UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K








x
            Annual Report Pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
  1934For the fiscal year ended
      December 31, 2008.o
            Transition Report Pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
  1934For the transition period from
      _______________ to _______________.




Commission file number
0-13124




COVER-ALL
TECHNOLOGIES INC.


(Exact
name of Registrant as specified in its charter)




Delaware
              (State
      or other jurisdiction of incorporation or organization)
            13-2698053
              (I.R.S.
      Employer Identification No.)55
      Lane Road, Fairfield, New Jersey
              (Address
      of principal executive office)
            07004
              (Zip
      Code)




(973)
461-5200


(Registrant’s
telephone number, including area code)




Securities
registered pursuant to Section 12(b) of the Act:


None




Securities
registered pursuant to Section 12(g) of the Act:


Common
Stock, par value $.01 per share






Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes oNo x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act from their obligations under
those Securities. Yes oNo x




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. x




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




Large accelerated
      filer o
            Accelerated filer
      oNon-accelerated
      filer (Do not check if a smaller reporting company) o
            Smaller reporting
      company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes oNo x




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of June 30, 2008, the last business day of
the registrant’s most recently completed second fiscal quarter, was
approximately $13,238,000.




As of
March 16, 2009, there were 24,647,357 shares outstanding of our common
stock.




Documents
Incorporated by Reference:




Portions
of the Registrant’s Proxy Statement for the 2009 Annual Meeting of Stockholders
(“Proxy Statement”), to be filed with the Securities and Exchange Commission
(the “SEC”) not later than 120 days after the close of the Registrant’s fiscal
year, are incorporated by reference as described in Part III.









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









Table
of Contents
  PART I
  ITEM1.
              BUSINESS
              1ITEM1A.
              RISK
    FACTORS
              8ITEM
      1B.
              UNRESOLVED STAFF
      COMMENTS
              12ITEM
      2.
              PROPERTIES
              12ITEM
      3.
              LEGAL
      PROCEEDINGS
              12ITEM
      4.
              SUBMISSION OF
      MATTERS TO A VOTE OF SECURITY HOLDERS
              12PART
    IIITEM
      5.
              MARKET FOR
      REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
              13ITEM
      6.
              SELECTED
      FINANCIAL DATA
              15ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              17ITEM
      7A.
              QUANTITATIVE AND
      QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              28ITEM
      8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
              28ITEM
      9.
              CHANGES IN
      AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
              28ITEM
      9A(T).
              CONTROLS AND
      PROCEDURES
              28ITEM
      9B.
              OTHER
      INFORMATION
              29PART
    IIIITEM
      10.
              DIRECTORS AND
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
              30ITEM
      11.
              EXECUTIVE
      COMPENSATION
              31ITEM
      12.
              SECURITY OWNERSHIP
      OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              31ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS
              31ITEM
      14.
              PRINCIPAL ACCOUNTING
      FEES AND SERVICES
              31PART
    IVITEM
      15.
              EXHIBITS, FINANCIAL
      STATEMENT SCHEDULES
              31SIGNATURES
              SIGNATURES
  
  PART
I
  ITEM
1.BUSINESS
  GENERAL
  We
provide unique, cost-effective business-focused solutions to the property and
casualty insurance industry.  Our customers include insurance
companies, agents, brokers and managing general agents (MGAs).  Our
proprietary technology solutions and services are designed to reduce information
technology costs and enable rapid product deployment for our
customers.
  Our
software products and services focus on the functions required to underwrite,
rate, quote, issue, print, bill and support the entire lifecycle of insurance
policies.  Our products and services combine an in-depth knowledge of
property and casualty insurance with an innovative and proprietary platform
using state-of-the-art technology.  Our products provide common
insurance functionality available on an “off-the-shelf” basis yet also provide
flexibility for accommodating a high degree of customization for our customers
to compete in the marketplace through differentiation.  Our software
is licensed for use on the customer’s data centers or can be provided through
our application services provider, referred to as “ASP,” using third party
technology platforms and support.
  We
generate revenue from software contract licenses, professional services fees
from ongoing software customization and continuing maintenance fees for
technical and regulatory software updates on a monthly basis.  We
provide a wide range of professional services that support product
customizations, conversion from existing systems, data integration with other
software or reporting agencies and other technical services.  We also
offer ongoing support services including incorporating recent insurance rates,
rules and forms changes.  These support services provide turnkey
solutions to our customers as we perform analysis, development, quality
assurance, documentation and distribution for delivering changes in a timely
fashion.
  Our
ongoing maintenance and support services, usually through five-year minimum
customer contracts, generate significant recurring revenue of approximately 25
to 30 cents for every dollar spent on licensing fees.
  We were
incorporated in Delaware in April 1985 as Warner Computer Systems, Inc. and
changed our name to Warner Insurance Services, Inc. in March 1992.  In
June 1996, we changed our name to Cover-All Technologies Inc.  Our
products and services are offered through our wholly-owned subsidiary, Cover-All
Systems, Inc., also a Delaware corporation.
  PRODUCTS
  My Insurance Center
  In 2001,
we announced the creation of My Insurance Center, referred to as “MIC,” a
customizable and configurable web-based, data-centric “hub and spoke” software
platform built around a shared “information hub” and suite of product
components.  MIC is designed for insurance agents, brokers and
carriers with integrated workflows and access to real-time
information.  By centralizing the data in the MIC platform and using
customized components to enable processes, we can quickly build a unique
solution for each customer for achieving tangible business results.
  1
  MIC is
designed to be the platform to serve players throughout the entire insurance
value chain, including the insured, agents, brokers, insurance companies and
reinsurers.  MIC is scalable to serve both large and small
organizations.  MIC can be accessed over the Internet through a
browser, with advanced security.  MIC is designed to be deployed
globally in the future to adapt to different languages and currencies and to
support different insurance products in other countries.
  MIC
provides an integrated platform with baseline common insurance functions that
can be customized by Cover-All for customers’ business needs.  MIC
also provides many configuration capabilities that are used by customers for
further tailoring the application.  Finally, MIC allows end users to
personalize screens and content for meeting their roles and
responsibilities.
  MIC is
designed to fully support STP (Straight-Through-Processing).  MIC
enables our customers to utilize our rating, policy issuance, billing and other
software components into a fully-integrated platform that, among other things,
eliminates redundant data entry.  Information is stored in a
client-centric database and becomes immediately available to other users or
functions.  MIC may be customized to generate user alerts when a
user-specified condition occurs.  Additionally, MIC has been designed
to allow the customer to configure features according to their own look and feel
preferences and workflow processes.  For instance, the browser-based
user interface allows employees, agents and other end users to personalize their
desktops so they see only the information they need or desire.  MIC
allows our customers to reduce costs, leverage the latest technologies, better
manage risk, provide better service to their customers, enter new markets,
introduce new products and grow premiums.
  We are
investing in research and development for evolving the MIC platform to meet
customers’ business needs in a rapidly changing marketplace.  We have
added new and advanced capabilities to MIC, such as new policy administration
platform, workflow management, rules-based underwriting, financial modules for
determining profitability by policy, account-centric and policy-centric views,
integration with partners’ accounting, claims processing systems and certain
other new components.  With these new capabilities, MIC enables us to
develop complex and custom products in shorter timeframes for introducing new
insurance products into the marketplace.  In 2008, we developed many
custom products for different customers and also developed our new workers’
compensation product for all states.
  MIC is
being made available to users either for in-house implementation or through our
ASP.  We also support “Software as a Service” (SaaS) to meet emerging
customer requirements.
  MIC
offers the following benefits to our customers:
  ·
              Straight-Through-Processing
      – Business acquisition and the processing side of commercial property and
      casualty insurance is not only complex but it is highly regulated and
      spans across multiple constituents in the value
      chain.  Straight-Through-Processing helps customers to reduce
      expenses, provide faster service times and obtain a higher degree of
      compliance.  MIC provides Straight-Through-Processing through
      browser-based accessibility, roles-based security, rules-based
      underwriting, advanced workflow referrals and comprehensive insurance
      processing functions such as rating, issuance, printing and statistical
      coding.
 ·
              Speed
      To Market – In a highly competitive insurance marketplace, insurers seek
      to maintain competitive advantage and high profit margins through
      innovation and introduction of new insurance products.  The
      information-hub architecture of MIC enables development of complex and
      custom products in rapid
timeframes.
 ·
              Regulatory
      Compliance – In highly state regulated insurance industry, compliance
      requires frequent software updates and audit capabilities.  MIC
      offers better regulatory compliance for our customers by providing
      regulatory updates, which are delivered on a monthly basis through our
      support services.
  2
  ·
              Security
      – MIC provides roles-based security with fine-grained access control, and
      encryption with data auditing helps enterprise data centers meet their
      security requirements.
 ·
              Configurability
      – MIC provides a wide scope of customization to allow MIC to meet
      customers’ business and operational needs while taking advantage of its
      baseline common capabilities for achieving cost-effective and rapid
      implementation.
 ·
              Integration
      – MIC provides real-time integration with audit logs for seamlessly
      integrating MIC with other systems in our customers’ technical
      ecosystem.
 ·
              Openness
      & Scalability – MIC is based on open
      technologies such as J2EE, XML, Oracle and Web 2.0 (AJAX, GWT) through
      which we can deliver technological changes.  MIC is designed to
      scale “horizontally” without adding significant cost to meet customers’
      growing business needs.
 
 MIC Rating &
Insurance– The
Policy Rating and Issuance Component of MIC
  In 1989,
we purchased the assets related to the exclusive proprietary rights to a
PC-based software application for policy rating and issuance for property and
casualty insurance companies.  This software uses a unique design that
separates the “insurance product definition” from the actual technology
“engines.”  The sophistication of this design has enabled us to stay
current with technology innovations while preserving our “insurance knowledge”
investment.
  The MIC
Rating & Issuance component supports the following policy
functions:
  ·
              Data
      capture and editing
 ·
              Rating
 ·
              Policy
      issuance including multiple recipient
print
 ·
              All
      policy transactions including quotes, new lines, endorsements, renewals,
      audits and cancellations
 ·
              Statistical
      coding
  MIC
Rating & Issuance is designed to accommodate all lines of property and
casualty insurance.  It is especially effective in coping with the
complexity and variability of commercial lines of insurance.
  This
flexibility of MIC Rating & Issuance is a competitive advantage, and today
we offer off-the-shelf support for more than 40 lines of commercial business in
virtually all states and Puerto Rico.  Our extensive experience in
creating custom products combined with our proprietary tool set enables us to
deliver support for new insurance products in short time frames.
  In2002, we developed a new
“presentation layer” incorporating the latest technologies, such as Java and
XML, to provide a very flexible and robust user interface over the
Internet.  This capability also included significant enhancements to
our security and administration functions as well as a number of “usability”
enhancements.  These capabilities significantly expand and enhance the
“core” rating and issuance capabilities.  The new product has now been
fully integrated with MIC and is being sold and marketed as MIC Rating &
Issuance.  The MIC Rating & Issuance has been and continues to be
enhanced and updated with new technology.  The sophisticated design of
the product isolates insurance product knowledge from the application itself in
data files, referred to as “Metadata.”  We have built an extensive
knowledge base, estimated at more than 100 person-years of effort, in this
Metadata that defines the details of virtually hundreds of insurance policy
types and coverages for the MIC Rating & Issuance product.
  The
design of MIC Rating & Issuance also allows us to stay current with changes
in technology while re-using the intellectual capital invested in the insurance
rules.  Our upgrading the Classic product line to run on an
intranet/Internet has enabled multiple users to contribute to the common data
store.  We have also integrated this product to IPD and
MIC.  We have streamlined the support process with the goal to improve
quality to our customers.
  3
  The MIC
Rating & Issuance product is in use in over 35 companies.
  The newly
developed policy administration platform of MIC provides the following advanced
capabilities:
 
 ·
              Dynamic
      data capture for reducing data entry and different views for brokers and
      underwriters
 ·
              Improved
      user interface for improving
productivity
 ·
              Custom
      and complex rating algorithm
 ·
              Custom
      or branded document generation
capability
 ·
              Rapid
      development of new products and changes in existing
    products
 ·
              Better
      audit support for compliance checks
 
 My Insurance Center –
Functional Capabilities
  We have,
through MIC, a deep inventory of insurance software components combined with a
sophisticated implementation platform.  MIC includes the following
critical components:
  ·
              My
      Insurance Center Portal
 ·
              Enterprise,
      Customer-centric Oracle database
 ·
              Underwriting
      Tools
 ·
              End
      User access to information in real time –
      Straight-Through-Processing
 ·
              Rating
      and Issuance
 ·
              Full
      policy lifecycle support
 ·
              Clear
      and comprehensive data collection with extensive real time
      edits
 ·
              Policy
      history – easy policy changes and useful for activities such as coverage
      inquiries
 ·
              On-line
      system, screen and field level
look-ups
 ·
              On-line
      Commercial Lines Manual Tables and
Footnotes
 ·
              Easy
      and direct system navigation
 ·
              Standard
      ISO (Insurance Service Office)/NCCI coverages and rates
      support
 ·
              Company
      customized coverages and rates
support
 ·
              Fully
      automated recipient-driven issuance of insurance policies, worksheets, ID
      cards, etc., including print
preview
 ·
              Policy
      database
 ·
              Multiple
      company/program/state/coverage
support
 ·
              Templates
      to reduce data entry time
 ·
              Advanced
      Billing Capabilities – integrating with
NetSuite
 ·
              Claims
      Repository
 ·
              Customer
      Relationship Management
 ·
              Agency
      and Program Management
 ·
              Advanced
      Administration Tools
 ·
              Access
      to Web Services and Information
Providers
 ·
              Policy
      Dashboard – premium & loss
information
  4
  ·
              Advanced
      Workflows, Diaries
 ·
              Electronic
      Underwriting files
 ·
              Compliance
      Assist, Help Desk
 ·
              Interfaces
      to “back end” accounting and reporting
systems
 ·
              Policy-level
      Premium and Loss Information for profitability
      tracking/accounting
 ·
              Quote,
      Binder, Policy Lifecycle support
 
