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Cover All Technologies Inc (COVR) SEC Filing 10-K Annual report for the fiscal year ending Monday, December 31, 2007

Cover All Technologies Inc

CIK: 737300 Ticker: COVR

Exhibit 99.1


Cover-All Technologies Inc. Reports Strong Year-end and Fourth
Quarter 2007 Operating Results

 
·
2007 net income was $1,231,000, or $0.05 diluted earnings per share.
 
·
2007 revenues increased 34% to $9,777,000.
 
·
Fourth Quarter revenues increased 75% to $4,018,000.

FAIRFIELD, NEW JERSEY (March 5, 2008) – Cover-All Technologies Inc. (OTC Bulletin Board: COVR.OB), a Delaware corporation (“Cover-All” or the “Company”), today announced revenues and earnings from operations for the year and quarter ended December 31, 2007.
 
Net income for the twelve months ended December 31, 2007 was $1,231,000, or $0.05 diluted earnings per share, compared to $(1,000,000), or $(0.06) per share, in 2006.  These results were consistent with the Company’s earlier guidance that Cover-All expected to be profitable for fiscal 2007.  Revenues for the twelve months ended December 31, 2007 were $9,777,000 as compared to $7,288,000 in the same period in 2006, an increase of 34%.
 
Net income for the three months ended December 31, 2007 was $1,087,000, or $0.04 diluted earnings per share, compared to $(43,000), or $(0.00) per share, in the same quarter of 2006.  Revenues for the three months ended December 31, 2007 were $4,018,000 compared to $2,293,000 in the same period in 2006, representing a 75% increase.
 
Year end 2007 shareholder equity increased to $2,285,000 from $(1,024,000) on December 31, 2006.  Total assets increased by $2,308,000 to $5,864,000 during the twelve months ended December 31, 2007, an increase of 65%.
 
John Roblin, Chairman of the Board of Directors, President and Chief Executive Officer of the Company, stated:  “We are extremely pleased with our 2007 and fourth quarter financial results.  This performance reflects the continued adoption by new and existing customers of our My Insurance Center platform.  Moreover, our return to profitability reflects not only strong top line growth but also our continued efforts to control costs.
 
“2007 was an outstanding year in many respects.  Revenues increased significantly from both new and existing customers as they continued to expand their use of My Insurance Center.  Revenues from Licenses and Professional Services nearly doubled, up 95% and 97%, respectively.  Total profits increased to $1,231,000, a record for Cover-All exceeding the previous record by 34%.  Basic earnings per share was $0.06, another record.
 
“Our balance sheet at year end 2007 shows significant growth in shareholder equity and assets.  In addition, for the first time since 1996, our balance sheet shows no long term debt.
 
“As we move into 2008, we believe that we are well positioned to continue our growth and profitability.  Our ability to add large, new customers in 2007 combined with a strong existing customer base has increased interest in our products and capabilities.  The development in 2007 of exciting new My Insurance Center components and services expanded our inventory of offerings to existing, new and prospective customers.  We are expanding our delivery bandwidth while keeping a close eye on expenses through improved productivity and technology in order to meet increased demand.
 

 
 
 
1

 

 
 
“We are focused on building upon and leveraging our 2007 initiatives to bring value to existing and new customers.  We are excited and energized by the opportunities we see in 2008.”
 
Conference Call Information
 
 
The Company has scheduled a conference call for 11:00 a.m. EST on Thursday, March 6, 2008, at which time it will review results for the fourth quarter and year ended December 31, 2007.
 
Teleconference Information: To participate in the Thursday teleconference, dial 877-669-3047 (domestic) and 706-634-1767 (international).  The conference ID # is 37721746.
 
About Cover-All Technologies Inc.
 
 
With our extensive insurance knowledge, our experience and our commitment to quality, Cover-All continues its tradition of developing technology solutions designed to revolutionize the way the property and casualty insurance business is conducted.
 
Additional information is available online at www.cover-all.com.
 
Cover-All, My Insurance Center (MIC) and Insurance Policy Database (IPD) are trademarks of Cover-All Technologies Inc.  All other company and product names mentioned are trademarks or registered trademarks of their respective holders.
 
Forward-Looking Statements
 
Statements in this press release, other than statements of historical information, are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve known and unknown risks which may cause the 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 negotiations, execution and implementation of anticipated new software contracts, the successful addition of personnel in the marketing and technical areas, our ability to complete development and sell and license our products at prices which result in sufficient revenues to realize profits and other business factors beyond the Company’s control.  Those and other risks are described in the Company’s filings with the Securities and Exchange Commission (“SEC”) over the last 12 months, including the Company’s Form 10-K for the year ended December 31, 2006, filed with the SEC on April 2, 2007, copies of which are available from the SEC or may be obtained upon request from the Company.
 

 
 
 
2

 

For information on Cover-All, contact:
Ann Massey
Chief Financial Officer
973/461-5190
amassey@cover-all.com

 
 
 
3

 

The following is a summary of operating highlights for the three and twelve months ended December 31, 2007 and 2006:

Cover-All Technologies Inc. and Subsidiaries
Operating Highlights
 
     
Three months ended
December 31,
     
Twelve months ended
December 31,
 
 
   
2007
   
2006
   
2007
   
2006
 
Revenues:
                       
Licenses
  $ 1,919,000     $ 797,000     $ 2,683,000     $ 1,376,000  
Maintenance
    791,000       902,000       3,210,000       3,471,000  
Professional Services
    894,000       277,000       2,316,000       1,176,000  
Application Service Provider
Services
    414,000       317,000       1,568,000       1,265,000  
                                 
Total Revenues
    4,018,000       2,293,000       9,777,000       7,288,000  
                                 
Costs and Expenses:
                               
Cost of Sales
    1,751,000       1,369,000       5,688,000       5,244,000  
Research and Development
    219,000       102,000       510,000       464,000  
Sales and Marketing
    355,000       233,000       800,000       943,000  
General and Administrative
    599,000       587,000       1,442,000       1,461,000  
Provision for Doubtful Accounts
    2,000             51,000        
Other Expense (Income), Net
          1,000             (1,000 )
Interest Expense, Net
    5,000       44,000       55,000       177,000  
                                 
Total Costs and Expenses
    2,931,000       2,336,000       8,546,000       8,288,000  
                                 
Income (Loss) Before Income Taxes
  $ 1,087,000     $ (43,000 )   $ 1,231,000     $ (1,000,000 )
                                 
Income Tax Expense
                       
                                 
Net (Loss) Income
  $ 1,087,000     $ (43,000 )   $ 1,231,000     $ (1,000,000 )
                                 
Basic (Loss) Earnings
Per Common Share
  $ 0.05     $ (0.00 )   $ 0.06     $ (0.06 )
                                 
Diluted (Loss) Earnings
Per Common Share
  $ 0.04     $ (0.00 )   $ 0.05     $ (0.06 )
                                 
                                 
                                 

The following information was filed by Cover All Technologies Inc (COVR) on Thursday, March 6, 2008 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
x
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended December 31, 2007.
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from ________ to  _________.  
 
Commission file number 0-13124
 
COVER-ALL TECHNOLOGIES INC.
(Exact name of Registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of incorporation or organization)
13-2698053
(I.R.S. Employer Identification No.)
   
55 Lane Road, Fairfield, New Jersey
(Address of principal executive office)
07004
(Zip Code)
 
(973) 461-5200
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
None
 
Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, par value $.01 per share
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act from their obligations under those Securities.  Yes o No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “larger accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer o                                          Accelerated filer o
Non-accelerated filer (Do not check if a smaller reporting company) o             Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes  o No x
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 29, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, was $15,966,000.
 
As of March 17, 2008, there were 23,262,302 shares outstanding of our common stock.
 
Documents Incorporated by Reference:
 
Portions of the Registrant’s Proxy Statement for the 2008 Annual Meeting of Stockholders (“Proxy Statement”), to be filed with the Securities and Exchange Commission (the “SEC”) not later than 120 days after the close of the Registrant’s fiscal year, are incorporated by reference as described in Part III.
 
 



FORWARD-LOOKING STATEMENTS
 
Certain of the matters discussed in this report, including, without limitation, matters discussed under Item 1 - “Business”, Item 1A - “Risk Factors” and Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.  Certain of these forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” or “anticipates” or the negative of these terms or other comparable terminology, or by discussions of strategy, plans or intentions.  Statements contained in this report that are not historical facts are forward-looking statements.  Without limiting the generality of the preceding statement, all statements in this report concerning or relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates and financial results are forward-looking statements.  In addition, through our senior management, from time to time we make forward-looking statements concerning our expected future operations and performance and other developments.  Such forward-looking statements are necessarily estimates reflecting our best judgment based upon current information and involve a number of risks and uncertainties.  Other factors may affect the accuracy of these forward-looking statements and our actual results may differ materially from the results anticipated in these forward-looking statements.  While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to, those factors or conditions described under Item 1A - “Risk Factors” and Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and general conditions in the economy and capital markets.
 




Table of Contents
 
PART I
     
ITEM 1. BUSINESS 
4
     
ITEM 1A.
RISK FACTORS
10
     
ITEM 1B.
UNRESOLVED STAFF COMMENTS
14
     
ITEM 2. PROPERTIES
15
     
ITEM 3.
LEGAL PROCEEDINGS
15
     
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
15
     
PART II
     
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
16
     
ITEM 6.
SELECTED FINANCIAL DATA 
18
     
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20
     
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
30
 
 
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
30
     
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
31
     
ITEM 9A(T). CONTROLS AND PROCEDURES
31
     
ITEM 9B.
OTHER INFORMATION
32
     
PART III
     
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
32
     
ITEM 11. EXECUTIVE COMPENSATION
33
     
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
33
     
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
33
     
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
33
     
PART IV
     
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
33
     
SIGNATURES  
 
 



PART I
 
ITEM 1. BUSINESS
 

GENERAL
 
We provide state-of-the-art software products, services and solutions to the property and casualty insurance industry.  Our customers include insurance companies, agents, brokers and managing general agents (MGAs).
 
