COVER ALL TECHNOLOGIES INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - COVER ALL TECHNOLOGIES INC	Financial_Report.xls
EX-10.3 - EX-10.3 - COVER ALL TECHNOLOGIES INC	d29908_ex10-3.htm
EX-31.1 - EX-31.1 - COVER ALL TECHNOLOGIES INC	d29908_ex31-1.htm
EX-10.2 - EX-10.2 - COVER ALL TECHNOLOGIES INC	d29908_ex10-2.htm
EX-10.1 - EX-10.1 - COVER ALL TECHNOLOGIES INC	d29908_ex10-1.htm
EX-10.5 - EX-10.5 - COVER ALL TECHNOLOGIES INC	d29908_ex10-5.htm
EX-31.2 - EX-31.2 - COVER ALL TECHNOLOGIES INC	d29908_ex31-2.htm
EX-10.4 - EX-10.4 - COVER ALL TECHNOLOGIES INC	d29908_ex10-4.htm
EX-32.1 - EX-32.1 - COVER ALL TECHNOLOGIES INC	d29908_ex32-1.htm
EX-32.2 - EX-32.2 - COVER ALL TECHNOLOGIES INC	d29908_ex32-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended September 30, 2012

	OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
	SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ________________ to ________________

Commission file number: 1-09228

COVER-ALL TECHNOLOGIES INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		13-2698053
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)
412 Mt. Kemble Avenue, Suite 110C, Morristown, New Jersey		07960
(Address of principal executive offices)		(Zip code)

973-461-5200

(Registrant’s telephone number, including area code)

55 Lane Road, Fairfield, New Jersey 07004

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ X ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at November 10, 2012
Common Stock, $.01 par value per share		25,882,730 shares

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2012

PART I:	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2012 (Unaudited)
	and December 31, 2011	3
	Consolidated Statements of Operations for the three and nine
	months ended September 30, 2012 and 2011 (Unaudited)	5
	Consolidated Statements of Cash Flows for the nine
	months ended September 30, 2012 and 2011 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures
	About Market Risk	25
Item 4.	Controls and Procedures	25

PART II:	OTHER INFORMATION

Item 1A.	Risk Factors	27

Item 6.	Exhibits	34

SIGNATURES		35

. . . . . . . . . .

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	September 30, 2012		December 31, 2011
	(Unaudited)
Assets:
Current Assets:
Cash and Cash Equivalents	$	1,799,729	$	3,281,965
Accounts Receivable (Less Allowance for Doubtful Accounts of $25,000)		2,241,612		1,817,793
Prepaid Expenses		890,942		576,522
Deferred Tax Asset		1,099,000		1,099,000

Total Current Assets		6,031,283		6,775,280

Property and Equipment – At Cost:
Furniture, Fixtures and Equipment		1,717,754		912,527
Less: Accumulated Depreciation		648,577		633,356

Property and Equipment – Net		1,069,177		279,171

Goodwill		1,039,114		1,039,114

Capitalized Software (Less Accumulated Amortization of$16,657,789 and $14,134,024, Respectively)		10,891,758		8,799,711

Customer Lists/Relationship (Less Accumulated Amortization of $226,593 and $126,093, Respectively)		175,407		93,907

Non-Compete Agreements (Less Accumulated Amortization of $158,044 and $110,044, Respectively)		1,956		49,956
Deferred Tax Asset		2,168,500		2,168,500

Business Acquisition		—		1,035,821

Deferred Financing Costs (Net of Amortization of $2,361 and $0, Respectively)		125,139		—
Other Assets		362,761		216,971

Total Assets	$	21,865,095	$	20,458,431

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	September 30, 2012			December 31, 2011
	(Unaudited)
Liabilities and Stockholders’ Equity:
Current Liabilities:
Accounts Payable	$	1,636,832		$	440,635
Accrued Expenses Payable		595,139			753,888
Note Payable – Related Party		400,000			—
Deferred Charges		4,379			43,788
Current Portion of Capital Lease		108,719			—
Unearned Revenue		2,203,003			2,298,985

Total Current Liabilities		4,948,072			3,537,296

Long-Term Liabilities:
Long-Term Debt		2,000,000			—
Long-Term Portion of Capital Lease		504,572			—
Total Long-Term Liabilities		2,504,572			—

Total Liabilities		7,452,644			3,537,296

Commitments and Contingencies		—			—

Stockholders’ Equity: Common Stock, $.01 Par Value, Authorized 75,000,000 Shares; 25,882,730 and 25,782,730 Shares Issued and Outstanding, Respectively		258,827			257,827

Paid-In Capital		31,318,330			30,812,059

Accumulated Deficit		(17,164,706	)		(14,148,751	)

Total Stockholders’ Equity		14,412,451			16,921,135

Total Liabilities and Stockholders’ Equity	$	21,865,095		$	20,458,431

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three months ended September 30,						Nine months ended September 30,
	2012			2011			2012			2011
Revenues:
Licenses	$	237,995		$	1,197		$	2,663,993		$	3,846,791
Support Services		2,167,994			2,051,942			6,449,353			6,271,877
Professional Services		863,734			1,330,810			3,146,817			3,458,316
Total Revenues		3,269,723			3,383,949			12,260,163			13,576,984
Cost of Revenues:
Licenses		1,028,347			780,971			3,203,881			2,167,696
Support Services		1,341,269			1,193,347			4,388,977			3,518,517
Professional Services		1,115,018			987,922			3,681,185			3,397,417
Total Cost of Revenues		3,484,634			2,962,240			11,274,043			9,083,630
Direct Margin		(214,911	)		421,709			986,120			4,493,354
Operating Expenses:
Sales and Marketing		703,132			452,258			2,051,716			1,324,315
General and Administrative		391,652			519,495			1,262,775			1,493,591
Acquisition Costs		—			—			136,957			—
Research and Development		177,772			151,233			537,278			465,470
Total Operating Expenses		1,272,556			1,122,986			3,988,726			3,283,376
Operating (Loss) Income		(1,487,467	)		(701,277	)		(3,002,606	)		1,209,978
Other (Income) Expense:
Interest Expense		27,925			10,397			27,925			14,147
Interest Income		—			(60	)		(37	)		(3,139	)
Other Income		—			(1,152	)		(14,539	)		(14,682	)
Total Other (Income) Expense		27,925			9,185			13,349			(3,674	)
(Loss) Income Before Income Taxes		(1,515,392	)		(710,462	)		(3,015,955	)		1,213,652
Income Taxes		—			—			—			37,385
Net (Loss) Income	$	(1,515,392	)	$	(710,462	)	$	(3,015,955	)	$	1,176,267
Basic (Loss) Earnings Per Common Share	$	(0.06	)	$	(0.03	)	$	(0.12	)	$	0.05
Diluted (Loss) Earnings Per Common Share	$	(0.06	)	$	(0.03	)	$	(0.12	)	$	0.05

Weighted Average Number of Common Shares Outstanding for Basic Earnings Per Common Share		25,863,000			25,389,000			25,860,000			25,220,000

Weighted Average Number of Common Shares Outstanding for Diluted Earnings Per Common Share		25,863,000			25,389,000			25,860,000			26,117,000