 We
continue to utilize and expand these capabilities to expand and leverage our
ability to respond to broadening marketplace and new customer opportunities with
solutions that address the special needs of carriers, managing general agents,
agents, brokers and third party providers with both off-the-shelf and custom
solutions.
  We are
also increasing and enhancing our services portfolio.  We have
expanded our professional services with conversion and interface
offerings.  We developed new rules-based capabilities to enable us to
implement data exchange services that will save our customers time and effort
converting to our products or linking our products to existing
systems.  We also have developed a “custom” service offering for
customers who desire specially-tailored services, service level agreements and
other services that enable them to achieve their business
objectives.
  In 2007,
we extended MIC capabilities by acquiring and integrating the application
processing functionality of the brokerage application processing platform of
InsureHiTech, a specialty wholesale insurance brokerage for hedge funds, private
equity, technology and life science companies.
  Our
business-focused approach allows customers to accelerate their time to market,
solve ongoing business challenges and achieve sustainable competitive advantages
during periods of economic uncertainty.
  COMPETITION
  The
computer software and services industry is highly competitive and rapidly
changing, as current competitors expand their product offerings and new
companies enter the marketplace.  Because of our extensive
knowledge-base in the insurance industry, however, we believe that our products
offer customers certain advantages not available from our
competitors.  Our customers have access to our extensive experience
and software inventory in the area of rating and policy issuance of commercial
lines policies, among the most complex of insurance transactions.
  There are
a number of larger companies, including computer software, services and
outsourcing companies, consulting firms, computer manufacturers and insurance
companies that have greater financial resources than we have and possess the
technological ability to develop software products similar to those we
offer.  These companies represent a significant competitive challenge
to our business.  Very large insurers that internally develop systems
similar to ours may or may not become our major customers for software or
services.  We compete on the basis of our insurance knowledge,
products, service, price, system functionality and performance and technological
advances.
  MARKETING
  We
maintain an in-house sales and marketing staff. We also utilize distributors,
outside consultants and other complimentary service providers to market our
products.  We are continuing to redesign our Internet site and
establish linkages to portals and other websites.  This is an on-going
effort that will continue to expand in 2009 as we focus on the Internet as a
valuable source of information for current and potential customers interested in
our products and services.  We also participate in, display and
demonstrate our software products at industry trade shows.  Our
consulting staff, business partners and other third parties also generate sales
leads.  We also communicate with our existing customers in a variety
of ways including an annual Customer Conference.
  5
  RESEARCH
AND DEVELOPMENT
  Our
business is characterized by rapid business and technological
change.  We believe our success will depend, in part, on our ability
to meet the new needs of our customers and the marketplace as well as continuing
to enhance our products based on new technologies.  Accordingly, we
must maintain ongoing research and development programs to continually add value
to our suite of products, as well as any possible expansion of our product
lines.
  Our goal
with all of our products and services is to enhance the ease of implementation,
functionality, long-term flexibility and the ability to provide improved
customer service.
  Research
and development expenses were $1,035,000, $510,000 and $464,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
  INTELLECTUAL
PROPERTY
  We
currently have no patents or patent applications pending.  We rely on
a combination of trade secret, copyright and trademark laws, nondisclosure and
other contractual agreements and technical measures to protect our proprietary
rights.
  BACKLOG
  We had no
license, maintenance, professional services or ASP backlog of unbilled work as
of December 31, 2008.
  MAJOR
CUSTOMERS
  Our
product line is in use in over 35 companies.  For the years ended
December 31, 2008, 2007 and 2006, we had three, two and three customers who
contributed revenues in excess of 10% of our total revenues for the respective
years.  One customer generated approximately 15%, 19% and 27% of our
revenues for the years ended December 31, 2008, 2007 and 2006,
respectively.  One other customer generated 17% and 25% of our revenue
for the years ended December 31, 2008 and 2007, respectively, and one other
customer generated 27% of our revenue for the year ended December 31,
2008.  All of the major customers referred to above, other than the
customers in 2006 with 13% and 11% of the revenues, respectively, are units of
American International Group, Inc.
  EMPLOYEES
  We had 48
employees, all of whom were full-time employees, as of December 31,
2008.  None of our employees are represented by a labor union, and we
have not experienced any work stoppages.  We believe that relations
with our employees are good.
  AVAILABLE
INFORMATION
  We are
subject to the reporting requirements of the Exchange Act, and the rules and
regulations promulgated thereunder, and accordingly file reports, information
statements or other information with the SEC, including annual reports on Form
10-K, quarterly reports on Form 10-Q, reports of current events on Form 8-K and
proxy or information statements.  The public may read and copy any
materials we file with the SEC at its Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC.
  6
  Our
website address is www.cover-all.com.  We
make available, free of charge, through our website our annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC.  The information on our website is not
incorporated by reference into this report.
  7
  ITEM
1A.RISK
FACTORS
  RISK
FACTORS
  In
addition to the other information described elsewhere in this Annual Report, you
should carefully consider the following risk factors, which could materially
adversely affect our business, financial condition and results of
operations.  The risks described below are not the only risks facing
our Company.  Additional risks and uncertainties not currently known
to us or that we currently deem to be immaterial may materially adversely affect
our business, financial condition and results of operations.
  RISKS
RELATED TO OUR BUSINESS AND OUR INDUSTRY
  While we were profitable in 2008
and  2007, we incurred losses in 2006 and 2005.  Our
earnings are volatile, and we may not be profitable in the
future.
  We
incurred a loss of $1,000,000 in 2006 and $1,434,000 in
2005.  Although we generated net income of approximately $4,556,000 in
2008 and $1,231,000 in 2007, there is no assurance that we will be able to
maintain profitability in the future.  Our ability to invest in sales
and marketing programs, to expand and upgrade our technology infrastructure and
to fund our research and development efforts will depend on existing cash
balances and our ability to generate cash in the future.  This, to a
certain extent, is subject to general economic, financial, competitive,
regulatory and other factors that are beyond our control.  If we are
unable to achieve or maintain profitability in the future, we may be unable to
fund our liquidity needs.
  We
may need additional financing in order to continue to develop our
business.
  We may
need additional financing to continue to fund the research and development of
our software products and to expand and grow our business
generally.  To the extent that we will be required to fund operating
losses, our financial position would deteriorate.  If equity
securities are issued in connection with a financing, dilution to our
stockholders may result, and if additional funds are raised through the
incurrence of debt, we may be subject to further restrictions on our operations
and finances.  Furthermore, if we do incur additional debt, we may be
limiting our ability to repurchase capital stock, engage in mergers,
consolidations, acquisitions and asset sales, or alter our lines of business,
even though these actions might otherwise benefit our business.  As of
December 31, 2008, we had a net stockholders’ equity of approximately $7,804,000
and a net working capital of approximately $4,806,000.
  We
depend on product development in order to remain competitive in our
industry.
  We are
currently investing resources in product development and expect to continue to
do so in the future.  Our future success will depend on our ability to
continue to enhance our current product line and to continue to develop and
introduce new products that keep pace with competitive product introductions and
technological developments, satisfy diverse and evolving insurance industry
requirements and otherwise achieve market acceptance.  We may not be
successful in continuing to develop and market, on a timely and cost-effective
basis, product enhancements or new products that respond to technological
advances by others.  In addition, we have in the past experienced
delays in the development, introduction and marketing of new and enhanced
products, and we may experience similar delays in the future.  Any
failure by us to anticipate or respond adequately to changes in technology and
insurance industry preferences, or any significant delays in product development
or introduction, would significantly and adversely affect our business,
operating results and financial condition.
  8
  Our
products may not achieve market acceptance, which may make it difficult for us
to compete.
  Our
future success will depend upon our ability to increase the number of insurance
companies that license our software products.  As a result of the
intense competition in our industry and the rapid technological changes which
characterize it, our products may not achieve significant market
acceptance.  Further, insurance companies are typically characterized
by slow decision-making and numerous bureaucratic and institutional obstacles
which will make our efforts to significantly expand our customer base
difficult.
  We
depend on key personnel.
  Our
success depends to a significant extent upon a limited number of members of
senior management and other key employees, including John W. Roblin, our Chief
Executive Officer, Manish D. Shah, our President and Chief Technology Officer,
and Maryanne Gallagher, our Executive Vice President and Chief Operating
Officer.  We maintain key man life insurance on Mr. Roblin, Mr. Shah
and Ms. Gallagher in the amount of $1,000,000 per individual.  The
loss of the service of one or more key managers or other key employees could
have a significant and adverse effect upon our business, operating results or
financial condition.  In addition, we believe that our future success
will depend in large part upon our ability to attract and retain additional
highly skilled technical, management, sales and marketing
personnel.  Competition for such personnel in the computer software
industry is intense.  We may not be successful in attracting and
retaining such personnel, and the failure to do so could have a material adverse
effect on our business, operating results or financial condition.
  Our
products are affected by rapid technological change and we may not be able to
keep up with these changes.
  The
demand for our products is impacted by rapid technological advances, evolving
industry standards in computer hardware and software technology, changing
insurance industry requirements and frequent new product introductions and
enhancements that address the evolving needs of the insurance
industry.  The process of developing software products such as those
we offer is extremely complex and is expected to become increasingly complex and
expensive in the future with the introduction of new platforms and
technologies.  The introduction of products embodying new technologies
and the emergence of new industry standards and practices can render existing
products obsolete and unmarketable.  Our future success depends upon
our ability to anticipate or respond to technological advances, emerging
industry standards and practices in a timely and cost-effective
manner.  We may not be successful in developing and marketing new
products or enhancements to existing products that respond to technological
changes or evolving industry standards.  The failure to respond
successfully to these changes and evolving standards on a timely basis, or at
all, could have a detrimental effect on our business, operating results and
financial condition.
  Our
market is highly competitive.
  Both the
computer software and the insurance software systems industries are highly
competitive.  There are a number of larger companies, including
computer manufacturers, computer service and software companies and insurance
companies, that have greater financial resources than we have.  These
companies currently offer and have the technological ability to develop software
products similar to those offered by us.  These companies present a
significant competitive challenge to our business.  Because we do not
have the same financial resources as these competitors, we may have a difficult
time in the future in competing with these companies.  In addition,
very large insurers internally develop systems similar to our systems and as a
result, they may not become customers of our software.  We compete on
the basis of our insurance knowledge, products, service, price, system
functionality
  9
  and
performance and technological advances.  Although we believe we can
continue to compete on the basis of these factors, some of our current
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing and other
resources than we do.  Our current competitors may be able
to:
  ·
                undertake
      more extensive marketing campaigns for their brands and
      services;
 ·
                devote
      more resources to product
development;
 ·
                adopt
      more aggressive pricing policies;
and
 ·
                make
      more attractive offers to potential employees and third-party service
      providers.
  We
depend upon proprietary technology and we are subject to the risk of third party
claims of infringement.
  Our
success and ability to compete depends in part upon our proprietary software
technology.  We also rely on certain software that we license from
others.  We rely on a combination of trade secret, copyright and
trademark laws, nondisclosure and other contractual agreements and technical
measures to protect our proprietary rights.  We currently have no
patents or patent applications pending.  Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or to obtain and use information that we regard as
proprietary.  The steps we take to protect our proprietary technology
may not prevent misappropriation of our technology, and this protection may not
stop competitors from developing products which function or have features
similar to our products.
  While we
believe that our products and trademarks do not infringe upon the proprietary
rights of third parties, third parties may claim that our products infringe, or
may infringe, upon their proprietary rights.  Any infringement claims,
with or without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause product shipment delays
or require us to develop non-infringing technology or enter into royalty or
licensing agreements.  Royalty or licensing agreements, if required,
may not be available on terms acceptable to us or at all.  If a claim
of product infringement against us is successful and we fail or are unable to
develop non-infringing technology or license the infringed or similar
technology, our business, operating results and financial condition could be
significantly and adversely affected.
  We
depend on existing major customers.
  In 2008
and 2007, our software products operations depended primarily on certain
existing major customers.  One of these major customers accounted for
approximately 15% and 19% of our total revenues in 2008 and 2007,
respectively.  One other major customer, accounted for approximately
17% and 25% of our total revenues in 2008 and 2007.  The other
customer generated 27% of our total revenues for the year ended December 31,
2008.  All of the major customers referred to above, other than the
customers in 2006 with 13% and 11% of the revenues, respectively, are units of
American International Group, Inc.  We anticipate that our operations
will continue to depend upon the continuing business of our existing customers,
particularly the major customers, and the ability to attract new
customers.  As a result, the loss of one or more of our existing major
customers or our inability to continue to attract new customers could
significantly and adversely affect our business, operating results and financial
condition.
  A
decline in computer software spending may result in a decrease in our revenues
or lower our growth rate.
  A decline
in the demand for computer software among our current and prospective customers
may result in decreased revenues or a lower growth rate for us because our sales
depend, in part, on our customers’ level of funding for new or additional
computer software systems and services.  Moreover, demand for our
solutions may be reduced by a decline in overall demand for computer software
and services.  The current decline in overall technology spending may
cause our customers to reduce or eliminate software and services spending and
cause price erosion for our solutions, which would substantially affect our
sales of new software licenses and the average sales price for these
licenses.  Because of these market and economic conditions, we believe
there will continue to be uncertainty in the level of demand for our products
and services. Accordingly, we cannot assure you that we will be able to increase
or maintain our revenues.
  10
  We
may not get the full benefit of our tax credits.
  Under the
United States Internal Revenue Code, companies that have not been operating
profitably are allowed to apply certain of their past losses to offset future
taxable income liabilities they may incur once they reach
profitability.  These amounts are known as net operating tax loss
carryforwards.  At December 31, 2008, we had approximately $21 million
of federal net operating tax loss carryforwards expiring at various dates
through 2026.  Because of certain provisions of the Tax Reform Act of
1986 related to change of control, however, we may not get the full benefit of
these loss carryforwards.  If we are limited from using net operating
tax loss carryforwards to offset any of our income, this would increase our
taxes owed and reduce our cash for operations.
  RISKS
RELATED TO OUR COMMON STOCK
  Holders
of our common stock may have difficulty in selling those shares.
  Our
common stock is not traded on any securities exchange.  Our common
stock is quoted on the Over-the-Counter (OTC) Bulletin
Board.  Securities quoted on the OTC Bulletin Board do not enjoy the
same liquidity as securities that trade on a securities exchange.  As
a result, you may have difficulty in selling shares of our common
stock.  In addition, our common stock is a “penny stock” as that term
is defined in the Securities Exchange Act of 1934.  Brokers effecting
transactions in a “penny stock” are subject to additional customer disclosure
and record keeping obligations, including disclosure of the risks associated
with low price stocks, stock quote information and broker
compensation.  In addition, brokers effecting transactions in a “penny
stock” are also subject to additional sales practice requirements under Rule
15g-9 of the Exchange Act including making inquiries into the suitability of
“penny stock” investments for each customer or obtaining a prior written
agreement for the specific “penny stock” purchase.  Because of these
additional obligations, some brokers will not effect transactions in “penny
stocks.”
  Our
stock price has been volatile.
  Quarterly
operating results have fluctuated and are likely to continue to fluctuate
significantly.  The market price of our common stock has been and may
continue to be highly volatile.  Factors that are difficult to
predict, such as quarterly revenues and operating results, limited trading
volumes and overall market performance, will have a significant effect on the
price of our common stock.  Revenues and operating results have varied
considerably in the past from period to period and are likely to vary
considerably in the future.  We plan product development and other
expenses based on anticipated future revenue. If revenue falls below
expectations, financial performance is likely to be adversely affected because
only small portions of expenses vary with revenue.  As a result,
period-to-period comparisons of operating results are not necessarily meaningful
and should not be relied upon to predict future performance.
  Our
shares are subject to dilution as a result of the exercise of our
warrants.
  An
aggregate of 121,429 warrants, expiring in 2011, to purchase such number of
shares of our common stock were outstanding as of December 31, 2008 and
exercisable at a current exercise price of $0.35 per share.  The
current exercise price of these warrants is subject to adjustment if and
whenever we issue or sell additional shares of our common stock for less than
95% of the market price on the date of issuance or sale, in which case the
exercise price will be reduced to a new exercise price in accordance with the
terms of the warrants.  Pursuant to the terms of these warrants, the
issuance or sale of additional shares of common stock resulting from the
exercise of stock options to be granted in the future to employees or directors
pursuant to our existing stock option plans outstanding on the date of the
warrant will not trigger any adjustment to the exercise price of the
warrants.  The issuance of any additional shares of our common stock
as a consequence of the exercise of any of the warrants may result in
significant dilution to our stockholders and may depress the market price of our
common stock.  Further, if the exercise price of the warrants is
adjusted, the additional shares of our common stock that would be issued upon
exercise of the warrants as a result of such adjustment may also result in
significant dilution to our stockholders.
  11
  ITEM
1B.UNRESOLVED STAFF
COMMENTS
  Not
applicable.
  ITEM
2.Properties
  Our
headquarters is located in Fairfield, New Jersey, where we occupy approximately
20,000 square feet under a lease which expires at October 31,
2012.  Currently, we fully utilize this facility.  We
believe that our headquarters is well maintained and adequate to meet our needs
in the foreseeable future.
  ITEM
3. LEGAL PROCEEDINGS
  None.
  ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  No
matters were submitted to a vote of our security holders through the
solicitation of proxies or otherwise during the three months ended December 31,
2008.
  12
 PART
II
 ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
  MARKET
PRICE OF AND DIVIDENDS ON COMMON STOCK
  
 Our
common stock is quoted on the OTC Bulletin Board.  The quotations
below reflect the high and low bid prices for our common stock since January 1,
2007 as reported on the OTC Bulletin Board.  The quotations below
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
  2008:
                
                High
                
                
                Low4th
      Quarter
                
                $
                1.15
                
                
                $
                0.653rd
      Quarter
                
                
                1.20
                
                
                
                0.722nd
      Quarter
                
                
                1.22
                
                
                
                0.761st
      Quarter
                
                
                1.38
                
                
                
                0.952007:
                
                High
                
                
                Low4th
      Quarter
                
                $
                1.53
                
                
                $
                1.123rd
      Quarter
                
                
                1.50
                
                
                
                1.242nd
      Quarter
                
                
                1.25
                
                
                
                0.921st
      Quarter
                
                
                1.30
                
                
                
                0.66
  As of
March 16, 2009, there were 505 holders of record of our common
stock.  This number does not include beneficial owners who may hold
their shares in street name.
  On
February 17, 2009, we announced that our board of directors declared a special
cash dividend in the amount of $0.03 per share on our common
stock.  This dividend is payable on or about April 7, 2009 to common
stockholders of record as of the close of business on March 27,
2009.  Since 1994, we have not declared or paid any dividends on our
common stock.  Our board of directors will review its dividend policy
from time to time and will take into account prevailing market conditions and
our anticipated uses of cash.  Based on the foregoing, other than the
special dividend payable on or about April 7, 2009, we do not anticipate paying
any cash dividends in the foreseeable future.
  The
closing sales price for our common stock on March 16, 2009 was $0.75, as
reported by the OTC Bulletin Board.
  13
  PERFORMANCE
GRAPH
 
 The graph below compares the cumulative
total stockholder returns (including reinvestment of dividends) from the period
from December 31, 2003 through December 31, 2008 on an investment of $100 in (i)
our common stock, (ii) the Russell 2000 Index (an index of small capitalization
companies), (iii) the Russell MicroCap Index (an index of microcap companies)
and (iv) an index of peer companies selected by us (the “Peer Group”), as
described below. You should be aware that historical results are not necessarily
indicative of future performance.
  We have
selected the Russell MicroCap Index for comparative purposes for the
fiscal year ended December 31, 2008.  In the past, we used the Russell 2000
Index.  We believe that, given our current size of operations and
market capitalization, the Russell MicroCap Index, which measures the
performance of stocks in the micro-cap segment of the U.S. equity securities
market, provides a better comparison and a more appropriate benchmark against
which to measure our stock performance.
  The Peer
Group consists of Computer Sciences Corporation, Ebix Inc., Pegasystems Inc. and
Forgehouse Inc.  TenFold Corp. was removed from the Peer Group because
it is no longer a U.S. reporting company, and it was replaced in the Peer Group
by Forgehouse Inc.
  
   December
      31,2003
                  
                  
                  2004
                  
                  
                  2005
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2008Cover-All
      Technologies Inc.
                  
