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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1997
or
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM___________________ TO________________
Commission file number 0-15671
UNICOMP, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-1023666
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1850 Parkway Place, Suite 925
Marietta, GA 30067
(Address of principal executive offices) (zip code)
Registrant's telephone number: (770) 424-3684
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $46,000,000 on May 27, 1997.
The number of shares outstanding of the registrant's Common Stock as of May 27,
1997 was 6,775,345.
Documents incorporated by reference:
Specified sections of the registrant's 1997 Proxy Statement in connection
with its 1997 Annual Meeting of Stockholders are incorporated by reference in
Part III herein.
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PART I
ITEM 1. BUSINESS
Overview
UniComp, Inc. (the Company), founded in 1985, provides information
technology products and services to businesses located primarily in Northern
Ireland, as well as, year 2000 conversion to services, platform-migration
software and payment-processing systems to users worldwide. 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 to provide its high-quality information technology
services to the broad and growing installed base of users of its
platform-migration and payment-processing products.
The Company has experienced significant growth, with total revenue
growing to $25.1 million in fiscal year 1997 from $18.3 million in fiscal
year 1995. In fiscal year 1997, approximately 64% of the Company's revenue
was derived from providing computer equipment, support and various other
information technology services, with more than 83% of revenue attributable
to international operations, primarily in the United Kingdom.
Information Technology Products and Services
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs required to
maintain internal information technology resources capable of responding to
such change. The Company believes that, as businesses strive to compete and
utilize complex new technologies, more businesses 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 support
services, installation and integration of software and hardware systems and
outsourcing of information technology services. Support services consist of
system upkeep including hardware and software support and maintenance,
technical support and training. Installation and integration services include
system consulting and design, custom software development, system
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.
The Company sells computer equipment specializing in equipment for the
educational market in Northern Ireland. The Company also sells computer
equipment to the corporate and government sectors primarily as an adjunct to
its information technology services businesses.
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Year 2000 Conversion Services
The year 2000 problem arises from the inability of software applications
to effectively process programs that use two-digit data field format to
represent a year. Unless these applications are modified, significant
problems could occur due to the inability to properly interpret data fields
(e.g., such applications may interpret "00" as the year "1900" rather than
"2000"). In response to the increased awareness and demand for year 2000
solutions, the Company has recently expanded its services business with the
release of GO2000 to address this potential market. The Company believes that
it has a unique opportunity to market its GO2000 solutions to its installed
base of users of its other products and services. The Company also
anticipates that customer contacts developed in providing year 2000 solutions
will provide opportunities for the Company to provide additional on-going
products and services to such customers.
Platform-Migration Software
During the past several years, the computer industry has been moving 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
computing platforms from proprietary to open or portable systems, 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 software applications.
In response to the demand for software applications capable of running on
multiple computing platforms, the Company has developed platform-migration
software that rehosts code written for certain proprietary platforms to open
computing platforms. The Company believes that its UNIBOL rehosting solution
allows businesses and independent software vendors (ISVs) to migrate their
software applications to open systems in a more 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
Electronic 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. Electronic payment processing for commercial businesses
has grown rapidly in recent years as a result of an increased usage of credit
and debit cards and wider acceptance of such cards among merchants. Advances
in payment-processing and telecommunication technologies have also been key
factors contributing to such growth. The Company believes that the transition
from paper-based to electronic-based payment processing provides greater
convenience to merchants and consumers, reduces fees charged to merchants and
facilitates faster, more accurate settlement of payments.
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Payment-processing systems include the software and hardware combinations
that allow electronic settlement of payment transactions. The Company
designs, develops and markets payment-processing systems that provide
merchants a high degree of hardware independence by supporting a variety of
hardware platforms, including personal computers, point-of-sale terminals and
other peripheral devices. Additionally, the Company's payment-processing
systems provide merchants a high degree of independence by supporting all
major payment processors. 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.