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine months ended September 30,
	2012			2011
Cash Flows Provided From Operating Activities:
Net (Loss) Income	$	(3,015,955	)	$	1,176,267
Adjustments to Reconcile Net (Loss) Income to
Net Cash Provided From Operating Activities:
Depreciation		123,200			116,004
Amortization of Capitalized Software		2,523,765			1,044,989
Amortization of Customer Lists/Relationships		100,500			55,000
Amortization of Non-Compete Agreements		48,000			48,000
Amortization of Deferred Financing Costs		2,361			—
Amortization of Stock-Based Compensation		425,119			303,199
Stock Based Compensation Provided for Services		60,902			66,529
Capital Lease – Interest Payments		(1,791	)		—
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable		(423,819	)		(747,746	)
Prepaid Expenses		(301,257	)		(71,736	)
Other Assets		(145,790	)		(976	)
Increase (Decrease) in:
Accounts Payable		1,196,197			6,760
Accrued Liabilities		(158,749	)		(754,629	)
Taxes Payable		—			37,385
Deferred Charges		(39,409	)		(39,409	)
Unearned Revenue		(95,982	)		(34,098	)
Net Cash Provided From Operating Activities		297,292			1,205,539

Cash Flows Used For Investing Activities:
Capital Expenditures		(256,709	)		—
Capitalized Software Expenditures		(3,785,812	)		(3,349,854	)
Net Cash Used For Investing Activities		(4,042,521	)		(3,349,854	)

Cash Flows Provided From (Used For) Financing Activities:
Deferred Financing Costs		(127,500	)		—
Proceeds from Loan Agreement		2,000,000			—
Proceeds from Note Payable		400,000
Capital Lease – Principal Payments		(30,757	)		—
Payment of Debt		—			(100,000	)
Proceeds from Exercise of Stock Options		21,250			52,950
Net Cash Provided From (Used For) Financing Activities		2,262,993			(47,050	)

(Decrease) in Cash and Cash Equivalents		(1,482,236	)		(2,191,365	)

Cash and Cash Equivalents – Beginning of Period		3,281,965			5,892,649
Cash and Cash Equivalents – End of Period	$	1,799,729		$	3,701,284

Supplemental Disclosures of Cash Flow Information
Cash Paid During the Periods for:
Interest	$	10,368		$	14,147
Income Taxes	$	—		$	—

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Supplemental Schedule of Non-Cash Investing and Financing Activities:

During the nine-month period ended September 30, 2012, the Company incurred capital lease obligations totaling $644,047 in connection with the acquisition of office furniture.

The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

[1] General

The financial statements include on a consolidated basis the results of the Company’s wholly-owned subsidiary, Cover-All Systems, Inc. All material intercompany transactions and balances have been eliminated. For a summary of significant accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements included in Cover-All Technologies Inc.’s (“Cover-All” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2011. While the Company believes that the disclosures herein presented are adequate to make the information not misleading, these consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report.

In the opinion of management, the accompanying consolidated financial statements include all adjustments which are necessary to present fairly the Company’s consolidated financial position as of September 30, 2012, the results of their operations for the three and nine month periods ended September 30, 2012 and 2011, and their cash flows for the nine month periods ended September 30, 2012 and 2011. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine month periods ended September 30, 2012 and 2011 are not necessarily indicative of the results to be expected for a full year.

[2] Earnings Per Share Disclosures

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations with the effect of dilutive securities determined using the treasury stock method:

	For the three months ended September 30, 2012
	Loss (Numerator)			Shares (Denominator)		Per Share Amount
Basic EPS:
(Loss) Available to Common Stockholders	$	(1,515,392	)		25,863,437	$	(0.06	)
Effect of Dilutive Securities:
Exercise of Options and Restricted Stock		—			—		—
Diluted EPS:
(Loss) Available to Common Stockholders Plus Assumed Exercises	$	(1,515,392	)		25,863,437	$	(0.06	)

	For the nine months ended September 30, 2012
	Loss (Numerator)			Shares (Denominator)		Per Share Amount
Basic EPS:
(Loss) Available to Common Stockholders	$	(3,015,955	)		25,859,646	$	(0.12	)
Effect of Dilutive Securities:
Exercise of Options and Restricted Stock		—			—		—
Diluted EPS:
(Loss) Available to Common Stockholders Plus Assumed Exercises	$	(3,015,955	)		25,859,646	$	(0.12	)

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	For the three months ended September 30, 2011
	Loss (Numerator)			Shares (Denominator)		Per Share Amount
Basic EPS:
(Loss) Available to Common Stockholders	$	(710,462	)		25,389,056	$	(0.03	)
Effect of Dilutive Securities:
Exercise of Options and Restricted Stock		—			0		—
Diluted EPS:
Income Available to Common Stockholders Plus Assumed Exercises	$	(710,462	)		25,389,056	$	(0.03	)

	For the nine months ended September 30, 2011
	Income (Numerator)		Shares (Denominator)		Per Share Amount
Basic EPS:
Income Available to Common Stockholders	$	1,176,267		25,220,044	$	0.05
Effect of Dilutive Securities:
Exercise of Options, Warrants and Restricted Stock		—		896,461		—
Diluted EPS:
Income Available to Common Stockholders Plus Assumed Exercises	$	1,176,267		26,116,505	$	0.05

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

[3] Stock-Based Compensation and Stock Purchase Plans

Stock Options

In the three and nine months ended September 30, 2012, we recognized approximately $180,000 and $486,000 respectively, of stock-based compensation expense in our consolidated financial statements.

In June 2005, we adopted the 2005 Stock Incentive Plan (which was amended in 2006 and in 2008). Options and stock awards for the purchase of up to 5,000,000 shares may be granted by the Board of Directors to our employees and consultants at an exercise or grant price determined by the Board of Directors on the date of grant. Options may be granted as incentive or nonqualified stock options with a term of not more than ten years. The 2005 Stock Incentive Plan allows the Board of Directors to grant restricted or unrestricted stock awards or awards denominated in stock equivalent units, securities or debentures convertible into common stock, or any combination of the foregoing and may be paid in common stock or other securities, in cash, or in a combination of common stock or other securities and cash. At September 30, 2012, an aggregate of 861,803 shares were available for grant under the 2005 Stock Incentive Plan.

The Company uses the Black-Scholes-Merton option pricing model (“Black-Scholes”) to measure fair value of the share-based awards. The Black-Scholes model requires us to make significant judgments regarding the assumptions used within the model, the most significant of which are the expected stock price volatility, the expected life of the option award, the risk-free interest rate of return and dividends during the expected term.

- Expected volatilities are based on historical volatility of the Company’s stock during the preceding periods. The Company uses “Level 1” inputs, which are our trading market values in active markets.

- The Company uses historical data to estimate expected life of the option award. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding.

- The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

- The Company does not anticipate issuance of dividends during the expected term.



	2012			2011
Expected volatility		41%–50	%		45%–50	%
Weighted-average volatility		41	%		47	%
Expected dividends		0	%		0	%
Expected term (in years)		3-5			3-5
Risk-free interest rate		3	%		3	%

As of September 30, 2012, there was approximately $629,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements previously granted by the Company. That cost is expected to be recognized over a weighted-average period of 1.5 years.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

A summary of the changes in our outstanding common stock options for all outstanding plans for the six months ended September 30, 2012 is as follows:

	Shares			Exercise Price Per Share		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price
Balance, January 1, 2012		1,524,963			$ 0.85 – 1.55		2.0 years	$	1.21

Granted		1,055,000			1.63 – 1.67		1.9 years		1.65

Exercised		(25,000	)		.85		—		.85

Cancelled		(75,000	)		1.05 – 1.63		—		1.24

Expired		(375,000	)		1.40		—		1.40

Balance, September 30, 2012		2,104,963			$ 0.85 – 1.67		1.4 years	$	1.40

Of the stock options outstanding, an aggregate of 565,110 are currently exercisable.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.