                  $
                  100.00
                  
                  
                  $
                  120.75
                  
                  
                  $
                  103.77
                  
                  
                  $
                  149.06
                  
                  
                  $
                  260.38
                  
                  
                  $
                  169.81Russell
      2000 Index
                  
                  $
                  100.00
                  
                  
                  $
                  118.33
                  
                  
                  $
                  123.72
                  
                  
                  $
                  146.44
                  
                  
                  $
                  144.15
                  
                  
                  $
                  95.44Russell
      MicroCap Index
                  
                  $
                  100.00
                  
                  
                  $
                  114.14
                  
                  
                  $
                  117.07
                  
                  
                  $
                  136.44
                  
                  
                  $
                  125.52
                  
                  
                  $
                  75.59Peer
      Group
                  
                  $
                  100.00
                  
                  
                  $
                  126.44
                  
                  
                  $
                  113.65
                  
                  
                  $
                  120.94
                  
                  
                  $
                  115.08
                  
                  
                  $
                  84.66
  14
 ITEM
6. SELECTED FINANCIAL DATA
  The
following selected historical financial information as of December 31, 2008 and
2007, and for each of the years ended December 31, 2008, 2007 and 2006, have
been derived from and should be read in conjunction with our audited
consolidated financial statements and related notes thereto and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
included elsewhere in this report.  The selected historical
consolidated financial information as of December 31, 2006, 2005 and 2004 and
for the years ended December 31, 2005 and 2004 have been derived from our
audited consolidated financial statements which are not included in this
report.
  Selected Five-Year
Consolidated Financial Data
  The
following is a summary of selected five-year consolidated financial data as of
and for the years ended December 31, 2008, 2007, 2006, 2005 and
2004:
  Year
      ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Statement
      of Operations Data:
                  
                  (in
      thousands, except per share amounts)Revenues
                  
                  $
                  13,467
                  
                  
                  $
                  9,777
                  
                  
                  $
                  7,288
                  
                  
                  $
                  7,255
                  
                  
                  $
                  9,274Income
      (loss) before income tax
                  
                  
                  2,876
                  
                  
                  
                  1,231
                  
                  
                  
                  (1,000
                  )
                  
                  
                  (1,434
                  )
                  
                  
                  816Net
      income (loss)
                  
                  
                  4,556
                  (1)
                  
                  
                  1,231
                  
                  
                  
                  (1,000
                  )
                  
                  
                  (1,434
                  )
                  
                  
                  767Net
      income (loss) per share – basic
                  
                  
                  0.19
                  
                  
                  
                  0.06
                  
                  
                  
                  (0.06
                  )
                  
                  
                  (0.09
                  )
                  
                  
                  0.05Net
      income (loss) per share – diluted
                  
                  
                  0.19
                  
                  
                  
                  0.05
                  
                  
                  
                  (0.06
                  )
                  
                  
                  (0.09
                  )
                  
                  
                  0.04Cash
      dividends per share
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
   As
      of December 31,2008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004Balance
      Sheet Data:
                  
                  (in
      thousands)Cash
      and cash equivalents
                  
                  $
                  4,686
                  
                  
                  $
                  11
                  
                  
                  $
                  132
                  
                  
                  $
                  296
                  
                  
                  $
                  144Working
      capital (deficiency)
                  
                  
                  4,806
                  
                  
                  
                  545
                  
                  
                  
                  (898
                  )
                  
                  
                  (237
                  )
                  
                  
                  900Total
      assets
                  
                  
                  11,039
                  
                  
                  
                  5,864
                  
                  
                  
                  3,556
                  
                  
                  
                  4,677
                  
                  
                  
                  6,388Short-term
      debt
                  
                  
                  —
                  
                  
                  
                  262
                  
                  
                  
                  339
                  
                  
                  
                  247
                  
                  
                  
                  220Long-term
      debt
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,708
                  
                  
                  
                  1,927
                  
                  
                  
                  2,175Stockholders’
      equity (deficit)
                  
                  
                  7,804
                  
                  
                  
                  2,285
                  
                  
                  
                  (1,024
                  )
                  
                  
                  (265
                  )
                  
                  
                  928
 ____________________
 (1)
                  Net
      income for the year ended December 31, 2008 included a deferred income tax
      benefit of $1.7 million as a result of the Company’s reversal of a portion
      of its Deferred Tax Asset valuation
allowance.
  15
  Selected Quarterly Financial
Data (Unaudited)
  The
following is a summary of selected quarterly financial data for the years ended
December 31, 2008 and 2007:
  2008Q1
                  
                  
                  Q2
                  
                  
                  Q3
                  
                  
                  Q4(in
      thousands, except per share amounts)Total
      revenues
                  
                  $
                  2,996
                  
                  
                  $
                  2,510
                  
                  
                  $
                  4,791
                  
                  
                  $
                  3,170Operating
      income
                  
                  
                  568
                  
                  
                  
                  287
                  
                  
                  
                  1,676
                  
                  
                  
                  286Net
      income
                  
                  
                  580
                  
                  
                  
                  292
                  
                  
                  
                  1,694
                  
                  
                  
                  1,990Basic
      earnings per common share
                  
                  $
                  0.02
                  
                  
                  $
                  0.01
                  
                  
                  $
                  0.07
                  
                  
                  $
                  0.08Diluted
      earnings per common share
                  
                  $
                  0.02
                  
                  
                  $
                  0.01
                  
                  
                  $
                  0.07
                  
                  
                  $
                  0.082007Q1
                  
                  
                  Q2
                  
                  
                  Q3
                  
                  
                  Q4(in
      thousands, except per share amounts)Total
      revenues
                  
                  $
                  1,931
                  
                  
                  $
                  1,939
                  
                  
                  $
                  1,889
                  
                  
                  $
                  4,018Operating
      income
                  
                  
                  177
                  
                  
                  
                  8
                  
                  
                  
                  9
                  
                  
                  
                  1,093Net
      income
                  
                  
                  140
                  
                  
                  
                  3
                  
                  
                  
                  2
                  
                  
                  
                  1,086Basic
      earnings per common share
                  
                  $
                  0.01
                  
                  
                  $
                  0.00
                  
                  
                  $
                  0.00
                  
                  
                  $
                  0.05Diluted
      earnings per common share
                  
                  $
                  0.01
                  
                  
                  $
                  0.00
                  
                  
                  $
                  0.00
                  
                  
                  $
                  0.04
 
 16
 
 ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  2008
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 ongoing support
services including incorporating recent insurance rate and rule changes in our
solutions.  These support services also include analyzing the changes,
developments, quality assurance, documentation and distribution of insurance
rate and rule changes.
  We earn
revenue from software contract licenses, service fees from our Application
Services Provider (“ASP”), continuing maintenance fees for servicing the product
and professional services.  Our ongoing maintenance and support
services, usually through five-year minimum customer contracts, generate
significant recurring revenue of approximately 25 to 30 cents for every dollar
spent on licensing fees.  Total revenue in 2008 increased to
$13,467,000 from $9,777,000 in 2007 due to an increase in all revenue
categories.
  The
following is an overview of the key components of our revenue and other
important financial data in 2008:
  Software
Licenses.We signed one new customer license in
2008.  The increase in license revenue, to $3,802,000 in 2008 from
$2,683,000 in 2007, was mainly a result of one new customer license and sales to
existing customers in 2008.  In 2008 our growth in license revenue was
42%.
  Maintenance.The
increase in maintenance revenue, to $4,151,000 in 2008 from $3,210,000 in 2007,
was mainly due to maintenance revenue generated from new customer license sales
in 2007 and 2008, additional license sales to existing customers in 2008 and
annual contract increases in 2008.
  Professional
Services.  The increase in professional services revenue, to
$3,477,000 in 2008 from $2,316,000 in 2007, was a result of increased demand for
new software capabilities and customizations from our current customer base and
significant customizations related to new customer license sales in 2007 and
2008.
  ASP.ASP revenue
increased to $2,037,000 in 2008 from $1,568,000 in 2007, due primarily to an
expanded and extended contractual relationship with two large
customers.
  Income Before Provision For Income
Taxes.Income before provision for income taxes was $2,876,000
in 2008 compared to $1,231,000 in 2007, primarily due to an increase in all
revenue categories and our continuing and ongoing effort to maintain our
expenses in line with revenues in 2008.  Our growth in revenue of 38%
exceeded our growth in expenses of 24%.
  Income Tax
Benefit.  We recorded an income tax benefit of $1,680,000 in
the fourth quarter of 2008 as a result of our reversal of a portion of our
Deferred Tax Asset valuation allowance.
  Net Income.Net
income for 2008 increased to $4,556,000 from $1,231,000 in 2007 as a result of
an increase in all revenue categories and the reversal of a portion of our
Deferred Tax Asset valuation allowance.  Our growth in revenue of 38%
exceeded our growth in expenses of 24%.
  17
  We
continue to face several challenges to growth in 2009 mainly in the marketing
and selling of our products and services to new customers, caused by long sales
cycles and competition.  In addition, there are risks related to
customers’ acceptance and implementation delays which could affect the timing
and amount of license revenue we are able to recognize.  However,
given the positive response to our new software from existing customers, the
significant expansion of our relationship with a very large customer and the
introduction of additional software capabilities, we are expanding our sales and
marketing efforts to both new and existing customers.  Consequently,
we are incurring additional sales and marketing expense in advance of generating
the corresponding revenue.
  CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
  This
discussion and analysis of our financial condition and results of operations are
based on our consolidated financial statements that have been prepared under
accounting principles generally accepted in the United States.  The
preparation of financial statements requires our management to make estimates
and assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods.  Actual results could
materially differ from those estimates.  We have disclosed all
significant accounting policies in Note 1 to the consolidated financial
statements included in this annual report on Form 10-K.  The
consolidated financial statements and the related notes thereto should be read
in conjunction with the following discussion of our critical accounting
policies.  Critical accounting policies and estimates
are:
  ·
                    Revenue
      Recognition
 ·
                    Valuation
      of Capitalized Software
 ·
                    Valuation
      of Allowance for Doubtful Accounts
Receivable
 Revenue
Recognition
  Revenue
recognition rules are very complex, and certain judgments affect the application
of our revenue policy.  The amount and timing of our revenue is
difficult to predict, and any shortfall in revenue or delay in recognizing
revenue could cause our operating results to vary significantly from quarter to
quarter.  In addition to determining our results of operations for a
given period, our revenue recognition determines the timing of certain expenses,
such as commissions, royalties and other variable expenses.
  Our
revenues are recognized in accordance with SOP 97-2, “Software Revenue
Recognition,” as amended by SOP 98-4, “Deferral of the Effective Date of SOP
97-2, Software Revenue Recognition” and SOP 98-9, “Modification of SOP 97-2 with
Respect to Certain Transactions.”  Revenue from the sale of software
licenses is predominately from standardized software and is recognized when
standard software modules are delivered and accepted by the customer, the
license term has begun, the fee is fixed or determinable and collectibility is
probable.  Revenue from software maintenance contracts 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.
  18
  License
Revenue
  We
recognize our license revenue upon delivery, provided collection is determined
to be probable and no significant obligations remain.
  Services and Support
Revenue
  Our
services and support revenue is composed of professional services (such as
consulting services and training) and maintenance and support and ASP
services.  Our professional services revenue is recognized when the
services are performed.  Our maintenance and support and ASP offerings
are recognized ratably over the term of the arrangement.
  Multiple Element
Arrangement
  We enter
into revenue arrangements in which a customer may purchase a combination of
software, maintenance and support, and professional services (multiple-element
arrangements).  When vendor-specific objective evidence (“VSOE”) of
fair value exists for all elements, we allocate revenue to each element based on
the relative fair value of each of the elements.  VSOE of fair value
is established by the price charged when that element is sold
separately.  For maintenance and support, VSOE of fair value is
established by renewal rates when they are sold separately.  For
arrangements where VSOE of fair value exists only for the undelivered elements,
we defer the full fair value of the undelivered elements and recognize the
difference between the total arrangement fee and the amount deferred for the
undelivered items as revenue, assuming all other criteria for revenue
recognition have been met.
  Valuation of Capitalized
Software
  Costs for
the conceptual formulation and design of new software products are expensed as
incurred until technological feasibility has been established.  Once
technological feasibility has been established, we capitalize costs to produce
the finished software products.  Capitalization ceases when the
product is available for general release to customers.  Costs
associated with product enhancements that extend the original product’s life or
significantly improve the original product’s marketability are also capitalized
once technological feasibility has been established.  Amortization is
calculated on a product-by-product basis as the greater of the amount computed
using (a) the ratio that current gross revenues for a product bear to the total
current and anticipated future gross revenues for that product or (b) the
straight-line method over the remaining economic life of the
product.  At each balance sheet date, the unamortized capitalized
costs of each computer software product is compared to the net realizable value
of that product.  If an amount of unamortized capitalized costs of a
computer software product is found to exceed the net realizable value of that
asset, such amount will be written off.  The net realizable value is
the estimated future gross revenues from that product reduced by the estimated
future costs of completing and deploying that product, including the costs of
performing maintenance and customer support required to satisfy our
responsibility set forth at the time of sale.
  Valuation of Allowance for
Doubtful Accounts Receivable
  Our
estimate of the allowance for doubtful accounts is based on historical
information, historical loss levels and an analysis of the collectibility of
individual accounts.  We routinely assess the financial strength of
our customers and, based upon factors concerning credit risk, establish an
allowance for uncollectible accounts.  We believe that accounts
receivable credit risk exposure beyond such allowance is limited.
  19
 
 RESULTS
OF OPERATIONS
  The
following table sets forth, for the years indicated, certain items from the
consolidated statements of operations expressed as a percentage of total
revenues:
 
 Year
      Ended December 31,2008
                  
                  
                  2007
                  
                  
                  2006Revenues:License
                  
                  
                  28.2
                  %
                  
                  
                  27.4
                  %
                  
                  
                  18.9
                  %Maintenance
                  
                  
                  30.8
                  
                  
                  
                  32.8
                  
                  
                  
                  47.6Professional
    Services
                  
                  
                  25.8
                  
                  
                  
                  23.7
                  
                  
                  
                  16.1Applications Service Provider
      (“ASP”) Services
                  
                  
                  15.2
                  
                  
                  
                  16.1
                  
                  
                  
                  17.4Total Revenues
                  
                  
                  100.0
                  
                  
                  
                  100.0
                  
                  
                  
                  100.0Cost
      of Revenues:License
                  
                  
                  13.6
                  
                  
                  
                  11.7
                  
                  
                  
                  17.6Maintenance
                  
                  
                  18.4
                  
                  
                  
                  28.6
                  
                  
                  
                  41.3Professional
    Services
                  
                  
                  11.1
                  
                  
                  
                  13.1
                  
                  
                  
                  7.8ASP Services
                  
                  
                  9.9
                  
                  
                  
                  4.8
                  
                  
                  
                  5.2Total Cost of
      Revenues
                  
                  
                  53.0
                  
                  
                  
                  58.2
                  
                  
                  
                  71.9Direct Margin
                  
                  
                  47.0
                  
                  
                  
                  41.8
                  
                  
                  
                  28.1Operating
      Expenses:Sales and
    Marketing
                  
                  
                  6.6
                  
                  
                  
                  8.2
                  
                  
                  
                  12.9General and
      Administrative
                  
                  
                  11.6
                  
                  
                  
                  14.7
                  
                  
                  
                  20.1Research and
      Development
                  
                  
                  7.7
                  
                  
                  
                  5.2
                  
                  
                  
                  6.4Provision for Doubtful
      Accounts
                  
                  
                  0.2
                  
                  
                  
                  0.5
                  
                  
                  
                  —Total Operating
      Expenses
                  
                  
                  26.1
                  
                  
                  
                  28.6
                  
                  
                  
                  39.4Operating Income
      (Loss)
                  
                  
                  20.9
                  
                  
                  
                  13.2
                  
                  
                  
                  (11.3
                  )Other
      Expense (Income):Interest Expense
                  
                  
                  0.1
                  
                  
                  
                  0.5
                  
                  
                  
                  2.3Interest
      Expense - Related Party
                  
                  
                  —
                  
                  
                  
                  0.1
                  
                  
                  
                  0.1Interest Income
                  
                  
                  (0.2
                  )
                  
                  
                  —
                  
                  
                  
                  —Other Expense
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Other Income
                  
                  
                  (0.3
                  )
                  
                  
                  —
                  
                  
                  
                  —Total Other Expense
      (Income)
                  
                  
                  (0.4
                  )
                  
                  
                  0.6
                  
                  
                  
                  2.4Income (Loss) Before Income
      Taxes
                  
                  
                  21.3
                  
                  
                  
                  12.6
                  
                  
                  
                  (13.7
                  )Income
      Tax Benefit (Expense):
                  
                  
                  12.5
                  
                  
                  
                  —
                  
                  
                  
                  —Net Income (Loss)
                  
