<PAGE>
PROSPECTUS
1,500,000 SHARES
[LOGO]
UNICOMP, INC.
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by UniComp,
Inc. ("UniComp" or the "Company"). The Company's Common Stock is quoted on the
Nasdaq National Market under the symbol "UCMP." On November 11, 1996, the last
reported sale price of the Common Stock as reported by the Nasdaq National
Market was $5.44 per share. See "Price Range of Common Stock."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.......................................... $5.00 $0.40 $4.60
Total (3).......................................... $7,500,000 $600,000 $6,900,000
</TABLE>
(1) Excludes a nonaccountable expense allowance payable to Cruttenden Roth
Incorporated, representative of the Underwriters (the "Representative"), and
the value of warrants to purchase up to 150,000 shares of Common Stock at an
exercise price equal to 165% of the public offering price to be issued to
the Representative (the "Representative's Warrant"). The Company and certain
shareholders (the "Selling Shareholders") have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of this offering payable by the Company estimated
at $760,000, including the Representative's nonaccountable expense allowance
of $150,000, at the public offering price of $5.00 per share.
(3) The Company and the Selling Shareholders have granted the Underwriters a
45-day option to purchase up to 225,000 additional shares of Common Stock on
the same terms and conditions as set forth above, solely to cover
over-allotments, if any. If all such shares of Common Stock are purchased,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Shareholders will be $8,625,000,
$690,000, $7,245,000 and $690,000, respectively. See "Principal
Shareholders" and "Underwriting."
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to certain other conditions. It is expected that the
delivery of the certificates representing the Common Stock offered hereby will
be at the offices of the Representative, Irvine, California, on or about
November 18, 1996.
CRUTTENDEN ROTH
INCORPORATED
THE DATE OF THIS PROSPECTUS IS NOVEMBER 12, 1996.
<PAGE>
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy or information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy or information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549, and at the following
regional offices of the Commission: New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048, and Chicago Regional Office,
CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can be obtained from the Public Reference Section of
the Commission, Washington, D.C. 20549 at prescribed rates. The Commission also
maintains a site on the World Wide Web that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov. The Common Stock is quoted on the Nasdaq National Market.
Reports, proxy or information statements and other information concerning the
Company may be inspected at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement, including exhibits filed as part thereof,
copies of which may be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
"UNIBOL" is a registered trademark in the United Kingdom and the Company has
applied for United States trademark registration for the use of the name
"UNIBOL." This Prospectus also contains other trademarks and trade names, which
are the property of their respective holders.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS
INCLUDES FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY. SEE "RISK FACTORS." EXCEPT AS
OTHERWISE SPECIFIED, INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
UniComp, Inc. ("UniComp" or the "Company") provides information technology
services to businesses located primarily in the United Kingdom and
platform-migration software and payment-processing systems to users in North
America and Europe. The Company's strategy is to emphasize its platform-
migration and payment-processing software products and to expand its services
business within its existing geographic markets. The Company believes this
strategy will allow it to expand profit margins and provide its high-quality
information technology services to a broad and growing installed base of users
of its platform-migration and payment-processing products.
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs of maintaining
internal information technology resources capable of responding to such change.
The Company believes that as companies strive to compete and utilize complex new
technologies, more companies will move toward outsourcing their information
technology requirements, thereby enhancing the Company's information technology
services business.
The Company believes that decreasing prices, increasing functionality in
information technology products and the inherent constraints of proprietary
platforms have contributed to increased market acceptance of open systems and
customer demand for information technology products based on such systems.
Changing to new computing platforms, however, often results in significant
disruption of business operations as users are retrained and software errors are
discovered and corrected. Also critical is the potential loss of data contained
in existing databases that may result from a change to new applications
software. The Company's platform-migration software products address these
issues, enabling its customers to move more efficiently to open systems.
Payment processing for commercial businesses has grown rapidly in recent
years as a result of a proliferation in, and increased usage of, credit and
debit cards and wider acceptance of such cards among merchants. Advances in
payment-processing and telecommunications technologies have also been key
factors contributing to such growth. The Company designs, develops and markets
payment-processing systems that provide merchants with greater hardware
independence by supporting a variety of hardware platforms, including personal
computers, point-of-sale terminals and other peripheral devices. The Company's
strategy in the payment-processing market is to focus its sales and marketing
efforts on the relatively small number of large payment processors and hardware
vendors.
The Company has experienced significant growth, with total revenues growing
to $22.3 million for fiscal year 1996 from $12.2 million for fiscal year 1994, a
compound annual growth rate of approximately 35%. In fiscal year 1996,
approximately 51% of total revenues were derived from the Company's maintenance
and other technology services, with more than 80% of total revenues attributable
to international operations, primarily in Northern Ireland.
The Company was incorporated in Colorado in 1985. Its executive offices are
located at 1800 Sandy Plains Parkway, Suite 305, Marietta, Georgia 30066 and its
telephone number is (770) 424-3684. Unless the context otherwise indicates,
references to "UniComp" or the "Company" include UniComp, Inc. and its wholly
owned subsidiaries.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,500,000 shares
Common Stock to be outstanding immediately
after this offering........................ 7,090,245 shares (1)
Use of proceeds.............................. Repayment of outstanding indebtedness,
working capital and other general corporate
purposes, including potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market symbol................ UCMP
</TABLE>
SUMMARY FINANCIAL DATA (2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------- ------------------------
FEB. 28, FEB. 28, FEB. 29, AUGUST 31, AUGUST 31,
1994 1995 1996 1995 1996
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................................ $ 12,206 $ 18,325 $ 22,291 $ 10,063 $ 11,620
Operating income.......................................... 1,604 2,217 2,555 1,277 1,205
Income before taxes....................................... 1,465 2,117 2,262 1,179 1,043
Provision for taxes....................................... 255 495 203 130 300
Net income................................................ 1,210 1,622 2,059 1,049 743
Net income per share...................................... $ 0.28 $ 0.34 $ 0.40 $ 0.20 $ 0.14
Weighted average shares outstanding....................... 4,344 4,710 5,188 5,186 5,483
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
-------------------------
<S> <C> <C>
AS ADJUSTED
ACTUAL (3)
--------- --------------
BALANCE SHEET DATA:
Total assets........................................................................... $ 16,060 $ 20,200
Working capital........................................................................ 1,320 6,916
Debt, including current portion........................................................ 3,116 1,116
Total stockholders' equity............................................................. 8,418 14,558
</TABLE>
- ------------------------
(1) Based on shares outstanding as of August 31, 1996. Excludes (i) 832,500
shares of Common Stock issuable upon exercise of outstanding stock options
granted under the Company's Long Term Incentive Plan (the "LTI Plan"), (ii)
205,000 shares of Common Stock reserved for future issuance under the LTI
Plan, (iii) 150,000 shares of Common Stock reserved for future issuance
under the Company's 1996 Director Incentive Plan (the "Director Plan"), (iv)
150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant, (v) 25,000 shares of Common Stock issuable upon
exercise of an outstanding warrant to purchase shares of Common Stock at
$6.90 per share issued in connection with the sale of such convertible
promissory notes (the "Note Warrant"), and (vi) 87,500 shares of Common
Stock issuable upon exercise of outstanding warrants to purchase shares of
Common Stock at $6.00 per share and 87,500 shares of Common Stock issuable
upon exercise of outstanding warrants to purchase shares of Common Stock at
$7.00 per share issued to a financial advisor to the Company (together, the
"Advisor Warrants"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Management--Long-Term Incentive Plan"
and "--Director Plan", "Description of Capital Stock" and "Underwriting."
(2) The Summary Financial Data prior to the pooling-of-interests transaction
with Smoky Mountain Technologies, Inc. ("Smoky Mountain") in April 1996,
give effect to the resulting combined entity.
(3) Adjusted to reflect the sale of the 1,500,000 shares of Common Stock offered
hereby (after deducting underwriting discounts and commissions and estimated
offering expenses) and the application of the estimated net proceeds
therefrom.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. CERTAIN STATEMENTS UNDER THE CAPTIONS "PROSPECTUS SUMMARY," "USE
OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS STATEMENTS MADE IN THE
FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS, CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE COMPANY'S
ACTUAL RESULTS, PERFORMANCE AND ACHIEVEMENTS AND INDUSTRY DEVELOPMENTS TO DIFFER
MATERIALLY FROM ANY FUTURE RESULTS, PERFORMANCE, ACHIEVEMENTS OR DEVELOPMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: COMPETITION IN THE INFORMATION TECHNOLOGY INDUSTRY;
DEPENDENCE ON FOREIGN SALES; RAPID TECHNOLOGICAL CHANGE IN THE INFORMATION
TECHNOLOGY INDUSTRY; PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE OF NEW PRODUCTS;
THE COMPANY'S ABILITY TO MANAGE OVERSEAS OPERATIONS; THE COMPANY'S ABILITY TO
MANAGE GROWTH AND ACQUISITIONS; AVAILABILITY OF QUALIFIED PERSONNEL; AND OTHER
FACTORS REFERENCED IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY
CONSIDER EACH OF THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE SHARES OF
COMMON STOCK OFFERED HEREBY.
HIGHLY COMPETITIVE INFORMATION TECHNOLOGY INDUSTRY
The information technology industry is intensely competitive and subject to
rapid change. The Company believes the principal competitive factors it faces
include reputation and quality of service, relative price and performance,
technical expertise and product availability. The Company's competitors in the
information technology services market include installation and service
organizations within many established companies, computer manufacturers, custom
software developers, regional systems integrators, software and hardware
distributors and systems consultants. The market for the Company's platform-
migration software is highly competitive as well. The Company believes that the
principal competitive factors in this business include product performance, time
to market for new product introductions, adherence to industry standards, price
and marketing and distribution resources. The market for the Company's
payment-processing systems is also highly competitive. The Company believes that
the principal competitive factors in this business include the ability to
provide a comprehensive, integrated payment-processing system, product
performance, time to market for new product introductions, adherence to industry
standards, price, marketing and distribution resources. Some of the Company's
current and potential competitors have longer operating histories and financial,
sales, marketing, technical and other competitive resources that are
substantially greater than those of the Company. As a result, the Company's
competitors may be able to adapt more quickly to changes in customer needs or to
devote greater resources than the Company to sales, marketing and product
development. As the markets in which the Company competes have matured, product
price competition has intensified and is likely to continue to intensify. Such
price competition could adversely affect the Company's results of operations.
There can be no assurance that the Company will be able to continue to compete
successfully with existing or new competitors. See "Business--Competition."
DEPENDENCE ON FOREIGN SALES
The Company's revenues from international operations represented 83.7%,
84.7% and 78.4% of total revenues for fiscal years 1996, 1995 and 1994,
respectively. The Company expects that its international operations will
continue to account for a significant percentage of its total revenues. Certain
risks are inherent in international operations, including unexpected changes in
regulatory requirements, currency exchange rate fluctuations, changes in trade
policy or tariff regulations, customs matters, longer payment cycles, higher tax
rates or additional withholding requirements, difficulty in enforcing
agreements, intellectual property protection difficulties, foreign collection
problems and military, political and transportation obstacles. In addition,
foreign operations involve uncertainties arising from local business practices,
5
<PAGE>
cultural considerations and international political and trade tensions.
Denomination of the Company's revenues and expenses are generally in
corresponding currencies. As a result the Company has not hedged against foreign
currency exchange rate risks to date. The Company may in the future seek to
implement hedging techniques with respect to foreign currency transactions.
There can be no assurance, however, that such hedging activities would
successfully protect against foreign currency exchange losses or against other
international sales risks such as exchange limitations, price controls or other
foreign currency restrictions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Marketing and
Distribution" and Note 12 of Notes to the Supplemental Consolidated Financial
Statements.
RAPID TECHNOLOGICAL CHANGE AND INTRODUCTION OF NEW PRODUCTS AND SERVICES
The information technology industry is characterized by rapid technological
advances, changes in customer requirements and frequent new product
introductions and enhancements, which could disrupt the Company's services
business and render the Company's products obsolete. The Company's future
success will depend in large part on its ability to anticipate and respond to
such advances, changes and new product introductions. Any failure by the Company
to do so could have a material adverse effect on its competitive position and
results of operations. In addition, the Company is subject to the risks
generally associated with new product introductions and applications, including
lack of market acceptance, delays in development or failure of products to
perform as expected. In February 1996, the Company released version 1.05 of its
UNIBOL400 product, which is the first version offered for widespread commercial
distribution. The UNIBOL400 product has yet to achieve a substantial installed
user base. There can be no assurance as to when, if ever, the UNIBOL400 product
will achieve a substantial user base. See "Business--Products and Services" and
"--Product Development."
POTENTIAL FOR DELAYS IN PRODUCT INTRODUCTION
Delays in product development and introduction may have an adverse effect on
the product's success and the Company's reputation and results of operations,
and may allow competitors to introduce products and gain market share during any
such delays. Any failure by the Company to timely develop and introduce new
products and product enhancements that are responsive to market conditions and
customer requirements may have an adverse effect on the Company's business,
results of operations and financial condition. Furthermore, the complex software
products developed by the Company may contain undetected errors when first
introduced or when new versions are released. There can be no assurance that
current or future releases of Company products will not contain errors or that
any such errors will not result in loss or delay of market acceptance of such
products. The Company has previously experienced delays in developing and
introducing new products, and there can be no assurance that it will be able to
introduce future products on a timely basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Strategy" and "--Product Development."
MANAGEMENT OF OVERSEAS OPERATIONS
The Company's headquarters and administrative offices are in Atlanta,
Georgia; however, as of August 31, 1996, approximately 200 of the Company's 230
employees work in the Company's Belfast, Northern Ireland facilities. This
geographical distance, as well as the time-zone difference, can isolate
management from operational issues, delay communications and require devotion of
a significant amount of time, effort and expense to international travel. There
can be no assurance that the Company will not face significant management
demands associated with its international operations in the future. Any
significant disruption in the management of the Company's international
operations could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business--Strategy," "--Product Development" and "--Marketing and
Distribution."
6
<PAGE>
OPERATIONS IN NORTHERN IRELAND
A substantial majority of the Company's personnel and operations are located
in Northern Ireland. In addition, 83.7% of the Company's total revenues for
fiscal year 1996 are attributable to operations in Northern Ireland. Northern
Ireland has historically experienced periods of religious, civil and political
unrest. There can be no assurance that further unrest in Northern Ireland will
not occur, which could disrupt the Company's ability to provide information
technology services and product development programs and have a material adverse
effect on the Company's results of operations and financial condition. In fiscal
years 1996, 1995 and 1994, the Company received grants of approximately
$389,000, $369,000 and $285,000, respectively, from the government of Northern
Ireland to fund the Company's research and development programs. The Company's
use of these funds is subject to various rules and regulations, including the
requirement that the Company repay such funds in the event it removes certain
operations from Northern Ireland. There can be no assurance that the Company
will continue to be eligible for or will receive similar grants in the future
or, if such grants are received, whether additional restrictions will apply to
the Company's use of such funds. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Product
Development" and
"--Facilities."
RISK OF ACQUISITION PROGRAM
A substantial portion of the Company's growth to date has been attributable
to its acquisition program, which has primarily been driven by opportunities
that have presented themselves to the Company. Significant administrative,
operational and financial resources are required to successfully integrate and
manage the Company's diverse businesses. There are numerous operational and
financial risks involved in managing acquired businesses, including difficulties
in assimilating acquired operations, diversion of management's attention,
amortization of acquired intangible assets, increases in administrative costs,
additional costs associated with debt or equity financing and potential loss of
key employees or customers of acquired operations. There can be no assurance
that the Company will be successful in integrating its current acquisitions or
retaining and motivating key personnel of acquired companies. Any failure to
integrate the Company's current and potential future businesses, maintain and
expand its acquired customer and technology base and retain and motivate key
employees of acquired companies could have an adverse effect on the Company's
business, results of operations and financial condition. The Company may use
some of the net proceeds of this offering to pursue strategic acquisitions as
part of its overall growth strategy. While the Company has no understandings,
commitments or agreements with respect to any acquisition, it anticipates that
potential acquisition opportunities may become available in the future. There
can be no assurance that the Company will complete any future acquisitions or
that any completed acquisition will result in the Company's receiving the
anticipated benefit of any such acquisition. See "Business--Strategy" and
"--Acquisition History."
COMPETITIVE MARKET FOR TECHNICAL PERSONNEL AND RETENTION OF KEY EMPLOYEES
The Company's success depends in part on its ability to attract, hire, train
and retain qualified managerial, technical and sales and marketing personnel.
Competition for such personnel is intense. In particular, there can be no
assurance that the Company will be successful in attracting and retaining the
technical personnel it requires to conduct and expand its operations
successfully. The Company's results of operations could be materially adversely
affected if the Company were unable to attract, hire, train and retain qualified
personnel. The Company's success also depends to a significant extent on the
continued service of Stephen A. Hafer, its President and Chief Executive
Officer, and other members of the Company's management, the loss of any one of
whom could have a material adverse effect on the Company's business, results of
operations and financial condition. None of the Company's executive officers is
party to a written employment or noncompete agreement with the Company. The
Company has purchased a $1.0 million key person life insurance policy on the
life of Mr. Hafer. See "Management."
7
<PAGE>
UNCERTAINTY OF FUTURE RESULTS
Product revenues generated by the Company's software products are difficult
to forecast because of the evolving product lifecycle of the UNIBOL36 product,
the recent introduction of the UNIBOL400 product and the recent acquisition of
the Company's payment-processing systems business. In addition, although the
Company's service revenues are more predictable than its product revenues,
unexpected variations in job pricing and complexity could have an adverse effect
on the profitability of customer service projects. The Company bases its expense
levels, which are relatively fixed in the short term, in significant part on its
expectations of future product revenues and service demands. If demand for the
Company's products and services is below expectations, results of operations
could be adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Much of the Company's future success depends on its ability to protect its
proprietary technology. The Company relies principally on trade secret and
copyright law, as well as nondisclosure agreements and other contractual
arrangements, to protect such proprietary technology. There can be no assurance
that such measures will be adequate to protect the Company from infringement by
others of its technologies or that the Company will be effective in preventing
misappropriation of its proprietary rights. In addition, the laws of some
foreign countries do not protect the Company's proprietary rights to the same
extent as do the laws of the United States. See "Business--Intellectual
Property."
RISK OF CLAIM ASSOCIATED WITH ACQUISITION
In connection with its acquisition in 1993 of ICS Computing Group, Limited
("ICGL"), the Company incurred a claim by the seller related to pension
overfunding. Based upon the advice of its U.K. solicitor, the Company believes
that it has adequate defenses to this claim such that the expected outcome would
not be material to the Company's results of operations or financial condition.
Due to uncertainties of the legal process, however, there can be no assurance
that the outcome of this claim will be in accordance with the Company's
expectations.
CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Immediately following consummation of this offering, the Company's executive
officers and directors and their affiliates will beneficially hold an aggregate
of approximately 22% of the Company's outstanding shares of Common Stock
(approximately 21% if the Underwriters' over-allotment option is exercised in
full). As a result, these shareholders, acting together, may be able to exert
significant influence on many matters requiring approval by the shareholders of
the Company, including the election of directors. See "Principal Shareholders."
BROAD MANAGEMENT DISCRETION IN USE OF NET PROCEEDS
The Company intends to use approximately $2.0 million of the estimated net
proceeds of this offering for repayment of outstanding indebtedness. The
remainder of the net proceeds will be used for working capital and other general
corporate purposes, including financing anticipated growth. Accordingly, the
Company's management will retain broad discretion as to the use of a substantial
portion of the net proceeds of this offering. See "Use of Proceeds."
VOLATILITY OF STOCK PRICE
The Common Stock is currently quoted on the Nasdaq National Market. The
market price of the Common Stock could be subject to significant fluctuations in
response to quarterly variations in the Company's results of operations, changes
in earnings estimates by analysts, announcements of new products or services
offered by the Company or its competitors, loss of key customer, distributor or
vendor
8
<PAGE>
relationships, general conditions in the computer software industry, or other
events or factors, including events or factors that may be unrelated to the
Company. Furthermore, in recent years, the stock market in general, and the
market for shares of stock in technology companies in particular, has
experienced extreme price fluctuations. Such fluctuations could materially and
adversely affect the market price of the Common Stock in the future. See "Price
Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock. Upon completion of this
offering, in addition to the 1,500,000 shares offered hereby, approximately
3,698,000 shares that are not subject to lock-up agreements with the
Representative will remain eligible for resale in the public market without
restriction under the Securities Act of 1933, as amended (the "Securities Act").
The executive officers, directors, certain other shareholders of the Company and
their affiliates and certain warrant holders have agreed, pursuant to lock-up
agreements with the Representative, that they will not, without the prior
written consent of the Representative, sell or otherwise dispose of an aggregate
of approximately 1,631,000 outstanding shares of Common Stock and approximately
525,000 shares of Common Stock issuable upon exercise of outstanding options or
warrants beneficially owned by them for a period of 12 months from the date of
this Prospectus. Upon the expiration of these lock-up agreements, such shares of
Common Stock will become eligible for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act. The Representative may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to any of such lock-up agreements.
In September 1996, the Company filed a registration statement on Form S-3
(Registration No. 333-11605) for the resale of up to 125,000 shares acquired by
the holders of such shares in connection with the Company's acquisition of Smoky
Mountain. As of October 31, 1996, Messrs. George Gruber and B. Michael Wilson
have sold a total of 91,131 shares under this registration statement. These
holders also have the right to require the Company to file registration
statements in April 1997 and April 1998 for the resale to the public of an
additional 125,000 shares and 250,000 shares of Common Stock, respectively.
