SEC Company Response from COVER ALL TECHNOLOGIES INC (CIK 0000737300) — Sep 16, 2005
COVER ALL TECHNOLOGIES INC (CIK 0000737300)
Date: Sept. 16, 2005 · CIK: 0000737300 · Accession: 0001188112-05-001659
AI Filing Summary & Sentiment
File numbers found in text: 000-13124
Referenced dates: August 23, 2005
Letter
September 16, 2005 VIA EDGAR --------- Mr. Brad Skinner Accounting Branch Chief Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549
Re: Cover-All Technologies Inc. Form 10-K for Fiscal Year Ended December 31, 2004 Filed March 25, 2005 File No. 000-13124
Dear Mr. Skinner:
On behalf of Cover-All Technologies Inc., a Delaware corporation ("Cover-All" or the "Company"), we are transmitting responses to your letter of comments dated August 23, 2005, relating to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (the "10-K").
The responses are numbered to correspond to the numbers and headings of the paragraphs set forth in your letter of comments (which are reproduced below).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, PAGE 24
1. PLEASE EXPLAIN TO US HOW YOU DETERMINED THAT YOUR LIQUIDITY DISCLOSURES WERE APPROPRIATE. EXPLAIN HOW YOU EVALUATED YOUR ABILITY TO MEET UPCOMING CASH REQUIREMENTS OVER BOTH THE SHORT AND LONG TERM. AS PART OF YOUR RESPONSE, TELL US HOW YOU CONSIDERED PROVIDING THE FOLLOWING, AS DESCRIBED IN SECTION IV OF SEC RELEASE 33-8350:
<PAGE>
Mr. Brad Skinner September 16, 2005 Page 2
RESPONSE: In determining that the Company's liquidity disclosures were appropriate, Cover-All reviewed and analyzed the material trends, commitments, demands and uncertainties affecting its sources of cash flow, anticipated cash requirements and capital expenditures over the short and long term.
The Company believes that the 10-K reflected this analysis and disclosed the material factors influencing the Company's liquidity and capital resources.
Cover-All considered the following factors when determining appropriate liquidity and capital resources disclosure:
HISTORICAL INFORMATION REGARDING SOURCES OF CASH AND CAPITAL EXPENDITURES
RESPONSE: Cover-All's largest source of operating cash flows is cash collections from its 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 application services provider ("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.
In 2001 and 2002, Cover-All completed two rounds of debt financing through the sale of an aggregate principal amount of $2.5 million 8% convertible debentures due in 2008 (the "2008 Debentures") and 2009 (the "2009 Debentures", and, together with the 2008 Debentures, the "Debentures"), respectively, to Renaissance US Growth & Income Trust PLC, BFS US Special Opportunities Trust PLC and certain other investors. The 2008 Debentures mature on July 1, 2008 and the 2009 Debentures mature on September 1, 2009, unless the Debentures are redeemed earlier or the holders elect to convert the Debentures into shares of Cover-All common stock at a conversion price of $0.30 per share, subject to adjustment.
Cover-All determined that its 10-K liquidity and capital resources discussion appropriately disclosed the primary historical sources of funds for operations because the 10-K accurately disclosed that cash flows from operations and proceeds from the 2008 Debentures and 2009 Debentures have been the Company's main sources of cash and capital expenditures.
AN EVALUATION OF THE AMOUNTS AND CERTAINTY OF CASH FLOWS
RESPONSE: Cover-All's ability to generate cash has depended on a number of different factors, primarily its ability to continue to secure and retain customers and generate new
<PAGE>
Mr. Brad Skinner September 16, 2005 Page 3
license sales and related product support agreements. In order to attract new customers and maintain or grow existing revenue streams, the Company utilizes its existing sources of capital to invest in sales and marketing, technology infrastructure and research and development.
The Company's ability to continue to control expenses, maintain existing revenue streams and anticipate new revenue will impact the amounts and certainty of cash flows. Cover-All intends to maintain its expenses in line with existing revenue streams from maintenance support, ASP services and professional services.
The Company prepares 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. Cover-All also performs a detailed review of its 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, the Company evaluates its ending cash balance monthly and evaluates whether its anticipated cash flows from operations will be sufficient to meet its normal operating needs for at least the next twelve months.