Acquisition History
In June 1992, for 1,500,000 shares of the Company's Common Stock, the
Company acquired Arccom Management Systems, Inc. (d/b/a Unibol, Inc.), a
Georgia corporation, largely owned by two of the Company's executive officers
and directors, Messrs. Henry and Hafer, that had the exclusive right to
market and sell the UNIBOL36 product in North America.
In May 1993, the Company acquired for $4.1 million, ICS Computing Group
Limited (ICGL), a United Kingdom holding 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 two other subsidiaries specializing in the delivery of
information technology products and services: ICS Computing Limited (ICS),
specializing in vertical-market applications software and services, and
Computer Maintenance Ireland Limited (CMI), providing independent hardware
and software support, systems integration services, and training primarily in
Northern Ireland.
In September 1994, in exchange for assuming the net liabilities and
forgiving a $200,000 working capital loan made by the Company to the seller,
the Company acquired CI Computer Software Limited (CICS), a United Kingdom
company that provides software consultancy and custom software applications
for the IBM AS/400 marketplace in Northern Ireland.
In August 1995, the Company acquired for $420,000 certain assets and
liabilities of Advec Limited ("Advec"), a United Kingdom company specializing
in hardware support and systems integration services.
In April 1996, the Company acquired for 500,000 shares of the Company's
Common Stock Smoky Mountain Technologies, Inc. (Smoky Mountain), a North
Carolina corporation specializing in the development of payment-processing
systems.
In February, 1997, the Company acquired CEM Computers Limited (CEM) for
$3.7 million, a United Kingdom company that provides computer equipment,
independent hardware and software support, systems integration services and
training primarily in Northern Ireland.
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Markets
Information Technology Products and Services
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs required to
maintain internal information technology resources capable of responding to
such change. The Company believes that the information technology markets in
Northern Ireland, where the majority of the Company's information technology
product and service customers are based, and the rest of the United Kingdom
are regionally focused and highly fragmented, with the United Kingdom 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.
Year 2000 Conversion Services
Many organizations lack the internal resources to adequately address the
year 2000 problem. A number of solution providers, including the Company,
have developed special programs to meet the needs of year 2000 compliance.
The Company believes that over the next three years, more and more
organizations will be in need of cost-effective solutions for the year 2000
problem. As a result, the Company anticipates that demand for solution tools
for the year 2000 problem will grow significantly. The Company also believes
that, due to lack of internal resources, many businesses will seek to
outsource the year 2000 conversion process to outside service providers. The
year 2000 problem presents a significant marketing opportunity for the
Company. The Company provides year 2000 compliance through its GO2000
methodology, a repeatable process that combines the Company's proprietary
software tools with well defined procedures.
Platform-Migration Software
IBM's midrange computing platforms, the System/36 and AS/400, have served
as popular computing solutions 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 publications estimate
approximately 100,000 System/36 systems remained in use worldwide at the end
of 1996. Industry publications also estimate that over 400,000 AS/400 systems
were in use worldwide at the end of 1996. The installed base of AS/400
systems is estimated to increase by 40,000 to 50,000 systems per year for at
least the next few years.
In adopting IBM's midrange computing platforms, businesses, and the
software vendors that support them, have invested substantial resources
developing software applications that provide a wide variety of
manufacturing, accounting and other information-management functions.
According to industry sources, over 25,000 software applications have been
developed for use on the AS/400 system. Development of software applications
intended for use on IBM's midrange computing platforms continues, assisted by
more than 8,000 ISVs that IBM estimates develop and market software
applications for the AS/400 platform.
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.
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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 software
applications 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 and Windows NT
software applications market is currently smaller, but growing faster, than
the AS/400 software applications market.
Changing computing platforms from proprietary to open or portable systems
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 software
applications. ISVs must adapt to customer demands associated with increased
popularity of new computing platforms. ISVs that have developed successful
AS/400 software applications are faced with the challenge of migrating their
products to new platforms to meet customer demands while maintaining their
existing customer base for software applications 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 software
applications to enable it to operate on a new computing
platform. Since this entails completely rewriting
software applications 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 a sometimes be
accomplished by installing a 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. Additionally,
substantial modifications to packaged software may be
necessary to meet specialized customer needs. These
modifications often result in increased cost, disruption
and delay.