                  
                  33.8
                  %
                  
                  
                  12.6
                  %
                  
                  
                  (13.7
                  )%
  YEAR
ENDED DECEMBER 31, 2008 COMPARED WITH YEAR ENDED DECEMBER 31, 2007
  Revenues
  Total
revenues were $13,467,000 for the year ended December 31, 2008 compared to
$9,777,000 for the year ended December 31, 2007, an increase of
38%.  License fees were $3,802,000 for the year ended December 31,
2008 compared to $2,683,000 in 2007, an increase of 42%, as a result of one new
customer license sale and sales to existing customers in 2008.  For
the year ended December 31, 2008, maintenance revenues were $4,151,000 compared
to $3,210,000 of the prior year, due to maintenance revenue generated from new
customer
  20
  license
sales in 2007 and 2008, additional license sales to existing customers in 2008
and annual contractual increases in 2008.  Professional services
revenue contributed $3,477,000 for the year ended December 31, 2008 compared to
$2,316,000 for the year ended December 31, 2007 as a result of increased demand
for new software capabilities and customizations from our current customer base
and customizations related to new customer license sales in 2007 and
2008.  ASP revenues were $2,037,000 for the year ended December 31,
2008 compared to $1,568,000 for the year ended December 31, 2007 due primarily
to an expanded and extended contractual relationship with two large
customers.
  Cost of
sales increased to $7,145,000, for the year ended December 31, 2008 as compared
to $5,688,000 for 2007, due to salaries and personnel-related expenses and
consulting costs associated with additional staffing needs.  Non-cash
capitalized software amortization was $868,000 for the year ended December 31,
2008 as compared to $880,000 in 2007.  We capitalized software
development costs of $1,136,000 in 2008 compared to $1,084,000 in
2007.
  Expenses
  Research and
Development.  Research and development expenses increased to
$1,035,000 for the year ended December 31, 2008 from $510,000 in 2007, primarily
due to the need for our research and development staff to work on various new
software capabilities for our new and prospective customers.  We
intend to continue to maintain our ongoing effort to enhance the functionality
of our products and solutions to remain competitive.
  Sales and
Marketing.  Sales and marketing expenses increased to $883,000
for the year ended December 31, 2008 from $800,000 in 2007, primarily due to
commissions related to the new license sales in 2008 and other personnel related
costs.
  General and
Administrative.  General and administrative expenses were
$1,567,000 in 2008 as compared to $1,442,000 in 2007.  The increase in
the general and administrative expenses was mainly due to stock-based
compensation related to options and restricted stock issued to one of our
executives and stock-based compensation to our non-employee directors and
bonuses based on 2008 results in 2008.  In 2007, the increase in legal
fees was related to a potential acquisition.
  Other Income.  We
had $40,000 of other income for the year ended December 31, 2008 compared to $0
of other income for the year ended December 31, 2007.  In 2008, other
income was related to late fees collected from customers and fees from a third
party partnering agreement.
  Provision for Doubtful
Accounts.  We had $21,000 provision for doubtful accounts in
2008 compared to $51,000 for 2007, due to the closing of one customer in Puerto
Rico in 2008.
  Income Tax
Benefit.  We recorded an income tax benefit of $1,680,000 in
the fourth quarter of 2008 as a result of our reversal of a portion of our
Deferred Tax Asset valuation allowance, and did not record any income tax
benefit in 2007.
  21
  YEAR
ENDED DECEMBER 31, 2007 COMPARED WITH YEAR ENDED DECEMBER 31, 2006
  Revenues
  Total
revenues were $9,777,000 for the year ended December 31, 2007 compared to
$7,288,000 for the year ended December 31, 2006, an increase of
34%.  License fees were $2,683,000 for the year ended December 31,
2007 compared to $1,376,000 in 2006, an increase of 95%, as a result of two new
customer license sales and sales to existing customers in 2007.  For
the year ended December 31, 2007, maintenance revenues were $3,210,000 compared
to $3,471,000 of the prior year, due to the non-renewal of several existing
customers.  We expect that the new license sales in 2007 will generate
significant additional maintenance revenue in 2008.  Professional
services revenue contributed $2,316,000 for the year ended December 31, 2007
compared to $1,176,000 for the year ended December 31, 2006 as a result of
increased demand for new software capabilities and customizations from our two
new customers signed in 2007 and our current customer base.  ASP
revenues were $1,568,000 for the year ended December 31, 2007 compared to
$1,265,000 for the year ended December 31, 2006 due primarily to an expanded and
extended contractual relationship with two large customers.
  Cost of
sales increased to $5,688,000 for the year ended December 31, 2007 as compared
to $5,244,000 for 2006, due to higher salaries and personnel-related expenses
associated with staffing changes.  Non-cash capitalized software
amortization was $880,000 for the year ended December 31, 2007 as compared to
$1,114,000 in 2006.  We capitalized software development costs of
$1,084,000 in 2007 compared to $888,000 in 2006.
  Expenses
  Research and
Development.  Research and development expenses increased to
$510,000 for the year ended December 31, 2007 from $464,000 in 2006, primarily
due to the need for our research and development staff to work on various new
software capabilities for our new and prospective customers.  We
intend to continue to maintain our ongoing effort to enhance the functionality
of our products and solutions to remain competitive.
  Sales and
Marketing.  Sales and marketing expenses decreased to $800,000
for the year ended December 31, 2007 from $943,000 in 2006, primarily due to a
reduction in our personnel-related expenses associated with a reduction in
staffing in 2007.
  General and
Administrative.  General and administrative expenses were
$1,442,000 in 2007 as compared to $1,461,000 in 2006.  The decrease in
the general and administrative expenses was mainly due to a reduction in our
legal fees in 2007 partially offset by an increase in stock-based
compensation.  In 2006, the increase in legal fees was related to a
potential acquisition.
  Other Expense.  We
had $0 other expense for the year ended December 31, 2007 compared to $(1,000)
for the year ended December 31, 2006.  In 2006, other expense was
related to a settlement of late fees related to one customer.
  Other Income.  We
had $0 of other income for the year ended December 31, 2007 compared to $3,000
of other income for the year ended December 31, 2006.  In 2006, other
income was related to late fees collected from customers.
  Provision for Doubtful
Accounts.  We had $51,000 provision for doubtful accounts in
2007 compared to $0 for 2006, due to the write-off of the account receivable
balances of two customers who decided not to purchase our software.
  22
  LIQUIDITY
AND CAPITAL RESOURCES
  Sources of
Liquidity
  We have
funded our operations primarily from cash flow from operations and the proceeds
from our issuance in 2001 of $1,800,000 aggregate principal amount of 8%
convertible debentures due in 2008, which we refer to as the 2008 Debentures,
and our issuance in 2002 of $700,000 aggregate principal amount of 8%
convertible debentures due 2009, which we refer to as the 2009
Debentures.  Cash from operations results primarily from net income
from the income statement less non-cash expenses (depreciation and amortization)
and changes in working capital from the balance sheet.
  Our
largest source of operating cash flows is cash collections from our customers
following the purchase or renewal of software licenses, product support
agreements and other related services.  Payments from customers for
software licenses are generally received at the beginning of the contract
term.  Payments from customers for product support and ASP services
are generally received in advance on a quarterly basis.  Payments for
professional services are generally received 30 days after the services are
performed.
  At
December 31, 2008, we had cash and cash equivalents of $4,686,000 compared
to cash and cash equivalents of $11,000 at December 31,
2007.  The increase in cash and cash equivalents is primarily
attributable to the increase in all revenue categories in 2008.
  Cash
Flows
  In 2001
and 2002, we raised an aggregate of $2,500,000 in two rounds of debt financing
through the sale of our 2008 Debentures and 2009 Debentures.  The 2008
Debentures were issued to two funds managed by RENN Capital Group, Inc., for an
aggregate of $1,400,000, and the remainder of the 2008 Debentures were issued to
John W. Roblin, our Chairman of the Board and Chief Executive Officer (and who
at the time was also our President), who purchased $100,000 principal amount of
the 2008 Debentures, and certain other investors, who purchased an aggregate of
$300,000 principal amount of the 2008 Debentures.  All of the 2009
Debentures were issued to the RENN funds.  Mr. Russell Cleveland is
the President, Chief Executive Officer, sole director and majority shareholder
of RENN Capital Group.  Mr. Cleveland was named one of our directors
in 2001 after the consummation of the sale of the 2008 Debentures.
  In March
2007, the RENN funds elected to convert all of their remaining unpaid principal
amount due on their 2008 Debentures and 2009 Debentures, totaling $1,631,601,
into shares of our common stock at the conversion rate of $0.30 per share in
lieu of receiving such payments in cash.  In June 2007, the remaining
holders of the 2008 Debentures elected to convert their monthly principal
installments due in 2007, totaling $33,617, into shares of our common stock at
the conversion rate of $0.30 per share in lieu of receiving such payments in
cash.  In connection with these conversions, we issued to the holders
an aggregate of 5,550,725 shares of our common stock.  Of the shares
of common stock issued in connection with these conversions, an aggregate of
5,438,670 shares were issued to the RENN funds.  After giving effect
to these conversions, as of December 31, 2007, our only outstanding debentures
were an aggregate principal amount of $262,265 that remained outstanding on the
2008 Debentures.  Of such outstanding amount, Mr. Roblin held
$65,566.  In June 2008, Mr. Roblin and certain other investors elected
to convert all of the then-remaining unpaid principal amount due on their 2008
Debentures, totaling $262,265, into an aggregate of 874,217 shares of our common
stock at the conversion price of $0.30 per share.  After giving affect
to this conversion, as of June 25, 2008, we had no outstanding
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.
  23
  Our
ability to continue to control expenses, maintain existing revenue streams and
anticipate new revenue will impact the amounts and certainty of cash
flows.  We intend to maintain our expenses in line with existing
revenue streams from maintenance support, ASP services and professional
services.
  Balance
sheet items that should be considered in assessing our liquidity include cash
and cash equivalents, accounts receivable, prepaid expenses, accounts payable
and accrued liabilities.  Income statement items that should be
considered in assessing our liquidity include revenue, cost of revenue (net of
depreciation and amortization), operating expenses (net of depreciation and
amortization) and other expenses.  Statement of cash flows items that
should be considered in assessing our liquidity include net cash flows from
operating activities, net cash flows from investing activities and net cash
flows from financing activities.
  In
December 31, 2008, we had working capital of $4,806,000 compared to working
capital of $545,000 at December 31, 2007.  This increase in our
working capital resulted primarily from an increase in all revenue categories in
2008.  Net cash provided from operating activities totaled
approximately $5,919,000 in 2008 compared to approximately $907,000 in
2007.  In 2008, cash flow from operating activities represented the
Company’s principal source of cash and results primarily from net income (loss),
less non-cash expense and changes in working capital.
  In 2008,
net cash used for investing activities was approximately $1,360,000 compared to
approximately $1,101,000 in 2007.  We expect capital expenditures and
capital software expenditures to continue to be funded by cash generated from
operations.  We use cash to invest in capital and other assets to
support our growth.
  In 2008,
net cash provided from financing activities was approximately $116,000 compared
to approximately $73,000 in 2007.  The cash provided from financing
activities in 2008 and 2007 consisted of proceeds from the exercise of stock
options and warrants.  In 2008, the cash provided from (used for)
financing activities included the purchase of treasury stock related to our
share repurchase plan.
  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.
  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
was payable at the rate of 8% per annum.  We had 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.
  In
January 2007, the holders of the 2008 Debentures and 2009 Debentures elected to
convert the remaining portion of their monthly principal installments due in
2006, totaling $119,807, into shares of our common stock at the conversion price
of $0.30 per share in lieu of receiving such installment payments in
cash.  On March 23, 2007, we issued an aggregate of 5,438,670 shares
of our common stock to the RENN funds in connection with their election to
convert an aggregate of $1,631,601 principal amount of their 2008 Debentures and
2009 Debentures, representing all of their remaining unpaid principal amount due
on the debentures, at a conversion price of $0.30 per share.
  24
  On June
25, 2008, we issued an aggregate of 874,217 shares of our common stock to John
Roblin, our Chairman and Chief Executive Officer, and certain other investors in
connection with their election to convert an aggregate of $262,265 principal
amount of their 2008 Debentures, representing all of their remaining unpaid
principal amount due on the debentures, at a conversion price of $0.30 per
share.  As of December 31, 2008, we do not have any amounts
outstanding on the 2008 Debentures or 2009 Debentures.
  On June
18, 2008, the Company announced that the Board of Directors authorized a share
buyback plan of up to 1,000,000 shares of the Company’s common stock, in
accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as
amended.
  In 2008,
the Company purchased an aggregate of 201,870 shares of the Company’s common
stock on the open market at an average purchase price of $0.82 per share for a
total purchase price of approximately $164,894.
  On
February 17, 2009, we announced that our board of directors declared a special
cash dividend in the amount of $0.03 per share on our common
stock.  This dividend is payable on or about April 7, 2009 to common
stockholders of record as of the close of business on March 27,
2009.  The Company also announced that in light of its decision to
declare a special cash dividend, the Board of Directors has determined that the
Company will suspend its common stock buyback plan until further
notice.
  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
our sources of and needs for capital.  Our ability to fund our working
capital needs and address planned capital expenditures will depend on our
ability to generate cash in the future.  We anticipate generating
future working capital through sales to new customers and continued sales and
services to our existing customers.
  Our
future liquidity and capital resource requirements will depend on many factors,
including but not limited to the following trends and uncertainties we
face:
  ·
                  Our
      ability to generate cash is subject to general economic, financial,
      competitive and other factors beyond its
  control.
 ·
                  Our
      need to invest resources in product development in order to continue to
      enhance our current product, develop new products, attract and retain
      customers and keep pace with competitive product introductions and
      technological developments.
 ·
                  We
      experience intense competition in our industry and continuing
      technological changes.
 ·
                  Insurance
      companies typically are slow in making decisions and have numerous
      bureaucratic and institutional obstacles, which can make our efforts to
      attain new customers difficult.
 
 25
  ·
                  We
      compete with a number of larger companies who have greater resources than
      those of ours.  We compete on the basis of insurance knowledge,
      products, services, price, technological advances and system functionality
      and performance.
 ·
                  Our
      operations continue to depend upon the continuing business of our existing
      customers and our ability to attract new
  customers.
 ·
                  A
      decline in software spending in the insurance industry could result in a
      decrease in our revenue.
  Material
risks to cash flow from operations include delayed or reduced cash payments
accompanying sales of new licenses or a decline in our services
business.  There can be no assurance that changes in our plans or
other events affecting our operations will not result in materially accelerated
or unexpected expenditures.
  We do not
expect for there to be a change in the mix or relative cost of our sources of
capital.
  Net Operating Tax Loss
Carryforwards
  At
December 31, 2008, we had approximately $21,000,000 of federal net operating tax
loss carryforwards expiring at various dates through 2026.  The Tax
Reform Act of 1986 enacted a complex set of rules which limits a company’s
ability to utilize net operating tax loss carryforwards and tax credit
carryforwards in periods following an ownership change.  These rules
define ownership change as a greater than 50 percent point change in stock
ownership within a defined testing period, which is generally a three-year
period.  As a result of stock which may be issued by us from time to
time or the result of other changes in ownership of our outstanding stock, we
may experience an ownership change and consequently our utilization of net
operating tax loss carryforwards could be significantly limited.
  CONTRACTUAL
OBLIGATIONS
  The
following table summarizes our significant contractual obligations at December
31, 2008:
  Payments due by
      period
                    (in
      thousands)Contractual
      Obligations
                  
                  Total
                  
                  
                  Less
      than
                    1 Year
                  
                  
                  1-3Years
                  
                  
                  3-5Years
                  
                  
                  More
      than
                    5 YearsOperating
      Leases
                  
                  $
                  1,890
                  
                  
                  $
                  524
                  
                  
                  $
                  990
                  
                  
                  $
                  376
                  
                  
                  $
                  —Total
                  
                  $
                  1,890
                  
                  
                  $
                  524
                  
                  
                  $
                  990
                  
                  
                  $
                  376
                  
                  
                  $
                  —
  We lease
one facility in Fairfield, New Jersey, which lease expires at October 31,
2012.  We also lease various telephone and computer
equipment.
  OFF-BALANCE-SHEET
ARRANGEMENTS
  During
the fiscal year ended December 31, 2008, we did not have any off-balance-sheet
arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K promulgated
under the Exchange Act.
  26
  RECENTLY ISSUED ACCOUNTING
STANDARDS
  Determination of the Useful Life of
Intangible Assets:  In April 2008, the FASB issued FASB Staff
Position (FSP) No. FAS 142-3, “Determination of the Useful Life of Intangible
Assets.”  FSP FAS 142-3 amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under FASB Statement No. 142, “Goodwill and
Other Intangible Assets.”  FSP FAS 142-3 is effective for fiscal years
beginning after December 15, 2008 and early adoption is
prohibited.  We are currently evaluating the impact of the pending
adoption of FSP FAS 142-3 on our consolidated financial statements.
  Derivative Instruments and Hedging
Activities Disclosures:  In March 2008, the FASB issued
Statement No. 161, “Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133.”  Statement 161
requires disclosure of how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for and how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows.  Statement 161 is
effective for fiscal years beginning after November 15, 2008, with early
adoption permitted.  We are currently evaluating the impact of the
pending adoption of Statement 161 on our consolidated financial
statements.
  Business
Combinations:  In December 2007, the FASB issued Statement No.
141 (revised 2007), “Business Combinations.”  The standard changes the
accounting for business combinations including the measurement of acquirer
shares issued in consideration for a business combination, the recognition of
contingent consideration, the accounting for pre-acquisition gain and loss
contingencies, the recognition of capitalized in-process research and
development, the accounting for acquisition related restructuring liabilities,
the treatment of acquisition related transaction costs and the recognition of
changes in the acquirer’s income tax valuation allowance.  Statement
141(R) is effective for fiscal years beginning after December 15, 2008, with
early adoption prohibited.  We are currently evaluating the impact of
the pending adoption of Statement 141(R) on our consolidated financial
statements.
  Accounting and Reporting of
Noncontrolling Interests:  In December 2007, the FASB issued
Statement No. 160, “Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51.”  The standard changes the
accounting for noncontrolling (minority) interests in consolidated financial
statements including the requirements to classify noncontrolling interests as a
component of consolidated stockholders’ equity, and the elimination of “minority
interest” accounting in results of operations with earnings attributable to
noncontrolling interests reported as a part of consolidated
earnings.  Additionally, Statement 160 revises the accounting for both
increases and decreases in a parent’s controlling ownership
interest.  Statement 160 is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited.  We are currently
evaluating the impact of the pending adoption of Statement 160 on our
consolidated financial statements.
  Fair Value
Measurements:  In September 2006, the FASB issued Statement No.
157, “Fair Value Measurements,” which defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted
accounting principles and expands disclosures about fair value
measurements.  We adopted Statement 157 beginning January 1,
2008.  The adoption of Statement 157 did not have a material impact on
our consolidated financial statements.
  Fair Value Option for Financial
Assets and Financial Liabilities:  In February 2007, the FASB
issued Statement No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities.”  Statement 159 permits entities to choose to
measure many financial instruments and certain other items at fair
value.  We adopted Statement 159 beginning January 1,
2008.  The adoption of Statement 159 did not have a material impact on
our consolidated financial statements.
  27
  Accounting for Advanced Payments for
Future Research and Development:  In June 2007, the FASB
ratified EITF 07-3, “Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development Activities (EITF
07-3).”  EITF 07-3 requires that nonrefundable advance payments for
goods or services that will be used or rendered for future research and
development activities be deferred and capitalized and recognized as an expense
as the goods are delivered or the related services are
performed.  EITF 07-3 is effective, on a prospective basis, for fiscal
years beginning after December 15, 2007.  The adoption of EITF 07-3
will not have a material impact on our consolidated financial
statements.
  ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  We are a
smaller reporting company and this Item is not applicable to us.
  ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  The
financial statements and supplementary data listed in Item 15(a)(1) and (2) of
this report are included beginning on page F-1 herein.
  ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  None.
  ITEM 9A(T).CONTROLS AND PROCEDURES
  Disclosure
Controls and Procedures
  As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and our Chief Financial Officer, of the effectiveness of
the design and operation of the Company’s “disclosure controls and procedures”
(as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)).  Based upon that evaluation, we
concluded that our disclosure controls and procedures are effective in timely
alerting our management to material information relating to us (including our
consolidated subsidiaries) required to be disclosed in our reports filed or
submitted under the Exchange Act.
  Management’s
Report On Internal Control Over Financial Reporting
  The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting. The Exchange Act defines
internal control over financial reporting in Rule 13a-15(f) and 15d-15(f) as a
process designed by, or under the supervision of, the company’s principal
executive and principal financial officers and effected by the company’s board
of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
  ·
                  pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      company;
 ·
                  provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company
      are being made only in accordance with authorizations of management and
      directors of the company; and
  28
  ·
                  provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company’s assets that
      could have a material effect on the consolidated financial
      statements.
  Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  The
Company’s management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2008.  In making
this assessment, the Company’s management used the criteria set forth by the
Committee of Sponsoring Organizations, or COSO, of the Treadway Commission in
“Internal Control – Integrated Framework”.
  Based
upon its assessment, management concluded that, as of December 31, 2008, the
Company’s internal control over financial reporting is effective based upon
those criteria.
  This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.
  Changes
In Internal Control Over Financial Reporting
  There has
been no change in our internal control over financial reporting during the
quarter ended December 31, 2008 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
  ITEM 9B.OTHER
INFORMATION
  Not
applicable.
  29
  PART
III
  ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  The
information required by this Item regarding directors of the registrant will be
included in the Proxy Statement under the caption “Election of Directors” and is
incorporated herein by reference.
  The
information required by this Item concerning our Audit Committee financial
expert will be included in the Proxy Statement and is incorporated herein by
reference.
  The
information required by this Item concerning our Code of Ethics and Business
Conduct will be included in the Proxy Statement and is incorporated herein by
reference.
  EXECUTIVE
OFFICERS OF THE REGISTRANT
  The
following table sets forth certain information, as of March 27, 2009, regarding
our executive officers:
  Name
                  