For the year ended December 31, 2004, net cash (used for) provided by operating activities totaled approximately ($2,700) compared to approximately $221,000 for the year ended December 30, 2003 and $2,055,000 for the year ended December 31, 2002. In 2004, cash flow from operating activities represented the Company's principal source of cash and resulted primarily from net income less non-cash expenses and changes in working capital. Cover-All had a significant increase in its accounts receivable due to the license sale to one large customer offset by non-cash expenses and payment of liabilities. The Company had cash and cash equivalent balances totaling approximately $144,000 and $1,193,000 at December 31, 2004 and December 31, 2003, respectively.
For the year ended December 31, 2004, net cash used for investing activities was approximately $1,061,000 compared to approximately $1,094,000 for the year ended December 31, 2003 and $1,050,000 for the year ended December 31, 2002. Cover-All expects capital expenditures and capital software expenditures to continue to be funded by cash generated from operations.
For the year ended December 31, 2004, net cash provided from financing activities was approximately $14,000 compared to approximately $3,000 for the year ended December 31, 2003 and $628,000 for the year ended December 31, 2002. The cash provided from financing activities in 2004 and 2003 consisted of proceeds from the
<PAGE>
Mr. Brad Skinner September 16, 2005 Page 4
exercise of stock options. The cash provided from financing activities in 2002 was proceeds from the 2009 Debentures offset by deferred financing costs and principal payments on a capital lease.
Cover-All determined that its 10-K liquidity and capital resources discussion appropriately addressed the material factors affecting Cover-All's amounts and certainties of cash flows because the Company disclosed its then-current available working capital and amounts of cash and cash equivalents and its determination that cash flows from operations were adequate to meet the Company's normal operating needs for at least the next twelve months.
THE EXISTENCE AND TIMING OF COMMITMENTS FOR CAPITAL EXPENDITURES AND OTHER KNOWN AND REASONABLY LIKELY CASH REQUIREMENTS
RESPONSE: Cover-All does not anticipate any large capital expenditures that will require the Company to seek new sources of capital. The Company leases computer equipment for terms of three years in order to have the latest available technology to serve its customers and develop new products. In May 2005, Cover-All moved its headquarters and purchased new furniture to meet its current needs and anticipated growth.
The Company may require a significant amount of cash to service its indebtedness, which consists primarily of its obligations to make monthly principal and interest payments on the Debentures.
In 2004, the holders of the 2008 Debentures elected to convert all of their monthly principal installments due under the debentures in 2004, totaling $105,335, into shares of Cover-All Common Stock at the conversion price of $0.30 per share, in lieu of receiving such principal installments in cash.
Cover-All cannot be assured that its cash flow from operations will be sufficient, or that future borrowing will be available, to enable the Company to pay its indebtedness. Furthermore, the Company cannot be assured that any or all of the holders of its Debentures will continue to elect to convert all or a portion of their monthly cash installments of principal into shares of its Common Stock in any future periods. If Cover-All is unable to pay its indebtedness through cash flows from operations, it may need additional financing. Cover-All cannot be certain that it will be able to obtain additional financing with favorable terms.
Cover-All determined that its 10-K liquidity and capital resources disclosure appropriately addressed the existence and timing for capital expenditures and other known and reasonably likely cash requirements because the Company disclosed its
<PAGE>
Mr. Brad Skinner September 16, 2005 Page 5
obligations relating to the Debentures and does not anticipate any additional large capital expenditures or cash requirements and certain other factors relating to its anticipated cash requirements.
DISCUSSION AND ANALYSIS OF KNOWN TRENDS AND UNCERTAINTIES
RESPONSE: The known trends and uncertainties Cover-All faces include the following:
o Cover-All's ability to generate cash is subject to general economic, financial, competitive and other factors beyond its control.
o Cover-All needs to invest resources in product development in order to continue to enhance its current product, develop new products, attract and retain customers and keep pace with competitive product introductions and technological developments.
o Cover-All experiences intense competition in its industry and continuing technological changes.
o Insurance companies typically are slow in making decisions and have numerous bureaucratic and institutional obstacles, which can make the Company's efforts to attain new customers difficult.
o Cover-All competes with a number of larger companies who have greater resources than those of the Company. Cover-All competes on the basis of insurance knowledge, products, services, price, technological advances and system functionality and performance.
o Cover-All's operations continue to depend upon the continuing business of its existing customers and ability to attract new customers.
o A decline in software spending in the insurance industry could result in a decrease in the Company's revenue.