Holders of 235,000 of the shares to be registered for public resale in April
1998 have entered into 12-month lock-up agreements with the Representative,
agreeing to defer their registration rights until the earlier of release of
these shares from the lock-up agreements and the expiration of the lock-up
agreements. The Representative may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to any of
such lock-up agreements. The Company intends to maintain the effectiveness of
the current registration statement on Form S-3 regarding the resale of the
remaining unsold portion of the 125,000 shares. As a result, these shares may be
sold at any time into the public market. In addition, 100,000 of the 125,000
shares eligible for registration in April 1997 have been registered for sale in
this offering in the event the Underwriters' over-allotment option is exercised.
None of the 250,000 shares covered by the current registration statement on Form
S-3 or the registration statement to be filed in April 1997 are covered by
lock-up agreements. See "Principal Shareholders" and "Description of Capital
Stock--Registration Rights."
As of October 31, an aggregate of 200,000 shares of Common Stock were
reserved for issuance pursuant to the Note Warrant and the Advisor Warrants.
Holders of the Note Warrant and the Advisor Warrants each possess certain
registration rights with regard to the 25,000 shares and 175,000 shares,
respectively, issuable thereunder. The holders of the Advisor Warrants have
entered into 12-month lock-up agreements with the Representative, subject to
earlier release by the Representative. See "Description of Capital
Stock--Registration Rights."
As of October 31, 1996, 832,500 shares of Common Stock were subject to
options outstanding under the LTI Plan, 237,502 of which were currently
exercisable at a weighted average exercise price of $3.31 per share. The
remainder of these options become exercisable at various points over the next
four years at a weighted average exercise price of $4.23 per share. An
additional 205,000 shares of Common Stock are
9
<PAGE>
reserved for future issuance under the LTI Plan. The Company has filed a
registration statement on Form S-8 to register the shares of Common Stock
reserved for issuance under the LTI Plan, thus permitting the resale of such
shares in the public market without restriction under the Securities Act,
subject in certain events to the expiration of lock-up agreements and Rule 144.
As of October 31, 1996, 150,000 shares of Common Stock were reserved for
future issuance under the Director Plan. The Company intends to file a
Registration Statement on Form S-8 to register the shares of Common Stock
reserved for future issuance under the Director Plan, thus permitting the resale
of such shares in the public market without restriction under the Securities
Act, subject in certain events to the expiration of lock-up agreements and Rule
144.
Upon completion of this offering, the Representative will receive the
Representative's Warrant to purchase up to 150,000 shares of Common Stock at an
exercise price equal to 165% of the public offering price. The Representative
possesses certain demand and incidental rights to require the Company to
register for public resale the shares of Common Stock issuable under the
Representative's Warrant. The Representative's Warrant may not be exercised
until the first anniversary of the date of this Prospectus. See "Description of
Capital Stock--Representative's Warrant" and "Underwriting."
The Company maintains the effectiveness of a registration statement on Form
S-3 dated June 14, 1993, as amended (Registration No. 33-64312), for the public
resale of 75,000 shares of Common Stock held by Mr. Hafer, the Company's
President, Chief Executive Officer and Chairman of the Board. Of these shares,
16,000 shares have been sold by Mr. Hafer and 59,000 shares remain eligible for
sale. As a result, these shares may be sold at any time into the public market.
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the Company's shareholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the voting and other rights
of the holders of Common Stock. The Company has no present plans to issue shares
of Preferred Stock. Furthermore, certain provisions of the Company's charter
documents may have the effect of delaying or preventing changes in control or
management of the Company, which could have an adverse effect on the market
price of the Common Stock. See "Description of Capital Stock."
DILUTION
The assumed public offering price for the shares of Common Stock offered
hereby is substantially higher than the net tangible book value per share of
Common Stock. As a result, purchasers of shares of Common Stock in this offering
are likely to incur immediate and substantial dilution per share. See
"Dilution."
NO DIVIDENDS ON THE COMMON STOCK
The Company has not paid any cash dividends on the Common Stock since its
inception and does not anticipate paying cash dividends for the foreseeable
future. See "Dividend Policy."
10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered hereby, at the public offering price of $5.00 per share,
are estimated to be approximately $6.1 million (approximately $6.5 million if
the Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company will not receive any proceeds from the sale, if any, of shares of Common
Stock by the Selling Shareholders pursuant to exercise of the Underwriters'
over-allotment option. See "Principal Shareholders."
The Company intends to use approximately $2.0 million of the net proceeds of
this offering to repay principal and accrued interest on certain outstanding
indebtedness, comprised of a short-term line of credit and a term loan. As of
August 31, 1996, the outstanding principal amounts under the short-term line of
credit and the term loan were approximately $1.4 million and $546,000,
respectively. The short-term line of credit bears interest based on the Bank of
Ireland base rate plus 1.75% (7.5% per annum as of August 31, 1996) and matures
in May 1997. The term loan bears interest at LIBOR plus 1.75% (8.63% per annum
as of August 31, 1996) and matures in February 1999. The remainder of the net
proceeds will be used for working capital and other general corporate purposes,
including the potential use of a portion of the net proceeds to finance
strategic alliances or acquisitions of complementary businesses, products or
technologies. Although the Company reviews and considers possible acquisitions
on an on-going basis, no specific acquisitions are currently under consideration
or discussion. The amounts, if any, actually expended for each described use are
at the discretion of the Company and may vary significantly depending on a
number of factors, including the Company's future revenue growth, the amount of
cash generated by the Company's operations, the progress of the Company's
product development programs, changing competitive conditions and market
acceptance of the Company's products.
Pending their uses as set forth above, the net proceeds of this offering
will be invested in government securities or in short-term, investment-grade,
interest-bearing securities.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The following table sets forth, for the periods indicated, the high and low
sale prices of the Common Stock as reported by the Nasdaq National Market. Such
quotations do not include retail mark-ups, mark-downs, or other fees or
commissions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR 1997
Third Quarter (through November 11, 1996)..................................... $ 6.06 $ 5.31
Second Quarter ended August 31, 1996.......................................... 7.63 5.00
First Quarter ended May 31, 1996.............................................. 8.63 6.25
FISCAL YEAR 1996
Fourth Quarter ended February 29, 1996........................................ $ 8.50 $ 5.38
Third Quarter ended November 30, 1995......................................... 7.25 5.25
Second Quarter ended August 31, 1995.......................................... 7.25 3.75
First Quarter ended May 31, 1995.............................................. 4.75 3.25
FISCAL YEAR 1995
Fourth Quarter ended February 28, 1995........................................ $ 3.88 $ 3.00
Third Quarter ended November 30, 1994......................................... 4.13 2.88
Second Quarter ended August 31, 1994.......................................... 4.13 2.25
First Quarter ended May 31, 1994.............................................. 6.13 3.38
FISCAL YEAR 1994
Fourth Quarter ended February 28, 1994........................................ $ 6.38 $ 4.00
Third Quarter ended November 30, 1993......................................... 8.13 4.75
Second Quarter ended August 31, 1993.......................................... 8.88 3.13
First Quarter ended May 31, 1993.............................................. 4.31 2.88
</TABLE>
On November 11, 1996, the closing sale price of the Common Stock on the
Nasdaq National Market was $5.44 per share. As of August 31, 1996, there were
approximately 580 owners of record of the Common Stock. Because many of such
shares may be held by brokers and other institutions on behalf of shareholders,
the Company is unable to estimate the total number of beneficial owners
represented by these record holders.
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock, and presently
intends to retain any future earnings to finance its operations and expand its
business. It therefore does not anticipate paying cash dividends for the
foreseeable future.
12
<PAGE>
DILUTION
The net tangible book value of the Company as of August 31, 1996 was
approximately $2.6 million or $0.46 per share of Common Stock. Net tangible book
value per share represents the Company's total tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding. Without
taking into account any further changes in net tangible book value after August
31, 1996 other than the receipt of the estimated net proceeds from the sale of
the 1,500,000 shares of Common Stock offered hereby at the public offering price
of $5.00 per share, the net tangible book value of the Company as of August 31,
1996 would have been $8,729,000 million, or $1.23 per share. This represents an
immediate increase in net tangible book value of $0.77 per share to existing
shareholders and an immediate dilution of $3.77 per share to purchasers of
Common Stock in this offering, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Public offering price per share............................................... $ 5.00
Net tangible book value per share as of August 31, 1996................... $ 0.46
Increase per share attributable to new investors.......................... 0.77
---------
Net tangible book value per share after this offering......................... 1.23
---------
Dilution per share to new investors........................................... $ 3.77
---------
---------
</TABLE>
The foregoing excludes (i) 832,500 shares of Common Stock issuable upon
exercise of outstanding stock options granted under the LTI Plan, (ii) 205,000
shares of Common Stock reserved for future issuance under the LTI Plan, (iii)
150,000 shares of Common Stock reserved for future issuance under the Director
Plan, (iv) 150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant, (v) 25,000 shares of Common Stock issuable upon
exercise of the Note Warrant, and (vi) 175,000 shares of Common Stock issuable
upon exercise of the Advisor Warrants. The exercise of any of the above
described options or warrants may result in additional dilution. See
"Management--Long-Term Incentive Plan" and "--Director Plan," "Description of
Capital Stock" and "Underwriting."
13
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of August 31, 1996 and (ii) the adjusted capitalization of the Company
reflecting the sale of the 1,500,000 shares of Common Stock offered hereby at
the public offering price of $5.00 per share and the receipt and application of
the net proceeds therefrom (after deducting underwriting discounts and
commissions and estimated offering expenses). The following table should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Revolving lines of credit................................................................. $ 1,826 $ 440
Current portion of long-term debt......................................................... 279 209
--------- -----------
Total short-term debt................................................................. 2,105 649
--------- -----------
Long-term debt, less current portion...................................................... 1,011 467
--------- -----------
Total debt............................................................................ 3,116 1,116
--------- -----------
Stockholders' equity:
Common Stock, $.01 par value per share; 25,000,000 shares authorized; 5,590,245 shares
issued and outstanding, actual; 7,090,245 shares issued and outstanding, as adjusted
(1)................................................................................... 56 71
Additional paid-in capital.............................................................. 8,177 14,302
Retained earnings....................................................................... 1,218 1,218
Treasury stock.......................................................................... (850) (850)
Cumulative translation adjustment....................................................... (183) (183)
--------- -----------
Total stockholders' equity................................................................ 8,418 14,558
--------- -----------
Total capitalization...................................................................... $ 11,534 $ 15,674
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Excludes (i) 832,500 shares of Common Stock issuable upon exercise of
outstanding stock options granted under the LTI Plan, (ii) 205,000 shares of
Common Stock reserved for future issuance under the LTI Plan, (iii) 150,000
shares of Common Stock reserved for future issuance under the Director Plan,
(iv) 150,000 shares of Common Stock issuable upon exercise of the
Representative's Warrant, (v) 25,000 shares of Common Stock issuable upon
exercise of the Note Warrant, and (vi) 175,000 shares of Common Stock
issuable upon exercise of the Advisor Warrants. See "Management's Discussion
and Analysis of Financial Condition--Liquidity and Capital Resources,"
"Management-- Long-Term Incentive Plan" and "--Director Plan," "Description
of Capital Stock" and "Underwriting."
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated financial data selected by the Company set forth below with
respect to the Company's statement of operations data for each of the fiscal
years in the three-year period ended February 29, 1996 and with respect to the
Company's balance sheet data at February 28, 1995 and February 29, 1996, are
derived from the audited consolidated financial statements and notes thereto of
the Company included elsewhere herein. The selected consolidated financial data
with respect to the statement of operations data for February 29, 1992 and
February 28, 1993 and the balance sheet data at February 29, 1992, February 28,
1993 and February 28, 1994 are derived from audited consolidated financial
statements not included in this Prospectus. The selected consolidated financial
data set forth below with respect to the Company's statement of operations data
for the six months ended August 31, 1996 and 1995 and the Company's balance
sheet data at August 31, 1996 are derived from unaudited consolidated financial
statements included in this Prospectus. The selected financial data with respect
to the Company's balance sheet data at August 31, 1995 are derived from
unaudited consolidated financial statements not included in this Prospectus. The
results of operations for the six months ended August 31, 1996 are not
necessarily indicative of results to be expected for any future period of the
fiscal year ending February 28, 1997. The selected consolidated financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
----------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, AUGUST 31, AUGUST 31,
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues........................... $ 1,452 $ 2,799 $ 12,206 $ 18,325 $ 22,291 $ 10,063 $ 11,620
Cost of sales............................ 1,072 1,787 5,407 6,443 7,978 3,368 4,742
--------- --------- --------- --------- --------- ----------- -----------
Gross profit............................. 380 1,012 6,799 11,882 14,313 6,695 6,878
Operating expenses....................... 733 2,009 5,195 9,665 11,758 5,418 5,672
--------- --------- --------- --------- --------- ----------- -----------
Operating income (loss).................. (353) (997) 1,604 2,217 2,555 1,277 1,206
Other expenses (income).................. 47 (17) 139 100 293 98 163
--------- --------- --------- --------- --------- ----------- -----------
Income (loss) before taxes............... (400) (980) 1,465 2,117 2,262 1,179 1,043
Provision for taxes...................... 152 -- 255 495 203 130 300
--------- --------- --------- --------- --------- ----------- -----------
Net income (loss)........................ $ (552) $ (980) $ 1,210 $ 1,622 $ 2,059 $ 1,049 $ 743
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Net income (loss) per share.............. $ (0.21) $ (0.31) $ 0.28 $ 0.34 $ 0.40 $ 0.20 $ 0.14
--------- --------- --------- --------- --------- ----------- -----------
--------- --------- --------- --------- --------- ----------- -----------
Weighted average shares outstanding...... 2,659 3,192 4,344 4,710 5,188 5,186 5,483
Balance Sheet Data:
Total assets............................. $720 $1,550 $7,310 $9,958 $ 16,672 $ 12,036 $ 16,060
Working capital (deficit)................ (235) (391) 656 (566) 1,349 294 1,320
Debt, including current portion.......... 181 503 1,798 1,656 4,507 2,946 3,116
Total stockholders' equity............... 112 (35) 1,851 3,352 6,117 4,638 8,418
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO. EXCEPT FOR THE HISTORICAL INFORMATION
CONTAINED HEREIN, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE
SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING ECONOMIC, COMPETITIVE AND
TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S OPERATIONS, MARKETS, PRODUCTS,
SERVICES AND PRICES, AS WELL AS OTHER FACTORS DISCUSSED IN "RISK FACTORS." THESE
AND OTHER FACTORS MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
ANTICIPATED.
RECENT DEVELOPMENTS
On October 29, 1996, Smoky Mountain entered into an agreement with the
Atalla Division of Tandem, Inc ("Atalla"). Atalla designs, manufactures and
supports secure on-line transaction automation systems for financial, retail and
business applications. Under the agreement, Atalla will act as a worldwide
non-exclusive value added reseller for Smoky Mountain and will market Smoky
Mountain's LAN software and related software with Atalla's APTM Personal
Transaction Machine, a point-of-sale terminal. Atalla will receive preferential
pricing terms and the parties have also agreed not to market competing products
during the two-year term, or any renewal terms, of the agreement.
The Company anticipates shipments under the agreement to begin in the first
calendar quarter of 1997. The Company is currently unable to predict the
contribution the agreement will make to its results of operations. Any such
contribution is subject to various risk factors and uncertainties, including
Atalla's ability to market its products and receive orders, the Company and
Smoky Mountain's being able to fulfill and service those orders, the impact of
competitive products, timely development and market acceptance of the Company's
products and upgrades to existing products and other related risk factors
referenced in this Prospectus. See "Risk Factors."
OVERVIEW
UniComp provides information technology services to businesses located
primarily in the United Kingdom and platform-migration software and
payment-processing systems to users in North America and Europe. In fiscal year
1996, the Company generated $22.3 million in total revenues, of which $11.4
million were derived from information technology services and $5.5 million were
derived from sales of ancillary computer equipment and supplies. The remaining
$5.4 million in revenues were derived from license fees for the Company's
platform-migration software and payment-processing systems. The Company expects
revenues from software licensing to increase as a percentage of total revenues
in the future.
During each of the last three fiscal years, approximately 80% of the
Company's total revenues were derived from its international operations.
Denomination of the Company's revenues and expenses are generally in
corresponding currencies. As a result, the Company has not hedged against
foreign currency exchange rate risks to date.
Cost of sales for maintenance and information technology services includes
supplies, parts, subcontractors and other direct costs of delivering the
services, except for salary costs, which are included in selling, general and
administrative costs. Cost of sales for ancillary computer equipment and
supplies consists of the actual cost of the products sold. Cost of sales for
software licensing includes amortization of capitalized software development
costs, as well as any royalties payable on embedded technologies. The Company
amortizes capitalized software development costs over the estimated life of the
product, generally three to four years. Gross margins can increase significantly
as software licensing revenues increase over amortization costs.
Selling, general and administrative expenses include salaries and related
costs for all employees, travel, internal equipment, premises and marketing
costs, as well as general office and administrative costs. Development grants
received from the government of Northern Ireland have been recorded as a
reduction
16
<PAGE>
in selling, general and administrative expenses, or a reduction in capitalized
development costs, and are anticipated to remain relatively constant for the
foreseeable future. Although the Company expects the dollar amount of selling,
general and administrative expenses to increase as the Company grows, it
anticipates that these expenses will remain constant or decrease as a percentage
of total revenues.
In the first quarter of fiscal year ending February 28, 1997, the Company
began investing in sales and marketing resources associated with the
introduction and promotion of new products such as UNIBOL400 and a version of
UNIBOL36 supporting Windows NT. Additionally, the Company expanded sales and
marketing efforts associated with its newly acquired payment-processing
division. These sales and marketing activities increased selling, general and
administrative expenses in advance of increases in revenues anticipated from
these investments for the six months ended August 31, 1996. The Company expects
these expenses as a percentage of total revenues to decrease from that level for
the remainder of the fiscal year ending February 28, 1997.
In April 1996, the Company completed its acquisition of Smoky Mountain,
which designs, develops and markets payment-processing systems. The acquisition
has been accounted for by the pooling-of-interests method. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. The Selected
Consolidated Financial Data give retroactive effect to the pooling-of-interests
with Smoky Mountain prior to the transaction date since it results in the most
meaningful presentation of historical results. As such, the consolidated balance
sheets at February 29, 1996 and at February 28, 1995 and 1994 and the
consolidated results of operations for the fiscal years ended February 29, 1996
and February 28, 1995 and 1994 present the resulting combined entity in the
Supplemental Consolidated Financial Statements included in this Prospectus. See
Notes 1 and 3 of Notes to the Supplemental Consolidated Financial Statements.
On August 1, 1995, the Company acquired certain assets and liabilities of
Advec Limited ("Advec"), a provider of information technology services and
ancillary products in Northern Ireland. The acquisition has been accounted for
by the purchase method. As such, Advec's results of operations have been
included since the date of acquisition.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations in
dollars and as a percentage of total revenues for the fiscal years ended
February 29, 1996 and February 28, 1995 and 1994 and the six months ended August
31, 1996 and 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
---------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEB. 28, FEB. 28, FEB. 29, AUGUST 31, AUGUST 31,
1994 1995 1996 1995 1996
-------------- -------------- -------------- ------------- -------------
(DOLLARS IN THOUSANDS)
Total revenues............................... $12,206 100.0% $18,325 100.0% $22,291 100.0% $10,063 100.0% $11,620 100.0%
Cost of sales................................ 5,407 44.3 6,443 35.2 7,978 35.8 3,368 33.5 4,742 40.8
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Gross profit................................. 6,799 55.7 11,882 64.8 14,313 64.2 6,695 66.5 6,878 59.2
Operating expenses........................... 5,195 42.6 9,665 52.7 11,758 52.7 5,418 53.8 5,672 48.8
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Operating income............................. 1,604 13.1 2,217 12.1 2,555 11.5 1,277 12.7 1,206 10.4
Other expenses (income)...................... 139 1.1 100 0.5 293 1.3 98 1.0 163 1.4
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Income before taxes.......................... 1,465 12.0 2,117 11.6 2,262 10.2 1,179 11.7 1,043 9.0
Provision for taxes.......................... 255 2.1 495 2.7 203 0.9 130 1.3 300 2.6
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Net income................................... $ 1,210 9.9% $ 1,622 8.9% $ 2,059 9.3% $1,049 10.4% $ 743 6.4%
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
</TABLE>
17
<PAGE>
SIX MONTHS ENDED AUGUST 31, 1996 COMPARED TO SIX MONTHS ENDED AUGUST 31,
1995
REVENUES. Revenues for the six months ended August 31, 1996 increased to
$11.6 million compared to $10.1 million for the comparable period in the prior
fiscal year, an increase of $1.5 million or 15.5%.
Revenues from maintenance and other information technology services
increased to $6.8 million for the six months ended August 31, 1996 from $5.0
million for the comparable period in the prior fiscal year, an increase of $1.8
million or 36.7%. A portion of this increase was due to approximately $450,000
of additional maintenance and service revenues for the six months ended August
31, 1996 arising as a result of the Advec acquisition. The remainder of the
increase was due to an increase in revenues from new and renewed hardware and
software maintenance contracts, as well as an increase in services such as
custom programming and implementation and consultancy.
Revenues from sales of equipment and supplies remained consistent at $2.6
million for the six months ended August 31, 1996 and 1995. An increase in
equipment revenues from the Advec acquisition of approximately $500,000 was
offset by overall decreases in equipment sales from other divisions in Northern
Ireland during the six months ended August 31, 1996. The Company sells computer
equipment and supplies as an adjunct to the maintenance, consulting, and custom
programming businesses. These products have relatively low profit margins
compared to other revenue sources.
