442,000 |
|
$ |
1.48 |
|
0.5 |
|
$ |
1.48 |
Time-Based Restricted
Stock Units
A summary of our time-based
restricted stock units, or RSUs, for the three months ended March 31, 2015 is as
follows:
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
Grant Date Fair Value |
|
|
Shares |
|
Per
Share |
| Balance, January 1, 2015 |
|
53,061 |
|
|
$ |
1.58 |
|
Granted |
|
133,870 |
|
|
|
1.24 |
|
Cancelled |
|
— |
|
|
|
— |
|
Vested |
|
(41,250 |
) |
|
|
1.67 |
| Balance, March 31, 2015 |
|
145,681 |
|
|
$ |
1.24 |
We follow Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
718, Accounting for Stock Options and Other Stock-Based Compensation. Among
other items, ASC 718 requires companies to record the compensation expense for
shared-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 restricted stock awards, the calculation of compensation
expense under ASC 718 is based on the intrinsic value of the grant.
[6] Income Taxes
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 the three months
ended March 31, 2015, 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 March 31, 2015, management believes 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 as a 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.
10
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
| NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) |
[7] 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 May 2014, the FASB
issued accounting standard update (“ASU”) No. 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.
In February 2015, the FASB
issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis",
which makes changes to both the
variable interest model and the voting model. These changes will require
re-evaluation of certain entities for consolidation and will require us to
revise our documentation regarding the consolidation or deconsolidation of such
entities. ASU No. 2015-02 is effective for reporting periods after December 15,
2015 and interim periods within those fiscal years. We are currently evaluating
the effect that this ASU will have on our consolidated financial statements and
related disclosures.
In April 2015, the FASB
issued ASU No. 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the
Presentation of Debt Issuance Costs,” which requires that debt issuance costs be presented in the balance sheet
as a direct deduction from the carrying amount of the related debt liability,
rather than as a deferred charge asset. ASU No. 2015-03 is effective for us
January 1, 2016 and is to be applied retrospectively. We are currently
evaluating the effect that this ASU will have on our consolidated financial
statements and related disclosures.
In April 2015, the FASB
issued ASU No. 2015-06, “Earnings
Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited
Partnership Dropdown Transactions (a consensus of the FASB Emerging Issues Task
Force),” which applies to master
limited partnerships that receive net assets through a dropdown transaction. ASU
2015-06 specifies that for purposes of calculating historical earnings per unit
under the two-class method, the earnings (losses) of a transferred business
before the date of a dropdown transaction should be allocated entirely to the
general partner. Qualitative disclosures about how the rights to the earnings
(losses) differ before and after the dropdown transaction occurs for purposes of
computing earnings per unit under the two-class method also are required. ASU
2015-06 is effective for fiscal years beginning after December 15, 2015, and
interim periods within those fiscal years and will be applied retrospectively.
Earlier application is permitted. We are currently evaluating the effect that
this ASU 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.
11
| COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY |
| NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) |
[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 Notes”). The amount available to be borrowed under the revolving
credit line may not exceed eighty percent 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 March 31, 2015, no balance was outstanding under the Revolving
Credit Line. As of March 31, 2015 the Short-Term Debt balance consists of the
following:
| Principal Balance Outstanding |
|
$ |
2,000,000 |
|
| Discount |
|
|
(102,465 |
) |
| Short-Term Debt |
|
$ |
1,897,535 |
|
Interest on the outstanding
principal balance under the Imperium Notes accrues at a fixed rate equal to
eight percent per annum and is payable monthly. The $2,000,000 principal balance
and any remaining interest under the Imperium Notes will be immediately due and
payable on the earlier of (1) September 10, 2015, or (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 (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 SEC, 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 time frame. 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 continued, the amount of
$22,500. The Stock Purchase Warrant also provided for piggyback registration
rights. The proceeds from the $2,000,000 Imperium Note were allocated using the
relative fair value method to both the notes payable balance and warrants
issued.
12
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
| NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) |
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 provided for piggyback
registration rights. On April 10, 2013, the Company amended and restated the
terms of the Imperium Warrant and each of the Finder’s Warrants to provide that
the aggregate number of shares issuable on exercise of the Imperium Warrant and
the Finder’s 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 on September 11, 2012) without first obtaining the
approval of the Company’s stockholders.
