<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- -----------------
Commission file number 0-23239
UBICS, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 34-1744587
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization
100 SAINTE CLAIRE PLAZA, 1121 BOYCE ROAD, PITTSBURGH, PENNSYLVANIA 15241
(Address of Principal Executive Offices) (Zip Code)
(724) 941-1800
(Registrant's Telephone Number, Including Area Code)
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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock as of the latest practicable date:
Class Outstanding at July 31, 1998
----- ----------------------------
Common Stock, $.01 par value 6,500,000
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UBICS, INC.
Form 10-Q
TABLE OF CONTENTS
PART I - - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of December 31, 1997 and June 30, 1998
Statements of Operations for the three months ended June 30, 1997 and
1998 and the six months ended June 30, 1997 and 1998
Statements of Cash Flows for the six months ended June 30, 1997
and 1998
Notes to Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II - - OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
2
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UBICS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
---------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $12,790 $12,055
Accounts receivable, net of allowance for
doubtful accounts of $185
and $245, respectively 2,777 3,158
Unbilled receivables 1,966 2,590
Employee advances 170 416
Prepaids and other 169 312
Due from affiliates, net 33 132
Deferred tax asset 101 101
------- -------
Total current assets 18,006 18,764
------- -------
Property and equipment:
Motor car -- 72
Computer equipment 110 500
Furniture and fixtures 45 59
Office and other equipment 4 16
- --
Total property and equipment 159 647
Accumulated depreciation (33) (56)
------- -------
Net property and equipment 126 591
------- -------
Total assets $18,132 $19,355
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Credit facility borrowings -- --
Accounts payable 923 1,413
Payroll liabilities 1,060 1,252
Due to affiliates, net -- --
Accrued taxes 556 --
Other current liabilities 309 192
--- ---
Total current liabilities 2,848 2,857
Long-term liabilities -- --
---- ----
Total liabilities 2,848 2,857
----- -----
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, no shares issued and
outstanding -- --
Common stock, $.01 par value, 20,000,000
shares authorized, 6,500,000 shares
issued and outstanding 65 65
Additional paid-in capital 13,160 13,160
Retained earnings 2,059 3,273
----- -----
Total stockholders' equity 15,284 16,498
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,132 $19,355
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
3
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UBICS, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------------------------------------------
1997 1998 1997 1998
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 5,052 $6,962 $ 8,685 $13,177
Cost of revenues 3,400 4,812 5,983 8,962
------- ------ ------- -------
Gross profit 1,652 2,150 2,702 4,215
Selling, general and
administrative expense 772 1,358 1,538 2,507
------- ------ ------- -------
Income from operations 880 792 1,164 1,708
Interest income (expense), net (11) 162 (21) 327
------- ------ ------- -------
Income before income taxes 869 954 1,143 2,035
Provision for income taxes 354 380 465 820
------- ------ ------- -------
Net income $ 515 $ 574 $ 678 $ 1,215
======= ====== ======= =======
Basic earnings per share $ 0.10 $ 0.09 $ 0.14 $ 0.19
======= ====== ======= =======
Diluted earnings per share $ 0.10 $ 0.09 $ 0.14 $ 0.18
======= ====== ======= =======
Weighted average shares 5,000,000 6,500,000 5,000,000 6,500,000
outstanding - basic
Weighted average shares 5,000,000 6,653,122 5,000,000 6,640,252
outstanding - diluted
</TABLE>
The accompanying notes are an integral part of these financial statements
4
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UBICS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------------
1997 1998
(Unaudited) (Unaudited)
--------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 678 $ 1,215
Adjustments to reconcile net
income to net cash provided by
operating activities--
Depreciation 7 23
Changes in operating assets and
liabilities--
Accounts receivable, net (999) (381)
Unbilled receivables (782) (624)
Employee advances (27) (246)
Due from principal
stockholder (383) --
Due to affiliates, net (170) (99)
Deferred tax asset (11) --
Prepaids and other (1) (143)
Accounts payable 811 490
Payroll liabilities 203 192
Accrued taxes and other
current liabilities 559 (673)
----- --------
Net cash (used) provided by
operating activities (115) (246)
----- --------
Cash flows from investing activities:
Purchases of property and
Equipment (31) (489)
----- --------
Net cash used by investing
activities (31) (489)
----- --------
Cash flows from financing activities:
Net borrowings (payments under
credit facility 200 --
----- --------
Net proceeds from issuance of
common stock -- --
----- --------
Net cash provided by financing
activities 200 --
----- --------
Net increase (decrease) in cash
and cash equivalents 54 (735)
Cash and cash equivalents, at
beginning of period 94 12,790
----- --------
Cash and cash equivalents, at
end of year $ 148 $ 12,055
===== ========
Supplemental data:
Cash payments for interest $ 10 $ --
Cash payments for income taxes $ -- $ 1476
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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UBICS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The financial statements of UBICS, Inc. ("UBICS" or "the Company") presented
herein are unaudited. Certain information and footnote disclosures normally
prepared in accordance with generally accepted accounting principles have been
either condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Although the Company believes that all
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation have been made, interim periods are not necessarily indicative
of the financial results of operations for a full year. As such, these financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for its fiscal year
ended December 31, 1997.