Our software products and services focus on the functions required to market, underwrite, rate, issue, print, bill and support the entire life cycle of insurance policies.  Our products and services combine an in-depth knowledge of property and casualty insurance with innovative solution designs using state-of-the-art technology.  Our products are either available “off-the-shelf” or customized to specific customer needs.  Our software can be licensed for customer use on their own platforms or can be provided through our application services provider, referred to as “ASP,” using third party technology platforms and support.
 
We also provide 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, service fees from ASPs, continuing maintenance fees for servicing the product and professional services.
 
We were incorporated in Delaware in April 1985 as Warner Computer Systems, Inc. and changed our name to Warner Insurance Services, Inc. in March 1992.  In June 1996, we changed our name to Cover-All Technologies Inc. Our products and services are offered through our wholly-owned subsidiary, Cover-All Systems, Inc., also a Delaware corporation.
 
PRODUCTS
 
My Insurance Center
 
In 2001, we announced the creation of My Insurance Center, referred to as “MIC,” a customizable and configurable Internet-enabled software platform and suite of product components that was developed to provide insurance agents, brokers and carriers with integrated workflows and access to real-time information. We continue to expand MIC with new capabilities in response to customer needs.
 
MIC is designed to be the platform for the entire insurance process from the insured through agents, brokers, insurance companies and reinsurers.  MIC is designed to serve both large and small organizations and to serve the “extended enterprise” by using advanced security to extend capabilities beyond the client’s walls to partners, suppliers and customers.  It is designed to be a low cost and variable cost platform that meets or exceeds security/audit standards required by sophisticated data centers.
 
MIC was designed to segregate functionality and access to data to the individual user.  These capabilities are configured and managed by the client and can be “changed” in real time by authorized users.  Additionally, all changes are tracked by user, date and time to provide audit trails and controls.  These capabilities enable our clients to manage and monitor their business as it happens, in real time as well as help them address the increasing demands of regulatory compliance.
 
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New capabilities have been created in the last twelve months that extend the functionality of MIC to the submission of business and include underwriting rules, support for insurance binders, new billing functionality including commission management and installment support,  electronic underwriting files, milestone-driven workflows, which are customizable based upon definable conditions like completed applications and underwriting information, policy dashboards that include premium and loss information, an innovative structure that supports policy level profitability and various other functionality.  The architecture of MIC enables Cover-All to introduce and customize capabilities in short cycle times that allow our customers to be responsive and nimble.
 
MIC is designed to fully support STP (Straight Through Processing). MIC enables our customers to utilize our rating, policy issuance, billing and other software components into a fully-integrated platform that, among other things, eliminates redundant data entry.  Information is stored in a client-centric database and becomes immediately available to other users or functions.  MIC may be customized to generate user alerts when a user-specified condition occurs.  Additionally, MIC has been designed to allow the customer to configure features according to their own look and feel preferences and workflow processes.  For instance, the browser-based user interface allows employees, agents and other end-users to personalize their desktops so they see only the information they need or desire.  MIC allows our customers to reduce costs, leverage the latest technologies, better manage risk and provide better service to their customers.
 
MIC is built upon our Customer Insurance Database, referred to as “CI,” that brings together policy, billing and information from other business functions into an integrated “customer view” that enables better customer service and coordination.  A key component of CI is the Insurance Policy Database, referred to as “IPD.”  IPD is a relational database that holds detailed policy and policy history data for more than forty lines of commercial property and casualty insurance and has been designed to bring powerful data access and reporting capabilities to the desktop.
 
MIC is being made available to users either for in-house implementation or through our ASP.  Combined with our client-centric database, MIC has an integrated and flexible architecture designed to enable our customers to make rapid business and technological changes.
 
MIC offers the following features and benefits:
 
 
·
Data Integration – IPD is an integrated data repository that provides information to MIC quickly and inexpensively.  Multiple software components share data to help integrate business functions, manage workflow and avoid duplicate data problems.
 
·
Application Integration; Single Sign-On – MIC allows the end user to switch back and forth among applications without having to log in to individual applications, increasing a user’s productivity.  MIC provides a consolidated view of data from different software components and provides “hotlinks” enabling a customer to connect quickly to the specific module of the specific system.  MIC offers the user fast access, pro-active alerts and real-time responsiveness.
 
·
Broad Accessibility – MIC is an Internet application, which utilizes a sophisticated portal capability.
 
·
Integrated Data Representation – MIC provides a consolidated view of information from disparate systems.
 
Personalization and Customization – MIC allows each user to personalize his or her view similar to other Internet portals, to meet the needs and the stylistic preferences of each individual user.  MIC personalization allows the user to hide or show content, filter the content and also change color and page styles.  Customization in MIC allows the host to control the accessibility to content for each user and also facilitates changes to content in MIC as business needs change, without additional programming.
 
Scalability – MIC can grow with our customer’s needs, measured in terms of the numbers of concurrent users, response times and other variables.
 
·
Security – MIC can be configured to achieve appropriate levels of security on data transfer over the Internet.  MIC is also designed to adapt to almost any organizational hierarchy and data level security needs with minimal set-up effort by the customer.
 
·
Compliance – MIC is designed to enable our customers to respond quickly and efficiently to the growing number of  federal, state and insurance regulations to help them meet their compliance obligations.
 
 
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MIC utilizes technology based on Oracle® 10G Application Server, Oracle 10G Database, J2EE and XML.  MIC seamlessly integrates MIC Rating and Issuance and other business components and our Customer Insurance Database.

MIC enables us to market the business components in “custom groupings,” or as a service in an ASP environment, depending on customer needs.
 
MIC Rating & Insurance – The Policy Rating and Issuance Component of MIC
 
In 1989, we purchased the assets related to the exclusive proprietary rights to a PC-based software application for policy rating and issuance for property and casualty insurance companies.  This software uses a unique design that separates the “insurance product definition” from the actual technology “engines.”  The sophistication of this design has enabled us to stay current with technology innovations while preserving our “insurance knowledge” investment.
 
The MIC Rating & Issuance component supports the following policy functions:
 
 
·
Data capture and editing
 
·
Rating
 
·
Policy issuance including multiple recipient print
 
·
All policy transactions including quotes, new lines, endorsements, renewals, audits and cancellations
 
·
Policy database.
 
MIC Rating & Issuance is designed to accommodate all lines of property and casualty insurance.  It is especially effective in coping with the complexity and variability of commercial lines of insurance.
 
This flexibility of MIC Rating & Issuance is a competitive advantage, and today we offer off-the-shelf support for more than 40 lines of commercial business in virtually all states and Puerto Rico.  Our extensive experience in creating custom products combined with our proprietary tool set enables us to deliver support for new insurance products in short time frames.
 
During the latter part of 2002, we developed a new “presentation layer” incorporating the latest technologies, such as Java and XML, to provide a very flexible and robust user interface over the Internet.  This capability also included significant enhancements to our security and administration functions as well as a number of “usability” enhancements.  These capabilities significantly expand and enhance the “core” rating and issuance capabilities.  The new product has now been fully integrated with MIC and is being sold and marketed as MIC Rating & Issuance. The MIC Rating & Issuance has been and continues to be enhanced and updated with new technology.  The sophisticated design of the product isolates insurance product knowledge from the application itself in data files, referred to as “Metadata.”  We have built an extensive knowledge base, estimated at more than 100 person-years of effort, in this Metadata that defines the details of virtually hundreds of insurance policy types and coverages for the MIC Rating & Issuance product.
 
 
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The design of MIC Rating & Issuance also allows us to stay current with changes in technology while re-using the intellectual capital invested in the insurance rules.  Our upgrading the Classic product line to run on an intranet/Internet has enabled multiple users to contribute to the common data store.  We have also integrated this product to IPD and MIC.  We have streamlined the support process with the goal to improve quality to our customers.
 
The MIC Rating & Issuance product is in use in over 35 companies.
 
During 2007, Cover-All developed a number of new MIC Rating & Issuance capabilities that are designed to fundamentally improve the ability to customize and introduce insurance products in very short time frames based upon the latest technological advances and innovative architecture.  These capabilities include a new print engine, document packaging, a sophisticated set of data capture/screen creation tools, and a number of other components.  These capabilities were deployed in two customers in 2007 and early 2008.
 
My Insurance Center – Functional Capabilities
 
We have, through MIC, a deep inventory of insurance software components combined with a sophisticated implementation platform.  MIC includes the following critical components:
 
 
·
My Insurance Center Portal
 
·
Enterprise, Customer-centric Oracle database
 
·
Underwriting Tools
 
·
End User access to information in real time – Straight Through Processing
 
·
Rating and Issuance
 
·
Full policy lifecycle support
 
·
Clear and comprehensive data collection with extensive real time edits
 
·
Policy history – easy policy changes and useful for activities such as coverage inquiries
 
·
On-line system, screen and field level look-ups
 
·
On-line Commercial Lines Manual Tables and Footnotes
 
·
Easy and direct system navigation
 
·
Standard ISO (Insurance Service Office)/NCCI coverages and rates support
 
·
Company customized coverages and rates support
 
·
Fully automated recipient-driven issuance of insurance policies, worksheets, ID cards, etc., including print preview
 
·
Policy database
 
·
Multiple company/program/state/coverage support.
 