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).
[9] Commitments and
Contingencies
Sales and Use Tax
Audit
The New York State
Department of Taxation and Finance (the “Department”) commenced 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.
13
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
Item 2:
Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
Certain of the matters
discussed in this report, including, without limitation, matters discussed under
this Item 2, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” may constitute forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act) and are subject to
the occurrence of certain contingencies which may not occur in the time frames
anticipated or otherwise, and, as a result, could cause actual results to differ
materially from such statements. In addition to other factors and matters
discussed elsewhere in this report on Form 10-Q and in our other filings filed
with the Securities and Exchange Commission (“SEC”) over the last 12 months,
including our Form 10-K filed with the SEC on March 31, 2015, these risks,
uncertainties and contingency include, but are not limited to, risks associated
with increased competition, customer decisions, the successful completion of
continuing development of new products, the successful negotiation, execution
and implementation of anticipated new software contracts, the successful
addition of personnel in the marketing and technical areas and our ability to
complete development and sell and license our products at prices which result in
sufficient revenues to realize profits, and other business factors beyond our
control.
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 ongoing 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 for the three months
ended March 31, 2015 increased to approximately $5,289,000 from approximately
$5,208,000 for the three months ended March 31, 2014, mainly due to an increase
in professional services revenue offset by a decrease in license and support
revenue in 2015.
The following is an
overview of the key components of our revenue and other important financial data
for the three months ended March 31, 2015:
Software Licenses.
Our license revenue in the three months ended
March 31, 2015 was approximately $180,000 compared to approximately $808,000 for
the three months ended March 31, 2014, resulting from fewer sales to new
customers and fewer sales to existing customers who chose to renew, add onto or
extend their use of our software. 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. The timing of new software license
sales can substantially affect our quarterly results.
Support Services.
Support services revenue was approximately $2,117,000 in the three months ended March 31,
2015 compared to approximately $2,130,000 in the same period in 2014. The
decrease in the first three months of 2015 was mainly due to the decrease in
annual renewals of existing customers’ support services and fewer new customer
sales in the latter part of 2014. 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 approximately $2,993,000 in the three months ended March
31, 2015 from approximately $2,270,000 in the same period of 2014, was a result
of increased demand for new software capabilities and customizations from our
current customer base and new and existing customer implementations resulting
from contracts signed in early 2014.
Income before Provision
for Income Taxes. Income before
provision for income taxes was approximately $262,000 in the three months ended
March 31, 2015 compared to approximately $438,000 in the same period of 2014 as a result of a decrease in license and
support services revenue in 2015 offset by an increase in professional services
revenue in 2015 and various cost saving programs.
14
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
Net Income.
Net income for the three months
ended March 31, 2015 decreased
to approximately $199,000 from
approximately $434,000 in the same period of 2014 as a result of a decrease in
license and support services revenue offset by an increase in professional
services revenue and various cost saving programs.
EBITDA. Earnings before interest, taxes, depreciation
and amortization (“EBITDA”), a non-GAAP metric, was approximately $788,000 for
the three months ended March 31, 2015 compared to approximately $1,008,000 for
the three months ended March 31, 2014.
Cash Flow.
As of March 31, 2015, we had
approximately $4,303,000 in cash and cash equivalents on hand and approximately
$2,478,000 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 the
first three months of 2015, the non-cash charge for amortization of capitalized
software was approximately $373,000 compared to approximately $373,000 in the
same period in 2014, and we expect this amount to be approximately $1.5 million,
or $0.06 per share, in 2015, depending on our sales success. 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.
USE OF NON-GAAP
FINANCIAL MEASURES
In evaluating our business,
we consider and use EBITDA as a supplemental measure of our operating
performance. The Company defines EBITDA as earnings before interest, taxes,
depreciation and amortization. The Company presents EBITDA because it believes
it is frequently used by securities analysts, investors and other interested
parties as a measure of financial performance.
The term EBITDA is not
defined under U.S. GAAP and is not a measure of operating income, operating
performance or liquidity presented in accordance with U.S. GAAP. EBITDA has
limitations as an analytical tool and, when assessing the Company’s operating
performance, investors should not consider EBITDA in isolation or as a
substitute for net income (loss) or other consolidated income statement data
prepared in accordance with U.S. GAAP. Among other things, EBITDA does not
reflect the Company’s actual cash expenditures. Other companies may calculate
similar measures differently than the Company, limiting their usefulness as
comparative tools. We compensate for these limitations by relying on our U.S.