2. OPERATIONS:
UBICS, a Delaware corporation, provides information technology professional
services to large and mid-sized organizations. The Company provides its clients
with a wide range of professional services in such areas as client/server design
and development, enterprise resource planning package implementation and
customization, applications maintenance programming and database and systems
administration.
3. REVOLVING CREDIT FACILITY:
The Company has available borrowings under a revolving credit facility with
PNC Bank, National Association ("PNC"). Borrowings under this arrangement are
limited to $1,000, bear interest at prime (8.50% and 8.50% at December 31, 1997
and June 30, 1998, respectively) as defined plus 0.5% and are payable upon
demand. The revolving credit facility is secured by the assets of the Company
and personally guaranteed by the Company's chairman.
There were no borrowings outstanding as of December 31, 1997 and June 30,
1998, respectively.
4. RELATED PARTY TRANSACTIONS:
As of December 31, 1997 and June 30, 1998, the Company had a net receivable
from the UB Group, including UB Information and Consultancy Services Ltd. ("UB
Services"), totaling $33 and $132, respectively, resulting from expenses
incurred by the Company on behalf of the UB Group.
5. EARNINGS PER SHARE:
Under Financial Accounting Standards Board Statement on Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," earnings per share are
classified as basic earnings per share and diluted earnings per share. Basic
earnings per share included only the weighted average common shares outstanding.
Diluted earnings per share included the weighted average common shares
outstanding and any dilutive common stock equivalent shares in the calculation.
All prior periods have been restated to reflect the Company's adoption of SFAS
No. 128.
The following table reflects the calculation of earnings per share under
SFAS No. 128:
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<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-----------------------------------------------------------------
1997 1998 1997 1998
(unaudited) (unaudited) (unaudited) (unaudited)
-----------------------------------------------------------------
(Dollars in thousands, except
per share data)
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income $ 515 $ 574 $ 678 $ 1215
DIVIDED BY:
Weighted average common shares 5,000,000 6,500,000 5,000,000 6,500,000
Basic Earnings per share 0.10 0.09 0.14 0.19
---------- ---------- ---------- ---------
DILUTED EARNINGS PER SHARE:
Net income 515 574 678 1215
DIVIDED BY:
Weighted average common shares 5,000,000 6,500,000 5,000,000 6,500,000
Dilutive effect of options -- 153,122 -- 140,252
---------- ---------- ---------- ---------
Dilutive average common shares 5,000,000 6,653,122 5,000,000 6,640,252
Diluted earnings per share $ 0.10 $ 0.09 $ 0.14 $ 0.18
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the financial statements and notes thereto
included in Item 1 of this report.
The following Management's Discussion and Analysis of Results of
Operations and Financial Condition contains certain forward looking statements
that involve substantial risks and uncertainties. When used in this section, the
words "anticipate," "believe," "estimate," "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward looking statements.