Rehosting Rehosting, involves migration of software applications to
a new computing platform with minimal change to the
source code or user interface. Rehosting is achieved by
rebuilding software applications 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>
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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 over 18% to
$178 billion from $151 billion in 1994.
The payment-processing market is dominated by a few large
transaction-processing and check verification organizations, the five largest
of which, according to industry publications, accounted for almost 50% of the
total United States market for electronic transaction processing.
Products and Services
Information Technology Products and Services
The Company provides a wide variety of information technology services
including support services, installation and integration of software and
hardware systems and outsourcing of information technology services. Support
services consist of system upkeep including hardware and software support and
maintenance, technical support and training. Installation and integration
services include system consulting and design, custom software development,
system 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.
The Company sells computer equipment specializing in equipment for the
educational market in Northern Ireland. The Company also sells computer
equipment to the corporate and government sectors primarily as an adjunct to
its information technology services businesses.
Year 2000 Conversion Services
In the mid-1990s, several conferences and market pronouncements increased
worldwide awareness of the impending year 2000 problem, also known as the
"millennium bug." This problem arises from the inability of software
applications to effectively process programs that use two-digit data field
format to represent a year. The two-digit year format assumes that all dates
are in the twentieth century. When twenty-first century dates are added to
the equation, disastrous problems could occur due to the inability to
properly interpret date fields (e.g., such applications may interpret "00" as
the year "1900" rather than "2000"). Potential problems include inability to
properly calculate interest, disappearance of long term orders, premature
expiration of life insurance and annuity policies, premature expiration of
credit cards and ATM cards, birth dates overtaking retirement dates, and many
other disruptive date-sensitive functions. Resolving a year 2000 problem is a
highly time- and labor-intensive project often requiring software
professionals to analyze millions of lines of code. The Gartner Group has
estimated that it will cost the public and private sectors between $300 and
$600 billion worldwide to initiate appropriate year 2000 conversions. The
cost to the U.S. government alone is estimated to be over $30 billion.
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Many organizations lack the internal resources to adequately address the
year 2000 problem. A number of solution providers, including the Company,
have developed special programs to meet the needs of year 2000 compliance.
The Company believes that over the next three years, more and more
organizations will be in need of cost-effective solutions for the year 2000
problem. As a result, the Company anticipates that demand for solution tools
for the year 2000 problem will grow significantly. The Company also believes
that, due to lack of internal resources, many companies will seek to
outsource the year 2000 conversion process to outside service providers.
The year 2000 problem presents a significant marketing opportunity for
the Company. The Company provides year 2000 compliance through its GO2000
methodology, a repeatable process that combines the Company's proprietary
software tools with well defined procedures. The GO2000 methodology involves
six phases (i) Inventory and Estimate (ii) Impact Analysis (iii) Build and
Unit Test (iv) Application Test (v) Implementation; and (vi) Post
Implementation Support. The Company's approach to each of these phases is
discussed below.
<TABLE>
<S> <C>
Inventory & Estimate The Company analyses the requirements to prepare the
customer's suite of application programs and files to
be year 2000 compliant. The GO2000 program suite
searches each library in the application for potential
year 2000 sensitive lines of code. The program then
reports the total lines of code and the total lines
that are potentially sensitive to the year 2000. A
complexity analysis is also performed on the code.
Impact Analysis The Company analyzes the customer's applications and
generates a GO2000 impact analysis report covering
numerous items including automatic code scan results,
analysis statistics, date hit analysis, data file
exposure, impact horizon, external interfaces,
complexity analysis, and analysts' observations. The
impact analysis also creates repositories which list
all programs and data files with date sensitive lines.
These repositories contain statistical information on a
per program basis (number of lines and number of
sensitive lines). The impact analysis will also flag
each program with comments identifying the sensitive
lines. At the conclusion of this phase, the Company
will create a plan of action for modifying the source
programs, discuss the customer's programming standards
and procedures, and set up unit testing standards for
programs changed by the GO2000 team.