GAAP results and using EBITDA only supplementally.
15
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
The following is an
unaudited reconciliation of U.S. GAAP net income to EBITDA for the three months
ended March 31, 2015 and 2014:
|
|
Three months ended
March 31, |
|
|
2015 |
|
2014 |
| Net
Income |
|
$ |
198,812 |
|
$ |
433,849 |
| |
| Interest (Income) Expense, Net |
|
|
98,501 |
|
|
93,672 |
| |
| Income Tax Expense |
|
|
62,836 |
|
|
3,688 |
| Depreciation |
|
|
46,337 |
|
|
81,829 |
| Amortization: |
|
|
|
|
|
|
| Amortization of
Capitalized Software |
|
|
372,638 |
|
|
372,638 |
| Amortization of Customer
Lists/Relationships |
|
|
— |
|
|
15,167 |
| Amortization of Deferred
Financing Costs |
|
|
8,527 |
|
|
7,585 |
| Total
Amortization |
|
$ |
381,165 |
|
$ |
395,390 |
| |
| EBITDA |
|
$ |
787,651 |
|
$ |
1,008,428 |
| |
| EBITDA per Common Share: |
|
|
|
|
|
|
| Basic |
|
$ |
0.03 |
|
$ |
0.04 |
| Diluted |
|
$
|
0.03 |
|
$
|
0.04 |
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:
|
|
Three months ended March
31, |
|
|
2015 |
|
2014 |
| Revenues: |
|
|
|
|
|
|
| License |
|
3.4 |
% |
|
15.5 |
% |
| Support Services |
|
40.0 |
|
|
40.9 |
|
| Professional
Services |
|
56.6 |
|
|
43.6 |
|
| Total
Revenues |
|
100.0 |
|
|
100.0 |
|
| Cost of
Revenues: |
|
|
|
|
|
|
| License (exclusive
of |
|
|
|
|
|
|
|
Amortization of Capitalized |
|
|
|
|
|
|
|
Software) |
|
— |
|
|
— |
|
| Support Services |
|
26.7 |
|
|
32.4 |
|
| Professional
Services |
|
29.9 |
|
|
21.3 |
|
| Total Cost of
Revenues |
|
56.6 |
|
|
53.7 |
|
| Direct
Margin |
|
43.4 |
|
|
46.3 |
|
| Operating Expenses: |
|
|
|
|
|
|
| Sales and Marketing |
|
6.4 |
|
|
9.2 |
|
| General and
Administrative |
|
15.7 |
|
|
14.1 |
|
| Amortization of
Capitalized |
|
|
|
|
|
|
| Software |
|
7.1 |
|
|
7.1 |
|
| Acquisition Costs |
|
2.9 |
|
|
— |
|
| Research and
Development |
|
4.5 |
|
|
5.7 |
|
| Total Operating
Expenses |
|
36.6 |
|
|
36.1 |
|
| Operating (Expense) Income |
|
6.8 |
|
|
10.2 |
|
| Other Expense
(Income): |
|
|
|
|
|
|
| Interest Expense |
|
1.9 |
|
|
1.8 |
|
| Interest Income |
|
— |
|
|
— |
|
| Other Income |
|
— |
|
|
— |
|
| Total Other
Expense (Income) |
|
1.9 |
|
|
1.8 |
|
| Income Before Income Taxes |
|
4.9 |
|
|
8.4 |
|
| Income
Taxes |
|
1.1 |
|
|
0.1 |
|
| Net Income (Loss) |
|
3.8 |
% |
|
8.3 |
% |
16
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
Three Months Ended
March 31, 2015 Compared to Three Months Ended March 31,
2014
Total revenues for the
three months ended March 31, 2015 were approximately $5,289,000 as compared to
approximately $5,208,000 for the same period in 2014. License fees were
approximately $180,000 for the three months ended March 31, 2015, as compared
approximately $808,000 in the same period in 2014, as a result of fewer sales to
new and existing customers. For the three months ended March 31, 2015, support
services revenues were approximately $2,117,000, as compared to approximately
$2,130,000 in the same period of the prior year, primarily due to the annual
renewals from our existing customers and fewer new customer contracts signed in
the latter part of 2014. Professional services revenue contributed approximately
$2,993,000 in the three months ended March 31, 2015, as compared to
approximately $2,270,000 in the first quarter of 2014, as a result of an
increase in demand for new software capabilities and customizations from our
current and new customer base and implementation of certain customers who signed
contracts in 2014.