·
Templates to reduce data entry time
 
·
Advanced Billing Capabilities – integrating with NetSuite
 
·
Claims Repository
 
·
Customer Relationship Management
 
·
Agency and Program Management
 
·
Advanced Administration Tools
 
·
Access to Web Services and Information Providers
 
·
Policy Dashboard – premium & loss information
 
·
Advanced Workflows, Diaries
 
·
Electronic Underwriting files
 
·
Compliance Assist, Help Desk
 
·
Interfaces to “back end” accounting and reporting systems
 
·
Policy-level Premium and Loss Information for profitability tracking / accounting
 
·
Quote, Binder, Policy Lifecycle support
 
7


 
We expect to utilize and expand these capabilities to expand and leverage our ability to respond to broadening marketplace and new customer opportunities with solutions that address the special needs of carriers, managing general agents, agents, brokers and third party providers with both off-the-shelf and custom solutions.  Our user interface capabilities of the MIC product have been enhanced with more functionality through various strategic alliances and partnerships that offer business process partnering (outsourcing), accounting, claims administration capabilities and actuarial and statistical reporting services.  We also intend to continue to enhance our functional components based upon market demand, existing customer needs, new capabilities offered by Web Services as well as changes in technology (for example, support for personal digital assistants, or PDAs), especially Internet technologies. We have also developed integration and inter-connection capabilities for MIC to exchange data with third party systems which should bring significant benefit to our customers by reducing data entry and reducing the exposure to errors & omissions liability.
 
We are also increasing and enhancing our services portfolio.  We have expanded our professional services with conversion and interface offerings.  We developed new rule-based capabilities to enable us to implement data exchange services that will save our customers time and effort converting to our products or linking our products to existing systems.  We also have developed a “custom” service offering for customers who desire specially-tailored services, service level agreements and other services that enable them to achieve their business objectives.
 
In February 2007, we announced that we were extending MIC capabilities by acquiring and integrating the application processing functionality of the brokerage application processing platform of InsureHiTech, a specialty wholesale insurance brokerage for hedge funds, private equity, technology and life science companies.
 
COMPETITION
 
The computer software and services industry is highly competitive and rapidly changing, as current competitors expand their product offerings and new companies enter the marketplace.  Because of our extensive knowledge-base in the insurance industry, however, we believe that our products offer customers certain advantages not available from our competitors.  Our customers have access to our extensive experience and software inventory in the area of rating and policy issuance of commercial lines policies, among the most complex of insurance transactions.
 
There are a number of larger companies, including computer software, services and outsourcing companies, consulting firms, computer manufacturers and insurance companies that have greater financial resources than we have and possess the technological ability to develop software products similar to those we offer.  These companies represent a significant competitive challenge to our business.  Very large insurers that internally develop systems similar to ours may or may not become our major customers for software or services.  We compete on the basis of our insurance knowledge, products, service, price, system functionality and performance and technological advances.
 
8

 
MARKETING
 
We maintain an in-house sales and marketing staff. We also utilize distributors, outside consultants and other complimentary service providers to market our products.  We are continuing to redesign our Internet site and establish linkages to portals and other web sites.  This is an on-going effort that will continue to expand in 2008 as we focus on the Internet as a valuable source of information for current and potential customers interested in our products and services.  We also participate in and display and demonstrate our software products at industry trade shows.  Our consulting staff, business partners and other third parties also generate sales leads.  We also communicate with our existing customers in a variety of ways including an annual Customer Conference.
 
RESEARCH AND DEVELOPMENT
 
Our business is characterized by rapid business and technological change.  We believe our success will depend, in part, on our ability to meet the new needs of our customers and the marketplace as well as continuing to enhance our products based on new technologies.  Accordingly, we must maintain ongoing research and development programs to continually add value to our suite of products, as well as any possible expansion of our product lines.
 
Our goal with all of our products and services is to enhance the ease of implementation, functionality, long-term flexibility and the ability to provide improved customer service.
 
Research and development expenses were $510,000, $464,000 and $809,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
 
BACKLOG
 
We had no license, maintenance, professional services or ASP backlog of unbilled work as of December 31, 2007.
 
MAJOR CUSTOMERS
 
Our product line is in use in over 35 companies.  For the years ended December 31, 2007, 2006 and 2005, we had two, three and one customer(s) who contributed revenues in excess of 10% of our total revenues for the respective years.  AIGT generated 19%, 27% and 23% of our revenues for the years ended December 31, 2007, 2006 and 2005, respectively.  One other customer generated 25% of our revenue for the year ended December 31, 2007.
 
We had no export sales in 2007, 2006 and 2005.
 
EMPLOYEES
 
We had 44 employees as of December 31, 2007.  None of our employees are represented by a labor union, and we have not experienced any work stoppages.  We believe that relations with our employees are good.
 
AVAILABLE INFORMATION
 
Our website address is www.cover-all.com.  We make available, free of charge, through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.  The information on our website is not incorporated by reference into this report.
 
 
9

 
ITEM 1A. RISK FACTORS
 
RISK FACTORS
 
In addition to the other information described elsewhere in this Annual Report, you should carefully consider the following risk factors, which could materially 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
 
While we were profitable in 2007, we incurred losses in 2006 and 2005.  Our earnings are volatile, and we may not be profitable in the future.
 
We incurred a loss of $1,000,000 in 2006 and $1,434,000 in 2005.  Although we generated net income of $1,231,000 in 2007, $767,000 in 2004 and $392,000 in 2003, there is no assurance that we will be able to maintain profitability in the future.  Our ability to invest in sales and marketing programs, to expand and upgrade our technology infrastructure and to fund our research and development efforts will depend on existing cash balances and our ability to generate cash in the future.  This, to a certain extent, is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control.  If we are unable to achieve or maintain profitability in the future, we may be unable to fund our liquidity needs.
 
We may need additional financing in order to continue to develop our business.
 
We may need additional financing to continue to fund the research and development of our software products and to expand and grow our business generally.  To the extent that we will be required to fund operating losses, our financial position would deteriorate.  We may not be able to find significant additional financing on terms favorable to us or at all.  If equity securities are issued in connection with a financing, dilution to our stockholders may result, and if additional funds are raised through the incurrence of debt, we may be subject to further restrictions on our operations and finances.  Furthermore, if we do incur additional debt, we may be limiting our ability to repurchase capital stock, engage in mergers, consolidations, acquisitions and asset sales, or alter our lines of business, even though these actions might otherwise benefit our business.  As of December 31, 2007, we had a net stockholders’ equity of approximately $2,285,000 and a net working capital of approximately $545,000.
 
We may not have sufficient cash to service our indebtedness.
 
As of December 31, 2007, our outstanding indebtedness consisted in aggregate principal amount of $262,265 on our 8% convertible debentures due 2008, which we refer to as our 2008 Debentures.  The 2008 Debentures mature on July 1, 2008, unless they are earlier redeemed by us or converted into shares of our common stock at the holder’s option at a conversion price of $0.30 per share, subject to adjustment.  Our ability to make payments on and to refinance our indebtedness, to the extent the holders of our debentures do not elect to convert required principal payments into shares of our common stock, and to fund working capital needs and planned capital expenditures will depend on our ability to generate cash in the future.  In addition, our ability to generate cash, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control.  Although as of December 31, 2007, we had working capital of $545,000, we cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated cost savings and operating improvements will be realized on schedule or that future borrowings will be available to us in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs.  If we are unable to repay our indebtedness through cash flow from operations, we may need to obtain additional financing.  We cannot be certain that we will be able to obtain additional financing on terms favorable to us, or at all.
 
10

 
We depend on product development 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 develop and market on a timely and cost-effective basis product enhancements or new products that respond to technological advances by others, or that these products will achieve market acceptance.  In addition, we have in the past experienced delays in the development, introduction and marketing of new and enhanced products, and we may experience similar delays in the future.  Any failure by us to anticipate or respond adequately to changes in technology and insurance industry preferences, or any significant delays in product development or introduction, would significantly and adversely affect our business, operating results and financial condition.
 
Our products may not achieve market acceptance, which may make it difficult for us to compete.
 
Our future success will depend upon our ability to increase the number of insurance companies that license our software products.  As a result of the intense competition in our industry and the rapid technological changes which characterize it, our products may not achieve significant market acceptance.  Further, insurance companies are typically characterized by slow decision-making and numerous bureaucratic and institutional obstacles which will make our efforts to significantly expand our customer base difficult.
 
We depend on key personnel.
 
Our success depends to a significant extent upon a limited number of members of senior management and other key employees, including John W. Roblin, our President and Chief Executive Officer, Maryanne Gallagher, our Chief Operating Officer, and Manish D. Shah, our Chief Technology Officer.  We maintain key man life insurance on Mr. Roblin and Ms. Gallagher in the amount of $1,000,000 per individual.  We are in the process of obtaining key man life insurance on Mr. Shah in the amount of $1,000,000.  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.
 
Our products are affected by rapid technological change and we may not be able to keep up with these changes.
 
The demand for our products is impacted by rapid technological advances, evolving industry standards in computer hardware and software technology, changing insurance industry requirements and frequent new product introductions and enhancements that address the evolving needs of the insurance industry.  The process of developing software products such as those we offer is extremely complex and is expected to become increasingly complex and expensive in the future with the introduction of new platforms and technologies.  The introduction of products embodying new technologies and the emergence of new industry standards and practices can render existing products obsolete and unmarketable.  Our future success depends upon our ability to anticipate or respond to technological advances, emerging industry standards and practices in a timely and cost-effective manner.  We may not be successful in developing and marketing new products or enhancements to existing products that respond to technological changes or evolving industry standards.  The failure to respond successfully to these changes and evolving standards on a timely basis, or at all, could have a detrimental effect on our business, operating results and financial condition.
 
11

 
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 similar to those offered by us.  These companies present a significant competitive challenge to our business.  Because we do not have the same financial resources as these competitors, we may have a difficult time in the future in competing with these companies.  In addition, very large insurers internally develop systems similar to our systems and as a result, they may not become customers of our software.  We compete on the basis of our insurance knowledge, products, service, price, system functionality and performance and technological advances.  Although we believe we can continue to compete on the basis of these factors, some of our current competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do.  Our current competitors may be able to:
 
 
·
undertake more extensive marketing campaigns for their brands and services;
 
·
devote more resources to product development;
 
·
adopt more aggressive pricing policies; and
 
·
make more attractive offers to potential employees and third-party service providers.

We depend upon proprietary technology and we are subject to the risk of third party claims of infringement.
 