Cover-All determined that the Management's Discussion and Analysis of Financial Conditions and Results section of the 10-K appropriately addressed the trends and uncertainties that may have a material effect on Cover-All's business because the Company considered factors generally affecting the industry in which Cover-All operates as well as risks and uncertainties unique to the Company. Cover-All believes that its 10-K adequately disclosed the trends and uncertainties that may have a material effect on the Company.
<PAGE>
Mr. Brad Skinner September 16, 2005 Page 6
A DESCRIPTION OF EXPECTED CHANGES IN THE MIX AND RELATIVE COST OF CAPITAL SOURCES
RESPONSE: Cover-All concluded that, because the Company does not expect a change in the mix and relative cost of capital sources, no disclosure consisting of a description of such changes was necessary.
Cover-All does not expect for there to be a change in the mix or relative cost of its sources of capital. If Cover-All were to seek to obtain additional capital, the Company would be required to obtain approval from the holders of its Debentures. Cover-All does not foresee difficulty in obtaining such approval, but the Company has not recently sought approval to raise additional capital.
INDICATIONS OF WHICH BALANCE SHEET OR INCOME OR CASH FLOW ITEMS SHOULD BE CONSIDERED IN ASSESSING LIQUIDITY
RESPONSE: The Company believes that its liquidity and capital resources discussion in the 10-K adequately addresses the balance sheet, income statement and cash flow items that should be considered in assessing liquidity.
Balance sheet items that should be considered in assessing Cover-All's liquidity include cash and cash equivalents, accounts receivable, pr
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COVER-ALL TECHNOLOGIES INC.
55 LANE ROAD, SUITE 300 o FAIRFIELD, N.J. o 07004
PHONE: 973.461.5200 o FAX: 973.461.5257
September 16, 2005
VIA EDGAR
---------
Mr. Brad Skinner
Accounting Branch Chief
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Cover-All Technologies Inc.
Form 10-K for Fiscal Year Ended December 31, 2004
Filed March 25, 2005
File No. 000-13124
Dear Mr. Skinner:
On behalf of Cover-All Technologies Inc., a Delaware corporation ("Cover-All" or
the "Company"), we are transmitting responses to your letter of comments dated
August 23, 2005, relating to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004 (the "10-K").
The responses are numbered to correspond to the numbers and headings of the
paragraphs set forth in your letter of comments (which are reproduced below).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES, PAGE 24
1. PLEASE EXPLAIN TO US HOW YOU DETERMINED THAT YOUR LIQUIDITY
DISCLOSURES WERE APPROPRIATE. EXPLAIN HOW YOU EVALUATED YOUR ABILITY
TO MEET UPCOMING CASH REQUIREMENTS OVER BOTH THE SHORT AND LONG
TERM. AS PART OF YOUR RESPONSE, TELL US HOW YOU CONSIDERED PROVIDING
THE FOLLOWING, AS DESCRIBED IN SECTION IV OF SEC RELEASE 33-8350:
<PAGE>
Mr. Brad Skinner
September 16, 2005
Page 2
RESPONSE: In determining that the Company's liquidity disclosures were
appropriate, Cover-All reviewed and analyzed the material trends,
commitments, demands and uncertainties affecting its sources of cash
flow, anticipated cash requirements and capital expenditures over
the short and long term.
The Company believes that the 10-K reflected this analysis and
disclosed the material factors influencing the Company's liquidity
and capital resources.
Cover-All considered the following factors when determining
appropriate liquidity and capital resources disclosure:
HISTORICAL INFORMATION REGARDING SOURCES OF CASH AND CAPITAL EXPENDITURES
RESPONSE: Cover-All's largest source of operating cash flows is cash
collections from its 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 application services provider
("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.