Cost of revenues decreased
to approximately $2,294,000 for the three months ended March 31, 2015, as
compared to approximately $2,796,000 for the same period in 2014, due to various
cost saving initiatives in 2015. We are expanding our delivery bandwidth through
improved productivity and new technology in order to meet our continually
increasing demand. Non-cash capitalized software amortization was approximately
$373,000 for the three months ended March 31, 2015 as compared to approximately
$373,000 for the same period in 2014. The Company capitalized $0 of software
development costs in the first three months of 2015 as compared to $0 in the
same period in 2014.
The direct margin during
the three month period ended March 31, 2015 was 43.4% compared to 46.3% in the
same period of last year. Support services margin increased in the three months
ended March 31, 2015 compared to the three months ended March 31, 2014 primarily
due to several cost saving initiatives. Professional services direct margin
increased for the three months ended March 31, 2015, compared to the three
months ended March 31, 2014, primarily due to use of offshore resources to
provide customizations to new and existing customers.
We expect our quarterly
gross margin to vary in percentage terms in future periods 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 $373,000 for the three months ended March 31, 2015 as
compared to approximately $373,000 in the same period of 2014. The Company
revised the estimated useful life of its capitalized software, effective January
1, 2014, from three years to five years.
Research and development
expenses were approximately $240,000 for the three months ended March 31, 2015
as compared to approximately $295,000 for the same period in 2014, primarily as
a result of our efforts to develop new capability to better service our
customers. We capitalize certain costs related to the build out of new product
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 $340,000 for the three months ended March 31, 2015
as compared to approximately $478,000 in the same period of 2014. This decrease
in 2015 was primarily due to various cost containment programs.
General and administrative
expenses were approximately $829,000 in the three months ended March 31, 2015 as
compared to approximately $734,000 in the same period in 2014. This increase in
2015 was mainly due to personnel-related
costs and the allocation of facility related costs to general and administrative
expenses effective January 1, 2014.
17
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
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 is 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
support services 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 “Loan Agreement”). 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 March 31, 2015, we had
cash and cash equivalents of approximately $4,303,000 compared to cash and cash
equivalents of approximately $2,171,000 at March 31, 2014. The increase in cash
and cash equivalents is primarily attributable to an increase in professional
services revenue and various cost saving programs.
Cash
Flows
Our ability to generate
cash has depended on a number of different factors, primarily our ability to
continue to secure and retain existing 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. Statement of operations items that should be considered in
assessing our liquidity include revenues, cost of revenues (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 March 31, 2015, we had
working capital of approximately $1,948,000 compared to working capital of
approximately $1,070,000 at March 31, 2014. This increase in our working capital
resulted primarily from an increase in professional services revenue and various
cost saving programs. For the three months ended March 31, 2015, net cash
provided from (used for) operating activities totaled approximately $(231,000)
compared to approximately $359,000 for the three months ended March 31, 2014. In
2015, cash flow from operating activities represented the Company’s principal source of cash and results primarily
from net income, plus non-cash expense and changes in working capital.
18
| COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY |
For the three months ended
March 31, 2015, net cash used for investing activities was approximately $1,000
as compared to approximately $8,000 for the three months ended March 31, 2014.
The Company expects capital expenditures and capital software expenditures to
continue to be funded by cash generated from operations. For the three months
ended March 31, 2015, net cash (used for) financing activities was approximately
$(29,000) compared to approximately ($28,000) for the three months ended March
31, 2014. The cash provided from financing activities in 2015 consisted of
principal payments on our furniture lease.
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
eight percent 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
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The
Imperium Loan Agreement prohibits buybacks of our common stock.
