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EX-10.(D)(2) - EX-10.(D)(2) - COVER ALL TECHNOLOGIES INC | d27930_ex10d2.htm |
EX-32.2 - EX-32.2 - COVER ALL TECHNOLOGIES INC | d27930_ex32-2.htm |
EX-31.2 - EX-31.2 - COVER ALL TECHNOLOGIES INC | d27930_ex31-2.htm |
EX-23.1 - EX-23.1 - COVER ALL TECHNOLOGIES INC | d27930_ex23-1.htm |
EX-31.1 - EX-31.1 - COVER ALL TECHNOLOGIES INC | d27930_ex31-1.htm |
EX-32.1 - EX-32.1 - COVER ALL TECHNOLOGIES INC | d27930_ex32-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2010.
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______.
Commission file number 0-13124
COVER-ALL TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 13-2698053 (I.R.S. Employer Identification No.) |
|
|
55 Lane Road, Fairfield, New Jersey (Address of principal executive office) | 07004 (Zip Code) |
(973) 461-5200
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of larger accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o
Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2010, the last business day of the registrants most recently completed second fiscal quarter, was approximately $22,792,000.
As of March 10, 2011, there were 25,074,801 shares outstanding of our common stock.
Documents Incorporated by Reference:
Portions of the Registrants Proxy Statement for the 2011 Annual Meeting of Stockholders (Proxy Statement), to be filed with the Securities and Exchange Commission (the SEC) not later than 120 days after the close of the Registrants fiscal year, are incorporated by reference as described in Part III.
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this report, including, without limitation, matters discussed under Item 1 - Business, Item 1A - Risk Factors and Item 7 - Managements Discussion and Analysis of Financial Condition and Results of Operations, may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These forward-looking statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievement described or implied by such statements. Certain of these forward-looking statements can be identified by the use of forward-looking terminology such as believes, expects, may, will, should, seeks, approximately, intends, plans, estimates, or anticipates or the negative of these terms or other comparable terminology, or by discussions of strategy, objectives, expectations, plans or intentions. Statements contained in this report that are not historical facts are forward-looking statements. Without limiting the generality of the preceding statement, all statements in this report concerning or relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements. In addition, through our senior management, from time to time we make forward-looking statements concerning our expected future operations and performance and other developments. Such forward-looking statements are necessarily estimates reflecting our best judgment based upon current information and involve a number of risks and uncertainties. Other factors may affect the accuracy of these forward-looking statements and our actual results may differ materially from the results anticipated in these forward-looking statements. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to, those factors or conditions described under Item 1A - Risk Factors and Item 7 - Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates and general conditions in the economy and capital markets. Except to the extent required by applicable laws and regulations, we undertake no obligations to update any forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
TABLE OF CONTENTS
Page |
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PART
I |
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ITEM
1. |
BUSINESS |
1 | |||||||||
ITEM
1A. |
RISK
FACTORS |
8 | |||||||||
ITEM
1B. |
UNRESOLVED STAFF COMMENTS |
12 | |||||||||
ITEM
2. |
PROPERTIES |
12 | |||||||||
ITEM
3. |
LEGAL PROCEEDINGS |
12 | |||||||||
ITEM
4. |
[RESERVED] |
12 | |||||||||
PART
II |
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ITEM
5. |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
13 | |||||||||
ITEM
6. |
SELECTED FINANCIAL DATA |
15 | |||||||||
ITEM
7. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
17 | |||||||||
ITEM
7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
26 | |||||||||
ITEM
8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
26 | |||||||||
ITEM
9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
26 | |||||||||
ITEM
9A |
CONTROLS AND PROCEDURES |
26 | |||||||||
ITEM
9B. |
OTHER INFORMATION |
27 | |||||||||
PART
III |
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ITEM
10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
28 | |||||||||
ITEM
11. |
EXECUTIVE COMPENSATION |
28 | |||||||||
ITEM
12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
29 | |||||||||
ITEM
13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
29 | |||||||||
ITEM
14. |
PRINCIPAL ACCOUNTING FEES AND SERVICES |
29 | |||||||||
PART
IV |
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ITEM
15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
30 |
i
PART I
ITEM 1. BUSINESS
GENERAL
We provide unique, cost-effective business-focused solutions to the property and casualty insurance industry. Our customers include insurance companies, agents, brokers and managing general agents (MGAs). Our proprietary technology solutions and services are designed to enable our customers to introduce new products quickly, expand their distribution channels, reduce costs and improve service to their customers. In addition, we also offer an innovative Business Intelligence suite of products to enable our customers to leverage their information assets for real time business insights and for better risk selection, pricing and financial reporting.
Our software products and services focus on the functions required to underwrite, rate, quote, issue, print, bill and support the entire lifecycle of insurance policies. Our products and services combine an in-depth knowledge of property and casualty insurance with an innovative and proprietary state-of-the-art technology platform. Our products provide advanced insurance functionality available on an off-the-shelf basis yet also provide additional flexibility for accommodating a high degree of customization for our customers to compete in the marketplace through differentiation. Our software is licensed for use in the customers data centers or can be provided through our application services provider, referred to as ASP, using third party technology platforms and support.
We generate revenue from software contract licenses, professional services fees from ongoing software customization and continuing maintenance fees for technical and regulatory software updates on a monthly basis. We provide a wide range of professional services that support product customizations, conversion from existing systems, data integration with other software or reporting agencies and other technical services. We also offer ongoing support services including incorporating recent insurance rates, rules and forms changes. These support services provide turnkey solutions to our customers as we perform analysis, development, quality assurance, documentation and distribution for delivering changes in a timely fashion.
Our ongoing maintenance and support services, usually through five-year minimum customer contracts, typically generate significant recurring revenue of approximately 25 to 30 cents for every dollar spent on licensing fees.
We were incorporated in Delaware in April 1985 as Warner Computer Systems, Inc. and changed our name to Warner Insurance Services, Inc. in March 1992. In June 1996, we changed our name to Cover-All Technologies Inc. Our products and services are offered through our wholly-owned subsidiary, Cover-All Systems, Inc., also a Delaware corporation.
PRODUCTS
My Insurance Center
Our My Insurance Center, referred to as MIC, is a customizable and configurable web-based, data-centric hub and spoke software platform built around a shared information hub and suite of product components. MIC is designed for insurance agents, brokers and carriers with integrated workflows and access to real-time information. By centralizing the data in the MIC platform and using customized components to enable processes, we can quickly build a unique solution for each customer.
My Insurance Center is designed to efficiently and rapidly adapt to changes in our customers business needs as well as to address the complexity and rate of change of the insurance business, state regulation and technology innovation. The MIC architecture concept was originally introduced in 2001 and it has been significantly enhanced and expanded every year since. The early implementations of My Insurance Center utilized our then-existing rating and issuance products. In 2009, we announced MIC NexGen, a set of capabilities designed and built to support the entire policy issuance process to add significant functionality, enhance performance and position Cover-All to introduce new service offerings.
Our My Insurance Center NexGen component is a powerful set of tools and capabilities providing full policy support (data capture, rate, quote, issue, statistical reporting, print, audits and complete policy lifecycle management) for customized products that we believe is unparalleled in the insurance industry. We have also developed a set of processes and
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tools that enable us to work together with our customers in an interactive development process that, when combined with our off-shore development resources, deliver these products in short time frames.
In addition to our ability to create and support custom products, we offer off-the-shelf products including full support for such complex products as ISOs (Insurance Services Office) Commercial Automobile and Commercial Package products for all states as well as full support for Workers Compensation. Some of these new products have been developed and released in 2010. With the delivery of the NexGen products, we have completely replaced all our older platforms, collectively known as Classic, with new, fully integrated state-of-the-art technologies.
These NexGen products have been redesigned by us to enable us to provide services to our customers that can be measured in terms of quality, speed and value. In addition, we are able to provide a significant number of capabilities to our customers to enable them to customize, personalize and control their My Insurance Center platform in real time.
MIC is designed to be the platform to serve players throughout the entire insurance value chain, including the insured, agents, brokers, insurance companies and reinsurers. Because it is scalable, MIC is able to serve both large and small organizations. MIC can be accessed securely over the Internet. MIC is designed to be deployed globally in the future to adapt to different languages and currencies and to support different insurance products in other countries.
MIC provides an integrated platform with baseline common insurance functions that can be customized by us for customers business needs. MIC also provides many configuration capabilities that are used by customers for further tailoring the application. Finally, MIC allows end users to personalize screens and content for meeting their roles and responsibilities.
MIC is designed to fully support STP (Straight-Through-Processing). MIC enables our customers to utilize our rating, policy issuance, billing and other software components into a fully-integrated platform that, among other things, eliminates redundant data entry. Information is stored in a client-centric database and becomes immediately available to other users or functions. MIC may be customized to generate user alerts when a user-specified condition occurs. Additionally, MIC has been designed to allow the customer to configure features according to their own look and feel preferences and workflow processes. For instance, the browser-based user interface allows employees, agents and other end users to personalize their desktops so they see only the information they need or desire. We believe that MIC allows our customers to reduce costs, leverage the latest technologies, better manage risk, provide better service to their customers, enter new markets, introduce new products and grow premiums.
We are investing in research and development for evolving the MIC platform to meet customers business needs in a rapidly changing marketplace. We have added new and advanced capabilities to MIC, such as our NexGen policy administration platform, workflow management, rules-based underwriting, financial modules for determining profitability by policy, account-centric and policy-centric views, integration with partners accounting, claims processing systems and certain other new components. With these new capabilities, MIC enables us to develop complex and custom products in shorter timeframes for introducing new insurance products into the marketplace.
My Insurance Center utilizes a data-centric architecture which enables us to provide our customers with an integrated solution of shared information. When combined with the straight-through processing and information access tools, My Insurance Center provides outstanding access to information for business leaders. In addition, this data centric approach enables us to interface with external data sources and other internal systems very effectively.
Access to accurate and timely information can be a significant competitive advantage for better pricing, risk selection and service. With this access to information, our customers can develop insights and tools to create competitive advantage. The nimbleness of My Insurance Center can then be leveraged to open new markets, develop new products, or implement new predictive modeling tools to improve underwriting.
In order to exploit these information-driven opportunities, in April 2010 we purchased certain assets of Moore Stephens Business Solutions LLC (MSBS), a provider of custom business intelligence solutions for the property and casualty insurance industry. While creating custom business intelligence solutions for a number of insurance clients, MSBS had developed a template for new customers that created a starting point for new implementations. Utilizing our experience in creating customizable, out-of-the-box products, we are developing a new product that, while utilizing some of the design concepts of MSBS, can be fully integrated with MIC. We expect that this new product will be available in 2011, will be sold
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as an additional component to MIC customers and will plug in to their existing MIC. In addition, the product will also be marketed as a stand-alone product with interfaces to other policy administration, claims and reinsurance systems.
MIC is being made available to users either for in-house implementation or through our ASP. We also support Software as a Service (SaaS) to meet emerging customer requirements.
MIC offers the following benefits to our customers:
·
Straight-Through-Processing Business acquisition and the processing side of commercial property and casualty insurance is not only complex but it is highly regulated and spans across multiple constituents in the value chain. Straight-Through-Processing helps customers to reduce expenses, provide faster service times and obtain a higher degree of compliance. MIC provides Straight-Through-Processing through browser-based accessibility, roles-based security, rules-based underwriting, advanced workflow referrals and comprehensive insurance processing functions such as rating, issuance, printing and statistical coding.
·
Speed To Market In a highly competitive insurance marketplace, insurers seek to maintain competitive advantage and high profit margins through innovation and introduction of new insurance products. The information-hub architecture of MIC enables development of complex and custom products in rapid timeframes.
·
Regulatory Compliance In highly state regulated insurance industry, compliance requires frequent software updates and audit capabilities. MIC provides regulatory updates, which are delivered on a monthly basis through our support services.
·
Security MIC provides roles-based security with fine-grained access control, and encryption with data auditing helps enterprise data centers meet their security requirements.
·
Configurability MIC provides a wide scope of customization to allow MIC to meet customers business and operational needs while taking advantage of its baseline common capabilities for achieving cost-effective and rapid implementation.
·
Integration MIC provides real-time integration with audit logs for seamlessly integrating MIC with other systems in our customers technical ecosystem.
·
Openness and Scalability MIC is based on open technologies such as J2EE, XML, Oracle and Web 2.0 (AJAX, GWT) through which we can deliver technological changes. MIC is designed to scale horizontally without adding significant cost to meet customers growing business needs.
MIC NexGen The Policy Administration Component of MIC
The MIC NexGen software uses a unique design that separates the insurance product definition from the actual technology engines. The sophistication of this design is intended to enable us to stay current with technology innovations while preserving our insurance knowledge investment. In addition, by centralizing many of the complexities of insurance in the core (similar to a video game console), we are able to create metadata-driven cartridges that define the actual insurance product (rates, rules, forms, etc.) very quickly. In addition, MIC NexGen is designed for change and flexibility.