                  Age
                  
                  PositionJohn
      W. Roblin
                  
                  63
                  
                  Chairman
      of the Board of Directors and Chief Executive OfficerManish
      D.
      Shah
                  
                  37
                  
                  President
      and Chief Technology OfficerMaryanne
      Z. Gallagher
                  
                  47
                  
                  Executive
      Vice President and Chief Operating OfficerAnn
      F.
      Massey
                  
                  50
                  
                  Chief
      Financial Officer
  The
biographies of our executive officers are set forth below:
  John W. Roblin has served as
our Chief Executive Officer since December 1999 and as a director since March
2000.  He was named Chairman of the Board of Directors in February
2001.  He served as our President from December 1999 to November
2008.  Prior to joining us, Mr. Roblin was Chief Information Officer
and Senior Vice President for CIGNA Property and Casualty, positions he held
since 1998.  From 1994 until 1998, he was Chief Information Officer
and Senior Vice President for Advanta Corporation.  Prior to 1994, he
was the Chief Information Officer at Chubb & Son, USF&G and Traveler’s
Personal Lines Division.
  Manish D. Shahhas served as
a member of our Board and as our President since November 2008 and has served as
our Chief Technology Officer since May 2004.  Prior to his promotion
to the position of our President, he served as our Executive Vice President
since May 2008.  Mr. Shah served as our Director of Technology from
December 2002 through May 2004 and served as our technology consultant from
September 2000 through December 2001.  He graduated with Honors from
the Columbia University Executive MBA Program in May 2008.  Prior to
joining us, Mr. Shah held several technology management positions at various
companies such as Andersen Consulting, P&O Nedlloyd and Tata Consultancy
Services in different industries for over 10 years.
  Maryanne Z. Gallagher has
served as our Executive Vice President and Chief Operating Officer since May
2008 and February 2001, respectively.  Prior to holding the position
of Chief Operating Officer, she served as our Senior Vice President since
January 2000.  From November 1998 until December 1999, Ms. Gallagher
served as our Vice President - Customer Service.  Ms. Gallagher joined
us in 1990 and has held various development and support positions in our Classic
division through 1998.
  30
  Ann F. Massey has served as
our Chief Financial Officer since February 2001, as our Secretary since April
1997 and as our Controller since March 1997.  From March 1996 to March
1997, Ms. Massey served as our Assistant Treasurer.  From 1994 until
February 1996, Ms. Massey served as Assistant Controller for our insurance
services division.  Prior to 1994, Ms. Massey had served as our
Accounting Manager.
  ITEM
11. EXECUTIVE COMPENSATION
  The
information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
  ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  The
information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
  ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  The
information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
  ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  The
information required by this Item will be included in the Proxy Statement and is
incorporated herein by reference.
  PART
IV
  ITEM
15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
  (a)
                  The following
      documents are filed as a part of this report.(1)
                  Financial
      StatementsReference is made to
      the Index to Financial Statements on Page 32 of this report.(2)
                  Financial Statement
      ScheduleII - Valuation and
      Qualifying Accounts F-24All other schedules
      are omitted since the required information is not present or is not
      present in amounts sufficient to require submission of the schedules, or
      because the information required is included in the financial statements
      and notes thereto.(3)
                  Exhibits.See Exhibit
      Index.
  31
  COVER-ALL
TECHNOLOGIES INC.
 
 INDEX
TO FINANCIAL STATEMENTS
 
  PageReport of
      Independent Registered Public Accounting Firm
                    F-1Consolidated Balance
      Sheets - December 31, 2008 and 2007
                    F-2Consolidated
      Statements of Operations - Years Ended December 31, 2008, 2007
      and 2006
                    F-4Consolidated
      Statements of Changes in Stockholders' Equity - Years
      Ended December 31, 2008, 2007 and 2006
                    F-6Consolidated
      Statements of Cash Flows - Years Ended December 31, 2008,
      2007 and 2006
                    F-7Notes to
      Consolidated Financial Statements
                    F-9Financial Statement
      Schedule II - Valuation
      and Qualifying Accounts
                    F-24
  
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Stockholders and the Board of Directors of
 Cover-All
Technologies Inc.
 
 We have
audited the accompanying consolidated balance sheets of Cover-All Technologies
Inc. and its subsidiary as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31,
2008.  These consolidated financial statements and the consolidated
financial statement schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and the consolidated financial statement
schedule based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting.  Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cover-All
Technologies Inc. and its subsidiary as of December 31, 2008 and 2007, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.  Our
audit was made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is the responsibility of Cover-All
Technologies Inc.'s management and is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. The schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
 
 
   MSPC
                      Certified
      Public Accountants and Advisors,
                      A
      Professional Corporation
  New York,
New York
 March 14,
2009
  F-1
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 
 CONSOLIDATED
BALANCE SHEETS
 
  December
      31,2008
                    
                    
                    2007Assets:Current
      Assets:Cash and Cash
      Equivalents
                    
                    $
                    4,686,470
                    
                    
                    $
                    10,914Accounts Receivable
      [Less Allowance for Doubtful Accounts
                      of
      $25,000 in 2008 and 2007]
                    
                    
                    2,055,815
                    
                    
                    
                    3,672,421Prepaid
      Expenses
                    
                    
                    334,804
                    
                    
                    
                    293,396Deferred Tax
      Asset
                    
                    
                    840,000
                    
                    
                    
                    --Total Current
      Assets
                    
                    
                    7,917,089
                    
                    
                    
                    3,976,731Property and Equipment - At
      Cost:Furniture, Fixtures
      and Equipment
                    
                    
                    623,547
                    
                    
                    
                    466,622Less: Accumulated
      Depreciation
                    
                    
                    300,164
                    
                    
                    
                    297,074Property and Equipment -
      Net
                    
                    
                    323,383
                    
                    
                    
                    169,548Capitalized
      Software [Less Accumulated Amortization of
                      $11,049,157 and $10,180,752 in
      2008 and 2007, Respectively]
                    
                    
                    1,848,111
                    
                    
                    
                    1,580,971Deferred
      Financing Costs [Net of Accumulated Amortization of
                      $241,311 and $215,038 in 2008
      and 2007, Respectively]
                    
                    
                    --
                    
                    
                    
                    26,273Deferred Tax
    Asset
                    
                    
                    840,000
                    
                    
                    
                    --Other Assets
                    
                    
                    110,151
                    
                    
                    
                    110,151Total
    Assets
                    
                    $
                    11,038,734
                    
                    
                    $
                    5,863,674
   See Notes
to Consolidated Financial Statements.
  F-2
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 
 CONSOLIDATED
BALANCE SHEETS
 
  December
      31,2008
                    
                    
                    2007Liabilities and Stockholders'
      Equity:Current
      Liabilities:Accounts
      Payable
                    
                    $
                    227,007
                    
                    
                    $
                    579,446Accrued
      Liabilities
                    
                    
                    1,061,065
                    
                    
                    
                    1,080,136Deferred
      Charges
                    
                    
                    22,503
                    
                    
                    
                    22,503Convertible
      Debentures
                    
                    
                    --
                    
                    
                    
                    196,699Convertible
      Debentures - Related Party
                    
                    
                    --
                    
                    
                    
                    65,566Unearned
      Revenue
                    
                    
                    1,800,485
                    
                    
                    
                    1,487,545Total Current
      Liabilities
                    
                    
                    3,111,060
                    
                    
                    
                    3,431,895Long-Term
      Liabilities:Deferred
      Charges
                    
                    
                    123,844
                    
                    
                    
                    146,347Total
      Liabilities
                    
                    
                    3,234,904
                    
                    
                    
                    3,578,242Commitments and
      Contingencies
                    
                    
                    --
                    
                    
                    
                    --Stockholders'
      Equity:Common Stock, $.01
      Par Value, Authorized 75,000,000 Shares;
                      24,690,227 and 23,192,302
      Shares Issued and 24,488,357 and
                      23,192,302 Shares Outstanding
      in 2008 and 2007, Respectively
                    
                    
                    246,902
                    
                    
                    
                    231,923Capital In Excess of
      Par Value
                    
                    
                    29,185,646
                    
                    
                    
                    28,073,659Accumulated
      Deficit
                    
                    
                    (21,463,824
                    )
                    
                    
                    (26,020,150
                    )Treasury Stock - At
      Cost - 201,870 Shares
                    
                    
                    (164,894
                    )
                    
                    
                    --Total Stockholders'
      Equity
                    
                    
                    7,803,830
                    
                    
                    
                    2,285,432Total Liabilities and
      Stockholders' Equity
                    
                    $
                    11,038,734
                    
                    
                    $
                    5,863,674
   See Notes
to Consolidated Financial Statements.
  F-3
 
 COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 Years endedDecember 31,2008
                      
                      
                      2007
                      
                      
                      2006Revenues:Licenses
                      
                      $
                      3,802,293
                      
                      
                      $
                      2,682,840
                      
                      
                      $
                      1,375,713Maintenance
                      
                      
                      4,150,909
                      
                      
                      
                      3,210,423
                      
                      
                      
                      3,471,480Professional
      Services
                      
                      
                      3,476,877
                      
                      
                      
                      2,316,211
                      
                      
                      
                      1,176,562Application Service
      Provider ["ASP"] Services
                      
                      
                      2,037,180
                      
                      
                      
                      1,567,843
                      
                      
                      
                      1,264,740Total
      Revenues
                      
                      
                      13,467,259
                      
                      
                      
                      9,777,317
                      
                      
                      
                      7,288,495Costs of
    Revenues:Licenses
                      
                      
                      1,830,909
                      
                      
                      
                      1,142,824
                      
                      
                      
                      1,280,232Maintenance
                      
                      
                      2,476,645
                      
                      
                      
                      2,796,465
                      
                      
                      
                      3,013,900Professional
      Services
                      
                      
                      1,501,525
                      
                      
                      
                      1,278,004
                      
                      
                      
                      570,222ASP
      Services
                      
                      
                      1,335,505
                      
                      
                      
                      470,781
                      
                      
                      
                      379,767Total Costs of
      Revenues
                      
                      
                      7,144,584
                      
                      
                      
                      5,688,074
                      
                      
                      
                      5,244,121Direct
      Margin
                      
                      
                      6,322,675
                      
                      
                      
                      4,089,243
                      
                      
                      
                      2,044,374Operating
      Expenses:Sales and
      Marketing
                      
                      
                      883,428
                      
                      
                      
                      800,322
                      
                      
                      
                      943,187General and
      Administrative
                      
                      
                      1,567,410
                      
                      
                      
                      1,441,842
                      
                      
                      
                      1,461,209Research and
      Development
                      
                      
                      1,035,014
                      
                      
                      
                      509,629
                      
                      
                      
                      464,088Provision for
      Doubtful Accounts
                      
                      
                      20,770
                      
                      
                      
                      50,661
                      
                      
                      
                      --Total Operating
      Expenses
                      
                      
                      3,506,622
                      
                      
                      
                      2,802,454
                      
                      
                      
                      2,868,484Operating Income
      [Loss]
                      
                      
                      2,816,053
                      
                      
                      
                      1,286,789
                      
                      
                      
                      (824,110
                      )Other Expense
      [Income]:Interest
      Expense
                      
                      
                      9,469
                      
                      
                      
                      49,782
                      
                      
                      
                      170,829Interest Expense -
      Related Party
                      
                      
                      2,615
                      
                      
                      
                      5,579
                      
                      
                      
                      6,512Interest
      Income
                      
                      
                      (31,952
                      )
                      
                      
                      (9
                      )
                      
                      
                      (15
                      )Other
      Expense
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      1,377Other
      Income
                      
                      
                      (40,405
                      )
                      
                      
                      --
                      
                      
                      
                      (2,948
                      )Total Other Expense
      [Income]
                      
                      
                      (60,273
                      )
                      
                      
                      55,352
                      
                      
                      
                      175,755Income [Loss] Before Income
      Taxes Expense
                      
                      
                      2,876,326
                      
                      
                      
                      1,231,437
                      
                      
                      
                      (999,865
                      )Income Taxes [Benefit]
      Expense
                      
                      
                      (1,680,000
                      )
                      
                      
                      --
                      
                      
                      
                      --Net Income
      [Loss]
                      
                      $
                      4,556,326
                      
                      
                      $
                      1,231,437
                      
                      
                      $
                      (999,865
                      )
   See Notes
to Consolidated Financial Statements.
  F-4
 COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
  Years endedDecember 31,2008
                    
                    
                    2007
                    
                    
                    2006Basic Earnings [Loss] Per
      Common Share
                    
                    $
                    .19
                    
                    
                    $
                    .06
                    
                    
                    $
                    (.06
                    )Diluted Earnings [Loss]
      Per Common Share
                    
                    $
                    .19
                    
                    
                    $
                    .05
                    
                    
                    $
                    (.06
                    )Weighted
      Average Number of Common Shares
                      Outstanding
      for Basic Earnings Per
                      Common
      Share
                    
                    
                    23,794,000
                    
                    
                    
                    21,806,000
                    
                    
                    
                    16,732,000Weighted
      Average Number of Common Shares
                      Outstanding
      for Diluted Income Earnings Per
                      Common Share [See Note
      6]
                    
                    
                    24,203,000
                    
                    
                    
                    23,463,000
                    
                    
                    
                    16,732,000
   See Notes
to Consolidated Financial Statements.
  F-5
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [DEFICIT]
 
  Common
      Stock
                    
                    
                    Capital
      in
                      Excess of
                      Par
      Value
                    
                    
                    Accumulated
                      Deficit
                    
                    
                    Treasury
                      Stock
                    
                    
                    Total
                      Stockholders'
                      Equity
                      [Deficit]Balance at January 1,
      2006
                    
                    $
                    190,598
                    
                    
                    $
                    26,499,240
                    
                    
                    $
                    (26,251,722
                    )
                    
                    $
                    (703,000
                    )
                    
                    $
                    (264,884
                    )Exercise of 7,500
      Stock Options
                    
                    
                    75
                    
                    
                    
                    3,900
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    3,975Conversion
      of $127,254 ofConvertible
      Debt [See Note10]
                    
                    
                    4,242
                    
                    
                    
                    123,012
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    127,254Non-Cash
      Stock BasedCompensation
                    
                    
                    --
                    
                    
                    
                    109,055
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    109,055Net
      [Loss]
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (999,865
                    )
                    
                    
                    --
                    
                    
                    
                    (999,865
                    )Balance at December 31,
      2006
                    
                    
                    194,915
                    
                    
                    
                    26,735,207
                    
                    
                    
                    (27,251,587
                    )
                    
                    
                    (703,000
                    )
                    
                    
                    (1,024,465
                    )Exercise
      of 250,715 StockOptions
      and Warrants
                    
                    
                    2,507
                    
                    
                    
                    70,279
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    72,786Conversion
      of $1,785,024 ofConvertible
      Debt [See Note10]
                    
                    
                    59,501
                    
                    
                    
                    1,725,523
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    1,785,024Retirement
      of 2,500,000 Sharesof
      Treasury Stock
                    
                    
                    (25,000
                    )
                    
                    
                    (678,000
                    )
                    
                    
                    --
                    
                    
                    
                    703,000
                    
                    
                    
                    --Non-Cash
      Stock BasedCompensation
                    
                    
                    --
                    
                    
                    
                    220,650
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    220,650Net
      Income
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    1,231,437
                    
                    
                    
                    --
                    
                    
                    
                    1,231,437Balance at December 31,
      2007
                    
                    
                    231,923
                    
                    
                    
                    28,073,659
                    
                    
                    
                    (26,020,150
                    )
                    
                    
                    --
                    
                    
                    
                    2,285,432Exercise
      of 540,539 Stock  Options
                    
                    
                    5,405
                    
                    
                    
                    275,945
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    281,350Grant
      of 83,169 Shares ofCommon
      Stock toNon-Employee
      Directors
                    
                    
                    832
                    
                    
                    
                    83,168
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    84,000Conversion
      of $62,265 ofConvertible
      Debt [See Note10]
                    
                    
                    8,742
                    
                    
                    
                    253,523
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    262,265Purchase
      of 201,870 Shares ofTreasury
      Stock
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    (164,894
                    )
                    
                    
                    (164,894
                    )Non-Cash
      Stock BasedCompensation
                    
                    
                    --
                    
                    
                    
                    499,351
                    
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    499,351Net
      Income
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    4,556,326
                    
                    
                    
                    --
                    
                    
                    
                    4,556,326Balance at December 31,
      2008
                    
                    $
                    246,902
                    
                    
                    $
                    29,185,646
                    
                    
                    $
                    (21,463,824
                    )
                    
                    $
                    (164,894
                    )
                    
                    $
                    7,803,830
   See Notes
to Consolidated Financial Statements.
  F-6
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
  Years endedDecember 31,2008
                    