Time-Based Restricted Stock Units

A summary of the changes in our time-based restricted stock units, or RSUs, for the nine months ended September 30, 2012 is as follows:

	Shares		Weighted-Average Grant Date Fair Value Per Share
Balance, January 1, 2012		252,500	$	1.42

Granted		278,376		1.63

Vested		(75,000)		1.12

Balance, September 30, 2012		455,876	$	1.60

We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Accounting for Stock Options and Other Stock-Based Compensation. Among other items, ASC 718 requires companies to record compensation expense for shared-based awards issued to employees and directors in exchange for services provided. The amount of the compensation expense is based on the estimated fair value of the awards on their grant dates and is recognized over the required service periods. Our share-based awards include stock

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

options and restricted stock awards. For restricted stock awards, the calculation of compensation expense under ASC 718 is based on the intrinsic value of the grant.

Warrants

On September 11, 2012, in connection with the loan transaction between the Company, the Company’s wholly-owned subsidiary, Cover-All Systems, Inc., and Imperium Commercial Finance Master Fund, LP, the Company issued to the lender and the Company’s financial advisors five-year warrants to purchase an aggregate of 1,442,000 shares of our common stock at an exercise price of $1.48 per share. The warrants are not exercisable until the earliest of (i) the date when Current Market Value (as defined in the warrant agreement) exceeds the exercise price multiplied by two, (ii) the date of a Change of Control transaction (as defined in the warrant agreement), and (iii) the third anniversary of the date of issuance. See Note 6 of these Notes to Consolidated Financial Statements.

There were an aggregate of 1,442,000 warrants outstanding at September 30, 2012. The exercise prices for all the warrants issued and outstanding as of September 30, 2012 were equal to or greater than the market price of our common stock at the date of grant.

A summary of the changes in outstanding warrants is as follows:

	Outstanding and Exercisable Warrants		Exercise Price Per Warrant		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price
Balance, January 1, 2012	—		—		—		—
Granted		1,442,000		$1.48		5 years		$1.48

Balance, September 30, 2012		1,442,000		$1.48		5 years		$1.48

[4] Income Taxes

At December 31, 2011, the Company had net operating tax loss carryforwards of approximately $9,000,000 expiring at various dates through December 31, 2026. Management believes it is more likely than not that they will be able to utilize these net operating loss carryforwards before they expire.

[5] Recently Issued Accounting Standards

In July 2012, the FASB issued Accounting Standards Update (“ASU”) No. 2012-02, Intangibles – Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”), to allow entities to use a qualitative approach to test indefinite-lived intangible assets for impairment. ASU 2012-02 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed quantitative impairment test by comparing the fair value of the indefinite-lived intangible asset with its carrying value. Otherwise, the quantitative impairment test is not required. ASU 2012-02 is effective for us in fiscal year 2014 and earlier adoption is permitted. We are currently evaluating the impact of our pending adoption of ASU 2012-02 on our consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The updated guidance requires companies to disclose the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance does not affect how earnings per share is calculated

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

or presented. The updated guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements and Disclosures, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with Generally Accepted Accounting Principles and International Financial Reporting Standards. ASU No. 2011-04 is effective for fiscal years beginning after December 15, 2011 and for interim periods within those fiscal years. The Company does not believe the adoption of this guidance will have a material impact on its consolidated financial statements.

We believe there is no additional new accounting guidance adopted, but not yet effective, that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which may have a significance impact on the Company’s financial reporting, if and when enacted.

[6] Credit Facility and Warrant Issuances

On September 11, 2012, the Company entered into a Loan and Security Agreement (“Loan Agreement”) between and among Imperium Commercial Finance Master Fund, LP, a Delaware limited partnership (“Imperium”), as lender, Cover-All Systems, Inc., a wholly-owned subsidiary of the Company (the “Subsidiary”), as borrower, and the Company, as a guarantor. The Loan Agreement provides for a three-year term loan to the Subsidiary of $2 million, evidenced by a Term Note in favor of Imperium, and a three-year revolving credit line to the Subsidiary of up to $250,000, evidenced by a Revolving Credit Note in favor of Imperium (together with the Term Note, the “Imperium Notes”). The amount available to be borrowed under the revolving credit line may not exceed 80% of Eligible Accounts (as defined in the Loan Agreement). All amounts borrowed under the term loan and the revolving credit line are secured by a security interest in all of the assets of the Subsidiary and guaranteed by the Company, which guarantee is secured by a pledge by the Company of all of the outstanding shares of capital stock of the Subsidiary.

Interest on the outstanding principal balance under the Imperium Notes accrues at a fixed rate equal to eight percent (8%) per annum and is payable monthly. The outstanding principal and any remaining interest under the Imperium Notes will be immediately due and payable on the earliest of (1) September 10, 2015, and (2) the date Imperium’s obligation to advance funds under the revolving credit line is terminated following an event of default pursuant to the terms and conditions of the Loan Agreement. Payments and prepayments received by Imperium will be applied against principal and interest as provided for in the Loan Agreement.

The Loan Agreement contains customary representations, warranties, affirmative and negative covenants, and events of default. If an event of default occurs and is continuing, Imperium has certain rights and remedies under the Loan Agreement. Additionally, the Loan Agreement requires the Company to maintain minimum revenues and EBITDA, tested annually, commencing with the twelve months ending September 30, 2013.

In connection with the Loan Agreement, the Company issued to Imperium a five-year warrant (the “Stock Purchase Warrant”) to purchase 1,400,000 shares of the Company’s common stock at an exercise price of $1.48 per share. The Stock Purchase Warrant is not exercisable until the earliest of (i) the date when Current Market Value (as defined therein) exceeds the exercise price multiplied by two, (ii) the date of a Change of Control transaction (as defined therein), and (iii) the third anniversary of the date of issuance of the Stock Purchase Warrant. The Stock Purchase Warrant provides for adjustments to the exercise price and the number of shares issuable upon exercise in certain events to protect against dilution and for cashless exercise. The Stock Purchase Warrant also requires the Company to file a registration statement with the Securities and Exchange Commission with respect to the shares issuable upon exercise of the Stock Purchase Warrant within 45 days of the date of issuance of the Stock Purchase

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Warrant, and that the Company use its best efforts to obtain the effectiveness of such registration statement within 90 days (subject to extension to 120 days) of the date of issuance of the Stock Purchase Warrant. If the Company fails to comply with its obligations to file the registration statement and obtain its effectiveness within the specified periods, and in certain other events, the Company will be required to pay Imperium, for each month such failure continues, the amount of $22,500. The Stock Purchase Warrant also provides for piggyback registration rights.

The Company also issued five-year warrants (the “Monarch Warrants”) to purchase 42,000 shares, in the aggregate, of the Company’s common stock at an exercise price of $1.48 per share, to Monarch Capital Group, LLC (“Monarch”), which acted as the Company’s financial adviser in connection with the loan transaction, and an officer of Monarch. The Monarch Warrants are not exercisable until the earliest of (i) the date when the Current Exercise Price (as defined therein) exceeds the exercise price multiplied by two, (ii) the date of a Change of Control transaction (as defined therein), and (iii) the third anniversary of the date of issuance. The Monarch Warrants provide for adjustment to the exercise price and the number of shares issuable upon exercise in certain events to protect against dilution and for cashless exercise. The Monarch Warrants also provide for piggyback registration rights.