Our success and ability to compete depends in part upon our proprietary software technology.  We also rely on certain software that we license from others.  We rely on a combination of trade secret, copyright and trademark laws, nondisclosure and other contractual agreements and technical measures to protect our proprietary rights.  We currently have no patents or patent applications pending.  Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary.  The steps we take to protect our proprietary technology may not prevent misappropriation of our technology, and this protection may not stop competitors from developing products which function or have features similar to our products.
 
While we believe that our products and trademarks do not infringe upon the proprietary rights of third parties, third parties may claim that our products infringe, or may infringe, upon their proprietary rights.  Any infringement claims, with or without merit, could be time-consuming, result in costly litigation and diversion of technical and management personnel, cause product shipment delays or require us to develop non-infringing technology or enter into royalty or licensing agreements.  Royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all.  If a claim of product infringement against us is successful and we fail or are unable to develop non-infringing technology or license the infringed or similar technology, our business, operating results and financial condition could be significantly and adversely affected.
 
We depend on existing major customers.
 
In 2007 and 2006, our software products operations depended primarily on certain existing major customers.  One of these major customers accounted for approximately 19% and 27% of our total revenues in 2007 and 2006, respectively.  One new other major customer accounted for approximately 25% of our total revenue in 2007.  We anticipate that our operations will continue to depend upon the continuing business of our existing customers, particularly the major customers, and the ability to attract new customers.  As a result, 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.
 
12

 
A decline in computer software spending may result in a decrease in our revenues or lower our growth rate.
 
A decline in the demand for computer software among our current and prospective customers may result in decreased revenues or a lower growth rate for us because our sales depend, in part, on our customers’ level of funding for new or additional computer software systems and services.  Moreover, demand for our solutions may be reduced by a decline in overall demand for computer software and services.  The current decline in overall technology spending may cause our customers to reduce or eliminate software and services spending and cause price erosion for our solutions, which would substantially affect our sales of new software licenses and the average sales price for these licenses.  Because of these market and economic conditions, we believe there will continue to be uncertainty in the level of demand for our products and services. Accordingly, we cannot assure you that we will be able to increase or maintain our revenues.
 
We may not get the full benefit of our tax credits.
 
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 loss carryforwards.  At December 31, 2007, we had approximately $25,700,000 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 loss carryforwards to offset any of our income, this would increase our taxes owed and reduce our cash for operations.
 
RISKS RELATED TO OUR COMMON STOCK
 
Holders of our common stock may have difficulty in selling those shares.
 
Our common stock is not traded on any securities exchange or an inter-dealer quotation system.  Prices for our common stock are quoted on the Over-the-Counter (OTC) Bulletin Board.  Securities whose prices are quoted on the OTC Bulletin Board do not enjoy the same liquidity as securities that trade on a securities exchange or an inter-dealer quotation system.  As a result, you may have difficulty in selling shares of our common stock.  In addition, our common stock is a “penny stock” as that term is defined in the Securities Exchange Act of 1934.  Brokers effecting transactions in a “penny stock” are 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.  In addition, brokers effecting transactions in a “penny stock” are also subject to additional sales practice requirements under Rule 15g-9 of the Exchange Act including making inquiries into the suitability of “penny stock” investments for each customer or obtaining a prior written agreement for the specific “penny stock” purchase.  Because of these additional obligations, some brokers will not effect transactions in “penny stocks.”
 
 
13

 
Our stock price has been volatile.
 
Quarterly operating results have fluctuated and are likely to continue to fluctuate significantly.  The market price of our common stock has been and may continue to be highly volatile.  Factors that are difficult to predict, such as quarterly revenues and operating results, limited trading volumes and overall market performance, will have a significant effect on the price for shares 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, period-to-period comparisons of operating results are not necessarily meaningful and should not be relied upon to predict future performance.
 
Our shares are subject to dilution as a result of the conversion of our convertible debentures and the exercise of our warrants.
 
Debentures.  As of December 31, 2007, a total of $262,265 was outstanding on our 2008 Debentures, which, at the conversion price of $0.30 per share, were convertible into an aggregate of 874,217 shares of our common stock.  The 2008 Debentures mature on July 1, 2008, unless they are earlier redeemed by us or converted into shares of our common stock at the holder’s option.  The conversion price with the respect to each of our outstanding debentures is subject to adjustment if and whenever we issue additional shares of our common stock for less than the then current conversion price per share, in which case the conversion price will be reduced to a new conversion price equal to the price per share of the additional stock issued.  Pursuant to the terms of the debentures, the issuance or sale of additional shares of our common stock resulting from (1) the conversion of any of the debentures, (2) the exercise of warrants or employee or director stock options outstanding on the day that the debentures were issued or (3) the exercise of stock options to be granted in the future to employees or directors pursuant to our existing stock option plans, will not trigger any adjustment to the conversion price of the debentures.  The issuance of any shares of our common stock as a consequence of the conversion of any of the debentures may result in significant dilution to our stockholders and may depress the market price of our common stock.  Further, if the conversion price of the debentures is adjusted, the additional shares of our common stock that would be issued upon conversion of the debentures as a result of such adjustment may also result in significant dilution to our stockholders.
 
Warrants. An aggregate of 121,429 warrants, expiring in 2011, to purchase such number of shares of our common stock issued to the same investors, were outstanding as of December 31, 2007 and exercisable at a current exercise price of $0.35 per share.  The current exercise prices of these warrants are subject to adjustment if and whenever we issue or sell additional shares of our common stock for less than 95% of the market price on the date of issuance or sale, in which case the exercise price will be reduced to a new exercise price in accordance with the terms of the warrant.  Pursuant to the terms of these warrants, the issuance or sale of additional shares of common stock resulting from (1) the exercise of stock options to be granted in the future to employees or directors pursuant to our existing stock option plans or (2) the exercise of any convertible security, in either case outstanding on the date of the warrant, will not trigger any adjustment to the exercise price of the warrants.  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 and may depress the market price of our common stock.  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.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
Not applicable.
 
14

 
ITEM 2. Properties
 
Our headquarters is located in Fairfield, New Jersey, where we occupy approximately 20,000 square feet under a lease which expires at October 31, 2012.  Currently, we fully utilize this facility.  We believe that our headquarters is well maintained and adequate to meet our needs in the foreseeable future.
 
ITEM 3. LEGAL PROCEEDINGS
 
None.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
No matters were submitted to a vote of our security holders through the solicitation of proxies or otherwise during the three months ended December 31, 2007.
 
 
 
15

 

PART II
 

 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
MARKET PRICE OF AND DIVIDENDS ON COMMON STOCK

Our common stock trades in the over-the-counter market on the OTC Bulletin Board.  The quotations below reflect the high and low bid prices for our common stock since January 1, 2006 as traded in the over-the-counter market on the OTC Bulletin Board.  The quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
 
2007:
 
High
   
Low
 
4th Quarter
  $ 1.53     $ 1.12  
3rd Quarter
    1.50       1.24  
2nd Quarter
    1.25       0.92  
1st Quarter
    1.30       0.66  
                 
2006:
 
High
   
Low
 
4th Quarter
  $ 0.79     $ 0.42  
3rd Quarter
    0.51       0.31  
2nd Quarter
    0.43       0.31  
1st Quarter
    0.58       0.35  
                 
As of March 12, 2008, there were 508 holders of record of our common stock.  This number does not include beneficial owners who may hold their shares in street name.
 
We have not paid any dividends on our common stock and do not anticipate paying any dividends in the foreseeable future.  In addition, the convertible loan agreements governing the 2008 Debentures currently prohibit the payment of dividends by us without the prior written consent of the holders of such debentures.
 
The closing sales price for our common stock on March 12, 2008 was $1.10, as reported by the OTC Bulletin Board.
 

 
16

 

PERFORMANCE GRAPH

The graph below compares the cumulative total stockholder returns (including reinvestment of dividends) from the period from December 31, 2002 through December 31, 2007 on an investment of $100 in (i) our common stock, (ii) the Russell 2000 Index (an index of small capitalization companies) and (iii) an index of peer companies that we have selected. You should be aware that historical results are not necessarily indicative of future performance.
 
 
GRAPHIC
 
 
Comparison of 5 Year Cumulative Total Return among Cover-All
Technologies Inc., the Russell 2000 Index and a Peer Group
 
       
   
12/31/02
   
12/31/03
   
12/31/04
   
12/31/05
   
12//31/06
   
12//31/07
 
                                     
Cover-All Technologies Inc.
  $ 100.00     $ 115.22     $ 139.13     $ 119.57     $ 171.74     $ 300.00  
Russell 2000 Index
  $ 100.00     $ 147.25     $ 174.24     $ 182.18     $ 215.64     $ 212.26  
Peer Group (1)
  $ 100.00     $ 131.77     $ 164.62     $ 147.56     $ 157.10     $ 149.35  
__________________
 
(1)
The peer group consists of Computer Sciences Corporation, Ebix.com Inc., Pegasystems Inc. and TenFold Corp.

 
17



ITEM 6. SELECTED FINANCIAL DATA
 
The following selected historical financial information as of December 31, 2007 and 2006, and for each of the years ended December 31, 2007, 2006 and 2005, have been derived from and should be read in conjunction with our audited consolidated financial statements and related notes thereto included elsewhere in this report.  The selected historical consolidated financial information as of December 31, 2005, 2004 and 2003 and for the years ended December 31, 2004 and 2003 have been derived from our audited consolidated financial statements which are not included in this report.  All dollar amounts below are expressed in thousands, except per share data.
 