Revenues from software licensing decreased slightly to $2.2 million for the
six months ended August 31, 1996 compared to $2.5 million for the comparable
period in the prior fiscal year, a decrease of $262,000 or 10.6%. This decrease
was primarily due to the recognition for the six months ended August 31, 1995 of
$950,000 of revenue associated with a large sale of platform-migration software
to Siemens Nixdorf totaling $1.5 million for the fiscal year ended February 29,
1996. In addition, UNIBOL36 licensing continues to decline as its product life
cycle reaches maturity with revenues of $680,000 for the six months ended August
31, 1996 compared to $990,000 for the comparable period in the prior fiscal
year, a decrease of $310,000. The Company released a version of UNIBOL36
supporting Windows NT in September 1996 which is anticipated to expand the
UNIBOL36 market and may cause an increase in UNIBOL36 revenues in the second
half of fiscal year ending February 28, 1997 as compared to the first half of
the year. This decrease was partially offset by revenues generated by UNIBOL400
of $215,000 for the first half of fiscal year ending February 28, 1997 as the
Company's distributors and resellers utilize and market this product and begin
installs at customer sites.
Revenues generated from payment-processing systems continue to grow
dramatically as this segment expands both market penetration for existing
products and gains market acceptance of new products. Revenues from
payment-processing systems increased to $977,000 for the six months ended August
31, 1996 from $250,000 in the comparable period of the prior fiscal year, an
increase of $727,000.
INTERNATIONAL REVENUES. Revenues from international operations, principally
in the United Kingdom, increased to $9.4 million for the six months ended August
31, 1996 from $8.9 million for the comparable period in the prior fiscal year,
an increase of $481,000 or 5.4%. This increase was primarily attributable to
increased revenues arising as a result of the Advec acquisition and increased
revenues from additional contracts and the renewal of existing contracts offset
by a decline in revenues from the sale of platform-migration software as a
result of the prior year's large sale to Siemens Nixdorf and an overall decrease
in platform-migration revenues.
Revenues in the United States increased to $2.2 million for the six months
ended August 31, 1996 from $1.1 million for the comparable period in the prior
fiscal year, an increase of $1.1 million or 97.6%. This increase was primarily
due to a $749,000 increase in revenues from the payment-processing division for
the first half of fiscal year 1997. Additionally, domestic revenues from the
UNIBOL division increased to $945,000 for the six months ended August 31, 1996
from $632,000 in the comparable period of the prior fiscal year, and increase of
$313,000.
18
<PAGE>
GROSS PROFIT. Gross profit for maintenance and other information technology
services declined slightly to 82.6% of maintenance and service revenues for the
six months ended August 31, 1996 from 88.8% for the comparable period in the
prior fiscal year due principally to pricing pressure caused by more competitive
market conditions on bids for new and renewed contracts.
Gross profit for equipment and software declined to 26.4% of equipment and
software revenues for the six months ended August 31, 1996, compared to 44.9% or
the comparable period in the prior fiscal year. The decrease in gross margin on
equipment and software was principally due to an increase in amortization of
approximately $200,000 on capitalized software based on the first release of
UNIBOL400 in the fourth quarter of the fiscal year ended February 29, 1996 and
the decline in software licensing revenues described above. These margins are
expected to increase in future periods as UNIBOL400 and payment-processing
systems gain additional market acceptance and licensing revenues increase.
OPERATING EXPENSES. Selling, general and administrative expenses increased
to $5.3 million for the six months ended August 31, 1996 compared to $5.1
million for the comparable period in the prior fiscal year, and increase of
$241,000 or 4.7%. This increase was primarily a planned result of increased
costs associated with sales and marketing personnel, increased advertising, and
the introduction and promotion of new products. Selling, general and
administrative expenses as a percentage of total revenues improved to 46.0% for
the six months ended August 31, 1996 compared to 50.5% for the comparable period
in the prior fiscal year. The largest component of the Company's selling,
general and administrative expenses consisted of employee salaries and related
costs, which were $4.1 million for the six months ended August 31, 1996 compared
to $3.9 million for the six months ended August 31, 1995.
OTHER EXPENSES. Other expense was $163,000 for the six months ended August
31, 1996 as compared to $98,000 for the comparable period in the prior fiscal
year. The interest expense component increased to $150,000 for the six months
ended August 31, 1996 from $100,000 for the comparable period in the prior
fiscal year. The increase in interest expense was principally due to interest
costs associated with the $2.0 million principal amount of 7.0% convertible
notes issued in December 1995. All of these notes have been converted into
shares of the Company's common stock as of August 31, 1996.
TAXES. The effective income tax rate (income taxes expressed as a
percentage of pretax income) was 28.8% for the six months ended August 31, 1996,
compared to 11.0% for the comparable period in the prior fiscal year. This
increase was principally due to the fact that the Company became fully taxable
after the elimination of the valuation allowance on the Company's deferred tax
asset during fiscal year ended February 28, 1996, which has resulted in an
increase in the tax provision for the first half of fiscal year 1997 to $300,000
from $130,000 for the comparable period in the prior fiscal year, an increase of
$170,000. Upon completion of an examination by the Inland Revenue Bureau in the
second quarter of fiscal year 1997, the Company recorded a tax credit of
$51,000. The Company's effective income tax rate exclusive of this tax credit
was 33.7%.
FISCAL YEAR ENDED FEBRUARY 29, 1996 COMPARED TO FISCAL YEAR ENDED FEBRUARY
28, 1995
REVENUES. Revenues for fiscal year 1996 increased to $22.3 million compared
to $18.3 million for fiscal year 1995, an increase of $4.0 million or 21.6%.
Revenues from maintenance and other information technology services
increased to $11.4 million for fiscal year 1996 from $9.0 million for fiscal
year 1995, an increase of $2.4 million or 27.6%. Revenues arising from the Advec
acquisition contributed approximately $330,000 to such increase. The remainder
of the increase was due principally to the effects of a full year of revenue
from CI Computer Software Limited ("CICS"), which was acquired in September
1994, and the increase in revenues from additional contracts and the renewal of
existing contracts.
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<PAGE>
Revenues from the sale of ancillary equipment and supplies increased to $5.5
million for fiscal year 1996 from $4.1 million for fiscal year 1995, an increase
of $1.4 million or 34.2%. The increase was principally due to a large sale to
British Coal and the Advec acquisition.
Revenues from software licensing increased to $5.4 million for fiscal year
1996 compared to $4.8 million for fiscal year 1995, an increase of $560,000 or
11.7%. Software sales from payment-processing systems increased to $790,000 for
fiscal year 1996 from $360,000 for fiscal year 1995, an increase of 119.2%.
The foregoing increases were partially offset by the elimination of sound
system revenues for fiscal year 1996 as a result of the divestiture of the
Company's sound systems business in the prior fiscal year.
INTERNATIONAL REVENUES. Revenues from international operations, principally
in the United Kingdom, increased to $18.7 million for fiscal year 1996 from
$15.5 million for fiscal year 1995, an increase of $3.2 million or 20.2%.
Revenues in the United States increased to $3.6 million for fiscal year 1996
from $2.8 million for fiscal year 1995, an increase of $800,000 or 29.9%.
GROSS PROFIT. Gross profit for maintenance and other information technology
services declined slightly to 84.0% of maintenance and other information
technology service revenues for fiscal year 1996 from 88.2% for fiscal year
1995, primarily due to reduced profits attributable to increased price
competition.
Gross profit for ancillary equipment and software was 43.5% of ancillary
equipment and software revenues for fiscal year 1996 compared to 43.0% for
fiscal year 1995. Increased amortization on capitalized software based on the
first release of UNIBOL400 in the fourth quarter of fiscal year 1996 was offset
by higher margins on sales of payment-processing systems.
OPERATING EXPENSES. Selling, general and administrative expenses increased
to $11.0 million for fiscal year 1996 compared to $9.0 million for fiscal year
1995, an increase of $2.0 million or 22.6%. This increase was primarily related
to increased salaries and related costs due to the full-year effect of the CICS
acquisition for fiscal year 1996 and the effect of additional expenses from the
date of the Advec acquisition. Selling, general and administrative expenses as a
percentage of total revenues remained relatively constant at 49.6% for fiscal
year 1996 compared to 49.2% for fiscal year 1995.
OTHER EXPENSES. Other expenses increased to $293,000 for fiscal year 1996
compared to $100,000 for fiscal year 1995, an increase of $193,000. Interest,
the primary component of other expenses, increased to $251,000 for fiscal year
1996 from $224,000 for fiscal year 1995, an increase of $27,000 or 12.1%. The
increase in interest expense was due to the issuance of $2.0 million principal
amount of 7.0% convertible promissory notes in December 1995. The Company also
initiated new borrowings from the Bank of Ireland related to the acquisition of
a new building for Company operations in Belfast, Northern Ireland. Other income
for fiscal year 1995 included the gain on the disposition of the Company's sound
systems business of $154,000.
TAXES. The effective income tax rate (income taxes expressed as a
percentage of pretax income) was 9.0% for fiscal year 1996, compared to 23.4%
for fiscal year 1995. Substantially all the tax expense recorded in fiscal year
1995 related to operations in the United Kingdom. Approximately $450,000 of tax
expense was recorded for operations in the United Kingdom for fiscal year 1996.
Additionally, in fiscal year 1996 approximately $55,000 of tax expense was
recorded in the United States for certain state taxes and federal alternative
minimum taxes. However, the $505,000 of total tax expense recorded for fiscal
year 1996 was reduced by approximately $302,000 due to elimination of the
deferred tax asset valuation allowance relating to the net operating loss
carryforward in the United States. Based on the Company's earnings history and
projected future taxable income, management determined that it was more likely
than not that the balance of the deferred tax asset would be realized in future
periods. Due to the elimination of the deferred tax asset valuation allowance,
the effective income tax rate in future periods is expected to significantly
increase.
20
<PAGE>
FISCAL YEAR ENDED FEBRUARY 28, 1995 COMPARED TO FISCAL YEAR ENDED FEBRUARY
28, 1994
REVENUES. Revenues for fiscal year 1995 increased to $18.3 million compared
to $12.2 million for fiscal year 1994, an increase of $6.1 million or 50.1%.
Revenues from maintenance and other information technology services increased to
$8.9 million for fiscal year 1995 from $5.7 million for fiscal year 1994, an
increase of $3.2 million or 57.7%. Revenues from sales of ancillary equipment
and software increased to $8.9 million for fiscal year 1995 from $6.0 million
for fiscal year 1994, an increase of $2.9 million or 47.8%. These increases were
due principally to the inclusion of ICGL revenues of $14.5 million for an entire
year for fiscal year 1995 compared to $9.1 million for only nine months in
fiscal year 1994. Sound system revenues decreased to $468,000 for fiscal year
1995 from $503,000 for fiscal year 1994 due to the disposition of the Company's
sound systems business in fiscal year 1995.
INTERNATIONAL REVENUES. Revenues in the United Kingdom increased to $15.5
million for fiscal year 1995 from $9.6 million for fiscal year 1994, an increase
of $5.9 million or 62.3%. This increase was primarily due to the inclusion of
the ICGL revenues for an entire year in fiscal year 1995 compared to revenues
for only nine months in fiscal year 1994. Other increases were due to the
inclusion of revenues from CICS, which was acquired in September 1994, of
approximately $533,000 and increases in software license and maintenance fees.
Revenues in the United States increased to $2.8 million for fiscal year 1995
from $2.6 million for fiscal year 1994, which was principally due to an increase
in revenue from sales of payment-processing systems of approximately $475,000
from fiscal year 1994 to fiscal year 1995. Payment-processing systems sales
began in October 1993 and accounted for revenues of $50,000 for fiscal year
1994. This increase was offset by a decrease in certain information technology
service revenues of $207,000 to $182,000 for fiscal year 1995 from $389,000 for
fiscal year 1994.
GROSS PROFIT. Gross profit increased to 64.8% of total revenues for fiscal
year 1995 compared to 55.7% of total revenues in fiscal year 1994. The increase
in gross profit was primarily due to the acquisition of ICGL and continued
growth of operations in the United Kingdom.
OPERATING EXPENSES. Selling, general and administrative expenses increased
to $9.0 million for fiscal year 1995 from $4.6 million for fiscal year 1994, an
increase of $4.4 million or 96.0%. The increase was due principally to the
inclusion of ICGL for the entire year in fiscal year 1995.
OTHER EXPENSES. Other expenses decreased to $100,000 for fiscal year 1995
compared to $139,000 for fiscal year 1994, a decrease of $39,000 or 27.7%. The
interest expense component increased to $224,000 for fiscal year 1995 from
$174,000 for fiscal year 1994 due principally to a full year of debt service on
the purchase of ICGL. Other income in fiscal year 1995 included the gain on
disposal of the Company's sound systems business of $154,000.
TAXES. The effective income tax rate (income taxes expressed as a
percentage of pretax income) was 23.4% for fiscal year 1995, compared to 17.4%
for fiscal year 1994. Substantially all of the tax expense recorded in fiscal
years 1995 and 1994 related to operations in the United Kingdom. During fiscal
year 1994, the Company utilized all remaining tax loss carryforwards in the
United Kingdom, thereby increasing the effective income tax rate in fiscal year
1995 compared to fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant growth, with total revenues growing
to $22.3 million for fiscal year 1996 from $12.2 million for fiscal year 1994, a
compound annual growth rate of approximately 35%. During this period, the
Company has met its liquidity requirements primarily through operations, private
placements of debt and equity securities, bank financing and grants from the
government of Northern Ireland.
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<PAGE>
The Company has generated positive operating cash flows of $2.5 million,
$2.8 million and $3.0 million for each of fiscal years 1996, 1995 and 1994.
During the fiscal year ended February 29, 1996, the Company expended $1.6
million for capital improvements, including approximately $600,000 for a new
building in Northern Ireland. The Company also expended $1.0 million to purchase
the rights to use and modify the source code for the database embedded in the
UNIBOL400 product. Other significant investing expenditures in fiscal year 1996
included the Advec acquisition for approximately $420,000, and increased
capitalization of internally developed software costs of approximately $600,000
to $1.7 million in fiscal year 1996 from $1.1 million in fiscal year 1995,
principally due to an increase in development costs necessary to bring the
UNIBOL400 product to general availability.
The Company issued $2.0 million principal amount of 7.0% convertible
promissory notes in December 1995. The proceeds from the convertible promissory
notes were used to acquire the rights to use and modify the source code of the
database embedded in the UNIBOL400 product and for general working capital
purposes. As of August 31, 1996, all the principal and related accrued interest
thereon had been converted into 430,291 shares of Common Stock.
In connection with the addition of the new building in Belfast, Northern
Ireland, the Company secured a 10-year variable interest mortgage based on LIBOR
plus 1.75% (8.63% per annum as of August 31, 1996) of approximately $690,000
payable with quarterly installments of approximately $17,300. Other significant
sources of cash from financing activities include additional borrowings of
approximately $417,000 on the short-term line of credit in the United Kingdom
and of approximately $618,000 of proceeds from the exercise of stock options.
The Company received grants to fund research and development from the
government of Northern Ireland of approximately $389,000, $369,000 and $285,000
for fiscal years 1996, 1995 and 1994, respectively. These grants are subject to
the legislative rules and regulations of Northern Ireland and the United
Kingdom. Management does not anticipate that the receipt of grants will diminish
significantly in the foreseeable future; however, there can be no assurance that
the Company will be able to continue to receive such grants.
The Company believes that the net proceeds of this offering, together with
cash generated from operations and available credit, if necessary, will be
sufficient to meet its working capital needs both on a short- and a long-term
basis. However, the Company's capital needs will depend on many factors,
including the Company's ability to maintain the upward trend of profitable
operations, the need to develop and improve products, and various other factors.
Depending on its working capital requirements, the Company may seek additional
financing through debt or equity offerings in the private or public markets at
any time. The Company's ability to obtain additional financing will depend on
its results of operations, financial condition and business prospects, as well
as conditions then prevailing in the relevant capital markets. There can be no
assurance that financing will be available or, if available, will be on terms
acceptable to the Company.
SEASONALITY AND INFLATION
The Company's operations have not proven to be significantly seasonal,
although quarterly revenues and net income may vary. Although the Company cannot
accurately determine the amounts attributable thereto, the Company has been
affected by inflation through increased costs of employee compensation and other
operating expenses. The Company believes that these have not had a material
effect on the Company's results of operations or financial condition.
22
<PAGE>
BUSINESS
OVERVIEW
UniComp provides information technology services to businesses located
primarily in the United Kingdom and platform-migration software and
payment-processing systems to users in North America and Europe. The Company's
strategy is to emphasize its platform-migration and payment-processing software
products and to expand its services business within its existing geographic
markets. The Company believes this strategy will allow it to expand profit
margins and provide its high-quality information technology services to a broad
and growing installed base of users of its platform-migration and
payment-processing products.
The Company has experienced significant growth, with total revenues growing
to $22.3 million for fiscal year 1996 from $12.2 million for fiscal year 1994, a
compound annual growth rate of approximately 35%. In fiscal year 1996,
approximately 51% of total revenues were derived from the Company's maintenance
and other information technology services, with more than 80% of total revenues
attributable to international operations, primarily in Northern Ireland.
INFORMATION TECHNOLOGY SERVICES
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs of maintaining
internal information technology resources capable of responding to such change.
The Company believes that, as companies strive to compete and utilize complex
new technologies, more companies will move toward outsourcing their information
technology requirements. The Company believes that this movement will enhance
its information technology services business.
The Company provides information technology services, including maintenance
and support services, installation and integration of software and hardware
systems and outsourcing of information technology services. Maintenance and
support services consist of system upkeep, including system maintenance,
technical support and training. Installation and integration services include
system consulting and design, custom software modification, software
installation and testing, as well as a broad range of systems configuration and
integration services for computer networks. The Company also provides
information technology services to businesses on an outsourced basis, thereby
offering its customers an opportunity to reduce information technology overhead
while continuing to respond to technological change. Outsourcing services
include disaster recovery, facilities management and related information
technology support services.
PLATFORM-MIGRATION SOFTWARE
During the past several years, there has been a movement in the computer
industry from proprietary systems toward open and portable systems. The Company
believes that decreasing prices, increasing functionality in information
technology products and the inherent constraints of proprietary platforms have
contributed to increased market acceptance of open systems and customer demand
for information technology products based on such systems. Changing to new
computing platforms, however, often results in significant disruption of
business operations as users are retrained and software errors are discovered
and corrected. Also critical is the potential loss of data contained in existing
databases that may result from a change to new applications software.
In response to the demand for applications software capable of running on
multiple computing platforms, UniComp has developed platform-migration software
that rehosts existing code to an open computing platform. The Company believes
that its UNIBOL rehosting solution allows businesses and independent software
vendors ("ISVs") to migrate their applications software to open systems in a
more
23
<PAGE>
cost-effective manner than competing methodologies. Rehosting enables businesses
to retain their investment in existing software and databases. Rehosting also
allows ISVs to expand their market opportunities without replacing or rewriting
applications, retraining or replacing software developers or incurring the cost
and disruption of re-engineering their products.
PAYMENT-PROCESSING SYSTEMS
Payment processing refers to the sequence of activities that occur among a
customer, a merchant and a payment processor when goods or services are sold.
Payment processing for commercial businesses has grown rapidly in recent years
as a result of a proliferation in and increased usage of credit and debit cards
and wider acceptance of such cards among merchants. Advances in
payment-processing and telecommunications technologies have also been key
factors contributing to such growth. The Company believes that the transition
from paper-based to electronic payment processing provides greater convenience
to merchants and consumers, reduces fees charged to merchants and facilitates
faster, more accurate settlement of payments.
The Company designs, develops and markets payment-processing systems that
provide merchants with greater hardware independence by supporting a variety of
hardware platforms, including personal computers, point-of-sale terminals and
other peripheral devices. Payment-processing systems include the software and
hardware combinations that allow electronic settlement of payment transactions.
The Company's strategy in the payment-processing market is to focus its sales
and marketing efforts on the relatively small number of large payment processors
and hardware vendors. The Company is currently selling its payment-processing
systems to each of the three largest payment processors in the United States,
which together represent over one million merchant locations and more than $250
billion in annual transaction volume.
MARKETS
INFORMATION TECHNOLOGY SERVICES
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs of maintaining
internal information technology resources capable of responding to such change.
According to the Outsourcing Institute, a leading industry publication, the
worldwide information technology services market, which includes maintenance,
support and systems integration services, was estimated to be $38 billion in
1995 and is expected to grow to $65 billion by 1998. The information technology
services market in Northern Ireland, where more than 80% of the Company's total
revenues are derived, is estimated by the Company to have been approximately
$150 million in 1995. The Company believes that the information technology
markets in Northern Ireland and the United Kingdom are regionally focused and
highly fragmented, with the U.K. market being substantially larger than that of
Northern Ireland. The Company believes that as companies strive to compete and
utilize complex new technologies, more companies will move toward outsourcing
their information technology requirements.
PLATFORM-MIGRATION SOFTWARE
IBM's midrange computing platforms, the System/36 and the AS/400, have
served as a popular computing solution for business applications since IBM's
introduction of these two systems in 1983 and 1988, respectively. While IBM
discontinued producing the System/36 in 1988, industry sources estimate
approximately 150,000 System/36 systems remained in use worldwide at the end of
1995. Industry publications estimate that over 360,000 AS/400 systems were in
use worldwide at the end of 1995. The Gartner Group estimates that, by the end
of 1997, the installed base of AS/400 systems will increase to over 450,000
systems worldwide.
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<PAGE>
In adopting IBM's midrange computing platforms, businesses, and the ISVs
that support them, have invested substantial resources developing applications
software that provides a wide variety of manufacturing, accounting and other
information-management functions. According to industry sources, by 1995, an
estimated 25,000 software applications had been developed for use on AS/400
systems. Development of applications software intended for use on IBM's midrange
computing platforms continues, assisted by approximately 8,000 ISVs that IBM
estimates develop and market applications software for the AS/400 platform. In
1995, these ISVs generated an estimated $2.5 billion in revenues from AS/400
applications software sales.
