UBICS INC, 10-K, 2000-03-30

UBICS INC
10-K, 2000-03-30
COMPUTER PROGRAMMING SERVICES

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 1999

[ ] 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)

DELAWARE 34-1744587
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)

333 TECHNOLOGY DRIVE, SUITE 210, CANONSBURG, PENNSYLVANIA 15317
(Address of Principal Executive Offices) (Zip Code)

(724) 746-6001
(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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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. [ ]
<PAGE> 2
The aggregate market value of the voting and non-voting common equity
of the registrant held by non-affiliates of the registrant as of March 15, 2000
(based on the closing price of such stock on the Nasdaq National Market on such
date) was $15,278,806.

The number of shares of the registrant's Common Stock, par value $.01
per share, outstanding as of March 15, 2000 was 6,479,800.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into the
indicated Part of this Form 10-K:

Definitive Proxy Statement for the 2000 Annual Meeting Incorporated into:
of Shareholders ( the "2000 Proxy Statement") Part III

<PAGE> 3
UBICS, INC.

FORM 10-K

TABLE OF CONTENTS
PART I Page
----

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters

Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition

Item 7A. Quantitative and Qualitative Disclosures About Market
Risk

Item 8. Financial Statements and Supplemental Financial Data

Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1999

Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999

Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1997, 1998 and 1999

Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999

Notes to Financial Statements

PART III

Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and
Management

Item 13. Certain Relationships and Related Transactions
<PAGE> 4
PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K

SIGNATURES

<PAGE> 5
PART I

ITEM 1. BUSINESS

SUMMARY

UBICS, Inc. ("UBICS" or the "Company") provides information technology
("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, enterprise resource planning ("ERP")
package implementation and customization, e-commerce applications design and
development, 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. Since commencement of full operations in 1994, the
Company's revenues have grown from $303,000 for 1994 to $9.1 million for 1996
and to $37.4 million for 1999. The Company attributes its growth in revenues
primarily to an increase in the number of IT professionals deployed to client
sites.

The Company is a reporting company under Section 12(g) of the Securities
and Exchange Act of 1934. The Company files periodic and annual reports with the
Securities and Exchange Commission ("SEC") on Form 10-K, 10-Q and 8-K. The
public may read the Company's materials filed with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., 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 the
Company's reports, the Company's proxy and information statements and other
information regarding the Company at http://www.sec.gov. The Company maintains
its own website at http://www.ubics.com.

During 1999, UBICS provided IT professional services to more than 170
clients in a range of industries and locations. The Company's clients include
Advanced Auto Parts, Caterpillar, El Paso Natural Gas, Fruit of the Loom, State
Farm and The Hartford. The Company's emphasis on responding to client's needs
and providing quality service improves client relationships and results in
recurring revenues. The Company believes that its centralized, low-overhead
operating model enables it to respond quickly to client demand for IT
professional services. UBICS meets this demand through its employed IT
professionals and its management of an extensive network of subcontractors. The
Company currently has approximately 285 IT professionals deployed with its
clients in the U.S.

One of the key factors supporting UBICS' growth has been its ability to
recruit and deploy, on short notice, skilled IT professionals. The Company
recruits IT professionals from India and other countries worldwide. To ensure a
continuous supply of IT professionals the Company has established a recruiting
and training center in India. The center became operational in the fall of 1998
and was expanded in 1999. The Company will use this center to enhance its
recruiting efforts in India or internationally and to train its IT professionals
prior to placement. The Company also selectively uses the substantial resources
and established reputation of its affiliate, the UB Group, to support its
recruiting efforts. The UB Group is a multinational group of companies
headquartered in Bangalore, India with operations in Asia, the Far East, the
Middle East, Africa, Europe and the U.S. The UB Group consists of companies
under the control of Vijay Mallya, Chairman of the Company and the indirect
beneficial owner of approximately 62% of the outstanding shares of common stock
of the Company. Companies in the UB Group are principally engaged in the
manufacture and sale of beer, spirits, pharmaceuticals, paint and coating
products and in the hotel and resort business. Currently, the worldwide revenue
of the companies in the UB Group is approximately $1 billion per annum.

<PAGE> 6

SERVICES

The Company's IT professionals help clients identify, analyze and solve
data processing and computing problems in such areas as: (i) client/server
design and development; (ii) ERP package implementation and customization; (iii)
e-commerce applications design and development; (iv) applications maintenance
programming, including Year 2000 conversion services; and (v) database and
systems administration. These services are provided in a variety of computing
environments utilizing leading technologies including client/server
architectures, object-oriented programming languages and tools, distributed
database management systems, computer-aided software engineering ("CASE") tools,
ERP packages, groupware and advanced networking and communications technologies.
The Company's engagements cover every aspect of the life cycle of computer
systems, from strategy and design to development and implementation and,
finally, to maintenance and support.

All of the Company's services are provided on a time-and-materials basis
with UBICS IT professionals providing services as members of the client's
project team. Generally, these services are provided on-site to clients whose
current personnel do not have the requisite technical skills or to clients with
specific projects requiring additional staffing that do not justify permanent
personnel increases. The scope of the work performed by the Company ranges from
specific, minor tasks involving a single IT professional lasting three months in
duration to large, complex tasks that require several IT professionals for a
year or longer. Examples of larger tasks include developing new client/server
systems and maintaining mature mainframe systems that the client cannot quickly
replace.

ERP software services consist primarily of assisting clients in
implementing and customizing package application software on client/server
systems. Clients seeking these services are generally businesses that are
migrating from legacy mainframe applications or are implementing enterprise-wide
client/server architectures. The Company is seeking to expand the volume of ERP
software services that it provides by developing relationships with package
software firms. In addition, the Company has purchased additional hardware and
software and supporting facilities that will enable it to train its IT
professionals in the use and implementation of such ERP package software. The
Company continually adjusts the scope of services it provides to meet the
changing needs of its clients.

2
<PAGE> 7
The Company's services are described below:

<TABLE>
<CAPTION>
------------------------------- ----------------------------------- -----------------------------
UBICS SERVICES METHODS/TOOLS DESCRIPTION
------------------------------- ----------------------------------- -----------------------------
<S> <C> <C>
Client/Server Design and o Tools/Languages: o System design
Development PowerBuilder, Visual Basic, o Requirements analysis and
Developer 2000, Delphi, SQL Definition
Windows, Visual C++, Java, o Data modeling
Lotus Notes, Smalltalk o Prototyping
o Development
o Databases: Oracle, o Testing and
Informix, Sybase, SQL Server, Implementation
Unify o Network design
o Internet/intranet
o CASE Tools: ER-Win, Solutions
Designer 2000, IEF o Legacy transformation/
data porting

------------------------------- ----------------------------------- -----------------------------
ERP Package Implementation o ERP Packages: Baan, o Implementation of
and Customization PeopleSoft, Oracle, SAP Packaged software
solutions
o Customization
o Integration
o Data modeling
o System support
o Database administration
o End-user training

------------------------------- ----------------------------------- -----------------------------
E-Commerce / Internet o Tools/Languages: o Web development, Internet/
Java, Pearl, CGI, Java Beans, Intranet solutions, Applet
HTML DHTML, ActiveX, ASP, Developments, Workflow,
Domino, Oracle Webserver Firewalls (security)

------------------------------- ----------------------------------- -----------------------------
Applications Maintenance o Programming environments: o System design
Programming COBOL, CICS, PL/1, o Development
RPG/400, COBOL/400 o Program conversion
o Data conversion
o Databases: DB2, IMS, IDMS o User interface conversion
o Testing and
o Y2K Tools: MicroFocus Implementation
Revolve o Date conversion

------------------------------- ----------------------------------- -----------------------------
Database and System o Databases: Oracle, o Database administration
Administration Informix, Sybase, SQL Server, o Datawarehousing
Unify o Network administration
o Unix and Windows NT
o Tools: HP OpenView, System administration
CiscoWorks, Bytex Network
Management System,
AT&T OneVision
------------------------------- ----------------------------------- -----------------------------
</TABLE>

SALES AND MARKETING

UBICS focuses its sales effort primarily on placing its IT professionals in
high value-added positions within large and mid-sized organizations through a
direct sales force currently consisting of 22 professionals. The Company serves
the U.S. market primarily through its headquarters in the Pittsburgh,
Pennsylvania area. The mobility of the Company's IT professionals and its
centralized, low-overhead sales and marketing effort allows the Company to
service all areas of the U.S.

The Company's sales force is organized primarily by geographic region
and/or practice lines. The Company's sales professionals are responsible for
managing client relationships and identifying new business opportunities within
their assigned regions and/or practice lines. UBICS' sales professionals are
required to meet monthly targets for new accounts and placements, which targets
are based upon the experience and tenure of the sales professional. Compensation
of the Company's sales professionals is based upon the financial performance of
the sales professional, including gross margin contribution, within their region
and/or practice lines.

