<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2006

                                       OR

        |_|     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                        13-2698053
         (State or other jurisdiction of       (I.R.S. Employer
         incorporation or organization)        Identification No.)

        55 LANE ROAD, FAIRFIELD, NEW JERSEY                  07004
     (Address of principal executive offices)              (Zip Code)

                                  973-461-5200
              (Registrant's telephone number, including area code)

                                      NONE
        (Former name, former address and former fiscal year, if changed
                               since last report)

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

        Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer [ ] Accelerated filer [ ]  Non-accelerated filer [X]

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

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

               Class                            Outstanding at November 1, 2006
--------------------------------------        ----------------------------------
Common Stock, $.01 par value per share                  16,984,004 shares


<PAGE>


COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------
INDEX TO FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2006
--------------------------------------------------------------------------------


PART I:   FINANCIAL INFORMATION

ITEM 1.   Financial Statements

          Consolidated Balance Sheets as of September 30, 2006 (Unaudited)
          and December 31, 2005 (Audited).................................... 3

          Consolidated Statements of Operations for the three and nine
          months ended September 30, 2006 and 2005 (Unaudited)............... 5

          Consolidated Statements of Cash Flows for the nine
          months ended September 30, 2006 and 2005 (Unaudited)............... 6

          Notes to Consolidated Financial Statements (Unaudited)............. 7

ITEM 2.   Management's Discussion and Analysis of Financial
          Condition and Results of Operations................................ 13

ITEM 3.   Qualitative and Quantitative Disclosures
          About Market Risk.................................................. 20

ITEM 4.   Controls and Procedures............................................ 20

PART II:  OTHER INFORMATION

ITEM 1A.  Risk Factors....................................................... 22

ITEM 6.   Exhibits........................................................... 22

SIGNATURES................................................................... 23


                               . . . . . . . . . .

                                       2

<PAGE>


PART I:    FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.
         --------------------

COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                SEPTEMBER 30,   DECEMBER 31,
                                                                    2006           2005
                                                                -----------     -----------
                                                                 (UNAUDITED)    (AUDITED)
<S>                                                             <C>             <C>
ASSETS:
Current Assets:
   Cash and Cash Equivalents ...............................    $   253,952     $   296,159
   Accounts Receivable (Less Allowance for Doubtful Accounts
      of $25,000 in 2006 and 2005) .........................        560,924       1,803,333
   Prepaid Expenses ........................................        431,460         526,311
                                                                -----------     -----------
   Total Current Assets ....................................      1,246,336       2,625,803
                                                                -----------     -----------
Property and Equipment - At Cost:
   Furniture, Fixtures and Equipment .......................        448,011         431,077
   Less:  Accumulated Depreciation .........................       (235,816)       (188,154)
                                                                -----------     -----------
   Property and Equipment - Net ............................        212,195         242,923
                                                                -----------     -----------
Capitalized Software (Less Accumulated Amortization of
   $9,023,065 and $8,186,661, respectively) ................      1,430,518       1,602,836
                                                                -----------     -----------
Deferred Financing Costs (Net of Accumulated Amortization of
   $171,946 and $146,092, respectively) ....................         69,365          95,219
                                                                -----------     -----------
Other Assets ...............................................        110,151         110,151
                                                                -----------     -----------
   Total Assets ............................................    $ 3,068,565     $ 4,676,932
                                                                ===========     ===========


The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                       3

<PAGE>


COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,    DECEMBER 31,
                                                                      2006             2005
                                                                  ------------     ------------
                                                                   (UNAUDITED)       (AUDITED)
<S>                                                               <C>              <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
   Accounts Payable ..........................................    $    347,957     $    538,889
   Accrued Liabilities .......................................         390,686          484,047
   Deferred Charges ..........................................           7,539            7,539
   Convertible Debentures ....................................         276,189          237,499
   Convertible Debenture - Related Party .....................          10,312            9,562
   Unearned Revenue ..........................................       1,186,442        1,585,556
                                                                  ------------     ------------
   Total Current Liabilities .................................       2,219,125        2,863,092
                                                                  ------------     ------------
Long-Term Liabilities:
   Deferred Charges ..........................................         156,311          151,241
   Convertible Debentures ....................................       1,693,216        1,853,594
   Convertible Debenture - Related Party .....................          67,573           73,889
                                                                  ------------     ------------
   Total Long-Term Liabilities ...............................       1,917,100        2,078,724
                                                                  ------------     ------------
   Total Liabilities .........................................       4,136,225        4,941,816
                                                                  ------------     ------------
Commitments and Contingencies ................................              --               --
                                                                  ------------     ------------
Stockholders' (Deficit) Equity:
   Common Stock, $.01 Par Value, Authorized 75,000,000 Shares;
     19,484,004 and 19,059,823 Shares Issued and 16,984,004
     and 16,559,823 Shares Outstanding, Respectively .........         194,840          190,598

Capital In Excess Of Par Value ...............................      26,649,657       26,499,240

Accumulated Deficit ..........................................     (27,209,157)     (26,251,722)

Treasury Stock - At Cost - 2,500,000 Shares ..................        (703,000)        (703,000)
                                                                  ------------     ------------
Total Stockholders' (Deficit) Equity .........................      (1,067,660)        (264,884)
                                                                  ------------     ------------
Total Liabilities and Stockholders' (Deficit) Equity .........    $  3,068,565     $  4,676,932
                                                                  ============     ============