IBM computing platform users and developers have historically been
constrained by the nonportable and proprietary nature of IBM's operating
systems. Software applications written for the System/36 and AS/400 platforms
would not run on other computing platforms, including those using open operating
systems such as UNIX, or other portable operating systems such as Windows NT.
These other computing platforms often offer users significant advantages,
including access to a wider range of software and hardware vendors, as well as
increased system capacity, interoperability and scalability. Since the late
1980s, vendors of hardware and, to a lesser extent, software have experienced
substantial price reductions of their products due to increased competition and
the availability of alternative operating systems. The Company believes that
decreasing prices and increasing functionality in information technology
products have also led to increased market acceptance of open systems and
customer demand for information technology products based on such systems. The
Gartner Group estimates that sales of server/host systems based on the UNIX and
Windows NT operating systems will increase to $40 billion annually by the year
2000, up from an estimated $22 billion in 1996. Industry sources estimate that
the UNIX applications software market is currently smaller, but growing faster,
than the AS/400 applications software market.
Changing to new computing platforms often results in significant disruption
of business operations as users are retrained and errors in the new software are
discovered and corrected. Even more critical to many businesses is the potential
loss of data contained in existing databases that may result from a change to
new applications software. ISVs must also adapt to customer demands associated
with increased popularity of new computing platforms. ISVs that have developed
successful AS/400 applications software are faced with the challenge of
migrating their products to new platforms to meet customer demands while
maintaining their existing customer base for applications software running on
the AS/400 platform.
Approaches to migrating System/36 and AS/400 systems may be summarized as
follows:
<TABLE>
<S> <C>
REFACING Refacing involves replacing the "green-screen" interface with a
graphical user interface. Because refacing affects only the end-user
interface, the source code must still be run on the original computing
platform, thereby defeating the goal of many users to upgrade system
performance, interoperability and scalability.
RE-ENGINEERING Re-engineering requires rewriting existing applications software to
enable it to operate on a new computing platform. Since this entails
completely rewriting applications software to meet customer
requirements, it often results in increased cost, risk of failure,
disruption and delay.
PACKAGED SOLUTIONS Migrating to a new computing platform can sometimes be accomplished by
installing an applications software package that has been
independently developed to run on open or portable platforms. While a
substantial number of packaged software applications are available,
businesses implementing this approach will often have to abandon their
investment in existing databases and software and may incur
substantial retraining costs.
</TABLE>
25
<PAGE>
<TABLE>
<S> <C>
REHOSTING Rehosting involves migration of applications software to a new
computing platform with minimal change to the source code or user
interface. Rehosting is achieved by rebuilding applications software
to run efficiently on the new computing platform. This solution often
enables businesses to enjoy the continued use of their existing
programs and databases, reduce retraining costs and obtain the
advantages of a new computing platform. The Company offers a rehosting
solution through its UNIBOL product line.
</TABLE>
PAYMENT-PROCESSING SYSTEMS
The market for payment-processing systems has grown substantially over the
last several years as electronic-based transaction settlement has begun to
replace paper-based settlement. According to Credit Card News, a leading
industry publication, the total U.S. credit-card charge volume for VISA and
MasterCard was in excess of $530 billion in 1995 and represented in excess of 9
billion transactions, up from $440 billion and 7.6 billion transactions in 1994.
The market for check verification services has also demonstrated rapid growth.
The dollar volume of checks verified in 1995 increased 18.1% to $178 billion
from $151 billion in 1994.
The payment-processing market is dominated by a few large
transaction-processing companies, the five largest of which, the Company
believes, are as follows:
<TABLE>
<CAPTION>
AGGREGATE MERCHANT
TRANSACTION VOLUME LOCATIONS
------------------ -----------
<S> <C> <C>
First Data Merchant Services....................................................... $ 129.5 billion 558,000
National Processing, Inc........................................................... $ 65.7 billion 125,000*
National Data Corporation.......................................................... $ 65.0 billion* 400,000*
Bank of America.................................................................... $ 24.8 billion 95,000
First USA Payment Tech, Inc........................................................ $ 24.6 billion 180,000
</TABLE>
- ------------------------
Sources: Credit Card News, June 15, 1996; *Company estimates
STRATEGY
The Company's strategy is to become the leading provider of
platform-migration software and hardware-independent payment-processing systems
to businesses worldwide, and to continue to provide high-quality information
technology services in the United Kingdom. Key elements of this strategy
include:
LEVERAGE COMPLEMENTARY BUSINESSES. The Company intends to initiate efforts
to market its information technology services to its platform-migration software
and payment-processing systems clients. The Company believes that cross-selling
among its different businesses will increase total revenues by expanding the
range of customers to whom it can effectively market its information technology
services and products.
EMPHASIZE SOFTWARE PRODUCTS. To enhance its current competitive advantage,
the Company intends to continue to invest in product development and marketing.
Initially, the Company intends to focus on its UNIBOL400 product, including
developing support for programs written using the COBOL/400 language, as well as
support for the Windows NT platform. The Company is also developing enhancements
and add-ons to its payment-processing systems to provide data collection for
time and attendance reporting, inventory ordering, frequent shopper programs,
electronic benefits processing and remote bill paying. Finally, the Company
intends to expand its marketing efforts for platform-migration software and
payment-processing systems, primarily through increasing its direct sales force
to better penetrate target markets.
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<PAGE>
EXPAND WITHIN EXISTING GEOGRAPHIC MARKETS. The Company believes that its
success to date is partially attributable to a preference by many companies
located in Northern Ireland and the United Kingdom to conduct business with
regional providers of information technology services. The Company intends to
leverage its name recognition and reputation within its existing geographic
markets to increase its market share in Northern Ireland and expand its customer
base throughout the United Kingdom.
EXPAND DISTRIBUTION CHANNELS. The Company intends to continue to emphasize
distribution of its platform-migration software and payment-processing systems
through multiple distribution channels. It currently markets and distributes its
platform-migration software through its direct sales force, as well as through
independent distributors in over 30 countries. Additionally, the Company has
entered into strategic or marketing relationships with major UNIX hardware
system vendors, including Hewlett-Packard, Siemens Nixdorf and Data General, as
well as international systems integrators. The Company also markets and sells
its platform-migration software through ISVs. The Company believes that its
multichannel distribution strategy enables it to effectively market its products
and services to a wide range of potential customers. The Company currently
markets its payment-processing systems through large transaction-processing
companies, as well as point-of-sale hardware and software vendors.
ACQUIRE STRATEGIC BUSINESSES, PRODUCTS AND TECHNOLOGIES. The Company
intends to continue to seek opportunities to acquire businesses, products and/or
technologies that it believes will complement its business operations. The
Company seeks opportunistic acquisitions that may provide complementary
technology, expertise or access to certain distribution channels. In addition,
the Company may seek to acquire certain component technologies that may provide
opportunities to accelerate its product development efforts.
PRODUCTS AND SERVICES
UniComp provides information technology services and designs, develops and
markets platform-migration software and payment-processing systems. In fiscal
year 1996, UniComp generated $22.3 million in total revenues, of which $11.4
million were derived from information technology services and $5.5 million were
derived from sales of ancillary computer equipment and supplies. The remaining
$5.4 million in revenues were derived from license fees for the Company's
platform-migration software and payment-processing systems.
INFORMATION TECHNOLOGY SERVICES
The Company provides a wide variety of information technology services,
including maintenance and support services, installation and integration of
software and hardware systems and outsourcing of information technology
services. Maintenance and support services consist of system upkeep, including
computer system maintenance, technical support and training. Installation and
integration services include system consulting and design, custom software
modification, software installation and testing, as well as a broad range of
systems configuration and integration services for computer networks. The
Company also provides information technology services to businesses on an
outsourced basis, offering its customers an opportunity to reduce information
technology overhead while continuing to respond to technological change.
Outsourcing services include disaster recovery, facilities management and
related information technology support services.
Typically, the Company's maintenance and support contracts are for an
initial term of one to three years and are terminable by either party upon three
months' notice subsequent to the initial term. The Company's installation and
integration contracts typically provide for payment on a time-and-materials
basis and are terminable by the customer on 30 days' notice. Outsourcing
agreements vary by customer, depending on the type of service to be provided by
the Company.
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PLATFORM-MIGRATION SOFTWARE
The Company designs, develops and markets platform-migration software under
its UNIBOL brand.
UNIBOL36. The UNIBOL36 system rehosts applications software written in RPG
or COBOL, and related data, from IBM's System/36 to UNIX or Windows NT systems.
During each of the last three fiscal years, the UNIBOL36 product has been the
Company's largest source of revenues from software licensing.
UNIBOL400. The UNIBOL400 system rehosts applications software written in
RPG/400 from IBM's AS/400 to UNIX systems. The Company released version 1.05,
the first version released for widespread commercial distribution, in February
1996. In August 1996, the Company released a version supporting Oracle database
connectivity. As of August 31, 1996, the UNIBOL400 system was installed at 10
sites in the United States and Europe.
Advantages of the UNIBOL rehosting solution include:
<TABLE>
<S> <C>
VERSATILITY The UNIBOL36 system enables the migration to open systems of
applications software written in either RPG or COBOL languages. The
Company currently offers the UNIBOL36 system on most major UNIX
platforms, including IBM RS/6000, HP9000, Siemens Nixdorf RM Series,
DEC Alpha, Sun Sparcstation, Data General Aviion and Intel/SCO UNIX.
The UNIBOL400 system currently supports applications software written
in the most popular AS/400 language, RPG/400. The Company expects to
release a version that supports COBOL/400 in calendar year 1997. The
UNIBOL400 system is currently available on four UNIX hardware
platforms, including two of the most popular UNIX platforms. In
September 1996, the Company released its UNIBOL36 NT product, which
supports the Windows NT platform. The Company also plans to develop a
version of the UNIBOL400 system that supports Windows NT.
USER INTERFACE The UNIBOL systems preserve the "look and feel" of the legacy system's
user interface, thereby saving businesses that are migrating to a new
computing platform substantial retraining, documentation and technical
support costs. By enabling the use of a single set of end-user
documentation, this feature allows for efficient technical support of
applications software running on multiple computing platforms.
DEVELOPER INTERFACE The UNIBOL systems offer software developers many System/36- and
AS/400-style development tools, as well as access to native UNIX
development facilities. This feature facilitates the transition from a
System/36 or AS/400 development environment to a UNIBOL environment on
new computing platforms and allows further development of migrated
applications software.
NATIVE ENVIRONMENT The UNIBOL36 and UNIBOL400 systems are native System/36 and AS/400
application development and execution environments for open systems,
essentially replacing the functionality of the proprietary operating
system under which the applications software was written. The Company
believes that, as a native open-systems environment, the UNIBOL
environment generally enables applications software to operate at
least as efficiently as under the original proprietary operating
system.
</TABLE>
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<TABLE>
<S> <C>
MILLENNIUM FEATURE Many software applications contain six-character date fields with a
two-character year that will incorrectly interpret the year 2000 as
the year 1900. The Company's UNIBOL36 product solves this rapidly
approaching problem through an algorithm that interprets two-digit
years that are less than 40 as being in the 21st century rather than
the 20th century, thereby solving the millennium problem without
extensive re-coding. Users may change year settings to increase or
decrease the trigger value.
</TABLE>
PAYMENT-PROCESSING SYSTEMS
The Company designs, develops and markets software and hardware systems to
facilitate the settlement of electronic payment transactions. Functions
supported by the Company's payment-processing systems include credit, debit and
purchase-card processing, check authorization and guarantee, signature capture,
communication, retrieval and address verification. To address the lack of
interoperability that now exists among many vendors' hardware and software
products, the Company's payment-processing systems are designed to provide
payment processors and merchants with a high degree of hardware independence by
supporting a variety of hardware platforms, including personal computers and
certain point-of-sale terminals, as well as the Company's own payment-processing
hardware and other peripheral devices.
The Company believes its Universal Payment Software ("UPS") to be the most
critical component of its payment-processing systems. The UPS applications
software facilitates transaction processing at merchant locations and operates
on a variety of hardware platforms, including personal computers, the Company's
Universal Payment Adapter Master Controller and certain electronic cash
registers ("ECRs"). The UPS applications software facilitates a variety of
functions, including credit, debit and purchase-card processing, check
authorization and guarantee, signature capture, communication and retrieval and
address verification.
The Company also designs, develops and markets a variety of ancillary
hardware, software and related systems that comprise certain of its
payment-processing systems. The Company's Universal Terminal Software acts as
the application environment for a variety of point-of-sale peripherals, while
the Universal Payment Host resides on a personal computer located at the payment
transaction processor and collects data for authorization and settlement
processing on the host computer. The Company's Universal Payment Adaptor Master
Controller and Universal LAN Adapter products provide the hardware platforms on
which the UPS applications software operates and supports connectivity with up
to 63 peripheral devices, including several types of point-of-sale terminals,
ECRs, printers and other devices, as well as entire local area networks.
MARKETING AND DISTRIBUTION
The Company currently markets and distributes its services and products in
the United States and the United Kingdom through its direct sales force. In
addition, the Company markets its platform-migration software through
independent distributors in over 30 countries. The Company has entered into
strategic relationships with major UNIX hardware system vendors, including
Hewlett-Packard, Siemens Nixdorf and Data General, as well as international
systems integrators. The Company also markets and sells its platform-migration
software through ISVs. The Company believes that its multi-channel distribution
strategy enables it to effectively market its platform-migration software and
services to a wide range of potential customers. The Company currently markets
its payment-processing systems through large transaction-processing companies,
as well as through point-of-sale hardware and software vendors.
DIRECT SALES AND MARKETING FORCE
As of August 31, 1996, the Company marketed and sold its information
technology services through 22 direct sales and marketing personnel. The Company
organizes its information technology services business
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such that each service technician maintains a direct relationship with certain
of the Company's service customers. Specific marketing programs vary by target
customer. The Company believes that its direct sales approach, including having
Company service technicians serve as client-relationship managers, leads to
better account penetration and management, better communications and long-term
relationships with its clients and greater opportunities for follow-on sales of
products and services to its existing client base. To date, the Company has
focused its sales and marketing efforts for information technology services
primarily on businesses in Northern Ireland.
As of August 31, 1996, the Company marketed and sold its platform-migration
software directly through the Company's 18-person UNIBOL sales and marketing
staff, which is supported by 15 individuals on the Company's UNIBOL technical
support staff. UNIBOL's direct sales force operates from the Company's offices
in Belfast, Atlanta, Dallas and Los Angeles. The Company markets its UNIBOL
products through direct mail, public relations, advertising programs, seminars,
audio conferences, trade shows, newsletters and its Internet homepage.
As of August 31, 1996, the Company marketed and sold its payment-processing
systems directly through a three-person sales and marketing staff. The Company
also employs two technical support personnel focused on payment-processing
systems. The Company is currently selling its payment-processing systems to each
of the three largest payment processors, which together represent over one
million merchant locations and more than $250 billion in annual transaction
value. Because the target market for the Company's payment-processing systems
consists of a small number of large transaction processors, the Company's direct
sales staff markets its payment-processing systems largely through system
demonstrations and collateral sales materials.
DISTRIBUTORS
As of August 31, 1996, independent distributors in over 30 countries sold
the Company's UNIBOL products. Distributors primarily consist of software
consultants and systems integrators. A distributor qualifies to sell the
Company's products by paying an annual support and maintenance fee. The
Company's distribution agreements typically provide for a one-year term and are
terminable upon 60 days' notice by either party. The Company's distributors
generally do not hold inventory of UNIBOL products, but will place orders for
immediate shipment.
The Company generally does not rely on distributors in its other businesses.
HARDWARE VENDORS
The Company is a strategic partner in Hewlett-Packard's AS/400 Open Midrange
Alternative Program, which provides cooperative marketing support for the
UNIBOL400 product. In addition, the Company has an OEM bundling agreement with
Siemens Nixdorf under which Siemens Nixdorf provides platform-migration,
training, systems integration and ongoing support services for UNIBOL products.
The Company is also an authorized ISV for Data General's Aviion computer systems
and is a strategic partner in Data General's worldwide competitive ISV
recruitment program, which provides the Company with access to cooperative
marketing programs and applications software porting assistance.
INDEPENDENT SOFTWARE VENDORS
According to industry sources, there are approximately 8,000 ISVs currently
supporting applications software for the AS/400 platform. The Company believes
that, by using the UNIBOL400 system, ISVs will be able to offer their
applications software on open systems and other portable platforms. The Company
believes it can accelerate market acceptance of its UNIBOL400 product by
leveraging its reputation in the System/36 market and focusing on the ISV
distribution channel. The Company also believes that, by using the ISV
distribution channel, it will derive licensing revenue from both the initial
sale to an ISV of the
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UNIBOL400 system and from subsequent license fees payable when an ISV licenses
its migrated applications to end users.
As of August 31, 1996, the Company had entered into licensing agreements
with over 25 ISVs for the UNIBOL400 product. The Company believes these ISVs
have developed significant software tools in their respective industries, which
are often mission-critical, enterprise-wide software applications for a specific
vertical market. These ISVs and their respective industries include HTE, Inc.
(public sector), Artesia Data Systems, Inc. (oil and gas) and Cass Logistics
Inc. (transportation). Generally, the Company's UNIBOL ISV agreements are
nonexclusive, have a one-year term and are terminable by either party on 30
days' notice. Typically, an ISV will pay an initial development and migration
fee and annual support payments to the Company for the right to migrate the
ISV's applications software to a new computing platform, and will pay an
additional fee for each user of the ISV's applications software running under
the UNIBOL400 system.
SIGNIFICANT CUSTOMERS
No one of the Company's customers accounted for more than 10% of the
Company's total revenues in any of its three most recent fiscal years. The
following table lists some of the Company's significant end-users and customers.
INFORMATION TECHNOLOGY SERVICES
British Fuels Limited
CPL Distribution Limited
Data Sciences UK Limited
Dopra Systems Integration Limited
Dupont Limited
Granada Computer Services. (UK) Limited
Guinness & Co. (NI) Limited
Harland & Wolff PLC
John Henderson Limited
Northern Ireland Airports Limited
Northern Ireland Health Boards
Ulster Carpet Mills Limited
PAYMENT-PROCESSING SYSTEMS
First Data Merchant Services
National Data Corporation
National Processing, Inc.
Telecheck Services, Incorporated
PLATFORM-MIGRATION SOFTWARE
Data General Corporation
DECSA S.A.S.
DCS Limited
DHL International Limited
Glasgow City Council
Hewlett-Packard Company
Logix
Siemens Nixdorf Informations Systeme AG
Sligos
Synapse Midrange Services Limited
Tesco Stores Limited
PRODUCT DEVELOPMENT
As of August 31, 1996, the Company's product development staff consisted of
31 employees, 28 of whom were located in Belfast, Northern Ireland. The market
for midrange business computing products has historically been characterized by
frequent technological advances, evolving industry standards and escalating
customer expectations. As a result, the Company's future growth and success will
be largely dependent on its ability to enhance its existing products and develop
or acquire new products.
The Company anticipates that the long-term success of the UNIBOL400 product
will require further product development, including development of support for
the Windows NT platform. The Company anticipates supporting Windows NT by
implementing a client/server version of its UNIBOL400 product, with a Windows 95
or Windows NT personal computer client networked to a server running Windows NT
and supporting object linking and embedding technology. Following the release of
the client/server version of UNIBOL400 for Windows NT, the Company plans to
develop an object-oriented application framework for use in the development and
deployment of commercial applications software.
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The Company is also developing enhancements and add-ons to its
payment-processing systems to provide data collection for time and attendance
reporting, inventory ordering, frequent shopper programs, electronic benefits
processing and remote bill paying.
COMPETITION
Some of the Company's current and potential competitors have longer
operating histories and financial, sales, marketing, technical and other
competitive resources that are substantially greater than those of the Company.
As a result, the Company's competitors may be able to adapt more quickly to
changes in customer needs or to devote greater resources to this market than the
Company. Such competitors could also attempt to increase their presence in the
Company's markets by forming strategic alliances with other competitors of the
Company, offering new or improved products and services to the Company's
customers or increasing their efforts to gain and retain market share through
competitive pricing. As the markets in which the Company competes have matured,
price competition has intensified and is likely to continue to intensify. Such
price competition could adversely affect the Company's results of operations.
There can be no assurance that the Company will be able to continue to compete
successfully with existing or new competitors.
INFORMATION TECHNOLOGY SERVICES
The Company believes that it is one of the largest providers of information
technology services in Northern Ireland. The market for the Company's
information technology services is intensely competitive due primarily to low
barriers to entry. The Company believes that the primary competitive factors in
this market include familiarity with local customs and practices, price,
technical expertise and reputation. The Company believes that it has many direct
and indirect competitors, none of which is dominant in the Company's
marketplace. The Company faces indirect competition from hardware manufacturers
that service their own equipment such as Digital Equipment Company and IBM. The
Company also faces direct competition from various independent information
technology service providers in Northern Ireland.
The Company believes that it competes by providing quality products and
services at competitive prices. The Company also believes that it distinguishes
itself from its competition on the basis of its technical expertise, vendor
alliances, direct sales strategy and customer-service orientation. Based on the
level of the Company's recurring business with many of its large customers, the
Company believes that it compares favorably to many of its competitors with
respect to the principal competitive factors set forth above.
PLATFORM-MIGRATION SOFTWARE
The market for the Company's platform-migration software is highly
competitive. The Company believes that the principal competitive factors in this
business include product performance, time to market for new product
introductions, adherence to industry standards, price and marketing and
distribution resources. The Company believes that it competes favorably in all
of these categories. The Company faces direct competition from developers of
rehosting solutions, including Financial Technologies, Inc., Universal Software,
Emphasys Software and California Software, Inc. In addition, the Company faces
competition from companies that provide other migration solutions such as
refacing, re-engineering and packaged software applications. These competitors
include Wall Data Incorporated, PKS Software GmbH, Raconix and EFA Associates.