Build & Unit Test In the build & unit test phase, the Company uses the
information derived from the previous phases and
modifies the customers source code to accept dates
beyond the year 2000. Each program changed by the
GO2000 team is tested individually to ensure that the
program is year 2000 compliant. The programs will then
be further tested according to the standards jointly
created during the planning sessions with the customer.
</TABLE>
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Application Test In the application test phase the Company will review
testing and reporting methodology with the customer's
IT staff. Company personnel will also participate in
the on site testing sessions. These on site sessions
will take place over a weekend when all production work
will be stopped and the operating system date reset to
a variety of dates before, on and after January 1, 2000.
<TABLE>
<S> <C>
Implementation With the assistance of personnel from the customer's IT
staff the Company will initiate the transition from the
current applications to the year 2000 compliant
applications. This will include any data file conversions
necessitated by record layout modifications.
Post Implementation Following the production installation, the Company will
Support support the customer in any post production
implementation year 2000 issues which arise due to
on-going changes or amendments to the application.
</TABLE>
The GO2000 approach to year 2000 compliance can be distinguished from the
so-called "mass change" approach which involves the automatic expansion of
all two digit date fields in all applications to four digit date fields. The
GO2000 methodology, on the other hand, involves analysis of the impact of the
year 2000 on each application and a determination of the most appropriate
solution for each application. Under the GO2000 methodology, the Company's
tools are utilized to help determine the technical feasibility of
implementing program logic changes to particular applications that enable the
applications to become year 2000 compliant without expanding date fields. The
Company's tools are then utilized to assist in implementing date field
expansion where appropriate and program logic changes where appropriate. The
GO2000 approach typically involves more time and effort in the planning phase
of the process, while the mass change approach typically involves
considerably more time and effort in the correction and testing phases. Since
the source correction and testing phases tend to be much larger and more
labor intensive than the planning phase, the mass change approach can result
in significantly higher costs to the customer.
Platform-Migration Software
The Company designs, develops and markets platform-migration software
under its UNIBOL brand.
UNIBOL36. The UNIBOL36 system rehosts software applications written in
RPG or COBOL, and related data, from IBM's System/36 to UNIX or Windows NT
systems.
UNIBOL400. The UNIBOL400 system rehosts software applications written in
RPG or COBOL, and related data, from IBM's AS/400 to UNIX systems. The
Company released UNIBOL400 Version 2.0, the first version released for
widespread commercial distribution, in November 1996. The Company is
currently developing an AS/400-to-Windows NT migration solution.
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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 RPG or COBOL. The UNIBOL400 system is currently
available on the IBM RS/6000, HP9000, Siemens Nixdorf RM
Series, Sun Ultra Sparc and the Data General Aviion UNIX
hardware platforms.
In August 1996, the Company released its UNIBOL36 NT product,
which migrates software applications from the System/36 to the
Windows NT platform. The Company expects to release a version
of UNIBOL400 that supports Windows NT late in fiscal year 1998.
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 software applications 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 software
applications to operate at least as efficiently as under
the original proprietary operating system.
</TABLE>
Payment-Processing Systems
The Company designs, develops and markets software and hardware systems
to facilitate the processing 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 and 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, certain point-of-sale terminals and other peripheral
devices.
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The Company believes its Universal Payment Software to be the most
critical component of its payment-processing systems. The Universal Payment
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 Universal Payment 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 as well as performs signature
capture and retrieval functions. The Company's Universal Payment Adaptor
Master Controller and Universal LAN Adapter products provide the hardware
platforms on which the Universal Payment Software operates and support
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.
The Company is 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.
Product Development and Enhancement
The computer industry is characterized by rapid technological change in
computer hardware, operating systems and software. To keep pace with this
change the Company dedicates considerable resources in the development of new
product development and product enhancement. The majority of the Company's
research and development for platform migration software and year 2000
conversion tools is performed in Northern Ireland while research and
development for its payment processing systems is performed in the United
States.