The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                       4

<PAGE>


COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED               NINE MONTHS ENDED
                                                               SEPTEMBER 30,                    SEPTEMBER 30,
                                                       ---------------------------       ---------------------------
                                                          2006             2005             2006             2005
                                                       ----------       ----------       ----------       ----------
<S>                                                  <C>              <C>              <C>              <C>
REVENUES:
     Licenses ...................................    $    179,116     $    150,866     $    579,238     $    849,954
     Maintenance ................................         891,145          901,033        2,568,962        2,841,784
     Professional Services ......................         231,825          245,902          898,601          856,158
     Applications Service Provider ("ASP")
        Services ................................         316,185          340,500          948,555          890,250
                                                       ----------       ----------       ----------       ----------
     TOTAL REVENUES .............................       1,618,271        1,638,301        4,995,356        5,438,146
                                                       ----------       ----------       ----------       ----------
COST OF REVENUES:
     Licenses ...................................         309,574          348,772          930,509        1,149,446
     Maintenance ................................         756,030          710,681        2,254,314        2,169,615
     Professional Services ......................         137,117          129,930          403,544          365,272
     ASP Services ...............................          98,801           52,990          286,621          116,995
                                                       ----------       ----------       ----------       ----------
     TOTAL COST OF REVENUES .....................       1,301,522        1,242,373        3,874,988        3,801,328
                                                       ----------       ----------       ----------       ----------
     DIRECT MARGIN ..............................         316,749          395,928        1,120,368        1,636,818
                                                       ----------       ----------       ----------       ----------
OPERATING EXPENSES:
     Sales and Marketing ........................         238,124          317,163          709,888          989,646
     General and Administrative .................         294,536          320,989          874,124          948,401
     Research and Development ...................          94,266          229,962          362,486          638,456
                                                       ----------       ----------       ----------       ----------
     TOTAL OPERATING EXPENSES ...................         626,926          868,114        1,946,498        2,576,503
                                                       ----------       ----------       ----------       ----------
     OPERATING INCOME (LOSS) ....................        (310,177)        (472,186)        (826,130)        (939,685)
                                                       ----------       ----------       ----------       ----------
OTHER INCOME (EXPENSE):
     Interest Expense ...........................         (42,979)         (45,447)        (128,053)        (137,938)
     Interest Expense - Related Party ...........          (1,617)          (1,787)          (4,928)          (5,691)
     Interest Income ............................               4            2,113               12            9,879
     Other Income ...............................           1,340               --            1,664           34,666
                                                       ----------       ----------       ----------       ----------
     TOTAL OTHER INCOME (EXPENSE) ...............         (43,252)         (45,121)        (131,305)         (99,084)
                                                       ----------       ----------       ----------       ----------
     INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT)         (355,429)        (517,307)        (957,435)      (1,038,769)
                                                       ----------       ----------       ----------       ----------
INCOME TAXES (BENEFIT) ..........................              --               --               --               --
                                                       ----------       ----------       ----------       ----------
NET INCOME (LOSS) ...............................    $   (353,429)    $   (517,307)    $   (957,435)    $ (1,038,769)
                                                       ==========       ==========       ==========       ==========
BASIC EARNINGS (LOSS) PER COMMON SHARE ..........    $      (0.02)    $      (0.03)    $      (0.06)    $      (0.06)
                                                       ==========       ==========       ==========       ==========
DILUTED EARNINGS (LOSS) PER COMMON SHARE ........    $      (0.02)    $      (0.03)    $      (0.06)    $      (0.06)
                                                       ==========       ==========       ==========       ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
     OUTSTANDING FOR BASIC EARNINGS (LOSS) PER
     COMMON SHARE ...............................      16,079,000       16,240,000       16,398,000       16,000,000
                                                       ==========       ==========       ==========       ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
     OUTSTANDING FOR DILUTED EARNINGS (LOSS) PER
     COMMON SHARE ...............................      16,079,000       16,240,000       16,398,000       16,000,000
                                                       ==========       ==========       ==========       ==========

 The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                       5

<PAGE>


COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                        NINE MONTHS ENDED
                                                                           SEPTEMBER 30,
                                                                     -------------------------
                                                                       2006            2005
                                                                     ---------       ---------
<S>                                                                <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net(Loss) ...............................................     $  (957,435)    $(1,038,769)
     Adjustments to Reconcile Net Income (Loss) to
        Net Cash Provided From (Used For) Operating Activities:
            Depreciation ......................................         47,662          77,766
            Amortization of Capitalized Software ..............        836,404         732,698
            Amortization of Deferred Financing Costs ..........         25,854          25,855
            Noncash Stock-Based Compensation ..................         27,405              --
     Changes in Assets and Liabilities:
        (Increase) Decrease in:
            Accounts Receivable ...............................      1,242,409       2,412,733
            Prepaid Expenses ..................................         94,851        (127,527)
            Other Assets ......................................             --         (51,092)
        Increase (Decrease) in:
            Accounts Payable ..................................       (190,932)       (268,691)
            Taxes Payable .....................................             --         (48,905)
            Accrued Liabilities ...............................        (93,361)       (434,601)
            Deferred Charges ..................................          5,070         126,019
            Unearned Revenue ..................................       (399,114)       (597,512)
                                                                     ---------       ---------
     Net Cash Provided From (Used For) Operating Activities ...        638,813         807,974
                                                                     ---------       ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital Expenditures .....................................        (16,934)       (209,403)
     Capitalized Software Expenditures ........................       (664,086)       (518,032)
                                                                     ---------       ---------
     Net Cash Provided From (Used For) Investing Activities ...       (681,020)       (727,435)
                                                                     ---------       ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from Exercise of Stock Options ..................             --          21,260
                                                                     ---------       ---------
     Net Cash Provided From Financing Activities ..............             --          21,260
                                                                     ---------       ---------
CHANGE IN CASH AND CASH EQUIVALENTS ...........................        (42,207)        101,799
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD ...............        296,159         143,624
                                                                     ---------       ---------
CASH AND CASH EQUIVALENTS - END OF PERIOD .....................    $   253,952     $   245,423
                                                                     =========       =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     CASH PAID DURING THE PERIODS FOR:
       Interest ...............................................    $   128,053         137,938
       Interest - Related Party ...............................          4,928           5,691
       Income Taxes ...........................................             --              --


 The Accompanying Notes are an Integral Part of These Consolidated Financial Statements.
</TABLE>

                                       6

<PAGE>



COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------

[1] GENERAL

        For a summary of significant accounting policies, refer to Note 1 of
Notes to Consolidated Financial Statements included in Cover-All Technologies
Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December
31, 2005. While the Company believes that the disclosures herein presented are
adequate to make the information not misleading, these consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual report.
Certain amounts for the prior period have been reclassified to conform with the
current period's financial statement presentation. The financial statements
include on a consolidated basis the results of its subsidiary. All material
intercompany transactions and balances have been eliminated.