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 the Company’s 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 product, 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. |
19
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
| ● |
We compete with a number of larger companies
who have greater resources than those of ours. We compete on the basis of
insurance knowledge, products, services, price, technological advances and
system functionality and performance. |
| ● |
Our operations continue to depend upon the
continuing business of our existing customers and our ability to attract
new customers. |
| ● |
A decline in software spending in the insurance
industry could result in a decrease in our revenue. |
Material risks to cash flow
from operations include delayed or reduced cash payments accompanying sales of
new licenses or a decline in our services business. There can be no assurance
that changes in our plans or other events affecting our operations will not
result in materially accelerated or unexpected expenditures.
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”) commenced 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 the three months
ended March 31, 2015, 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 March 31, 2015 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.
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.
20
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
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 ongoing 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 Income
Taxes |
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 collectibility 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.
21
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
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 collectibility 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.
Item 3.
Quantitative and
Qualitative Disclosures About Market Risk.
We are a smaller reporting
company and this Item is not applicable to us.
Item 4.
Controls and
Procedures.
As of the end of the period
covered by this report, 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 Securities Exchange Act of 1934, as amended (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
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.
22
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
There has been no change in
our internal control over financial reporting during the quarter ended March 31,
2015 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
* * * * * * * * *
Statements in this Form
10-Q, other than statements of historical information, are forward-looking
statements that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve
known and unknown risks which may cause the Company’s actual results in future
periods to differ materially from expected results. Those risks include, among
others, risks associated with increased competition, customer decisions, the
successful completion of continuing development of new products, the successful
negotiation, execution and implementation of anticipated new software contracts,
the successful addition of personnel in the marketing and technical areas and
our ability to complete development and sell and license our products at prices
which result in sufficient revenues to realize profits, and other business
factors beyond our control. Those and other risks are described in the Company’s
filings with the SEC over the last 12 months, including our Form 10-K filed with
the SEC on March 31, 2015, copies of which are available from the SEC or may be
obtained upon request from the Company.
23
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
PART II: OTHER
INFORMATION
Item 1A.
Risk
Factors.
The risk factors included
in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2014, filed with the SEC on March 31, 2015, have not materially changed.
Item 6.
Exhibits.
| |
Exhibit |
|
|
| |
No. |
|
Description |
| |
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 Company’s Quarterly Report on Form 10-Q for the quarter ended
March 31, 2015 formatted in eXtensible Business Reporting Language (XBRL):
(i) Consolidated Balance Sheets as of March 31, 2015 (Unaudited) and
December 31, 2014; (ii) Consolidated Statements of Operations for the
three months ended March 31, 2015 and 2014 (Unaudited); (iii) Consolidated
Statements of Cash Flows for the three months ended March 31, 2015 and
2014 (Unaudited); and (iv) Notes to Consolidated Financial Statements
(Unaudited). |
____________________
* 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.
24
| COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
|
|
COVER-ALL TECHNOLOGIES
INC. |
|
|
|
|
| Date: |
May
14, 2015 |
By: |
/s/ Manish D.
Shah |
|
|
|
|
Manish D. Shah, President and Chief Executive |
|
|
|
Officer |
| |
| |
| |
| Date: |
May
14, 2015 |
By:
|
/s/ Ann F. Massey |
|
|
|
|
Ann F. Massey, Chief Financial
Officer |
25
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 quarterly report on Form 10-Q of Cover-All Technologies Inc.
for the period ended March 31, 2015; |
| |
| 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(s) 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(s) 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: |
May
14, 2015 |
| |
| /s/
Manish D. Shah |
| Name: |
Manish D. Shah |
| Title: |
President and 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 quarterly report on Form 10-Q of Cover-All Technologies Inc.
for the period ending March 31, 2015; |
| |
| 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(s) 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(s) 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: |
May
14, 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
Quarterly Report of Cover-All Technologies Inc., a Delaware corporation (the
“Company”), on Form 10-Q for the quarterly period ended March 31, 2015 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: |
May
14, 2015 |
| |
| /s/
Manish D. Shah |
| Name: |
Manish D. Shah |
| Title: |
President and 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
Quarterly Report of Cover-All Technologies Inc., a Delaware corporation (the
“Company”), on Form 10-Q for the quarterly period ended March 31, 2015 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: |
May
14, 2015 |
| |
| /s/
Ann F. Massey |
| Name: |
Ann
F. Massey |
| Title: |
Chief Financial Officer |