The MIC NexGen software and products support the following policy functions:
·
Data capture and editing
·
Rating
·
Policy issuance including multiple recipient print
·
All policy transactions including quotes, new lines, endorsements, renewals, audits and cancellations
·
Statistical coding
·
Full Policy Print (with variable data)
·
Audits
·
Out of Sequence Processing
·
Full Policy Life Cycle support
·
Installments
MIC NexGen is designed to accommodate all lines of property and casualty insurance. We believe that it is especially effective in coping with the complexity and variability of commercial lines of insurance.
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We believe that this flexibility of MIC NexGen is a competitive advantage, and we have utilized its capabilities to develop many custom products as well as all state support for Workers Compensation, ISO Commercial Automobile (delivered in the first quarter of 2011) and ISO Commercial Package (expected to be delivered in the second quarter of 2011). The NexGen products are replacing our earlier MIC Rating & Issuance products that have been in use by our customers for many years. Today, we offer off-the-shelf support for more than 40 lines of commercial business in all 50 states, the District of Columbia and Puerto Rico.
Both the older Rating & Issuance and the new NexGen platform leverage the Engine/Metadata design and are fully integrated with the MIC platform. The innovative design of the product isolates insurance product knowledge from the application itself in data files, referred to as Metadata. We have built an extensive knowledge base, estimated at more than 100 person-years of effort, in this Metadata that defines the details of virtually hundreds of insurance policy types and coverages.
The MIC Rating & Insurance product is in use in over 35 companies.
The new NexGen policy administration platform of MIC provides the following advanced capabilities:
·
Dynamic data capture for reducing data entry and different views for brokers and underwriters
·
Improved user interface and features for boosting user productivity
·
Custom and complex rating algorithm
·
Custom or branded document generation capability
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Rapid development of new products and changes in existing products
·
Better audit support for compliance checks
·
Out of Sequence endorsement processing
My Insurance Center Functional Capabilities
We have, through MIC, a deep inventory of insurance software components combined with a sophisticated implementation platform. MIC includes the following critical components:
·
My Insurance Center Portal
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Enterprise, Customer-centric Oracle database
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Underwriting Tools
·
End User access to information in real time Straight-Through-Processing
·
Rating and Issuance
·
Full policy lifecycle support
·
Clear and comprehensive data collection with extensive real time edits
·
Policy history easy policy changes and useful for activities such as coverage inquiries
·
On-line system, screen and field level look-ups
·
On-line Commercial Lines Manual Tables and Footnotes
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Easy and direct system navigation
·
Standard ISO (Insurance Service Office)/NCCI coverages and rates support
·
Company customized coverages and rates support
·
Fully automated recipient-driven issuance of insurance policies, worksheets, ID cards, etc., including print preview
·
Policy database
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Multiple company/program/state/coverage support
·
Templates to reduce data entry time
·
Advanced Billing Capabilities integrating with NetSuite
·
Claims Repository
·
Customer Relationship Management
·
Agency and Program Management
·
Advanced Administration Tools
·
Access to Web Services and Information Providers
·
Policy Dashboard premium and loss information
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·
Advanced Workflows, Diaries
·
Electronic Underwriting files
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Compliance Assist, Help Desk
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Interfaces to back end accounting and reporting systems
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Policy-level Premium and Loss Information for profitability tracking/accounting
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Quote, Binder, Policy Lifecycle support
We continue to utilize and expand these capabilities to expand and leverage our ability to respond to broadening marketplace and new customer opportunities with solutions that address the special needs of carriers, managing general agents, agents, brokers and third party providers with both off-the-shelf and custom solutions.
We are also increasing and enhancing our services portfolio. We have expanded our professional services with conversion and interface offerings. We developed new rules-based capabilities to enable us to implement data exchange services that will save our customers time and effort converting to our products or linking our products to existing systems. We also have developed a custom service offering for customers who desire specially-tailored services, service level agreements and other services that enable them to achieve their business objectives.
We believe that our business-focused approach allows customers to accelerate their time to market, solve ongoing business challenges and achieve sustainable competitive advantages during periods of economic uncertainty.
COMPETITION
The computer software and services industry is highly competitive and rapidly changing, as current competitors expand their product offerings and new companies enter the marketplace. Because of our extensive base of knowledge in the insurance industry, however, we believe that our products offer customers certain advantages not available from our competitors. Our customers have access to our extensive experience and software inventory in the area of rating and policy issuance of commercial lines policies, among the most complex of insurance transactions.
There are a number of larger companies, including computer software, services and outsourcing companies, consulting firms, computer manufacturers and insurance companies that have greater financial resources than we have and possess the technological ability to develop software products similar to those we offer. These companies represent a significant competitive challenge to our business. Very large insurers that internally develop systems similar to ours may or may not become our major customers for software or services. We compete on the basis of our insurance knowledge, products, service, price, system functionality and performance and technological advances.
MARKETING
We maintain an in-house sales and marketing staff. We also utilize outside consultants and other complimentary service providers to market our products. We redesigned our Internet site and established linkages to portals and other websites. We will continue to expand in 2011 as we focus on the Internet as a valuable source of information for current and potential customers interested in our products and services. We participate in, display and demonstrate our software products at industry trade shows. Our consulting staff, business partners and other third parties also generate sales leads. We also communicate with our existing customers in a variety of ways including an annual Customer Conference.
RESEARCH AND DEVELOPMENT
Our business is characterized by rapid business and technological change. We believe our success will depend, in part, on our ability to meet the new needs of our customers and the marketplace as well as continuing to enhance our products based on new technologies. Accordingly, we must maintain ongoing research and development programs to add value to our suite of products, as well as any possible expansion of our product lines.
Our goal with all of our products and services is to enhance the ease of implementation, functionality, long-term flexibility and the ability to provide improved customer service.
Research and development expenses were $847,000, $891,000 and $1,035,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
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INTELLECTUAL PROPERTY
We currently have no patents or patent applications pending. We rely on a combination of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights.
BACKLOG
As of December 31, 2010, we had a backlog of software license, maintenance and professional services agreements with customers expected to result in approximately $1,100,000 of future revenue, of which we expect approximately $850,000 to be recognized in 2011. Under some of these agreements, we must fulfill certain conditions prior to recognizing revenue, and there can be no assurance when, if at all, we will be able to satisfy such conditions in each instance. Purchase orders constituting backlog may also be cancelled or deferred by customers and, therefore, may not be indicative of future revenue.
MAJOR CUSTOMERS
Our product line is in use in over 35 companies. For the years ended December 31, 2010, 2009 and 2008, we had four, three and three customers who contributed revenues in excess of 10% of our total revenues for the respective years.
As our business has grown, we have become less reliant on any one major customer, including three units of Chartis Inc., formerly units of American International Group, Inc. (CHARTIS). For the year ended December 31, 2010, three customers, none of which are units of CHARTIS, generated approximately 19%, 11% and 10% of our revenues, respectively.
A fourth customer, a unit of CHARTIS, generated approximately 11%, 15% and 15% of our revenues for the years ended December 31, 2010, 2009 and 2008, respectively. Another customer, a second unit of CHARTIS, generated approximately 5%, 12% and 17% of our revenue for the years ended December 31, 2010, 2009 and 2008, respectively, and one other customer, a third unit of CHARTIS, generated approximately 4%, 6% and 27% of our revenue for the years ended December 31, 2010, 2009 and 2008, respectively. The aggregate percentage of our total revenue generated by the three CHARTIS customers for the years ended December 31, 2010, 2009, 2008, respectively, is 20%, 33%, and 59%.
Our customer relationship with CHARTIS is governed by a Master Agreement for Software License and Support Services and Professional Services (the Master Agreement) which we entered into with an affiliate of CHARTIS. The grant of any particular software license to any unit of CHARTIS referred above and the provision of any particular support services or professional services are subject to the entry into of separate arrangements with such unit of CHARTIS pursuant to the Master Agreement, including Client Services Addenda and work orders. We entered into a separate Client Services Addendum with each of the three units of CHARTIS, respectively. As amended, the Master Agreement and the Client Services Addenda for the second and third of the CHARTIS units referred to above each have a term until September 30, 2012 and will automatically renew for successive one-year terms unless one party delivers a written notice of non-renewal to the other party at least 180 days prior to the expiration of the then current term. The Client Services Addendum for the first of the CHARTIS units referred to above has a term until March 31, 2012 and, unless the parties mutually agree otherwise, is subject to renewal or non-renewal seven months prior to the expiration date.
The Master Agreement contains the general terms and conditions for us to grant software licenses and provide support services and professional services to the CHARTIS customers. The related Client Services Addenda and work orders with respect to each of the three units of CHARTIS constitute three separate and independent contractual arrangements, as the Client Services Addenda with the respective units of CHARTIS cover different customers, different software and service components and different fees and payment structures. There is no cross-default provision in any of these Client Services Addenda, and each of them can be terminated individually without affecting the term of the remaining ones. Under these arrangements, none of the three units of CHARTIS has any obligation to continue to purchase any additional software license or professional services from us without a separate agreement between us and the applicable unit of CHARTIS. Each of the three units of CHARTIS, however, has the obligation to continue to purchase our support services (which include our ASP services) during the applicable contractual term with such unit of CHARTIS. For the year ended December 31, 2010, the revenues we generated from such continuing support services (including our ASP services) for the three units of CHARTIS represented approximately 9%, 4% and 4%, respectively, of our total revenues, and the total revenues we generated from the three units of CHARTIS represented approximately 11%, 5% and 4%, respectively, of our total revenues.
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EMPLOYEES
We had 82 employees, all of whom were full-time employees, as of December 31, 2010. None of our employees is represented by a labor union, and we have not experienced any work stoppages. We believe that relations with our employees are good.
AVAILABLE INFORMATION
We are subject to the reporting requirements of the Exchange Act, and the rules and regulations promulgated thereunder, and accordingly file reports, information statements or other information with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, reports of current events on Form 8-K and proxy or information statements. The public may read and copy any materials we file with the SEC at its Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
Our website address is www.cover-all.com. We make available, free of charge, through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information on our website is not incorporated by reference into this report.
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ITEM 1A. RISK FACTORS
RISK FACTORS
In addition to the other information described elsewhere in this Annual Report, you should carefully consider the following risk factors, which could materially adversely affect our business, financial condition and results of operations. The risks described below are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition and results of operations.
RISKS RELATED TO OUR BUSINESS AND OUR INDUSTRY
If we do not continue to innovate and provide products and services that are useful to insurance companies in a cost-effective way, we may not remain competitive, and our revenues and operating results could suffer.
Our future success depends on our ability to provide innovative and quality products and services for the insurance marketplace. Because our products and services represent the core functionality that powers the businesses of our customers, our competitors are constantly developing innovations in similar products and services. As a result, we must continue to invest significant resources in research and development in order to enhance our existing products and services and introduce new products and services that insurance companies can easily and effectively use. If we are unsuccessful in these endeavors, we may not remain competitive, and our revenues and operating results could suffer. Additionally, we rely on our references from existing customers for new sales. If we are unable to provide quality products and services, then our customers may become dissatisfied and may not provide these references. We also rely on an offshore software development vendor for developing and servicing our products, and our operating results would suffer if we cannot maintain our current cost structure through offshore development resources in the future.
We depend on product introductions in order to remain competitive in our industry.
We are currently investing resources in product development and expect to continue to do so in the future. Our future success will depend on our ability to continue to enhance our current product line and to continue to develop and introduce new products that keep pace with competitive product introductions and technological developments, satisfy diverse and evolving insurance industry requirements and otherwise achieve market acceptance. We may not be successful in continuing to introduce and market, on a timely and cost-effective basis, product enhancements or new products that respond to technological advances by others. Any failure by us to anticipate or respond adequately to changes in technology and insurance industry preferences, or any significant delays in product development or introduction, would significantly and adversely affect our business, operating results and financial condition.
Our products may not achieve market acceptance, which may make it difficult for us to compete.
Our future success will depend upon our ability to increase the number of insurance companies that license our software products. As a result of the intense competition in our industry and the rapid technological changes which characterize it, our products may not achieve significant market acceptance. Further, insurance companies are typically characterized by slow decision-making and numerous bureaucratic and institutional obstacles which will make our efforts to significantly expand our customer base difficult.
We depend on key personnel.
Our success depends to a significant extent upon a limited number of members of senior management and other key employees, including John W. Roblin, our Chief Executive Officer, Manish D. Shah, our President and Chief Technology Officer, and Maryanne Gallagher, our Executive Vice President and Chief Operating Officer. We maintain key-man life insurance on Mr. Roblin, Mr. Shah and Ms. Gallagher in the amount of $1,000,000 per individual. The loss of the service of one or more key managers or other key employees could have a significant and adverse effect upon our business, operating results or financial condition. In addition, we believe that our future success will depend in large part upon our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel in the computer software industry is intense. We may not be successful in attracting and retaining such personnel, and the failure to do so could have a material adverse effect on our business, operating results or financial condition.
8
We may be subject to information technology system failures and network disruptions.