        In the opinion of management, the accompanying consolidated financial
statements include all adjustments which are necessary to present fairly the
Company's consolidated financial position as of September 30, 2006, and the
results of their operations for the three and nine month periods ended September
30, 2006 and 2005, and their cash flows for the nine month periods ended
September 30, 2006 and 2005. Such adjustments are of a normal and recurring
nature. The results of operations for the three and nine month periods ended
September 30, 2006 and 2005 are not necessarily indicative of the results to be
expected for a full year.

[2] CONVERTIBLE DEBENTURES

        In 2001 and 2002, we completed two rounds of debt financing through the
sale of 8% convertible debentures due in 2008 ("2008 Debentures") and 2009
("2009 Debentures"), respectfully, to Renaissance US Growth & Income Trust PLC,
BFSUS Special Opportunities Trust PLC and certain other investors (including
John Roblin, our Chairman of the Board, President and Chief Executive Officer),
with an aggregate principal amount of $2,500,000. Interest on the unpaid
principal amount of the debentures is payable monthly at the rate of 8% per
annum. The 2008 Debentures mature on July 1, 2008 and the 2009 Debentures mature
on September 1, 2009, unless the debentures 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. The related financing costs incurred of
$187,090 in connection with establishing these debentures have been deferred and
are being amortized over the life of the debt. 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. In 2004, the
holders of the 2008 Debentures elected to convert all of their monthly principal
installments due in 2004, totaling $105,335, under such debentures into shares
of our common stock at the conversion price of $0.30 per share in lieu of
receiving such installment payments in cash. In connection with this conversion,
we issued to the holders of the 2008 Debentures an aggregate of 351,116 shares
of our common stock. We made an aggregate of $198,000 of interest payments on
the debentures during 2004.

        In 2005, the holders of the 2008 Debentures and 2009 Debentures elected
to convert all of their monthly principal installments due in 2005, totaling
$220,121, under such debentures into shares of our common stock at the
conversion price of $.30 per share in lieu of receiving such installments in
cash. In connection with this conversion, we issued to the holders of the 2008
Debentures and 2009 Debentures an aggregate of 733,739 shares of our common
stock. We made an aggregate of $184,000 of interest payments on the debentures
during 2005.

        In March 2002, the holders under the convertible loan agreements
governing the issuance of the debentures agreed to amend one of the financial
covenants for the quarters ending March 31, June 30 and September 30, 2002. As
consideration for such amendments, we issued to such holders an aggregate of
128,572 warrants to purchase such number of shares of our common stock at an
exercise price of $0.22 per share. The warrants expire in 2007 and became
exercisable in equal installments on each of March 31, 2002, June 30, 2002 and
September 30, 2002. The $16,913 estimated fair market value of the warrants has
been charged to financing costs.

        As of March 31, 2006, we were not in compliance with certain of the
financial covenants of the convertible loan agreements and, as of such date, we
received limited waivers under which the holders of our debentures waived

                                       7

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COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------

such non-compliance. As consideration for the receipt of such waivers, we issued
to the holders an aggregate of 128,000 warrants to purchase such number of
shares of our common stock at an exercise price of $0.35 per share. The warrants
expire in 2011 and are exercisable in equal installments on each of May 9, 2006,
June 30, 2006 and September 30, 2006.

        As of September 30, 2006, we were not in compliance with the financial
covenants of the convertible loan agreements, and as of such date, we received
limited waivers under which the holders of our debentures waived such
non-compliance.

        At September 30, 2006, principal payments due on the convertible
debentures were as follows:

           2006..................................................   $   286,501
           2007..................................................     1,278,172
           2008..................................................       482,617
           2009..................................................            --
           2010..................................................            --
                                                                   ------------
                    TOTAL........................................  $  2,047,290
                                                                   ============

        In July 2006, the holders of the 2008 Debentures and 2009 Debentures
converted an aggregate of $127,254 in principal of such debentures into a total
of 424,181 shares of our common stock at the conversion price of $0.30 per
share.


[3] EARNINGS PER SHARE DISCLOSURES

        The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share ("EPS") computations:

<TABLE>
<CAPTION>
                                                                         FOR THE THREE MONTHS ENDED
                                                                             SEPTEMBER 30, 2006
                                                           --------------------------------------------------
                                                             INCOME               SHARES           PER SHARE
                                                           (NUMERATOR)         (DENOMINATOR)         AMOUNT
                                                           -----------           ----------        ----------
<S>                                                        <C>                   <C>               <C>
Basic EPS:
 Income (Loss) Available to Common
   Stockholders......................................      $  (353,429)          16,079,491        $    (0.02)
Interest Reversal Convertible Debentures
  (Net of Tax).......................................               --                   --                --
Effect of Dilutive Securities:
  Exercise of Options................................               --                   --                --
  Exercise of Warrants...............................               --                   --                --
  Conversion of Convertible Debentures...............               --                   --                --
                                                           -----------           ----------        ----------
Diluted EPS:
  Income (Loss) Available to Common Stockholders
    Plus Assumed Conversions.........................      $  (353,429)          16,079,491        $    (0.02)
                                                           ===========           ==========        ==========
</TABLE>

                                       8

<PAGE>


COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                         FOR THE NINE MONTHS ENDED
                                                                             SEPTEMBER 30, 2006
                                                           --------------------------------------------------
                                                             INCOME                SHARES          PER SHARE
                                                           (NUMERATOR)          (DENOMINATOR)        AMOUNT
                                                           -----------           ----------        ----------
<S>                                                        <C>                   <C>               <C>
Basic EPS:
 Income (Loss) Available to Common
   Stockholders......................................      $  (957,435)          16,397,953        $    (0.06)
Interest Reversal Convertible Debentures
  (Net of Tax).......................................               --                   --                --
Effect of Dilutive Securities:
  Exercise of Options................................               --                   --                --
  Exercise of Warrants...............................               --                   --                --
  Conversion of Convertible Debentures...............               --                   --                --
                                                           -----------           ----------        ----------
Diluted EPS:
  Income (Loss) Available to Common Stockholders
    Plus Assumed Conversions.........................      $  (957,435)          16,397,953        $    (0.06)
                                                           ===========           ==========        ==========
</TABLE>


        The Company's options and warrants were not included in the computation
of EPS for the periods ended September 30, 2006 because to do so would be
antidilutive. The Company's convertible debt does not affect the EPS calculation
for the periods ended September 30, 2006 because it would be antidilutive.