In connection with the Imperium Loan Agreement financing, the Company incurred deferred financing costs of approximately $127,500, which will be amortized over the life of the loan (or earlier if the loan becomes due or is repaid before its fixed maturity).

[7] Note Payable to Related Party

On July 17, 2012, the Company issued a promissory note, in the aggregate principal amount of $400,000, to John W. Roblin, the Company’s Chairman and Chief Executive Officer (the “Roblin Note”). The Roblin Note bears interest at a rate equal to 9% per annum and is repayable by the Company upon the earlier of the Company’s receipt of a payment from a certain customer in the amount of $896,000, which is due October 31, 2012 or, at the Company’s option, sooner. The Company received the customer payment and, on November 13, 2012, the Company repaid the Roblin Note in full.

[8] Business Acquisition

The purchase price for the Assets, in addition to the assumption by the Company of the Assumed Liabilities, consists of the following: (i) $1,1000,000 in cash (subject to adjustment) on the Closing Date, (x) $635,821 of which (net of adjustments for certain prepayments to Seller and other prorations) was paid in cash to Seller, and (y) $400,000 of which was deposited into an escrow account to be held and distributed by an escrow agent pursuant to the terms of an escrow agreement to secure possible future indemnification claims and certain other post-closing matters in favor of the Company; and (ii) up to an aggregate of $750,000 in an earnout, which earnout shall be based upon the performance of the Business in the five (5) years following the closing of the Acquisition. More particularly, for each of the five (5) years following the Acquisition, Seller will be entitled to receive an amount equal to ten percent (10%) of the PipelineClaims Free Cash Flow (as such term is defined in the Purchase Agreement) but in no event will the Company be required to pay to Seller in excess of $750,000 in the aggregate for the 5-year period.

On December 30, 2011, the acquisition was valued at $1,035,821. As a result of this acquisition, the Company acquired the following assets:

Prepaid Expenses	$	13,163
Computer Equipment		10,658
Customer List		182,000
Software		830,000
Total	$	1,035,821

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The above amounts represent the allocation of the purchase price based on the asset valuation, which occurred during March 2012.

[9] Capital Lease

In September we acquired office furniture under a capital lease agreement with Lakeland Bank. The fair value of the capital lease payments amounted to $644,047. The interest rate implicit in the lease is 4.25%. The following is a schedule by years of future minimum lease payments under capital lease with the present value of the net minimum lease payment as of September 30, 2012.

Years Ended

2012	$	32,549

2013		130,195

2014		130,195

2015		130,195

2016 and thereafter		253,844

Total Minimum Lease Payments		676,949

Less: Amounts Representing Interest		(63,658	)

Present Value of Minimum Lease Payment		613,291

Less: Current Portion of Obligation Under Capital Lease		(108,719	)

Total Capital Lease Obligations – Net of Current Portion	$	504,572

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain of the matters discussed in this report, including, without limitation, matters discussed under this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act) and are subject to the occurrence of certain risks, uncertainties and contingencies which may not occur in the time frames anticipated or otherwise, and, as a result, could cause actual results to differ materially from such statements. In addition to other factors and matters discussed elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission (“SEC”) over the last 12 months, including our Annual Report on Form 10-K filed with the SEC on April 2, 2012, these risks, uncertainties and contingencies include, but are not limited to, risks associated with increased competition, customer decisions, the successful completion of continuing development of new products, the successful negotiation, execution and implementation of anticipated new software contracts, the successful addition of personnel in the marketing and technical areas and our ability to complete development and sell and license our products at prices which result in sufficient revenues to realize profits, and other business factors beyond our control.

Overview

We are a supplier of software products for the property and casualty insurance industry, supplying a wide range of professional services that support product customization, conversion from existing systems and data integration with other software or reporting agencies. We also offer on-going support services including incorporating recent insurance rate and rule changes in our solutions. These support services also include analyzing the changes, developments, quality assurance, documentation and distribution of insurance rate and rule changes.

We earn revenue from software contract licenses, fees for servicing the product, which we call support services, and professional services. Total revenue for the three months ended September 30, 2012 decreased to $3,270,000 from $3,384,000 for the three months ended September 30, 2011, mainly due to a decrease in professional services revenues for the three months ended September 30, 2012. Total revenue for the nine months ended September 30, 2012 decreased to $12,260,000 from $13,577,000 for the nine months ended September 30, 2011, mainly due to a decrease in license revenue.

The following is an overview of the key components of our revenue and other important financial data for the three and nine months ended September 30, 2012:

Software Licenses. Our license revenue in the three and nine months ended September 30, 2012 of $238,000 and $2,664,000, respectively, was from new and existing customers who chose to renew, add onto or extend their use of our software. For the three and nine months ended September 30, 2011, we generated $1,000 and $3,847,000, respectively, in license revenue. Our new software license revenue is affected by the strength of general economic and business conditions and the competitive position of our software products. New software license sales are characterized by long sales cycles and intense competition. Timing of new software license sales can substantially affect our quarterly results.

Support Services. Support services revenue was $2,168,000 and $6,449,000, respectively, in the three and nine months ended September 30, 2012 compared to $2,052,000 and $6,272,000, respectively, in the same periods in 2011. Support services 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. Professional services revenue was $864,000 and $3,147,000, respectively, in the three and nine months ended September 30, 2012 compared to $1,331,000 and $3,458,000, respectively, in the same periods of 2011, due to decreased demand for customizations for the three and nine months ended September 30, 2012 compared to the same periods of 2011.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

(Loss) Income before Income Taxes. (Loss) income before income taxes was $(1,515,000) and $(3,016,000), respectively, in the three and nine months ended September 30, 2012 compared to $(710,000) and $1,214,000, respectively, in the same periods of 2011, primarily due to a decrease in license revenue and our continuing and ongoing effort to maintain our expenses in line with our revenues for the nine months ended September 30, 2012.

Net (Loss) Income. Net (loss) income for the three and nine months ended September 30, 2012 was $(1,515,000) and $(3,016,000), respectively, compared to $(710,000) and $1,176,000, respectively, in the same periods of 2011. This was a result of a decrease in license revenue and an increase in costs related to the expansion of our sales and marketing group.

EBITDA. Earnings before interest, taxes, depreciation and amortization (“EBITDA”), a non-GAAP metric, was $(393,000) and $(190,000), respectively, for the three and nine months ended September 30, 2012 compared to $(168,000) and $2,489,000, respectively, for the three and nine months ended September 30, 2011.

Cash Flow. We generated $299,000 in positive cash flow from operations in the first nine months of 2012 and ended the period with $1,800,000 in cash and cash equivalents and $2,242,000 in accounts receivable.

We continue to face competition for growth in 2012 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 and the introduction of additional software capabilities, we are expanding our sales and marketing efforts to both new and existing customers. Consequently, we are incurring additional sales and marketing expense in advance of generating the corresponding revenue.

