UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM
8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR
15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported): |
|
February 19, 2015 (February
19, 2015) |
COVER-ALL TECHNOLOGIES
INC. |
(Exact name of Registrant as Specified in its
Charter) |
|
Delaware |
|
1-09228 |
|
13-2698053 |
(State or Other Jurisdiction |
|
(Commission |
|
(IRS Employer |
of Incorporation) |
|
File Number) |
|
Identification No.) |
|
412 Mt. Kemble Avenue, Suite 110C,
Morristown, New Jersey 07960 |
(Address of Principal Executive
Offices) |
Registrant's
telephone number, including area code |
|
(973)
461-5200 |
N/A |
(Former Name or Former Address, if Changed Since Last
Report) |
Check the appropriate box
below if the Form 8-K filing is intended to simultaneously satisfy the filing
obligation of the registrant under any of the following provisions:
[X] |
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425) |
|
|
|
[ ] |
|
Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
|
|
|
[ ] |
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b)) |
|
|
|
[ ] |
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c)) |
Item 2.02. Results of
Operations and Financial Condition.
On February 19, 2015,
Cover-All Technologies Inc. (the Company) issued a press release announcing
its financial results for the quarter and year ended December 31, 2014. A copy
of the press release is attached hereto as Exhibit 99.1, which is incorporated
herein by reference.
The information furnished
in this section of this Current Report on Form 8-K and Exhibit 99.1 attached
hereto shall not be deemed filed for the purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise
subject to the liabilities of that section, nor shall it be deemed incorporated
by reference in any filing under the Securities Act of 1933, as amended, or the
Exchange Act, except as shall be expressly set forth by specific reference in
such filing.
Item 7.01. Regulation FD Disclosure.
The Company met with investors on February 19, 2015 and a copy of the presentation used at the meeting is attached hereto as Exhibit 99.4.
The information furnished in this section of this Current Report on Form 8-K and Exhibit 99.4 attached hereto shall not be deemed filed for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
Item 8.01. Other Events.
The Company is attaching
hereto its audited financial statements for the year ended December 31, 2014 as
Exhibit 99.2.
In addition, the Company is
attaching hereto a copy of its Management Discussion and Analysis of Financial
Condition and Results of Operations for the year ended December 31, 2014 (the
MD&A) as Exhibit 99.3. The financial statements and MD&A are included
in a registration statement on Form S-4, in connection with an Agreement and
Plan of Merger between the Company and Majesco dated December 14, 2014, that
will be filed by Majesco.
Item 9.01. Financial
Statements and Exhibits.
|
(d) |
|
Exhibits. |
|
|
|
|
|
99.1 |
|
Press Release, dated
February 19, 2015. |
|
|
|
|
|
99.2 |
|
Audited
Financial Statements (including footnotes) for the Year Ended December 31,
2014. |
|
|
|
|
|
99.3 |
|
Management
Discussion and Analysis of Financial Condition and Results of Operations
for the Year Ended December 31, 2014. |
|
|
|
|
|
99.4 |
|
Investor Presentation, dated February 19, 2015. |
[signature on following
page]
Signatures
Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, the Registrant
has duly caused this Current Report on Form 8-K to be signed on its behalf by
the undersigned hereunto duly authorized.
|
|
COVER-ALL
TECHNOLOGIES INC. |
|
|
|
|
Date: February 19, 2015 |
|
By: |
/s/ Ann F. Massey |
|
|
|
Ann F. Massey, Chief Financial
Officer |
Index to Exhibits
Exhibit
No. |
|
Description |
|
Exhibit 99.1 |
|
Press Release, dated February 19,
2015. |
|
|
|
Exhibit 99.2 |
|
Audited Financial Statements (including
footnotes) for the Year Ended December 31, 2014. |
|
|
|
Exhibit 99.3 |
|
Management Discussion and Analysis of Financial
Condition and Results of Operations for the Year Ended December 31,
2014. |
|
|
|
Exhibit 99.4 |
|
Investor Presentation, dated February 19, 2015. |
Exhibit 99.1
Cover-All
Technologies Inc.