OVERVIEW
UBICS, Inc. ("UBICS" or the "Company"), founded in 1993, provides IT
professional services to large and mid-sized organizations. UBICS provides its
clients with a wide range of professional services in such areas as
client/server design and development, ERP package implementation and
customization, applications maintenance programming and database and systems
administration. UBICS' services are provided on a time-and-materials basis to
client-managed projects, with UBICS IT professionals providing integral support
as project team members. The Company currently has offices in the Pittsburgh,
Pennsylvania and San Francisco, California areas. UBICS is an affiliate of the
UB Group, a multinational group of companies headquartered in India (the "UB
Group").
The Company's revenues are based on the hourly billing of its IT
professionals. Revenue is recognized as services are provided. The Company has
increased the average billing rates of its IT professionals as the demand for
skilled and experienced professionals has expanded, in particular for IT
professionals placed on ERP package implementation and customization projects.
As of June 30, 1998, 52 IT professionals, or over one-fifth of the Company's
deployed IT professionals, were placed on such projects.
UBICS attempts to minimize the number of days IT professionals are not
assigned to projects by proactively marketing these professionals to clients.
Resource managers closely monitor the availability of IT professionals and
utilize subcontractors when UBICS IT professionals are unavailable. The Company
maintains strong relationships with nearly 50 subcontractors located worldwide.
Approximately 44% of the Company's revenues were derived from IT professionals
deployed from subcontractors for the three months ended June 30, 1998. As of
June 30, 1998, IT professionals deployed from subcontractors comprised 105 of
the Company's 242 deployed IT professionals. The Company believes that its
network of subcontractors enables it to maintain closer relationships with
clients by fulfilling more of their needs for IT professional services.
Management believes that as the Company increases its investment in recruiting
and retaining qualified IT professionals, the ratio of UBICS IT professionals to
subcontractor IT professionals will increase.
Since inception the Company has developed relationships with 249
clients in a range of industries and currently has IT professionals deployed at
over 140 of these clients. Although the Company's five largest clients accounted
for approximately 24% of revenues for the second quarter of 1998, this revenue
concentration has been declining since the Company's inception. The Company
believes that the continuing growth in its client base will further reduce the
percentage of revenue attributable to its largest clients. The Company's
strategy is to continue to provide services to clients across the U.S. in a
range of industries, in order to reduce credit risk from conditions or
occurrences within any specific industry or region in which these clients
operate.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:
PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- --------------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues............................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues..................... 67.3 69.1 68.9 68.0
----- ----- ----- ------
Gross profit......................... 32.7 30.9 31.1 32.0
Selling, general and administrative
expense........................... 15.3 19.5 17.7 19.0
----- ----- ----- ------
Income from operations............... 17.4 11.4 13.4 13.0
Interest income (0.3) 2.3 (0.2) 2.4
----- ----- ----- ------
(expense), net.......................
Income before income taxes........... 17.1 13.7 13.2 15.4
----- -----
Provision for income taxes........... 7.0 5.5 5.4 6.2
----- ----- ----- -----
Net income........................... 10.1% 8.2% 7.8% 9.2%
===== ====== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997.
Revenues
Revenues for the quarter ended June 30, 1998 were $7.0 million,
compared to $5.1 million for the quarter ended June 30, 1997, an increase of
$1.9 million, or 38%. Approximately 86% of the increase in revenues was due to
an increase in the number of IT professionals deployed to provide services to
new and existing clients and approximately 14% of the increase in revenues was
due to higher average hourly billing rates resulting from a shift toward higher
value-added services including ERP-related services as well as increased demand
for IT professionals.
Gross Profit
Gross profit for the first quarter of 1998 was $2.1 million, compared
to $1.6 million for the first quarter of 1997, an increase of $0.5 million, or
30%. Gross profit as a percentage of revenues decreased to 30.9% for the second
quarter of 1998, compared to 32.7% for the second quarter of 1997. The decrease
in gross profits as a percentage of revenues was primarily due to increases in
the rates paid for subcontractor professionals and an increase in the number of
employee professionals waiting to be deployed.
Selling, General and Administrative Expense
Selling, general and administrative expense for the quarter ended June
30, 1998 was $1.4 million, compared to $772,000 for the same quarter of 1997, an
increase of $586,000, or 76%. Selling, general and administrative expense as a
percentage of revenues increased to 19.5% for the second quarter of 1998 from
15.3% for the second quarter of 1997. The increase in expense was primarily due
to increases in salaries and other costs to support the Company's growth.