As we shift over time from software development to deployment, from a financial perspective, the non-cash charges for amortization of developed software will increasingly impact our bottom line. Therefore, in order to provide more visibility to investors, we have decided to also report EBITDA to show what we believe is the Company’s earnings power without the impact of, among other items, amortization. In the first nine months of 2012, the non-cash charge for amortization of capitalized software increased more than 142% from 2011 to $2,524,000, and we expect this amount could exceed $3 million, or $0.12 per share, in 2012, depending on our sales success. Therefore, we believe that EBITDA will be a useful measure of the true earnings power of the Company while we complete the development and deployment cycle. As such, we expect to increasingly focus on EBITDA to evaluate our progress.

USE OF NON-GAAP FINANCIAL MEASURES

In evaluating our business, we consider and use EBITDA as a supplemental measure of our operating performance. The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization. The Company presents EBITDA because it believes it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance.

The term EBITDA is not defined under U.S. generally accepted accounting principles, or U.S. GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. EBITDA has limitations as an analytical tool, and when assessing the Company’s operating performance, investors should not consider EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Among other things, EBITDA does not reflect the Company’s actual cash expenditures. Other companies may calculate similar measures differently than Cover-All limiting their usefulness as comparative tools. We compensate for these limitations by relying on our U.S. GAAP results and using EBITDA only supplementally.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

The following is an unaudited reconciliation of U.S. GAAP net income to EBITDA for the three and nine months ended September 30, 2012 and 2011:

	Three months ended September 30,		Nine months ended September 30,
	2012	2011	2012	2011

Net (Loss) Income	$ (1,515,392)	$ (710,462)	$ (3,015,955)	$ 1,176,267

Interest (Income) Expense, Net	27,924	10,337	27,888	11,008
Income Tax Expense	—	—	—	37,385
Depreciation	40,096	34,986	123,200	116,004
Amortization	1,054,735	497,197	2,674,627	1,147,989

EBITDA	$ (392,637)	$ (167,942)	$ (190,240)	$ 2,488,653

EBITDA per Common Share:
Basic	$ (0.02)	$ (0.01)	$ (0.01)	$ 0.10
Diluted	$ (0.02)	$ (0.01)	$ (0.01)	$ 0.10

Results of Operations

The following table sets forth, for the periods indicated, certain items from the consolidated statements of operations expressed as a percentage of total revenues:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Revenues:
License		7.3	%		—	%		21.7	%		28.3	%
Support Services		66.3			60.6			52.6			46.2
Professional Services		26.4			39.4			25.7			25.5
Total Revenues		100.0			100.0			100.00			100.0

Cost of Revenues:
License		31.5			23.1			26.1			16.0
Support Services		41.0			35.2			35.8			25.9
Professional Services		34.1			29.2			30.1			25.0
Total Cost of Revenues		106.6			87.5			92.0			66.9
Direct Margin		(6.6	)		12.5			8.0			33.1

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

Operating Expenses:
Sales and Marketing	21.5	13.4	16.7	9.8
General and Administrative	11.9	15.3	10.3	11.0
Acquisition Expenses	—	—	1.1	—
Research and Development	5.4	4.5	4.4	3.4
Total Operating Expenses	38.8	33.2	32.5	24.2
Operating (Loss) Income	(45.4)	(20.7)	(24.5)	8.9

Other (Expense) Income:
Interest (Expense) ~~Income~~	(0.9)	(0.3)	(0.2)	—
Other Income	—	—	0.1	—
Total Other (Expense) Income	(0.9)	(0.3)	(0.1)	—
(Loss) Income Before Income Taxes	(46.3)	(21.0)	(24.6)	8.9

Income Taxes	—	—	—	0.2

Net (Loss) Income	(46.3)%	(21.0)%	(24.6)%	8.7%

Three and Nine Months Ended September 30, 2012 Compared to Three and Nine Months Ended September 30, 2011

Total revenues for the three months ended September 30, 2012 were $3,270,000 compared to $3,384,000 for the same period in 2011. License fees were $238,000 for the three months ended September 30, 2012 compared to $1,000 in the same period in 2011 as a result of sales to new and existing customers in 2012. For the three months ended September 30, 2012, support services revenues were $2,168,000 compared to $2,052,000 in the same period of the prior year primarily due to annual renewals from existing customers and new customer contracts signed in 2011 and 2012. Professional services revenue contributed $864,000 in the three months ended September 30, 2012 compared to $1,331,000 for the three months ended September 30, 2011, as a result of a decrease in demand for new software capabilities and customizations from our current customer base.

For the nine months ended September 30, 2012, total revenues were $12,260,000 compared to $13,577,000 in the same period of the prior year as a result of a decrease in license revenue and professional services revenue for the nine months ended September 30, 2012.

Cost of sales increased to $3,485,000 and $11,274,000, respectively, for the three and nine months ended September 30, 2012 compared to $2,962,000 and $9,084,000, respectively, for the same periods in 2011 due to an increase in personnel-related costs. We are expanding our delivery bandwidth while maintaining our costs in line with our revenues through improved productivity and new technology in order to meet our increasing demand. Non-cash capitalized software amortization was $1,003,000 and $2,524,000, respectively, for the three and nine months ended September 30, 2012 as compared to $463,000 and $1,045,000, respectively, for the same periods in 2011. We capitalized $1,107,000 and $3,786,000, respectively, of software development costs in the three and nine months ended September 30, 2012 as compared to $1,097,000 and $3,350,000, respectively, in the same periods in 2011.

Research and development expenses increased to $178,000 and $537,000, respectively, for the three and nine months ended September 30, 2012 as compared to $151,000 and $465,000, respectively, for the same periods in 2011, primarily as a result of the completion of several new products and capabilities resulting in a drop-off in capitalization. We continue our efforts to enhance the functionality of our products and solutions and believe that investments in research and development are critical to our remaining competitive in the marketplace.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

Sales and marketing expenses were $703,000 and $2,052,000, respectively, for the three and nine months ended September 30, 2012 as compared to $452,000 and $1,324,000, respectively, in the same periods of 2011. This increase in 2012 was primarily due to an addition in our marketing and sales staff, resulting in an increase in personnel-related costs and an increase in expenditures related to advertising and promotion.

General and administrative expenses decreased to $392,000 and $1,263,000, respectively, in the three and nine months ended September 30, 2012 as compared to $519,000 and $1,494,000, respectively, in the same periods in 2011. This decrease in 2012 was mainly due to a decrease in personnel-related costs.

Liquidity and Capital Resources

Sources of Liquidity

We have funded our operations primarily from cash flow from operations and from debt facilities. Cash from operations results primarily from net income from the income statement plus non-cash expenses (depreciation and amortization) and changes in working capital from the balance sheet.

Our largest source of operating cash flows is cash collections from our customers following the purchase or renewal of software licenses, product support agreements and other related services. Payments from customers for software licenses are generally received at the beginning of the contract term. Payments from customers for support services are generally received in advance on a quarterly basis. Payments for professional services are generally received 30 days after the services are performed.

On September 11, 2012, the Company entered into a $2.25 million credit facility with Imperium Commercial Finance Master Fund, LP, an affiliate of Imperium Partners. The $2.25 million credit facility, which will support the Company’s product/services expansion and growth initiatives, consists of a $2 million three-year term loan, bearing interest at a fixed rate of 8% per annum, and a $250,000 revolving credit facility, also bearing interest at a fixed rate of 8% per annum. Imperium also received five-year warrants to purchase 1.4 million shares of Cover-All’s common stock, with an exercise price of $1.48 per share.