The Company intends to continue to recruit and hire experienced software
developers and to consider the acquisition of complementary software
businesses and technologies. In addition, the Company will continue to
actively collaborate with and support ISV's who offer products that enhance
and complement the software products the Company offers.
From time to time, the Company has delayed or briefly suspended product
shipments to make programming corrections. These corrections, which are not
unusual in the software industry, have generally been made to fix errors or
"bugs" in the software. Additionally, there can be no assurance that the
Company's development efforts will result in the timely introduction of new
products or that such new products will be commercially successful. Failure
to successfully develop new products, delays in the introduction of these
products, or lower-than-anticipated demand for these products could have a
material and adverse effect on the Company's business.
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Marketing and Distribution
Information Technology Products and Services
As of February 28, 1997, the Company marketed and sold its information
technology services through 21 direct sales and marketing personnel. The
Company organizes its information technology services business 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,
lead 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.
Year 2000 Conversion Services
As of February 28, 1997, the Company marketed and sold its year 2000
conversion services, through 6 direct sales and marketing personnel. UNIBOL's
direct sales force operates from the Company's offices in Belfast, Atlanta,
and Dallas. The Company markets its year 2000 conversion services through
direct mail, public relations, advertising programs, seminars, audio
conferences, trade shows, newsletters and its Internet homepage. The Company
plans to initially market its GO2000 conversion services to its existing
installed base of over 3,500 UNIBOL36 customers. The Company will also market
these services to the estimated 100,000 remaining users of the System/36 and
400,000 users of the AS/400. There are further opportunities for the Company
marketing these services to businesses who have previously migrated to the
AS/36 or to UNIX through means other than the Company's UNIBOL36 product.
Additionally, the Company has entered into strategic relationships with major
UNIX hardware system vendors, including Hewlett-Packard's CURE 2000 program.
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.
Platform-Migration Software
As of February 28, 1997, the Company marketed and sold its
platform-migration software and services through 14 direct sales and
marketing personnel. UNIBOL's direct sales force operates from the Company's
offices in Belfast, Atlanta, and Dallas. The Company markets its UNIBOL
products and services through direct mail, public relations, advertising
programs, seminars, audio conferences, trade shows, newsletters and its
Internet homepage. In addition, the Company markets its platform-migration
software through ISVs and 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 leading database providers such as Oracle. 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.
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According to industry sources, there are more than 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 software applications 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 UNIBOL400 system and from subsequent license fees
payable when an ISV licenses its migrated applications to end users.
As of February 28, 1997, the Company had entered into licensing
agreements with over 17 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.
Payment-Processing Systems
As of February 28, 1997, the Company marketed and sold its
payment-processing systems through 4 direct sales and marketing personnel.
The Company is currently selling its payment-processing systems to some of
the largest payment processors and check authorization organization in the
United States. Because the target market for the Company's payment-processing
systems consists of a small number of large transaction processors and
point-of-sale hardware and software vendors, the Company's direct sales staff
markets its payment-processing systems largely through system demonstrations
and collateral sales materials.
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.
Competition
Information Technology Products Services
The information technology products and services industry is highly
competitive. Based upon its knowledge of the industry, the Company believes
it is a leading provider of information technology products and services to
the Northern Ireland marketplace. The market for the Company's information
technology products and 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. 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
13
<PAGE>
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.
The Company believes that it competes by providing quality products and
services at competitive prices and distinguishing 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.
Year 2000 Conversion Services
The market for the Company's year 2000 conversion services is highly
competitive. The Company faces direct competition from other companies that
provide year 2000 conversion services and indirect competition from
businesses who will attempt to resolve their year 2000 problems in-house.
There are a number of larger companies, including computer manufacturers and
software companies, that have greater financial resources than the Company
and the technological ability to develop a year 2000 methodology and
application tools similar to those offered by the Company. These companies
present a significant competitive challenge to the Company. Because the
Company is focusing its year 2000 conversion services on customers utilizing
software written for the System/36 and AS/400, many of the Company's
competitors do not have the expertise in the programming languages for these
systems or the breadth of solutions that the Company offers. The Company
believes that it has advantages over these competitors due to the level of
knowledge it has obtained over the past 15 years developing migration
solutions targeted for applications originally written for these systems. The
Company competes on the basis of its service, price, and technological
advances and believes that it competes favorably in all of these categories.