Selected Five-Year Consolidated Financial Data
 
The following is a summary of selected five-year consolidated financial data for the years ended December 31, 2007, 2006, 2005, 2004 and 2003:
 
   
Year ended December 31,
 
   
2007
   
2006
   
2005
   
2004
   
2003
 
Statement of Operations Data:
  (in thousands, except per share amounts)  
Revenues
  $ 9,777     $ 7,288     $ 7,255     $ 9,274     $ 7,524  
Income (loss) before income tax
    1,231       (1,000 )     (1,434 )     816       392  
Net income (loss)
    1,231       (1,000 )     (1,434 )     767       392  
Net income (loss) per share – basic
    0.06       (0.06 )     (0.09 )     0.05       0.03  
Net income (loss) per share – diluted
    0.05       (0.06 )     (0.09 )     0.04       0.02  
Cash dividends per share
  $     $     $     $     $  
                                         
Balance Sheet Data:
                                       
Cash and cash equivalents
  $ 11     $ 132     $ 296     $ 144     $ 1,193  
Working capital (deficiency)
    545       (898 )     (237 )     900       177  
Total assets
    5,864       3,556       4,677       6,388       5,485  
Short-term debt
    262       339       247       220       105  
Long-term debt
          1,708       1,927       2,175       2,395  
Stockholders’ equity (deficit)
    2,285       (1,024 )     (265 )     928       41  
 
Selected Quarterly Financial Data (Unaudited)
 
The following is a summary of selected quarterly financial data for the years ended December 31, 2007, 2006 and 2005:
 
   
2007
 
    Q1     Q2     Q3     Q4  
   
(in thousands, except per share amounts)
 
Total revenues
  $ 1,931     $ 1,939     $ 1,889     $ 4,018  
Operating income
    177       8       9       1,093  
Net income
    140       3       2       1,086  
Basic earnings per common share
  $ 0.01     $ 0.00     $ 0.00     $ 0.05  
Diluted earnings per common share
  $ 0.01     $ 0.00     $ 0.00     $ 0.04  
       
 
 
18

 
 
   
2006
 
   
Q1
    Q2     Q3    
Q4
 
   
(in thousands, except per share amounts)
 
Total revenues
  $ 1,739     $ 1,638     $ 1,618     $ 2,293  
Operating income (loss)
    (246 )     (270 )     (310 )     2  
Net income (loss)
    (290 )     (314 )     (353 )     (43 )
Basic earnings (loss) per common share
  $ (0.02 )   $ (0.02 )   $ (0.02 )   $ (0.00 )
Diluted earnings (loss) per common share
  $ (0.02 )   $ (0.02 )   $ (0.02 )   $ (0.00 )
       
   
2005
 
   
Q1
   
Q2
   
Q3
   
Q4
 
   
(in thousands, except per share amounts)
 
Total revenues
  $ 2,087     $ 1,713     $ 1,638     $ 1,817  
Operating income (loss)
    (23 )     (444 )     (472 )     (355 )
Net income (loss)
    (35 )     (487 )     (517 )     (395 )
Basic earnings (loss) per common share
  $ (0.00 )   $ (0.03 )   $ (0.03 )   $ (0.03 )
Diluted earnings (loss) per common share
  $ (0.00 )   $ (0.03 )   $ (0.03 )   $ (0.03 )

 
19



ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
2007 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, service fees from our software provided through our application services provider (“ASP”), continuing maintenance fees for servicing our products and professional services.  Total revenue in 2007 increased to $9,777,000 from $7,288,000 in 2006 due to an increase in license and professional services and ASP revenue, which was partially offset by a decrease in maintenance revenue.
 
The following is an overview of the key components of our revenue and other important financial data in 2006:
 
Software Licenses.  We signed two new customer licenses in 2007.  The increase in license revenue, to $2,683,000 in 2007 from $1,376,000 in 2006, was mainly a result of sales to existing customers in 2007 and two new customer license sales in 2007.  In 2007 our growth in license revenue was 95%.
 
Maintenance.  The decrease in maintenance revenue, to $3,210,000 in 2007 from $3,471,000 in 2006, was mainly due to the non-renewal of several existing customers.  We expect that our new customer license sales will generate significant additional maintenance revenue beginning in 2008.
 
Professional Services.  The increase in professional services revenue, to $2,316,000 in 2007 from $1,176,000 in 2006, was a result of increased demand for new software capabilities and customizations from our current customer base and significant customizations related to the two new customer sales in 2007.
 
ASP.  ASP revenue increased to $1,568,000 in 2007 from $1,265,000 in 2006, due primarily to an expanded and extended contractual relationship with two large customers.
 
Income (Loss) Before Provision For Income Taxes.  Income before provision for income taxes was $1,231,000 in 2007 compared to a loss of $(1,000,000) in 2006, primarily due to an increase in license, professional services and ASP revenue.  Our growth in revenue of 34% significantly exceeded our growth in expenses of 3%.
 
Net Income (Loss).  Net income for 2007 increased to $1,231,000 from a net loss of $(1,000,000) in 2006 as a result of an increase in license, professional services and ASP revenue.  Our growth in revenue of 34% significantly exceeded our growth in expenses of 3%.
 
We continue to face several challenges to growth in 2008 mainly in the marketing and selling of our products and services to new customers, caused by long sales cycles and competition.  In addition, there are risks related to customers’ acceptance and implementation delays which could affect the timing and amount of license revenue we are able to recognize.  However, given the positive response to our new software from existing customers, the significant expansion of our relationship with a very large customer and the introduction of additional software capabilities, we are expanding our sales and marketing efforts to both new and existing customers.  Consequently, we are incurring additional sales and marketing expense in advance of generating the corresponding revenue.
 
20

 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
This discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements that have been prepared under accounting principles generally accepted in the United States.  The preparation of financial statements requires our management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods.  Actual results could materially differ from those estimates.  We have disclosed all significant accounting policies in Note 1 to the consolidated financial statements included in this annual report on Form 10-K.  The consolidated financial statements and the related notes thereto should be read in conjunction with the following discussion of our critical accounting policies.  Critical accounting policies and estimates are:
 
•           Revenue Recognition
•           Valuation of Capitalized Software
•           Valuation of Allowance for Doubtful Accounts Receivable
 
Revenue Recognition

Revenue recognition rules are very complex, and certain judgments affect the application of our revenue policy.  The amount and timing of our revenue is difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter.  In addition to determining our results of operations for a given period, our revenue recognition determines the timing of certain expenses, such as commissions, royalties and other variable expenses.
 
Our revenues are recognized in accordance with SOP 97-2, “Software Revenue Recognition,” as amended by SOP 98-4, “Deferral of the Effective Date of SOP 97-2, Software Revenue Recognition” and SOP 98-9, “Modification of SOP 97-2 with Respect to Certain Transactions.”  Revenue from the sale of software licenses is predominately from standardized software and is recognized when standard software modules are delivered and accepted by the customer, the license term has begun, the fee is fixed or determinable and collectibility is probable.  Revenue from software maintenance contracts is recognized ratably over the life of the contract.  Revenue from professional consulting services is recognized when the service is provided.
 
Amounts invoiced to our customers in excess of recognized revenues are recorded as deferred revenues.  The timing and amounts invoiced to customers can vary significantly depending on specific contract terms and can therefore have a significant impact on deferred revenues in any given period.
 
Our revenue is derived from the licensing of our software products, professional services, maintenance and support and ASP services.  We recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collection is probable.
 
License Revenue

We recognize our license revenue upon delivery, provided collection is determined to be probable and no significant obligations remain.
 
 
21

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

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

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

Our estimate of the allowance for doubtful accounts is based on historical information, historical loss levels and an analysis of the collectibility of individual accounts.  We routinely assess the financial strength of our customers and, based upon factors concerning credit risk, establish an allowance for uncollectible accounts.  We believe that accounts receivable credit risk exposure beyond such allowance is limited.
 
 
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RESULTS OF OPERATIONS
 
The following table sets forth, for the years indicated, certain items from the consolidated statements of operations expressed as a percentage of total revenues:

   
Year Ended December 31,
 
   
2007
   
2006
   
2005
 
Revenues:
                 
License
    27.4 %     18.9 %     18.2 %
Maintenance
    32.8       47.6       50.1  
Professional Services
    23.7       16.1       14.7  
Applications Service Provider (“ASP”) Services
    16.1       17.4       17.0  
Total Revenues
    100.0       100.0       100.0  
                         
Cost of Revenues:
                       
License
    11.7       17.6       21.6  
Maintenance
    28.6       41.3       39.0  
Professional Services
    13.1       7.8       6.9  
ASP Services
    4.8       5.2       2.6  
Total Cost of Revenues
    58.2       71.9       70.1  
Direct Margin
    41.8       28.1       29.9  
                         
Operating Expenses:
                       
Sales and Marketing
    8.2       12.9       16.9  
General and Administrative
    14.7       20.1       19.7  
Research and Development
    5.2       6.4       11.1  
Provision for Doubtful Accounts
    0.5              
Total Operating Expenses
    28.6       39.4       47.7  
                         
Operating Income (Loss)
    13.2       (11.3 )     (17.8 )
                         
Other Expense (Income):
                       
Interest Expense
    0.5       2.3       2.5  
Interest Expense - Related Party
    0.1       0.1       0.1  
Interest Income
                (0.1 )
Other Expense
                 
Other Income
                (0.5 )
Total Other Expense
    0.6       2.4       2.0  
                         
(Loss) Income Before Income Taxes Expense
    12.6       (13.7 )     (19.8 )
                         
Income Taxes (Expense):
                 
                         
Net (Loss) Income
    12.6 %     (13.7 )%     (19.8 )%
 
YEAR ENDED DECEMBER 31, 2007 COMPARED WITH YEAR ENDED DECEMBER 31, 2006
 
Revenues
 
Total revenues were $9,777,000 for the year ended December 31, 2007 compared to $7,288,000 for the year ended December 31, 2006, an increase of 34%.  License fees were $2,683,000 for the year ended December 31, 2007 compared to $1,376,000 in 2006, an increase of 95%, as a result of two new customer license sales and sales to existing customers in 2007.  For the year ended December 31, 2007, maintenance revenues were $3,210,000 compared to $3,471,000 of the prior year, due to the non-renewal of several existing customers.  We expect that the new license sales in 2007 will generate significant additional maintenance revenue in 2008.  Professional services revenue contributed $2,316,000 for the year ended December 31, 2007 compared to $1,176,000 for the year ended December 31, 2006 as a result of increased demand for new software capabilities and customizations from our two new customers signed in 2007 and our current customer base.  ASP revenues were $1,568,000 for the year ended December 31, 2007 compared to $1,265,000 for the year ended December 31, 2006 due primarily to an expanded and extended contractual relationship with two large customers.
 