In 2001 and 2002, Cover-All completed two rounds of debt financing
through the sale of an aggregate principal amount of $2.5 million 8%
convertible debentures due in 2008 (the "2008 Debentures") and 2009
(the "2009 Debentures", and, together with the 2008 Debentures, the
"Debentures"), respectively, to Renaissance US Growth & Income Trust
PLC, BFS US Special Opportunities Trust PLC and certain other
investors. The 2008 Debentures mature on July 1, 2008 and the 2009
Debentures mature on September 1, 2009, unless the Debentures are
redeemed earlier or the holders elect to convert the Debentures into
shares of Cover-All common stock at a conversion price of $0.30 per
share, subject to adjustment.
Cover-All determined that its 10-K liquidity and capital resources
discussion appropriately disclosed the primary historical sources of
funds for operations because the 10-K accurately disclosed that cash
flows from operations and proceeds from the 2008 Debentures and 2009
Debentures have been the Company's main sources of cash and capital
expenditures.
AN EVALUATION OF THE AMOUNTS AND CERTAINTY OF CASH FLOWS
RESPONSE: Cover-All's ability to generate cash has depended on a number of
different factors, primarily its ability to continue to secure and
retain customers and generate new
<PAGE>
Mr. Brad Skinner
September 16, 2005
Page 3
license sales and related product support agreements. In order to
attract new customers and maintain or grow existing revenue streams,
the Company utilizes its existing sources of capital to invest in
sales and marketing, technology infrastructure and research and
development.
The Company's ability to continue to control expenses, maintain
existing revenue streams and anticipate new revenue will impact the
amounts and certainty of cash flows. Cover-All intends to maintain
its expenses in line with existing revenue streams from maintenance
support, ASP services and professional services.
The Company prepares 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. Cover-All also performs a detailed review of
its 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, the Company
evaluates its ending cash balance monthly and evaluates whether its
anticipated cash flows from operations will be sufficient to meet
its normal operating needs for at least the next twelve months.
For the year ended December 31, 2004, net cash (used for) provided
by operating activities totaled approximately ($2,700) compared to
approximately $221,000 for the year ended December 30, 2003 and
$2,055,000 for the year ended December 31, 2002. In 2004, cash flow
from operating activities represented the Company's principal source
of cash and resulted primarily from net income less non-cash
expenses and changes in working capital. Cover-All had a significant
increase in its accounts receivable due to the license sale to one
large customer offset by non-cash expenses and payment of
liabilities. The Company had cash and cash equivalent balances
totaling approximately $144,000 and $1,193,000 at December 31, 2004
and December 31, 2003, respectively.
For the year ended December 31, 2004, net cash used for investing
activities was approximately $1,061,000 compared to approximately
$1,094,000 for the year ended December 31, 2003 and $1,050,000 for
the year ended December 31, 2002. Cover-All expects capital
expenditures and capital software expenditures to continue to be
funded by cash generated from operations.
For the year ended December 31, 2004, net cash provided from
financing activities was approximately $14,000 compared to
approximately $3,000 for the year ended December 31, 2003 and
$628,000 for the year ended December 31, 2002. The cash provided
from financing activities in 2004 and 2003 consisted of proceeds
from the
<PAGE>
Mr. Brad Skinner
September 16, 2005
Page 4
exercise of stock options. The cash provided from financing
activities in 2002 was proceeds from the 2009 Debentures offset by
deferred financing costs and principal payments on a capital lease.
Cover-All determined that its 10-K liquidity and capital resources
discussion appropriately addressed the material factors affecting
Cover-All's amounts and certainties of cash flows because the
Company disclosed its then-current available working capital and
amounts of cash and cash equivalents and its determination that cash
flows from operations were adequate to meet the Company's normal
operating needs for at least the next twelve months.
THE EXISTENCE AND TIMING OF COMMITMENTS FOR CAPITAL EXPENDITURES AND OTHER KNOWN
AND REASONABLY LIKELY CASH REQUIREMENTS
RESPONSE: Cover-All does not anticipate any large capital expenditures that
will require the Company to seek new sources of capital. The Company
leases computer equipment for terms of three years in order to have
the latest available technology to serve its customers and develop
new products. In May 2005, Cover-All moved its headquarters and
purchased new furniture to meet its current needs and anticipated
growth.