Information technology system failures, network disruptions and breaches of data security caused by such factors, including, but not limited to, earthquakes, fire, flood, theft, fraud, malicious attack, acts of terrorism or other causes could disrupt our operations. While we have taken steps to address these concerns by implementing internal control measures, there can be no assurance that such a system failure, disruption or breach will not materially adversely affect our financial condition and operating results, including loss of revenue due to adverse customer reaction or required corrective action. In addition, our property and business interruption insurance coverage may not be adequate to fully compensate us for losses that may occur.
Our market is highly competitive.
Both the computer software and the insurance software systems industries are highly competitive. There are a number of larger companies, including computer manufacturers, computer service and software companies and insurance companies, that have greater financial resources than we have. These companies currently offer and have the technological ability to develop software products that are core to the business of insurance companies and similar to those offered by us. These companies present a significant competitive challenge to our business. Because we do not have the same financial resources as these competitors, we may have a difficult time in the future in competing with these companies. In addition, very large insurers internally develop systems similar to our systems and as a result, they may not become customers of our software. We compete on the basis of our insurance knowledge, products, service, price, system functionality and performance and technological advances. Although we believe we can continue to compete on the basis of these factors, some of our current competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. Our current competitors may be able to:
·
undertake more extensive marketing campaigns for their brands and services;
·
devote more resources to product development;
·
adopt more aggressive pricing policies; and
·
make more attractive offers to potential employees and third-party service providers.
We may need additional financing in order to continue to develop our business.
We may need additional financing to continue to fund acquisitions and business development and to expand and grow our business generally. If equity securities are issued in connection with a financing or business acquisition, dilution to our stockholders may result, and if additional funds are raised through the incurrence of debt, we may be subject to further restrictions on our operations and finances both in and outside the ordinary course of business. As of December 31, 2010, we had net stockholders equity of approximately $15,204,000 and net working capital of approximately $5,013,000.
We depend upon proprietary technology and we are subject to the risk of third party claims of infringement.
Our success and ability to compete depends in part upon our proprietary software technology. We also rely on certain software that we license from others. We rely on a combination of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights. We currently have no patents or patent applications pending. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. The steps we take to protect our proprietary technology may not prevent misappropriation of our technology, and this protection may not stop competitors from developing products which function or have features similar to our products.
While we believe that our products and trademarks do not infringe upon the proprietary rights of third parties, third parties may claim that our products infringe, or may infringe, upon their proprietary rights. Any infringement claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause product shipment delays or require us to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. If a claim of product infringement against us is successful and we fail or are unable to develop non-infringing technology or license the infringed or similar technology, our business, operating results and financial condition could be significantly and adversely affected.
9
We depend on existing major customers, the loss of one or more of which could have a material adverse effect on our results of operations and financial condition.
We anticipate that our operations will continue to depend upon the continuing business of our existing customers, particularly our major customers, and the ability to attract new customers.
In 2010, 2009 and 2008, our software products operations depended primarily on certain existing major customers. Three customers generated approximately 19%, 11%, and 10% of our revenues in 2010. One additional customer, a unit of CHARTIS, accounted for approximately 11%, 15% and 15% of our total revenues in 2010, 2009 and 2008, respectively. One other customer, a second unit of CHARTIS, accounted for approximately 5%, 12% and 17% of our total revenues in 2010, 2009 and 2008, respectively. Another customer, a third unit of CHARTIS, generated approximately 4%, 6% and 27% of our total revenues for the years ended December 31, 2010, 2009 and 2008, respectively.
Our contractual arrangements with these units of CHARTIS, however, do not obligate any of them to continue to purchase from us any additional software license or professional services. Each of the three units of CHARTIS has the obligation to continue to purchase our support services (which include our ASP services) during the applicable contractual term with such unit. The term with respect to our contractual arrangement to provide these services to the first of the CHARTIS units referred to above will expire on March 31, 2012 and, unless the parties mutually agree otherwise, is subject to renewal or non-renewal seven months prior to the expiration date. The term with respect to our contractual arrangement to provide these services to the remaining two units of CHARTIS will expire on September 30, 2012 and will automatically renew for successive one-year terms unless a party delivers a written notice of non-renewal to the other party at least 180 days prior to the expiration of the then current term. For the year ended December 31, 2010, the revenues we generated from such continuing support services (including our ASP services) for the three units of CHARTIS represented approximately 9%, 4% and 4%, respectively, of our total revenues, and the total revenues we generated from the three units of CHARTIS represented approximately 11%, 5% and 4%, respectively. See Business Major Customers. The loss of one or more of our existing major customers or our inability to continue to attract new customers could significantly and adversely affect our business, operating results and financial condition.
A decline in computer software spending may result in a decrease in our revenues or lower our growth rate.
A decline in the demand for computer software among our current and prospective customers may result in decreased revenues or a lower growth rate for us because our sales depend, in part, on our customers level of funding for new or additional computer software systems and services. Moreover, demand for our solutions may be reduced by a decline in overall demand for computer software and services. The current decline in overall technology spending may cause our customers to reduce or eliminate software and services spending and cause price erosion for our solutions, which would substantially affect our sales of new software licenses and the average sales price for these licenses. Because of these market and economic conditions, we believe there will continue to be uncertainty in the level of demand for our products and services. Accordingly, we cannot assure you that we will be able to increase or maintain our revenues.
We may not get the full benefit of our tax loss carry forwards.
Under the United States Internal Revenue Code, companies that have not been operating profitably are allowed to apply certain of their past losses to offset future taxable income liabilities they may incur once they reach profitability. These amounts are known as net operating tax loss carryforwards. At December 31, 2010, we had approximately $16 million of federal net operating tax loss carryforwards expiring at various dates through 2026. Because of certain provisions of the Tax Reform Act of 1986 related to change of control, however, we may not get the full benefit of these loss carryforwards. If we are limited from using net operating tax loss carryforwards to offset any of our income, this would increase our taxes owed and reduce our cash for operations.
RISKS RELATED TO OUR COMMON STOCK
Holders of our common stock may have difficulty in selling those shares.
Our common stock is not currently traded on any national securities exchange. Our common stock is quoted on the OTCQB. Securities quoted on the OTCQB do not enjoy the same liquidity as securities that trade on a national securities exchange. As a result, you may have difficulty in selling shares of our common stock. In addition, our common stock is a penny stock as that term is defined in the Exchange Act. Brokers effecting transactions in a penny stock are subject to
10
additional customer disclosure and record keeping obligations, including disclosure of the risks associated with low price stocks, stock quote information and broker compensation. In addition, brokers effecting transactions in a penny stock are also subject to additional sales practice requirements under Rule 15g-9 of the Exchange Act including making inquiries into the suitability of penny stock investments for each customer or obtaining a prior written agreement for the specific penny stock purchase. Because of these additional obligations, some brokers will not effect transactions in penny stocks.
Our stock price has been volatile.
Quarterly operating results have fluctuated and are likely to continue to fluctuate. The market price of our common stock has been and may continue to be volatile. Factors that are difficult to predict, such as quarterly revenues and operating results, limited trading volumes and overall market performance, may have a significant effect on the price of our common stock. Revenues and operating results have varied considerably in the past from period to period and are likely to vary considerably in the future. We plan product development and other expenses based on anticipated future revenue. If revenue falls below expectations, financial performance is likely to be adversely affected because only small portions of expenses vary with revenue. As a result, quarterly period-to-period comparisons of operating results are not necessarily meaningful and should not be relied upon to predict future performance.
Provisions of our certificate of incorporation, as amended, and by-laws and Delaware law might discourage, delay or prevent a change of control of or changes in our management and, as a result, depress the trading price of our common stock.
Our certificate of incorporation, as amended (the Certificate of Incorporation), and by-laws contain provisions that could discourage, delay or prevent a change in control or changes in our management that our stockholders may deem advantageous. These provisions:
·
require super-majority voting to amend some provisions in our Certificate of Incorporation and by-laws;
·
establish a staggered board of directors;
·
limit the ability of our stockholders to call special meetings of stockholders;
·
prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
·
provide that the board of directors is expressly authorized to make, alter or repeal our by-laws; and
·
establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits business combinations between a Delaware corporation and an interested stockholder, which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporations voting stock for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests.
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.
We may not pay any cash dividends on our common stock in the future.
Declaration and payment of any dividend on our common stock is subject to the discretion of our board of directors. The timing and amount of dividend payments will be dependent upon factors such as our earnings, financial condition, cash requirements and availability, and restrictions in our credit facilities. While we paid a special cash dividend in April 2009, the payment of future dividends is not guaranteed or assured. Accordingly, it is likely that investors may have to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
11
RISKS RELATED TO ACQUISITION
We may fail to realize the anticipated benefits of the acquisition of Moore Stephens Business Solutions, LLC.
On April 12, 2010, we acquired substantially all of the assets (excluding working capital) of MSBS through our wholly-owned subsidiary, Cover-All Systems, Inc. The success of the acquisition will depend on, among other things, our ability to realize anticipated benefits, growth opportunities and cost savings and to integrate the operations of MSBS in a manner that does not materially disrupt our own operations. If we are not able to successfully achieve these objectives, the anticipated benefits of the acquisition may not be realized fully, or at all, or may take longer to realize than expected. Further, it is possible that the integration process could result in the disruption of the ongoing business or inconsistencies in standards, controls, procedures and policies that would adversely affect our business, financial condition or results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our headquarters is located in Fairfield, New Jersey, where we occupy approximately 20,000 square feet under a lease that expires on October 31, 2012. Currently, we fully utilize this facility. We believe that our headquarters is well maintained and adequate to meet our needs for the foreseeable future. As a consequence of our acquisition of MSBS, we also have office space of approximately 6,000 square feet located in mid-town Manhattan under a separate lease which is due to expire on January 31, 2014. We believe that this office space is also well maintained and will be adequate to meet our needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. [RESERVED]
12
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK
Since 2000, our common stock has been quoted on the OTC Bulletin Board. The quotations below reflect the high and low bid prices for our common stock since January 1, 2009 as reported on the OTC Bulletin Board. The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
2010: | High |
Low |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
4th Quarter |
$ | 1.62 | $ | 1.20 | ||||||
3rd Quarter |
1.45 | 1.17 | ||||||||
2nd Quarter |
1.75 | 1.12 | ||||||||
1st Quarter |
1.49 | 0.94 |
2009: | High |
Low |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
4th Quarter |
$ | 1.45 | $ | 0.95 | ||||||
3rd Quarter |
1.40 | 0.95 | ||||||||
2nd Quarter |
1.10 | 0.70 | ||||||||
1st Quarter |
1.33 | 0.66 |
On February 23, 2011, our common stock was removed from listing on the OTC Bulletin Board due to lack of quotations for four consecutive days by our market makers. Our common stock continues to trade on the OTCQB market and can now be found under the symbol COVR.PK.
As of March 10, 2011, there were 469 holders of record of our common stock. This number does not include beneficial owners who may hold their shares in street name.
On February 17, 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. Since 1994, we have not otherwise declared or paid any dividends on our common stock. Our board of directors will review its dividend policy from time to time and will take into account prevailing market conditions and our anticipated uses of cash.
The closing sales price for our common stock on March 10, 2011 was $2.05, as reported by the OTCQB.
13
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder returns (including reinvestment of dividends) from the period from December 31, 2005 through December 31, 2010 on an investment of $100 in (i) our common stock, (ii) the Russell MicroCap Index (an index of microcap companies), and (iii) an index of peer companies selected by us, as described below. You should be aware that historical results are not necessarily indicative of future performance.
We have selected the Russell MicroCap Index for comparative purposes. We believe that, given our current size of operations and market capitalization, the Russell MicroCap Index, which measures the performance of stocks in the micro-cap segment of the U.S. equity securities market, provides an appropriate benchmark against which to measure our stock performance.
Our Peer Group consists of Computer Sciences Corporation, Ebix Inc., Pegasystems Inc. and Sapient Corp.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Cover-All Technologies Inc., the Russell MicroCap Index and the Peer Group
December 31, |
|||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
||||||||||||||||||||||
Cover-All
Technologies Inc. |
$ | 100.00 | $ | 143.44 | $ | 250.91 | $ | 163.64 | $ | 210.42 | $ | 304.36 | |||||||||||||||
Russell
MicroCap Index |
$ | 100.00 | $ | 116.54 | $ | 107.22 | $ | 64.57 | $ | 82.31 | $ | 106.09 | |||||||||||||||
Peer
Group |
$ | 100.00 | $ | 105.73 | $ | 105.20 | $ | 74.55 | $ | 130.24 | $ | 127.99 |
14
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial information as of December 31, 2010 and 2009, and for each of the years ended December 31, 2010, 2009 and 2008, have been derived from and should be read in conjunction with our audited consolidated financial statements and related notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report. The selected historical consolidated financial information as of December 31, 2008, 2007 and 2006 and for the years ended December 31, 2007 and 2006 have been derived from our audited consolidated financial statements which are not included in this report.