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Interest Income (Expense) Net
Interest income for the second quarter of 1998 was $162,000, compared
to interest expense of $11,000 for the second quarter of 1997. The increase
resulted from interest income from the investment of the net proceeds of the
Company's initial public offering which was completed in November 1997 and the
absence of borrowings under the Line of Credit (defined below) during the second
quarter of 1998.
Provision for Income Taxes
The Company's effective tax rate was 39.8% for the quarter ended June
30, 1998 compared to 40.7% for the quarter ended June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997.
Revenues
Revenues for the six months ended June 30, 1998 were $13.2 million,
compared to $8.7 million for the six months ended June 30, 1997, an increase of
$4.5 million, or 52%. Approximately 84% of the increase in revenues was due to
an increase in the number of IT professionals deployed to provide services to
new and existing clients and approximately 16% of the increase in revenues was
due to higher average hourly billing rates resulting from a shift toward higher
value-added services including ERP-related services as well as increased demand
for IT professionals.
Gross Profit
Gross profit for the first six months of 1998 was $4.2 million,
compared to $2.7 million for the first six months of 1997, an increase of $1.5
million, or 56%. Gross profit as a percentage of revenues increased to 32.0% for
the six months ended June 30 1998, compared to 31.1% for the same period of
1997. The increase in gross profit as a percentage of revenues resulted
primarily from a higher number of IT professionals deployed in client
engagements involving higher value-added services, including ERP package
implementation and customization services. The increase was partially offset by
increases in rates paid by the Company for subcontractor professionals, which
led to a decrease in gross profits, and an increase in the number of employee
professionals waiting to be deployed.
Selling, General and Administrative Expense
Selling, general and administrative expense for the six months ended
June 30, 1998 was $2.5 million, compared to $1.5 million for the same period of
1997, an increase of $1.0 million or 63%. Selling, general and administrative
expense as a percentage of revenues increased to 19.0% for the six months ended
June 30, 1998 from 17.7% for the six months ended June 30, 1997. The increase in
expense was primarily due to increases in salaries and other costs to support
the Company's growth.
Interest Income (Expense) Net
Interest income for the first six months of 1998 was $327,000, compared
to interest expense of $21,000 for the first six months of 1997. The increase
resulted from interest income from the investment of the net proceeds of the
Company's initial public offering which was completed in November 1997 and the
absence of borrowings under the Line of Credit (defined below) during the first
six months of 1998.
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Provision for Income Taxes
The Company's effective tax rate was 40.3% for the six months ended
June 30, 1998 compared to 40.7% for the six months ended June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
In November 1997, the Company generated net proceeds of approximately
$13.2 million from its underwritten initial public offering of 1,500,000 shares
of Common Stock (the "Offering"). Since that time the Company has used
approximately $775,000 of the net proceeds of the Offering to repay its
outstanding indebtedness under a $1,000,000 Committed Line of Credit from PNC
Bank, National Association (the "Line of Credit"). The Company also has used a
portion of the net proceeds of the Offering for general corporate purposes and
intends to use a portion of such net proceeds for the capital expenditures
described below.
The Company's principal uses of cash have been to fund receivables and
other working capital, reflecting the Company's growth. Prior to completion of
the Offering, the Company has financed its working capital requirements through
internally generated funds, borrowings under the Line of Credit and loans and
advances from certain UB Group affiliates. Amounts outstanding under the Line of
Credit bear interest at a variable annual rate equal to 0.5% in excess of PNC's
prime rate. As of June 30, 1998 the Company had no outstanding borrowings under
the Line of Credit. As of June 30, 1998, the annual interest rate under the Line
of Credit was 9.0%. The indebtedness under the Line of Credit was incurred by
the Company for working capital and other corporate purposes. Net cash used by
operating activities was $246,000 for the first six months of 1998 compared to
net cash used by operating activities of $115,000 for the same period in 1997.