PAYMENT-PROCESSING SYSTEMS
The market for the Company's payment-processing systems is highly
competitive. The Company believes that the principal competitive factors in this
business include the ability to provide comprehensive, integrated
payment-processing systems, product performance, time to market for new product
introductions, adherence to industry standards, price, marketing and
distribution resources. The Company believes that it competes favorably in all
of these categories. The Company faces competition from vendors of
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payment-processing software and hardware systems, including Verifone, Checkmate,
IC Verify, Banktec and Open Systems.
ACQUISITION HISTORY
In December 1985, the Company was organized as Liberty Ventures, Ltd., a
Colorado corporation, for the primary purpose of seeking selected mergers or
acquisitions. In September 1986, the Company acquired UniComp Systems, Inc., a
Texas corporation, for shares of the Company's Common Stock and changed its name
to UniComp, Inc.
In June 1992, for 1,500,000 shares of the Company's Common Stock, the
Company acquired Arccom Management Systems, Inc., a Georgia corporation largely
owned by two of the Company's executive officers and directors, Messrs. Henry
and Hafer, that marketed and sold the UNIBOL36 product in the United States.
In May 1993, the Company acquired for $4.1 million ICGL, a U.K. company
consisting of three subsidiary companies, one of which, Unibol, Ltd., is the
developer of the UNIBOL36 and UNIBOL400 platform-migration software. The
acquisition of ICGL also included its two subsidiaries specializing in the
delivery of technology products and services to businesses located in Northern
Ireland and the United Kingdom: ICS Computing Limited, specializing in
vertical-market applications software and services; and Computer Maintenance
Ireland Limited, providing hardware maintenance, systems integration, training
and systems support, primarily in Northern Ireland.
In September 1994, the Company acquired CICS, a United Kingdom company that
provides software consultancy, custom software applications and hardware supply
and installation for the IBM AS/400 marketplace in Northern Ireland, primarily
in exchange for assuming the net liabilities of CICS and forgiving a $200,000
working capital loan made by CICS to the seller.
In August 1995, the Company acquired the assets (including hardware sales
and maintenance contracts) and certain liabilities of Advec, a computer
consulting company in Northern Ireland, for approximately $420,000.
In April 1996, the Company acquired Smoky Mountain, a North Carolina
corporation specializing in payment-processing systems, for 500,000 shares of
Common Stock.
INTELLECTUAL PROPERTY
The Company regards its software as proprietary and relies primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions, including employee and third-party
nondisclosure agreements to protect its proprietary rights. The Company seeks to
protect its software, documentation and other written materials under trade
secret and copyright laws, which afford only limited protection. The Company has
filed an application to register its trademark "UNIBOL" product logo in the
United States and has registered such mark in the United Kingdom. The Company
presently has no patents or patent applications pending. The Company believes
that the ownership of patents is not presently a significant factor in its
business and that its success does not depend on the ownership of patents, but
primarily on the innovative skills, technical competence and marketing abilities
of its personnel. The Company requires its personnel to enter into
confidentiality agreements.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information the Company regards as proprietary.
EMPLOYEES
As of August 31, 1996, the Company employed approximately 230 persons on the
basis of full-time equivalent employment, including 40 (10 in the United States
and 30 in the United Kingdom) in sales, marketing and related activities; 160
(15 in the United States and 145 in the United Kingdom) in software
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development and customer support operations; and 30 (10 in the United States and
20 in the United Kingdom) in general administration and finance.
None of the Company's employees is represented by a labor union. The Company
believes that its relationship with its employees is good.
FACILITIES
The Company leases its headquarters in Marietta, Georgia, which currently
totals approximately 10,745 square feet. The Company pays approximately $18,800
per month as its base lease. The lease expires in September 2000 and contains a
renewal option for one additional three-year term. The Company's headquarters
include sufficient space for its sales and marketing, administrative, finance
and management personnel. The Company leases approximately 30,000 square feet of
office and warehouse in Belfast, Northern Ireland, at a monthly cost of $15,000
under a 10-year lease expiring in 1999. The Company owns another facility in
Belfast under a 10-year mortgage loan with interest at a variable rate of LIBOR
plus 1.75% (8.63% per annum as of August 31, 1996) with an outstanding principal
balance as of August 31, 1996 of approximately $610,000. Annual payments on this
loan are approximately $69,000. The Company also leases office space in
California and Texas at an aggregate cost of $3,080 per month. During August,
1996 the Company purchased a facility for its payment-processing business in
North Carolina at a cost of $200,000. The Company believes that either its
current facilities are adequate to meet its needs for the foreseeable future or
adequate space is readily available in all geographical areas in which the
Company does business.
LEGAL PROCEEDINGS
In connection with its acquisition in 1993 of ICGL, the Company incurred a
claim by the seller related to pension overfunding. Based upon the advice of its
U.K. solicitor, the Company believes that it has adequate defenses to this claim
such that the expected outcome would not be material to the Company's financial
condition or results of operations. Due to uncertainties of the legal process,
however, no assurance can be made that the outcome of this case will be in
accordance with the Company's expectations.
The Company is not presently a party to any other material litigation and,
to management's knowledge, no material litigation is threatened against the
Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ----------- ------------------------------------------
<S> <C> <C>
Stephen A. Hafer.......................... 47 Chairman of the Board, President and Chief
Executive Officer
J. Patrick Henry.......................... 44 President of Unibol, Inc. and Director
L. Allen Plunk............................ 26 Chief Financial Officer
Nelson J. Millar.......................... 59 Director
Thomas Zimmerer........................... 55 Director
</TABLE>
STEPHEN A. HAFER. Mr. Hafer currently serves as the Company's Chairman of
the Board, President and Chief Executive Officer, positions he has held since
January 1993. From July 1990 to January 1993, Mr. Hafer was the Company's Chief
Financial Officer. Mr. Hafer has been Chairman of the Board of Linder Financial
Corporation, an asset-based lending company, since November 1994 and President
since September 1995. He has served as Treasurer of Foutz & Associates, a public
relations company, since 1981 and as President and Chairman of Arccom
Technologies, Inc., an investment holding company, since 1990. Mr. Hafer holds a
B.S. in Accounting from Florida State University.
J. PATRICK HENRY. Mr. Henry has been President of Unibol, Inc., which
controls the Company's North and South American UNIBOL operations, since January
1992 and a Director of the Company since 1992. Mr. Henry first joined the
Company in March 1991 as Vice President of Sales with seven years of data
processing experience as a Marketing Manager at Burroughs Corporation. Mr. Henry
holds a B.S. in Industrial Management from Georgia Institute of Technology and
an M.B.A. in Finance from Georgia State University.
L. ALLEN PLUNK. Mr. Plunk was appointed as the Company's Chief Financial
Officer in August 1996. From June 1992 until joining the Company, Mr. Plunk was
with Coopers & Lybrand L.L.P., where he was most recently a manager and
specialized in accounting and Securities and Exchange Commission reporting
related to the software industry. Mr. Plunk is a Certified Public Accountant and
holds a B.B.A. in Accounting from Harding University.
NELSON J. MILLAR. Mr. Millar has been a Director of the Company since
November 1994. Mr. Millar has been the President and owner of Trafalgar
Management Consultants in Belfast, Northern Ireland since 1993. From September
1992 to May 1993, Mr. Millar acted as the Managing Director of the ICS Computing
Group Limited, the group of companies that the Company acquired in May 1993.
From 1976 to 1993, Mr. Millar was the Managing Director of CMI Limited, the
systems integration subsidiary acquired by the Company. Mr. Millar holds a
Higher National Diploma in Business Studies from Queen's University in Belfast,
Northern Ireland, and is a member of the British Computer Society and Fellow of
the Institute of Directors.
THOMAS ZIMMERER. Dr. Zimmerer has been a Director of the Company since May
1994. Dr. Zimmerer holds the Allen and Ruth Harris Chair of Excellence in
Business, and has served as Professor of Management at East Tennessee State
University since 1993. Dr. Zimmerer co-founded Clemson University's Emerging
Technology and Marketing Center and has co-authored eight books and over 90
articles and professional papers. In addition, he has served as a consultant to
over 75 United States and foreign corporations. Dr. Zimmerer holds a B.S.B.A. in
Management and Economics from the
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American University in Washington, D.C., an M.S. in Economics from Louisiana
State University and a Ph.D. in Management from the University of Arkansas.
OTHER KEY EMPLOYEES
In addition to the executive officers named above, the Company considers the
following individuals to be key employees:
SAMUEL JAMES FRAZER. Mr. Frazer has been Managing Director of CICS, a
subsidiary of the Company, since its incorporation in 1986.
GEORGE GRUBER. Mr. Gruber cofounded Smoky Mountain in October 1993 and
currently serves as its Vice President and Secretary. From 1992 to 1994, Mr.
Gruber was Director of Research and Development of ATM International, Inc., a
modem manufacturing company. From 1985 to 1992, he was Director of Research and
Development at the predecessor of SK Technologies Corporation, which is a
leading manufacturer of retail point-of-sale software.
IAN GRAHAM. Dr. Graham has been Managing Director of Unibol Limited, the
Company's European UNIBOL operations, including overseeing development of the
UNIBOL products since 1980. He holds a B.S.c. and a Ph.D. in Electronic
Engineering from Queens University in Belfast, Northern Ireland.
DAVID MAWHINNEY. Mr. Mawhinney has been Managing Director of ICS since May
1993, having joined ICS in 1980 as a sales executive. From 1984 to 1991, he was
ICS's Sales Manager and, from 1991 to 1993, its Sales Director. Mr. Mawhinney
holds an Honors Degree in Psychology from Queen's University in Belfast,
Northern Ireland.
KEN ROULSTON. Mr. Roulston has been Managing Director of Computer
Maintenance Ireland Limited since 1993, having joined CMI as a sales manager in
1986. Mr. Roulston is an advisor to the Board of the Interactive Systems Centre,
which is part of the University of Ulster, and is involved in the research of
emerging technologies.
B. MICHAEL WILSON. Mr. Wilson cofounded Smoky Mountain in October 1993, and
currently serves as its President. Mr. Wilson previously founded Lighthouse
Technologies, Inc. in March 1992, which he merged into Smoky Mountain in October
1993. Mr. Wilson was manager of Research and Development for SK Technologies
Corporation from 1989 to 1992.
COMPENSATION OF DIRECTORS
Nonemployee Directors are reimbursed for all out-of-pocket expenses incurred
in attending meetings of the Board of Directors and committees thereof.
Nonemployee Directors are also eligible to participate in the Director Plan.
Under the Director Plan, each nonemployee Director will receive an option to
purchase up to 10,000 shares of Common Stock upon his or her initial appointment
or election to the Board of Directors and an option to purchase 5,000 shares of
Common Stock on March 1 of each year, beginning in fiscal year 1997 and ending
in fiscal year 2006. All such options are immediately exercisable on their date
of grant. See "--Director Plan."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established a Compensation Committee,
consisting of all members of the Board, and an Audit and Nominating Committee,
consisting of Mr. Millar, Dr. Zimmerer and Mr. Hafer.
The Compensation Committee establishes the Company's general compensation
policies, compensation plans and specific compensation levels for its executive
officers, and administers the LTI Plan.
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The Audit and Nominating Committee recommends the appointment of the
Company's independent auditors and reviews the Company's corporate accounting
and reporting practices, internal accounting controls, audit plans and results,
investment policies and financial results. The Audit and Nominating Committee
also makes recommendations to the Board of Directors concerning candidates for
election as directors.
DIRECTOR PLAN
GENERAL. The Director Plan was adopted by the Company's Board of Directors
in August 1996 and became effective upon adoption. The Director Plan provides
for the grant of nonqualified stock options to all nonemployee Directors of the
Company pursuant to an automatic, nondiscretionary grant mechanism. The Company
has reserved 150,000 shares of Common Stock for grants under the Director Plan.
SUMMARY. The Board of Directors believes that the Director Plan will
promote the Company's success and enhance its value by (i) strengthening the
Company's ability to attract and retain the services of experienced and
knowledgeable persons as nonemployee Directors of the Company and (ii) linking
the personal interests of nonemployee Directors to those of the Company's
shareholders. A committee may be appointed by the Board of Directors to
administer the Director Plan. Such committee would have the full power and
discretion to interpret and administer the Director Plan, but would not have the
authority to determine eligibility or to (i) determine the number, exercise
price or vesting period of options granted or (ii) take any action that would
result in grants under the Director Plan not being treated as "formula grants"
under the Exchange Act.
ELIGIBILITY. Only nonemployee Directors are eligible to participate in the
Director Plan. Two Directors are currently eligible to participate in the
Director Plan.
TERMS OF OPTIONS. The exercise price of options granted to nonemployee
Directors must be 100% of the fair market value of the Common Stock on the day
before the date of grant. The consideration for exercising options granted to
nonemployee Directors may consist only of cash, cash equivalents or previously
acquired shares of Common Stock having a fair market value at the time of
exercise equal to the total option price. Options granted have a 10-year term,
unless the option is earlier terminated, forfeited or surrendered pursuant to
the provisions of the Director Plan. Options granted may be exercised under the
Director Plan on or after the date of grant.
Each person who first becomes a nonemployee Director of the Company on or
after the effective date of the Director Plan will automatically be granted an
option to purchase up to 10,000 shares of Common Stock as of the date he or she
becomes a Director. Additionally, each individual who is a nonemployee Director
on March 1, 1997, and each anniversary date thereafter through and including
March 1, 2005, will automatically be granted an option to purchase 5,000 shares
of Common Stock.
If a Director ceases to serve as a Director because of death or disability,
the options previously granted to him or her under the Director Plan will remain
exercisable for one year after the Director's date of death or disability, or
until the options' scheduled expiration date, whichever is earlier. If a
Director ceases to be a Director for any reason other than death or disability,
the options previously granted to him or her under the Director Plan will remain
exercisable for 90 days after the Director's service on the Board terminates, or
until their scheduled expiration date, whichever is earlier.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Appropriate adjustments shall be
made in the option exercise price in the event any change is made in the
Company's capitalization, such as a merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, split-up, share
combination or other change in the Company's corporate structure that results in
a greater or lesser number of shares of Common Stock outstanding, so that the
proportionate interests of the nonemployee Directors will be maintained as
before the occurrence of such event.
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AMENDMENT AND TERMINATION. The Committee may amend, terminate or modify the
Director Plan at any time. However, Board of Director approval is required for
any Director Plan amendment that would materially increase the benefits to
nonemployee Directors or the number of securities that may be issued, or
materially modify the eligibility requirements of the Director Plan. Further,
Director Plan provisions relating to the amount, price and timing of securities
to be rewarded under the Director Plan may not be amended more than once every
six months.
LONG-TERM INCENTIVE PLAN
In 1993, the Company adopted the LTI Plan to assist the Company in securing
and retaining key employees and consultants. The LTI Plan authorizes grants of
incentive stock options, nonqualified stock options, stock appreciation rights
("SARs"), restricted stock, performance shares and dividend equivalents to
officers and key employees of the Company and outside consultants to the
Company. There are 1,037,500 shares of Common Stock available for issuance under
the LTI Plan.
The LTI Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines the total number and types of
awards granted in any year, the number and selection of employees or consultants
to receive awards, the number and type of awards granted to each grantee and the
other terms and provisions of the awards, subject to the limitations set forth
in the LTI Plan.
STOCK OPTION GRANTS. The Compensation Committee has the authority to select
employees who are subject to the provisions of Section 16 of the Exchange Act
who are to receive options under the LTI Plan and to specify the terms and
conditions of each option so granted (incentive or nonqualified), the exercise
price (which must be at least equal to the fair market value of the Common Stock
on the date of grant with respect to incentive stock options), the vesting
provisions and the option term. The Company's Chief Executive Officer has
similar authority with respect to employees who are not subject to the
provisions of Section 16 of the Exchange Act. Unless otherwise provided in the
option grant, options granted under the LTI Plan expire ten years from the date
of grant or, if earlier, 30 days after the optionee's termination of service
with the Company, other than by reason of death or disability, 12 months after
the optionee's disability or 15 months after the optionee's death. As of
September 30, 1996, options to purchase 832,500 shares of Common Stock were
outstanding under the LTI Plan at a weighted average exercise price of $4.15 per
share, options to purchase 162,500 shares of Common Stock had been exercised at
a weighted average exercise price of $3.40 per share, and 205,000 shares of
Common Stock remained available for grant under the LTI Plan.
STOCK APPRECIATION RIGHTS. The Compensation Committee may grant SARs
separately or in tandem with a stock option award. A SAR is an incentive award
that permits the holder to receive (per share covered thereby) an amount equal
to the amount by which the fair market value of a share of Common Stock on the
date of exercise exceeds the fair market value of such share on the date the SAR
was granted. Under the LTI Plan, the Company may pay such amount in cash, in
Common Stock or in a combination of both. Unless otherwise provided by the
Compensation Committee at the time of grant, the provisions of the LTI Plan
relating to the termination of employment of a holder of a stock option will
apply equally, to the extent applicable, to the holder of a SAR. A SAR granted
in tandem with a related option will generally have the same terms and
provisions as the related option with respect to exercisability. A SAR granted
separately will have such terms as the Compensation Committee may determine,
subject to the provisions of the LTI Plan. As of September 30, 1996, no SARs had
been granted under the LTI Plan.
RESTRICTED STOCK AWARDS. The Compensation Committee is authorized under the
LTI Plan to issue shares of restricted Common Stock to eligible participants on
such terms and conditions and subject to such restrictions, if any, as the
Compensation Committee may determine. As of September 30, 1996, no restricted
stock awards had been granted under the LTI Plan.
38
<PAGE>
PERFORMANCE SHARES. The Compensation Committee is authorized under the LTI
Plan to grant performance shares to selected employees. Typically, each
performance share will be deemed to be the equivalent of one share of Common
Stock. As of September 30, 1996, no performance shares had been granted under
the LTI Plan.
DIVIDEND EQUIVALENTS. The Compensation Committee may also grant dividend
equivalents in conjunction with the grant of options or SARs. Dividend
equivalents entitle the holder to receive an additional amount of Common Stock
upon the exercise of the underlying option or SAR. As of September 30, 1996, no
dividend equivalents had been granted under the LTI Plan.
OTHER STOCK-BASED AWARDS. The Compensation Committee may also grant other
awards that are payable in, valued in whole or in part by reference to, or
otherwise based on or related to shares of Common Stock, as deemed by the
Compensation Committee to be consistent with the purposes of the LTI Plan. As of
September 30, 1996, no such stock-based awards had been granted.
401(K) PLAN
In February 1996, the Board of Directors approved a regional prototype
defined contribution 401(k) profit-sharing plan and trust (the "401(k) Plan")
that is intended to qualify under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code"). To be eligible to participate in the 401(k) Plan
(the "Plan Eligibility Requirements"), an employee must be 21 years of age and
have completed 1,000 hours of service that are credited on the anniversary date
of the employee's hiring. After satisfying the Plan Eligibility Requirements,
employees of the Company may enroll in the 401(k) Plan on any January 1 or July
1. A participating employee, by electing to defer a portion of his or her
compensation, may make pretax contributions to the 401(k) Plan, subject to
limitations under the Code, of a percentage (not to exceed 12%) of his or her
total compensation. The Company contributes 50% of every dollar the participant
contributes up to a total of 2% of the participant's gross compensation.
Participant contributions and earnings are 100% vested at all times, while
Company-matching contributions vest in 20% increments over a five-year period,
beginning one year after the Company's matching contribution. Participants may
alter their contribution amounts as of any January 1 or July 1. Employees are
responsible for directing the investments of all assets in their individual
account. Contributions may be withdrawn, with possible penalties for certain
early withdrawals, only after (i) the employee reaches age 59 1/2, (ii) the
employee's retirement with the Company, (iii) the employee's death or
disability, (iv) the termination of the employee's employment with the Company,
or (v) the termination of the 401(k) Plan. The Company pays all expenses
associated with the 401(k) Plan.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company to its Chief Executive Officer for the three fiscal years
ended February 29, 1996. No executive officer of the Company, other than the
Chief Executive Officer, received total compensation in excess of $100,000 for
the fiscal year ended February 29, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
FISCAL ------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) COMPENSATION ($)(1)
- ---------------------------------------------------------------------- ----------- ------------- -------------------
<S> <C> <C> <C>
Stephen A. Hafer...................................................... 1996 $ 100,000 $ 0
President and Chief Executive Officer 1995 63,000 12,000
1994 10,500 12,000
</TABLE>
- ------------------------
(1) Mr. Hafer received $1,000 per month as a Director of the Company for fiscal
years 1994 and 1995.
39
<PAGE>
STOCK OPTION GRANTS
The Company did not grant any stock options to its executive officers in
fiscal year 1996.
STOCK OPTION VALUES
The following table sets forth, as of February 29, 1996, certain information
regarding unexercised options held by the Chief Executive Officer. As of that
date, no stock options had been exercised by the Chief Executive Officer.
1996 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END ($)(1)
-------------------------- --------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
Stephen A. Hafer.......................................... 37,500 112,500 $ 185,250 $ 555,750
</TABLE>
- ------------------------
(1) Represents the closing sale price of the Common Stock on February 29, 1996
of $8.25 per share, minus the per share exercise price of the options
multiplied by the number of shares issuable upon exercise of the options.
40
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of August 31, 1996, Stephen A. Hafer, Chairman, President and Chief
Executive Officer of the Company, pursuant to a promissory note to the Company
issued by him and two promissory notes issued to the Company by Arccom
Technologies, Inc., a company controlled by Mr. Hafer, owed the Company $378,130
in principal and interest on such promissory notes. The promissory notes bore
interest at 10% per annum and were scheduled to mature on March 1, 1997.