412 Mt. Kemble Avenue, Suite 110C Morristown, NJ 07960
Tel:
973.461.5200 |
FOR IMMEDIATE
RELEASE
|
Cover-All Announces Fourth
Quarter and Year End 2014 Results
● |
Record
Professional Services Revenue |
● |
Annual
profitability improves significantly |
● |
Conference call
and webcast will include merger update and presentation with the
management of Cover-All and Majesco
|
MORRISTOWN, NEW
JERSEY (February 19, 2015)
Cover-All Technologies Inc. (NYSE MKT: COVR) today announced financial results
for the quarter and year ended December 31, 2014.
While total revenues were
flat compared to last years record revenues, profitability improved
significantly to $0.4 million for 2014 from a net loss of $2.9 million last
year, said Manish Shah, CEO and President of Cover-All. Profitability would
have been even higher had it not been for $0.4 million of expenses we incurred
during the 2014 fourth quarter as a result of the proposed merger with Majesco
we announced on December 14, 2014. Improvements to profitability and prudent
cash management meaningfully improved our liquidity and balance sheet, and at
December 31, 2014 the Companys cash position increased nearly 150% to $4.6
million.
We reported record
professional services revenue in 2014 driven by implementations of last years
licensing sales. Throughout 2014, we successfully completed several
implementation phases and helped five customers go live with their Cover-All
products. Successful and rapid implementations are critically important as we
work on achieving the next cycle of licensing sales. Strong demand for
professional services continues to increase as a result of ongoing
implementation projects, as well as the next rounds of recently completed
implementations at existing customers. We expect demand for professional
services to remain strong throughout 2015. Cover-Alls ability to implement our
software quickly and cost effectively increases our value proposition to
potential customers and enhances our credibility within the industry.
The other significant
milestone of 2014 was the December 14 merger announcement with Majesco. This is
a transformative opportunity for Cover-Alls shareholders, employees and
customers. The merger should improve our competitiveness as there are a limited amount
of vendors in the marketplace today that will compare to the combined companys
proven and comprehensive solutions. We are excited about this opportunity, which
accelerates the creation of shareholder value through what we expect to be faster and more consistent
growth. Majesco is expected to file a registration statement on Form S-4 on February
19, 2015 and we look forward to providing more details on the proposed merger in our
conference call and webcast today.
FINANCIAL HIGHLIGHTS FOR THE
YEAR ENDED DECEMBER 31, 2014
Revenue
● |
Total revenues for the year ended December
31, 2014 were $20.5 million, compared to $20.5 million in
2013. |
|
|
● |
License revenue was $1.1 million in 2014,
down 81% compared to $5.9 million in 2013. |
|
|
● |
Support Services revenue (which
represents contracted continuing revenue) was $8.4 million in 2014,
compared to $8.1 million in 2013, an increase of 3%. |
|
|
● |
Professional Services revenue was $11.0
million in 2014, up 71% compared to $6.4 million in 2013. |
GAAP Profitability
● |
Operating income for the year ended December
31, 2014 was $0.8 million compared to a loss of $2.4 million in 2013.
|
|
|
● |
Net income for the year ended December 31,
2014 was $0.4 million, or $0.01 per basic and diluted share, compared to a
net loss of $(2.9) million, or $(0.11) per basic and diluted share, in the
same period of 2013. |
Non-GAAP* Profitability
● |
Earnings before interest, taxes,
depreciation and amortization (EBITDA), a non-GAAP metric, for the year
ended December 31, 2014 was $2.6 million, or $0.10 per basic and diluted
share, compared to $2.6 million, or $0.10 per basic and diluted share, in
the same period of 2013. Excluding merger costs in 2014 and restructuring
costs in 2013, EBITDA for 2014 would have been $3.0 million or $0.11 per
basic and diluted share, compared to $2.9 million, or $0.11 per diluted
share in 2013. |
|
|
● |
Net income, excluding non-recurring
acquisition and restructuring related costs, a non-GAAP metric, for the
year ended December 31, 2014 was $0.8 million, or $0.03 per basic and
diluted share, compared to a net loss of $(2.6) million, or $(0.10) per
basic and diluted share, in the same period of
2013. |
Balance Sheet
● |
As of December 31, 2014, the Company had
$4.6 million in cash and cash equivalents and $2.5 million in accounts
receivable.