In connection with the Imperium Loan Agreement financing, the Company incurred deferred financing costs of $127,500, which will be amortized over the life of the loan (or earlier if the loan becomes due or is repaid before its fixed maturity).

At September 30, 2012, we had cash and cash equivalents of approximately $1,800,000 compared to cash and cash equivalents of approximately $3,701,000 and $3,282,000 at September 30, 2011 and December 31, 2011, respectively. The decrease in cash and cash equivalents is primarily attributable to the decrease in license revenue and professional services revenue in the nine months ended September 30, 2012.

Cash Flows

Our ability to generate cash has depended on a number of different factors, primarily our ability to continue to secure and retain existing customers and generate new license sales and related product support agreements. In order to attract new customers and maintain or grow existing revenue streams, we utilize our existing sources of capital to invest in sales and marketing, technology infrastructure and research and development.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

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 support services and professional services.

Balance sheet items that should be considered in assessing our liquidity include cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued liabilities. Statement of operations items that should be considered in assessing our liquidity include revenues, cost of revenues (net of depreciation and amortization), operating expenses (net of depreciation and amortization) and other expenses. Statement of cash flows items that should be considered in assessing our liquidity include net cash flows from operating activities, net cash flows from investing activities and net cash flows from financing activities.

At September 30, 2012, we had working capital of approximately $1,083,000 compared to working capital of approximately $4,486,000 and $3,251,000 at September 30, 2011 and December 31, 2011, respectively. This decrease in our working capital resulted primarily from a decrease in license revenue and professional services revenue and an increase in costs related to the expansion of our sales and marketing group. For the nine months ended September 30, 2012, net cash provided from operating activities totaled approximately $299,000 compared to approximately $1,206,000 for the nine months ended September 30, 2011 due to a loss for the nine months ended September 30, 2012.

For the nine months ended September 30, 2012, net cash used for investing activities was approximately $4,688,000 compared to approximately $3,350,000 for the nine months ended September 30, 2011. The Company expects capital expenditures and capital software expenditures to continue to be funded by cash generated from operations and financing and by borrowings under the Imperium credit facility. For the nine months ended September 30, 2012, net cash provided from (used for) financing activities was approximately $2,907,000 compared to approximately $47,000 for the nine months ended September 30, 2011. The cash (used for) provided from financing activities in 2012 consisted of proceeds from the Imperium credit facility.

Funding Requirements

Our primary uses of cash are for personnel-related expenditures, facilities and technology costs.

We may need additional funding for any large capital expenditures and for continued product development. We lease computer equipment for terms of three years in order to have the latest available technology to serve our customers and develop new products.

Interest on the outstanding principal balance under the Imperium Notes accrues at a fixed rate equal to eight percent (8%) per annum and is payable monthly. The outstanding principal and any remaining interest under the Imperium Notes will be immediately due and payable to Imperium on the earlier of (1) September 10, 2015 and (2) the date Imperium’s obligation to advance funds under the revolving credit line is terminated following an event of default pursuant to the terms and conditions of the Loan Agreement. Payments and prepayments received by Imperium will be applied against principal and interest as provided for in the Loan Agreement.

The outstanding principal and interest under the Roblin Note is repayable by the Company upon the earlier of the Company’s receipt of a payment from a certain customer in the amount of $896,000 due October 31, 2012 or sooner. The Company received the customer payment and, on November 13, 2012, the Company repaid the Roblin Note in full.

On December 16, 2011, we announced that our board of directors authorized a share buyback plan of up to 1,000,000 shares of the Company’s common stock, in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Imperium Loan Agreement prohibits buybacks of our common stock.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

On December 30, 2011, the Company completed the acquisition of the PipelineClaims assets (excluding working capital) of BlueWave, a provider of enterprise claims management software to the property and casualty insurance industry based in Honolulu, Hawaii. The aggregate purchase price for the acquisition, in addition to the assumption by the Company of certain assumed liabilities, consisted of the following: (i) $1,100,000 in cash on the closing date, (x) $635,821 of which (net of adjustments for certain prepayments to BlueWave and other prorations) was paid in cash to BlueWave, and (y) $400,000 of which was deposited into an escrow account to be held and distributed by an escrow agent pursuant to the terms of an escrow agreement to secure possible future indemnification claims and certain other post-closing matters in favor of the Company; and (ii) up to an aggregate of $750,000 in an earnout, which earnout will be based upon the performance of the acquired business in the five years following the closing. More particularly, for each of the five years following the closing, BlueWave will be entitled to receive an amount equal to ten percent (10%) of the PipelineClaims Free Cash Flow (as such term is defined in the purchase agreement) but in no event will the Company be required to pay to BlueWave in excess of $750,000 in the aggregate for the 5-year period.

We prepare monthly cash flow projections on a rolling twelve-month basis based on a detailed review of anticipated receipts and revenue from licenses, support services and professional services. We also perform a detailed review of our disbursements, including fixed costs, variable costs, legal costs, payroll costs and other specific payments, on a rolling twelve-month basis.

We believe that our current cash balances and anticipated cash flows from operations may be sufficient to meet our normal operating needs for at least the next twelve months. These projections include anticipated sales of new licenses, the exact timing of which cannot be predicted with absolute certainty and can be influenced by factors outside the Company’s control. Our ability to fund our working capital needs and address planned capital expenditures will depend on our ability to generate cash in the future. We anticipate generating future working capital through sales to new customers and continued sales and services to our existing customers.

Our future liquidity and capital resource requirements will depend on many factors, including but not limited to the following trends and uncertainties we face:

· Our ability to generate cash is subject to general economic, financial, competitive and other factors beyond our control.

· Our need to invest resources in product development in order to continue to enhance our current product, develop new products, attract and retain customers and keep pace with competitive product introductions and technological developments.

· We experience competition in our industry and continuing technological changes.

· Insurance companies typically are slow in making decisions and have numerous bureaucratic and institutional obstacles, which can make our efforts to attain new customers difficult.

· We compete with a number of larger companies who have greater resources than those of ours. We compete on the basis of insurance knowledge, products, services, price, technological advances and system functionality and performance.

· Our operations continue to depend upon the continuing business of our existing customers and our ability to attract new customers.

· A decline in software spending in the insurance industry could result in a decrease in our revenue.

Material risks to cash flow from operations include delayed or reduced cash payments accompanying sales of new licenses or a decline in our services business. There can be no assurance that changes in our plans or other events affecting our operations will not result in materially accelerated or unexpected expenditures.

There may be a need for a change in the mix or relative cost of our sources of capital if the timing of anticipated new licenses were to change.

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

Net Operating Loss Carryforwards

At December 31, 2011, we had approximately $9,000,000 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 company’s ability to utilize net operating 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, including the stock which may be issued relating to a potential merger or acquisition, or as the result of other changes in ownership of our outstanding stock, we may experience an ownership change and consequently our utilization of net operating loss carryforwards could be significantly limited.

Off-Balance Sheet Transactions

We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

The SEC has issued cautionary advice to elicit more precise disclosure in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” about accounting policies that management believes are most critical in portraying our financial results and in requiring management’s most difficult subjective or complex judgments.