<TABLE>
<CAPTION>

                                                                         FOR THE THREE MONTHS ENDED
                                                                             SEPTEMBER 30, 2005
                                                           --------------------------------------------------
                                                             INCOME                SHARES           PER SHARE
                                                           (NUMERATOR)          (DENOMINATOR)        AMOUNT
                                                           -----------           ----------        ----------
<S>                                                        <C>                   <C>               <C>
Basic EPS:
 (Loss) Available to Common
  Stockholders.......................................      $  (517,307)          16,239,917        $    (0.03)
Interest Reversal Convertible Debentures
  (Net of Tax).......................................               --                   --                --
Effect of Dilutive Securities:
  Exercise of Options................................               --                   --                --
  Exercise of Warrants...............................               --                   --                --
  Conversion of Convertible Debentures...............               --                   --                --
                                                           -----------           ----------        ----------
Diluted EPS:
 (Loss) Available to Common Stockholders
    Plus Assumed Conversions.........................      $ (517,307)           16,239,917        $    (0.03)
                                                           ===========           ==========        ==========
</TABLE>

                                       9

<PAGE>


COVER-ALL TECHNOLOGIES INC. AND SUBSIDIARY
--------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                         FOR THE NINE MONTHS ENDED
                                                                             SEPTEMBER 30, 2005
                                                           --------------------------------------------------
                                                             INCOME                SHARES           PER SHARE
                                                           (NUMERATOR)          (DENOMINATOR)        AMOUNT
                                                           -----------           ----------        ----------
<S>                                                        <C>                   <C>               <C>
Basic EPS:
 Income (Loss) Available to Common
   Stockholders......................................      $(1,038,769)          16,000,385        $    (0.06)
 Interest Reversal Convertible Debentures
   (Net of Tax)......................................               --                   --                --
Effect of Dilutive Securities:
  Exercise of Options................................               --                   --                --
  Exercise of Warrants...............................               --                   --                --
  Conversion of Convertible Debentures...............               --                   --                --
                                                           -----------           ----------        ----------
Diluted EPS:
  Income (Loss) Available to Common Stockholders
    Plus Assumed Conversions.........................      $(1,038,769)          16,000,385        $    (0.06)
                                                           ===========           ==========        ===========
</TABLE>

        The Company's options and warrants were not included in the computation
of EPS for the periods ended September 30, 2005 because to do so would be
antidilutive. The Company's convertible debt does not affect the EPS calculation
for the periods ended September 30, 2005 because it would be antidilutive.

[4] STOCK OPTION AND STOCK PURCHASE PLANS

        On January 1, 2006, we adopted SFAS No. 123R, "SHARE-BASED PAYMENT," or
SFAS 123R, which is a revision of SFAS No. 123 "ACCOUNTING FOR STOCK-BASED
COMPENSATION," or SFAS 123, and supersedes APB No. 25, "ACCOUNTING FOR STOCK
ISSUES TO EMPLOYEES," or APB 25. Among other items, SFAS 123R requires companies
to record compensation expense for share-based awards issued to employees and
directors in exchange for services provided. The amount of the compensation
expense is based on the estimated fair value of the awards on their grant dates
and is recognized over the required service periods. Our share-based awards
include stock options and restricted stock awards. Prior to our adoption of SFAS
123R, we applied the intrinsic value method set forth in APB 25 to calculate the
compensation expense for share-based awards. Historically, we have generally set
the exercise price for our stock options equal to the market value on the grant
date. As a result, the options generally had no intrinsic value on their grant
dates, and we did not record any compensation expense unless the terms of the
options were subsequently modified. For restricted stock awards, the calculation
of compensation expense under APB 25 and SFAS 123R is the same.

        We adopted SFAS 123R using the modified prospective transition method,
which requires the application of the accounting standard to all share-based
awards issued on or after January 1, 2006 and any outstanding share-based awards
that were issued but not vested as of January 1, 2006. Accordingly, our
consolidated financial statements as of September 30, 2005 and for the three and
nine months then ended have not been restated to reflect the impact of SFAS
123R. In the three and nine months ended September 30, 2006, we recognized
$4,600 and $7,600, respectively, of stock-based compensation expense in our
consolidated financial statements. We recognized expense because we had (a)
stock options granted prior to January 1, 2006 that had not yet vested as of
January 1, 2006 and (b) stock options granted subsequent to January 1, 2006.

        The estimated fair value underlying our calculation of compensation
expense for stock options is based on the Black-Scholes pricing model. SFAS 123R
requires forfeitures of share-based awards to be estimated at the time of grant
and revised, if necessary, in subsequent periods if our estimates change based
on the actual amount of forfeitures we have experienced. In the pro-forma
information required under SFAS 123 for periods prior to January 1, 2006, we
accounted for forfeitures as they occurred.

        SFAS 123R requires us to calculate the pool of excess tax benefits, or
the APIC pool, available as of January 1, 2006, to absorb tax deficiencies
recognized in subsequent periods, assuming we had applied the provisions of the
standard in prior periods. Pursuant to the provisions of FASB Staff Position
123R-3, "TRANSITION

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--------------------------------------------------------------------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------

ELECTION RELATED TO ACCOUNTING FOR THE TAX EFFECTS OF SHARE-BASED PAYMENT
AWARDS," we adopted the alternative method for determining the tax effects of
share-based compensation, which, among other things, provides a simplified
method for estimating the beginning APIC pool balance.