                    
                    2007
                    
                    
                    2006Cash Flows from Operating
      Activities:Income [Loss] from
      Continuing Operations
                    
                    $
                    4,556,326
                    
                    
                    $
                    1,231,437
                    
                    
                    $
                    (999,865
                    )Adjustments to
      Reconcile Net Income [Loss] to NetCash Provided by
      Operating Activities:Bad Debt
      Expense
                    
                    
                    20,770
                    
                    
                    
                    50,661
                    
                    
                    
                    --Depreciation
                    
                    
                    70,706
                    
                    
                    
                    45,770
                    
                    
                    
                    63,150Amortization of
      Capitalized Software
                    
                    
                    868,405
                    
                    
                    
                    879,656
                    
                    
                    
                    1,114,435Amortization of
      Deferred Financing Costs
                    
                    
                    26,273
                    
                    
                    
                    34,473
                    
                    
                    
                    34,473Non-cash Stock Based
      Compensation
                    
                    
                    583,351
                    
                    
                    
                    220,650
                    
                    
                    
                    109,055Deferred Tax
      Expense
                    
                    
                    (1,680,000
                    )
                    
                    
                    --
                    
                    
                    
                    --Changes in Assets
      and Liabilities:[Increase] Decrease
      in:Accounts
      Receivable
                    
                    
                    1,595,836
                    
                    
                    
                    (2,367,013
                    )
                    
                    
                    447,264Prepaid
      Expenses
                    
                    
                    (41,408
                    )
                    
                    
                    28,976
                    
                    
                    
                    203,939Increase [Decrease]
      in:Accounts
      Payable
                    
                    
                    (352,439
                    )
                    
                    
                    119,567
                    
                    
                    
                    (79,010
                    )Accrued
      Liabilities
                    
                    
                    (19,070
                    )
                    
                    
                    470,625
                    
                    
                    
                    125,464Deferred
      Charges
                    
                    
                    (22,503
                    )
                    
                    
                    2,531
                    
                    
                    
                    7,539Unearned
      Revenue
                    
                    
                    312,940
                    
                    
                    
                    189,964
                    
                    
                    
                    (287,975
                    )Net
      Cash Provided from ContinuingOperating
      Activities
                    
                    
                    5,919,187
                    
                    
                    
                    907,297
                    
                    
                    
                    738,469Cash Flows from Investing
      Activities:Capital
      Expenditures
                    
                    
                    (224,542
                    )
                    
                    
                    (16,826
                    )
                    
                    
                    (18,719
                    )Capitalized Software
      Expenditures
                    
                    
                    (1,135,545
                    )
                    
                    
                    (1,084,190
                    )
                    
                    
                    (888,037
                    )Net Cash [Used for] Investing
      Activities
                    
                    
                    (1,360,087
                    )
                    
                    
                    (1,101,016
                    )
                    
                    
                    (906,756
                    )Cash Flows from Financing
      Activities:Proceeds from
      Exercise of Stock Options
                    
                    
                    281,350
                    
                    
                    
                    72,786
                    
                    
                    
                    3,975Purchase of Treasury
      Stock
                    
                    
                    (164,894
                    )
                    
                    
                    --
                    
                    
                    
                    --Net
      Cash Provided [Used for]from Financing
      Activities
                    
                    
                    116,456
                    
                    
                    
                    72,786
                    
                    
                    
                    3,975Increase [Decrease] in Cash and
      Cash Equivalents
                    
                    
                    4,675,556
                    
                    
                    
                    (120,933
                    )
                    
                    
                    (164,312
                    )Cash and Cash Equivalents -
      Beginning of Years
                    
                    
                    10,914
                    
                    
                    
                    131,847
                    
                    
                    
                    296,159Cash and Cash Equivalents - End
      of Years
                    
                    $
                    4,686,470
                    
                    
                    $
                    10,914
                    
                    
                    $
                    131,847Supplemental Disclosures of
      Cash Flow Information:Cash paid during the
      years for:Interest
                    
                    $
                    9,469
                    
                    
                    $
                    49,782
                    
                    
                    $
                    170,829Interest - Related
      Party
                    
                    $
                    2,615
                    
                    
                    $
                    5,579
                    
                    
                    $
                    6,512Income
      Taxes
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    --
   See Notes
to Consolidated Financial Statements.
  F-7
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 Supplemental
Disclosures of Non-Cash Financing Activities:
  On June
25, 2008, John Roblin, our Chairman and Chief Executive Officer, and certain
other investors elected to convert all of the unpaid principal amount due on
their 2008 Debentures, totaling $262,265, into an aggregate of 874,217 shares of
our common stock at the conversion price of $0.30 per share.  We made
an aggregate of $10,000 of interest payments on the debentures during
2008.
  In March
2007, the RENN Funds, the holders of a portion of the 2008 Debentures and all of
the 2009 Debentures, elected to convert all of their remaining unpaid principal
amount due on their 2008 Debentures and 2009 Debentures, totaling $1,631,601,
into an aggregate of 5,438,670 shares of our common stock at the conversion
price of $0.30 per share.  In June 2007, the holders of the 2008
Debentures converted an aggregate of $33,617 in principal of such debentures
into a total of 112,055 shares of our common stock at the conversion price of
$0.30 per share.  We made an aggregate of $52,000 of interest payments
on the debentures during 2007.
  During
2007, we retired 2,500,000 shares of Treasury Stock that had been previously
repurchased for $703,000.
  In 2006,
the holders of the 2008 Debentures and the 2009 Debentures elected to convert a
portion of their monthly principal installments due in 2006, totaling $127,254,
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 and the 2009 Debentures an aggregate of 424,181 shares of
our common stock.  In January 2007, the holders of the 2008 Debentures
and the 2009 Debentures elected to convert the remaining portion of their
monthly principal installments due in 2006, totaling $119,807, 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
and the 2009 Debentures an aggregate of 399,358 shares of our common
stock.  We made an aggregate of $173,000 of interest payments on the
debentures during 2006.
   See Notes
to Consolidated Financial Statements.
  F-8
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 [1]
Summary of Significant Accounting Policies
 
 Description of
Business - Cover-All Technologies Inc., through its wholly-owned
subsidiary, Cover-All Systems, Inc., licenses and maintains its software
products for the property/casualty insurance industry throughout the United
States and Puerto Rico.  The subsidiary also provides professional
consulting services to its customers interested in customizing their
software.
 
 Principles of
Consolidation - The consolidated financial statements include the
accounts of Cover-All Technologies Inc. and its wholly-owned
subsidiary.  All material intercompany balances and transactions have
been eliminated.
 
 Use of Estimates
- The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Actual results could differ from those
estimates.
 
 Revenue
Recognition - Our revenues are recognized in accordance with SOP 97-2,
"Software Revenue Recognition" ["SOP 97-2"], 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
recognized when standardized software modules are delivered to 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 are recognized ratably over the lives of the
contracts.  Revenue from professional services is recognized when the
service is provided.
 
 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.
 
 Cash and Cash
Equivalents - We consider all highly liquid investments, with a maturity
of three months or less when purchased, to be cash equivalents.
 
 Risk
Concentrations - Financial instruments which potentially subject us to
concentrations of credit risk consist principally of cash and cash equivalents
and trade accounts receivable.  We place our cash and cash equivalents
with high credit quality institutions to limit credit exposure.  We
believe no significant concentration of credit risk exists with respect to these
investments.  The amount of cash beyond insured amounts at December
31, 2008 and 2007 was approximately $1,818,004 and $14,151,
respectively.
 
 Concentrations
of credit risk with respect to trade accounts receivable are limited due to the
wide variety of customers principally major insurance companies, who are
dispersed across many geographic regions. As of December 31, 2008, three
customers accounted for approximately 64% of our trade accounts receivable
portfolio two of which were units of American International Group, Inc. which
comprised 42% of our trade accounts receivable portfolio at December 31,
2008.  As of December 31, 2007, two customers accounted for
approximately 69% of our trade accounts receivable portfolio one of which was a
unit of American International Group, Inc. which comprised of 64% of our trade
accounts receivable portfolio at December 31, 2007.  We routinely
assess the financial strength of customers and, based upon factors concerning
credit risk, we establish an allowance for doubtful
accounts.  Management believes that accounts receivable credit risk
exposure beyond such allowance is limited.
  F-9
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
 
 [1]
Summary of Significant Accounting Policies [Continued]
 
 Impairment of
Long-Lived Assets -We review our long-lived assets and identifiable
intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.  When
such factors and circumstances exist, we compare the projected undiscounted
future cash flows associated with the future use and disposal of the related
asset or group of assets to their respective carrying
amounts.  Impairment, if any, is measured as the excess of the
carrying amount over the fair value based on market value (when available) or
discounted expected cash flows of those assets, and is recorded in the period in
which the determination is made.
 
 Stock-Based
Compensation -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 for the year ended December 31, 2005 have not been restated
to reflect the impact of SFAS 123R.  For the year ended December 31,
2008, we recognized $583,351 of stock-based compensation in our consolidated
financial statements.  For the year ended December 31, 2008, we
recognized $583,351 of stock-based compensation expense in our consolidated
financial statements.  For the year ended December 31, 2007, we
recognized $220,650 of stock-based compensation expense in our consolidated
financial statements. For the year ended December 31, 2006, we recognized
$109,055 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 and restricted stock 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 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.
 
 F-10
 
 COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
 
 [1]
Summary of Significant Accounting Policies [Continued]
 
 Property and
Equipment - Furniture, fixtures and equipment are carried at
cost.  Depreciation is recorded on the straight-line method over three
to ten years, which approximates the estimated useful lives of the
assets.  Depreciation expense in 2008, 2007, and 2006 was $70,706,
$45,770 and $63,150, respectively.
 
 Routine
maintenance and repair costs are charged to expense as incurred and renewals and
improvements that extend the useful life of the assets are
capitalized.  Upon sale or retirement, the cost and related
accumulated depreciation are eliminated from the respective accounts and any
resulting gain or loss is reported in the statement of operations.
 
 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 that product, including the costs of performing maintenance and
customer support required to satisfy our responsibility set forth at the time of
sale.
 
 Advertising
Expense - We expense advertising costs as
incurred.  Advertising expense in 2008, 2007, and 2006 was $79,166,
$47,897and $63,198, respectively.
 
 Income Taxes
- Pursuant to SFAS No. 109, "Accounting for Income Taxes," income tax
expense [or benefit] for the year is the sum of deferred tax expense [or
benefit] and income taxes currently payable [or refundable].  Deferred
tax expense [or benefit] is the change during the year in a company's deferred
tax liabilities and assets.  Deferred tax liabilities and assets are
determined based on differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse.
 
 Earnings Per
Share - We have adopted the provisions of SFAS No. 128.  Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding during
the period.  SFAS No. 128 also requires a dual presentation of basic
and diluted earnings per share on the face of the statement of operations for
all companies with complex capital structures.  Diluted earnings per
share reflects the amount of earnings for the period available to each share of
common stock outstanding during the reporting period, while giving effect to all
dilutive potential common shares that were outstanding during the period, such
as  common shares that could result from the potential exercise or
conversion of securities into common stock.
  F-11
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
 
 [1]
Summary of Significant Accounting Policies [Continued]
 
 Earnings Per
Share [Continued] - The computation of diluted earnings per share does
not assume conversion, exercise or contingent issuance of securities that would
have an antidilutive effect on per share amounts [i.e., increasing earnings per
share or reducing loss per share].  The dilutive effect of outstanding
options and warrants and their equivalents are reflected in dilutive earnings
per share by the application of the treasury stock method which recognizes the
use of proceeds that could be obtained upon exercise of options and warrants in
computing diluted earnings per share.  It assumes that any proceeds
would be used to purchase common stock at the average market price during the
period. Options and warrants will have a dilutive effect only when the average
market price of the common stock during the period exceeds the exercise price of
the options or warrants.  Equity instruments that may dilute earnings
per share in the future are listed in Note 5.
 
 The
dilutive effect of convertible debt is reflected in diluted earnings per share
by the application of the if-converted method.  The convertible debt
could potentially dilute basic earnings per share in future
periods.
 
 Deferred Charges
- The Company's lease on its premises provides for periodic increases
over the lease term.  Pursuant to SFAS No. 13, "Accounting for Leases", the
Company records rent expense on a straight-line basis.  The effect of
this difference is recorded as deferred charges.
 
 Fair Value of
Financial Instruments -Generally accepted accounting principles require
disclosing the fair value of financial instruments to the extent practicable for
financial instruments, which are recognized or unrecognized in the balance
sheet.  The fair value of the financial instruments disclosed herein
is not necessarily representative of the amount that could be realized or
settled, nor does the fair value amount consider the tax consequences of
realization or settlement.  In assessing the fair value of these
financial instruments, the Company used a variety of methods and assumptions,
which were based on estimates of market conditions and risks existing at that
time.  For certain instruments, including the cash accounts
receivable, accounts payable and accrued expenses, it was estimated that the
carrying amount approximated fair value for the majority of these instruments
because of their short maturity.  The fair value of property and
equipment is estimated to approximate their net book value.
 
 [2]
Recently Issued Accounting Standards
 
 Determination of
the Useful Life of IntangibleAssets - In April 2008, the
FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets.FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142-3, “Goodwill and Other
Intangible Assets”. FSP FAS No. 142-3 is effective for fiscal years
beginning after December 15, 2008 and early adoption is
prohibited.  We are currently evaluating the impact of the pending
adoption of FSP FAS 142-3 on our consolidated financial
statements.
 
 Derivative
Instruments and Hedging Activities Disclosures -In Marsh 2308, the FASB
issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133”.  Statement 161 requires disclosure of now and why an
entity uses derivative instruments, how derivative instruments and related
hedged items are accounted for and how derivative instruments and related hedged
items affect an entity's financial position, financial performance and cash
flows. Statement 161 is effective for fiscal years beginning after November 15,
2008, with early adoption permitted.  We are currently evaluating the
impact of the pending adoption of Statement 161 on our consolidated financial
statements.
  F-12
 COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
 
 [2]
Recently Issued Accounting Standards [Continued]
 
 Business
Combinations -In December 2007, the
FASB issued Statement No. 141 (revised 2007), Business
Combinations.The standard changes the accounting for business
combinations including the measurement of acquirer shares issued in
consideration for a business combination, the recognition of contingent
consideration, the accounting for pre-acquisition gain and loss contingencies,
the recognition of capitalized in-process research and development, the
accounting for acquisition related restructuring liabilities, the treatment of
acquisition related transaction costs and the recognition of changes in the
acquirer's income tax valuation allowance.  Statement 141(R) is
effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited.  We are currently evaluating the impact of the
pending adoption of Statement 141(R) on our consolidated financial
statements.
 
 Accounting
andReporting of
Non-controlling Interests -In December 2007, the
FASB issued Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No.
51.The standard changes the accounting for non-controlling
(minority) interests in consolidated financial statements including the
requirements to classify non-controlling interests as a component of
consolidated stockholders' equity, and the elimination of "minority interest"
accounting in results of operations with earnings attributable to
non-controlling interests reported as a part or consolidated
earnings.  Additionally, Statement 160 revises the accounting for both
increases and decreases in a parents' ownership interest.  Statement
160 is effective for fiscal years beginning after December 15, 2008, with early
adoption prohibited.  We are currently evaluating the impact of the
pending adoption of Statement 160 on our consolidated financial
statements.
 
 Fair Value
Measurements -In September 2006, the
FASB issued SFAS No. 157, Fair Value Measurement
("SFAS 157"), which defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. The Company
adopted SFAS 157 beginning January 1, 2008. The adoption of
SFAS 157 did not have a material impact on the Company's consolidated
financial statements.
 
 Fair Value Option
for Financial Assets and Financial Liabilities -In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities ("SFAS 159"). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. The Company adopted SFAS 159 beginning January 1, 2008.
The adoption of SFAS 159 did not have a material impact on the Company's
consolidated financial statements.
 
 Accounting for
Advanced Payments for Future Research and Developments -In June 2007, the FASB
ratified EITF 07-3, Accountingfor Nonrefundable
Advance Payments for Goods or ServicesReceivedforUsein FutureResearch and Development Activities(EITF 07-3). EITF 07-3 requires that nonrefundable advance payments for
goods or services that will be used or rendered for future research and
development activities be deferred and capitalized and recognized as an expense
as the goods are delivered or the related services are
performed.  EITF 07-3 is effective, on a prospective basis, for fiscal
years beginning after December 15, 2007.  The adoption of EITF 07-3
will not have a material impact on our consolidated financial
statements.
  F-13
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
 
 [3]
Commitments, Contingencies and Related Party Transactions
  Operating Leases
- We lease approximately 20,000 square feet of office space under a lease
which expires in October 2012.
 
 Rent
expense was $403,507, $389,930, and $412,135 for the years ended December 31,
2008, 2007 and 2006, respectively.
 
 Our
future minimum lease commitments under the noncancellable operating leases for
rental of our office space in effect at December 31, 2008 were as
follows:
  Year
      ending
                      December
      31,2009
                    
                    $
                    400,5602010
                    
                    
                    405,5672011
                    
                    
                    430,6022012
                    
                    
                    358,835Thereafter
                    
                    
                    --Total
                    
                    $
                    1,595,564
  Employment
Contracts - Effective January 1, 2008, we have an employment contract
with one of our executives with an expiration date of December 31,
2009.  The aggregate commitment for future salary at December 31, 2008
was approximately $325,000.  The aggregate commitment for future
salary at December 31, 2007 was approximately $650,000.  The contract
also includes a bonus based on the performance of the Company.  The
contract also grants 72,463 stock options and 150,000 shares of restricted stock
on the effective date.
 