3
<PAGE> 8

The Company's sales organization employs a variety of methods to identify
potential clients and industry trends, including referrals from existing clients
and the Company's IT professionals. The Company's sales professionals begin the
sales process by identifying and analyzing the prospective client's existing
software configuration and development requirements, and the size and scope of
its internal IT resources. The sales professional then submits a proposal with
the resumes of IT professionals having skills that match the prospective
client's project requirements. The Company's ability to closely match its IT
professionals with the client's IT needs enables the Company's sales
professionals to offer a 30-day guarantee. If the client is not satisfied with
an IT professional's services during the first 30 days of an assignment, the
Company will not charge the client for such professional's services. After the
client has engaged the Company, the sales professional continuously monitors and
develops the relationship with the client and the IT professionals to ensure
client satisfaction and the successful progress and completion of the
assignment.

While the Company's focus remains on expanding its sales and marketing
efforts in the U.S., it has expanded its international operations by opening its
recruiting and training center in India. In addition, UBICS expects to open a
sales and recruiting office in the United Kingdom within the next four months.
Because UBICS currently has a sufficient supply of IT professionals awaiting
deployment, the Company has deferred previously disclosed plans to establish
offshore recruiting offices in various foreign locations (other than as stated
above).

In addition to UBICS' pursuit of new clients, the Company actively markets
its services to its existing clients, seeking to proactively meet the needs of
its clients and maximize placement success. The Company's success in developing
and retaining clients is due, in large part, to its ability to maintain a
continuous supply of qualified IT professionals. This is made possible by the
Company's extensive network of nearly 70 subcontracting firms from which it can
source qualified IT professionals to supplement, if necessary, its employed IT
professionals. The Company believes that this network of subcontractors provides
the Company with a significant sales and marketing advantage. The Company's
relationship with these subcontractors ensures that the Company can effectively
meet client needs quickly, thus establishing UBICS as a primary provider of IT
professional services.

CLIENTS

Substantially all of the Company's clients are large and mid-sized
companies, systems integrators or other significant users of IT. During 1999,
the Company provided services to over 170 clients in a range of industries in
the U.S. During 1999, approximately 20% of the Company's revenues were derived
from its top five clients--El Paso Natural Gas, The Hartford, Dana Corporation,
Johnson Controls and The Associates. El Paso Natural Gas accounted for
approximately 10%, 8% and 7% of the Company's revenues for 1997, 1998 and 1999,
respectively.

The following is a partial list of organizations to which the Company has
provided, or is providing, services:

4
<PAGE> 9
TECHNOLOGY RETAIL INDUSTRIAL
---------- ------ ----------
Access Graphics Advance Auto Parts Caterpillar
AMP Blockbuster Cummins
Baan CompUSA El Paso Natural Gas
Computer Associates Home Shopping Network General Electric
Hughes Network Systems Long John Silver's Johnson Controls
NextLevel Systems Sears PPG
Oracle Xerox

CONSUMER PRODUCTS FINANCIAL
----------------- ---------
Fruit of the Loom Associates
McGraw-Hill Equitable
Paramount GE Capital
Philips Electronics State Farm
Ralston Purina The Hartford

The Company seeks to provide high quality, responsive service in order to
maximize its client retention rate and secure follow-on engagements. A
significant number of the Company's clients have selected UBICS to provide
additional services.

HUMAN RESOURCES

The Company's success depends in large part on its ability to attract,
develop, motivate and retain highly skilled IT professionals. As of December 31,
1999, the Company had 270 IT professionals deployed at client sites. The Company
currently has four full-time resource managers all of whom have technical
backgrounds that enable them to effectively evaluate the skills and
qualifications of potential candidates. The Company also has a recruiting
manager dedicated to managing relationships with the Company's network of
subcontractors. UBICS takes a proactive approach to recruiting based on skills
requirements forecasts prepared by the Company. The Company continually receives
resumes from prospective employees in response to advertisements placed in trade
publications and newspapers and on the Internet. In addition, UBICS IT
professionals are actively involved in identifying and referring new employees
and screening candidates for new positions. The Company recruits primarily in
India, but also has recruited from other areas of the world, including the U.S.,
the United Kingdom, the Middle East and the Far East.

As a result of its affiliation with the UB Group, UBICS benefits from the
established reputation and infrastructure that the UB Group has in India. The
Company has also established a recruiting and training infrastructure in India.
In addition, the Company plans to establish a sales and marketing office in the
United Kingdom.

UBICS employs a stringent selection method to select potential candidates
that consists of a three-stage interview process. During the first stage, the
Company conducts a general interview is to gather background information and
references. In the second stage, the Company conducts a technical interview with
a technical panel comprised of experts in their respective skill areas. During
the final stage, the Company conducts an interview to assess the candidate's
client interaction skills and to verify the candidate's suitability for
assignment on a project in the U.S.

The Company believes that the qualifications of its IT professionals give
it a competitive edge. To maintain and enhance their skills, UBICS IT
professionals attend training workshops and seminars where they learn to use the
latest tools and techniques. The Company intends to use its training facility in
India, to train UBICS IT professionals in ERP software packages and other higher
value-added technologies, and thereby enhance the skills base of such
professionals.

5
<PAGE> 10

The Company maintains a database which catalogs the technical profiles,
location, availability, mobility and other factors relating to available IT
professionals. This database enables the Company to quickly identify and deploy
appropriate IT professionals for various client engagements.

The Company's IT professionals typically have Masters or Bachelors degrees
in Computer Science or another technical discipline as well as at least two
years of IT experience. As of December 31, 1999, the Company had 270 employees
comprised of 211 IT professionals, 31 sales and marketing personnel and 28
general and administrative personnel. 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. UBICS engages legal counsel to prepare, file and
process H-1B visa applications with the U.S. Immigration and Naturalization
Service.

The Company also uses subcontracted IT professionals to effectively meet
client needs when UBICS IT professionals are unavailable. The Company maintains
strong relationships with nearly 70 vendor subcontractors located worldwide. As
of December 31, 1999, 109 of its deployed IT professionals, or approximately
40%, were supplied by subcontractors. As the Company increases its investment in
recruiting and retaining qualified IT professionals, it believes the ratio of
UBICS IT professionals to IT professionals deployed from subcontractors will
increase. It has been and continues to be to the Company's advantage, however,
to maintain this subcontractor network to help meet its clients' needs. The
Company applies the same process and standards in selecting IT professionals
from subcontractors as it does in recruiting its employed IT professionals.

The Company has a focused employee retention strategy that includes career
planning, training and benefits.

COMPETITION

The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. Primary competitors include participants
from a variety of market segments, including "Big Five" accounting firms,
systems consulting and implementation firms, applications software firms,
service groups of computer equipment companies, general management consulting
firms, contract programming companies and temporary staffing firms. Many of
these competitors have substantially greater financial, technical and marketing
resources and greater name recognition than the Company. In addition, there is a
risk that clients may elect to increase their internal IT resources or limit the
number of outside service providers to satisfy their applications solutions
needs. The Company believes that the principal competitive factors in the IT
services industry include the range of services offered, technical expertise
available, responsiveness to client needs, quality of service and perceived
value of services provided. The Company believes that it competes favorably with
respect to these factors.

INTELLECTUAL PROPERTY RIGHTS

The Company relies upon a combination of nondisclosure and other
contractual arrangements (including entering into confidentiality agreements
with its employees) as well as, trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company licenses intellectual property. The Company has registered the
service mark "UBICS" with the U.S. Patent and Trademark office which gives the
Company the presumption of ownership in the U.S. of the "UBICS" mark for the
services identified in the registration. Although the Company does not deem
trademarks or service marks to be material to its business, when in its best
interests, the Company seeks such protection for its marks. There can be no
assurance that the steps taken by the Company in this regard will be adequate to
deter misappropriation of proprietary information or that the Company will be
able to detect unauthorized use and take appropriate steps to enforce its
intellectual property rights.

6
<PAGE> 11
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, 1998, this limit was
reached in May and in the federal fiscal year ended September 30, 1999, this
limit was reached in June. The inability to obtain additional H-1B permits
during the federal fiscal year ended September 30, 1999 resulted in increased
use of subcontractor professionals by UBICS.

During 1998, the U.S. government increased the limit on the number of new
H-1B permits to 115,000 for each of the 1999 and 2000 federal fiscal years, and
to 107,500 for fiscal year 2001 before reverting to existing limits from fiscal
year 2002 onwards. Despite the increase in the limit, this limit was reached in
June 1999 for the federal fiscal year ended September 30, 1999 and in March 2000
for the current fiscal year ending September 30, 2000.