        In June 2005, we adopted the 2005 Stock Incentive Plan (which we refer
to as the 2005 Plan). Options and stock awards for the purchase of up to
5,000,000 shares may be granted by the Board of Directors to our employees as
consultants at an exercise or grant price determined by the Board of Directors
on the date of grant. Options may be granted as incentive or nonqualified stock
options with a term of not more than ten years. The 2005 Plan allows the Board
of Directors to grant restricted or unrestricted stock awards or awards
denominated in stock equivalent units, securities or debenture convertible into
common stock, or any combination of the foregoing and may be paid in common
stock or other securities, in cash, or in a combination of common stock or other
securities and cash. At September 30, 2006, 4,780,000 shares were available for
grant under the 2005 Plan.

        In November 1994, we adopted the 1994 Stock Option Plan for Independent
Directors. Options for the purchase of up to 300,000 shares may be granted to
our directors who are not employees. The Plan was amended in June 2000 to
increase the aggregate number of shares of common stock available for grant from
300,000 to 750,000. Each non-employee director who is serving on a "Date of
Grant" shall automatically be granted an option to purchase 10,000 shares of
common stock at the fair market value of common stock on the date the option is
granted. Dates of Grant are November 15, 1994, 1999, 2004 and 2009 for
non-employee directors serving on November 15, 1994. For individuals who become
non-employee directors after November 15, 1994, such directors' Dates of Grant
will be the date such individual becomes a director and the fifth, tenth and
fifteenth anniversaries of such date. Options are exercisable in full 6 months
after the applicable date of grant and expire 5 years after the date of grant.
At September 30, 2006, 750,000 shares were available for grant under the 1994
Stock Option Plan for Independent Directors.

        A summary of the changes in outstanding common stock options for all
outstanding plans is as follows:

<TABLE>
<CAPTION>
                                                                                 WEIGHTED-AVERAGE
                                                                EXERCISE PRICE        REMAINING     WEIGHTED-AVERAGE
                                               SHARES             PER SHARE       CONTRACTUAL LIFE   EXERCISE PRICE
                                              ---------        ---------------    ----------------   ---------------
<S>                                           <C>              <C>                    <C>              <C>
Balance, December 31, 2005...........         2,770,500        $   .23 - 4.00         1.7 years        $     .78
      Granted........................           220,000                   .41         4.9 years              .41
      Exercised......................                --                    --                                 --
      Canceled.......................           (17,000)           .27 -  .53                                .38
      Expired........................          (831,500)           .31 - 4.00                                .36
Balance, September 30, 2006..........         2,142,000        $   .23 - 2.00         1.8 years        $     .90
</TABLE>



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

        Pro forma information regarding net income or loss and net income or
loss per share has been determined as if we had accounted for our employee stock
options under the fair value method prescribed under SFAS No. 123, Accounting
for Stock Based Compensation. The fair value of these options was estimated at
the date of grant using the Black-Scholes option-pricing model for the pro forma
amounts with the following weighted average assumptions:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------


                                                             THREE MONTHS
                                                       ENDED SEPTEMBER 30, 2006
                                                       ------------------------
         Risk-Free Interest Rate......................          3.90%
         Expected Life................................          3.0 Years
         Expected Volatility..........................          79%
         Expected Dividends...........................          None


We applied the provisions of APB 25 to determine our stock-based compensation
expense for all periods prior to January 1, 2006. The following table
illustrates the effect on net income and net income per share if we had applied
the fair value recognition provision of SFAS 123 to our stock-based compensation
plans during the three and nine months ended September 30, 2005:

<TABLE>
<CAPTION>
                                                              THREE MONTHS           NINE MONTHS
                                                                 ENDED                   ENDED
                                                           SEPTEMBER 30, 2005      SEPTEMBER 30, 2005
                                                           ------------------      ------------------
                                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
         <S>                                                  <C>                     <C>
        Net (Loss) as Reported..............................  $       (517)           $     (1,039)
        Deduct:  Amount by which stock-based employee
                 compensation as determined under fair
                 value based method for all awards exceeds
                 the compensation as determined under the
                 intrinsic value method.....................  $        (26)           $        (77)
        Pro Forma Net (Loss)................................  $       (543)           $     (1,116)
        Basic Earnings (Loss) Per Share as Reported.........  $      (0.03)           $      (0.06)
        Pro Forma Basic Earnings (Loss) Per Share...........  $      (0.03)           $      (0.07)
        Diluted Earnings (Loss) Per Share as Reported.......  $      (0.03)           $      (0.06)
        Pro Forma Diluted Earnings (Loss) Per Share.........  $      (0.03)           $      (0.07)
</TABLE>

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ITEM 2:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.
         -----------------------------------------------------------------------

        CERTAIN OF THE MATTERS DISCUSSED IN THIS REPORT, INCLUDING, WITHOUT
LIMITATION, MATTERS DISCUSSED UNDER THIS ITEM 2, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS (AS SUCH TERM IS DEFINED IN THE PRIVATE SECURITIES
LITIGATION REFORM ACT) AND ARE SUBJECT TO THE OCCURRENCE OF CERTAIN
CONTINGENCIES WHICH MAY NOT OCCUR IN THE TIME FRAMES ANTICIPATED OR OTHERWISE,
AND, AS A RESULT, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
STATEMENTS. IN ADDITION TO OTHER FACTORS AND MATTERS DISCUSSED ELSEWHERE IN THIS
REPORT ON FORM 10-Q AND IN OUR FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON MARCH 31, 2006, AND OTHER PERIODIC REPORTS FILED, THESE RISKS,
UNCERTAINTIES AND CONTINGENCY INCLUDE, BUT ARE NOT LIMITED TO, RISKS ASSOCIATED
WITH INCREASED COMPETITION, CUSTOMER DECISIONS, THE SUCCESSFUL COMPLETION OF
CONTINUING DEVELOPMENT OF NEW PRODUCTS, THE SUCCESSFUL NEGOTIATION, EXECUTION
AND IMPLEMENTATION OF ANTICIPATED NEW SOFTWARE CONTRACTS, THE SUCCESSFUL
ADDITION OF PERSONNEL IN THE MARKETING AND TECHNICAL AREAS AND OUR ABILITY TO
COMPLETE DEVELOPMENT AND SELL AND LICENSE OUR PRODUCTS AT PRICES WHICH RESULT IN
SUFFICIENT REVENUES TO REALIZE PROFITS, AND OTHER BUSINESS FACTORS BEYOND OUR
CONTROL.