|
FINANCIAL HIGHLIGHTS FOR THE
FOURTH QUARTER ENDED DECEMBER 31, 2014
Revenue
● |
Total revenues for the three months ended
December 31, 2014 were $5.3 million, compared to $4.5 million for the same
period in 2013, an increase of 16%. |
|
|
● |
License revenue for the fourth quarter of
2014 was $34,000 compared to $599,000 for the same period in
2013. |
|
|
● |
Support Services revenue (which represents
contracted continuing revenue) was $2.0 million for the fourth quarter of
2014, down 5% compared to $2.1 million for the same quarter last year.
|
|
|
● |
Professional Services revenue for the fourth
quarter of 2014 was $3.2 million, compared to $1.8 million for the same
quarter in 2013, an increase of 78%. |
GAAP Profitability
● |
Operating loss for the three months ended
December 31, 2014 was $(0.5) million, compared to an operating loss of
$(1.3) million in the comparable period in 2013. |
|
|
● |
Net loss for the three months ended December
31, 2014 was $(0.6) million, or $(0.02) per basic and diluted share,
compared to a net loss of $(1.5) million, or $(0.06) per basic and diluted
share, in the same quarter of 2013. |
Page 2 of 7
Non-GAAP* Profitability
● |
EBITDA, a non-GAAP metric, was a loss of
$(32,000), or $0.00 per basic and diluted share, for the fourth quarter of
2014, compared to a loss of $(65,720), or $0.00 per basic and diluted
share, for the fourth quarter of 2013. |
|
|
● |
Net loss excluding non-recurring acquisition
and restructuring related costs, a non-GAAP metric, for the three months
ended December 31, 2014 was $(0.2) million, or $(0.01) per basic and
diluted share, compared to a net loss of $(1.5) million, or $(0.06) per
basic and diluted share, for the same period in 2013.
|
WEBCAST, CONFERENCE CALL AND
PRESENTATION INFORMATION
Management of Cover-All and
Majesco will conduct a live teleconference to discuss Cover-Alls 2014 financial
results and provide investors an update on the proposed merger at 4:30 p.m. EST
on Thursday, February 19, 2015. Anyone interested in participating should call
888-397-5352 if calling from the U.S., or 719-457-2645 if dialing
internationally. A replay will be available until March 5, 2015, which can be
accessed by dialing 877-870-5176 within the U.S. and 858-384-5517 if dialing
internationally. Please use passcode 9018125 to access the replay.
In addition, the call will
be webcast and will be available on the Companys website at www.cover-all.com or by visiting http://public.viavid.com/index.php?id=113019. During the webcast, management will be using a
presentation which is accessible using the webcast link above. The presentation
will also be available on Cover-Alls website.
FORWARD-LOOKING STATEMENTS
Statements in this press
release, 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 Companys 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
negotiations, execution and implementation of anticipated new software
contracts, the successful implementation of our acquisition strategies and our
ability to complete or integrate acquisitions, the successful addition of
personnel in the marketing and technical areas, 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 the
Companys control. Those and other risks are described in the Companys filings
with the Securities and Exchange Commission (SEC) over the last 12 months,
including but not limited to the Companys Annual Report on Form 10-K for the
year ended December 31, 2013, filed with the SEC on March 28, 2014, copies of
which are available from the SEC or may be obtained upon request from the
Company.
*ABOUT NON-GAAP FINANCIAL
MEASURES
In evaluating its business,
Cover-All considers and uses EBITDA as a supplemental measure of its 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. generally accepted accounting principles (GAAP) and is not
a measure of operating income, operating performance or liquidity presented in
accordance with GAAP. EBITDA has limitations as an analytical tool, and when
assessing the Companys 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 GAAP. Among other
things, EBITDA does not reflect the Companys actual cash expenditures. Other
companies may calculate similar measures differently than Cover-All, limiting
their usefulness as comparative tools. Cover-All compensates for these
limitations by relying on its GAAP results and using EBITDA only
supplementally.