If in the current federal fiscal year or 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.

The U.S. government in connection with its increase in the limit on H-1B
permits, also imposed a fee to be paid by companies for new approvals and for
renewals. UBICS does not anticipate that the imposition of such fees will have a
material adverse impact on its results of operations.

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.

ITEM 2. PROPERTIES

The Company's corporate headquarters is located in the Borough of
Canonsburg, Pennsylvania, approximately 22 miles south of Pittsburgh,
Pennsylvania. The Company's senior management, administrative personnel, human
resources and sales and marketing functions are housed in a 20,749 square foot
facility which is leased by the Company pursuant to a lease agreement which
expires on August 27, 2003. The Company believes that this location has
sufficient space for its current and anticipated near-term needs. The Company
also subleases a 4,439 square foot office in the San Francisco suburb of
Sausalito, California for use as a sales and marketing office. The Company
subleases this space from its affiliate, the UB Group.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any litigation that is expected to have a
material adverse effect on the Company or its business.

7
<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) The Company held its 1999 Annual Meeting of Shareholders (the "1999
Annual Meeting") on December 1, 1999.

(b) One Director of the Company, Scott R. Heldfond, was elected at the 1998
Annual Meeting to serve a term of three years. Directors whose terms continued
after the 1999 Annual Meeting were Vijay Mallya, O'Neil Nalavadi and Kent D.
Price. In addition, Manohar B. Hira, whose term expired at the 1999 Annual
Meeting, was subsequently elected to fill a vacancy in the Board of Directors.

1. 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: Scott R. Heldfond
Votes for: 5,728,926
Votes withheld: 387,856

2. Amendment of the Company's 1997 Stock Option Plan to increase the
maximum number of shares of Common Stock authorized for issuance
thereunder from 750,000 to 1,300,000 and to increase the maximum
aggregate number of shares of Common Stock which may be covered
by options granted to any individual under such plan from 10% to
40% of the total shares authorized for issuance under such plan.

Votes For: 4,392,519
Votes Against: 464,991
Abstentions: 9,830
No Vote: 1,249,442

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information:

The sole class of outstanding equity securities of the Company is its
common stock, par value $.01 per share (the "Common Stock"). The Common Stock is
traded on the Nasdaq National Market under the symbol "UBIX". The following
table sets forth, for the period indicated, the range of high and low closing
sale prices for the Common Stock on the Nasdaq National Market. The Common Stock
commenced trading on the Nasdaq National Market on October 31, 1997 at an
initial public offering price of $10.00 per share.

Quarter Ended High Low
------------- ---- ---
December 31, 1998 $10 3/4 $4 1/4
March 31, 1999 $6 23/32 $4 1/2
June 30, 1999 $5 3/8 $2 63/64
September 30, 1999 $3 1/8 $2 1/8
December 31, 1999 $3 1/2 $1 17/32

As of March 15, 2000 there were approximately 66 record holders of Common
Stock.

8
<PAGE> 13

The Company has never paid dividends on its Common Stock. The Company
currently intends to retain all of its future earnings to fund growth and the
operation of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. The payment in the future of cash
dividends, if any, will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, the Company's future operations and
earnings, capital requirements and surplus, general financial condition,
contractual restrictions and such other factors as the Board of Directors may
deem relevant.

(b) Use of Proceeds of Initial Public Offering:

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 estimated 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

- -----------
*Estimated.

The following table summarizes the amount of net offering proceeds to the
Company ($13,175,000) used for the purposes listed below:

Purchase and installation of machinery 2,406,000
and equipment
Repayment of indebtedness 775,000
Temporary investments 9,994,000
-----------

Total $13,175,000
===========

9
<PAGE> 14

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
INCOME STATEMENT DATA: 1995 1996 1997 1998 1999
- -------------------------------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues ....................... $1,454 $ 9,072 $20,549 $30,189 $37,359
Cost of revenues ............... 994 6,208 13,695 20,771 27,206
------ ------- ------- ------- -------
Gross profit ................... 460 2,864 6,854 9,418 10,153
Selling, general and
administrative expense(1) .... 452 2,392 3,738 6,495 8,849
Merger related expenses (2) .... -- -- -- -- 869
------ ------- ------- ------- -------
Income from operations ......... 8 472 3,116 2,923 435
Interest income (expense), net.. -- (23) 71 611 556
------ ------- ------- ------- -------
Income before income taxes ..... 8 449 3,187 3,534 991
Provision for income taxes ..... 5 230 1,307 1,438 382
------ ------- ------- ------- -------
Net income ..................... $ 3 $ 219 $ 1,880 $ 2,096 $ 609
====== ======= ======= ======= =======
Basic and diluted earnings
per share .................... $ 0.0 $ 0.04 $ 0.36 $ 0.32 $ 0.09
====== ======= ======= ======= =======
Weighted average shares ........ 5,000 5,000 5,259 6,496 6,480
Diluted average shares ......... 5,000 5,000 5,275 6,530 6,489
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------
BALANCE SHEET DATA: 1995 1996 1997 1998 1999
- ------------------------ ----- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Working capital .......... $ (25) $ 179 $15,158 $15,459 $15,544
Total assets ............. 619 2,601 18,132 21,218 21,684
Total debt ............... 78 300 -- -- --
Total stockholders'
equity................... 10 229 15,284 17,280 17,889
</TABLE>

- -----------
(1) Includes expenses of $257 incurred on behalf of the UB Group for the ended
December 31, 1996. Beginning January 1, 1997, such expenses ceased to be
incurred by the Company.
(2) These expenses relate to the termination of the Company's proposed
acquisition of R Systems, Inc.

ITEM 7. 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 8 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 known and unknown risks and uncertainties that may cause the
financial condition and results of operations of the Company to be materially
different from any future condition or results of operation suggested or implied
by such forward-looking statements. When used in this report, 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 factors that may cause actual results to differ
materially from the forward-looking statements include ability to recruit and
maintain qualified IT professionals, changes in laws and regulations
specifically immigration laws, competition and economic conditions in the
geographic regions in which the Company conducts its operations, general
economic conditions, success of the Company's marketing efforts and the demand
for outsourced IT professionals.

OVERVIEW

UBICS, 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, e-commerce applications design and
development, applications maintenance programming and database and systems
administration. UBICS'

10
<PAGE> 15
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 billing rate
for an IT professional varies for different service offerings and is also
dependent upon market demand, experience and competence level of the IT
professional. Generally, the rates for IT professionals placed on ERP package
implementation projects are higher. As of December 31, 1999, 70 IT
professionals, or approximately 23% 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 70 subcontractors located worldwide.
Approximately 41% of the Company's 1999 revenues were derived from IT
professionals deployed from subcontractors. As of December 31, 1999, IT
professionals deployed from subcontractors comprised 109 of the Company's 270
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.

Since inception the Company has developed relationships with 427 clients in
a range of industries and currently has IT professionals deployed at nearly 170
of these clients. Although the Company's five largest clients accounted for
approximately 20% of revenues for 1999, this revenue concentration in a few
clients 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.

On July 1, 1999, UBICS announced that it would not complete its previously
announced acquisition of privately held California-based R Systems, Inc. The
parties were unable to agree on an extension of the June 30, 1999 transaction
deadline therefore the transaction was terminated. Expenses related to the
transaction of approximately $900,000 were recorded during the quarter ended
June 30, 1999.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Revenues .......................... 100.0% 100.0% 100.0%
Cost of revenues .................. 66.7 68.8 72.8
----- ----- -----
Gross profit ...................... 33.3 31.2 27.2
Selling, general and administrative
expense .......................... 18.1 21.5 23.7
Merger related expenses (1) ....... -- -- 2.3
----- ----- -----
Income from operations ............ 15.2 9.7 1.2
Interest income (expense), net .... 0.3 2.0 1.5
----- ----- -----
Income before income taxes ........ 15.5 11.7 2.7
Provision for income taxes ........ 6.4 4.8 1.1
----- ----- -----
Net income ........................ 9.1% 6.9% 1.6%
===== ===== =====
</TABLE>

11
<PAGE> 16
- -----------
(1) These expenses relate to the termination of proposed acquisition of R
Systems, Inc.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Revenues

Revenues for the year ended December 31, 1999 were $37.4 million, compared
to $30.2 million for the year ended December 31, 1998, an increase of $7.2
million, or 24%. Approximately 85% 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 15% of the increase in revenues was due
to higher average hourly billing rates. The number of deployed IT professionals
decreased to 270 at December 31, 1999 from 276 at December 31, 1998, and the
Company broadened its client base since inception to 427 clients in 1999 from
313 clients in 1998.