Platform-Migration Software
The market for the Company's platform-migration software is highly
competitive. The Company faces direct competition from other developers of
rehosting solutions and companies that provide other migration solutions such
as refacing, re-engineering and packaged software applications. There are a
number of larger companies, including computer manufacturers and software
companies, that have greater financial resources than the Company and the
technological ability to develop software products similar to those offered
by the Company. These companies present a significant competitive challenge
to the Company's platform migration business. Many of the Company's
competitors do not offer the breadth of solutions that the Company offers.
Additionally, many of the migration competitors can only migrate object code
(instead of migrating source code as in the UNIBOL solution) which will not
allow the end users to modify the code once it has been migrated to the new
platform. The Company believes that its UNIBOL solutions provide end users
with a wider variety of migration options while maintaining the source code
and thereby conserving the ability of end users to update, enhance and modify
the software application. The Company competes on the basis of its service,
price, system functionality and performance and technological advances and
believes that it competes favorably in all of these categories.
14
<PAGE>
Payment-Processing Systems
The market for the Company's payment-processing systems is highly
competitive. The Company believes that the principal competitive factors in
the 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. There are a number of larger companies, including
point-of-sale terminal manufacturers and software companies, that have
greater financial resources than the Company and the technological ability to
develop software products similar to those offered by the Company. These
companies present a significant competitive challenge to the Company's
platform migration business.
Segment Information
The Company operates in one business segment, the providing of computer
hardware and software systems and services. The vast majority of the
Company's revenue is generated from products and services provided in the
United Kingdom and the United States, although the Company does have
customers in over 30 countries. The following table illustrates the relative
percentages of total revenue represented by the Company's products and
services in the United Kingdom and the United States.
Percent of Revenue, Fiscal Year Ended
-------------------------------------------
February 28, February 29, February 28,
1995 1996 1997
------------- ------------- -------------
United Kingdom................... 84.7% 83.7% 83.3%
United States.................... 15.3% 16.3% 16.7%
----- ----- -----
100.0% 100.0% 100.0%
Employees
As of February 28, 1997, the Company employed approximately 360 full time
equivalents in the United Kingdom and the United States. The Company believes
that its relationship with its employees is good.
15
<PAGE>
ITEM 2. PROPERTIES
The Company leases office space in Marietta, Georgia, which totals
approximately 10,745 square feet at an aggregate annual cost of approximately
$225,000. The lease expires in September 2000 and contains a renewal option
for one additional three-year term. The Company also owns office and
warehouse space in Murphy, North Carolina.
The Company leases three facilities in Belfast Northern Ireland totaling
approximately 48,500 square feet of office and warehouse space at an annual
cost of approximately $460,000 under separate leases expiring from 1999
through 2003. The Company also owns a facility in Belfast, Northern Ireland
under a 10-year 8.25% variable rate mortgage loan with an outstanding
principal balance as of February 28, 1997 of approximately $622,000. Annual
payments on this loan are approximately $70,000.
The Company believes that its current facilities are either adequate to
meet its needs for the foreseeable future or that adequate space is readily
available in all geographical areas in which the Company does business.
ITEM 3. LEGAL PROCEEDINGS
In connection with its acquisition in 1993 of ICS Computing Group
Limited, the Company incurred a claim by the seller related to pension
overfunding. Based upon the advise of its United Kingdom 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders, held on January 21,
1997, the Company's stockholders approved the election of five Directors. The
following is a summary of the voting for the Directors who were elected:
Votes Cast Votes Cast
For Against Abstensions
------------- ------------- -----------
Stephen A. Hafer................. 5,763,405 19,286 --
J. Patrick Henry................. 5,758,405 24,286 --
B. Michael Wilson................ 5,758,405 24,286 --
Nelson Millar.................... 5,758,405 24,286 --
Thomas W. Zimmerer............... 5,756,655 26,036 --
16
<PAGE>
PART II
ITEM 5. MARKET OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the Nasdaq National Market under the
symbol UCMP. 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.