 We had an
employment contract with one of our executives with an expiration date of
December 31, 2007.  The aggregate commitment for future salary at
December 31, 2006 was approximately $300,000.
  [4]
Income Taxes
 
 An
analysis of the components of the income tax provision is as
follows:
  Years endedDecember 31,2008
                    
                    
                    2007
                    
                    
                    2006Current:Federal
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    --State
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --Totals
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --Deferred:Federal
                    
                    
                    (1,680,000
                    )
                    
                    
                    --
                    
                    
                    
                    --State
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    --Totals
                    
                    
                    (1,680,000
                    )
                    
                    
                    --
                    
                    
                    
                    --Net
      Income Taxes Provision
                    
                    $
                    (1,680,000
                    )
                    
                    $
                    --
                    
                    
                    $
                    --
  F-14
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
 
  [4]
Income Taxes [Continued]
 
 The
income tax for continuing operations differs from the amount computed by
applying the statutory federal income tax rate as follows:
  Years endedDecember 31,2008
                    
                    
                    2007
                    
                    
                    2006Computed Federal
      Statutory Tax [Benefit]
                    
                    $
                    977,951
                    
                    
                    $
                    418,688
                    
                    
                    $
                    (340,000
                    )Valuation Allowance
      to Reduce Deferred Tax Asset
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    340,000Valuation Allowance
      Adjustment to Deferred Tax Asset
                    
                    
                    (1,680,000
                    )
                    
                    
                    --
                    
                    
                    
                    --Tax Benefit of
      Federal Net Operating Loss Carryforward
                    
                    
                    (977,951
                    )
                    
                    
                    (418,688
                    )
                    
                    
                    --Actual
      Tax
                    
                    $
                    (1,680,000
                    )
                    
                    $
                    --
                    
                    
                    $
                    --
  The
components of the net deferred tax asset and liability were as
follows:
  Years
      endedDecember
      31,2008
                    
                    
                    2007Deferred Tax Assets
      - Current:Accounts Receivable
      Allowance
                    
                    $
                    10,000
                    
                    
                    $
                    10,000Vacation
      Accrual
                    
                    
                    17,000
                    
                    
                    
                    15,000Net Operating Loss
      Carryforward
                    
                    
                    813,000
                    
                    
                    
                    --Valuation
      Allowance
                    
                    
                    --
                    
                    
                    
                    (25,000
                    )Current Deferred Tax
      Asset
                    
                    $
                    840,000
                    
                    
                    $
                    --Deferred Tax Asset
      [Liability] - Long-Term:Net Operating Loss
      Carryforward
                    
                    $
                    7,293,000
                    
                    
                    $
                    8,750,000Stock
      Options
                    
                    
                    --
                    
                    
                    
                    80,000Capitalized
      Software
                    
                    
                    (739,000
                    )
                    
                    
                    (630,000
                    )Depreciation and
      Amortization
                    
                    
                    28,000
                    
                    
                    
                    15,000Valuation
      Allowance
                    
                    
                    (5,742,000
                    )
                    
                    
                    (8,215,000
                    )Long-Term Deferred Tax
      Asset
                    
                    $
                    840,000
                    
                    
                    $
                    --
  We
adjusted our Deferred Tax Asset Valuation Allowance as of December 31, 2008 by
decreasing the allowance by $1,680,000.  This amount represents the
tax benefit, which is based upon anticipated profitability that we have
determined to be more likely than not to be realized in future
periods.  The net change during 2008 in the total valuation allowance
was $2,498,000.
 
 A 100%
valuation allowance had been established due to the uncertainty about the
realization of the deferred tax asset in 2007.  The net change during
2007 in the total valuation allowance was $520,000.
 
 At
December 31, 2008, we had approximately $21,000,000 of federal net operating tax
loss carryforwards expiring at various dates through 2026.  The Tax
Reform Act of 1986 enacted a complex set of rules which limits a company's
ability to utilize net operating loss carryforwards and tax credit carryforwards
in periods following an ownership change.  These rules define an
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, 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.
  F-15
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
 
 [5]
Stock-Based Compensation
 
 Stock
Options
 
 In
June 2005, we adopted the 2005 Stock Incentive Plan (which we amended and
restated in 2006 and in 2008 and referred 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 debentures
convertible into common stock, or any combination of the foregoing and may be
paid in common stock or other securities, in cash, or in a combination of common
stock or other securities and cash.  The Plan was amended and restated
as of May 9, 2006 in order to clarify the exercise period following termination
of employment for Good Cause set forth in Section V(g) of the
Plan.  On March 25, 2008, the Plan was further amended and restated in
order to make the Company's directors who are not employees of the Company
eligible participants under the Plan.  At December 31, 2008 and 2007,
an aggregate of 3,552,537 and 3,900,000 shares, respectively, were available for
grant under the 2005 Stock Incentive Plan.
 
 On
November 15, 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 ["non-employee
directors"].  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 December 31, 2008, 2007 and 2006, 750,000, 750,000 and
750,000 shares, respectively, 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:
  Shares
                    
                    
                    Exercise
                      Price
                      Per
      Share
                    
                    Weighted-Average
                      Remaining
                      Contractual
    Life
                    
                    Weighted-Average
                      Exercise
PriceBalance, December
      31, 2005
                    
                    
                    2,770,500
                    
                    
                    $
                    0.23 -
4.00
                    
                    1.7
      Years
                    
                    $
                    .78Granted
                    
                    
                    220,000
                    
                    
                    
                    0.36 -
0.41
                    
                    4.6
      Years
                    
                    
                    .41Exercised
                    
                    
                    (7,500
                    )
                    
                    
                    0.53 -
0.53
                    
                    
                    
                    
                    .53Canceled
                    
                    
                    (78,000
                    )
                    
                    
                    0.27 -
0.61
                    
                    
                    
                    
                    .44Expired
                    
                    
                    (887,000
                    )
                    
                    
                    0.23 -
4.00
                    
                    
                    
                    
                    .36Balance, December
      31, 2006
                    
                    
                    2,018,000
                    
                    
                    $
                    0.27 -
2.00
                    
                    1.8
      Years
                    
                    $
                    .93Granted
                    
                    
                    880,000
                    
                    
                    
                    0.79 -
1.40
                    
                    4.3
      Years
                    
                    
                    1.05Exercised
                    
                    
                    (115,000
                    )
                    
                    
                    0.27 -
0.61
                    
                    
                    
                    
                    .37Canceled
                    
                    
                    --
                    
                    
                    
                    --
                    
                    
                    
                    
                    --Expired
                    
                    
                    (250,000
                    )
                    
                    
                    1.25 -
1.25
                    
                    
                    
                    
                    1.25
  F-16
 
 COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
 
 
 [5]
Stock-Based Compensation [Continued]
  Shares
                        
                        
                        Exercise
                          Price
                          Per
      Share
                        
                        Weighted-Average
                          Remaining
                          Contractual
    Life
                        
                        Weighted-Average
                          Exercise
PriceBalance, December
      31, 2007
                        
                        
                        2,533,000
                        
                        
                        $
                        0.34 -
2.00
                        
                        2.1
      Years
                        
                        $
                        .97Granted
                        
                        
                        347,463
                        
                        
                        
                        0.85 -
1.38
                        
                        4.5
      Years
                        
                        
                        .96Exercised
                        
                        
                        (625,000
                        )
                        
                        
                        0.34 -
0.60
                        
                        
                        
                        
                        .52Canceled
                        
                        
                        --
                        
                        
                        
                        --
                        
                        
                        
                        
                        --Expired
                        
                        
                        (758,000
                        )
                        
                        
                        1.25 -
2.00
                        
                        
                        
                        
                        1.42Balance, December
      31, 2008
                        
                        
                        1,497,463
                        
                        
                        $
                        0.36 -
1.40
                        
                        3.4 Years
                        
                        $
                        .92
  The
options granted during 2008 are distributed as follows, relative to the
difference between the exercise price and the stock price at grant
date:
  Number
                      Granted
                    
                    
                    Weighted-Average
                      Exercise
Price
                    
                    
                    Weighted-Average
                      Fair ValueExercise Price at
      Stock Price
                    
                    
                    347,463
                    
                    
                    $
                    .96
                    
                    
                    $
                    .96
  The
options granted during 2007 are distributed as follows, relative to the
difference between the exercise price and the stock price at grant
date:
 Number
                        Granted
                      
                      
                      Weighted-Average
                        Exercise
Price
                      
                      
                      Weighted-Average
                        Fair ValueExercise Price at
      Stock Price
                      
                      
                      880,000
                      
                      
                      $
                      1.05
                      
                      
                      $
                      1.05
 The
options granted during 2006 are distributed as follows, relative to the
difference between the exercise price and the stock price at grant
date:
 Number
                          Granted
                        
                        
                        Weighted-Average
                          Exercise
Price
                        
                        
                        Weighted-Average
                          Fair ValueExercise Price at
      Stock Price
                        
                        
                        220,000
                        
                        
                        $
                        .41
                        
                        
                        $
                        .41
 Exercisable
options at December 31, 2008, 2007 and 2006 were as follows:
  December
      31,
                    
                    Number
      of
                      Exercisable
      Options
                    
                    
                    Weighted-Average
                      Exercise
Price2008
                    
                    
                    699,152
                    
                    
                    $
                    .702007
                    
                    
                    1,756,326
                    
                    
                    $
                    .942006
                    
                    
                    1,773,250
                    
                    
                    $
                    1.00
  F-17
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
 
 [5]
Stock-Based Compensation [Continued]
 
 The
following table summarizes information about stock options at December 31,
2008:
  `
                    
                    
                    Outstanding Stock
      Options
                    
                    
                    Exercisable
                      Stock
      OptionsRange
      of
                      Exercise Prices
                    
                    
                    Shares
                    
                    Weighted-Average
                      Remaining
                      Contractual
    Life
                    
                    Weighted-Average
                      Exercise
Price
                    
                    
                    Shares
                    
                    
                    Weighted-Average
                      Exercise
Price$.36 -
      $ .41
                    
                    
                    
                    220,000
                    
                    2.6
      Years
                    
                    $
                    .41
                    
                    
                    
                    146,652
                    
                    
                    $
                    .41$.61 -
      $ .85
                    
                    
                    
                    825,000
                    
                    3.4
      Years
                    
                    $
                    .80
                    
                    
                    
                    550,000
                    
                    
                    $
                    .77$1.16 -
      $1.40
                    
                    
                    
                    452,463
                    
                    3.7
      Years
                    
                    $
                    1.39
                    
                    
                    
                    2,500
                    
                    
                    $
                    .861,497,463
                    
                    3.4
      Years
                    
                    $
                    .92
                    
                    
                    
                    699,152
                    
                    
                    $
                    .70
  Warrants
 
 There
were 121,429 warrants outstanding at December 31, 2008.  The exercise
prices for all the warrants issued and outstanding as of December 31, 2008 were
equal to or greater than the market price of our stock at the date of
grant.
 
 A summary
of the changes in outstanding warrants is as follows:
  Outstanding
                      and
      Exercisable
                      Warrants
                    
                    
                    Exercise
                      Price
                      Per Warrant
                    
                    Weighted-Average
                      Remaining
                      Contractual
    Life
                    
                    Weighted-Average
                      Exercise
PriceBalance, December 31,
      2006
                    
                    
                    257,144
                    
                    
                    $
                    .22 - .35
                    
                    2.30
      Years
                    
                    $
                    .29Exercised
                    
                    
                    (135,715
                    )
                    
                    
                    .22 - .35
                    
                    
                    
                    
                    .23Balance, December 31,
      2007
                    
                    
                    121,429
                    
                    
                    $
                    .35 - .35
                    
                    3.35
      Years
                    
                    $
                    .35Balance, December 31,
      2008
                    
                    
                    121,429
                    
                    
                    $
                    .35 - .35
                    
                    2.35
      Years
                    
                    $
                    .35
  Exercisable
Warrants at December 31, 2008, 2007 and 2006 were as follows:
 December
      31,
                      
                      Number
      of
                        Exercisable
      Options
                      
                      
                      Weighted-Average
                        Exercise
Price2008
                      
                      
                      121,429
                      
                      
                      $
                      .352007
                      
                      
                      121,429
                      
                      
                      $
                      .352006
                      
                      
                      257,144
                      
                      
                      $
                      .29
  F-18
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
 
 [5]
Stock-Based Compensation [Continued]
 
 Time-Based
Restricted Stock Units
 
 In 2008,
we granted 257,500 time-based RSUs vesting on August 5, 2011.
 
 A summary
of our time-based RSUs for the years ended December 31, 2008 and 2007 are as
follows:
  Shares
                    
                    
                    Weighted-Average Grant
      Date
                      Fair ValueBalance, January 1,
      2007
                    
                    
                    --
                    
                    
                    $
                    --Granted
                    
                    
                    125,000
                    
                    
                    
                    1.40Vested
                    
                    
                    --
                    
                    
                    
                    --Forfeited or
      Expired
                    
                    
                    --
                    
                    
                    
                    --Balance, December 31,
      2007
                    
                    
                    125,000
                    
                    
                    $
                    1.40Shares
                    
                    
                    Weighted-
                      Average Grant Date
                      Fair ValueGranted
                    
                    
                    257,500
                    
                    
                    $
                    1.16Vested
                    
                    
                    --
                    
                    
                    
                    --Forfeited or
      Expired
                    
                    
                    --
                    
                    
                    
                    --Balance,
      December 31, 2008
                    
                    
                    382,500
                    
                    
                    $
                    1.24
  We did
not have any time-based RSUs during the year ended December 31,
2006.
 
 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.
 
 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.
  F-19
 COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
 
 [5]
Stock-Based Compensation [Continued]
 
 For the
year ended December 31, 2008, we recognized $583,351 of stock-based compensation
expense in our consolidated financial statements. For the year ended December
31, 2007, we recognized $220,650 of stock-based compensation expense in our
consolidated financial statements.  For the year ended December 31,
2006, we recognized $109,055 of stock-based compensation expense in out
consolidated financial statements
 
 [6]
Basic Earnings Per Share Disclosures
  The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share ["EPS"] computations.
  2008
                    
                    
                    2007
                    
                    
                    2006Numerator:Net Income
      [Loss]
                    
                    $
                    4,556,326
                    
                    
                    $
                    1,231,437
                    
                    
                    $
                    (999,865
                    )Effect of Dilutive
      Securities:Interest Reversal
      Convertible Debentures [Net of Tax]
                    
                    
                    --
                    
                    
                    
                    12,600
                    
                    
                    
                    --Numerator for Diluted
      Earnings [Loss] PerCommon
      Share
                    
                    $
                    4,556,326
                    
                    
                    $
                    1,244,037
                    
                    
                    $
                    (999,865
                    )Denominator:Weighted
      Average Number of Common SharesOutstanding
      for Basic Earnings Per Common Share
                    
                    
                    23,794,000
                    
                    
                    
                    21,806,000
                    
                    
                    
                    16,732,000Effect of Dilutive
      Securities:Exercise of
      Options
                    
                    
                    329,000
                    
                    
                    
                    697,000
                    
                    
                    
                    --Exercise of
      Warrants
                    
                    
                    80,000
                    
                    
                    
                    86,000
                    
                    
                    
                    --Conversion of
      Convertible Debentures
                    
                    
                    --
                    
                    
                    
                    874,000
                    
                    
                    
                    --Denominator for
      Diluted Earnings [Loss] PerCommon
      Share
                    
                    
                    24,203,000
                    
                    
                    
                    23,463,000
                    
                    
                    
                    16,732,000Basic Earnings [Loss] Per Common
      Share
                    
                    $
                    .19
                    
                    
                    $
                    .06
                    
                    
                    $
                    (.06
                    )Diluted Earnings [Loss] Per Common
      Share
                    
                    $
                    .19
                    
                    
                    $
                    .05
                    
                    
                    $
                    (.06
                    )
  Equity
instruments that may dilute earnings per share in the future are listed in Note
5.
 
 Options
to purchase 577,463 shares of common stock at prices ranging from $1.16 to $1.40
per share were outstanding at December 31, 2008, but were not included in the
computation of diluted EPS because the options' exercise prices were greater
than the average market price of the common shares.
 
 The
Company's options and warrants were not included in the computation of EPS at
December 31, 2006 because to do so would be antidilutive.  The
Company's convertible debt does not affect the EPS calculation at December 31,
2007 and 2006 because it would be antidilutive. The Company had no convertible
debt at December 31, 2008.
  F-20
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
 
 [7]
Supplemental Data
 
 Accrued
liabilities consist of the following:
  Years
      endedDecember
      31,2008
                      
                      
                      2007Accrued Bonuses,
      Payroll, Commissions, Benefits, Temporary Help and
    Consulting
                      
                      $
                      781,695
                      
                      
                      $
                      753,204Accrued Professional
      Fees
                      
                      
                      218,450
                      
                      
                      
                      251,226Other
                      
                      
                      60,920
                      
                      
                      
                      75,706Totals
                      
                      $
                      1,061,065
                      
                      
                      $
                      1,080,136
   [8]
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"), respectively, to two funds managed by RENN Capital Group, Inc. and
certain other investors (including John Roblin, our Chairman of the Board, Chief
Executive Officer, and, at the time, our President) with an aggregate principal
amount of $2,500,000.  Interest on the unpaid principal amount of the
debentures was payable monthly at the rate of 8% per annum.  The 2008
Debentures matured on July 1, 2008 and the 2009 Debentures matured on September
1, 2009, unless the debentures were 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 could have
redeemed 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 were
deferred and were amortized over the life of the debt. We were required to repay
principal on the 2008 Debentures and 2009 Debentures, since July 1, 2004 and
July 1, 2005, respectively, in monthly installments of ten dollars ($10) per
thousand dollars ($1,000) of the then remaining principal amount of such
debentures, and at maturity were required to pay the remaining unpaid 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.
 
 F-21
 
 COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
 
 [8]
Convertible Debentures [Continued]
 
 In 2006,
the holders of the 2008 Debentures and the 2009 Debentures elected to convert a
portion of their monthly principal installments due in 2006 totaling $127,254,
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 and the 2009 Debentures an aggregate of 424,181 shares of
our common stock.  In January 2007, the holders of the 2008 Debentures
and the 2009 Debentures elected to convert the remaining portion of their
monthly principal installments due in 2006, totaling $119,807, 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
and the 2009 Debentures an aggregate of 399,358 shares of our common
stock.  We made an aggregate of $173,000 of interest payments on the
debentures during 2006.
 