Gross Profit

Gross profit consists of revenues less cost of revenues. Cost of revenues
is comprised principally of IT professional salaries and benefits, including
subcontractor professional costs and relocation expenses. Gross profit for 1999
was $10.2 million, compared to $9.4 million for 1998, an increase of $0.8
million, or 8%. Gross profit as a percentage of revenues decreased to 27.2% for
1999, compared to 31.2% for 1998. The decrease in gross profit as a percentage
of revenues resulted primarily from an increase in the ratio of employee
consultants waiting to be deployed and from an increase in rates paid to by
subcontractors.

Selling, General and Administrative Expense

Selling, general and administrative expense consists of costs associated
with the Company's sales and marketing efforts, executive, finance and human
resource functions, facilities, telecommunications and other general overhead
expenses. Selling, general and administrative expense for 1999 was $8.8 million,
compared to $6.5 million for 1998, an increase of $2.3 million, or 36%. Selling,
general and administrative expense as a percentage of revenues increased to
23.7% for 1999 from 21.5% for 1998. The increase in expense was primarily due to
increases in salaries, and other personnel and administrative costs to support
the Company's growth.

Merger-related expenses

Merger related expenses for 1999 were $0.9 million or 2.3% as a percentage
of revenues. These expenses are non-recurring in nature and relate to the
termination of the Company's proposed acquisition of R Systems, Inc.

Interest Income (Expense), Net

Interest income for 1999 was $556,000 compared to interest income of
$611,000 for 1998. The decrease resulted from a reduction in the amount of net
proceeds of the Company's 1997 initial public offering available for investment.

Provision for Income Taxes

The Company's effective tax rate was 38.5% for 1999 compared to 40.7% for
1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

12
<PAGE> 17
Revenues

Revenues for the year ended December 31, 1998 were $30.2 million, compared
to $20.6 million for the year ended December 31, 1997, an increase of $9.6
million, or 47%. Approximately 85% 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 15% 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. The number of deployed IT professionals increased to 276
at December 31, 1998 from 190 at December 31, 1997, and the Company broadened
its client base since inception to 313 clients in 1998 from 175 clients in 1997.

Gross Profit

Gross profit consists of revenues less cost of revenues. Cost of revenues
is comprised principally of IT professional salaries and benefits, including
subcontractor professional costs and relocation expenses. Gross profit for 1998
was $9.4 million, compared to $6.9 million for 1997, an increase of $2.5
million, or 37%. Gross profit as a percentage of revenues decreased to 31.2% for
1998, compared to 33.3% for 1997. The decrease in gross profit as a percentage
of revenues resulted primarily from an increase in the ratio of employee
consultants waiting to be deployed and from an increase in rates paid to by
subcontractors.

Selling, General and Administrative Expense

Selling, general and administrative expense consists of costs associated
with the Company's sales and marketing efforts, executive, finance and human
resource functions, facilities, telecommunications and other general overhead
expenses. Selling, general and administrative expense for 1998 was $6.5 million,
compared to $3.7 million for 1997, an increase of $2.8 million, or 74%. Selling,
general and administrative expense as a percentage of revenues increased to
21.5% for 1998 from 18.1% for 1997. The increase in expense was primarily due to
increases in salaries and other personnel and administrative costs to support
the Company's growth. The expenses include certain one-time costs of $400,000
relating to design and relocation of the Company's principal offices, early
termination of the Company's prior office lease, recruitment fees and
appointment of an external consulting firm to advise on strategic planning.

Interest Income (Expense), Net

Interest income for 1998 was $611,000 compared to interest income of
$71,000 for 1997. The increase resulted from increased interest income for 1998
from the investment of the net proceeds of the Company's initial public offering
of 1,500,000 shares of common stock which was completed in November 1997 (the
"Offering"). Interest income in 1997 arising out of the net proceeds of the
Offering was partially offset by an increase in average borrowings under the
Line of Credit (as defined below).

Provision for Income Taxes

The Company's effective tax rate was 40.7% for 1998 compared to 41.0% for
1997.

LIQUIDITY AND CAPITAL RESOURCES

In November 1997, the Company generated net proceeds of approximately $13.2
million from the Offering. The Company 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 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.

13
<PAGE> 18
The Company's principal uses of cash have been to fund receivables and
other working capital, reflecting the Company's growth. Net cash provided by
operating activities was $1,331,000 for 1999 as compared to $412,000 for 1998.
Because the Company had no immediate plans to utilize its Line of Credit, the
Company elected not to renew the facility in August 1999.

Capital expenditures for 1999 and 1998 were $774,000 and $1,632,000
respectively. The Company intends to use approximately $2.0 million of its
available cash to expand its existing operations, including approximately $1.2
million for the eventual expansion of the Company's recruiting and training
center in India. The initial phase of the center was placed in operation in the
fall of 1998 and the expansion is expected to be operational by the end of 1999
(including additional purchase of hardware and software with respect thereto).
Because the Company currently has a sufficient supply of IT professionals
awaiting deployment, as well as a shift in the Company's strategic focus in
favor of domestic sales growth, the Company has deferred previously disclosed
plans to establish offshore recruiting offices in various foreign locations.
Except as set forth above, the Company currently has no material commitments for
capital expenditures.

The Company currently anticipates that the remaining 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 twelve months.

RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contract) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement 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 in 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 was
originally effective for fiscal years beginning after June 15,1999.

In June 1999, the FASB issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137") delaying
the effective date of SFAS 133 for all fiscal quarters of all fiscal years
beginning after June 15,2000.

The Company does not believe that there will be a material impact on the
financial statements related to this FASB.

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's telephone, voice mail and
e-mail systems, which are its principal non-IT systems, have also been
determined to be Year 2000 compliant. The Company's total costs with respect to
Year 2000 compliance as of December 31, 1999 have not been material. Because
UBICS has determined that all of its principal internal systems Year 2000

14
<PAGE> 19
compliant, 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's review of client and vendor readiness with respect to Year
2000 has been completed. The Company currently does not believe that a
contingency plan to help limit the impact of potentially significant failures of
clients, vendors or other third parties with respect to Year 2000 compliance
will be needed since most of its key clients and vendors have indicated that
they expect to be compliant. The Company will continue to monitor the situation,
however, and may incur internal staff costs and related expenses if the need
arises but is unable to form an estimate of such costs at this time.

The Company did not experience any major problems at the time of switch
over to the Year 2000.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company currently does not invest excess funds in derivative financial
instruments or other market risk sensitive instruments for the purpose of
managing its foreign currency exchange rate risk or for any other purpose.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL FINANCIAL DATA

The financial statements and supplemental financial data required by this
Item are set forth on the following pages.

15
<PAGE> 20
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying financial statements of UBICS, Inc. have been prepared
by management, who are responsible for their integrity and objectivity. The
statements have been prepared in conformity with generally accepted accounting
principles and necessarily include amounts based on management's best estimates
and judgments.

Management has established and maintains a system of internal controls
designed to provide reasonable assurance that assets are safeguarded and that
the Company's financial records reflect authorized transactions of the Company.
The system of internal controls included widely communicated statements of
policies and business practices that are designed to require all employees to
maintain high ethical standards in the conduct of Company affairs. The internal
controls are augmented by organizational arrangements that provide for
appropriate delegation of authority and division of responsibility.

The Company's financial statements have been audited by Arthur Andersen
LLP, independent public accountants, whose report thereon appears on page 18 of
this Form 10-K. As part of its audit of the Company's financial statements,
Arthur Andersen LLP considered the Company's system of internal controls to the
extent it deemed necessary to determine the nature, timing and extent of its
audit tests. Management has made available to Arthur Andersen LLP the Company's
financial records and related data.

The Board of Directors will pursue its responsibility for the Company's
financial reporting and accounting practices through its Audit Committee, a
majority of the members of which are non-employee directors. The independent
public accountants will have direct access to the Audit Committee with and
without the presence of management representatives, to discuss the results of
their audit work and their comments on the adequacy of internal accounting
controls, and the quality of financial reporting.

/s/Dr. Vijay Mallya
Dr. Vijay Mallya
Chairman and Director

/s/Babu Srinivas
Babu Srinivas
Vice President Finance and Acting Chief Financial Officer

March 15, 2000

16
<PAGE> 21

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of UBICS, Inc.:

We have audited the accompanying consolidated balance sheets of UBICS, Inc.
(a Delaware corporation) as of December 31, 1998 and 1999, 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, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of UBICS, Inc. as of December
31, 1998 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
February 18, 2000

17
<PAGE> 22

UBICS, INC.