OVERVIEW
--------

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

        We earn revenue from software contract licenses, service fees from ASPs,
continuing maintenance fees for servicing the product and professional services.
Total revenue for the three months ended September 30, 2006 decreased to
$1,618,000 from $1,638,000 for the three months ended September 30, 2005, mainly
due to a decrease in maintenance, professional services and ASP revenue, which
was partially offset by an increase in license revenue. Total revenue for the
nine months ended September 30, 2006 decreased to $4,995,000 from $5,438,000 for
the nine months ended September 30, 2006, mainly due to a decrease in license
and maintenance revenue, which was partially offset by an increase in
professional services and ASP revenue.

        The following is an overview of the key components of our revenue and
other important financial data for the three and nine months ended September 30,
2006:

        SOFTWARE LICENSES. Our license revenue in the three and nine months
ended September 30, 2006 of $179,000 and $579,000, respectively, was from
existing customers who chose to renew, add onto or extend their use of our
software. For the three and nine months ended September 30, 2005, we generated
$151,000 and $850,000, respectively, in license revenue. Our new software
license revenue is affected by the strength of general economic and business
conditions and the competitive position of our software products. New software
license sales are characterized by long sales cycles and intense competition.
Timing of new software license sales can substantially affect our quarterly
results.

        MAINTENANCE. Maintenance revenue was $891,000 and $2,569,000,
respectively, in the three and nine months ended September 30, 2006 compared to
$901,000 and $2,842,000, respectively, in the same periods in 2005. The decrease
was mainly due to the non-renewal of existing customers. Maintenance revenue is
influenced primarily by the following factors: the renewal rate from our
existing customer base, the amount of new maintenance associated with new
license sales and annual price increases.

        PROFESSIONAL SERVICES. Professional services revenue was $246,000 and
$856,000, respectively, in the three and nine months ended September 30, 2005,
compared to $232,000 and $899,000, respectively, in the same periods of 2006, as
a result of demand for new software capabilities and customizations from our
current customer base.

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--------------------------------------------------------------------------------

        ASP SERVICES. ASP services revenue was $316,000 and $949,000,
respectively, in the first three and nine months of 2006 compared to $340,000
and $890,000, respectively, in the same periods in 2005, due to an expanded and
extended contractual relationship with a large customer.

        INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES. Income (loss) before
provision for income taxes was $(353,000) in the three months ended September
30, 2006, compared to $(517,000) in the same periods of 2005 primarily due to an
increase in license revenue and a decrease in operating expenses. Income (loss)
before provision for income taxes was $(957,000) in the nine months ended
September 30, 2006, compared to $(1,039,000) in the same periods of 2005
primarily due to an increase in professional services and ASP revenue and a
decrease in operating expenses.

        NET INCOME (LOSS). Net income (loss) for the three months ended
September 30, 2006 decreased to $(353,000) from $(517,000) in the same period of
2005 as a result of an increase in license revenue and a decrease in operating
expenses. Net income (loss) for the nine months ended September 30, 2006
decreased to $(957,000) from $(1,039,000) in the same periods of 2005 as a
result of an increase in professional services and ASP revenue and a decrease in
operating expenses.

        CASH FLOW. We generated $639,000 in positive cash flow from operations
in the first nine months of 2006 and ended the period with $254,000 in cash and
cash equivalents and $561,000 in accounts receivable.

        We continue to face challenges to growth in 2006 mainly in the marketing
and selling of our products and services to new customers, caused by a number of
factors, including long sales cycles and 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.

RESULTS OF OPERATIONS
---------------------

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

                                                           THREE MONTHS                   NINE MONTHS
                                                        ENDED SEPTEMBER 30,           ENDED SEPTEMBER 30,
                                                       --------------------           --------------------
                                                       2006           2005            2006           2005
                                                       -----          -----           -----          -----
<S>                                                     <C>             <C>            <C>            <C>
REVENUES:
         License                                        11.1%           9.2%           11.6%          15.6%
         Maintenance                                    55.1           55.0            51.4           52.3
         Professional Services                          14.3           15.0            18.0           15.7
         Applications Service Provider ("ASP")
          Services                                      19.5           20.8            19.0           16.4
                                                       -----          -----           -----          -----
         TOTAL REVENUES                                100.0          100.0           100.0          100.0
                                                       -----          -----           -----          -----

COST OF REVENUES:
         License                                        19.1           21.3            18.6           21.1
         Maintenance                                    46.7           43.4            45.1           39.9
         Professional Services                           8.5            7.9             8.2            6.7
         ASP Services                                    6.1            3.2             5.7            2.2
                                                       -----          -----           -----          -----
         TOTAL COST OF REVENUES                         80.4           75.8            77.6           69.9
                                                       -----          -----           -----          -----
         DIRECT MARGIN                                  19.6           24.2            22.4           30.1
                                                       -----          -----           -----          -----
</TABLE>


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--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


<S>                                                     <C>            <C>             <C>            <C>
OPERATING EXPENSES:
         Sales and Marketing                            14.7           19.4            14.2           18.2
         General and Administrative                     18.2           19.6            17.5           17.4
         Research and Development                        5.8           14.0             7.3           11.8
                                                       -----          -----           -----          -----
         TOTAL OPERATING EXPENSES                       38.7           53.0            39.0           47.4
                                                       -----          -----           -----          -----
         OPERATING INCOME (LOSS)                       (19.1)         (28.8)          (16.6)         (17.3)
                                                       -----          -----           -----          -----
OTHER EXPENSE (INCOME):
         Interest Expense                               (2.8)          (2.9)           (2.6)          (2.6)
         Interest Income                                  --            0.1              --            0.2
         Other Income                                    0.1             --              --            0.6
                                                       -----          -----           -----          -----
         TOTAL OTHER EXPENSE (INCOME)                   (2.7)          (2.8)           (2.6)          (1.8)
                                                       -----          -----           -----          -----
         INCOME (LOSS) BEFORE INCOME TAXES             (21.8)         (31.6)          (19.2)         (19.1)
                                                       -----          -----           -----          -----
INCOME TAXES (BENEFIT)                                    --             --              --             --
                                                       -----          -----           -----          -----
NET INCOME (LOSS)                                      (21.8)%        (31.6)%         (19.2)%        (19.1)%
                                                       -----          -----           -----          -----
</TABLE>


THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2005
--------------------------------------------------------------------------------

        Total revenues for the three months ended September 30, 2006 were
$1,618,000 compared to $1,638,000 for the same period in 2005. License fees were
$179,000 for the three months ended September 30, 2006 compared to $151,000 in
the same period in 2005 as a result of no new customer sales and sales to
existing customers in 2006. For the three months ended September 30, 2006,
maintenance revenues were $891,000 compared to $901,000 in the same period of
the prior year primarily due in part to the non-renewal of a few customers. For
the three months ended September 30, 2006, ASP revenues were $316,000 compared
to $340,000 in the same period for the prior year, due to a reduction in
services provided to one large customer.

        Professional services revenue contributed $232,000 in the three months
ended September 30, 2006 compared to $246,000 in the third quarter of 2005, as a
result of less demand for new software capabilities and customizations from our
current customer base.

        For the nine months ended September 30, 2006, total revenues were
$4,995,000 compared to $5,438,000 in the same period of the prior year.

        Cost of sales increased slightly to $1,302,000 and $3,875,000,
respectively, for the three and nine months ended September 30, 2006 compared to
$1,242,000 and $3,801,000 for the same periods in 2005. Non-cash capitalized
software amortization was $296,000 and $836,000, respectively, for the three and
nine months ended September 30, 2006 as compared to $239,000 and $733,000 for
the same periods in 2005. We capitalized $272,000 and $664,000, respectively, of
software development costs in the first three and nine months of 2006 as
compared to $148,000 and $370,000, respectively, in the same periods in 2005.

        Research and development expenses decreased to $94,000 and $362,000,
respectively, for the three and nine months ended September 30, 2006 as compared
to $230,000 and $638,000, respectively, for the same periods in 2005, primarily
as a result of our efforts to streamline research and development projects and
shift resources to capitalizable software development projects. We are
continuing our ongoing efforts to enhance the functionality of our products and
solutions and believe that investments in research and development are critical
to our remaining competitive in the marketplace and maintaining our existing
revenue streams.

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        Sales and marketing expenses were $238,000 and $710,000, respectively,
for the three and nine months ended September 30, 2006 as compared to $317,000
and $990,000, respectively, in the same periods of 2005. This decrease in 2006
was primarily due to a reduction in our marketing and sales headcount in the
later part of 2005, resulting in a decrease in personnel-related costs.

        General and administrative expenses were $295,000 and $874,000,
respectively, in the three and nine months ended September 30, 2006 as compared
to $321,000 and $948,000, respectively, in the same periods in 2005. This
decrease in 2006 was mainly due to the resignation in the second quarter of 2005
of our in-house counsel and other cost savings.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

        Sources of Liquidity
        --------------------

        We have funded our operations primarily from cash flow from operations
and the proceeds from our 2008 Debentures and our 2009 Debentures. Cash from
operations results primarily from net loss from the income statement plus
non-cash expenses (depreciation and amortization) and changes in working capital
from the balance sheet.

        Our largest source of operating cash flows is cash collections from our
customers following the purchase or renewal of software licenses, product
support agreements and other related services. Payments from customers for
software licenses are generally received at the beginning of the contract term.
Payments from customers for 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 September 30, 2006, we had cash and cash equivalents of $254,000
compared to cash and cash equivalents of $245,000 at September 30, 2005. The
increase in cash and cash equivalents is primarily attributable to the increase
in license sales in the three months ended September 30, 2006.

        Cash Flows
        ----------

        The 2008 Debentures were issued with an aggregate principal amount of
$1,800,000, and the 2009 Debentures were issued with an aggregate principal
amount of $700,000. Interest on the unpaid principal amount of the debentures is
payable monthly at the rate of 8% per annum. The 2008 Debentures and 2009
Debentures mature on July 1, 2008 and September 1, 2009, respectively, unless
the debentures are earlier redeemed by us or the holders upon the occurrence of
certain events specified in the debentures 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. We may require
a significant amount of cash to service our indebtedness, which consists
primarily of our obligations to make monthly principal and interest payments on
our outstanding debentures.

        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

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should be considered in assessing our liquidity include net cash flows from
operating activities, net cash flows from investing activities and net cash
flows from financing activities.

        At September 30, 2006, we had working capital (deficit) of approximately
$(973,000) compared to a working capital of approximately $99,000 at September
30, 2005. This decrease in our working capital resulted primarily from a
decrease in maintenance, professional services and ASP revenues. For the nine
months ended September 30, 2006, net cash provided from (used for) operating
activities totaled approximately $639,000 compared to approximately $808,000 for
the nine months ended September 30, 2005. In 2006, 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. The Company had a significant increase in its accounts receivable in
2005 due to the license sale to one large customer offset by non-cash expenses
and payment of liabilities.

        For the nine months ended September 30, 2006, net cash used for
investing activities was approximately $681,000 compared to approximately
$727,000 for the nine months ended September 30, 2005. The Company expects
capital expenditures and capital software expenditures to continue to be funded
by cash generated from operations. For the nine months ended September 30, 2006,
net cash provided from financing activities was approximately $0 compared to
approximately $21,000 for the nine months ended September 30, 2005. The cash
provided from financing activities in 2005 consisted of proceeds from the
exercise of stock options.

        Funding Requirements
        --------------------

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

        We do not anticipate any large capital expenditures that will require us
to seek new sources of capital. We lease computer equipment for terms of three
years in order to have the latest available technology to serve our customers
and develop new products.

        We have been required to pay, since July 1, 2004 and July 1, 2005,
respectively, monthly principal installments in the amount of ten dollars ($10)
per thousand dollars ($1,000) of the then remaining principal amount of the 2008
Debentures and 2009 Debentures, and at maturity we will be required to pay the
remaining unpaid principal amount.