 
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Cost of sales increased to $5,688,000 for the year ended December 31, 2007 as compared to $5,244,000 for 2006, due to higher salaries and personnel-related expenses associated with staffing changes.  Non-cash capitalized software amortization was $880,000 for the year ended December 31, 2007 as compared to $1,114,000 in 2006.  We capitalized software development costs of $1,084,000 in 2007 compared to $888,000 in 2006.
 
Expenses
 
Research and Development.  Research and development expenses increased to $510,000 for the year ended December 31, 2007 from $464,000 in 2006, primarily due to the need for our research and development staff to work on various new software capabilities for our new and prospective customers.  We intend to continue to maintain our ongoing effort to enhance the functionality of our products and solutions to remain competitive.
 
Sales and Marketing.  Sales and marketing expenses decreased to $800,000 for the year ended December 31, 2007 from $943,000 in 2006, primarily due to a reduction in our personnel-related expenses associated with a reduction in staffing in 2007.
 
General and Administrative.  General and administrative expenses were $1,442,000 in 2007 as compared to $1,461,000 in 2006.  The decrease in the general and administrative expenses was mainly due to a reduction in our legal fees in 2007 partially offset by an increase in stock-based compensation.  In 2006, the increase in legal fees was related to a potential acquisition.
 
Other Expense.  We had $0 other expense for the year ended December 31, 2006 compared to $(1,000) for the year ended December 31, 2006.  In 2006, other expense was related to a settlement of late fees related to one customer.
 
Other Income.  We had $0 of other income for the year ended December 31, 2006 compared to $3,000 of other income for the year ended December 31, 2006.  In 2006, other income was related to late fees collected from customers.
 
Provision for Doubtful Accounts.  We had $51,000 provision for doubtful accounts in 2007 compared to $0 for 2006, due to the write-off of the account receivable balances of two customers who decided not to purchase our software.

YEAR ENDED DECEMBER 31, 2006 COMPARED WITH YEAR ENDED DECEMBER 31, 2005

Revenues
 
Total revenues were $7,288,000 for the year ended December 31, 2006 compared to $7,255,000 for the year ended December 31, 2005.  License fees were $1,376,000 for the year ended December 31, 2006 compared to $1,323,000 in the same period in 2005 as a result of no new customer sales and sales to existing customers in 2006 and one new customer license in 2005.  For the year ended December 31, 2006, maintenance revenues were $3,471,000 compared to $3,637,000 in the same period of the prior year, due in part to the non-renewal of several existing customers.  Professional services revenue contributed $1,177,000 for the year ended December 31, 2006 compared to $1,064,000 for the year ended December 31, 2005 as a result of increased demand for new software capabilities and customizations from our current customer base.  ASP revenues were $1,265,000 for the year ended December 31, 2006 compared to $1,231,000 for the year ended December 31, 2005 due primarily to an expanded and extended contractual relationship with a large customer.
 
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Cost of sales increased to $5,244,000 for the year ended December 31, 2006 as compared to $5,087,000 for 2005, due to staff-related expenses.  Non-cash capitalized software amortization was $1,114,000 for the year ended December 31, 2006 as compared to $981,000 in 2005.  We capitalized software development costs of $888,000 in 2006 compared to $701,000 in 2005.
 
Expenses
 
Research and Development.  Research and development expenses decreased to $464,000 for the year ended December 31, 2006 from $809,000 in 2005, primarily due to an increase concentration on capitalizable projects and the need for our research and development staff to work on implementations of MIC.  We continue to maintain our ongoing effort to enhance the functionality of our products and solutions.
 
Sales and Marketing.  Sales and marketing expenses decreased to $943,000 for the year ended December 31, 2006 from $1,222,000 in 2005, primarily due to a reduction in our marketing and sales staff in 2006.
 
General and Administrative.  General and administrative expenses were $1,461,000 in 2006 as compared to $1,431,000 in 2005.  The increase in the general and administrative expenses was mainly due to directors fees paid and an increase in legal fees related to a potential acquisition in 2006.
 
Other Expense.  We had $1,000 of other expense for the year ended December 31, 2006 compared to $0 of other expense for the year ended December 31, 2005.  In 2006, other expense was related to a settlement of late fees related to one customer.
 
Other Income.  We had $3,000 of other income for the year ended December 31, 2006 compared to $39,000 of other income for the year ended December 31, 2005.  In 2006 and 2005, other income was related to late fees collected from customers.
 
Provision for Doubtful Accounts.  We had no provision for doubtful accounts in 2006 and 2005.  

LIQUIDITY AND CAPITAL RESOURCES
 
Sources of Liquidity
 
We have funded our operations primarily from cash flow from operations and the proceeds from our issuance in 2001 of $1,800,000 aggregate principal amount of 8% convertible debentures due in 2008, which we refer to as the 2008 Debentures, and our issuance in 2002 of $700,000 aggregate principal amount of 8% convertible debentures due 2009, which we refer to as the 2009 Debentures.  Cash from operations results primarily from net income from the income statement less non-cash expenses (depreciation and amortization) and changes in working capital from the balance sheet.
 
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Our largest source of operating cash flows is cash collections from our customers following the purchase or renewal of software licenses, product support agreements and other related services.  Payments from customers for software licenses are generally received at the beginning of the contract term.  Payments from customers for product support and ASP services are generally received in advance on a quarterly basis.  Payments for professional services are generally received 30 days after the services are performed.
 
At December 31, 2007, we had cash and cash equivalents of $11,000 compared to cash and cash equivalents of $132,000 at December 31, 2006.  The decrease in cash and cash equivalents is primarily attributable to the decrease in maintenance revenue and the timing of one of our large license sales in 2007.  We had a significant increase in accounts receivable due to a license sale in the fourth quarter of 2007 to a major insurance company.
 
Cash Flows
 
In 2001 and 2002, we raised an aggregate of $2,500,000 in two rounds of debt financing through the sale of our 2008 Debentures and 2009 Debentures.  The 2008 Debentures were issued to two funds managed by RENN Capital Group, Inc., for an aggregate of $1,400,000, and the remainder of the 2008 Debentures were issued to John Roblin, our Chairman and Chief Executive Officer, and certain other investors.  Our 2009 Debentures were issued only to the two RENN funds.  Interest on the unpaid principal amount of the outstanding debentures is payable monthly at the rate of 8% per annum.  We had been required repay principal on the 2008 Debentures and 2009 Debentures since July 2004 and July 2005, respectively, in monthly installments of ten dollars ($10) per thousand dollars ($1,000) of the then-remaining principal amount of such debentures.  Since 2004 and 2005, the holders of our 2008 Debentures and 2009 Debentures, respectively, have elected to convert all of our required monthly installment payments of principal into shares of our common stock at the conversion rate of $.30 per share in lieu of receiving such payments in cash.  On March 23, 2007, the RENN funds elected to convert all of their remaining unpaid principal amount due on their 2008 Debentures and 2009 Debentures, totaling $1,631,601.  In June 2007, the remaining holders of the 2008 Debentures elected to convert their monthly principal installments due in 2007 totaling $33,617.  After giving effect to these conversions, as of December 31, 2007, our only outstanding debentures were an aggregate principal amount of $262,265 that remained outstanding on the 2008 Debentures.  The 2008 Debentures mature on July 1, 2008, unless they are earlier redeemed by us or the holder or converted into shares of our common stock at the holder’s option at a conversion price of $0.30 per share, subject to adjustment.  We may redeem the debentures for cash at 101% of the principal amount, together with accrued and unpaid interest through the redemption date, upon the occurrence of certain events specified in the debentures.
 
Our ability to generate cash has depended on a number of different factors, primarily our ability to continue to secure and retain customers and generate new license sales and related product support agreements.  In order to attract new customers and maintain or grow existing revenue streams, we utilize our existing sources of capital to invest in sales and marketing, technology infrastructure and research and development.
 
Our ability to continue to control expenses, maintain existing revenue streams and anticipate new revenue will impact the amounts and certainty of cash flows.  We intend to maintain our expenses in line with existing revenue streams from maintenance support, ASP services and professional services.
 
Balance sheet items that should be considered in assessing our liquidity include cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued liabilities.  Income statement items that should be considered in assessing our liquidity include revenue, cost of revenue (net of depreciation and amortization), operating expenses (net of depreciation and amortization) and other expenses.  Statement of cash flows items that should be considered in assessing our liquidity include net cash flows from operating activities, net cash flows from investing activities and net cash flows from financing activities.
 
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In December 31, 2007, we had working capital of $545,000 compared to working capital deficit of $898,000 at December 31, 2006.  This increase in our working capital resulted primarily from a increase in our license, professional services and ASP revenues.  Net cash provided from operating activities totaled approximately $907,000 in 2007 compared to approximately $738,000 in 2006.  In 2007, cash flow from operating activities represented the Company’s principal source of cash and results primarily from net income (loss), less non-cash expense and changes in working capital.
 
In 2007, net cash used for investing activities was approximately $1,101,000 compared to approximately $907,000 in 2006.  We expect capital expenditures and capital software expenditures to continue to be funded by cash generated from operations.  We use cash to invest in capital and other assets to support our growth.
 
In 2007, net cash provided from financing activities was approximately $73,000 compared to approximately $4,000 in 2006.  The cash provided from financing activities in 2007 and 2006 consisted of proceeds from the exercise of stock options and warrants.
 
Funding Requirements
 
We do not anticipate any large capital expenditures that will require us to seek new sources of capital.  We lease computer equipment for terms of three years in order to have the latest available technology to serve our customers and develop new products.  In May 2005, we moved our headquarters and purchased new furniture to meet our current needs and anticipated growth.
 