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................... $ 11,470 $ 12,027
Accounts receivable, net of allowance for
doubtful accounts of $305 and $885,
respectively ............................. 4,152 4,103
Unbilled receivables ........................ 2,973 2,363
Employee advances ........................... 164 52
Prepaids and other .......................... 258 299
Due from affiliates, net ...................... 174 --
Deferred tax asset .......................... 206 495
-------- --------
Total current assets ..................... 19,397 19,339
-------- --------
Property and equipment:
Leasehold improvements ...................... 40 40
Vehicles .................................... 72 89
Computer equipment and software ............. 1,026 1,732
Furniture and fixtures ...................... 623 662
Office and other equipment .................. 30 42
-------- --------
Total property and equipment ............. 1,791 2,565
Accumulated depreciation .................... (170) (470)
-------- --------
Net property and equipment ............... 1,621 2,095
-------- --------
Other long-term assets ................... 200 250
-------- --------
Total assets ........................ $ 21,218 $ 21,684
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................ $ 2,034 $ 1,981
Payroll liabilities ......................... 1,628 1,717
Accrued taxes ............................... 46 --
Other current liabilities ................... 230 97
-------- --------
Total liabilities ........................ 3,938 3,795
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value, 2,000,000
shares authorized, no shares issued and
outstanding .............................. -- --
Common stock, $0.01 par value, 20,000,000
shares authorized, 6,500,000 shares
issued.................................... 65 65
Additional paid-in capital .................. 13,160 13,160
Treasury stock - 20,200 shares, at cost ..... (100) (100)
Retained earnings ........................... 4,155 4,764
-------- --------
Total stockholders' equity ............... 17,280 17,889
-------- --------
Total liabilities and stockholders'
equity ............................ $ 21,218 $ 21,684
======== ========
</TABLE>

The accompanying notes are an integral part of these
financial statements.

18
<PAGE> 23
UBICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues ................. $ 20,549 $ 30,189 $ 37,359
Cost of revenues ......... 13,695 20,771 27,206
---------- ---------- ----------
Gross profit ........... 6,854 9,418 10,153
Selling, general and
administrative expense.. 3,738 6,495 8,849
Merger related expense.... -- -- 869
---------- ---------- ----------
Income from operations.... 3,116 2,923 435
Interest income .......... 71 611 556
---------- ---------- ----------
Income before income
taxes .................... 3,187 3,534 991
Provision for income
taxes..................... 1,307 1,438 382
---------- ---------- ----------
Net income ............. $ 1,880 $ 2,096 $ 609
========== ========== ==========
Basic and diluted earnings
per share .............. $ 0.36 $ 0.32 $ 0.09
========== ========== ==========

Weighted average shares
outstanding ............ 5,258,904 6,495,823 6,479,800
Diluted average shares
outstanding ............ 5,274,825 6,529,667 6,489,258
</TABLE>

The accompanying notes are an integral part of these
financial statements.

19
<PAGE> 24
UBICS, INC.
(DOLLARS IN THOUSANDS)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL TOTAL
PAID-IN TREASURY RETAINED STOCKHOLDERS
SHARES AMOUNT CAPITAL STOCK EARNINGS EQUITY
--------- ------ ---------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996... 5,000,000 3 -- -- 226 229
Issuance of common stock... 1,500,000 15 13,160 -- -- 13,175
Stock split in the form
of a dividend ........... -- 47 -- -- (47) --

Net income ................ -- -- -- -- 1,880 1,880
--------- --- ------- ----- ------- --------
Balance, December 31, 1997... 6,500,000 65 13,160 -- 2,059 15,284
Acquisition of Treasury
stock ................... -- -- -- (100) -- (100)
Net income ................ -- -- -- -- 2,096 2,096
--------- --- ------- ----- ------- --------
Balance, December 31, 1998... 6,500,000 65 13,160 (100) 4,155 17,280
Net income ................ -- -- -- -- 609 609
--------- --- ------- ----- ------- --------
Balance, December 31, 1999... 6,500,000 $65 $13,160 $(100) $ 4,764 $ 17,889
========= === ======= ===== ======= ========
</TABLE>

The accompanying notes are an integral part of these
financial statements.

20
<PAGE> 25
UBICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ...................... $ 1,880 $ 2,096 $ 609
Adjustments to reconcile net
income to net cash provided
by operating activities--
Depreciation ................. 20 137 300
Changes in operating assets
and liabilities--
Accounts receivable, net.... (1,434) (1,375) 49
Unbilled receivables ....... (1,022) (1,007) 610
Employee advances .......... (74) 6 112
Other long-term assets ..... -- (200) (50)
Due to affiliates, net ..... (516) (141) 174
Deferred tax asset ......... (44) (105) (289)
Prepaids and other ......... (152) (89) (41)
Accounts payable ........... 405 1,111 (53)
Payroll liabilities ........ 370 568 89
Accrued taxes and other
current liabilities ..... 484 (589) (179)
-------- -------- --------
Net cash (used) provided by
operating activities ....... (83) 412 1,331
-------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment .................... (96) (1,632) (774)
-------- -------- --------
Net cash used by
investing activities ....... (96) (1,632) (774)
-------- -------- --------
Cash flows from financing
activities:
Payments under credit facility... (300) -- --
Acquisition of Treasury Stock.... -- (100) --
Net proceeds from issuance of
common stock .................... 13,175 -- --
-------- -------- --------
Net cash (provided) used by
financing activities ....... 12,875 (100) --
-------- -------- --------

Net increase (decrease) in cash
and cash equivalents ............ 12,696 (1,320) 557

Cash and cash equivalents, at
beginning of year ............... 94 12,790 11,470
-------- -------- --------
Cash and cash equivalents, at
end of year ..................... $ 12,790 $ 11,470 $ 12,027
======== ======== ========
Supplemental data:
Cash payments for interest ...... $ 39 $ -- $ --
Cash payments for income
taxes ......................... $ 1,045 $ 2,097 $ 752
</TABLE>

The accompanying notes are an integral part of these
financial statements.

21
<PAGE> 26

UBICS, INC.

NOTES TO FINANCIAL STATEMENTS

1. OPERATIONS:

UBICS, Inc. ("UBICS" or "the Company"), 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,
e-commerce applications design and development, applications maintenance
programming and database and systems administration.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The accompanying financial statements reflect the application of the
following significant accounting policies:

Principles of Consolidation

Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.

Cash Equivalents

For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.

Revenue Recognition

The Company recognizes revenue on its time-and-materials contracts as the
services are performed for clients.

Unbilled Receivables

Unbilled receivables represent time and materials provided to customers in
the last month of each fiscal period which are billed early in the following
month.

Property and Equipment

Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the properties as
follows:

YEARS
-----
Computer equipment and software........ 5
Furniture and fixtures................. 7
Office and other equipment............. 7
Leasehold improvements................. 5
Vehicles............................... 5

Disclosures about Fair Value of Financial Instruments

The following methods and assumptions were used to estimate fair value of
each class of financial instrument for which it is practicable to estimate that
value:

Cash and Cash Equivalents--The carrying amount approximates fair value
because of the short maturity of those instruments.

22
<PAGE> 27

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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.

The majority of the Company's projects with customers, including those
related to year 2000 conversion, generally provide that the Company will supply
consultants to perform agreed-upon procedures under the customer's supervision.
The Company's responsibility under these agreements with respect to each
application is subject to satisfactory acceptance testing of such procedures
within a limited, specified period of time. At this time, the Company is unable
to quantify the potential risk to the Company from future claims in the event
that certain applications are not converted or do not perform in accordance with
mutually agreed-upon acceptance criteria in the year 2000, which is beyond the
limited, specific period of time set forth in the agreements. Nonetheless,
management does not believe that claims that may arise as a result of the above
will have a significant impact on either the financial position or the results
of operations of the Company. No claims have been made through March 15, 2000.

Reclassifications

Certain prior year balances have been reclassified to conform to the current
period presentation.

3. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK:

The Company has derived a significant portion of its revenues from a
relatively limited number of clients.

The following table presents the Company's largest clients during each of
the years ended December 31, 1997, 1998 and 1999 and the approximate percentage
of revenue from each client for the respective periods:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Client A.................................... 10% 8% 7%
Client B.................................... 9% 6% 5%
Client D.................................... 5% -- --
Others, individually and collectively less
than 10% of revenue....................... 7% 7% 8%
----- ----- -----
Total of Five Largest Clients.......... 31% 21% 20%
</TABLE>

The Company grants credit to clients based upon management's assessment of
their creditworthiness. The Company's revenues and resulting accounts receivable
are derived primarily from large and mid-sized organizations in various
industries throughout the U.S.

23
<PAGE> 28

4. LEASE OBLIGATIONS:

The Company leases real estate and facilities at several locations. Lease
expenses charged to operations were $165,093, $388,091 and $581,283
respectively, for the years ended December 31, 1997, 1998 and 1999.