Page 3 of 7
ABOUT COVER-ALL TECHNOLOGIES
INC.
Cover-All provides property
and casualty insurance professionals a robust state-of-the-art, browser-based
family of Policy, Business Intelligence, and Claims solutions designed to
deliver products to market faster, enhance quality, ensure compliance, and
reduce costs. With offices in Morristown, NJ and Honolulu, HI, Cover-All
continues its tradition of developing technology solutions designed to
revolutionize the way property and casualty insurance business is
conducted.
Additional information
is available online at www.cover-all.com.
Corporate Contact |
|
Investor & Media Contact |
|
Ann
Massey |
|
SM
Berger & Co |
|
Chief Financial Officer |
|
Andrew Berger |
|
(973) 461-5190 |
|
(216) 464-6400 |
|
amassey@cover-all.com |
|
andrew@smberger.com |
|
Page 4 of 7
Cover-All Technologies
Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF
OPERATIONS
(UNAUDITED)
|
Three months ended |
|
Year ended |
|
December
31, |
|
December
31, |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
$ |
33,517 |
|
|
$ |
598,903 |
|
|
$ |
1,101,231 |
|
$ |
5,947,225 |
|
Support
Services |
|
2,033,963 |
|
|
|
2,140,902 |
|
|
|
8,427,649 |
|
|
8,147,108 |
|
Professional
Services |
|
3,198,415 |
|
|
|
1,794,486 |
|
|
|
10,949,550 |
|
|
6,388,403 |
|
Total
Revenues |
|
5,265,895 |
|
|
|
4,534,291 |
|
|
|
20,478,430 |
|
|
20,482,736 |
|
Cost of Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
|
|
|
80,363 |
|
|
|
|
|
|
147,670 |
|
Support
Services |
|
1,420,814 |
|
|
|
1,209,675 |
|
|
|
6,049,385 |
|
|
7,089,456 |
|
Professional
Services |
|
1,396,319 |
|
|
|
1,173,160 |
|
|
|
5,015,313 |
|
|
3,499,100 |
|
Total Cost of
Revenues |
|
2,817,133 |
|
|
|
2,463,198 |
|
|
|
11,064,698 |
|
|
10,736,226 |
|
Direct
Margin |
|
2,448,762 |
|
|
|
2,071,093 |
|
|
|
9,413,732 |
|
|
9,746,510 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and
Marketing |
|
442,911 |
|
|
|
480,759 |
|
|
|
2,002,036 |
|
|
2,255,059 |
|
General and
Administrative |
|
1,376,891 |
|
|
|
1,060,218 |
|
|
|
3,603,553 |
|
|
2,618,543 |
|
Amortization of Capital
Software |
|
372,638 |
|
|
|
1,186,659 |
|
|
|
1,490,552 |
|
|
4,646,443 |
|
Acquisition
Costs |
|
406,298 |
|
|
|
|
|
|
|
406,298 |
|
|
|
|
Restructuring
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
319,014 |
|
Research and
Development |
|
327,844 |
|
|
|
681,587 |
|
|
|
1,130,070 |
|
|
2,315,198 |
|
Total Operating
Expenses |
|
2,926,582 |
|
|
|
3,409,223 |
|
|
|
8,632,509 |
|
|
12,154,257 |
|
Operating (Loss)
Income |
|
(477,820 |
) |
|
|
(1,338,130 |
) |
|
|
781,223 |
|
|
(2,407,747 |
) |
Other (Income)
Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense |
|
76,407 |
|
|
|
188,251 |
|
|
|
362,256 |
|
|
464,071 |
|
Interest
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income |
|
|
|
|
|
|
|
|
|
|
|
|
(3,821 |
) |
Total Other
(Income) Expense |
|
76,407 |
|
|
|
188,251 |
|
|
|
362,256 |
|
|
460,250 |
|
(Loss) Income
Before Income Taxes |
|
(554,227 |
) |
|
|
(1,526,381 |
) |
|
|
418,967 |
|
|
(2,867,997 |
) |
Income
Taxes |
|
6,001 |
|
|
|
11,914 |
|
|
|
52,479 |
|
|
30,380 |
|
Net (Loss) Income |
$ |
(560,228 |
) |
|
$ |
(1,538,295 |
) |
|
$ |
366,488 |
|
$ |
(2,898,377 |
) |
Basic Earnings (Loss)
Per Common Share |
$ |
(0.02 |
) |
|
$ |
(0.06 |
) |
|
$ |
0.01 |
|
$ |
(0.11 |
) |