The preparation of financial documents in conformity with accounting principles generally accepted in the United States of America requires management to make judgments and estimates. On an on-going basis, we evaluate our estimates, the most significant of which include establishing allowances for doubtful accounts, a valuation allowance for our deferred tax assets and determining the recoverability of our long-lived assets. The basis for our estimates are historical experience and various assumptions that are believed to be reasonable under the circumstances, given the available information at the time of the estimate, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from the amounts estimated and recorded in our financial statements.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

· Revenue Recognition;

· Valuation of Capitalized Software;

· Valuation of Allowance for Doubtful Accounts Receivable; 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 revenues is difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter. In addition to determining our results of operations for a given period, our revenue recognition determines the timing of certain expenses, such as commissions, royalties and other variable expenses.

Our revenues are recognized in accordance with FASB ASC 986-605, “Software Revenue Recognition,” as amended. Revenue from the sale of software licenses is predominately related to the sale of standardized software

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

and is recognized when these software modules are delivered and accepted by the customer, the license term has begun, the fee is fixed or determinable and collectibility is probable. Revenue from support services is recognized ratably over the life of the contract. Revenue from professional consulting services is recognized when the service is provided.

Amounts invoiced to our customers in excess of recognizable revenues are recorded as deferred revenues. The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenues in any given period.

Our revenues are derived from the licensing of our software products, professional services, and support services. We recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is probable.

License Revenue. We recognize our license revenue upon delivery, provided that collection is determined to be probable and no significant obligations remain.

Services and Support Revenue. Our services and support revenue is composed of professional services (such as consulting services and training) and support services (maintenance, support and ASP services). Our professional services revenue is recognized when the services are performed. Our support services are recognized ratably over the term of the arrangement.

Multiple Element Arrangement. We enter into revenue arrangements in which a customer may purchase a combination of software, support, and professional services (multiple-element arrangements). When vendor-specific objective evidence (“VSOE”) of fair value exists for all elements, we allocate revenue to each element based on the relative fair value of each of the elements. VSOE of fair value is established by the price charged when that element is sold separately. For support services, VSOE of fair value is established by renewal rates when they are sold separately. For arrangements where VSOE of fair value exists only for the undelivered elements, we defer the full fair value of the undelivered elements and recognize the difference between the total arrangement fee and the amount deferred for the undelivered items as revenue, assuming all other criteria for revenue recognition have been met.

Valuation of Capitalized Software

Costs for the conceptual formulation and design of new software products are expensed as incurred until technological feasibility has been established. Once technological feasibility is established, we capitalize costs to produce the finished software products. Capitalization ceases when the product is available for general release to customers. Costs associated with product enhancements that extend the original product’s life or significantly improve the original product’s marketability are also capitalized once technological feasibility for that particular enhancement has been established. Amortization is calculated on a product-by-product basis as the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining economic life of the product. At each balance sheet date, the unamortized capitalized costs of each computer software product is compared to the net realizable value of that product. If an amount of unamortized capitalized costs of a computer software product is found to exceed the net realizable value of that asset, such amount will be written off. The net realizable value is the estimated future gross revenues from that product reduced by the estimated future costs of completing and deploying of that product, including the costs of performing maintenance and customer support required to satisfy our responsibility set forth at the time of sale.

Fair Value Measurements

As of September 30, 2012, the Company’s financial instruments primarily consist of cash, short-term trade receivables and payables for which their carrying amounts approximate fair values.

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Valuation of Allowance for Doubtful Accounts Receivable

Management’s estimate of the allowance for doubtful accounts is based on historical information, historical loss levels, and an analysis of the collectibility of individual accounts. We routinely assess the financial strength of our customers and based upon factors concerning credit risk, establish an allowance for uncollectible accounts. Management believes that accounts receivable credit risk exposure beyond such allowance is limited.

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 are being 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company and this Item is not applicable to us.

Item 4. Controls and Procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC 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.

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There has been no change in our internal control over financial reporting during the quarter ended September 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

* * * * * * * * *

Statements in this Quarterly Report on Form 10-Q, other than statements of historical information, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks which may cause the Company’s actual results in future periods to differ materially from expected results. Those risks include, among others, risks associated with increased competition, customer decisions, the successful completion of continuing development of new products, the successful negotiation, execution and implementation of anticipated new software contracts, the successful addition of personnel in the marketing and technical areas and our ability to complete development and sell and license our products at prices which result in sufficient revenues to realize profits, and other business factors beyond our control. Those and other risks are described in the Company’s filings with the SEC over the last 12 months, including our Annual Report on Form 10-K filed with the SEC on April 2, 2012, copies of which are available from the SEC or may be obtained upon request from the Company.

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PART II: OTHER INFORMATION

Item 1A. Risk Factors.

In addition to the other information described elsewhere in this prospectus or incorporated by reference in this Quarterly Report on Form 10-Q, 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.

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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.

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.

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Our debt service obligations under our Loan Agreement with Imperium could have an adverse effect on our financial condition and results of operations.

Our Loan Agreement with Imperium provides for a three-year term loan to Cover-All Systems of $2 million and a three-year revolving credit line to Cover-All Systems of up to $250,000. As of September 30, 2012, we had total debt outstanding under the Loan Agreement of $2 million. Our Loan Agreement imposes on us certain restrictions and contains financial covenants. Our debt service obligations and the amortization of deferred financing costs associated with entering into the Loan Agreement could have important consequences to the Company and its financial condition and results of operations. If we do not generate sufficient cash from our operations to service our debt obligations under the Loan Agreement, we may need to take one or more actions, including refinancing our debt, obtaining additional financing, selling assets, obtaining additional equity capital, restructuring our operations or reducing or delaying capital or other expenditures. We cannot be certain that our cash flow will be sufficient to allow us to pay the principal and interest on our debt obligations under the Loan Agreement and meet our other obligations.

If we default on any of our covenants or other obligations under the Loan Agreement, Imperium could elect to declare all borrowings outstanding under the Loan Agreement immediately due and payable and foreclose on all or a portion of our assets.

Under the Loan Agreement, Cover-All Systems granted a security interest in substantially all of its assets to Imperium. In addition, we guaranteed Cover-All Systems’ performance under the Loan Agreement and pledged all of the outstanding shares of Cover-All Systems in support of such guarantee. The Loan Agreement contains covenants that, among other things, require us to maintain minimum revenues and EBITDA (determined on a consolidated basis), tested annually, commencing with the twelve months ending September 30, 2013. If we or Cover-All Systems default on the covenants or other obligations under the Loan Agreement and are unable to cure any such default, Imperium could elect to declare all borrowings outstanding under the Loan Agreement, together with accumulated and unpaid interest and other fees, immediately due and payable. Furthermore, Imperium could take possession of any or all of our and Cover-All Systems’ assets in which it holds a security interest and dispose of those assets to the extent necessary to satisfy amounts due under the Loan Agreement or may elect to take possession of all of the outstanding shares of Cover-All Systems. Any of the foregoing events would materially adversely affect our financial condition, results of operations or cash flows.

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. The Loan Agreement prohibits the incurrence of debt, which limits or may limit the financing sources available to us.

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.

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While we believe that our products and trademarks do not infringe upon the proprietary rights of third parties, third parties may claim that our products infringe, or may infringe, upon their proprietary rights. Any infringement claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause product shipment delays or require us to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. If a claim of product infringement against us is successful and we fail or are unable to develop non-infringing technology or license the infringed or similar technology, our business, operating results and financial condition could be significantly and adversely affected.

We depend on existing major customers, the loss of one or more of which could have a material adverse effect on our results of operations and financial condition.

We anticipate that our operations will continue to depend upon the continuing business of our existing customers, particularly our major customers, and the ability to attract new 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.