Minimum future rental payments under non-cancelable operating leases for
each of the next five years are as follows as of December 31, 1999:

YEAR ENDING
DECEMBER 31,
------------
2000....... $ 598,917
2001....... 502,714
2002....... 393,934
2003....... 275,220
2004....... 6,525
----------

Totals..... $1,777,310
==========

5. RELATED PARTY TRANSACTIONS:

As of December 31, 1998 the Company had a net receivable from the UB Group
totaling $ 174,423 resulting from expenses incurred by the Company on behalf of
the UB Group. The balance was repaid by December 31, 1999.

6. STOCK-BASED COMPENSATION:

Effective September 2, 1997, the Company adopted the 1997 Stock Option Plan
(the "Plan") for directors, executive officers and other key employees. The
Compensation Committee of the Board of Directors is authorized to grant stock
options (with or without stock appreciation rights). The Plan provides for the
issuance of up to 750,000 stock options at no less than the market value of the
stock at the date of grant. The Company accounts for the Plan under Accounting
Principles Board Opinion No. 25, "Accounting for Stock issued to Employees". Had
compensation costs for the Plan been determined consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), net income for the years ended December 31, 1998
and December 31, 1999 would have been reduced by $860,000 and $720,000,
respectively, and basic and diluted earnings per share would have been reduced
by $0.13 and $0.11 per share, respectively, for the same period.

In 1998 and 1999, options covering a total of 173,000 and 125,000 shares,
respectively, of Common Stock were granted under the Plan. The right to purchase
shares upon exercise of these options expires 10 years from the date of grant or
earlier if an option holder ceases to be employed by the Company. A summary of
stock option activity follows:

<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
-------------------------------------------------------------------
Weighted Average Weighted Average
NUMBER OF SHARES Options Exercise Price Options Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of period 437,500 $10.00 418,000 $10.78
Granted 173,000 $13.25 125,000 $ 2.35
Exercised -- -- -- --
Lapsed and forfeited 192,500 $11.22 7,000 $10.51
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding, end of period 418,000 $10.78 536,000 $ 8.27
- -----------------------------------------------------------------------------------------------------------------------
Options exercisable, end of period 98,233 $10.00 286,980 $ 9.98
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

24
<PAGE> 29

STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1998

Summary of stock options Stock Option Price
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1999

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------------------------------
Weighted Average
Range of Remaining Weighted Average Weighted Average
Exercise Price Options Contractual life (Yrs) Exercise Price Options Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.88 20,000 9.83 $ 1.88 20,000 $ 1.88
$2.38 50,000 9.67 $ 2.38
$2.50 55,000 9.92 $ 2.50
$5.00 2,000 8.89 $ 5.00 667 $ 5.00
$5.50 4,000 8.72 $ 5.50 1,333 $ 5.50
$10.00 310,000 7.84 $10.00 219,982 $10.00
$13.63 70,000 8.51 $13.63 36,665 $13.63
$13.75 20,000 8.07 $13.75 6,666 $13.75
$14.50 5,000 8.38 $14.50 1,667 $14.50
- --------------------------------------------------------------------------------------------------------------------------
536,000 8.87 $ 8.27 286,980 $ 9.98
==========================================================================================================================
Summary of stock options Stock Option Price
- --------------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options granted during 1998* $2.93
==========================================================================================================================
Weighted average fair value of options granted during 1999* $4.26
==========================================================================================================================
</TABLE>

* The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions

25
<PAGE> 30

<TABLE>
<CAPTION>
1998 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Risk free interest rate 5.6% 4.4%
Expected dividend yield 0.0% 0.0%
Expected life of options 3 years 3 years
Expected volatility rate 88.0% 75.0%
===========================================================================================================================
</TABLE>

There were 764,000 shares reserved for future grants under the Plan at
December 31, 1999.

7. INCOME TAXES:

The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes are
recognized for temporary differences between the tax and financial bases of the
Company's assets and liabilities, using the enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income.

The reconciliation of income taxes computed using the statutory U.S. income
tax rate and the provision for income taxes was as follows for the years ended
December 31, 1997, 1998 and 1999:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Federal income taxes at the
statutory rate...................... $1,127,292 $1,275,727 $330,927
State income taxes net of federal
benefit............................. 171,617 162,600 51,444
Penalties and interest................ 9,000 -- --
---------- ---------- --------
Provision for income taxes............ $1,307,909 $1,438,327 $382,371
========== ========== ========
</TABLE>

The provision for income taxes as shown in the accompanying statement of
operations for the years ended December 31, 1997, 1998 and 1999 included the
following components:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ---------- ---------
<S> <C> <C> <C>
Current federal provision.......... $1,217,292 $1,453,134 $ 580,477
Current state provision............ 191,462 190,988 90,659
Deferred federal provision......... (87,150) (176,984) (249,550)
Deferred state provision........... (13,695) (28,811) (39,215)
---------- ---------- ---------
Provision for income taxes......... $1,307,909 $1,438,327 $ 382,371
========== ========== =========
</TABLE>

The components of the deferred tax asset as of December 31, 1998 and 1999
were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
-------- --------
<S> <C> <C>
Allowance for doubtful accounts...... $120,475 $354,688
Accrued liabilities.................. 85,320 139,872
-------- --------
Deferred tax asset................... $205,795 $494,560
======== ========
</TABLE>

8. EARNINGS PER COMMON SHARE:

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128),
which establishes new standards for computing and presenting earnings per share.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. The Company adopted SFAS No.
128 during 1997.

Basic earnings per share is calculated by dividing net income by the
weighted average number of shares outstanding during the year. Diluted earnings
per share is calculated by dividing net income by the weighted average number of
shares outstanding during the year adjusted for the assumed conversion of all
dilutive securities.

26
<PAGE> 31

The following table sets forth the computation of earnings per share for the
periods indicated:

<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Year ended December 31,
--------------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Basic earnings per share
Net income ................ $ 1,880 $ 2,096 $ 609
Divided by:
Weighted average common shares ..... 5,258,904 6,495,823 6,479,800
---------- ---------- ----------
Basic earnings per share .. $ 0.36 $ 0.32 $ 0.09
========== ========== ==========
Diluted earnings per share
Net income ................ $ 1,880 $ 2,096 $ 609

Divided by:
Weighted average common shares..... 5,258,904 6,495,823 6,479,800
Dilutive effect of common stock
equivalents ...................... 15,921 33,844 9,458
Dilutive average common shares ..... 5,274,825 6,529,667 6,489,258
---------- ---------- ----------

Diluted earnings per share ......... $ 0.36 $ 0.32 $ 0.09
========== ========== ==========
</TABLE>

The exercise price of stock options to purchase an aggregate of 104,500 and
411,000 shares in 1998 and 1999, respectively, is less than the average stock
price for the year and such options have been excluded from the calculation of
diluted earnings per share as the effect would be anti-dilutive.

9. INITIAL PUBLIC OFFERING:

On November 4, 1997, the Company closed the offering of 1,500,000 shares of
common stock at a price of $10.00 per share. Net proceeds to the Company from
the sale of the 1,500,000 shares, after deduction of underwriting discounts and
offering expenses, were approximately $13,175,000.

27
<PAGE> 32

11. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
(In thousands except per share data)
Quarter Ended
-------------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
1998 1998 1998 1998
-------------------------------------------
<S> <C> <C> <C> <C>
Revenues .............................. $6,215 $6,962 $8,451 $8,561
Cost of revenues ...................... 4,096 4,762 5,774 6,139
------ ------ ------ ------
Gross profit .......................... 2,119 2,200 2,677 2,422
Selling, general and
administrative expense .............. 1,203 1,409 1,784 2,099
------ ------ ------ ------
Income from operations ................ 916 791 893 323
Interest income ....................... 165 162 147 137
------ ------ ------ ------
Income before income taxes ............ 1,081 953 1,040 460
Provision for income taxes ............ 440 380 420 198
------ ------ ------ ------
Net income ............................ $ 641 $ 573 $ 620 $ 262
====== ====== ====== ======
Basic and diluted earnings per share .. $ 0.10 $ 0.09 $ 0.10 $ 0.04
====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
(In thousands except per share data)
Quarter Ended
---------------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
1999 1999 1999 1999
---------------------------------------------
<S> <C> <C> <C> <C>
Revenues .............................. $9,085 $ 9,632 $9,603 $9,039
Cost of revenues ...................... 6,610 6,983 6,893 6,720
------ ------- ------ ------
Gross profit .......................... 2,475 2,649 2,710 2,319
Selling, general and
administrative expense .............. 2,130 2,146 2,254 2,319
Merger related expense ................ -- 869 -- --
------ ------- ------ ------
Income from operations ................ 345 (366) 456 --
Interest income ....................... 130 130 136 160
------ ------- ------ ------
Income before income taxes ............ 475 (236) 592 160
Provision for income taxes ............ 182 (80) 256 24
------ ------- ------ ------
Net income ............................ $ 293 $ (156) $ 336 $ 136
====== ======= ====== ======
Basic and diluted earnings per share .. $ 0.05 $ (0.02) $ 0.05 $ 0.02
====== ======= ====== ======
</TABLE>

28
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to the
information in the registrant's definitive proxy statement to be filed with the
Commission on or about April 29, 2000 in connection with its 2000 annual meeting
of stockholders (the "2000 Proxy Statement") under the captions "Election of
Directors" and "Executive Officers". To the Company's knowledge based solely on
a review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the fiscal year
ended December 31, 1999, all section 16(a) filing requirements applicable to the
Company's officers, directors and greater than ten-percent beneficial owners
were complied.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the
information in the registrant's 1999 Proxy Statement under the caption
"Executive Compensation" provided that the information in such Proxy Statement
under the captions "Stock Performance Graph" and "Compensation Committee Report
on Executive Compensation" are not incorporated by referenced herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to the
information in the registrant's 1999 Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to the
information in the registrant's 1999 Proxy Statement under the caption
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions."