Unrelated to the Company or the above-mentioned indebtedness, J. Patrick Henry,
President of the Company's Unibol, Inc. subsidiary and a Director of the
Company, was obligated to make certain payments to Mr. Hafer. On August 31,
1996, in satisfaction of his unrelated obligations to Mr. Hafer, Mr. Henry
transferred 68,626 shares of Common Stock owned by Mr. Henry to the Company in
full satisfaction of the above-described indebtedness owed by Mr. Hafer to the
Company pursuant to such promissory notes.
In fiscal year 1995, the Company issued 6,600 shares of Common Stock to Dr.
Thomas Zimmerer, a Director of the Company, in exchange for independent
consulting services Dr. Zimmerer performed for the Company.
41
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of October 31, 1996, certain information
regarding the beneficial ownership of the Common Stock by (i) each person known
by the Company to own beneficially more than 5% of the outstanding Common Stock;
(ii) each Director of the Company; (iii) the Company's Chief Executive Officer;
and (iv) all Directors and executive officers of the Company as a group. Unless
otherwise indicated, each person has sole voting and investment power with
respect to the shares shown. Pursuant to the rules of the Commission, in
calculating percentage ownership, each person is deemed to beneficially own
shares that such person is entitled to purchase pursuant to options exercisable
within 60 days of October 31, 1996, but options owned by others (even if
exercisable within 60 days) are deemed not to be outstanding shares.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY OWNED
SHARES --------------------------------
BENEFICIALLY AFTER
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING OFFERING
---------------------------- ----------------- ----------------- -------------
<S> <C> <C> <C>
Stephen A. Hafer (1)........................................... 1,314,050 23.1% 18.3%
1800 Sandy Plains Parkway
Suite 305
Marietta, Georgia 30066
J. Patrick Henry (2)........................................... 226,374 4.0% 3.1%
Thomas Zimmerer................................................ 11,400 * *
Nelson J. Millar............................................... 3,200 * *
All Directors and executive officers as a group (5 persons)
(3).......................................................... 1,555,024 27.3% 21.6%
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 289,000 shares held by Arccom Technologies, Inc., of which Mr.
Hafer is President and sole shareholder; 400,000 shares held by Linder
Financial Corporation, of which Mr. Hafer is Chairman of the Board and a
majority shareholder; 20,000 shares held by Foutz & Associates, Inc., a
company owned by Marta Hafer, Mr. Hafer's spouse; and 20,000 shares held by
Marta Hafer. Also includes 75,000 shares subject to options exercisable
within 60 days. Mr. Hafer has sole voting and investment power with respect
to these shares.
(2) Includes 25,000 shares subject to options exercisable within 60 days. In the
event that the Underwriters' over-allotment option is exercised in full, Mr.
Henry will sell 50,000 shares of Common Stock, after which he will
beneficially own 176,374 shares of Common Stock, representing 2.4% of the
Common Stock outstanding after this offering.
(3) Includes 100,000 shares subject to options exercisable within 60 days. In
the event that the Underwriters' over-allotment option is exercised in full,
Mr. Henry will sell 50,000 shares of Common Stock. In such event, all
directors and executive officers of the Company as a group will beneficially
own 1,505,024 shares of Common Stock, representing 20.7% of the Common Stock
outstanding after this offering.
In the event that the Underwriters' over-allotment option is exercised in
full, the following shareholders (the "Selling Shareholders") will sell the
number of shares indicated below:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL
PRIOR TO OWNERSHIP AFTER
OVER-ALLOTMENT NUMBER OF SHARES OVER-ALLOTMENT
NAME EXERCISE BEING OFFERED EXERCISE
------ ---------------------- ----------------- ---------------
<S> <C> <C> <C>
J. Patrick Henry...................................... 226,374 50,000 176,374
B. Michael Wilson..................................... 195,931 50,000 145,931
George Gruber......................................... 175,688 50,000 125,688
</TABLE>
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares,
consisting of 25,000,000 shares of Common Stock, par value $.01 per share, and
5,000,000 shares of Preferred Stock, par value $1.00 per share.
COMMON STOCK
As of October 31, 1996, 5,590,245 shares of Common Stock were issued and
outstanding. Holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. Holders of Common Stock are
entitled to such dividends, if any, as may be declared by the Board of Directors
at its discretion out of funds legally available for that purpose, and to
participate pro rata in any distribution of the Company's assets upon
liquidation after the payment of all debts and payment to holders of Preferred
Stock. Holders of Common Stock have no preemptive or conversion rights, nor are
there any redemption or sinking fund rights with respect to the Common Stock.
There is no cumulative voting with respect to the election of Directors, which
means that the holders of a majority of the shares can elect all the Directors
if they choose to do so. All outstanding shares of Common Stock are, and all
shares of Common Stock offered hereby will be, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company currently has no shares of Preferred Stock outstanding and has
no current plans to issue any shares of Preferred Stock. The Board of Directors
has the authority to issue Preferred Stock from time to time in one or more
series and, without further approval of the shareholders, to fix the dividend
rights and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking funds and any other rights, preferences,
privileges and restrictions applicable to each series of Preferred Stock. The
issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
adversely affect the rights of the holders of Common Stock.
The potential issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of the Company, may discourage bids
for the Common Stock at a premium over the market price of the Common Stock and
may adversely affect the market price of, and the voting and other rights of the
holders of, the Common Stock.
REPRESENTATIVE'S WARRANT
The Company has agreed to sell to the Representative or its designees, for
nominal consideration, the Representative's Warrant to purchase up to 150,000
shares of Common Stock at an exercise price equal to 165% of the public offering
price. The Representative possesses certain demand and incidental registration
rights that may require the Company to register for public resale the shares of
Common Stock issuable under the Representative's Warrant. The Representative's
Warrant is exercisable for a period of four years, beginning one year from the
date of this Prospectus. See "Underwriting."
NOTE WARRANT
In connection with the sale of $2.0 million aggregate principal amount of
convertible promissory notes to certain offshore investors in December 1995, the
Company granted to the placement agent for such promissory notes the Note
Warrant to purchase 25,000 shares of Common Stock at $6.90 per share. The Note
Warrant expires on December 20, 2000. Holders of the Note Warrant possess
certain registration rights with regard to the shares issuable thereunder. See
"--Registration Rights."
43
<PAGE>
ADVISOR WARRANTS
On July 16, 1996, the Company entered into a financial consulting agreement
with B C Capital Corp., an affiliate of the investment banking firm of Barber &
Bronson. In connection therewith, the Company granted to B C Capital Corp. and
certain of its affiliates the Advisor Warrants to purchase an aggregate of
87,500 shares of Common Stock at $6.00 per share and warrants to purchase an
aggregate of 87,500 shares of Common Stock at $7.00 per share. The Advisor
Warrants expire on July 15, 2001. Holders of the Advisor Warrants possess
certain registration rights with regard to the shares issuable thereunder.
See "--Registration Rights."
REGISTRATION RIGHTS
In connection with the acquisition of the Company's payment-processing
technology, the Company issued 500,000 shares of Common Stock to the
shareholders of Smoky Mountain (the "Registrable Shares"). Such shareholders are
entitled to certain registration rights with regard to the Registrable Shares.
Pursuant to such registration rights, the Company registered 25% of the
registrable shares for public resale on Form S-3, under the Securities Act, in
September 1996 (Registration No. 333-11605). Subject to certain limitations, the
Company must also use its best efforts to register for resale on Form S-3, under
the Securities Act: (i) an additional 25% of the Registrable Shares by April 16,
1997, and (ii) the balance of the Registrable Shares by April 16, 1998. The
Company has agreed to maintain the effectiveness of all registration statements
covering the resale of the Registrable Shares, until such time as the
Registrable Shares registered thereunder are sold, otherwise transferred or
become freely tradable.
Holders of the Advisor Warrants are entitled to certain registration rights
with respect to the shares of Common Stock issuable under the Advisor Warrants.
At any time prior to July 15, 2003, holders of the Advisor Warrants may request
that the Company file a registration statement under the Securities Act for the
public resale of the Common Stock issuable upon exercise of the Advisor Warrants
and, upon such request and subject to certain conditions, the Company will be
required to prepare and file and use its best efforts to cause to become
effective any such registration. The holders of the Advisor Warrants have the
right to demand registration as described above on at least two separate
occasions.
The Representative possesses similar demand registration rights with respect
to the shares of Common Stock issuable pursuant to the Representative's Warrant.
Such rights are exercisable at any time prior to the expiration of the
Representative's Warrant on the fifth anniversary of this Prospectus. These
rights may be exercised on three separate occasions.
In the event the Company proposes to register any of its securities under
the Securities Act, either for its own account or for the account of others, the
holders of the Advisor Warrants, the Note Warrant and the Representative's
Warrant are entitled to notice of such registration and to include the shares of
Common Stock underlying such warrants therein, subject to certain limitations,
including the right of the underwriters of any offering by the Company to limit
the number of shares included in such registration. The Company is generally
obligated to bear the expenses, other than underwriting discounts and sales
commissions, of the above-described registrations.
The Company provided notice to the holders of the Advisor Warrants and the
Note Warrant of the filing of the Registration Statement incorporating this
Prospectus and all such holders waived their rights to have any shares of Common
Stock included in this Registration Statement. See "Shares Eligible for Future
Sale."
ANTITAKEOVER CONSIDERATIONS
The Company's Board of Directors has the authority, without shareholder
approval, to issue up to 5,000,000 shares of Preferred Stock and to determine
the rights and preferences thereof. This authority, together with certain
provisions of the Company's Amended and Restated Bylaws (the "Bylaws"), may
discourage takeover attempts or tender offers that could result in shareholders
receiving a premium over
44
<PAGE>
the market price for the Common Stock or that shareholders may otherwise
consider to be in their best interests.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
The Company's Bylaws provide that the Company may indemnify any person who
was or is made a party or is threatened to be made a party to any threatened,
pending or completed action by reason of being a Director, officer, employee,
fiduciary or agent of the Company or serving at the request of the Company as a
Director, officer, employee, fiduciary or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner reasonably
believed to be in the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The Company has also entered into indemnification
agreements pursuant to which it has agreed, among other things, to indemnify its
Directors and officers against certain liabilities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Corporate Stock
Transfer, Denver, Colorado.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 7,090,245 shares of
Common Stock outstanding. Of these shares, 5,260,000 shares (including the
1,500,000 shares sold in this offering) will be freely tradable without
restriction under the Securities Act and an additional 1,830,000 shares may be
sold subject to the limitations of Rule 144 under the Securities Act. The
executive officers, directors, certain other shareholders of the Company and
their affiliates and certain warrant holders have agreed, pursuant to lock-up
agreements with the Representative, that they will not, without the prior
written consent of the Representative, sell or otherwise dispose of an aggregate
of approximately 1,631,000 outstanding shares of Common Stock and approximately
525,000 shares of Common Stock issuable upon exercise of outstanding options or
warrants beneficially owned by them for a period of 12 months from the date of
this Prospectus. Upon the expiration of these lock-up agreements, such shares of
Common Stock will become eligible for sale in the public market, subject to the
provisions of Rule 144 under the Securities Act. The Representative may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to any of such lock-up agreements.
In general, under Rule 144 under the Securities Act, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares (as
that term is defined in Rule 144) for at least two years, including any person
who may be deemed to be an affiliate of the Company, is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
1% of the total number of then-outstanding shares of Common Stock (approximately
71,000 shares immediately after this offering) or the average weekly trading
volume in the Common Stock as reported by Nasdaq during the four calendar weeks
preceding such sale. Sales pursuant to Rule 144 also are subject to certain
other requirements relating to the volume, manner of sale, and other limitations
under Rule 144 and notice and availability of current public information about
the Company. Affiliates may publicly sell shares not constituting restricted
securities under Rule 144 in accordance with the foregoing volume limitations
and other restrictions, but without regard to the two-year holding period. Under
Rule 144(k), a person who is not deemed to have been an affiliate of the Company
at any time during the 90 days immediately preceding a sale by such person, and
who has beneficially owned restricted shares for at least three years, is
entitled to sell such shares under Rule 144 without regard to the limitations
described above.
In September 1996, the Company filed a registration statement on Form S-3
(Registration No. 333-11605) for the resale of up to 125,000 shares acquired by
the holders of such shares in connection with the Company's acquisition of Smoky
Mountain. As of October 31, 1996, Messrs. George Gruber and B. Michael Wilson
have sold a total of 91,131 shares under this registration statement. These
holders also have the right to require the Company to file registration
statements in April 1997 and April 1998 for the resale to the public of an
additional 125,000 shares and 250,000 shares of Common Stock, respectively.
Holders of 235,000 of these shares to be registered for public resale in April
1998 have entered into 12-month lock-up agreements covering such shares with the
Representative, agreeing to defer their registration rights until the earlier of
release of these shares from the lock-up agreements or the expiration of the
lock-up agreements. The Representative may in its sole discretion, and at any
time without notice, release all or a portion of the securities subject to any
of such lock-up agreements. The Company intends to maintain the effectiveness of
the current registration statement on Form S-3 regarding the resale of the
remaining unsold portion of the 125,000 shares. As a result, these shares may be
sold at any time into the public market. In addition, 100,000 of the 125,000
shares eligible for registration in April 1997 have been registered for sale in
this offering in the event the Underwriters' over-allotment option is exercised.
None of the 250,000 shares covered by the current registration statement on Form
S-3 or the registration statement to be filed in April 1997 are covered by
lock-up agreements. See "Principal Shareholders" and "Description of Capital
Stock--Registration Rights."
As of October 31, 1996, an aggregate of 200,000 shares of Common Stock were
reserved for issuance pursuant to the Note Warrant and the Advisor Warrants.
Holders of the Note Warrant and the Advisor Warrants each possess certain
registration rights with regard to the 25,000 shares and 175,000 shares,
46
<PAGE>
respectively, issuable thereunder. The holders of the Advisor Warrants have
entered into 12-month lock-up agreements with the Representative. See
"Description of Capital Stock--Registration Rights."
As of October 31, 1996, 832,500 shares of Common Stock were subject to
options outstanding under the LTI Plan, 237,502 of which were currently
exercisable at a weighted average exercise price of $3.31 per share. The
remainder of these options become exercisable at various points over the next
four years at a weighted average exercise price of $4.23 per share. An
additional 205,000 shares of Common Stock are reserved for future issuance under
the LTI Plan. The Company has filed a registration statement on Form S-8
(Registration No. 33-98564) to register the shares of Common Stock reserved for
issuance under the LTI Plan, thus permitting the resale of such shares in the
public market without restriction under the Securities Act, subject in certain
events to the expiration of lock-up agreements and Rule 144.
As of October 31, 1996, 150,000 shares of Common Stock were reserved for
future issuance under the Director Plan. The Company intends to file a
Registration Statement on Form S-8 to register the shares of Common Stock
reserved for future issuance under the Director Plan, thus permitting the resale
of such shares in the public market without restriction under the Securities
Act, subject in certain events to the expiration of lock-up agreements and Rule
144.
Upon completion of this offering, the Representative will receive the
Representative's Warrant to purchase up to 150,000 shares of Common Stock at an
exercise price equal to 165% of the public offering price. The Representative
possesses certain demand and incidental registration rights that may require the
Company to register for public resale the shares of Common Stock issuable under
the Representative's Warrant. The Representative's Warrant may not be exercised
until the first anniversary of the date of this Prospectus. See "Description of
Capital Stock--Representative's Warrant" and "Underwriting."
The Company maintains the effectiveness of a registration statement on Form
S-3 dated June 14, 1993, as amended (Registration No. 33-64312), for the public
resale of 75,000 shares of Common Stock held by Mr. Hafer, the Company's
President, Chief Executive Officer and Chairman of the Board. Of these shares,
16,000 shares have been sold by Mr. Hafer and 59,000 shares remain eligible for
sale. As a result, these shares may be sold at any time into the public market.
The Company makes no prediction as to the effect, if any, that future sales
of shares or the availability of shares for future sale will have on the
prevailing market price of the Common Stock. Sales of substantial amounts of the
Common Stock in the public market or the perception that such sales could occur
could have an adverse effect on the prevailing market price of the Common Stock.
47
<PAGE>
UNDERWRITING
The Underwriters named below, acting through the Representative, Cruttenden
Roth Incorporated, have agreed, severally, subject to the terms and conditions
contained in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below opposite their respective names at the
public offering price less the underwriting discounts and commissions set forth
on the cover page of this Prospectus. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions, and that
the Underwriters are committed to purchase all of such shares (other than those
covered by the over-allotment option described below), if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ---------------------------------------------------------------------------------------------------- ------------
<S> <C>
Cruttenden Roth Incorporated........................................................................ 925,000
Fahnestock & Co., Inc............................................................................... 75,000
Hanifen, Imhoff Inc................................................................................. 75,000
Janney Montgomery Scott Inc......................................................................... 75,000
Josephthal Lyon & Ross Incorporated................................................................. 75,000
Sterne, Agee & Leach, Inc........................................................................... 75,000
Dabney/Resnick Inc.................................................................................. 50,000
Frederick & Company, Inc............................................................................ 50,000
Ormes Capital Markets, Inc.......................................................................... 50,000
Pacific Crest Securities Inc........................................................................ 50,000
------------
Total........................................................................................... 1,500,000
------------
------------
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price reflected on the cover page of this Prospectus and to selected securities
dealers at such price less a concession not exceeding $0.23 per share. The
Underwriters may allow, and such dealers may reallow, a concession not exceeding
$0.10 per share to other dealers. After the public offering of the shares of
Common Stock, the public offering price and other offering terms may be changed.
The Company and the Selling Shareholders have granted the Underwriters an
over-allotment option, exercisable during the 45-day period after the date of
this Prospectus, to purchase up to 225,000 additional shares of Common Stock at
the public offering price set forth on the cover page of this Prospectus less
the underwriting discounts and commissions. The Underwriters may exercise the
over-allotment option only to cover over-allotments in the sale of Common Stock.
If the Underwriters exercise the over-allotment option, the Underwriters will
purchase additional shares in approximately the same proportion as the shares
set forth in the above table.
In connection with this offering, the Company has agreed to issue to the
Representative the Representative's Warrant to purchase up to 150,000 shares of
Common Stock. The Representative's Warrant is exercisable for a period of four
years, beginning one year from the date of this Prospectus. The Representative's
Warrant is exercisable at a price equal to 165% of the public offering price.
The Representative's Warrant is nontransferable for a period of one year
following the date of this Prospectus, except (i) to any of the Underwriters, or
to individuals who are either officers or partners of an Underwriter or (ii) by
will or the laws of descent and distribution. The holders of the
Representative's Warrant will have, in that capacity, no voting, dividend or
other shareholder rights. The Representative possesses certain demand and
incidental registration rights that may require the Company to register for
public resale the shares of Common Stock issuable under the Representative's
Warrant. The number of shares covered by the Representative's Warrant and the
exercise price are subject to adjustment in certain events to prevent dilution.
Any profit realized by the Representative on the sale of securities issuable on
exercise of the Representative's Warrant may be deemed to be additional
underwriting compensation.
48
<PAGE>
The Representative will also receive at the closing of this offering a
nonaccountable expense allowance equal to 2% of the aggregate public offering
price of the shares of Common Stock sold in this offering.
The executive officers, Directors, certain other shareholders of the Company
and their affiliates and certain warrant holders who as of October 31, 1996 held
an aggregate of 1,690,000 shares of Common Stock, warrants to purchase 175,000
shares of Common Stock and options to purchase an aggregate of 350,000 shares,
of which 50,000 were then currently exercisable, have agreed not to sell any of
such shares of Common Stock owned by such persons (except for 59,000 shares of
Common Stock held by Mr. Hafer which are not subject to a lock-up agreement),
pursuant to Rule 144 under the Securities Act or otherwise, without the prior
written consent of the Representative, for a period of 12 months from the date
of this Prospectus. The Representative has the discretion to reduce or eliminate
such lock-up period.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In addition, the Company and the Selling Shareholders have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, and to contribute in certain events to any liabilities
incurred by the Underwriters in connection with the sale of shares of Common
Stock.
In connection with this offering, certain Underwriters and selling group
members, if any, or their respective affiliates who are qualified registered
market makers on the Nasdaq National Market may engage in passive market making
transactions in the Common Stock on the Nasdaq National Market in accordance
with Rule 10b-6A under the Exchange Act during the two business-day period
before commencement of offers or sales of the Common Stock. The passive market
making transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for the security; if all
independent bids are lowered below the passive market maker's bid, however, such
bid must then be lowered when certain purchase limits are exceeded.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof. Copies of the Underwriting Agreement are on file
at the offices of the Representative, the Company and the Commission. See
"Additional Information."
LEGAL MATTERS
The law firm of Snell & Wilmer L.L.P., Salt Lake City, Utah, has acted as
counsel to the Company in connection with this offering and will render an
opinion as to the legality of the shares of Common Stock being offered hereby.
Perkins Coie, Seattle, Washington, has acted as counsel to the Underwriters in
connection with certain legal matters relating to this offering.
EXPERTS
The supplemental consolidated financial statements of UniComp, Inc. and its
subsidiaries included in this Registration Statement have been audited by
Coopers & Lybrand L.L.P., independent accountants, as set forth in their report
dated August 23, 1996, accompanying such financial statements, and are included
herein in reliance upon the report of such firm, which report is given upon
their authority as experts in accounting and auditing.