Selected Five-Year Consolidated Financial Data
The following is a summary of selected five-year consolidated financial data as of and for the years ended December 31, 2010, 2009, 2008, 2007 and 2006:
Year ended December 31, |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
2007 |
2006 |
|||||||||||||||||||
Statement
of Operations Data: |
(in
thousands, except per share amounts) |
||||||||||||||||||||||
Revenues |
$ | 17,457 | $ | 14,515 | $ | 13,467 | $ | 9,777 | $ | 7,288 | |||||||||||||
Income (loss)
before income tax |
2,215 | 3,335 | 2,904 | 1,245 | (1,000 | ) | |||||||||||||||||
Net income
(loss) |
2,952 | (1) | 3,917 | (1) | 4,556 | (2) | 1,231 | (1,000 | ) | ||||||||||||||
Net income
(loss) per share basic |
0.12 | 0.16 | 0.19 | 0.06 | (0.06 | ) | |||||||||||||||||
Net income
(loss) per share diluted |
0.12 | 0.16 | 0.19 | 0.05 | (0.06 | ) | |||||||||||||||||
Cash
dividends per share |
$ | | $ | 0.03 | $ | | $ | | $ | |
As of December 31, |
|||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
2007 |
2006 |
|||||||||||||||||||
Balance
Sheet Data: |
(in
thousands) |
||||||||||||||||||||||
Cash and cash
equivalents |
$ | 5,893 | $ | 4,324 | $ | 4,686 | $ | 11 | $ | 132 | |||||||||||||
Working
capital (deficiency) |
5,013 | 7,232 | 4,806 | 545 | (898 | ) | |||||||||||||||||
Total
assets |
19,513 | 14,999 | 11,039 | 5,864 | 3,556 | ||||||||||||||||||
Short-term
debt |
400 | | | 262 | 339 | ||||||||||||||||||
Long-term
debt |
| | | | 1,708 | ||||||||||||||||||
Stockholders equity (deficit) |
15,204 | 11,502 | 7,804 | 2,285 | (1,024 | ) |
____________________
(1)
Net income for such year included a deferred income tax benefit of $0.8 million as a result of the Companys reversal of a portion of its Deferred Tax Asset valuation allowance.
(2)
Net income for such year included a deferred income tax benefit of $1.7 million as a result of the Companys reversal of a portion of its Deferred Tax Asset valuation allowance.
15
Selected Quarterly Financial Data (Unaudited)
The following is a summary of selected quarterly financial data for the years ended December 31, 2010 and 2009:
2010 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Q1 |
Q2 |
Q3 |
Q4 |
||||||||||||||||
(in thousands, except per share
amounts) | |||||||||||||||||||
Total
revenues |
$ | 3,754 | $ | 4,695 | $ | 4,669 | $ | 4,339 | |||||||||||
Operating
income |
792 | 673 | 522 | 194 | |||||||||||||||
Net
income |
721 | 566 | 448 | 1,217 | |||||||||||||||
Basic
earnings per common share |
$ | 0.03 | $ | 0.02 | $ | 0.02 | $ | 0.05 | |||||||||||
Diluted
earnings per common share |
$ | 0.03 | $ | 0.02 | $ | 0.02 | $ | 0.05 |
2009 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Q1 |
Q2 |
Q3 |
Q4 |
||||||||||||||||
(in thousands, except per share
amounts) | |||||||||||||||||||
Total
revenues |
$ | 3,055 | $ | 2,739 | $ | 2,550 | $ | 6,171 | |||||||||||
Operating
income |
422 | 175 | 63 | 2,624 | |||||||||||||||
Net
income |
435 | 194 | 21 | 3,267 | |||||||||||||||
Basic
earnings per common share |
$ | 0.02 | $ | 0.01 | $ | 0.00 | $ | 0.13 | |||||||||||
Diluted
earnings per common share |
$ | 0.02 | $ | 0.01 | $ | 0.00 | $ | 0.13 |
16
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2010 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, ASP service fees, continuing maintenance fees for servicing the product and professional services. Total revenue in 2010 increased to $17,457,000 from $14,515,000 in 2009, due to an increase in maintenance, professional services and ASP revenue.
The following is an overview of the key components of our revenue and other important financial data in 2010:
Software Licenses. License revenue was $2,288,000 in 2010 compared to $4,138,000 in 2009 as a result of fewer new customer sales and sales to existing customers in 2010. 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.
Maintenance. Maintenance revenue was $5,545,000 in 2010 compared to $4,987,000 in 2009. The increase in maintenance revenue in 2010 was mainly due to the annual renewal of existing customers maintenance and maintenance from new customer contracts signed in 2009. Maintenance revenue is influenced primarily by the following factors: the renewal rate from our existing customer base, the amount of new maintenance associated with new license sales and annual price increases.
Professional Services. The increase in professional services revenue to $7,070,000 in 2010 from $3,282,000 in 2009, was a result of increased demand for new software capabilities and customizations from our current customer base and the recent acquisition of MSBS.
ASP Services. ASP services revenue was $2,554,000 in 2010 compared to $2,108,000 in 2009, due to expanded and extended contractual relationships with two large customers.
Income before Provision for Income Taxes. Income before provision for income taxes was $2,215,000 in 2010 compared to $3,335,000 in 2009, primarily due to a decrease in license revenue
Income Tax Benefit. We recorded income taxes, which are comprised of New Jersey state tax and Federal alternative minimum tax, of $63,000 and $205,000 in 2010 and 2009, respectively. We also recorded income tax benefit of $800,000 and $787,000 in 2010 and 2009, respectively.
Net Income. Net income for 2010 was $2,952,000 compared to $3,917,000 in 2009, mainly as a result of a decrease in license revenue.
Cash Flow. We generated $6,899,000 in positive cash flow from operations in 2010 and ended the year with $5,893,000 in cash and cash equivalents and $1,895,000 in accounts receivable.
We continue to face competition for growth in 2011 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.
17
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements that have been prepared under accounting principles generally accepted in the United States. The preparation of financial statements requires our management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could materially differ from those estimates. We have disclosed all significant accounting policies in Note 1 to the consolidated financial statements included in this annual report on Form 10-K. The consolidated financial statements and the related notes thereto should be read in conjunction with the following discussion of our critical accounting policies. Critical accounting policies and estimates are:
·
Revenue Recognition;
·
Valuation of Capitalized Software;
·
Valuation of Allowance for Doubtful Accounts Receivable; and
·
Business Combinations and Goodwill.
Revenue Recognition
Revenue recognition rules are very complex, and certain judgments affect the application of our revenue policy. The amount and timing of our revenue 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 the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 985-605, Software Revenue Recognition, as amended. Revenue from the sale of software licenses is predominately from standardized software and is recognized when standard software modules are delivered and accepted by the customer, the license term has begun, the fee is fixed or determinable and collectibility is probable. Revenue from software maintenance contracts and ASP 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 recognized 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 revenue is derived from the licensing of our software products, professional services, maintenance and support and ASP 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 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 maintenance and support and ASP services. Our professional services revenue is recognized when the services are performed. Our maintenance and support and ASP offerings are recognized ratably over the term of the arrangement.
Multiple Element Arrangement
We enter into revenue arrangements in which a customer may purchase a combination of software, maintenance and 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 maintenance and support, VSOE of fair value is established by renewal rates when they are sold separately. For arrangements where VSOE of
18
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.
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 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 products life or significantly improve the original products marketability are also capitalized once technological feasibility 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 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 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
Our estimate of the allowance for doubtful accounts is based on historical information, historical loss levels and an analysis of the collectibility of individual accounts. We routinely assess the financial strength of our customers and, based upon factors concerning credit risk, establish an allowance for uncollectible accounts. We believe that accounts receivable credit risk exposure beyond such allowance is limited.
Business Combination, Goodwill and Other Intangible Assets
ASC 805, Business Combinations, requires that the purchase method of accounting be used for all business combinations. It further specifies criteria as to intangible assets acquired in a business combination that must be recognized and reported separately from goodwill. The intangible assets, other than goodwill, acquired in the MSBS transaction will be amortized using the straight-line method over their estimated useful lives.
Goodwill represents the cost of the MSBS assets in excess of the fair value of identifiable tangible and intangible net assets purchased. Goodwill is not amortized but is tested for impairment. We review our goodwill for impairment annually in the fourth quarter. We also analyze whether any indicators of impairment exist each quarter. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained, significant decline in our share price and market capitalization, a decline in our expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition, the testing for recoverability of our assets, and/or slower growth rates, among others.
We estimate the fair value of MSBS using discounted expected future cash flows, supported by the results of various market approach valuation models. If the fair value of MSBS exceeds net book value, goodwill is not impaired, and no further testing is necessary. If the net book value exceeds fair value, we perform a second test to measure the amount of impairment loss. To measure the amount of any impairment charge, we determine the implied fair value of goodwill in the same manner as in a business combination.
Specifically, we allocate fair value to all assets and liabilities, including any unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. If the implied fair value of goodwill is less than the goodwill recorded on our consolidated balance sheet, we record an impairment charge for the difference.
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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, |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
2008 |
|||||||||||||
Revenues: |
|||||||||||||||
License |
13.1 | % | 28.5 | % | 28.2 | % | |||||||||
Maintenance |
31.8 | 34.4 | 30.8 | ||||||||||||
Professional
Services |
40.5 | 22.6 | 25.8 | ||||||||||||
Applications
Service Provider (ASP) Services |
14.6 | 14.5 | 15.2 | ||||||||||||
Total
Revenues |
100.0 | 100.0 | 100.0 | ||||||||||||
Cost of
Revenues: |
|||||||||||||||
License |
7.6 | 12.5 | 13.6 | ||||||||||||
Maintenance |
16.3 | 18.5 | 18.4 | ||||||||||||
Professional
Services |
28.5 | 10.9 | 11.1 | ||||||||||||
ASP
Services |
9.6 | 11.6 | 9.9 | ||||||||||||
Total Cost
of Revenues |
62.0 | 53.5 | 53.0 | ||||||||||||
Direct
Margin |
38.0 | 46.5 | 47.0 | ||||||||||||
Operating
Expenses: |
|||||||||||||||
Sales and
Marketing |
8.2 | 6.3 | 6.6 | ||||||||||||
General and
Administrative |
10.9 | 11.5 | 11.6 | ||||||||||||
Acquisition
Costs |
1.6 | | | ||||||||||||
Research and
Development |
4.8 | 6.1 | 7.7 | ||||||||||||
Provision for
Doubtful Accounts |
| | 0.2 | ||||||||||||
Total
Operating Expenses |
25.5 | 23.9 | 26.1 | ||||||||||||
Operating
Income |
12.5 | 22.6 | 20.9 | ||||||||||||
Other
(Income) Expense: |
|||||||||||||||
Interest
Expense |
0.1 | | 0.1 | ||||||||||||
Interest
Expense - Related Party |
| | | ||||||||||||
Interest
Income |
(0.1 | ) | (0.1 | ) | (0.2 | ) | |||||||||
Other
Expense |
| | | ||||||||||||
Other
Income |
(0.2 | ) | (0.3 | ) | (0.3 | ) | |||||||||
Total
Other (Income) Expense |
(0.2 | ) | (0.4 | ) | (0.4 | ) | |||||||||
Income
Before Income Taxes |
12.7 | 23.0 | 21.3 | ||||||||||||
Income Tax
Benefit: |
4.2 | 4.0 | 12.5 | ||||||||||||
Net
Income |
16.9 | % | 27.0 | % | 33.8 | % |
YEAR ENDED DECEMBER 31, 2010 COMPARED WITH YEAR ENDED DECEMBER 31, 2009
Revenues
Total revenues were $17,457,000 for the year ended December 31, 2010 compared to $14,515,000 for the year ended December 31, 2009, an increase of 20%. License fees were $2,288,000 for the year ended December 31, 2010 compared to $4,138,000 in 2009, as a result of fewer new customer license sales and sales to existing customers in 2010. For the year ended December 31, 2010, maintenance revenues were $5,545,000 compared to $4,987,000 of the prior year, due to the annual renewal of existing customers maintenance and maintenance from new customer contracts signed in 2009. Professional services revenue contributed $7,070,000 for the year ended December 31, 2010 compared to $3,282,000 for the
20
year ended December 31, 2009 as a result of increased demand for new software capabilities and customizations from our current customer base and our recent acquisition of MSBS. ASP revenues were $2,554,000 for the year ended December 31, 2010 compared to $2,108,000 for the year ended December 31, 2009 due primarily to an expanded and extended contractual relationship with two large customers.
Cost of sales increased to $10,817,000 for the year ended December 31, 2010 as compared to $7,760,000 for 2009, due to higher salaries and personnel-related expenses associated with staffing changes and our recent acquisition of MSBS. Non-cash capitalized software amortization was $618,000 for the year ended December 31, 2010 as compared to $917,000 in 2009. We capitalized software development costs of $3,260,000 in 2010 compared to $1,411,000 in 2009.
Expenses
Research and Development. Research and development expenses were $847,000 for the year ended December 31, 2010 compared to $891,000 in 2009, primarily due to our research and development staff working on developing various new software capabilities that were capitalized in 2010. We intend to continue to maintain our ongoing effort to enhance the functionality of our products and solutions to remain competitive.