We have been required to repay principal on the 2008 Debentures and 2009 Debentures since July 1, 2004 and July 1, 2005, respectively, in monthly installments of ten dollars ($10) per thousand dollars ($1,000) of the then-remaining principal amount of such debentures, and at maturity we will be required to pay the remaining unpaid principal amount.
 
In January 2007, the holders of the 2008 Debentures and 2009 Debentures elected to convert the remaining portion of their monthly principal installments due in 2006, totaling $119,807, into shares of our common stock at the conversion price of $0.30 per share in lieu of receiving such installment payments in cash.
 
On March 23, 2007, the RENN funds elected to convert the remaining unpaid principal amount due on their 2008 Debentures and 2009 Debentures (representing all of our outstanding 2009 Debentures).  In June 2007, the remaining holders of the 2008 Debentures elected to convert their monthly principal installments due in 2007 totaling $33,617.  As of December 31, 2007, an aggregate principal amount of $262,265 remained outstanding on the 2008 Debentures.
 
Upon maturity of our 2008 Debentures in July 2008, we will be required to repay the outstanding principal balance on our 2008 Debentures, which is expected to be approximately $262,265.
 
We prepare monthly cash flow projections on a rolling twelve-month basis based on a detailed review of anticipated receipts and revenue from licenses, maintenance, ASP and professional services.  We also perform a detailed review of our disbursements, including fixed costs, variable costs, legal costs, payroll costs and other specific payments, on a rolling twelve-month basis.  Comparing estimated cash receipts to estimated payments, we evaluate our ending cash balance monthly and determine whether our anticipated cash flows from operations will be sufficient to meet our normal operating needs for at least the next twelve months.
 
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We believe that our current cash balances and anticipated cash flows from operations will be sufficient to meet our normal operating needs for at least the next twelve months.  We do not anticipate any material changes in our sources of and needs for capital.  Our ability to fund our working capital needs, address planned capital expenditures and make payments on or refinance our indebtedness 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.  If the holders of our outstanding 2008 Debentures do not elect to convert their debentures, we will require cash to service our indebtedness, which consists primarily of our obligations to make monthly principal and interest payments on the debentures.
 
Our future liquidity and capital resource requirements will depend on many factors, including but not limited to the following trends and uncertainties we face:
 
·  
Our ability to generate cash is subject to general economic, financial, competitive and other factors beyond its control.
·  
Our need to invest resources in product development in order to continue to enhance our current product, develop new products, attract and retain customers and keep pace with competitive product introductions and technological developments.
·  
We experience intense competition in our industry and continuing technological changes.
·  
Insurance companies typically are slow in making decisions and have numerous bureaucratic and institutional obstacles, which can make our efforts to attain new customers difficult.
·  
We compete with a number of larger companies who have greater resources than those of ours.  We compete on the basis of insurance knowledge, products, services, price, technological advances and system functionality and performance.
·  
Our operations continue to depend upon the continuing business of our existing customers and our ability to attract new customers.
·  
A decline in software spending in the insurance industry could result in a decrease in our revenue.

Material risks to cash flow from operations include delayed or reduced cash payments accompanying sales of new licenses or a decline in our services business.  There can be no assurance that changes in our plans or other events affecting our operations will not result in materially accelerated or unexpected expenditures.  We cannot be assured that our cash flow from operations will be sufficient, or that future borrowing will be available, to enable us to pay our indebtedness.  Furthermore, we cannot be assured that any or all of the holders of our outstanding debentures will continue to elect to convert all or a portion of their monthly cash installments of principal into shares of our common stock in any future periods.  If we are unable to pay our indebtedness through cash flows from operations, we may need additional financing, and we cannot be certain that we will be able to obtain additional financing with favorable terms.
 
We do not expect for there to be a change in the mix or relative cost of our sources of capital.  If we were to seek to obtain additional capital, we would be required to obtain approval from the holders of our debentures.  We do not foresee difficulty in obtaining such approval, but we have not recently sought approval to raise additional capital.
 
Net Operating Loss Carryforwards
 
At December 31, 2007, we had approximately $25,700,000 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 our outstanding convertible debentures and the conversion of outstanding warrants, or the result of other changes in ownership of our outstanding stock, we may experience an ownership change and consequently our utilization of net operating loss carryforwards could be significantly limited.
 
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CONTRACTUAL OBLIGATIONS
 
The following table summarizes our significant contractual obligations at December 31, 2007, and the effect such obligations are expected to have on our liquidity and cash flows in future periods:
 
Payments due by period
(dollars in thousands)
 
 
 
 
Contractual Obligations
 
 
Total
   
Less than
1 Year
   
1-3 Years
   
3-5 Years
   
More than
5 Years
 
                                         
Operating Leases
  $ 2,175     $ 518     $ 868     $ 789     $  
                                         
8% Convertible Debentures due 2008 – principal(1)
    262       262                    
8% Convertible Debentures due 2008 – interest
       10          10                          
 
Total
  $ 2,447     $ 790     $ 868     $ 789     $  
 
___________________________
 
(1)  Since July 1, 2004, the holders of the 2008 Debentures elected to convert a portion of their monthly principal installments under such debentures into shares of our common stock at the conversion price of $0.30 per share in lieu of receiving such installments in cash.
 
OFF-BALANCE-SHEET ARRANGEMENTS
 
During the fiscal year ended December 31, 2007, we did not have any significant off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
Business Combinations:  In December 2007, the FASB issued Statement No. 141 (revised), Business Combinations.  The standard changes the accounting for business combinations including the measurement of acquirer shares issued in consideration for a business combination, the recognition of contingent consideration, the accounting for preacquisition gain and loss contingencies, the recognition of capitalized in-process research and development, the accounting for acquisition-related restructuring cost accruals, the treatment of acquisition related transaction costs and the recognition of changes in the acquirer’s income tax valuation allowance.  Statement 141(R) is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited.  We are currently evaluating the impact, if any, of the pending adoption of Statement 141(R) on our consolidated financial statement.
 
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Accounting and Reporting of Noncontrolling Interests:  In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statement, an amendment of ARB No. 51.  The standard changes the accounting for noncontrolling (minority) interests in consolidated financial statements including the requirements to classify noncontrolling interests as a component of consolidated stockholders’ equity, and the elimination of “minority interest” accounting in results of operations with earnings attributable to noncontrolling interests reported as part of consolidated earnings.  Additionally, Statement 160 revises the accounting for both increases and decreases in a parent’s controlling ownership interest.  Statement 160 revises the accounting for both increases and decreases in a parent’s controlling ownership interest.  Statement 160 is effective for fiscal years beginning after December 15, 2008, with early adoption prohibited.  We are currently evaluating the impact, if any, of the pending adoption of Statement 160 on our consolidated financial statements.
 
Fair Value Measurements:  In September 2006, the FASB issued Statement No. 157, Fair Value Measurements.  Statement 157 defines fair value, establishes a framework for measuring fair value and expands fair value measurement disclosures.  Statement 157 is effective for fiscal years beginning after November 15, 2007.  We are currently evaluating the impact, if any, of the pending adoption of Statement 157 on our consolidated financial statements.
 
Fair Value Option for Financial Assets and Financial Liabilities:  In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115, which allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on an instrument-by-instrument basis.  Subsequent measurements for the financial assets and liabilities an entity elects to record at fair value will be recognized in earnings.  Statement 159 also establishes additional disclosure requirements.  Statement 159 is effective for fiscal years beginning after November 15, 2007, with early adoption permitted provided that the entity also adopts Statement 157.  We are currently evaluating the impact, if any, of the pending adoption of Statement 159 on our consolidated financial statements.
 
Accounting for Advanced Payments for Future Research and Development:  In June 2007, the FASB ratified EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (EITF 07-3).  EITF 07-3 requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities be deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed.  EITF 07-3 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007.  We are currently evaluating the impact, if any, of the pending adoption of EITF 07-3 on our consolidated financial statements.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are a smaller reporting company and this Item is not applicable to us.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The financial statements and supplementary data listed in Item 15(a)(1) and (2) of this report are included beginning on page F-1 herein.
 
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A(T). CONTROLS AND PROCEDURES
 
DISCLOSURE CONTROLS AND PROCEDURES
 
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).  Based upon that evaluation, we concluded that our disclosure controls and procedures are [effective] in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be disclosed in the our reports filed or submitted under the Exchange Act.
 
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Exchange Act defines internal control over financial reporting in Rule 13a-15(f) and 15d-15(f) as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·  
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
·  
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
·  
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations, or COSO, of the Treadway Commission in “Internal Control – Integrated Framework”.
 
Based upon its assessment, management concluded that, as of December 31, 2007, the Company’s internal control over financial reporting is effective based upon those criteria.
 
31

 
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
 
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
 
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9B. OTHER INFORMATION
 
Not applicable.
 
PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
The information required by this Item regarding directors of the registrant will be included in the Proxy Statement under the caption “Election of Directors” and is incorporated herein by reference.
 
The information required by this Item concerning our Audit Committee financial expert will be included in the Proxy Statement and is incorporated herein by reference.
 
The information required by this Item concerning our Code of Ethics and Business Conduct will be included in the Proxy Statement and is incorporated herein by reference.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
The following table sets forth certain information, as of March 27, 2008, regarding our executive officers:
 
 
Name
Age
Position
 
 
John W. Roblin
63
President and Chief Executive Officer
 
         
 
Maryanne Z. Gallagher
46
Chief Operating Officer
 
         
 
Manish D. Shah
36
Chief Technology Officer
 
         
 
Ann F. Massey
49
Chief Financial Officer
 
 
The biographies of our executive officers are set forth below:
 
John W. Roblin has served as our President and Chief Executive Officer since December 1999 and as a director since March 2000.  He was named Chairman of the Board of Directors in February 2001.  Prior to joining us, Mr. Roblin was Chief Information Officer and Senior Vice President for CIGNA Property and Casualty, positions he held since 1998.  From 1994 until 1998, he was Chief Information Officer and Senior Vice President for Advanta Corporation.  Prior to 1994, he was the Chief Information Officer at Chubb & Son, USF&G and Traveler’s Personal Lines Division.
 