Diluted Earnings (Loss) Per Common Share |
$ |
(0.02 |
) |
|
$ |
(0.06 |
) |
|
$ |
0.01 |
|
$ |
(0.11 |
) |
Weighted Average
Number of Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding for Basic Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Per
Common Share |
|
26,628,000 |
|
|
|
26,348,000 |
|
|
|
26,628,000 |
|
|
26,173,000 |
|
Weighted Average
Number of Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
Outstanding for Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss)
Per Common Share |
|
26,628,000 |
|
|
|
26,348,000 |
|
|
|
26,628,000 |
|
|
26,173,000 |
|
Page 5 of 7
Cover-All Technologies
Inc. and Subsidiaries
CONSOLIDATED BALANCE
SHEET
(UNAUDITED)
|
December 31, |
|
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) |
|
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 |
|
Capitalized Software (Less Accumulated Amortization of
$23,795,743 |
|
|
|
|
|
|
|
and $22,305,191,
Respectively) |
|
6,474,031 |
|
|
|
7,964,583 |
|
Customer Lists/Relationships (Less Accumulated Amortization
of |
|
|
|
|
|
|
|
$402,000 and $341,333,
Respectively) |
|
|
|
|
|
60,667 |
|
Deferred Tax Asset |
|
2,661,391 |
|
|
|
2,674,928 |
|
Deferred Financing Costs (Net of Amortization of $67,000
and |
|
|
|
|
|
|
|
$36,082,
Respectively) |
|
24,483 |
|
|
|
56,201 |
|
Other Assets |
|
148,290 |
|
|
|
424,522 |
|
Total Assets |
$ |
19,170,363 |
|
|
$ |
18,724,070 |
|
|
Liabilities and Stockholders Equity: |
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts
Payable |
$ |
1,413,353 |
|
|
$ |
1,059,238 |
|
Accrued Expenses
Payable |
|
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 |
|
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 |
|
Page 6 of 7
Cover-All Technologies
Inc. and Subsidiaries
RECONCILIATION OF U.S.
GAAP NET (LOSS) INCOME TO EBITDA
(UNAUDITED)
|
Three months ended |
|
Year ended |
|
December
31, |
|
December
31, |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Net
(Loss) Income |
$ |
(560,228 |
) |
|
$ |
(1,538,295 |
) |
|
$ |
366,488 |
|
$ |
(2,898,377 |
) |
|
Interest Expense, Net |
|
76,406 |
|
|
|
188,252 |
|
|
|
362,256 |
|
|
464,072 |
|
Income Tax Expense |
|
6,001 |
|
|
|
11,913 |
|
|
|
52,479 |
|
|
30,379 |
|
Depreciation |
|
49,317 |
|
|
|
63,218 |
|
|
|
229,540 |
|
|
251,853 |
|
Amortization |
|
396,086 |
|
|
|
1,209,192 |
|
|
|
1,582,938 |
|
|
4,755,896 |
|
|
EBITDA |
$ |
(32,418 |
) |
|
$ |
(65,720 |
) |
|
$ |
2,593,701 |
|
$ |
2,603,823 |
|
|
EBITDA per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
0.10 |
|
$ |
0.10 |
|
Diluted |
$ |
(0.00 |
|
|
$ |
(0.00 |
) |
|
$ |
0.10 |
|
$ |
0.10 |
|
RECONCILIATION OF
SELECTED U.S. GAAP MEASURES TO NON U.S. GAAP MEASURES
(UNAUDITED)
|
Three months ended |
|
Year ended |
|
December
31, |
|
December
31, |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
Net
Income (Loss) (U.S. GAAP) |
$ |
(560,228 |
) |
|
$ |
(1,538,295 |
) |
|
$ |
366,488 |
|
$ |
(2,898,377 |
) |
Acquisition Costs |
|
406,298 |
|
|
|
|
|
|
|
406,298 |
|
|
|
|
Restructuring Costs |
|
|
|
|
|
|
|
|
|
|
|
|
319,014 |
|
|
Net
Income (Loss) (Excluding Acquisition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Restructuring Costs) (Non U.S. GAAP) |
$ |
(153,930 |
) |
|
$ |
(1,538,295 |
) |
|
$ |
772,786 |
|
$ |
(2,579,363 |
) |
|
Earnings (Loss) per Common Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Excluding Acquisition and Restructuring |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.01 |