Sales and Marketing. Sales and marketing expenses increased to $1,424,000 for the year ended December 31, 2010 from $906,000 in 2009, primarily due to costs related to increased advertising and promotion and personnel-related costs.
Acquisition. Acquisition expenses were approximately $285,000 for the year ended December 31, 2010 as compared to zero in the same period of 2009. These expenses were in connection with the acquisition of MSBS.
General and Administrative. General and administrative expenses were $1,902,000 in 2010 as compared to $1,674,000 in 2009. The increase in the general and administrative expenses was mainly due to the costs related to our recent acquisition of MSBS.
Other Expense. We had $0 of other expense for the year ended December 31, 2010 compared to $1,000 for the year ended December 31, 2009.
Other Income. We had $43,000 of other income for the year ended December 31, 2010 compared to $45,000 of other income for the year ended December 31, 2009.
Income Tax Benefit. In 2010, we recorded income taxes of $63,000, which is comprised of New Jersey state tax and Federal alternative minimum tax. We also recorded an income tax benefit of $800,000 in 2010.
YEAR ENDED DECEMBER 31, 2009 COMPARED WITH YEAR ENDED DECEMBER 31, 2008
Revenues
Total revenues were $14,515,000 for the year ended December 31, 2009 compared to $13,467,000 for the year ended December 31, 2008, an increase of 8%. License fees were $4,138,000 for the year ended December 31, 2009 compared to $3,802,000 in 2008, an increase of 9%, as a result of three new license sales and sales to existing customers in 2009. For the year ended December 31, 2009, maintenance revenues were $4,987,000 compared to $4,151,000 of the prior year, due to the annual renewal of existing customers maintenance and maintenance from new customer contracts signed in 2008. Professional services revenue contributed $3,282,000 for the year ended December 31, 2009 compared to $3,477,000 for the year ended December 31, 2008 as a result of decreased demand for new software capabilities and customizations from our two new customers signed in 2009 and our current customer base. We expect that the new license sales in 2009 will generate significant additional professional services revenue in 2010. ASP revenues were $2,108,000 for the year ended December 31, 2009 compared to $2,037,000 for the year ended December 31, 2008 due primarily to an expanded and extended contractual relationship with two large customers.
Cost of sales increased to $7,760,000 for the year ended December 31, 2009 as compared to $7,145,000 for 2008, due to higher salaries and personnel-related expenses associated with staffing changes. Non-cash capitalized software amortization was $917,000 for the year ended December 31, 2009 as compared to $868,000 in 2008. We capitalized software development costs of $1,411,000 in 2009 compared to $1,136,000 in 2008.
21
Expenses
Research and Development. Research and development expenses were $891,000 for the year ended December 31, 2009 compared to $1,035,000 in 2008, primarily due to our research and development staff working on developing various new software capabilities that were capitalized in 2009. We intend to continue to maintain our ongoing effort to enhance the functionality of our products and solutions to remain competitive.
Sales and Marketing. Sales and marketing expenses increased to $906,000 for the year ended December 31, 2009 from $883,000 in 2008, primarily due to costs related to our new website and personnel-related costs.
General and Administrative. General and administrative expenses were $1,674,000 in 2009 as compared to $1,540,000 in 2008. The increase in the general and administrative expenses was mainly due to the costs of filing a registration statement with the SEC to register the resale of some of our outstanding shares of common stock.
Other Expense. We had $1,000 of other expense for the year ended December 31, 2009 compared to $0 for the year ended December 31, 2008.
Other Income. We had $45,000 of other income for the year ended December 31, 2009 compared to $40,000 of other income for the year ended December 31, 2008.
Provision for Doubtful Accounts. We had $0 provision for doubtful accounts in 2009 compared to $21,000 for 2008, due to the write-off of the account receivable balances of two customers who decided not to purchase our software.
Income Tax Benefit. In 2009, we recorded income taxes of $205,000, which is comprised of New Jersey state tax and Federal alternative minimum tax. We also recorded an income tax benefit of $787,000 in 2009.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Liquidity
We have funded our operations primarily from cash flow from operations. 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.
At December 31, 2010, we had cash and cash equivalents of $5,893,000 compared to cash and cash equivalents of $4,324,000 at December 31, 2009. The increase in cash and cash equivalents is primarily attributable to payments due from new contract sales in 2009. Three new contracts were signed at the end of 2009 for which payment was due in 2010.
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
22
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.
In December 31, 2010, we had working capital of $5,013,000 compared to working capital of $7,232,000 at December 31, 2009. This decrease in our working capital resulted primarily from a decrease in license revenue in 2010. Net cash provided from operating activities totaled approximately $6,899,000 in 2010 compared to approximately $1,776,000 in 2009. In 2010, cash flow from operating activities represented the Companys principal source of cash and results primarily from net income (loss), less non-cash expense and changes in working capital. The Company had a significant increase in its accounts receivable in 2009 due to the license sales to new customers offset by non-cash expenses and payment of liabilities.
In 2010, net cash used for investing activities was approximately $5,172,000 compared to approximately $1,413,000 in 2009. The increase in net cash used for investing activities was mainly due to capitalized acquisition expenditures related to the acquisition of MSBS and a significant increase 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 2010, net cash provided from (used for) financing activities was approximately $(159,000) compared to approximately $(725,000) in 2009. The cash provided from financing activities in 2010 consisted of proceeds from the exercise of stock options and warrants and included the payment of debt related to the acquisition of MSBS. The cash provided from (used for) financing activities in 2009 consisted of dividends paid to common stockholders and proceeds from the exercise of stock options and warrants.
Funding Requirements
Our primary uses of cash are for personnel-related expenditures, facilities and technology costs.
We do not anticipate any large capital expenditures that will require us to seek new sources of capital. 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.
On June 18, 2008, we announced that the 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 of the Exchange Act.
In 2008, the Company purchased an aggregate of 201,870 shares of the Companys common stock on the open market at an average purchase price of $0.82 per share for a total purchase price of approximately $164,894.
On February 17, 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 its 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.
On April 12, 2010, the Company announced the acquisition of MSBS, a provider of business intelligence and advanced analytical solutions to the insurance industry based in New York, New York. The Company acquired substantially all of MSBS assets (excluding working capital) for an aggregate purchase price of $2,450,000, with no assumed indebtedness, payable as follows: (i) a cash flow payment in the amount of $1,760,000; (ii) the execution and delivery by the Company to MSBS of a non-negotiable, subordinated promissory note in the aggregate principal amount of $600,000; and (iii) the delivery to MSBS of 76,014 shares of our common stock, which number of shares had a fair market value of $90,000 calculated as provided for in the purchase agreement.
We prepare monthly cash flow projections on a rolling twelve-month basis based on a detailed review of anticipated receipts and revenue from licenses, maintenance, ASP 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.
23
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. We do not anticipate any material changes in our sources of and needs for capital. 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 its 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 intense 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 we do so on the basis of insurance knowledge, products, services, price, technological advances and system functionality and performance;
·
Our operations depend upon the continuing business of our existing customers and our ability to attract new customers; and
·
A decline in software spending in the insurance industry could result in a decrease in our revenue.
Material risks to cash flow from operations include delayed or reduced cash payments accompanying sales of new licenses or a decline in our services business. There can be no assurance that changes in our plans or other events affecting our operations will not result in materially accelerated or unexpected expenditures.
We do not expect for there to be a change in the mix or relative cost of our sources of capital.
Net Operating Tax Loss Carryforwards
At December 31, 2010, we had approximately $17,000,000 of federal net operating tax loss carryforwards expiring at various dates through 2026. The Tax Reform Act of 1986 enacted a complex set of rules which limits a companys ability to utilize net operating tax loss carryforwards and tax credit carryforwards in periods following an ownership change. These rules define 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 or the result of other changes in ownership of our outstanding stock, we may experience an ownership change and consequently our utilization of net operating tax loss carryforwards could be significantly limited.
CONTRACTUAL OBLIGATIONS
The following table summarizes our significant contractual obligations at December 31, 2010:
Payments due by period
(in thousands)
Contractual Obligations |
Total |
Less than 1 Year |
1-3 Years |
3-5 Years |
More than 5 Years |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Operating
Leases |
$ | 2,166 | $ | 876 | $1,290 | $ | | $ | | |||||||||||||
Total |
$ | 2,166 | $ | 876 | $1,290 | $ | | $ | |
We lease one facility in Fairfield, New Jersey, which lease expires at October 31, 2012 and one facility in New York, New York, which lease expires January 31, 2014. We also lease various telephone and computer equipment.
24
OFF-BALANCE-SHEET ARRANGEMENTS
During the fiscal year ended December 31, 2010, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K promulgated under the Exchange Act.
RECENT ACCOUNTING AND AUDITING DEVELOPMENTS
In July 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU No. 2010-20 requires a greater level of disaggregation in disclosures relating to the credit quality of the Companys financing receivables and allowance for loan losses. Furthermore, ASU 2010-20 also requires enhanced disclosures around nonaccurual and past due financing receivables, impaired loans and loan modifications. The standard is effective for the first interim or annual reporting periods ending on or after December 15, 2010.
In January 2010, the FASB issued updated accounting guidance related to fair value measurements and disclosures which amends and clarifies existing disclosure requirements. This updated accounting guidance requires new disclosures related to amounts transferred into and out of Level 1 and 2 fair value measurements as well as separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as Level 3 fair value measurements. This guidance also clarifies existing fair value disclosure requirements related to the level of disaggregation and the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.
In February 2010, the FASB issued an additional accounting pronouncement that amended certain requirements for subsequent events (FASB ASC Topic 855), which requires an SEC filer or a conduit bond obligor to evaluate subsequent events through the date the financial statements are available to be issued and removes the previous requirements to disclose the date through which subsequent events have been evaluated. The amended amendments were effective on issuance of the final pronouncement. The adoption of this pronouncement had no effect on our consolidated financial statements.
In September 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, and ASU 2009-14, Certain Revenue Arrangements That Include Software Elements a consensus of the FASB Emerging Issues Task Force, to amend the existing revenue recognition guidance. ASU 2009-13 amends ASC 605, Revenue Recognition, Section 25, Multiple-Element Arrangements, as follows: modifies criteria used to separate elements in a multiple-element arrangement, introduces the concept of best estimate of selling price for determining the selling price of a deliverable, requires use of the relative selling price method and prohibits use of the residual method to allocate arrangement consideration among units of accounting, and expands the disclosure requirements for all multiple-element arrangements within the scope of ASC 605-25.
ASU 2009-14 amends the scope of ASC 985, Software, and ASC 605, Revenue Recognition, to exclude certain tangible products and related deliverables that contain embedded software from the scope of this guidance. Instead, the excluded products and related deliverables must be evaluated for separation, measurement, and allocation under the guidance of ASC 605-25, as amended by ASU 2009-13. The amended guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. An entity may elect retrospective application to all revenue arrangements for all periods presented using the guidance in ASC 250, Accounting Changes and Error Corrections. Entities must adopt the amendments resulting from both of these ASUs in the same period using the same transition method, where applicable. Management is reviewing ASU 2009-13 and ASU 2009-14 for applicability to the Companys revenue recognition policies. The Company will adopt this standard for our fiscal year beginning January 1, 2011.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company and this Item is not applicable to us.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in Item 15(a)(1) and (2) of this report are included beginning on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms, and (2) accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Exchange Act defines internal control over financial reporting in Rule 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the companys principal executive and principal financial officers and effected by the companys board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
·
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
·
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
·
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Companys management assessed the effectiveness of the Companys internal control over financial reporting as of December 31, 2010. In making this assessment, the Companys management used the criteria set forth by the Committee of Sponsoring Organizations, or COSO, of the Treadway Commission in Internal Control Integrated Framework.
26
Based upon its assessment, management concluded that, as of December 31, 2010, the Companys internal control over financial reporting is effective based upon those criteria.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
27
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item and not otherwise set forth below will be included in the Proxy Statement and is incorporated herein by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information, as of March 10, 2011, regarding our executive officers:
Name |
Age |
Position |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
John W.
Roblin |
65 |
Chairman of the Board of Directors and Chief Executive Officer |
||||||||
Manish D.
Shah |
39 |
Director, President and Chief Technology Officer |
||||||||
Maryanne Z.
Gallagher |
49 |
Executive Vice President and Chief Operating Officer |
||||||||
Ann F.
Massey |
52 |
Chief
Financial Officer and Secretary |
The biographies of our executive officers are set forth below:
John W. Roblin has served as our Chief Executive Officer since December 1999 and as a director since March 2000. He was named Chairman of the Board of Directors in February 2001. He served as our President from December 1999 to November 2008. Prior to joining us, Mr. Roblin was Chief Information Officer and Senior Vice President for CIGNA Property and Casualty, positions he held since 1998. From 1994 until 1998, he was Chief Information Officer and Senior Vice President for Advanta Corporation. Prior to 1994, he was the Chief Information Officer at Chubb & Son, USF&G and Travelers Personal Lines Division.