Capital expenditures for the first six months of 1998 and 1997 were
$489,000 and $31,000, respectively. The Company intends to use approximately
$3.5 million of the net proceeds of the Offering to expand its existing
operations, including approximately $3.2 million for the establishment of a
recruiting and training center in India by the fall of 1998 (including the
purchase of hardware and software with respect thereto), and approximately
$300,000 for the establishment of four offshore recruiting offices over the next
two years. Except as set forth above, the Company currently has no material
commitments for capital expenditures.
The Company currently anticipates that the proceeds from the Offering,
together with the existing sources of liquidity and cash generated from
operations, will be sufficient to satisfy its cash needs at least through the
next 24 months.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), the objective of which is to report and disclose a measure
("comprehensive income") of all changes in equity of a company that result from
transactions and other economic events of the period other than transactions
with owners. SFAS No. 130 is effective for financial statements issued for
periods beginning after December 15, 1997. The Company has adopted SFAS No. 130
beginning with its 1998 fiscal year.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information" (SFAS No. 131), which requires the use of
the "management approach" model for segment reporting. The management approach
model is based on the way a company's management organizes segments within the
company for making
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operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure or any
other manner in which management segregates a company. SFAS No. 131 is effective
for financial statements issued for periods beginning after December 15, 1997.
The Company will adopt SFAS No. 131 at the end of its 1998 fiscal year.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income statement, and
requires that a company must formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999.
The Company has not yet quantified the impact of adopting SFAS No. 133
but does not believe that it will have a significant impact.
YEAR 2000 COMPLIANCE
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
use of computer programs which have been written using two digits, rather than
four, to define, the applicable year of business transactions. The Company has
evaluated its principal staffing and financial systems, which are licensed from
and maintained by third party software development companies, and believes that
such systems are Year 2000 compliant. The Company is currently in the process of
selecting additional staffing and financial systems which management expects to
be Year 2000 compliant. The Company's total costs with respect to Year 2000
compliance as of June 30, 1998 have not been material. Management does not
anticipate that any remaining costs associated with assuring that its internal
systems will be Year 2000 compliant will be material to its business, operations
or financial condition.
The Company intends to initiate an assessment to determine the
preparedness level of its significant clients, vendors, and other service
providers with respect to Year 2000 issues and the subsequent impact on the
Company. If a significant client of the Company encounters Year 2000 problems,
such client could be forced to reduce its expenditures on IT projects involving
the Company's IT professionals, either because the client would have to divert
resources from such projects to address its Year 2000 problem or because of the
adverse financial effects of such problems on the client. In addition, clients
which incur significant costs in achieving Year 2000 compliance could be forced
or could elect to reallocate funds being used for projects involving the
Company's IT professionals to address Year 2000 compliance issues. The Company
does not believe its current projects will be adversely affected by problems its
clients may encounter resulting from lack of Year 2000 compliance because most
such projects will be completed before the Year 2000. However, reallocation of
IT-related expenditures by a client in connection with achieving Year 2000
compliance could affect the duration of the Company's existing projects with
such client or the availability to the Company of future IT projects.
The Company's review of client and vendor readiness with respect to
Year 2000 is expected to be completed by the end of 1998 and based upon the
results of the review, ongoing Year 2000 impact analysis and risk assessment
will continue as management deems appropriate. The Company expects to incur
internal staff costs as well as consulting and other expenses related to the
assessment project but is unable to form an estimate of such costs at this time.
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U.S. REGULATION OF IMMIGRATION
The Company's services historically have been performed in the U.S. and
the Company has recruited most of its IT professionals outside the U.S. The
Company's business, therefore, is subject to U.S. immigration laws. Over 90% of
the Company's IT professionals are citizens of other countries, with most of
those in the U.S. working under H-1B temporary work permits. There is a limit on
the number of new H-1B permits that may be approved in any U.S. government
fiscal year. In the federal fiscal year ended September 30, 1997, this limit was
reached in August and in the current federal fiscal year ending September 30,
1998, this limit was reached in May. The inability to obtain additional H-1B
permits during the current federal fiscal year has resulted in increased use of
subcontractor professionals by UBICS in the second quarter compared to the first
quarter of 1998, which contributed to the decrease in gross margins for the
second quarter compared to the first quarter of 1998. If in future years the
limit on H-1B permits is reached, the Company may again be unable to obtain
enough H-1B permits to meet its requirements. If the Company were unable to
obtain H-1B permits for its IT professionals in sufficient quantities or at a
sufficient rate, the Company's business, operating results and financial
condition could be materially adversely affected. While legislation has been
proposed in Congress to increase the limit on the number of new H-1B permits
approved, there can be no assurance that such legislation will be enacted.