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

The following financial statements of the registrant are included on pages
19 to 30 of this Form 10-K and the report of independent public accountants is
included on page 18 of this Form 10-K:

Consolidated Balance sheets as of December 31, 1998 and 1999

Consolidated Statements of Operations for the years ended December 31, 1997,
1998 and 1999

Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1998 and 1999

Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1998 and 1999

29
<PAGE> 34

2. Financial Statement Schedules

The following financial statement schedules shown below should be read in
conjunction with the financial statements on pages 17 to 26 of this Form 10-K.
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or Notes thereto.

The following items appear immediately following the signature page:

Report of Independent Public Accountants on Supplemental Schedules

Financial Statement Schedules:

Valuation and Qualifying Accounts for the three years ended December 31,
1999.

30
<PAGE> 35

<TABLE>
<CAPTION>
3. Exhibits:
---------
<S> <C>
3(i) Amended and Restated Certificate of Incorporation of UBICS, Inc.(1)
3(ii) Amended and Restated Bylaws of UBICS, Inc.(1)
10.1 UBICS, Inc. 1997 Stock Option Plan(2)
10.2 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya
and UB Information Consultancy Services Ltd.(3)
10.3 Employment Agreement between the Registrant and Vijay Mallya(3)
10.4 Employment Agreement between the Registrant and Manohar B. Hira(3)
10.5 Employment Agreement between the Registrant and O'Neil Nalavadi(3)
10.6 Employment Agreement between the Registrant and Babu Srinivas(3)
10.7 Employment Agreement dated September 1, 1999 between the Registrant and Dennis M. Stocker(4)
10.8 Agreement of Severance, Waiver and Release dated March 18, 1999 between the Company and Manohar B. Hira(5)
10.9 Services Agreement dated October 27, 1997 among the Company, Vijay Mallya and United Breweries Limited(3)
10.10 Form of Director Indemnification Agreement(3)
10.11 Form of Sublease and Consent among the Company, Marin Executive Park and United Breweries of America, Inc.(3)
10.12 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya and United Breweries Limited(3)
10.13 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya and UB International Limited(3)
10.14 Services Agreement dated October 27, 1997 among the Company, Vijay Mallya and UB International Limited(3)
10.15 Lease Agreement dated June 30, 1998 between the Company and Stealth Technology Associates (6)
10.16 Amendment to Agreement of Severance Waiver and Release dated December 1, 1999 between the Company and
Manohar B. Hira
10.17 Amendment No. 2 to Agreement of Severance Waiver and Release dated as of March 31, 2000 between the Company and
Manohar B. Hira
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>

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

(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 the registrant's Schedule 14A filed on
November 5, 1999.

(3) 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.

(4) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.

(5) Incorporated by reference to the registrant's Annual Report on Form
10-K for the year ended December 31, 1998.

31
<PAGE> 36

(6) Incorporated by reference to the registrant's Quarterly Report on Form
10-A for the quarter ended September 30, 1998.

(b) Reports on Form 8-K:
-------------------

No reports on Form 8-K were filed for the three months ended December
31, 1999.

32
<PAGE> 37

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)

By: /s/Manohar B. Hira
--------------------------------
Manohar B. Hira
President

Pursuant to the requirements of the Securities Exchange Act of 1934,
the following persons have signed this report in the capacities indicated on
March 30, 2000.

/s/Vijay Mallya
------------------------------------
Vijay Mallya
Chairman and Director

/s/Manohar B. Hira
------------------------------------
Manohar B. Hira
President and Director

/s/Babu Srinivas
------------------------------------
Babu Srinivas
Vice President - Finance and Accounting

/s/Scott Heldfond
------------------------------------
Scott Heldfond
Director

/s/Kent D. Price
------------------------------------
Kent D. Price
Director

33
<PAGE> 38

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE

To the Board of Directors and Stockholders of UBICS, Inc.:

We have audited in accordance with accounting standards generally
accepted in the United States, the financial statements included in this Form
10-K and have issued our report thereon dated February 18, 2000. Our audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule set forth below is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic 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 financial statements taken as a
whole.

/s/ARTHUR ANDERSEN LLP

Pittsburgh, Pennsylvania
February 18, 2000

<PAGE> 39

SCHEDULE II

UBICS, INC.

VALUATION AND QUALIFYING ACCOUNTS
(In thousands)

<TABLE>
<CAPTION>
Charged Deductions-- Balance
Balance at to Costs Amounts at End
Beginning and Deemed to be of
Period Ended Description of Period Expenses Uncollectible Period
- ------------ ----------- --------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
December 31, 1997 Allowance for uncollectible 50 135 -- 185
accounts

December 31, 1998 Allowance for uncollectible 185 120 -- 305
accounts
December 31, 1999 Allowance for uncollectible 305 580 -- 885
accounts
</TABLE>

<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Description Page
- --- ----------- ----

<S> <C> <C>
3(i) Amended and Restated Certificate of Incorporation of UBICS, Inc.(1)
3(ii) Amended and Restated Bylaws of UBICS, Inc.(1)
10.1 UBICS, Inc. 1997 Stock Option Plan(2)
10.2 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya and UB Information Consultancy
Services Ltd.(3)
10.3 Employment Agreement between the Registrant and Vijay Mallya(3)
10.4 Employment Agreement between the Registrant and Manohar B. Hira(3)
10.5 Employment Agreement between the Registrant and O'Neil Nalavadi(3)
10.6 Employment Agreement between the Registrant and Babu Srinivas (3)
10.7 Employment Agreement dated September 1, 1999 between the Registrant and Dennis M. Stocker(4)
10.8 Agreement of Severance, Waiver and Release dated March 18, 1999 between the Company and Manohar B. Hira(5)
10.9 Services Agreement dated October 27, 1997 among the Company, Vijay Mallya and United Breweries Limited(3)
10.9 Form of Director Indemnification Agreement(3)
10.11 Form of Sublease and Consent among the Company, Marin Executive Park and United Breweries of America, Inc.(3)
10.12 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya and United Breweries Limited(3)
10.13 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya and UB International Limited(3)
10.14 Services Agreement dated October 27, 1997 among the Company, Vijay Mallya and UB International Limited(3)
10.15 Lease Agreement dated June 30, 1998 between the Company and Stealth Technology Associates (6)
10.16 Amendment to Agreement of Severance Waiver and Release dated December 1, 1999 between the Company and
Manhor B. Hira
10.17 Amendment No.2 to Agreement of Severance Waiver and Release dated as of March 31, 2000 between the Company and
Monhar B. Hira
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>

- -----------
(1) Incorporated by reference to the registrant's Registration Statement on
Form S-1, No. 333-35171, filed September 8, 1997.

3
<PAGE> 41

(2) Incorporated by reference to the registrant's Schedule 14A filed on
November 5, 1999.

(3) 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.

(4) Incorporated by reference to the registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.

(5) Incorporated by reference to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.

(6) Incorporated by reference to the registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998.

(b) Reports on Form 8-K:
-------------------

No reports on Form 8-K were filed for the three months ended December
31, 1999.

<PAGE> 1
Exhibit 10.16

AMENDMENT
TO
AGREEMENT OF SEVERANCE, WAIVER AND RELEASE

This Amendment to Agreement of Severance, Waiver and Release (this
"Amendment") is made as of December 1, 1999, between UBICS, Inc., a Delaware
corporation ("UBICS") and Manohar B. Hira ("Hira").