Manish D. Shah has served as a member of our Board and as our President since November 2008 and has served as our Chief Technology Officer since May 2004. Prior to his promotion to the position of our President, he served as our Executive Vice President since May 2008. Mr. Shah served as our Director of Technology from December 2002 through May 2004 and served as our technology consultant from September 2000 through December 2001. He graduated with Honors from the Columbia University Executive MBA Program in May 2008. Prior to joining us, Mr. Shah held several technology management positions at various companies such as Andersen Consulting, P&O Nedlloyd and Tata Consultancy Services in different industries for over 10 years.
Maryanne Z. Gallagher has served as our Executive Vice President and Chief Operating Officer since May 2008 and February 2001, respectively. Prior to holding the position of Chief Operating Officer, she served as our Senior Vice President since January 2000. From November 1998 until December 1999, Ms. Gallagher served as our Vice President - Customer Service. Ms. Gallagher joined us in 1990 and has held various development and support positions in our Classic division through 1998.
Ann F. Massey has served as our Chief Financial Officer since February 2001, as our Secretary since April 1997 and as our Controller since March 1997. From March 1996 to March 1997, Ms. Massey served as our Assistant Treasurer. From 1994 until February 1996, Ms. Massey served as Assistant Controller for our insurance services division. Prior to 1994, Ms. Massey had served as our Accounting Manager.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.
28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.
29
PART IV
ITEM 1. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as a part of this report.
(1)
Financial Statements
Reference is made to the Index to Financial Statements on Page 31 of this report.
(2)
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts. | F-24 |
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the financial statements and notes thereto.
(3)
Exhibits.
See Exhibit Index.
30
Page |
||||||
---|---|---|---|---|---|---|
Report of
Independent Registered Public Accounting Firm |
F-1 |
|||||
Consolidated
Balance Sheets December 31, 2010 and 2009 |
F-2 |
|||||
Consolidated
Statements of Operations Years Ended December 31, 2010, 2009 and 2008 |
F-4 |
|||||
Consolidated
Statements of Changes in Stockholders Equity Years Ended December 31, 2010, 2009 and 2008 |
F-6 |
|||||
Consolidated
Statements of Cash Flows Years Ended December 31, 2010, 2009 and 2008 |
F-7 |
|||||
Notes to
Consolidated Financial Statements |
F-9 |
|||||
Financial
Statement Schedule II Valuation and Qualifying Accounts |
F-24 |
Cover-All Technologies Inc.
A Professional Corporation
March 24, 2011
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Assets: |
|||||||||||
Current
Assets: |
|||||||||||
Cash and Cash
Equivalents |
$ | 5,892,649 | $ | 4,324,446 | |||||||
Accounts
Receivable (Less Allowance for Doubtful Accounts of $25,000 in 2010 and 2009) |
1,895,205 | 5,086,482 | |||||||||
Prepaid
Expenses |
691,020 | 415,491 | |||||||||
Deferred Tax
Asset |
800,000 | 806,750 | |||||||||
Total
Current Assets |
9,278,874 | 10,633,169 | |||||||||
Property
and Equipment At Cost: |
|||||||||||
Furniture,
Fixtures and Equipment |
956,269 | 624,266 | |||||||||
Less:
Accumulated Depreciation |
530,701 | 371,329 | |||||||||
Property
and Equipment Net |
425,568 | 252,937 | |||||||||
Goodwill |
1,039,114 | | |||||||||
Capitalized Software (Less Accumulated Amortization of $12,584,710 and $11,966,365 in 2010 and 2009, Respectively) |
5,804,093 | 2,341,960 | |||||||||
Customer
Lists/Relationships (Less Accumulated Amortization of $52,759 and $-0- in 2010 and 2009, Respectively) |
167,241 | | |||||||||
Non-Competition Agreements (Less Accumulated Amortization of $46,044 and $-0- in 2010 and 2009, Respectively) |
113,955 | | |||||||||
Deferred
Tax Asset |
2,467,500 | 1,660,750 | |||||||||
Other
Assets |
217,015 | 110,151 | |||||||||
Total
Assets |
$ | 19,513,360 | $ | 14,998,967 |
December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Liabilities and Stockholders Equity: |
|||||||||||
Current
Liabilities: |
|||||||||||
Accounts
Payable |
$ | 273,910 | $ | 208,814 | |||||||
Note
Payable |
400,000 | | |||||||||
Accrued
Liabilities |
1,363,706 | 1,275,058 | |||||||||
Taxes
Payable |
| 139,035 | |||||||||
Deferred
Charges |
52,545 | 27,510 | |||||||||
Unearned
Revenue |
2,175,683 | 1,750,303 | |||||||||
Total
Current Liabilities |
4,265,844 | 3,400,720 | |||||||||
Long-Term
Liabilities: |
|||||||||||
Deferred
Charges |
43,788 | 96,333 | |||||||||
Total
Liabilities |
4,309,632 | 3,497,053 | |||||||||
Commitments and Contingencies |
| | |||||||||
Stockholders Equity: |
|||||||||||
Common Stock,
$.01 Par Value, Authorized 75,000,000 Shares; 25,201,671 and 24,885,656 Shares Issued and 24,999,801 and 24,683,786 Shares Outstanding in 2010 and
2009, Respectively |
252,017 | 248,856 | |||||||||
Capital In
Excess of Par Value |
30,450,122 | 29,703,254 | |||||||||
Accumulated
Deficit |
(15,333,517 | ) | (18,285,302 | ) | |||||||
Treasury
Stock 201,870 Shares At Cost |
(164,894 | ) | (164,894 | ) | |||||||
Total
Stockholders Equity |
15,203,728 | 11,501,914 | |||||||||
Total
Liabilities and Stockholders Equity |
$ | 19,513,360 | $ | 14,998,967 |
Years ended |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
|||||||||||||||
2010 |
2009 |
2008 |
|||||||||||||
Revenues: |
|||||||||||||||
Licenses |
$ | 2,288,202 | $ | 4,138,252 | $ | 3,802,293 | |||||||||
Maintenance |
5,545,142 | 4,987,218 | 4,150,909 | ||||||||||||
Professional
Services |
7,069,715 | 3,281,973 | 3,476,877 | ||||||||||||
Application
Service Provider (ASP) Services |
2,553,766 | 2,107,949 | 2,037,180 | ||||||||||||
Total
Revenues |
17,456,825 | 14,515,392 | 13,467,259 | ||||||||||||
Costs of
Revenues: |
|||||||||||||||
Licenses |
1,326,973 | 1,808,449 | 1,830,909 | ||||||||||||
Maintenance |
2,834,910 | 2,685,549 | 2,476,645 | ||||||||||||
Professional
Services |
4,976,200 | 1,577,075 | 1,501,525 | ||||||||||||
ASP
Services |
1,679,248 | 1,689,194 | 1,335,505 | ||||||||||||
Total
Costs of Revenues |
10,817,331 | 7,760,267 | 7,144,584 | ||||||||||||
Direct
Margin |
6,639,494 | 6,755,125 | 6,322,675 | ||||||||||||
Operating
Expenses: |
|||||||||||||||
Sales and
Marketing |
1,423,656 | 906,074 | 883,428 | ||||||||||||
General and
Administrative |
1,901,673 | 1,674,445 | 1,540,044 | ||||||||||||
Acquisition
Costs |
285,240 | | | ||||||||||||
Research and
Development |
847,496 | 890,951 | 1,035,014 | ||||||||||||
Provision for
Doubtful Accounts |
| | 20,770 | ||||||||||||
Total
Operating Expenses |
4,458,065 | 3,471,470 | 3,479,256 | ||||||||||||
Operating
Income |
2,181,429 | 3,283,655 | 2,843,419 | ||||||||||||
Other
(Income) Expense: |
|||||||||||||||
Interest
Expense |
18,740 | | 9,469 | ||||||||||||
Interest
Expense Related Party |
| | 2,615 | ||||||||||||
Interest
Income |
(8,687 | ) | (6,172 | ) | (31,952 | ) | |||||||||
Other
Expense |
| 616 | | ||||||||||||
Other
Income |
(43,477 | ) | (45,370 | ) | (40,405 | ) | |||||||||
Total
Other (Income) Expense |
(33,424 | ) | (50,926 | ) | (60,273 | ) | |||||||||
Income
Before Income Taxes |
2,214,853 | 3,334,581 | 2,903,692 | ||||||||||||
Income Tax
(Benefit) |
(736,933 | ) | (582,325 | ) | (1,652,634 | ) | |||||||||
Net
Income |
$ | 2,951,786 | $ | 3,916,906 | $ | 4,556,326 |
Years ended |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
|||||||||||||||
2010 |
2009 |
2008 |
|||||||||||||
Basic
Earnings Per Common Share |
$ | .12 | $ | .16 | $ | .19 | |||||||||
Diluted
Earnings Per Common Share |
$ | .12 | $ | .16 | $ | .19 | |||||||||
Weighted
Average Number of Common Shares Outstanding for Basic Earnings Per Common Share |
24,828,000 | 24,591,000 | 23,794,000 | ||||||||||||
Weighted
Average Number of Common Shares Outstanding for Diluted Income Earnings Per Common Share |
25,590,000 | 25,057,000 | 24,203,000 |
Common Stock |
Capital in Excess of Par Value |
Accumulated Deficit |
Treasury Stock |
Total Stockholders Equity |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at
January 1, 2008 |
$ | 231,923 | $ | 28,073,659 | $ | (26,020,150 | ) | $ | | $ | 2,285,432 | |||||||||||
Exercise of
540,539 Stock Options |
5,405 | 275,945 | | | 281,350 | |||||||||||||||||
Grant of
83,169 Shares of Common Stock to Non-Employee Directors |
832 | 83,168 | | | 84,000 | |||||||||||||||||
Conversion of
$62,265 of Convertible Debt |
8,742 | 253,523 | | | 262,265 | |||||||||||||||||
Purchase of
201,870 Shares of Treasury Stock |
| | | (164,894 | ) | (164,894 | ) | |||||||||||||||
Non-Cash
Stock-Based Compensation |
| 499,351 | | | 499,351 | |||||||||||||||||
Net
Income |
| | 4,556,326 | | 4,556,326 | |||||||||||||||||
Balance at
December 31, 2008 |
246,902 | 29,185,646 | (21,463,824 | ) | (164,894 | ) | 7,803,830 | |||||||||||||||
Exercise of
26,429 Stock Options and Warrants |
264 | 13,036 | | | 13,300 | |||||||||||||||||
Vesting of
75,000 Shares of Restricted Stock to One of Our Executives |
750 | (750 | ) | | | | ||||||||||||||||
Grant of
84,000 Shares of Restricted Stock to Non- Employee Directors |
840 | 83,160 | | | 84,000 | |||||||||||||||||
Grant of
10,000 Shares of Restricted Stock to Our Investor Relations Firm |
100 | 12,400 | | | 12,500 | |||||||||||||||||
Non-Cash
Stock-Based Compensation |
| 409,762 | | | 409,762 | |||||||||||||||||
Dividends
Paid to Common Stockholders |
| | (738,384 | ) | | (738,384 | ) | |||||||||||||||
Net
Income |
| | 3,916,906 | | 3,916,906 | |||||||||||||||||
Balance at
December 31, 2009 |
248,856 | 29,703,254 | (18,285,302 | ) | (164,894 | ) | 11,501,914 | |||||||||||||||
Exercise of
60,000 Stock Options and Warrants |
600 | 40,700 | | | 41,300 | |||||||||||||||||
Vesting of
107,500 Shares of Restricted Stock to Several of Our Employees |
1,075 | (1,075 | ) | | | | ||||||||||||||||
Grant of
72,501 Shares of Restricted Stock to Non- Employee Directors |
725 | 99,164 | | | 99,889 | |||||||||||||||||
Grant of
76,014 Shares of Stock to MSBS Related to the Acquisition |
760 | 89,240 | | | 90,000 | |||||||||||||||||
Non-Cash
Stock-Based Compensation |
| 518,839 | | | 518,839 | |||||||||||||||||
Net
Income |
| | 2,951,786 | | 2,951,786 | |||||||||||||||||
Balance at
December 31, 2010 |
$ | 252,016 | $ | 30,450,122 | $ | (15,333,516 | ) | $ | (164,894 | ) | $ | 15,203,728 |
Years ended |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
|||||||||||||||
2010 |
2009 |
2008 |
|||||||||||||
Cash Flows
from Operating Activities: |
|||||||||||||||
Net
Income |
$ | 2,951,786 | $ | 3,916,906 | $ | 4,556,326 | |||||||||
Adjustments
to Reconcile Net Income to Net |
|||||||||||||||
Cash Provided
by Operating Activities: |
|||||||||||||||
Bad Debt
Expense |
| | 20,770 | ||||||||||||
Depreciation |
159,835 | 72,165 | 70,706 | ||||||||||||
Amortization
of Capitalized Software |
618,345 | 917,207 | 868,405 | ||||||||||||
Amortization
of Customer Lists/Relationships |
52,759 | | | ||||||||||||
Amortization
of Non-Competition Agreements |
46,044 | | | ||||||||||||
Amortization
of Deferred Financing Costs |
| | 26,273 | ||||||||||||
Amortization
of Stock-Based Compensation |
518,839 | 409,762 | 583,351 | ||||||||||||
Stock-Based
Compensation Provided for Services |
99,889 | 96,500 | | ||||||||||||
Deferred Tax
Benefit |
(800,000 | ) | (787,500 | ) | (1,680,000 | ) | |||||||||
Write-off of
Leasehold Improvement |
| 616 | | ||||||||||||
Changes in
Assets and Liabilities: |
|||||||||||||||
(Increase)
Decrease in: |
|||||||||||||||
Accounts
Receivable |
3,191,277 | (3,030,667 | ) | 1,595,836 | |||||||||||
Prepaid
Expenses |
(245,274 | ) | (80,688 | ) | (41,408 | ) | |||||||||
Other
Assets |
(106,864 | ) | | | |||||||||||
Increase
(Decrease) in: |
|||||||||||||||
Accounts
Payable |
65,096 | (18,193 | ) | (352,439 | ) | ||||||||||
Accrued
Liabilities |
88,648 | 213,993 | (19,070 | ) | |||||||||||
Taxes
Payable |
(139,035 | ) | 139,035 | | |||||||||||
Deferred
Charges |
(27,510 | ) | (22,503 | ) | (22,503 | ) | |||||||||
Unearned
Revenue |
425,380 | (50,182 | ) | 312,940 | |||||||||||
Net Cash
Provided from Operating Activities |
6,899,215 | 1,776,451 | 5,919,187 | ||||||||||||
Cash Flows