In 2011, 2010 and 2009, our software products operations depended primarily on certain existing major customers. Two customers generated approximately 19% and 13% of our revenues in 2011. One additional customer, a unit of CHARTIS, accounted for approximately 10%, 11% and 15% of our total revenues in 2011, 2010 and 2009, respectively. One other customer, a second unit of CHARTIS, accounted for approximately 5%, 5% and 12% of our total revenues in 2011, 2010 and 2009, respectively. Another customer, a third unit of CHARTIS, generated approximately 4%, 4% and 6% of our total revenues for the years ended December 31, 2011, 2010, and 2009, respectively.

On March 29, 2012, we received notice from the third, and on March 30, 2012, we received notice from the second of the CHARTIS units referred to above that each will not renew its respective contractual arrangements, pursuant to which they were primarily receiving support services, with us when those arrangements expire on September 30, 2012. We have not received any notice of non-renewal of our contractual arrangements from the first of the CHARTIS units referred to above, and we expect that our contractual arrangements with such unit will continue upon the same terms and conditions as had been in effect in 2011. For the year ended December 31, 2011, the revenues we generated from support services for the three units of CHARTIS represented approximately 8%, 4% and 4%, respectively, of our total revenues, and the total revenues we generated from the three units of CHARTIS represented approximately 10%, 5% and 4%, respectively, of our total revenues. See “Business – Major Customers”. The impact of the non-renewal by the second and third CHARTIS units of their contractual arrangements would not be realized until the fourth quarter of 2012, and for that quarter the maximum potential impact to our revenue resulting from any such non-renewal would be approximately $360,000.

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.

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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, 2011, we had approximately $9 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

If we are unable to maintain the listing standards of the NYSE MKT, our common stock may be delisted, which may have a material adverse effect on the liquidity and value of our common stock.

Our common stock is traded on the NYSE MKT. To maintain our listing on the NYSE MKT, we must meet certain financial and liquidity criteria. The market price of our common stock has been and may continue to be subject to significant fluctuation as a result of periodic variations in our revenues and results of operations. If we fail to meet any of the NYSE MKT’s listing standards, we may be delisted. In the event of delisting, trading of our common stock would most likely be conducted in the over the counter market on an electronic bulletin board established for unlisted securities, which could have a material adverse effect on the market liquidity and value of our common stock.

Holders of our common stock may have difficulty in selling those shares.

While our common shares trade on the NYSE MKT, our stock is thinly traded and investors may have difficulty in selling their shares. The low trading volume of our common stock is outside of our control, and may not increase in the near future or, even if it does increase in the future, may not be maintained. In addition, because our common stock trades at a price less than $5.00 per share, brokers effecting transactions in our common stock may be subject to additional customer disclosure and record keeping obligations, including disclosure of the risks associated with low price stocks, stock quote information and broker compensation. Brokers effecting transactions in our common stock may also be subject to additional sales practice requirements under certain Exchange Act rules, including making inquiries into the suitability of investments for each customer or obtaining a prior written agreement for the specific stock purchase. Because of these additional obligations, some brokers will not effect transactions in our common stock.

Our stock price has been volatile.

Quarterly operating results have fluctuated and are likely to continue to fluctuate. The market price of our common stock has been and may continue to be volatile. Factors that are difficult to predict, such as quarterly revenues and operating results, limited trading volumes and overall market performance, may have a significant effect on the price of our common stock. Revenues and operating results have varied considerably in the past from period to period and are likely to vary considerably in the future. We plan product development and other expenses based on anticipated future revenue. If revenue falls below expectations, financial performance is likely to be adversely affected because only small portions of expenses vary with revenue. As a result, quarterly period-to-period comparisons of operating results are not necessarily meaningful and should not be relied upon to predict future performance.

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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. The Imperium Loan Agreement also prohibits the payment of dividends and the purchase of our common stock. 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.

Our shares are subject to dilution as a result of the exercise of the Warrants.

In connection with the loan transaction with Imperium, we issued five-year warrants to purchase, in the aggregate, 1,442,000 shares of our common stock, at an exercise price of $1.48 per share, to Imperium and our financial advisor (each a “Warrant” and collectively, the “Warrants”). Each Warrant provides (x) for adjustments to the exercise price and the number of shares issuable upon exercise in certain events to protect against dilution and (y) for cashless exercise. The Warrants are not exercisable until the earliest of (1) the date when “Current Market Value” (as defined therein) exceeds the exercise price ($1.48 per share) multiplied by two, (2) the date of a “Change of Control” transaction (as defined therein), and (3) the third anniversary of the date of issuance of such Warrant. The issuance of any additional shares of our common stock as a consequence of the exercise of any of the Warrants may result in significant dilution to our stockholders. Further, if the exercise price of the Warrants is adjusted, the additional shares of our common stock that would be issued upon exercise of the Warrants as a result of such adjustment may also result in significant dilution to our stockholders.

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 of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our

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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.

RISKS RELATED TO RECENT ACQUISITIONS

We may fail to realize the anticipated benefits of the acquisitions of the PipelineClaims assets of Ho’ike Services, Inc. dba BlueWave Technology, and the assets of Moore Stephens Business Solutions, LLC.

On December 30, 2011, we acquired substantially all of the PipelineClaims assets (excluding working capital) of Ho’ike Services, Inc. dba BlueWave Technology (“BlueWave”), and on April 12, 2010, we acquired substantially all of the assets (excluding working capital) of MSBS, in each instance through our wholly-owned subsidiary, Cover-All Systems. The success of these acquisitions will depend on, among other things, our ability to realize anticipated benefits, growth opportunities and cost savings and to integrate the operations of BlueWave and 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.

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Item 6. Exhibits.

Exhibit
No.		Description

10.1		Loan and Security Agreement, dated as of September 11, 2012, by and between Cover-All Systems, Inc., as borrower, Imperium Commercial Finance Master Fund, LP, as lender, and the Company, as a guarantor.

10.2		Revolving Credit Note in the principal amount of $250,000, dated September 11, 2012, by and between Cover All Systems, Inc., as borrower, and Imperium Commercial Finance Master Fund, LP, as lender.

10.3		Term Note in the principal amount of $2,000,000, dated September 11, 2012, by and between Cover All Systems, Inc., as borrower, and Imperium Commercial Finance Master Fund, LP, as lender.

10.4		Guarantee, dated as of September 11, 2012, made by the Company in favor of Imperium Commercial Finance Master Fund, LP.

10.5		Pledge Agreement, dated as of September 11, 2012, between the Company and Imperium Commercial Finance Master Fund, LP.

31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1*		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and December 31, 2011; (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (Unaudited); (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (Unaudited); and (iv) Notes to Consolidated Financial Statements (Unaudited).

* Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101.1 hereto are not to be deemed “filed” or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, and are not to be deemed “filed” for purposes of Section 18 of the Exchange Act, and otherwise are not subject to liability under those sections, except as shall be expressly set forth by specific reference in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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Date: November 14, 2012	By:	/s/ John W. Roblin
		John W. Roblin, Chairman of the Board of Directors and Chief Executive Officer

Date: November 14, 2012	By:	/s/ Ann F. Massey
		Ann F. Massey, Chief Financial Officer

COVER ALL TECHNOLOGIES INC - FORM 10-Q - November 14, 2012

Attached files

COVER ALL TECHNOLOGIES INC Reports