49
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Supplemental Consolidated Financial Statements:
Supplemental Consolidated Balance Sheets as of February 29, 1996, February 28, 1995 and August 31,
1996................................................................................................... F-3
Supplemental Consolidated Statements of Operations for the years ended February 29, 1996 and February 28,
1995 and 1994 and for the six months ended August 31, 1996 and 1995.................................... F-5
Supplemental Consolidated Statements of Changes in Stockholders' Equity for the years ended February 29,
1996 and February 28, 1995 and 1994 and for the six months ended August 31, 1996 and 1995.............. F-6
Supplemental Consolidated Statements of Cash Flows for the years ended February 29, 1996 and February 28,
1995 and 1994 and for the six months ended August 31, 1996 and 1995.................................... F-7
Notes to Supplemental Consolidated Financial Statements.................................................. F-8
</TABLE>
F-1
<PAGE>
[This Page Intentionally Left Blank]
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of UniComp, Inc. and Subsidiaries:
We have audited the supplemental consolidated balance sheets of UniComp,
Inc. and subsidiaries as of February 29, 1996 and February 28, 1995, the related
supplemental consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
February 29, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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.
The supplemental financial statements give retroactive effect to the merger
of UniComp, Inc. and Smoky Mountain Technologies, Inc. on April 16, 1996, which
has been accounted for as a pooling of interests as described in notes 1 and 3
to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling of interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation; however, they will
become the historical consolidated financial statements of UniComp, Inc. and
subsidiaries after annual financial statements covering the date of consummation
of the business combination are issued.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated balance sheets of UniComp, Inc. and
subsidiaries at February 29, 1996 and February 28, 1995, and the consolidated
results of their operations and their cash flows for each of the years in the
three-year period ended February 29, 1996 in conformity with generally accepted
accounting principles applicable after financial statements are issued for a
period which includes the date of consummation of the business combination.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
August 23, 1996
F-2
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AUGUST 31,
1996
FEBRUARY 28, FEBRUARY 29, -------------
1995 1996
------------ ------------- (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................................... $ 85,845 $ 1,261,153 $ 225,982
Accounts and other receivables:
Trade, net of allowance of $127,006, $137,878 and $146,052,
respectively................................................... 3,575,491 4,721,909 4,669,837
Receivables from related party................................... 277,646 404,478 --
Other receivables................................................ 259,528 205,636 198,025
Inventories........................................................ 531,888 715,944 854,893
Prepaid expenses................................................... 456,875 852,050 724,894
Deferred stock offering costs...................................... -- -- 525,153
Other.............................................................. 9,391 171,396 160,701
------------ ------------- -------------
Total current assets........................................... 5,196,664 8,332,566 7,359,485
------------ ------------- -------------
Property and equipment, net.......................................... 1,618,603 2,401,969 2,454,451
------------ ------------- -------------
Other assets:
Acquired and developed software, net of accumulated amortization of
$689,419, $1,371,355 and $2,056,454, respectively................ 2,789,332 4,802,724 5,155,025
Goodwill, net of accumulated amortization of $0, $57,345 and
$100,191, respectively........................................... 332,829 694,489 673,959
Deferred tax asset................................................. 540,000 348,638 209,157
Valuation allowance................................................ (540,000) -- --
Other.............................................................. 20,683 91,667 208,219
------------ ------------- -------------
Total other assets............................................. 3,142,844 5,937,518 6,246,360
------------ ------------- -------------
Total assets................................................... $ 9,958,111 $ 16,672,053 $ 16,060,296
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-3
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
AUGUST 31,
1996
FEBRUARY 28, FEBRUARY 29, -------------
1995 1996
------------ ------------- (UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Accounts payable................................................... $ 1,308,059 $ 2,128,526 $ 1,345,459
Accrued expenses................................................... 1,016,267 1,195,896 852,921
Deferred revenues.................................................. 2,298,826 1,662,864 1,352,477
Line of credit..................................................... 661,750 1,078,933 1,826,225
Income taxes payable............................................... 198,500 148,015 98,692
Other accrued taxes................................................ 12,525 393,915 284,035
Current portion of notes payable................................... 266,732 375,105 279,242
------------ ------------- -------------
Total current liabilities...................................... 5,762,659 6,983,254 6,039,051
------------ ------------- -------------
Long-term liabilities:
Notes payable...................................................... 727,079 1,072,926 1,011,045
Convertible notes.................................................. -- 1,980,000 --
Deferred income taxes.............................................. 116,616 519,109 592,191
------------ ------------- -------------
Total long-term liabilities.................................... 843,695 3,572,035 1,603,236
------------ ------------- -------------
Total liabilities.............................................. 6,606,354 10,555,289 7,642,287
------------ ------------- -------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock: $.01 par value, authorized 25,000,000, issued and
outstanding 5,001,234, 5,163,432 and 5,590,245, respectively..... 50,012 51,634 55,902
Additional contributed capital..................................... 5,527,454 6,229,829 8,177,213
Retained earnings (deficit)........................................ (1,583,874) 475,636 1,217,981
------------ ------------- -------------
3,993,592 6,757,099 9,451,096
Less treasury stock................................................ (493,654) (460,554) (849,933)
Cumulative translation adjustment.................................. (148,181) (179,781) (183,154)
------------ ------------- -------------
Total stockholders' equity..................................... 3,351,757 6,116,764 8,418,009
------------ ------------- -------------
Total liabilities and stockholders' equity..................... $ 9,958,111 $ 16,672,053 $ 16,060,296
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-4
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------- SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, AUGUST 31,
1994 1995 1996 ----------------------------
------------- ------------- ------------- 1995 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Equipment and software............. $ 6,031,127 $ 8,911,948 $ 10,881,491 $ 5,106,355 $ 4,845,914
Maintenance and services........... 5,671,837 8,944,368 11,409,528 4,956,469 6,773,603
Sound systems...................... 503,392 468,268 -- -- --
------------- ------------- ------------- ------------- -------------
Total revenues................... 12,206,356 18,324,584 22,291,019 10,062,824 11,619,517
------------- ------------- ------------- ------------- -------------
Cost of sales:
Equipment and software............. 4,558,261 5,078,321 6,151,381 2,815,442 3,565,147
Maintenance and services........... 561,796 1,059,353 1,826,341 552,019 1,177,008
Sound systems...................... 286,612 304,570 -- -- --
------------- ------------- ------------- ------------- -------------
Total cost of sales.............. 5,406,669 6,442,244 7,977,722 3,367,461 4,742,155
------------- ------------- ------------- ------------- -------------
Gross profit......................... 6,799,687 11,882,340 14,313,297 6,695,363 6,877,362
------------- ------------- ------------- ------------- -------------
Selling, general and administra-
tive............................... 4,598,053 9,014,043 11,048,431 5,079,787 5,321,000
Depreciation expense................. 597,424 651,551 709,858 338,901 350,857
------------- ------------- ------------- ------------- -------------
Total operating expenses......... 5,195,477 9,665,594 11,758,289 5,418,688 5,671,857
------------- ------------- ------------- ------------- -------------
Operating income..................... 1,604,210 2,216,746 2,555,008 1,276,675 1,205,505
Other income (expense):
Other, net......................... 35,337 123,707 (41,701) 2,492 (12,938)
Interest........................... (174,107) (224,034) (251,182) (100,203) (150,045)
------------- ------------- ------------- ------------- -------------
Other income (expense), net...... (138,770) (100,327) (292,883) (97,711) (162,983)
Income before provision for income
taxes.............................. 1,465,440 2,116,419 2,262,125 1,178,964 1,042,522
------------- ------------- ------------- ------------- -------------
Provision for income taxes........... (255,291) (494,741) (202,615) 130,059 300,177
------------- ------------- ------------- ------------- -------------
Net income........................... $ 1,210,149 $ 1,621,678 $ 2,059,510 $ 1,048,905 $ 742,345
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income per share................. $ 0.28 $ 0.34 $ 0.40 $ 0.20 $ 0.14
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Weighted average number of shares.... 4,343,501 4,710,228 5,188,092 5,186,240 5,482,705
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
-------------------- ---------------------
NUMBER OF NUMBER OF ADDITIONAL RETAINED TOTAL
SHARES SHARES CONTRIBUTED EARNINGS STOCKHOLDERS'
ISSUED AMOUNT ISSUED AMOUNT CAPITAL (DEFICIT) EQUITY
---------- -------- --------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance February 28, 1993............... 3,560,767 $35,608 10,000 $(190,000) $4,697,734 $(4,337,285) $ (35,398)
Stock issued.......................... 680,667 6,806 925,993 932,799
Treasury stock purchased.............. (350,000)
Conversion of preferred stock......... 100,000 1,000 (10,000) (10,000) 9,000 0
Subscription receivable............... 200,000 (200,000) 0
Shares issued to effect pooling of
interest with Smoky Mountain........ 500,000 5,000 (5,000) 0
Effect of shares issued by Smoky
Mountain............................ 33,186 33,186
Net income............................ 1,210,149 1,210,149
Distribution by Smoky Mountain........ (38,125) (38,125)
Change in cumulative translation
adjustment.......................... 98,147
---------- -------- --------- --------- ----------- ----------- -------------
Balance February 28, 1994............... 4,841,434 48,414 -- -- 5,460,913 (3,165,261) 1,850,758
Stock issued.......................... 159,800 1,598 98,541 100,139
Treasury stock purchased.............. (143,654)
Subscription receivable............... (82,000) (82,000)
Effect of shares issued by Smoky
Mountain............................ 50,000 50,000
Net income............................ 1,621,678 1,621,678
Distribution by Smoky Mountain........ (40,291) (40,291)
Change in cumulative translation
adjustment.......................... (4,873)
---------- -------- --------- --------- ----------- ----------- -------------
Balance February 28, 1995............... 5,001,234 50,012 -- -- 5,527,454 (1,583,874) 3,351,757
Stock issued.......................... 162,198 1,622 603,375 604,997
Change in treasury stock.............. 33,100
Effect of shares issued by Smoky
Mountain............................ 99,000 99,000
Net income............................ 2,059,510 2,059,510
Change in cumulative translation
adjustment.......................... (31,600)
---------- -------- --------- --------- ----------- ----------- -------------
Balance February 29, 1996............... 5,163,432 51,634 -- -- 6,229,829 475,636 6,116,764
Conversion of debt.................... 426,813 4,268 1,947,384 1,951,652
Treasury stock purchased.............. (389,379)
Net income............................ 742,345 742,345
Change in cumulative translation
adjustment.......................... (3,373)
---------- -------- --------- --------- ----------- ----------- -------------
Balance August 31, 1996 (unaudited)..... 5,590,245 $55,902 -- $ -- $8,177,213 $ 1,217,981 $8,418,009
---------- -------- --------- --------- ----------- ----------- -------------
---------- -------- --------- --------- ----------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-6
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------- SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, AUGUST 31,
1994 1995 1996 ------------------------
------------ ------------ ------------ 1995 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities:
Net income.............................. $1,210,149 $1,621,678 $2,059,510 $ 1,048,905 $ 742,345
Adjustments to reconcile net income to
net cash provided by operations:
Depreciation and amortization......... 981,730 956,664 1,449,240 824,326 1,078,803
Loss on disposition of equipment...... -- -- 29,395 -- --
Allowance for doubtful accounts....... 7,000 60,812 10,872 14,920 8,174
Deferred income taxes................. 338,624 7,825 60,855 150,000 212,563
Changes in assets and liabilities:
Accounts and other receivables...... (88,258) (591,999) (1,241,638) (586,083) 66,608
Inventories......................... 273,355 (39,123) (184,056) (304,098) (138,949)
Prepaid expenses.................... 294,702 (212,152) (295,175) (5,288) 127,156
Accounts payable.................... (1,576,698) 19,459 820,467 195,498 (783,067)
Accrued expenses.................... -- 318,719 313,847 (161,338) (286,959)
Other accrued taxes................. -- 12,525 381,390 66,424 (109,880)
Deferred revenues................... 1,285,341 738,925 (635,962) (747,976) (310,387)
Income taxes payable................ -- 198,500 (50,485) 18,281 (49,323)
Pension liability................... 241,178 (265,000) -- -- --
Other assets........................ (5,200) (24,072) (232,989) 13,750 (212,537)
------------ ------------ ------------ ----------- -----------
Net cash provided by operating
activities...................... 2,961,923 2,802,761 2,485,271 527,321 344,547
------------ ------------ ------------ ----------- -----------
Cash flow from investing activities:
Capital expenditures.................... (549,602) (924,800) (1,574,535) (1,119,818) (403,340)
Proceeds from disposal of property and
equipment............................. -- -- 51,916 -- --
Acquired and developed software......... (379,713) (1,067,783) (2,695,328) (740,322) (1,037,400)
Deferred acquisition costs.............. 275,864 -- -- -- --
Business disposition.................... -- (154,208) -- -- --
Business acquisition.................... (2,208,198) (78,558) (422,083) -- --
------------ ------------ ------------ ----------- -----------
Net cash used by investing
activities...................... (2,861,649) (2,225,349) (4,640,030) (1,860,140) (1,440,740)
------------ ------------ ------------ ----------- -----------
Cash flow from financing activities:
Proceeds from issuance of convertible
notes, net............................ -- -- 1,900,000 -- --
Payments on notes payable............... (1,245,017) (463,702) (228,291) (91,465) (157,744)
Proceeds from borrowing................. -- 159,430 1,099,693 1,362,022 747,292
Issuances of common stock, net.......... 943,686 68,139 717,097 152,865 --
Deferred stock offering costs........... -- -- -- -- (525,153)
Smoky Mountain distributions............ (38,125) (40,291) --
Receivables from related party.......... 345,394 (214,850) (126,832) 82,000 --
Repurchase of treasury stock............ (350,000) (143,654) -- -- --
------------ ------------ ------------ ----------- -----------
Net cash (used) provided by
financing activities............ (344,062) (634,928) 3,361,667 1,505,422 64,395
------------ ------------ ------------ ----------- -----------
Net (decrease) increase in cash........... (243,788) (57,516) 1,206,908 172,603 (1,031,798)
Effect of exchange rate changes on cash... 98,147 (4,873) (31,600) 2,439 (3,373)
Cash and cash equivalents at beginning of
period................................... 293,875 148,234 85,845 85,845 1,261,153
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents at end of
period................................... $ 148,234 $ 85,845 $1,261,153 $ 260,887 $ 225,982
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-7
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The supplemental consolidated financial statements have been prepared to
give retroactive effect of the acquisition of Smoky Mountain Technologies, Inc.
("Smoky Mountain") as described in Note 3. Generally accepted accounting
principles proscribe giving effect to a consummated business combination
accounted for by the pooling-of-interests method in financial statements that do
not include the date of consummation. These financial statements reflect the
consolidated financial position of UniComp, Inc. and its Subsidiaries ("the
Company") prior to the date of consummation; however, they will become the
historical consolidated financial statements of the Company after annual
financial statements covering the date of consummation of the business
combination are issued. The preparation of financial statements requires
management to make estimates and assumptions underlying the reported amounts and
disclosures. Amounts affected by these estimates include, but are not limited
to, the estimated useful lives, related amortization expense and carrying values
of the company's intangible assets and capitalized software development costs.
Changes in the status of certain matters or facts or circumstances underlying
these estimates could result in material changes to these estimates, and actual
results could differ from these estimates.
The financial statements include the accounts of UniComp, Inc. and its
subsidiaries all of which are wholly owned. All material intercompany balances
and transactions have been eliminated in consolidation. Certain amounts
previously presented in the consolidated financial statements have been
reclassified to conform to current presentation.
REVENUE RECOGNITION
The Company's revenues are generated primarily in the United Kingdom and the
United States from licensing software products, the sale of computer equipment,
and providing maintenance and support.
Revenues from the sale of hardware, the Company's computer software products
and the resale of third-party software are recognized upon delivery, customer
acceptance, fulfillment of significant vendor obligations and determination that
collectibility is probable. Revenue related to sales which impose significant
vendor obligations on the Company are deferred until the obligations are
satisfied. Revenues from consulting services are recognized as services are
provided. Contract revenues from post-contract customer support are deferred and
recognized over the life of the contract.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
All assets and liabilities in the balance sheet of a foreign subsidiary
whose functional currency is other than the United States dollar are translated
at the year-end exchange rate. Income statement items are translated at the
average currency exchange rate for the period. Translation gains and losses are
accumulated as a separate component of stockholders' equity and are not included
in determining net income. Transaction gains and losses are included in the
results of operations in the period which they occur and are not significant in
any period presented.
F-8
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes all cash balances and highly liquid
investments with an original maturity of three months or less. At times, cash in
bank deposits may exceed the federally insured limits. The Company has not
experienced and does not anticipate any losses from such accounts.
INVENTORIES
Inventories consist of equipment, services in process, computer hardware,
and software available for resale. Inventories are stated at the lower of cost
or market, cost being determined on a first-in first-out ("FIFO") basis.
Components of inventories are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------ AUGUST 31,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Services in process.................................. $ 110,085 $ 7,222 $ 107,286
Computer hardware and software....................... 421,803 708,722 747,607
------------ ------------ -----------
Total.............................................. $ 531,888 $ 715,944 $ 854,893
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment, including certain equipment acquired under capital
leases, are stated at cost less accumulated depreciation. Depreciation is
provided on the straight-line method over the estimated useful lives of the
related assets, except for leasehold improvements and capital leases, which are
amortized over the life of the related lease. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is recognized in the results of
operations.
ACQUIRED AND DEVELOPED SOFTWARE
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed" ("FAS 86"), costs incurred to develop the Company's software products
which are to be licensed to its customers and costs of purchased software are
capitalized and amortized at the greater of the amount computed using the ratio
of current product revenues as compared to the current and estimated future
revenues of that product, or on a straight-line basis over the estimated life of
the products, generally three to four years. All research and development costs
incurred prior to technological feasibility or subsequent to general
availability have been expensed in the period which they were incurred and
totaled approximately $610,000, $235,000 and $42,000 in fiscal years 1996, 1995,
and 1994, respectively.
Costs which are capitalized include direct and indirect costs associated
with payroll, benefits and computer usage, among others. The Company capitalized
software development costs of $1,037,400 in the six months ended August 31, 1996
and $2,695,328 (including $1,000,000 of purchased software), $1,067,783, and
$379,713 during fiscal years 1996, 1995, and 1994, respectively, with
amortization of $685,099 in the six months ended August 31, 1996 and $681,936,
$305,113, and $384,306 in fiscal years 1996, 1995 and 1994. Capitalized software
costs are net of amounts reimbursed by United Kingdom government grants totaling
F-9
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
approximately $242,000 in the six months ended August 31, 1996 and $389,000,
$369,000, and $285,000 in fiscal years 1996, 1995, and 1994, respectively.
The amount by which unamortized software costs exceeds the net realizable
value, if any, is recognized as expense in the period it is determined.
GOODWILL
Goodwill is recorded upon acquisition and amortized on a straight-line basis
over its estimated period of future benefit, generally ten years. The Company
evaluates the recoverability of goodwill based upon a comparison of estimated
undiscounted future cash flows from the related operations as compared with the
carrying value of the respective assets. The amount by which unamortized
goodwill exceeds future estimated cash flows, if any, is recognized as expense
in the period it is determined.
HEDGING
The Company does not use hedging strategies to reduce the effects of
unfavorable price movements on profitability as a result of fluctuations in
foreign exchange rates.
INCOME TAXES
Income taxes are provided on taxable income at the statutory rates
applicable to such income in the United States and the United Kingdom under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). Under FAS 109, the deferred tax liabilities and assets are
determined based on temporary differences between the bases of certain assets
and liabilities for income tax and financial reporting purposes. These
differences are primarily attributable to differences in the recognition of
depreciation and amortization of property and equipment, intangible assets, and
capitalized software development costs. As of February 29, 1996, deferred income
taxes of approximately $353,000 have not been provided on the cumulative
undistributed earnings of foreign subsidiaries in the amount of $2,344,290 since
such amounts are considered by management to be permanently reinvested.
NET INCOME PER SHARE
Net income per common and common equivalent share is based upon the weighted
average of common and common equivalent shares outstanding during the year.
Primary and fully diluted net income per share are the same. The weighted
average number of shares outstanding for the six months ended August 31, 1996
includes 294,055 common equivalent shares assuming the conversion of options and
warrants which are dilutive. The weighted average number of shares outstanding
for fiscal year 1996 includes 294,656 common equivalent shares assuming the
conversion of options and warrants which are dilutive. The weighted average
number of shares outstanding for fiscal years 1995 and 1994 include no common
equivalent shares since dilutive securities do not reduce net income per share
by at least 3%.
F-10
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
NEW ACCOUNTING STANDARDS
The American Institute of Certified Public Accountants has issued Statement
of Position 93-7 ("SOP 93-7"), "Reporting on Advertising Costs," which is
effective for fiscal years beginning after June 15, 1994. SOP 93-7 generally
requires that advertising costs, with certain exceptions, be expensed as
incurred. As the Company has historically expensed advertising costs as
incurred, the effects of the Company's adoption of SOP 93-7 during fiscal year
1996 did not have a material effect on the Company's consolidated financial
statements. Advertising expenses for fiscal years 1996, 1995 and 1994 were
approximately $200,000, $180,000 and $150,000, respectively.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed Of" ("FAS 121"). FAS 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the expected future
cash flows of those assets are less than the assets' carrying amount. FAS 121
also addresses the accounting for long-lived assets that are expected to be sold
or discarded. The Company will adopt FAS 121 in fiscal year 1997. The effect of
adoption is not expected to be material to the Company's financial position or
results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 requires that companies with stock-based
compensation plans either recognize compensation expense based on new fair value
accounting methods or continue to apply the provisions of Accounting Principles
Board Opinion No. 25 and disclose pro forma net income and earnings per share
assuming the fair value method had been applied. The Company will adopt the
disclosure method in fiscal year 1997 and the adoption is not expected to have a
material effect on the Company's financial position or results of operations.