from Investing Activities: |
|||||||||||||||
Capital
Expenditures |
(119,810 | ) | (2,335 | ) | (224,542 | ) | |||||||||
Capitalized
Software Expenditures |
(3,260,479 | ) | (1,411,057 | ) | (1,135,545 | ) | |||||||||
Cost of
Acquisition |
(1,792,023 | ) | | | |||||||||||
Net Cash
Used for Investing Activities |
(5,172,312 | ) | (1,413,392 | ) | (1,360,087 | ) | |||||||||
Cash Flows
from Financing Activities: |
|||||||||||||||
Payment of
Debt |
(200,000 | ) | | | |||||||||||
Dividends
Paid to Common Stockholders |
| (738,383 | ) | | |||||||||||
Proceeds from
Exercise of Stock Options, Restricted Stock and Warrants |
41,300 | 13,300 | 281,350 | ||||||||||||
Purchase of
Treasury Stock |
| | (164,894 | ) | |||||||||||
Net Cash
Provided from (Used for) Financing Activities |
(158,700 | ) | (725,083 | ) | 116,456 | ||||||||||
Increase
(Decrease) in Cash and Cash Equivalents |
1,568,203 | (362,024 | ) | 4,675,556 | |||||||||||
Cash and
Cash Equivalents Beginning of Years |
4,324,446 | 4,686,470 | 10,914 | ||||||||||||
Cash and
Cash Equivalents End of Years |
$ | 5,892,649 | $ | 4,324,446 | $ | 4,686,470 |
Supplemental
Disclosures of Cash Flow Information: |
|||||||||||||||
Cash paid
during the years for: |
|||||||||||||||
Interest |
$ | 18,740 | $ | | $ | 9,469 | |||||||||
Interest
Related Party |
$ | | $ | | $ | 2,615 | |||||||||
Income
Taxes |
$ | 267,102 | $ | 66,140 | $ | 27,367 | |||||||||
Supplemental Disclosures of Non-Cash Financing Activities: On June 25, 2008, John Roblin, our Chairman and Chief Executive Officer, and certain other investors elected to convert all of the unpaid principal amount due on convertible debentures in their possession, totaling $262,265, into an aggregate of 874,217 shares of our common stock at the conversion price of $0.30 per share. We made an aggregate of $10,000 of interest payments on the debentures during 2008. |
|||||||||||||||
Supplemental Disclosures of Non-Cash Investing Activities: On April 12, 2010, the Company purchased certain assets of Moore Stephens Business Solutions, LLC (MSBS). In connection with the acquisition, debt was issued as follows: |
|||||||||||||||
Fair Value of
Assets Acquired |
$ | 2,482,023 | |||||||||||||
Cash Paid for
the Assets Acquired |
(1,792,023 | ) | |||||||||||||
Fair Value of
Common Stock Issued |
(90,000 | ) | |||||||||||||
Debt
Issued |
$ | 600,000 | |||||||||||||
The Company issued an aggregate of 76,014 shares of its common stock in connection with the acquisition. See Note 3 of the
Consolidated Financial Statements for further details on the acquisition. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
Prepaid
Expenses |
$ | 30,253 | ||||
Computer
Equipment |
106,400 | |||||
Furniture and
Fixtures |
89,480 | |||||
Leasehold
Improvements |
16,775 | |||||
Partially
Complete Software |
820,000 | |||||
Agreements |
160,000 | |||||
Customer
Lists/Relationships |
220,000 | |||||
Goodwill |
1,039,115 | |||||
Total |
$ | 2,482,023 |
Year
ending December 31, |
||||||
2011 |
$ | 696,891 | ||||
2012 |
630,450 | |||||
2013 |
277,048 | |||||
2014 and
Thereafter |
23,125 | |||||
Total |
$ | 1,627,514 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
Years ended |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
|||||||||||||||
2010 |
2009 |
2008 |
|||||||||||||
Current: |
|||||||||||||||
Federal |
$ | 11,492 | $ | 106,412 | $ | 21,849 | |||||||||
State |
51,575 | 98,763 | 5,517 | ||||||||||||
Totals |
63,067 | 205,175 | 27,366 | ||||||||||||
Deferred: |
|||||||||||||||
Federal |
(800,000 | ) | (787,500 | ) | (1,680,000 | ) | |||||||||
State |
| | | ||||||||||||
Totals |
(800,000 | ) | (787,500 | ) | (1,680,000 | ) | |||||||||
Income Tax (Benefit) |
$ | (736,933 | ) | $ | (582,325 | ) | $ | (1,652,634 | ) |
Years ended |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
|||||||||||||||
2010 |
2009 |
2008 |
|||||||||||||
Computed
Federal Statutory Tax |
$ | 753,050 | $ | 1,133,758 | $ | 987,255 | |||||||||
Valuation
Allowance Adjustment to Deferred Tax Asset |
(800,000 | ) | (787,500 | ) | (1,680,000 | ) | |||||||||
Tax Benefit
of Federal Net Operating Loss Carryforward |
(689,983 | ) | (928,583 | ) | (959,889 | ) | |||||||||
Actual Tax (Benefit) |
$ | (736,933 | ) | $ | (582,325 | ) | $ | (1,652,634 | ) |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
Years ended |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
December 31, |
|||||||||||
2010 |
2009 |
||||||||||
Deferred Tax
Assets Current: |
|||||||||||
Accounts
Receivable Allowance |
$ | 10,000 | $ | 10,000 | |||||||
Vacation
Accrual |
10,000 | 10,000 | |||||||||
Net Operating
Loss Carryforward |
780,000 | 786,750 | |||||||||
Current Deferred Tax Asset |
$ | 800,000 | $ | 806,750 | |||||||
Deferred Tax
Asset (Liability) Long-Term: |
|||||||||||
Net Operating
Loss Carryforward |
$ | 6,232,000 | $ | 6,232,000 | |||||||
Capitalized
Software |
(2,322,000 | ) | (937,000 | ) | |||||||
Depreciation
and Amortization |
64,000 | 29,000 | |||||||||
Valuation
Allowance |
(1,506,500 | ) | (3,663,250 | ) | |||||||
Long-Term Deferred Tax Asset |
$ | 2,467,500 | $ | 1,660,750 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
2010 |
2009 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Expected
volatility |
45%50 | % | 45%50 | % | ||||||
Weighted-average volatility |
47 | % | 48 | % | ||||||
Expected
dividends |
0 | % | 0 | % | ||||||
Expected term
(in years) |
35 | 35 | ||||||||
Risk-free
interest rate |
3 | % | 3 | % |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
Shares |
Exercise Price Per Share |
Weighted-Average Remaining Contractual Life |
Weighted-Average Exercise Price |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance,
January 1, 2008 |
2,533,000 | $0.34-2.00 | 2.1 Years |
$.97 | ||||||||||||||
Granted |
347,463 | 0.85-1.38 | 4.5 Years |
.96 | ||||||||||||||
Exercised |
(625,000 | ) | 0.34-0.60 | .52 | ||||||||||||||
Canceled |
| | | |||||||||||||||
Expired |
(758,000 | ) | 1.25-2.00 | 1.42 | ||||||||||||||
Balance,
December 31, 2008 |
1,497,463 | $0.36-1.40 | 3.4 Years |
$.92 | ||||||||||||||
Granted |
360,000 | 1.00-1.05 | 4.2 Years |
1.01 | ||||||||||||||
Exercised |
(55,000 | ) | 0.61-1.16 | .66 | ||||||||||||||
Canceled |
| | | |||||||||||||||
Expired |
| | | |||||||||||||||
Balance,
December 31, 2009 |
1,802,463 | $0.36-1.40 | 2.8 Years |
$.95 | ||||||||||||||
Granted |
567,500 | 1.12-1.55 | 4.3 Years |
1.40 | ||||||||||||||
Exercised |
(10,000 | ) | 1.05 | 1.05 | ||||||||||||||
Canceled |
(75,000 | ) | 1.25 | 1.25 | ||||||||||||||
Expired |
| | |
|||||||||||||||
Balance,
December 31, 2010 |
2,284,963 | $0.36-1.55 | 2.3 Years |
$1.05 |
Number Granted |
Weighted-Average Exercise Price |
Weighted-Average Fair Value |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exercise
Price at Stock Price |
567,500 | $ | 1.40 | $ | .60 |
Number Granted |
Weighted-Average Exercise Price |
Weighted-Average Fair Value |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exercise
Price at Stock Price |
360,000 | $ | 1.01 | $ | .66 |
Number Granted |
Weighted-Average Exercise Price |
Weighted-Average Fair Value |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exercise
Price at Stock Price |
347,463 | $ | .96 | $ | .96 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
December 31, |
Number of Exercisable Options |
Weighted-Average Exercise Price |
||||||
---|---|---|---|---|---|---|---|---|
2010 |
1,385,963 | $.92 | ||||||
2009 |
1,145,463 | $.86 | ||||||
2008 |
699,152 | $.70 |
Outstanding Stock Options |
Exercisable Stock Options |
||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices |
Shares |
Weighted-Average Remaining Contractual Life |
Weighted-Average Exercise Price |
Shares |
Weighted-Average Exercise Price |
||||||||||||||||||
$ .36-$ .41 |
220,000 | .6 Years |
$ .41 | 220,000 | $ .41 |
||||||||||||||||||
$ .79-$1.05 |
1,125,000 | 2.1 Years |
$ .87 | 767,250 | $ .85 |
||||||||||||||||||
$1.12-$1.55 |
939,963 | 3.1 Years |
$1.41 | 398,713 | $1.34 |
||||||||||||||||||
2,284,963 | 2.3 Years |
$1.05 | 1,385,963 | $ .92 |
Outstanding and Exercisable Warrants |
Exercise Price Per Warrant |
Weighted-Average Remaining Contractual Life |
Weighted-Average Exercise Price |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance,
December 31, 2008 |
121,429 | $ | .35 | 2.35 | Years | $ | .35 | |||||||||||
Exercised |
(21,429 | ) | .35 | .35 | ||||||||||||||
Balance,
December 31, 2009 |
100,000 | $ | .35 | 1.11 | Years | $ | .35 | |||||||||||
Balance,
December 31, 2010 |
100,000 | $ | .35 | .11 | Years | $ | .35 |
December 31, |
Number of Exercisable Warrants |
Weighted-Average Exercise Price |
||||||
---|---|---|---|---|---|---|---|---|
2010 |
100,000 | $.35 | ||||||
2009 |
100,000 | $.35 | ||||||
2008 |
121,429 | $.35 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
Shares |
Weighted-Average Grant Date Fair Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|
Balance,
January 1, 2008 |
125,000 | $ | 1.40 | |||||||
Granted |
257,500 | $ | 1.16 | |||||||
Vested |
| | ||||||||
Forfeited or
Expired |
| | ||||||||
Balance, December 31, 2008 |
382,500 | $ | 1.24 | |||||||
Granted |
| $ | | |||||||
Vested |
(150,000 | ) | | |||||||
Forfeited or
Expired |
(17,500 | ) | | |||||||
Balance, December 31, 2009 |
215,000 | $ | 1.13 | |||||||
Granted |
387,000 | $ | 1.38 | |||||||
Vested |
(107,500 | ) | | |||||||
Forfeited or
Expired |
(25,000 | ) | | |||||||
Balance, December 31, 2010 |
469,500 | $ | 1.28 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
2010 |
2009 |
2008 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Numerator: |
||||||||||||||
Net
Income |
$ | 2,951,786 | $ | 3,916,906 | $ | 4,556,326 | ||||||||
Numerator for Diluted Earnings Per Common Share |
$ | 2,951,786 | $ | 3,916,906 | $ | 4,556,326 | ||||||||
Denominator: |
||||||||||||||
Weighted
Average Number of Common Shares Outstanding for Basic Earnings Per Common Share |
24,828,000 | 24,591,000 | 23,794,000 | |||||||||||
Effect of
Dilutive Securities: |
||||||||||||||
Exercise of
Options and Restricted Stock |
687,000 | 398,000 | 329,000 | |||||||||||
Exercise of
Warrants |
75,000 | 68,000 | 80,000 | |||||||||||
Denominator for Diluted Earnings Per Common Share |
25,590,000 | 25,057,000 | 24,203,000 | |||||||||||
Basic Earnings Per Common Share |
$ | .12 | $ | .16 | $ | .19 | ||||||||
Diluted Earnings Per Common Share |
$ | .12 | $ | .16 | $ | .19 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
Years ended December 31, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
2010 |
2009 |
||||||||||
Accrued
Bonuses, Payroll, Commissions, Benefits, Temporary Help and Consulting |
$ | 1,080,402 | $ | 908,069 | |||||||
Accrued
Professional Fees |
227,900 | 224,726 | |||||||||
Other |
55,404 | 142,263 | |||||||||
Totals |
$ | 1,363,706 | $ | 1,275,058 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #15
Balance at Beginning of Period |
Additions |
Deductions |
Balance at End of Period |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accumulated
amortization of capitalized software and software license: |
||||||||||||||||||
Year Ended
December 31, 2010 |
$ | 11,966,365 | $ | 618,345 | $ | | $ | 12,584,710 | ||||||||||
Year Ended
December 31, 2009 |
$ | 11,049,157 | $ | 917,208 | $ | | $ | 11,966,365 | ||||||||||
Year Ended
December 31, 2008 |
$ | 10,180,752 | $ | 868,405 | $ | | $ | 11,049,157 | ||||||||||
Accumulated
amortization of Customer lists/relationship: |
||||||||||||||||||
Year Ended
December 31, 2010 |
$ | | $ | 52,759 | $ | | $ | 52,759 | ||||||||||
Year Ended
December 31, 2009 |
$ | | $ | | $ | | $ | | ||||||||||
Year Ended
December 31, 2008 |
$ | | $ | | $ | | $ | | ||||||||||
Accumulated
amortization of non-compete agreements: |
||||||||||||||||||
Year Ended
December 31, 2010 |
$ | | $ | 46,044 | $ | | $ | 46,044 | ||||||||||
Year Ended
December 31, 2009 |
$ | | $ | | $ | | $ | | ||||||||||
Year Ended
December 31, 2008 |
$ | | $ | | $ | | $ | | ||||||||||
Allowance for
Doubtful Accounts: |
||||||||||||||||||
Year Ended
December 31, 2010 |
$ | 25,000 | $ | | $ | | $ | 25,000 | ||||||||||
Year Ended
December 31, 2009 |
$ | 25,000 | $ | | $ | | $ | 25,000 | ||||||||||
Year Ended
December 31, 2008 |
$ | 25,000 | $ | 20,770 | $ | 20,770 | $ | 25,000 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COVER-ALL TECHNOLOGIES INC.