32

 
Maryanne Z. Gallagher has served as our Chief Operating Officer since February 2001.  Prior to holding that position, Ms. Gallagher served as our Senior Vice President since January 2000.  From November 1998 until December 1999, Ms. Gallagher served as our Vice President - Customer Service.  Ms. Gallagher joined us in 1990 and has held various development and support positions in our Classic division through 1998.
 
Manish D. Shah has served as our Chief Technology Officer since May 2004.  Mr. Shah served as our Director of Technology from December 2002 through May 2004 and served as our technology consultant from September 2000 through December 2001.  Prior to joining us, Mr. Shah held several technology management positions at various companies such as Andersen Consulting, P&O Nedlloyd and Tata Consultancy Services in different industries for over 10 years.
 
Ann F. Massey has served as our Chief Financial Officer since February 2001, as our Secretary since April 1997 and as our Controller since March 1997.  From March 1996 to March 1997, Ms. Massey served as our Assistant Treasurer.  From 1994 until February 1996, Ms. Massey served as Assistant Controller for our insurance services division.  Prior to 1994, Ms. Massey had served as our Accounting Manager.
 
ITEM 11. EXECUTIVE COMPENSATION
 
The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.
 
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES 
 
The information required by this Item will be included in the Proxy Statement and is incorporated herein by reference.
 
PART IV
 
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
 
(a)        The following are filed as a part of this report.
 
  (1)          Financial Statements
 
Reference is made to the Index to Financial Statements on Page 35.
 
33

 
      
 
(2)
Financial Statement Schedule  
     
  II - Valuation and qualifying accounts F-25
     
  All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedules, or because the information required is included in the financial statements and notes thereto.
     
(3)
Exhibits.  
 
See Exhibit Index.
 
 
34

 
COVER-ALL TECHNOLOGIES INC.

 
INDEX TO FINANCIAL STATEMENTS




 
Page
   
Report of Independent Registered Public Accounting Firm
F-1
   
Consolidated Balance Sheets - December 31, 2007 and 2006
F-2
   
Consolidated Statements of Operations - Years Ended December 31, 2007, 2006 and 2005
F-4
 
Consolidated Statements of Changes in Stockholders' Equity [Deficit] - Years Ended December 31, 2007, 2006 and 2005
F-6
 
Consolidated Statements of Cash Flows - Years Ended December 31, 2007, 2006 and 2005
F-7
   
Notes to Consolidated Financial Statements
F-9
 
Financial Statement Schedule II - Valuation and Qualifying Accounts
F-25






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of
Cover-All Technologies Inc.

We have audited the accompanying consolidated balance sheets of Cover-All Technologies Inc. and its subsidiary as of December 31, 2007 and 2006, and the related consolidated statements of operations, changes in stockholders' equity [deficit], and cash flows for each of the three years in the period ended December 31, 2007.  These consolidated financial statements and the consolidated financial statement schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the consolidated financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cover-All Technologies Inc. and its subsidiary as of December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.  Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index to consolidated financial statements is the responsibility of Cover-All Technologies Inc.'s management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R).


 
    MOORE STEPHENS, P. C.  
    Certified Public Accountants  
 
New York, New York
March 28, 2008
 
F-1

 
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY

 
CONSOLIDATED BALANCE SHEETS


 
   
December 31,
 
   
2 0 0 7
   
2 0 0 6
 
Assets:
           
Current Assets:
           
Cash and Cash Equivalents
  $ 10,914     $ 131,847  
Accounts Receivable [Less Allowance for Doubtful Accounts
               
of $25,000 in 2007 and 2006]
    3,672,421       1,356,069  
Prepaid Expenses
    293,396       322,372  
                 
Total Current Assets
    3,976,731       1,810,288  
                 
Property and Equipment - At Cost:
               
Furniture, Fixtures and Equipment
    466,622       449,796  
Less: Accumulated Depreciation
    (297,074 )     (251,304 )
                 
Property and Equipment - Net
    169,548       198,492  
                 
Capitalized Software [Less Accumulated Amortization of
               
$10,180,752 and $9,301,096 in 2007 and 2006, Respectively]
    1,580,971       1,376,437  
                 
Deferred Financing Costs [Net of Accumulated Amortization of
               
$215,038 and $180,565 in 2007 and 2006, Respectively]
    26,273       60,746  
                 
Other Assets
    110,151       110,151  
                 
Total Assets
  $ 5,863,674     $ 3,556,114  


See Notes to Consolidated Financial Statements.
F-2

 
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY


CONSOLIDATED BALANCE SHEETS



   
December 31,
 
   
2 0 0 7
   
2 0 0 6
 
Liabilities and Stockholders' Equity [Deficit]:
           
Current Liabilities:
           
Accounts Payable
  $ 579,446     $ 459,879  
Accrued Liabilities
    1,080,136       609,510  
Deferred Charges
    22,503       2,532  
Convertible Debentures
    196,699       325,796  
Convertible Debentures - Related Party
    65,566       13,002  
Unearned Revenue
    1,487,545       1,297,581  
                 
Total Current Liabilities
    3,431,895       2,708,300  
                 
Long-Term Liabilities:
               
Deferred Charges
    146,347       163,787  
Convertible Debentures
    --       1,642,926  
Convertible Debentures - Related Party
    --       65,566  
                 
Total Long-Term Liabilities
    146,347       1,872,279  
                 
Total Liabilities
    3,578,242       4,580,579  
                 
Commitments and Contingencies
    --       --  
                 
Stockholders' Equity [Deficit]:
               
Common Stock, $.01 Par Value, Authorized 75,000,000 Shares;
               
23,192,302 and 19,491,504 Shares Issued and 23,192,302 and
               
16,991,504 Shares Outstanding in 2007 and 2006, Respectively
    231,923       194,915  
                 
Capital In Excess of Par Value
    28,073,659       26,735,207  
                 
Accumulated Deficit
    (26,020,150 )     (27,251,587 )
                 
Treasury Stock - At Cost - 2,500,000 Shares
    --       (703,000 )
                 
Total Stockholders' Equity [Deficit]
    2,285,432       (1,024,465 )
                 
Total Liabilities and Stockholders' Equity [Deficit]
  $ 5,863,674     $ 3,556,114  


See Notes to Consolidated Financial Statements.
F-3


COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF OPERATIONS

 

   
Y e a r s   e n d e d
 
       
   
D e c e m b e r   3 1,
 
       
   
2 0 0 7
   
2 0 0 6
   
2 0 0 5
 
Revenues:
                 
Licenses
  $ 2,682,840     $ 1,375,713     $ 1,322,733  
Maintenance
    3,210,423       3,471,480       3,637,470  
Professional Services
    2,316,211       1,176,562       1,063,933  
Application Service Provider ["ASP"] Services
    1,567,843       1,264,740       1,230,750  
                         
Total Revenues
    9,777,317       7,288,495       7,254,886  
                         
Costs of Revenues:
                       
Licenses
    1,142,824       1,280,232       1,566,018  
Maintenance
    2,796,465       3,013,900       2,834,195  
Professional Services
    1,278,004       570,222       498,254  
ASP Services
    470,781       379,767       188,851  
                         
Total Costs of Revenues
    5,688,074       5,244,121       5,087,318  
                         
Direct Margin
    4,089,243       2,044,374       2,167,568  
                         
Operating Expenses:
                       
Sales and Marketing
    800,322       943,187       1,221,511  
General and Administrative
    1,441,842       1,461,209       1,431,361  
Research and Development
    509,629       464,088       808,847  
Provision for Doubtful Accounts
    50,661       --       --  
                         
Total Operating Expenses
    2,802,454       2,868,484       3,461,719  
                         
Operating Income [Loss]
    1,286,789       (824,110 )     (1,294,151 )
                         
Other Expense [Income]:
                       
Interest Expense
    49,782       170,829       181,367  
Interest Expense - Related Party
    5,579       6,512       7,169  
Interest Income
    (9 )     (15 )     (9,883 )
Other Expense
    --       1,377       --  
Other Income
    --       (2,948 )     (38,600 )
                         
Total Other Expense
    55,352       175,755       140,053  
                         
Income [Loss] Before Income Taxes Expense
    1,231,437       (999,865 )     (1,434,204 )
                         
Income Taxes Expense
    --       --       --  
                         
Net Income [Loss]
  $ 1,231,437     $ (999,865 )   $ (1,434,204 )

See Notes to Consolidated Financial Statements.
F-4

 
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF OPERATIONS



   
Y e a r s   e n d e d
 
       
   
D e c e m b e r   3 1,
 
       
   
2 0 0 7
   
2 0 0 6
   
2 0 0 5
 
                   
Basic Income [Loss] Earnings Per Common Share
  $ .06     $ (.06 )   $ (.09 )
                         
Diluted Income [Loss] Earnings Per Common Share
  $ .05     $ (.06 )   $ (.09 )
                         
Weighted Average Number of Common Shares
                       
Outstanding for Basic Earnings Per
                       
Common Share
    21,806,000       16,732,000       16,141,000  
                         
Weighted Average Number of Common Shares
                       
Outstanding for Diluted Income Earnings Per
                       
Common Share [See Note 6]
    23,463,000       16,732,000       16,141,000  



See Notes to Consolidated Financial Statements.
F-5

 
COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [DEFICIT]



                           
Total
 
         
Capital in
               
Stockholders'
 
         
Excess of
   
Accumulated
   
Treasury
   
Equity
 
   
Common Stock
   
Par Value
   
Deficit
   
Stock
   
[Deficit]
 
                               
Balance at January 1, 2005
  $ 182,481     $ 26,265,976     $ (24,817,518 )   $ (703,000 )