Furthermore, Congress and administrative agencies with jurisdiction
over immigration matters have periodically expressed concerns over the levels of
legal and illegal immigration into the U.S. These concerns have often resulted
in proposed legislation, rules and regulations aimed at reducing the number of
work permits that may be issued. Any changes in such laws making it more
difficult to hire foreign nationals or limiting the ability of the Company to
retain foreign employees could require the Company to incur additional
unexpected labor costs and expenses. Any such restrictions or limitations on the
Company's hiring practices could have a material adverse effect on the Company's
business, operating result and financial condition.
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PART II -- OTHER INFORMATION
Item 1. Legal Proceedings -- Not Applicable
Item 2. Changes in Securities and Use of Proceeds -- Not applicable
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) The following information relates to the Company's use of the net
proceeds of the Company's initial public offering (the "Offering"):
On October 27, 1997, the Company's registration statement on
Form S-1, No. 333-35171, became effective. The Company sold a total of
1,500,000 shares of common stock, par value $.01 per share at a price
per share of $10.00 pursuant to the Offering. The Offering, which was
managed by Parker/Hunter Incorporated, as lead underwriter, and Scott &
Stringfellow, Inc., as co-manager, closed on November 4, 1997.
The following table summarizes the expenses incurred for the
Company's account in connection with the Offering:
Underwriting discounts $1,050,000
Finder's fees --
Expenses paid to or for underwriters --
Other expenses 775,000
----------
TOTAL $1,825,000
The following table summarizes the amount of net offering
proceeds to the Company ($13,175,000) used for the purposes listed
below:
Construction of plant, building $ 0
and facilities
Purchase and installation of machinery 489,000
and equipment
Acquisition of other business(es) 0
Repayment of indebtedness 775,000
Working capital 656,000
Temporary investments* 11,255,000
Other Purposes 0
-----------
Total $13,175,000
- --------------
*Such amount is currently invested in a nine-month ready access certificate of
deposit with PNC Bank.
14
<PAGE> 15
Item 3. Defaults Upon Senior Securities -- Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its 1998 Annual Meeting of Shareholders (the "1998 Annual
Meeting") on May 14, 1998.
(b) One director of the Company, O'Neil Nalavadi, was elected at the 1998 Annual
Meeting to serve a term of three years. Directors whose terms continued after
the 1998 Annual Meeting were Vijay Mallya, Manohar B. Hira, Dennis S. Meteny and
Craig A. Wolfanger.
(c) The following matters were voted upon at the 1998 Annual Meeting, with the
results indicated:
Election of Director: The following votes were cast for the nominee
standing for election as a director of the Company for a three-year
term:
Nominee: O'Neil Nalavadi
Votes For: 6,100,268
Votes Withheld: 13,200
Item 5. Other Information -- Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 UBICS, Inc. 1997 Stock Option Plan(1)
10.2 Noncompetition Agreement dated October 27, 1997 among the
Company, Vijay Mallya and UB Information Consultancy Services
Ltd.(2)