) |
|
$ |
(0.06 |
) |
|
$ |
0.03 |
|
$ |
(0.10 |
) |
Diluted |
$ |
(0.01 |
) |
|
$ |
(0.06 |
) |
|
$ |
0.03 |
|
$ |
(0.10 |
) |
|
Three months ended |
|
Year ended |
|
December
31, |
|
December
31, |
|
2014 |
|
2013 |
|
2014 |
|
2013 |
EBITDA |
$ |
(32,418 |
) |
|
$ |
(65,720 |
) |
|
$ |
2,593,701 |
|
$ |
2,603,823 |
Acquisition Costs |
|
406,298 |
|
|
|
|
|
|
|
406,298 |
|
|
|
Restructuring Costs |
|
|
|
|
|
|
|
|
|
|
|
|
319,014 |
|
EBITDA (Excluding Acquisition and |
$ |
373,880 |
|
|
$ |
(65,720 |
) |
|
$ |
2,999,999 |
|
$ |
2,922,837 |
Restructuring Costs) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA per Common Share (Excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and Restructuring Costs): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
0.01 |
|
|
$ |
(0.00 |
) |
|
$ |
0.11 |
|
$ |
0.11 |
Diluted |
$ |
0.01 |
|
|
$ |
(0.00 |
) |
|
$ |
0.11 |
|
$ |
0.11 |
Page 7 of 7
Exhibit 99.2
COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
Index to Consolidated Financial
Statements |
|
Page |
Report of
Independent Registered Public Accounting Firm |
F-1 |
Consolidated
Balance Sheets - December 31, 2014 and 2013 |
F-2 |
Consolidated
Statements of Operations - Years Ended December 31, 2014, |
|
2013 and
2012 |
F-4 |
Consolidated
Statements of Changes in Stockholders' Equity - |
|
Years Ended
December 31, 2014, 2013 and 2012 |
F-6 |
Consolidated
Statements of Cash Flows - Years Ended December 31, |
|
2014, 2013 and
2012 |
F-7 |
Notes to
Consolidated Financial Statements |
F-9 |
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.
MSPC |
Certified Public
Accountants and Advisors, |
A Professional
Corporation |
New York, New
York |
February 19,
2015 |
F-1
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.
F-2
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.
F-3
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
Capital 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.
F-4
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.
F-5
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 |
|
$ |
261,867 |
|
$ |
33,057,142 |
|
|
$ |
(21,654,870 |
) |
|
$ |
-- |
|
$ |
11,670,139 |
|
See Accompanying Notes to
Consolidated Financial Statements.
F-6
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 |
|
See Accompanying Notes to
Consolidated Financial Statements.
F-7
COVER-ALL TECHNOLOGIES INC. AND
SUBSIDIARY |
Consolidated Statements of Cash
Flows |
|
|
Years ended |
|
|
December 31, |
|
|
2014 |
|
2013 |
|
2012 |
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.
F-8
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.
F-9
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.
F-10
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, "IntangiblesGoodwill 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.
F-11
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 Companys 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 Companys 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.
F-12
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY |
Notes to Consolidated
Financial Statements |
(1) Summary of
Significant Accounting Policies (Continued)
Earnings (Loss) Per
Share (Continued) - 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.