Date: March 24, 2011
By: /s/ John W. Roblin
John W. Roblin
Chairman of the Board of Directors and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures |
Title |
Date |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
/s/ John W.
Roblin John W. Roblin |
Chairman of the Board and Chief Executive Officer (Principal Executive Officer) |
March
24, 2011 |
||||||||
/s/ Ann F.
Massey Ann F. Massey |
Chief
Financial Officer, Controller and Secretary (Principal Financial Officer and Principal Accounting Officer) |
March
24, 2011 |
||||||||
/s/ Manish D.
Shah Manish D. Shah |
Director, President and Chief Technology Officer |
March
24, 2011 |
||||||||
/s/ Russell
Cleveland Russell Cleveland |
Director |
March
24, 2011 |
||||||||
/s/ Earl
Gallegos Earl Gallegos |
Director |
March
24, 2011 |
||||||||
/s/ Stephen M.
Mulready Stephen M. Mulready |
Director |
March
24, 2011 |
EXHIBIT INDEX
The following is a list of exhibits required by Item 601 of Regulation S-K filed as part of this Form 10-K. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.
Exhibit No.
Description
2
Certificate of Merger of the Company Computer Systems, Inc. (a New York corporation) into the Registrant, filed on June 11, 1985 [incorporated by reference to Exhibit 2 to the Registrants Annual Report on Form 10-K (Commission File No. 0-13124) filed on January 29, 1986].
3(a)
Certificate of Incorporation of the Registrant filed on April 22, 1985 [incorporated by reference to Exhibit 3 (a)to the Registrants Annual Report on Form 10-K (Commission File No. 0-13124) filed on January 29, 1986].
3(b)
Certificate of Amendment of Certificate of Incorporation of the Registrant filed on May 6, 1987 [incorporated by reference to Exhibit 3.2 to the Registrants Registration Statement on Form S-1 (Commission File No. 33-17533) filed on September 29, 1987].
3(c)
Certificate of Amendment of Certificate of Incorporation of the Registrant filed on March 26, 1990 [incorporated by reference to Exhibit 3(d) to the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on June 14, 1990].
3(d)
Certificate of Amendment of Certificate of Incorporation of the Registrant filed on March 18, 1992 [incorporated by reference to Exhibit 1 to the Registrants Current Report on Form 8-K (Commission File No. 0-13124) filed on March 30, 1992].
3(e)
Certificate of Amendment of Certificate of Incorporation of the Registrant [incorporated by reference to Exhibit 3(e) to the Registrants Amendment No. 1 to Registration Statement on Form S-3 (Commission File No. 0-13124) filed on July 10, 1996].
3(f)
Certificate of Amendment of Certificate of Incorporation of the Registrant filed on July 12, 2000 [incorporated by reference to Exhibit 3(g) to the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on August 11, 2000].
3(g)
By-laws of the Registrant, as amended [incorporated by reference to Exhibit 3(g) to the Registrants Amendment No. 1 to Registration Statement on Form S-3 (Commission file No. 0-13124) filed on July 10, 1996].
4
Form of Common Stock Certificate of the Registrant [incorporated by reference to Exhibit 4(a) to the Registrants Annual Report on Form 10-K (Commission File No. 0-13124) filed on January 29, 1986].
4(b)
Non-Negotiable Subordinated Promissory Note, dated April 12, 2010, in the principal amount of $600,000 for the benefit of Moore Stephens Business Solutions, LLC [incorporated by reference to Exhibit 4(b) to the Registrants Post-Effective Amendment No. 1 to Form S-1 (SEC File No. 333-156397) filed on May 7, 2010].
10(a)
Warner Insurance Services, Inc. Tax Saver 401(k) Salary Reduction Plan adopted May 31, 1985 and restated as of August 11, 1992 [incorporated by reference to Exhibit 10(k) to the Registrants Annual Report on Form 10-K (Commission File No. 0-13124) filed on January 28, 1993].
10(c)(9)
Amendment to Non-Qualified Stock Option Agreement, dated as of December 20, 2004, between the Registrant and Earl Gallegos [incorporated by reference to Exhibit 10(c)(9) to the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on August 15, 2005].
10(c)(10)
Amendment to Incentive Stock Option Agreement, dated as of December 20, 2004, between the Registrant and John Roblin [incorporated by reference to Exhibit 10(c)(10) to the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on August 15, 2005].
10(c)(11)
Amendment to Incentive Stock Option Agreement, dated as of December 20, 2004, between the Registrant and John Roblin [incorporated by reference to Exhibit 10(c)(11) to the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on August 15, 2005].
10(c)(14)
Form of Non-Qualified Stock Option Agreement [incorporated by reference to Exhibit 10(c)(14) the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on May 15, 2006].
10(c)(15)
Form of Incentive Stock Option Agreement [incorporated by reference to Exhibit 10(c)(15) the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on May 15, 2006].
10(c)(16)
Form of Restricted Stock Grant Agreement [incorporated by reference to Exhibit 10(c)(16) the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on May 15, 2006].
10(c)(17)
Form of Non-Qualified Stock Option Agreement (for Consultants) [incorporated by reference to Exhibit 10 (c)(13) the Registrants Quarterly Report on Form 10-Q (Commission File No. 0-13124) filed on May 15, 2006].
10(c)(18)
Cover-All Technologies, Inc. Amended and Restated 2005 Stock Incentive Plan [incorporated by reference to Exhibit 10(c)(18) to the Registrants Form 8-K (Commission File No. 0-13124) filed on March 27, 2008].
10(c)(19)
Summary of 2009 Non-Employee Director Compensation dated March 2, 2009 [incorporated by reference to Exhibit 99.1 to the Registrants Form 8-K (Commission File No. 0-13124) filed on March 2, 2009].
10(c)(20)
Summary of 2010 Non-Employee Director Compensation dated March 12, 2010 [incorporated by reference to Exhibit 10(c)(20) to the Registrants Form 8-K (Commission File No. 0-13124) filed on March 16, 2010].
10(c)(21)
Amendment No. 1 to the Cover-All Technologies Inc. Amended and Restated 2005 Stock Incentive Plan [incorporated by reference to Exhibit 10(c)(21) to the Registrants Form 8-K (Commission File No. 0-13124) filed on January 3, 2011].
10(d)(1)
Lease Agreement, dated March 3, 2005, by and between the Registrant and Fairfield 80 Venture, LLC [incorporated by reference to Exhibit 10(d)(4) to the Registrants Annual Report on Form 10-K (Commission File No. 0-13124) filed on March 25, 2005].
10(d)(2)*
Agreement of Lease, dated December 11, 2008, by and between Moore Stephens Business Solutions, LLC and Green 317 Madison, LLC.
10(e)(5)
Employment Agreement, dated December 26, 2006, by and between the Registrant and John Roblin [incorporated by reference to Exhibit 10(e)(5) to the Registrants Form 8-K (Commission File No. 0-13124) filed on December 27, 2006].
10(e)(6)
Amendment No. 1 to the Employment Agreement, dated April 26, 2007, between the Registrant and John Roblin [incorporated by reference to Exhibit 10(e)(6) to the Registrants Form 8-K (Commission File No. 0-13124) filed on April 30, 2007].
10(e)(7)
Employment Agreement, dated December 26, 2007, by and between the Registrant and John Roblin [incorporated by reference to Exhibit 10(e)(7) to the Registrants Form 8-K (Commission File No. 0- 13124) filed on December 27, 2007].
10(e)(8)
Employment Agreement, dated December 22, 2009, by and between the Registrant and John Roblin [incorporated by reference to Exhibit 10(e)(8) to the Registrants Form 8-K (Commission File No. 0- 13124) filed on December 23, 2009].
10(j)(i)
Asset Purchase Agreement, dated January 22, 2007, between the Registrant and Maloy Risk Services, Inc. [incorporated by reference to Exhibit 10(j)(i) to the Registrants Form 8-K (Commission File No. 0-13124) filed on January 26, 2007].
10(j)(ii)
Commission Agreement, dated January 22, 2007, between the Registrant and Maloy Risk Services, Inc. [incorporated by reference to Exhibit 10(j)(ii) to the Registrants Form 8-K (Commission File No. 0-13124) filed on January 26, 2007].
10(k)
Client Services Addendum, effective as of January 1, 2005, between the Registrant and AIG [incorporated by reference to Exhibit 10(k) to the Registrants Registration Statement on Form S-1/A (Commission File No. 333-156397) filed on August 6, 2009].**
10(l)(1)
Asset Purchase Agreement, dated April 12, 2010, among the Registrant, Hays & Company LLP, Moore Stephens Consulting Limited and The Rachlin Group [incorporated by reference to Exhibit 10(l)(1) to the
Registrants Post-Effective Amendment No. 1 to Form S-1 (SEC File No. 333-156397) filed on May 7, 2010].
10(l)(2)
Mutual Non-Competition Agreement, dated April 12, 2010, between the Registrant and Moore Stephens Consulting Limited [incorporated by reference to Exhibit 10(l)(2) to the Registrants Post-Effective Amendment No. 1 to Form S-1 (SEC File No. 333-156397) filed on May 7, 2010].
10(m)
Employment Agreement, dated April 12, 2010, by and between the Registrant and Seth Rachlin [incorporated by reference to Exhibit 10(m) to the Registrants Post-Effective Amendment No. 1 to Form S-1 (SEC File No. 333-156397) filed on May 7, 2010].
14
Code of Ethics and Business Conduct [incorporated by reference to Exhibit 14 to the Registrants Annual Report on Form 10-K (Commission File No. 0-13124) filed on March 31, 2006].
21
Subsidiaries of the Registrant [incorporated by reference to Exhibit 21 to the Registrants Annual Report on Form 10-K (Commission File No. 0-13124) filed on April 11, 1996].
23.1*
Consent of MSPC.
31.1*
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
____________________
*
Filed herewith.
**
Confidential treatment has been requested for certain provisions of this Exhibit pursuant to Rule 24b-2 under the Exchange Act.
Denotes a management contract or compensatory plan or arrangement.