2. PROPERTY AND EQUIPMENT:
The components of property and equipment at February 28, 1995, February 29,
1996, and August 31, 1996 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE FEBRUARY 28, FEBRUARY 29,
(YEARS) 1995 1996
------------- ------------- ------------- AUGUST 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Buildings........................... 20 $ 161,501 $ 964,054 $ 1,191,279
Land................................ N/A 57,066 58,737 58,737
Leasehold improvements.............. 5-10 434,714 421,071 444,505
Computer equipment.................. 2-5 2,207,772 2,032,816 2,119,371
Computer software................... 3 210,766 148,237 123,725
Furniture and fixtures.............. 5 752,806 761,982 619,977
Vehicles............................ 2-4 188,082 139,207 59,090
------------- ------------- -------------
4,012,707 4,526,104 4,616,684
Less accumulated depreciation....... (2,394,104) (2,124,135) (2,162,233)
------------- ------------- -------------
$ 1,618,603 $ 2,401,969 $ 2,454,451
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
F-11
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
3. BUSINESS COMBINATIONS AND DISPOSAL:
ACQUISITION OF SMOKY MOUNTAIN TECHNOLOGIES, INC.
On April 16, 1996, the Company completed its acquisition of Smoky Mountain,
a software and hardware developer for the financial transaction industry. The
Company issued 500,000 shares of its common stock for all of the outstanding
common stock of Smoky Mountain. This transaction has been accounted for as a
pooling of interests; therefore, these financial statements have been restated
to reflect this merger.
Smoky Mountain prepared its financial statements on a December 31 year end.
Smoky Mountain's fiscal year end has been changed to conform with the Company's
year end and its financial data is included in the Supplemental Consolidated
Financial Statements for all periods presented as of the Company's year end.
The stockholders' equity accounts have been adjusted to reflect the 149
shares of Smoky Mountain preferred stock which were converted into 6,037 shares
of Smoky Mountain common stock. Adjustments have also been made to reflect the
conversion of all Smoky Mountain common stock into 500,000 shares of the
Company's common stock. No other adjustments were required to reflect the
consolidation of Smoky Mountain into the Company since the accounting policies
of Smoky Mountain prior to the transaction were substantially the same as the
Company's and prior to the date of the acquisition there were no transactions
between the companies.
Smoky Mountain's revenues and net income included in the Company's
consolidated statements of operation for the three years ended February 29, 1996
and February 28, 1995 and 1994 and for the six months ended August 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28, 1994
----------------------------------------
SMOKY
UNICOMP MOUNTAIN TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Revenues........................................... $ 12,157,833 $48,523 $ 12,206,356
Net income......................................... 1,186,124 24,025 1,210,149
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 28, 1995
----------------------------------------
SMOKY
UNICOMP MOUNTAIN TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Revenues........................................... $ 17,798,566 $ 526,018 $ 18,324,584
Net income (loss).................................. 1,637,715 (16,037) 1,621,678
<CAPTION>
FOR THE YEAR ENDED FEBRUARY 29, 1996
----------------------------------------
SMOKY
UNICOMP MOUNTAIN TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Revenues........................................... $ 21,305,287 $ 985,732 $ 22,291,019
Net income (loss).................................. 2,061,938 (2,428) 2,059,510
<CAPTION>
FOR THE SIX MONTHS ENDED AUGUST 31, 1995
----------------------------------------
(UNAUDITED)
SMOKY
UNICOMP MOUNTAIN TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Revenues........................................... $9,744,703 $ 318,122 $ 10,062,825
Net income (loss).................................. 1,108,729 (59,824) 1,048,905
</TABLE>
F-12
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
3. BUSINESS COMBINATIONS AND DISPOSAL: (CONTINUED)
ADVEC LIMITED
On August 1, 1995, the Company acquired certain assets and liabilities of
Advec Limited in the United Kingdom under an asset purchase agreement for
approximately $418,000. The acquisition has been accounted for as a purchase and
accordingly, the purchase price has been allocated to the assets acquired and
the liabilities assumed based on the estimated fair values at the date of
acquisition. The results of operations have been included from August 1, 1995.
The excess consideration above the fair value of net assets acquired of
approximately $395,000 has been recorded as goodwill. Supplemental pro forma
information for the results of operations is not presented since the amounts are
not material to the Company's consolidated financial position and results of
operations.
DOMINION SOUND SYSTEMS, PLC.
On November 30, 1994, the Company sold the capital stock of Dominion Sound
Systems, Plc. ("Dominion") in exchange for the assumption of the net liabilities
of Dominion in the amount of $154,208. This amount was recognized in 1995 and is
included in other income.
CI COMPUTER SOFTWARE LIMITED
On September 18, 1994, the Company acquired the capital stock of CI Computer
Software Limited, a United Kingdom company, in exchange for $20, assumption of
net liabilities and forgiveness of a working capital advance in the amount of
approximately $200,000. The business combination was accounted for as a purchase
and accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on the estimated fair values at the date of
acquisition. The results of operations are included from September 18, 1994, the
date of acquisition. The excess consideration above the fair value of net assets
acquired of approximately $333,000 has been recorded as goodwill.
ICS COMPUTING GROUP LIMITED
On May 21, 1993, the Company acquired Questgold Technology Limited
("Questgold"), a United Kingdom company, for approximately $4.1 million. The
business combination was accounted for as a purchase and accordingly, the
purchase price has been allocated to the assets acquired and the liabilities
assumed based on the estimated fair values at the date of acquisition. The
results of operations are included from May 21, 1993, the date of acquisition.
On June 15, 1993, Questgold changed its name to ICS Computing Group Limited.
F-13
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
4. INCOME TAXES:
The significant components of income tax expense (benefit) are as follows
(all amounts are in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------- ------------- --------------- SIX MONTHS
ENDED AUGUST
31, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current provision:
Federal.............................. $ -- $ -- $ 14 $ --
State................................ -- 11 43 21
Foreign.............................. 12 188 80 30
Deferred provision:
Federal.............................. -- (14) (307) 129
State................................ -- -- -- --
Foreign.............................. 243 310 373 120
----- ----- ----- -----
$ 255 $ 495 $ 203 $ 300
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate to income before income taxes is
as follows (all amounts are in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
------------- ------------- ------------- SIX MONTHS
ENDED AUGUST
31, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax at statutory rate........... $ 490 $ 716 $ 770 $ 354
State income taxes (net of federal tax
deduction)............................ -- 7 29 14
Impact of foreign taxes................ (61) (126) (52) (68)
Utilization of federal net operating
losses................................ (188) (112) (238) --
Reduction of deferred tax asset
valuation allowance................... -- -- (302) --
Other.................................. 14 10 (4) --
----- ----- ----- -----
Tax expense........................ $ 255 $ 495 $ 203 $ 300
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The deferred tax asset was offset by a 100% valuation allowance for 1995 and
1994. Based upon the performance of the United States subsidiaries, the Company
determined that a valuation allowance related to the deferred tax asset in the
United States was not required as of February 29, 1996. As a result, the Company
reduced the valuation allowance by $238,000 for current year utilization of the
federal net operating loss and recorded a credit of $302,000 to tax expense to
reduce the valuation allowance to zero. The deferred tax liability recorded is
principally due to temporary differences as a result of the timing of
F-14
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
4. INCOME TAXES: (CONTINUED)
recognition of the capitalization and amortization of internally developed
software costs and the amortization of goodwill. The components of the deferred
tax asset are as follows (all amounts are in thousands):
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1994 1995 1996
--------------- --------------- --------------- AUGUST 31,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cumulative U.S. NOL's at statutory
rate................................. $ 736 $ 540 $ 302 $ 209
Cumulative U.K. NOL's at statutory
rate................................. -- -- 40 --
Alternative minimum tax credit
carryforward......................... 1 -- 7 --
----- ----- ----- -----
Gross deferred tax asset.......... $ 737 $ 540 $ 349 $ 209
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
As of February 29, 1996, the Company has net operating loss carryforwards,
subject to certain limitations under the provisions of Internal Revenue Code
Section 382, that expire February 28, 2003 through 2007 of $54,653, $320,000,
$44,371, $264,891, and $289,327, respectively.
5. RELATED PARTY TRANSACTIONS:
Accounts and other receivables from related parties at February 29, 1996 and
February 28, 1995 are comprised of $404,478 and $277,646, respectively, due from
affiliated companies or officers which have borrowed funds from the Company
principally in the form of unsecured 10% notes which mature within one year from
February 29, 1996.
On August 31, 1996, the Company's Board of Directors approved the exchange
of 68,626 shares of the Company's common stock in lieu of payment of $378,130 of
indebtedness owed to the Company by certain officers and affiliated companies.
These shares were held in treasury at August 31, 1996.
6. LEASES:
The Company leases office space and automobiles under non-cancelable
operating leases. Rental expense for the years ended 1996, 1995 and 1994 were
$1,033,006, $869,586 and $793,026, respectively. In addition, the Company leases
certain computers under capital leases.
Future minimum lease payments for operating leases and capital leases at
February 29, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------ ---------
<S> <C> <C>
1997................................................................. $ 729,092 $ 55,197
1998................................................................. 604,839 16,150
1999................................................................. 379,156 --
2000................................................................. 259,114 --
2001................................................................. 28,182 --
Thereafter........................................................... 28,182 --
------------ ---------
$ 2,028,565 $ 71,347
------------ ---------
------------ ---------
</TABLE>
F-15
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
7. LINES OF CREDIT:
The Company maintains a line of credit in the United Kingdom which is
secured by certain accounts receivables. The line of credit is utilized for
short-term borrowing for general corporate use. Interest is charged based on the
average outstanding balance at a variable rate which was 7.5% as of August 31,
1996. The outstanding balance on the line of credit was $1,386,225, $1,078,933
and $661,750 at August 31, 1996, February 29, 1996 and February 28, 1995,
respectively. The Company also maintains two lines of credit in the United
States with outstanding balances totaling $440,000 as of August 31, 1996. These
lines of credit were not used during fiscal years 1996 and 1995.
8. LONG-TERM DEBT:
NOTES PAYABLE
Notes payable as of February 29, 1996 and February 28, 1995 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1995 1996
------------ ------------ AUGUST 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to a United Kingdom bank, interest at
a variable rate, 8.625% as of August 31, 1996,
collateralized by a building in Northern Ireland,
payable in quarterly installments of $17,300
commencing October 1995............................ $ -- $ 654,075 $ 609,712
Notes payable to a United Kingdom bank, interest at
a variable rate, 8.625% as of August 31, 1996,
collateralized by accounts receivable and other
assets of the Company, payable in quarterly
installments of $38,200 commencing March 1995...... 790,000 612,000 546,000
Other............................................... 203,811 181,956 134,575
------------ ------------ ------------
Total notes payable............................... 993,811 1,448,031 1,290,287
Less: current portion............................... 266,732 375,105 (279,242)
------------ ------------ ------------
$ 727,079 $ 1,072,926 $ 1,011,045
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Maturities of long-term debt as of February 29, 1996 are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 375,105
1998........................................................ 250,853
1999........................................................ 222,000
2000........................................................ 222,000
2001........................................................ 70,000
Thereafter.................................................. 308,073
-----------
$ 1,448,031
-----------
-----------
</TABLE>
F-16
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
8. LONG-TERM DEBT: (CONTINUED)
CONVERTIBLE NOTES
In December 1995, the Company issued $2,000,000 aggregate principal amount
of two-year 7% convertible promissory notes. The notes are convertible at the
holder's option as follows: 20% of the principal and accrued interest are
convertible 61 days after issuance, with an additional 20% convertible each
subsequent 10 days into shares of common stock at the lesser of $5.75 per share
or 85% of the market price of the common stock on the date of conversion. As of
August 31, 1996, all the principal and related accrued interest thereon had been
converted into 430,291 shares of common stock.
9. STOCKHOLDERS' EQUITY:
The Company has an incentive plan under which options to purchase shares of
the Company's common stock have been granted to eligible employees. There are
1,200,000 shares of common stock available for award under the plan which is
administered by the Compensation Committee of the Board of Directors.
Option activity under the stock option plan is summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
1996
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, -----------
1994 1995 1996
------------ ------------ ------------ (UNAUDITED)
<S> <C> <C> <C> <C>
Shares under option at beginning of
period................................... -- 690,000 980,000 572,500
Granted................................. 690,000 300,000 12,500 230,000
Exercised............................... -- -- (162,500) --
Forfeited............................... -- (10,000) (257,500) --
------------ ------------ ------------ -----------
Shares under option at end of period...... 690,000 980,000 572,500 802,500
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Shares under option exercisable at end of
period................................... -- -- 70,000 70,000
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
Shares available for future grant......... 510,000 220,000 465,000 235,000
------------ ------------ ------------ -----------
------------ ------------ ------------ -----------
</TABLE>
The exercise price of options exercised under the plan during 1996 were
$3.31 to $4.41. The exercise price of shares under option at August 31, 1996 was
$3.31 to $6.00 per share.
All options granted have exercise prices of 100% of the market value at the
date of grant and are generally exercisable at the rate of 25% per year
beginning two years from date of grant. Options expire up to 10 years from the
date of grant.
In accordance with the issuance of the convertible promissory notes, the
Company granted warrants to purchase 25,000 shares of the Company's common stock
at $6.90 per share, the fair value of the common stock at the date of grant. As
of February 29, 1996, the warrants had not been exercised.
The Company granted 4,800, 9,800, and 1,000 shares of common stock to
outside directors during 1996, 1995 and 1994, respectively, and recognized
$24,000, $24,570, and $900 of expense related to these transactions during the
same periods. Additionally, in 1994, the Company issued 63,000 common shares to
F-17
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
9. STOCKHOLDERS' EQUITY: (CONTINUED)
holders of a bridge loan in accordance with the terms of the subscription
agreement. The Company recognized expense of $56,700 associated with this
transaction.
The Company held 133,400 shares of common stock in treasury at February 29,
1996. 100,000 shares were given to the Company during fiscal year ended February
28, 1994 as payment for debt owed to the Company. In November 1994, 40,000
shares were reacquired from a previous officer of Dominion. Subsequently in
1995, 6,600 shares were issued to a director for services for which the Company
recognized $16,170 of expense. Treasury stock is held at cost and presented as a
reduction of stockholders' equity.
10. COMMITMENTS AND CONTINGENCIES:
The Company is not presently a party to any material litigation, nor to the
knowledge of management is any material litigation threatened against the
Company. There are no significant pending legal proceedings, other than routine
litigation incidental to the Company's business.
11. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest totaled $106,008 for the six month ended August 31,
1996 and $249,307, $245,682 and $215,607 in fiscal years ended 1996, 1995 and
1994, respectively.
The Company paid income taxes of $100,709 for the six months ended August
31, 1996 and $262,559 and $12,684 in 1996 and 1995. The Company paid no income
taxes in 1994.
During fiscal year ended 1996, convertible notes with principal amounts of
$20,000 were converted into 3,478 shares of common stock. Additionally, for the
six months ended August 31, 1996, the remaining principal amount of $1,980,000
was converted into 426,813 shares of Common Stock.
12. SEGMENT INFORMATION:
The Company operates in a single industry segment of marketing computer
hardware and software, software support services and software development
services.
F-18
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
12. SEGMENT INFORMATION: (CONTINUED)
A summary of operations by geographic area follows:
<TABLE>
<CAPTION>
U.S. U.K.
OPERATIONS OPERATIONS
------------- -------------
<S> <C> <C>
FISCAL YEAR 1994
Revenues....................................................... $ 2,636,215 $ 9,570,141
Cost of sales.................................................. 1,308,040 4,098,629
Gross profit................................................... 1,328,175 5,471,512
SG&A expense................................................... 823,676 3,774,377
Depreciation................................................... 39,490 557,934
Operating income............................................... 618,984 985,226
Total assets................................................... $ 1,085,392 $ 6,224,991
FISCAL YEAR 1995
Revenues....................................................... $ 2,796,697 $ 15,527,887
Cost of sales.................................................. 905,517 5,536,727
Gross profit................................................... 1,891,180 9,991,160
SG&A expense................................................... 1,294,026 7,720,017
Depreciation................................................... 57,108 594,443
Operating income............................................... 291,510 1,925,236
Total assets................................................... $ 1,068,747 $ 8,889,364
FISCAL YEAR 1996
Revenues....................................................... $ 3,632,543 $ 18,658,476
Cost of sales.................................................. 1,044,433 6,933,289
Gross profit................................................... 2,588,110 11,725,187
SG&A expense................................................... 2,087,798 8,960,633
Depreciation................................................... 59,082 650,776
Operating income............................................... 441,230 2,113,778
Total assets................................................... $ 3,498,816 $ 13,173,237
</TABLE>
The Company sells its product and services to a variety of customers. No
individual customer accounted for more than 10% of Company revenues during the
fiscal years ended February 29, 1996, and February 28, 1995 and 1994.
13. PENSIONS:
The Company's U.K. subsidiaries operate a pension plan which is designed to
provide death and retirement benefits for eligible employees. The pension costs
are assessed in accordance with the advice of a qualified actuary. Actuarial
assumptions used at February 29, 1996 included a 9% long-term rate of return on
assets, a 8.5% discount rate and a salary increase of 5.5%.
- All employees over 25 years of age are eligible for the pension plan.
- Benefit formula: annual pension to be 1/60 of final pensionable salary for
each year of pensionable service, subject to a maximum fraction of 2/3.
F-19
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
13. PENSIONS: (CONTINUED)
- Funding policy: the employer contributes to the fund at rates determined
by the actuary. Employees contribute in accordance with the plan.
- Assets held are fixed interest securities and deferred annuities insurance
policies.
Cost components for 1996 (in 000's):
<TABLE>
<S> <C>
Service cost......................................................... $ 116
Interest cost........................................................ 318
Return on assets..................................................... (360)
Amortization and deferral of period service costs.................... 11
---------
Net periodic pension cost.......................................... $ 85
---------
---------
</TABLE>
Reconciliation of funded status as of February 29, 1996 (in 000's):
<TABLE>
<S> <C>
Accrued benefits obligation......................................... $ 3,481
---------
---------
Project benefit obligation.......................................... $ 3,638
Assets at market value.............................................. 3,820
---------
Funded status..................................................... 182
Unrecognized transitions asset...................................... (59)
Unrecognized loss................................................... 104
---------
Prepaid pension expense........................................... $ 227
---------
---------
</TABLE>
14. FOURTH QUARTER ADJUSTMENTS:
During the fourth quarter of fiscal year 1996, the Company recorded an
income tax provision principally in the United Kingdom in the amount of
$258,000. The effective tax rate used during the year reflected anticipated
foreign tax rates and tax planning alternatives during the quarterly periods and
was adjusted to the actual amounts in the fourth quarter. Additionally, in the
fourth quarter, the Company recognized a credit to tax expense of $302,000
related to recognition of the United States deferred tax asset when the Company
determined that it was more likely than not that the deferred tax asset would be
realized in future periods.
Also, during the fourth quarter of fiscal year 1996, the Company recorded a
$227,000 credit related to the defined benefit pension plan in the United
Kingdom based on the computation of its actuarial determination of net periodic
pension cost in the fourth quarter.
15. SIGNIFICANT RISKS AND UNCERTAINTIES:
The Company's operating results and financial condition can be impacted by a
number of factors, including but not limited to any of the following which could
cause actual results to vary materially from current and historical results or
the Company's anticipated future results.
A portion of the Company's business is focused on developing and marketing
platform-migration software and development tools that enable users to migrate
applications written for proprietary IBM mid-
F-20
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AUGUST 31, 1996 AND FOR THE
SIX MONTHS ENDED AUGUST 31, 1995 AND 1996 IS UNAUDITED) (CONTINUED)
15. SIGNIFICANT RISKS AND UNCERTAINTIES: (CONTINUED)
range computer systems to portable operating systems such as UNIX and Windows NT
in the United States and the United Kingdom. Product revenues to be received
from the Company's UNIBOL products are difficult to forecast because of the
evolving product lifecycle for the UNIBOL36 product and the recent introduction
of the UNIBOL400 product. The Company's success will depend on the level of
market acceptance and enhancements to the market on a timely and cost effective
basis, and its ability to maintain a labor force sufficiently skilled to compete
in the current environment.
While management believes that the Company's financing needs for the
foreseeable future will be satisfied from cash flows from operations and the
Company's existing credit facilities, unforeseen events and adverse economic or
business trends may significantly increase cash demands beyond those currently
anticipated that affect the Company's ability to generate/raise cash to satisfy
financing needs.
The Company derives net revenues primarily from its operations in Northern
Ireland. It is reasonably possible that this concentration of revenues makes the
Company vulnerable to the risk of a near-term severe impact on consolidated net
revenues due to unforeseen political and economic forces, as well as exchange
rate fluctuations.
As a result of the above and other factors, the Company's operations and
financial position can vary significantly from quarter-to-quarter and
year-to-year. These variations may contribute to volatility in the market for
the Company's common stock.
F-21
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THIS OFFERING AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 5
Use of Proceeds................................ 11
Price Range of Common Stock.................... 12
Dividend Policy................................ 12
Dilution....................................... 13
Capitalization................................. 14
Selected Consolidated Financial Data........... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 16
Business....................................... 23
Management..................................... 35
Certain Relationships and Related
Transactions.................................. 41
Principal Shareholders......................... 42
Description of Capital Stock................... 43
Shares Eligible for Future Sale................ 46
Underwriting................................... 48
Legal Matters.................................. 49
Experts........................................ 49
Index to Consolidated Financial Statements..... F-1
</TABLE>
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1,500,000 SHARES
[LOGO]
UNICOMP, INC.
COMMON STOCK
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PROSPECTUS
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CRUTTENDEN ROTH
INCORPORATED
NOVEMBER 12, 1996
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