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.
F-13
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY |
Notes to Consolidated
Financial Statements |
(2) Recently Issued
Accounting Standards (Continued)
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.
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Gross |
|
|
|
|
|
Net |
|
Useful |
|
Gross |
|
|
|
|
|
Net |
|
Useful |
|
|
Carrying |
|
Accumulated |
|
Carrying |
|
Life |
|
Carrying |
|
Accumulated |
|
Carrying |
|
Life |
|
|
Amount |
|
Amortization |
|
Amount |
|
(In years) |
|
Amount |
|
Amortization |
|
Amount |
|
(In years) |
Customer List |
|
$ |
402,000 |
|
$ |
(402,000 |
) |
|
$ |
-- |
|
3.00 |
|
$ |
402,000 |
|
$ |
(341,333 |
) |
|
$ |
60,667 |
|
3.00 |
F-14
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 |
F-15
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY |
Notes to Consolidated
Financial Statements |
(6) Commitments,
Contingencies and Related Party Transactions (Continued)
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.
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 |
) |
F-16
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 Asset |
|
$ |
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.
F-17
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.
F-18
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.
F-19
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.
F-20
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 6.2 years.
A summary of the changes in
outstanding common stock options for all outstanding plans is as follows:
|
|
|
|
|
Exercise |
|
Weighted-Average |
|
|
|
|
|
|
|
|
Price |
|
Remaining |
|
Weighted-Average |
|
|
Shares |
|
Per Share |
|
Contractual Life |
|
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 |
|
|
$ |
1.50-1.63 |
|
1.76
Years |
|
$ |
1.63 |
F-21
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:
|
|
Number of |
|
Weighted-Average |
December 31, |
|
Exercisable Options |
|
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:
|
|
|
|
|
|
|
|
|
Exercisable |
|
|
Outstanding Stock Options |
|
Stock Options |
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
Range of |
|
|
|
Remaining |
|
Weighted-Average |
|
|
|
Weighted-Average |
Exercise Prices |
|
Shares |
|
Contractual Life |
|
Exercise Price |
|
Shares |
|
Exercise Price |
$1.50-$1.67 |
|
992,500 |
|
1.8 Years |
|
$ |
1.63 |
|
237,500 |
|
$ |
1.55 |
F-22
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 |
|
Exercise |
|
Weighted-Average |
|
|
|
|
|
and Exercisable |
|
Price |
|
Remaining |
|
Weighted-Average |
|
|
Warrants |
|
Per Warrant |
|
Contractual Life |
|
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.
F-23
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:
|
|
|
|
Weighted-Average Grant Date |
|
Shares |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (Loss)
Earnings Per Common Share |
|
$ |
.01 |
|
$ |
(.11 |
) |
|
$ |
(.19 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (Loss) Earnings Per Common Share |
|
$ |
.01 |
|
$ |
(.11 |
) |
|
$ |
(.19 |
) |
F-24
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY |
Notes to Consolidated Financial
Statements |
(11) Basic Earnings Per
Share Disclosures (Continued)
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.
F-25
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.
· · · · · · · · · ·
F-26
Exhibit 99.3
MANAGEMENT DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 2014
This discussion of
Cover-Alls financial condition and results of operations should be read together with the consolidated financial
statements and notes attached as an exhibit to this Form 8-K to which this MD&A is also an exhibit. Certain statements in this exhibit, 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 Companys 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 negotiations, execution
and implementation of anticipated new software contracts, the successful implementation of our acquisition strategies and
our ability to complete or integrate acquisitions, the successful addition of personnel in the marketing and technical
areas, 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 the Companys control. Those and other risks are described in
the Companys filings with the Securities and Exchange Commission (SEC) over the last 12 months, including
but not limited to the Companys Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC
on March 28, 2014, copies of which are available from the SEC or may be obtained upon request from
the Company.