 In March
2007, the RENN funds, the holders of a portion of the 2008 Debentures and all of
the 2009 Debentures, elected to convert all of their remaining unpaid principal
amount due on the 2008 Debentures and 2009 Debentures, totaling $1,631,601, into
an aggregate of 5,438,670 shares of common stock at the conversion price of
$0.30 per share.  In June 2007, the holders of the 2008 Debentures
converted an aggregate of $33,617 in principal of such debentures into a total
of 112,055 shares of our common stock at the conversion price of $0.30 per
share.  We made an aggregate of $52,000 of interest payments on the
debentures during 2007.
 
 On June
25, 2008, John Roblin, our Chairman and Chief Executive Officer, and certain
other investors elected to convert all of the then-remaining unpaid principal
amount due on their 2008 Debentures, totaling $262,265, into an aggregate of
874,217 shares of our common stock at the conversion price of $0.30 per
share.  We made an aggregate of $10,000 of interest payments on the
debentures during 2008.  After giving effect to this conversion, as of
June 25, 2008, we had no outstanding debentures.
 
 [9]
401(k) Plan
 
 After
completing a year of service and working 1,000 hours, employees age 21 and over
are eligible to participate in our Tax Saver 401(k) Salary Reduction
Plan.  Employees can save a percentage of pay on a pre-tax basis to an
annual maximum of $15,500 for the year ended December 31, 2008.  We
match $.50 for each $1.00 of the first 5% of pay employees elect to
defer.  Expenses associated with this plan in 2008, 2007 and 2006 were
approximately $76,184, $75,166 and $73,495, respectively.
 
 [10]
Stockholders' Equity
 
 During
2008, the holders of the 2008 Debentures elected to convert an aggregate of
$262,265 in principal of such debentures, representing the remaining unpaid
principal amount due under such debentures, for an aggregate of 874,217 shares
of our common stock at the consumer price of $0.30 per share [See Note
8].
 
 During
2007, the holders of the 2008 Debentures and 2009 Debentures elected to convert
an aggregate of $1,665,217 in principal of such debentures, representing their
monthly installments of principal under such debentures (in lieu of necessary
such installment payments in cash), for an aggregate of 5,550,725 shares of our
common stock at the conversion price of $0.30 per share [See Note
8].
 
 During
2007, the holders of the 2008 Debentures and 2009 Debentures elected to convert
an aggregate of $119,807 in principal of such debentures, representing their
monthly installments of principal under such debentures (in lieu of necessary
such installment payments in cash), for an aggregate of 399,358 shares of our
common stock at the conversion price of $0.30 per share [See Note
8].
  F-22
 COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #15
 
 [10]
Stockholders' Equity [Continued]
 
 During
2006, the holders of the 2008 Debentures and 2009 Debentures elected to convert
an aggregate of $127,254 in principal of such debentures, representing a portion
their monthly installments of principal under such debentures (in lieu of
necessary such installment payments in cash), for an aggregate of 424,181 shares
of our common stock at the conversion price of $0.30 per share [See Note
8].
 
 In June
2008, the Board of Directors authorized a share buyback plan of up to 1,000,000
shares of the Company's Common Stock.
 
 In 2008,
we purchased an aggregate of 201,870 shares of treasury stock on the open market
at an average purchase price of $0.82 per share for a total purchase price of
approximately $164,894.
 
 During
2007, we retired 2,500,000 shares of treasury stock that had been previously
repurchased for $703,000.
 
 [11]
Fair Value of Financial Instruments
 
 SFAS No.
107, "Disclosures about Fair Value of Financial Instruments," defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.  In
assessing the fair value of our cash and cash equivalents, trade receivables and
accounts payables and accrued expenses, management concluded that the carrying
amount of these financial instruments approximates fair value because of their
short maturities.  Management estimates that the carrying amount of
our convertible debentures, based on current rates and terms at which we could
borrow funds, is approximately $-0- and $300,000 at December 31, 2008 and
2007, respectively.
 
 [12]
Major Customers
 
 For the
year ended December 31, 2008, sales to three customers amounted to approximately
27%, 17% and 15% of revenues, respectively.
 
 For the
year ended December 31, 2007, sales to two customers amounted to approximately
25% and 19% of revenues, respectively.
 
 For the
year ended December 31, 2006, sales to three customers amounted to approximately
27%, 13% and 11% of revenues, respectively.
 
 All of
the major customers referred to above, other than the customers in 2006 with 13%
and 11% of revenues respectively, are units of American International Group,
Inc.
 
 [13]
Related Party Transactions
 
 In 2008,
2007 and 2006, the Company paid Mark Johnston, member of the Board of Directors,
total consulting fees plus expenses related to potential acquisition of
approximately $-0-, $-0-, and $37,000, respectively.
 
 [14]
Subsequent Event
 
 On
February 17, 2009, we announced that our board of directors declared a special
cash dividend in the amount of $0.03 per share on our common
stock.  This dividend is payable on or about April 7, 2009 to common
stockholders of record as of the close of business on March 27,
2009.  Since 1994, we have not declared or paid any dividends on our
common stock.  Our board of directors will review its dividend policy
from time to time and will take into account prevailing market conditions and
our anticipated uses of cash.  Based on foregoing, other than the
special dividend payable on or about April 7, 2009, we do not anticipate paying
any cash dividends in the foreseeable future.
  .   .   .   .   .   .   .   .   .   .
  F-23
  COVER-ALL
TECHNOLOGIES INC. AND SUBSIDIARY
 
 SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
 
  Balance
      at
                      Beginning
                      of
      Period
                    
                    
                    Additions
                    
                    
                    Deductions
                    
                    
                    Balance
      at
                      End of
      PeriodAccumulated
      amortization of capitalized
      software andsoftware
      license:Year Ended December
      31, 2008
                    
                    $
                    10,180,752
                    
                    
                    $
                    868,405
                    
                    
                    $
                    --
                    
                    
                    $
                    11,049,157Year Ended December
      31, 2007
                    
                    $
                    9,301,096
                    
                    
                    $
                    879,656
                    
                    
                    $
                    --
                    
                    
                    $
                    10,180,752Year Ended December
      31, 2006
                    
                    $
                    8,186,661
                    
                    
                    $
                    1,114,435
                    
                    
                    $
                    --
                    
                    
                    $
                    9,301,096Allowance for
      Doubtful Accounts:Year Ended December
      31, 2008
                    
                    $
                    25,000
                    
                    
                    $
                    20,770
                    
                    
                    $
                    20,770
                    
                    
                    $
                    25,000Year Ended December
      31, 2007
                    
                    $
                    25,000
                    
                    
                    $
                    50,661
                    
                    
                    $
                    50,661
                    
                    
                    $
                    25,000Year Ended December
      31, 2006
                    
                    $
                    25,000
                    
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    25,000
 
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
   COVER-ALL
      TECHNOLOGIES INC.Date: March
      30, 2009
                  By:
                  /s/ John
      W. RoblinJohn
      W. RoblinChairman
      of the Board of Directors and Chief Executive Officer
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
  Signatures
                
                Title
                
                Date/s/ John W. Roblin
                
                Chairman
      of the Board and Chief Executive Officer
                
                March
      30, 2009John
      W. Roblin
                
                (Principal
      Executive Officer)/s/ Ann F. Massey
                
                Chief
      Financial Officer, Controller and Secretary
                
                March
      30, 2009Ann
      F. Massey
                
                (Principal
      Financial Officer and Principal Accounting Officer)/s/ Manish D. Shah
                
                Director,
      President and Chief Technology Officer
                
                March
      30, 2009Manish
      D. Shah/s/ Russell Cleveland
                
                Director
                
                March
      30, 2009Russell
      Cleveland/s/ Earl Gallegos
                
                Director
                
                March
      30, 2009Earl
      Gallegos/s/ Mark D. Johnston
                
                Director
                
                March
      30, 2009Mark
      D. Johnston
  
  Exhibit
Index
  The
following is a list of exhibits required by Item 601 of Regulation S-K filed as
part of this Form 10-K.  For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in
parentheses.
  Exhibit No.
                Description2
                Certificate
      of Merger of the Company Computer Systems, Inc. (a New York corporation)
      into the Registrant, filed on June 11, 1985 [incorporated by reference to
      Exhibit 2 to the Registrant’s Annual Report on Form 10-K (Commission File
      No. 0-13124) filed on January 29,
1986].
  3(a)
                Certificate
      of Incorporation of the Registrant filed on April 22, 1985 [incorporated
      by reference to Exhibit 3(a) to the Registrant’s Annual Report on Form
      10-K (Commission File No. 0-13124) filed on January 29,
    1986].
  3(b)
                Certificate
      of Amendment of Certificate of Incorporation of the Registrant filed on
      May 6, 1987 [incorporated by reference to Exhibit 3.2 to the
      Registrant’s Registration Statement on Form S-1 (Commission File No.
      33-17533) filed on September 29,
1987].
  3(c)
                Certificate
      of Amendment of Certificate of Incorporation of the Registrant filed on
      March 26, 1990 [incorporated by reference to Exhibit 3(d) to the
      Registrant’s Quarterly Report on Form 10-Q (Commission File No. 0-13124)
      filed on June 14, 1990].
  3(d)
                Certificate
      of Amendment of Certificate of Incorporation of the Registrant filed on
      March 18, 1992 [incorporated by reference to Exhibit 1 to the Registrant’s
      Current Report on Form 8-K (Commission File No. 0-13124) filed on March
      30, 1992].
  3(e)
                Certificate
      of Amendment of Certificate of Incorporation of the Registrant
      [incorporated by reference to Exhibit 3(e) to the Registrant’s Amendment
      No. 1 to Registration Statement on Form S-3 (Commission File No. 0-13124)
      filed on July 10, 1996].
  3(f)
                Certificate
      of Amendment of Certificate of Incorporation of the Registrant filed on
      July 12, 2000 [incorporated by reference to Exhibit 3(g) to the
      Registrant’s Quarterly Report on Form 10-Q (Commission File No. 0-13124)
      filed on August 11, 2000].
  3(g)
                By-laws
      of the Registrant, as amended [incorporated by reference to Exhibit 3(g)
      to the Registrant’s Amendment No. 1 to Registration Statement on Form S-3
      (Commission file No. 0-13124) filed on July 10,
  1996].
  4
                Form
      of Common Stock Certificate of the Registrant [incorporated by reference
      to Exhibit 4(a) to the Registrant’s Annual Report on Form 10-K (Commission
      File No. 0-13124) filed on January 29,
1986].
  10(a)
                Warner
      Insurance Services, Inc. Tax Saver 401(k) Salary Reduction Plan adopted
      May 31, 1985 and restated as of August 11, 1992 [incorporated by
      reference to Exhibit 10(k) to the Registrant’s Annual Report on Form
      10-K (Commission File No. 0-13124) filed on January 28,
    1993].
  10(b)(1)†
                1994
      Stock Option Plan for Independent Directors adopted by the Board of
      Directors of the Registrant on November 10, 1994 [incorporated by
      reference to Exhibit 10(n)(1) to the Registrant’s Annual Report on Form
      10-K (Commission File No. 0-13124) filed on April 17,
    1995].
  
  10(c)(8)†
                Amendment
      to Non-Qualified Stock Option Agreement, dated as of December 20, 2004,
      between the Registrant and Mark D. Johnston [incorporated by reference to
      Exhibit 10(c)(8) to the Registrant’s Quarterly Report on Form 10-Q
      (Commission File No. 0-13124) filed on August 15,
  2005].
  10(c)(9)†
                Amendment
      to Non-Qualified Stock Option Agreement, dated as of December 20, 2004,
      between the Registrant and Earl Gallegos [incorporated by reference to
      Exhibit 10(c)(9) to the Registrant’s Quarterly Report on Form 10-Q
      (Commission File No. 0-13124) filed on August 15,
  2005].
  10(c)(10)†
                Amendment
      to Incentive Stock Option Agreement, dated as of December 20, 2004,
      between the Registrant and John Roblin [incorporated by reference to
      Exhibit 10(c)(10) to the Registrant’s Quarterly Report on Form 10-Q
      (Commission File No. 0-13124) filed on August 15,
  2005].
  10(c)(11)†
                Amendment
      to Incentive Stock Option Agreement, dated as of December 20, 2004,
      between the Registrant and John Roblin [incorporated by reference to
      Exhibit 10(c)(11) to the Registrant’s Quarterly Report on Form 10-Q
      (Commission File No. 0-13124) filed on August 15,
  2005].
  10(c)(14)†
                Form
      of Non-Qualified Stock Option Agreement [incorporated by reference to
      Exhibit 10(c)(14) the Registrant’s Quarterly Report on Form 10-Q
      (Commission File No. 0-13124) filed on May 15,
  2006].
  10(c)(15)†
                Form
      of Incentive Stock Option Agreement [incorporated by reference to Exhibit
      10(c)(15) the Registrant’s Quarterly Report on Form 10-Q (Commission File
      No. 0-13124) filed on May 15,
2006].
  10(c)(16)†
                Form
      of Restricted Stock Grant Agreement [incorporated by reference to Exhibit
      10(c)(16) the Registrant’s Quarterly Report on Form 10-Q (Commission File
      No. 0-13124) filed on May 15,
2006].
  10(c)(17)†
                Form
      of Non-Qualified Stock Option Agreement (for Consultants) [incorporated by
      reference to Exhibit 10(c)(13) the Registrant’s Quarterly Report on Form
      10-Q (Commission File No. 0-13124) filed on May 15,
  2006].
  10(c)(18)†
                Cover-All
      Technologies, Inc. Amended and Restated 2005 Stock Incentive Plan
      [incorporated by reference to Exhibit 10(c)(18) to the Registrant’s Form
      8-K (Commission File No. 0-13124) filed on March 27,
  2008].
  10(c)(19)†
                Summary
      of 2009 Non-Employee Director Compensation dated March 2, 2009
      [incorporated by reference to Exhibit 99.1 the Registrant’s Form 8-K
      (Commission File No. 0-13124) filed on March 2,
  2009].
  10(d)(1)
                Lease
      Agreement, dated March 3, 2005, by and between the Registrant and
      Fairfield 80 Venture, LLC [incorporated by reference to Exhibit 10(d)(4)
      to the Registrant’s Annual Report on Form 10-K (Commission File No.
      0-13124) filed on March 25, 2005].
  
  10(e)(3)†
                Tuition
      Reimbursement Agreement, dated September 1, 2006, between the Registrant
      and Manish D. Shah [incorporated by reference to Exhibit 10(p) to the
      Registrant’s Form 8-K (Commission File No. 0-13124) filed on September 1,
      2006].
  10(e)(5)†
                Employment
      Agreement, dated December 26, 2006, by and between the Registrant and John
      Roblin [incorporated by reference to Exhibit 10(e)(5) to the Registrant’s
      Form 8-K (Commission File No. 0-13124) filed on December 27,
      2006].
  10(e)(6)†
                Amendment
      No. 1 to the Employment Agreement, dated April 26, 2007, between the
      Registrant and John Roblin [incorporated by reference to Exhibit 10(e)(6)
      to the Registrant’s Form 8-K (Commission File No. 0-13124) filed on April
      30, 2007].
  10(e)(7)†
                Employment
      Agreement, dated December 26, 2007, by and between the Registrant and John
      Roblin [incorporated by reference to Exhibit 10(e)(7) to the Registrant’s
      Form 8-K (Commission File No. 0-13124) filed on December 27,
      2007].
  10(i)(17)
                10(i)(17)Limited Waiver to
      the Convertible Loan Agreement, dated as of March 31, 2007, by John Roblin
      and Stuart Sternberg [incorporated by reference to Exhibit
      10(i)(17) to the Registrant’s Quarterly Report on Form 10-Q (Commission
      File No. 0-13124) filed on May 11,
2007].
  10(i)(18)
                10(i)(18)Limited Waiver to
      Convertible Loan Agreement, dated as of June 30, 2007, by John Roblin and
      Stuart Sternberg [incorporated by reference to Exhibit 10(i)(18) to
      the Registrant’s Quarterly Report on Form 10-Q (Commission File No.
      0-13124) filed on August 10, 2007].
  10(i)(19)
                Limited
      Waiver to Convertible Loan Agreement, dated as of September 30, 2007, by
      John Roblin and Stuart Sternberg [incorporated by reference to Exhibit
      10(i)(19) to the Registrant’s Quarterly Report on Form 10-Q (Commission
      File No. 0-13124) filed on November 13,
2007].
  10(j)(i)
                Asset
      Purchase Agreement, dated January 22, 2007, between the Registrant and
      Maloy Risk Services, Inc. [incorporated by reference to Exhibit 10(j)(i)
      to the Registrant’s Form 8-K (Commission File No. 0-13124) filed on
      January 26, 2007].
  10(j)(ii)
                Commission
      Agreement, dated January 22, 2007, between the Registrant and Maloy Risk
      Services, Inc. [incorporated by reference to Exhibit 10(j)(ii) to the
      Registrant’s Form 8-K (Commission File No. 0-13124) filed on January 26,
      2007].
  14
                Code
      of Ethics and Business Conduct [incorporated by reference to Exhibit 14 to
      the Registrant’s Annual Report on Form 10-K (Commission File No. 0-13124)
      filed on March 31, 2006].
  21
                Subsidiaries
      of the Registrant [incorporated by reference to Exhibit 21 to the
      Registrant’s Annual Report on Form 10-K (Commission File No. 0-13124)
      filed on April 11, 1996].
  23.1*
                Consent
      of MSPC.
  31.1*
                Certification
      of John W. Roblin, Chief Executive Officer, pursuant to Securities
      Exchange Act Rules 13a-14(a) and 15d-14, as adopted pursuant to Section
      302 of the Sarbanes-Oxley Act of
2002.
  
  31.2*
                Certification
      of Ann F. Massey, Chief Financial Officer, pursuant to Securities Exchange
      Act Rules 13a-14(a) and 15d-14, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.
  32.1*
                Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
  32.2*
                Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.
    *
                Filed
      herewith.†
                Denotes amanagement contract or
      compensatory plan or
arrangement.