10.3 Employment Agreement between the Registrant and Vijay Mallya(2)
10.4 Employment Agreement between the Registrant and Manohar B.
Hira(2)
10.5 Employment Agreement between the Registrant and O'Neil
Nalavadi(2)
10.6 Employment Agreement between the Registrant and Babu Srinivas(2)
10.7 Lease Agreement dated July 2, 1997 between the Company and BR
Associates(1)
10.8 Lease dated May 28, 1996 between the Company and Marin Executive
Park, as amended(1)
10.9 Services Agreement dated October 27, 1997 among the Company,
Vijay Mallya and United Breweries Limited(2)
10.10 Letter Agreement dated July 26, 1996 between PNC Bank, National
Association and the Registrant, and Amendment to Note and Letter
Agreement dated November 1, 1996, Second Amendment to Note and
Letter Agreement dated April 1, 1997, Third Amendment to Note
and Letter Agreement dated August 29, 1997 and Fourth Amendment
to Note and Letter Agreement dated September 5, 1997(1)
10.11 Form of Director Indemnification Agreement(2)
10.12 Form of Sublease and Consent among the Company, Marin Executive
Park and United Breweries of America, Inc.(2)
15
<PAGE> 16
10.13 Noncompetition Agreement dated October 27, 1997 among the
Company, Vijay Mallya and United Breweries Limited(2)
10.14 Noncompetition Agreement dated October 27, 1997 among the
Company, Vijay Mallya and UB International Limited(2)
10.15 Services Agreement dated October 27, 1997 among the Company,
Vijay Mallya and UB International Limited(2)
27 Financial Data Schedule
- ----------------
(1) Incorporated by reference to the registrant's Registration Statement on
Form S-1, No. 333-35171, filed September 8, 1997.
(2) Incorporated by reference to Post-Effective Amendment No. 1 to the
registrant's Registration Statement on Form S-1, No. 333-35171, filed
October 29, 1997.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the three months ended June 30,
1998.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
UBICS, Inc.
(Registrant)
Date: August 14, 1998
By: /s/Manohar B. Hira
----------------------------
Manohar B. Hira
President
By: /s/O'Neil Nalavadi
----------------------------
O'Neil Nalavadi
Senior Vice President and Chief
Financial Officer
17
<PAGE> 18
EXHIBIT INDEX
No. Description Page
10.1 UBICS, Inc. 1997 Stock Option Plan(1)
10.2 Noncompetition Agreement dated October 27, 1997 among the Company,
Vijay Mallya and UB Information Consultancy Services Ltd.(2)
10.3 Employment Agreement between the Registrant and Vijay Mallya(2)
10.4 Employment Agreement between the Registrant and Manohar B. Hira(2)
10.5 Employment Agreement between the Registrant and O'Neil Nalavadi(2)
10.6 Employment Agreement between the Registrant and Babu Srinivas(2)
10.7 Lease Agreement dated July 2, 1997 between the Company and BR
Associates(1)
10.8 Lease dated May 28, 1996 between the Company and Marin Executive Park,
as amended(1)
10.9 Services Agreement dated October 27, 1997 among the Company, Vijay
Mallya and United Breweries Limited(2)
10.10 Letter Agreement dated July 26, 1996 between PNC Bank, National
Association and the Registrant, and Amendment to Note and Letter
Agreement dated November 1, 1996, Second Amendment to Note and Letter
Agreement dated April 1, 1997, Third Amendment to Note and Letter
Agreement dated August 29, 1997 and Fourth Amendment to Note and Letter
Agreement dated September 5, 1997(1)
10.11 Form of Director Indemnification Agreement(2)
10.12 Form of Sublease and Consent among the Company, Marin Executive Park
and United Breweries of America, Inc.(2)
10.13 Noncompetition Agreement dated October 27, 1997 among the Company,
Vijay Mallya and United Breweries Limited(2)
10.14 Noncompetition Agreement dated October 27, 1997 among the Company,
Vijay Mallya and UB International Limited(2)
10.15 Services Agreement dated October 27, 1997 among the Company, Vijay
Mallya and UB International Limited(2)
27 Financial Data Schedule
- ------------------
(1) Incorporated by reference to the registrant's Registration Statement on
Form S-1, No. 333-35171, filed September 8, 1997.
(2) Incorporated by reference to Post-Effective Amendment No. 1 to the
registrant's Registration Statement on Form S-1, No. 333-35171, filed
October 29, 1997.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET OF UBICS, INC. FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND THE UNAUDITED STATEMENT OF OPERATIONS OF UBICS, INC. FOR THE SIX MONTHS
ENDED JUNE 30, 1998, FILED AS A PART OF THE QUARTERLY REPORT OF UBICS, INC. FOR
THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-START> APR-01-1998
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