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 $366,000 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 metric, 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 2014 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 Companys
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,
Managements 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 managements 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 products life or significantly
improve the original products 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
Managements 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 |
|
|
|
23.4 |
|
|
26.8 |
|
Support
Services |
29.5 |
|
|
34.6 |
|
|
41.2 |
|
Professional Services |
24.5 |
|
|
17.1 |
|
|
28.8 |
|
Total Cost of Revenues |
54.0 |
|
|
75.1 |
|
|
96.8 |
|
Direct Margin |
46.0 |
|
|
24.9 |
|
|
3.2 |
|
|
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 |
|
|
|
|
|
|
|
Acquisition Costs |
2.0 |
|
|
|
|
|
0.8 |
|
Restructuring Cost |
|
|
|
1.6 |
|
|
|
|
Research
and Development |
5.5 |
|
|
11.3 |
|
|
5.6 |
|
Total Operating Expenses |
42.2 |
|
|
36.7 |
|
|
34.7 |
|
|
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 Imperiums
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 Companys 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 Hoike 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 the Companys 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.
●We compete with a number of larger companies who
have greater resources than those of ours; and
●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 2023. 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 Companys 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 companys 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.
CONTRACTUAL
OBLIGATIONS
The following table
summarizes our significant contractual obligations at December 31, 2014:
Payments due by
period
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More |
|
|
|
|
|
Less |
|
|
|
|
|
|
|
than |
Contractual |
|
|
|
|
than |
|
1-3 |
|
3-5 |
|
5 |
Obligations |
|
Total |
|
1
Year |
|
Years |
|
Years |
|
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
In February 2013, the FASB
issued ASU 2013-02, which supersedes and replaces the presentation requirements
for reclassifications out of accumulated other comprehensive income in ASUs
2011-05 and 2011-12. The amendment requires that an entity must report the
effect of significant reclassifications out of accumulated other comprehensive
income on the respective line items in net income if the amount being
reclassified is required under U.S. GAAP. For other amounts that are not
required under U.S. GAAP to be reclassified in their entirety to net income in
the same reporting period, an entity is required to cross-reference other
disclosures required under U.S. GAAP that provide additional detail about those
amounts. ASU 2013-02 was effective for fiscal years, and interim periods within
those years, beginning on or after December 15, 2012. We adopted the amended
standards beginning January 1, 2013. As there was no other comprehensive income
during the years ended December 31, 2013, 2012 or 2011, or any amounts
reclassified out of accumulated other comprehensive income, there was no impact
on our financial position, results of operations, or cash flows.
In March 2013, the FASB
issued ASU 2013-04, which provides guidance on the recognition, measurement, and
disclosure of obligations resulting from joint and several liability
arrangements for which the total amount of the obligation is fixed at the
reporting date. The update requires an entity to measure obligations resulting
from joint and several liability obligations for which the total amount of the
obligation within the scope of the update is fixed at the reporting date, as the
sum of the amount the reporting entity agreed to pay on the basis of its
arrangements among its co-obligors and any additional amount the reporting
entity expects to pay on behalf of its co-obligors. The update also requires an
entity to disclose the nature and amount of the obligation as well as other
information about those obligations. The amendments in ASU 2013-04 are effective
for fiscal years and interim periods within those years, beginning on or after
December 15, 2013 and must be applied retrospectively. We do not expect the
adoption of ASU 2013-04 in the first quarter of 2014 to have an impact on our
financial position, results of operations, or cash flows.
In July 2013, the FASB
issued authoritative guidance that requires an entity to present an unrecognized
tax benefit (UTB), or a portion of a UTB, in the financial statements as a
reduction to a deferred tax asset for a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward, except as follows. To the extent
that a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward is not available at the reporting date under the tax law of the
applicable jurisdiction to settle any additional income taxes that would result
from the disallowance of a tax position or the tax law of the applicable
jurisdiction does not require the entity to use, and the entity does not intend
to use, the deferred tax asset for such purpose, the UTB should be presented in
the financial statements as a liability and should not be combined with deferred
tax assets. The guidance is effective prospectively for fiscal years and interim
reporting periods within those years, beginning after December 15, 2013. The
Company does not expect this guidance to have a material impact on its condensed
consolidated financial statements.
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 Companys financial reporting, if and when
enacted.