The Company may require a significant amount of cash to service its
indebtedness, which consists primarily of its obligations to make
monthly principal and interest payments on the Debentures.
In 2004, the holders of the 2008 Debentures elected to convert all
of their monthly principal installments due under the debentures in
2004, totaling $105,335, into shares of Cover-All Common Stock at
the conversion price of $0.30 per share, in lieu of receiving such
principal installments in cash.
Cover-All cannot be assured that its cash flow from operations will
be sufficient, or that future borrowing will be available, to enable
the Company to pay its indebtedness. Furthermore, the Company cannot
be assured that any or all of the holders of its Debentures will
continue to elect to convert all or a portion of their monthly cash
installments of principal into shares of its Common Stock in any
future periods. If Cover-All is unable to pay its indebtedness
through cash flows from operations, it may need additional
financing. Cover-All cannot be certain that it will be able to
obtain additional financing with favorable terms.
Cover-All determined that its 10-K liquidity and capital resources
disclosure appropriately addressed the existence and timing for
capital expenditures and other known and reasonably likely cash
requirements because the Company disclosed its
<PAGE>
Mr. Brad Skinner
September 16, 2005
Page 5
obligations relating to the Debentures and does not anticipate any
additional large capital expenditures or cash requirements and
certain other factors relating to its anticipated cash requirements.
DISCUSSION AND ANALYSIS OF KNOWN TRENDS AND UNCERTAINTIES
RESPONSE: The known trends and uncertainties Cover-All faces include the
following:
o Cover-All's ability to generate cash is subject to general
economic, financial, competitive and other factors beyond its
control.
o Cover-All needs to invest resources in product development in
order to continue to enhance its current product, develop new
products, attract and retain customers and keep pace with
competitive product introductions and technological
developments.
o Cover-All experiences intense competition in its industry and
continuing technological changes.
o Insurance companies typically are slow in making decisions and
have numerous bureaucratic and institutional obstacles, which
can make the Company's efforts to attain new customers
difficult.
o Cover-All competes with a number of larger companies who have
greater resources than those of the Company. Cover-All competes
on the basis of insurance knowledge, products, services, price,
technological advances and system functionality and performance.
o Cover-All's operations continue to depend upon the continuing
business of its existing customers and ability to attract new
customers.
o A decline in software spending in the insurance industry could
result in a decrease in the Company's revenue.
Cover-All determined that the Management's Discussion and Analysis
of Financial Conditions and Results section of the 10-K
appropriately addressed the trends and uncertainties that may have a
material effect on Cover-All's business because the Company
considered factors generally affecting the industry in which
Cover-All operates as well as risks and uncertainties unique to the
Company. Cover-All believes that its 10-K adequately disclosed the
trends and uncertainties that may have a material effect on the
Company.
<PAGE>
Mr. Brad Skinner
September 16, 2005
Page 6
A DESCRIPTION OF EXPECTED CHANGES IN THE MIX AND RELATIVE COST OF CAPITAL
SOURCES
RESPONSE: Cover-All concluded that, because the Company does not expect a
change in the mix and relative cost of capital sources, no
disclosure consisting of a description of such changes was
necessary.
Cover-All does not expect for there to be a change in the mix or
relative cost of its sources of capital. If Cover-All were to seek
to obtain additional capital, the Company would be required to
obtain approval from the holders of its Debentures. Cover-All does
not foresee difficulty in obtaining such approval, but the Company
has not recently sought approval to raise additional capital.
INDICATIONS OF WHICH BALANCE SHEET OR INCOME OR CASH FLOW ITEMS SHOULD BE
CONSIDERED IN ASSESSING LIQUIDITY
RESPONSE: The Company believes that its liquidity and capital resources
discussion in the 10-K adequately addresses the balance sheet,
income statement and cash flow items that should be considered in
assessing liquidity.
Balance sheet items that should be considered in assessing
Cover-All's liquidity include cash and cash equivalents, accounts
receivable, pr