PREAMBLE:

UBICS and Hira are parties to an Agreement of Severance, Waiver and
Release dated March 18, 1999 (the "Severance Agreement"), which sets forth the
terms of Hira's retirement from employment with UBICS effective on January 1,
2000. The Severance Agreement contemplated that UBICS would acquire R Systems,
Inc. and the President of R Systems, Inc. would become the President and Chief
Executive Officer of UBICS. UBICS did not acquire R Systems. Inc. and has not
yet hired a new President and Chief Executive Officer. The parties therefore
wish to amend the Severance Agreement to provide for the continued employment of
Hira by UBICS through March 31, 2000.

Therefore, UBICS and Hira, intending to be legally bound, agree as
follows:

1. The first sentence of Section 1 of the Severance Agreement
shall be amended to read as follows:

Hira shall retire and his employment with UBICS will
terminate on March 31, 2000 (the "Termination Date").

2. Section 2 of the Severance Agreement shall be amended in its
entirety to read as follows:

2. Resignation as President and Director. Hira hereby
resigns from the office of President of UBICS effective on
the earlier of (a) the date on which UBICS hires a new
President and Chief Executive Officer (the "Hiring Date") or
(b) the Termination Date. The parties acknowledge that Hira
was not nominated for reelection to the Board of Directors
of UBICS at the 1999 Annual Meeting of Stockholders of
UBICS, but that on December 1, 1999, the Board of Directors
of UBICS elected Hira to fill the vacancy on the Board
created by the resignation of Craig A. Wolfanger. Hira
hereby resigns from the Board of Directors of UBICS
effective on the Termination
<PAGE> 2
Date. During the period from the Hiring Date until the
Termination Date, Hira shall perform such duties as shall be
necessary or appropriate to make a transition of his
responsibilities to the new President and Chief Executive
Officer, and shall perform such other duties and
responsibilities as the Board of Directors, Chairman or
President of UBICS may from time to time designate.

3. The first sentence of Section 3 of the Severance Agreement
shall be amended to read as follows:

Provided Hira continues to perform his duties as employee of
UBICS through January 1, 2000, UBICS shall pay Hira a
severance payment of $450,000.00 in cash as follows:
$150,000.00 on the Termination Date, and $100,000.00 on each
of the first three anniversaries of the Termination Date, in
each case minus applicable deductions, as a severance.

4. Section 8 of the Severance Agreement shall be amended in its
entirety to read as follows:

8. Stock Options. In consideration of Hira agreeing to
extend his retirement date until March 31, 2000, UBICS
hereby grants to Hira options (the "New Options") to
purchase 35,000 shares of common stock at an exercise price
of $2.50 per share, all in accordance with the terms of a
separate stock option agreement between UBICS and Hira dated
as of December 1, 1999. Upon the Termination Date, all
options to purchase common stock of UBICS held by Hira,
including the New Options, shall immediately vest and be
exercisable by Hira or his estate until the expiration date
of such options, which is on the tenth anniversary of the
date of grant. In the event that [,on or prior to the
Termination Date,] the Board of Directors determines to
reduce the exercise price of its outstanding options, to
issue new options to replace such outstanding options, or to
issue additional options to holders of such outstanding
options, the Company will also reprice or replace Hira's
options (other than the New Options) or issue additional
options to Hira (other than with respect to the New
Options), as the case may be, on the same basis,

-2-
<PAGE> 3
provided that any such new or additional options shall be
fully vested and exercisable upon issuance.

5. Except as set forth above, the Severance Agreement shall
remain unchanged and in full force and effect.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.

-------------------------------
Manohar B. Hira

UBICS, Inc.

By:
----------------------------
Name:
--------------------------
Title:
-------------------------

-3-

<PAGE> 1
Exhibit 10.17

AMENDMENT NO. 2
TO
AGREEMENT OF SEVERANCE, WAIVER AND RELEASE

This Amendment No. 2 to Agreement of Severance, Waiver and Release
(this "Amendment") is made as of March 31, 2000, between UBICS, Inc., a Delaware
corporation ("UBICS"), and Manohar B. Hira ("Hira").

PREAMBLE:

UBICS and Hira are parties to an Agreement of Severance, Waiver and
Release dated March 18, 1999, as amended on December 1, 1999 (the "Severance
Agreement"), which sets forth the terms of Hira's retirement from employment
with UBICS effective on March 31, 2000 (the "Termination Date"). The parties
wish to amend further the Severance Agreement to provide for the continued
employment of Hira by UBICS on a month-to-month basis following the Termination
Date.

Therefore, UBICS and Hira, intending to be legally bound, agree as
follows:

1. Notwithstanding the provisions of Section 1 of the
Severance Agreement, Hira shall continue to be employed by UBICS on a month-to-
month basis from and after the Termination Date, and during such time Hira shall
receive compensation and benefits pursuant to, and Hira and UBICS shall be
bound by the other terms of, the Employment Agreement, except as otherwise
provided in this Amendment or in the Severance Agreement, as amended hereby.
Either UBICS or Hira may elect to terminate Hira's employment effective as of
the last day of any calendar month by giving to the other party written notice
of such intent to terminate on or before the 15th day of the month in which such
termination is to be effective. The effective date of such termination shall be
the "Final Termination Date" for purposes of the Severance Agreement and this
Amendment. On the Final Termination Date, except as otherwise provided in the
Severance Agreement, as amended hereby, the Employment Agreement shall terminate
and be of no further force and effect and the parties shall be released from all
of their obligations under the Employment Agreement.

2. Section 2 of the Severance Agreement shall be amended in its
entirety to read as follows:

2. Resignation as President and Director. Hira hereby
resigns from the office of President of UBICS effective on
the earlier of (a) the date on which UBICS hires a new
President and Chief Executive Officer (the "Hiring Date") or
(b) the Final Termination Date. The parties acknowledge that
Hira was not nominated for reelection to the Board of
Directors of UBICS at the 1999 Annual Meeting of
Stockholders of UBICS, but that on December 1, 1999, the
Board of Directors of UBICS elected Hira to fill the vacancy
on the Board created by the resignation of Craig A.
Wolfanger.
<PAGE> 2
Hira hereby resigns from the Board of Directors of UBICS
effective on the Termination Date. During the period from
the Hiring Date until the Final Termination Date, Hira shall
perform such duties as shall be necessary or appropriate to
make a transition of his responsibilities to the new
President and Chief Executive Officer, and shall perform
such other duties and responsibilities as the Board of
Directors, Chairman or President of UBICS may from time to
time designate.

3. The first sentence of Section 4 of the Severance Agreement
shall be amended to read as follows:

4. Healthcare Benefits. For a period of four (4) years
following the Final Termination Date (the "Severance
Period"), Hira shall be entitled to continued participation
in the medical insurance plans maintained by UBICS for its
employees.

5. Section 6 of the Severance Agreement shall be amended in its
entirety to read as follows:

6. Automobile. Hira shall continue to have use of the
automobile currently provided to him by UBICS until the
Final Termination Date and will surrender such automobile to
UBICS on or prior to the Final Termination Date.

6. Section 7 of the Severance Agreement shall be amended in its
entirety to read as follows:

7. Other Benefits. All other benefits and incidents of
Hira's employment will terminate as of the Final Termination
Date.

7. Except as set forth above, the Severance Agreement shall
remain unchanged and in full force and effect.

-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.

-------------------------------
Manohar B. Hira

UBICS, Inc.

By:
----------------------------
Name:
--------------------------
Title:
-------------------------

-3-

<PAGE> 1

Exhibit 21

Subsidiaries of UBICS, Inc.

1. UBICS Holding Company, a Delaware Corporation

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF UBICS, INC. AS OF 12/31/99 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS OF UBICS, INC. FOR THE FISCAL YEAR ENDED 12/31/99
INCLUDED IN THE ANNUAL REPORT OF UBICS, INC. FOR THE FISCAL YEAR ENDED 12/31/99
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,027
<SECURITIES> 0
<RECEIVABLES> 4,103
<ALLOWANCES> 885
<INVENTORY> 0
<CURRENT-ASSETS> 19,339
<PP&E> 2,565
<DEPRECIATION> (470)
<TOTAL-ASSETS> 21,684
<CURRENT-LIABILITIES> 3,795
<BONDS> 0
0
0
<COMMON> 65
<OTHER-SE> 17,824
<TOTAL-LIABILITY-AND-EQUITY> 21,684
<SALES> 0
<TOTAL-REVENUES> 37,359
<CGS> 0
<TOTAL-COSTS> 27,206
<OTHER-EXPENSES> 8,849
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556
<INCOME-PRETAX> 991
<INCOME-TAX> 382
<INCOME-CONTINUING> 609
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 609
<EPS-BASIC> .09
<EPS-DILUTED> .09

</TABLE>