        In 2004, the holders of the 2008 Debentures elected to convert an
aggregate of $105,335 in principal of such debentures, representing their
monthly installments of principal under such debentures (in lieu of receiving
such installment payments in cash), for shares of our common stock at the
conversion price of $0.30 per share. In 2005, the holders of the 2008 Debentures
elected to convert an aggregate of $220,121 in principal of such debentures,
representing their monthly installments of principal under such debentures (in
lieu of receiving such installment payments in cash), for shares of our common
stock at the conversion price of $0.30 per share. In July of 2006, the holders
of the 2008 Debentures and 2009 Debentures elected to convert an aggregate of
$127,254 in principal of such debentures, representing their monthly
installments of principal under such debentures (in lieu of receiving such
installment payments in cash), for shares of our common stock at the conversion
price of $0.30 per share. At September 30, 2006, the 2008 Debentures and 2009
Debentures had an aggregate outstanding principal amount of $2,047,290.

        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.

        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

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--------------------------------------------------------------------------------


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. We may require a
significant amount of 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:

        o       Our ability to generate cash is subject to general economic,
                financial, competitive and other factors beyond our control.
        o       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.
        o       We experience intense competition in our industry and continuing
                technological changes.
        o       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.
        o       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.
        o       Our operations continue to depend upon the continuing business
                of our existing customers and our ability to attract new
                customers.
        o       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 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, 2005, we had approximately $21,900,000 of federal net
operating tax loss carryforwards expiring at various dates through 2025. 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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OFF-BALANCE SHEET TRANSACTIONS
------------------------------

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------

        The SEC has issued cautionary advice to elicit more precise disclosure
in this Item 2, MD&A, about accounting policies management believes are most
critical in portraying our financial results and in requiring management's most
difficult subjective or complex judgments.

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

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

        o       Revenue Recognition
        o       Valuation of Capitalized Software
        o       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 and ASP services is
recognized ratably over the life of the contract. Revenue from professional
consulting services is recognized when the service is provided.

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

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

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

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        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 of current and
anticipated future gross revenues for that product or (b) the straight-line
method over the remaining economic life of the product. At each balance sheet
date, the unamortized capitalized costs of each computer software product is
compared to the net realizable value of that product. If an amount of
unamortized capitalized costs of a computer software product is found to exceed
the net realizable value of that asset, such amount will be written off. The net
realizable value is the estimated future gross revenues from that product
reduced by the estimated future costs of completing and deploying of that
product, including the costs of performing maintenance and customer support
required to satisfy our responsibility set forth at the time of sale.

VALUATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE

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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
           -----------------------------------------------------------

        We are exposed to the impact of interest rate changes and changes in the
market value of our investments.

        INTEREST RATE RISK. Our exposure to market rate risk for changes in
interest rates relates primarily to our investment portfolio. We have not used
derivative financial instruments in our investment portfolio. We invest our
excess cash in a major bank money market account. We protect and preserve our
invested funds by limiting default, market and reinvestment risk.

        Investments in this account carry a degree of interest rate risk. Fixed
rate securities may have their fair market value adversely impacted due to a
rise in interest rates, while floating rate securities may produce less income
than expected if interest rates fall. Due in part to these factors, our future
investment income may fall short of expectations due to changes in interest
rates or we may suffer losses in principal if forced to sell securities which
have declined in market value due to changes in interest rates.

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ITEM 4.    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). Based upon that evaluation, our Chief Executive Officer
and our Chief Financial Officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed by
us in reports that we file or submit under the Exchange Act are recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission (the "SEC") rules and forms, and include
controls and procedures designed to ensure that information required to be
disclosed by us in such reports is accumulated and communicated to our
management, including our Chief Executive Officer and our Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.

        There has been no change in our internal control over financial
reporting during the quarter ended September 30, 2006 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

                                * * * * * * * * *

        Statements in this Form 10-Q, other than statements of historical
information are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks which may cause the
Company's actual results in future periods to differ materially from expected
results. Those risks include, among others, risks associated with increased
competition, customer decisions, the successful completion of continuing
development of new products, the successful negotiation, execution and
implementation of anticipated new software contracts, the successful addition of
personnel in the marketing and technical areas and our ability to complete
development and sell and license our products at prices which result in
sufficient revenues to realize profits, and other business factors beyond our
control. Those and other risks are described in the Company's filings with the
SEC over the last 12 months, including our Form 10-K filed with the SEC on March
31, 2006, copies of which are available from the SEC or may be obtained upon
request from the Company.

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PART II:      OTHER INFORMATION

ITEM 1A.   RISK FACTORS.
           -------------

        The risk factors included in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2005, have not materially changed.

ITEM 6.    EXHIBITS.
           --------

     EXHIBIT
       NO.                                DESCRIPTION

    10(i)(21)      Limited Waiver to Convertible Loan Agreements, dated as of
                   September 30, 2006, by Renaissance US Growth Investment Trust
                   PLC (formerly known as Renaissance US Growth & Income Trust
                   PLC) and BFS US Special Opportunities Trust PLC.

       31.1        Chief Executive Officer Certification pursuant to Section
                   13a-15(e) of the Securities Exchange Act.

       31.2        Chief Financial Officer Certification pursuant to Section
                   13a-15(e) of the Securities Exchange Act.

       32.1        Certification of John W. Roblin pursuant to 18 U.S.C. Section
                   1350, as adopted pursuant to Section 906 of the Sarbanes-
                   Oxley Act of 2002.

       32.2        Certification of Ann F. Massey pursuant to 18 U.S.C. Section
                   1350, as adopted pursuant to Section 906 of the Sarbanes-
                   Oxley Act of 2002.

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SIGNATURES
--------------------------------------------------------------------------------


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

                                     COVER-ALL TECHNOLOGIES INC.


Date:  November 14, 2006             By:  /s/  John W. Roblin
                                         ---------------------------------------
                                         John W. Roblin, Chairman of the Board
                                         of Directors, President and Chief
                                         Executive Officer



Date:  November 14, 2006             By:  /s/ Ann F. Massey
                                         ---------------------------------------
                                          Ann F. Massey, Chief Financial Officer

                                       23