High Low
--------- ---------
Fiscal Year 1997
Fourth Quarter ended February 28, 1997................. $10.25 $3.50
Third Quarter ended November 30, 1996.................. 6.31 4.25
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
On May 27, 1997, the closing sale price of the Common Stock on the Nasdaq
National Market was $8.875 per share. As of May 27, 1997, there were
approximately 570 owners of record of the Common Stock. Because many of such
shares may be held by brokers and other institutions on behalf of
stockholders, 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.
17
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's statement of operations data for the fiscal years ended
February 28, 1995, February 29, 1996 and February 28, 1997 and with respect
to the Company's balance sheet data at February 29, 1996 and February 28,
1997 are derived from the audited consolidated financial statements of the
Company included elsewhere herein and are qualified by reference to such
consolidated financial statements and notes thereto. The selected
consolidated financial data with respect to the statement of operations data
for February 28, 1993 and 1994 and the balance sheet data at February 28,
1993, 1994 and 1995 are derived from audited consolidated financial
statements not included herein. 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 herein.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Feb. 28, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(in thousands except per share data)
Statement of Operations Data:
Total revenue............................................... $ 2,799 $12,206 $18,325 $22,291 $25,151
Cost of sales............................................... 1,787 5,407 6,443 7,978 10,493
--------- --------- --------- --------- ---------
Gross profit................................................ 1,012 6,799 11,882 14,313 14,658
Operating expenses.......................................... 2,009 5,195 9,665 11,758 12,584
--------- --------- --------- --------- ---------
Operating income (loss)..................................... (997) 1,604 2,217 2,555 2,074
Other expenses (income)..................................... (17) 139 100 293 236
--------- --------- --------- --------- ---------
Income (loss) before taxes.................................. (980) 1,465 2,117 2,262 1,838
Provision for taxes......................................... -- 255 495 203 312
--------- --------- --------- --------- ---------
Net income (loss)........................................... $ (980) $ 1,210 $ 1,622 $ 2,059 $ 1,526
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income (loss) per share................................. $ (0.31) $ 0.28 $ 0.34 $ 0.40 $ 0.26
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares outstanding......................... 3,192 4,344 4,710 5,188 5,971
Balance Sheet Data:
Total assets................................................ $ 1,550 $ 7,310 $ 9,958 $ 16,672 $31,059
Working capital (deficit)................................... (391) 656 (566) 1,349 1,706
Debt, including current portion............................. 503 1,798 1,656 4,507 8,982
Total shareholders' equity.................................. (35) 1,851 3,352 6,117 14,376
</TABLE>
18
<PAGE>
ITEM 7. 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, Management's Discussion and Analysis
of Financial Condition and Results of Operations 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. These and
other factors may cause actual results to differ materially from those
anticipated.
Overview
UniComp provides information technology products and services to
businesses located primarily in Northern Ireland and platform-migration
software and payment-processing systems to users worldwide. In fiscal year
1997, the Company generated $25.1 million in total revenue, of which $9.8
million was derived from information technology services and $6.2 million was
derived from sales of computer equipment and supplies. The remaining $9.1
million in revenue was derived from license and maintenance fees for the
Company's platform-migration software, payment-processing systems and other
verticle market software products. The Company expects revenue from software
licensing to increase as a percentage of total revenue in the future as these
relatively new software products penetrate their target markets and gain
market acceptance.
During each of the last three fiscal years, approximately 80% of the
Company's revenue was derived from its international operations. Denomination
of the Company's revenue and expenses are generally in corresponding
currencies. As a result, to date, the Company has not hedged against foreign
currency exchange rate risks.
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 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, sales commissions,
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 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
revenue.
19
<PAGE>
During fiscal year 1997, the Company began investing additional resources
in sales and marketing efforts associated with the introduction and promotion
of several new products and services which were released during the year
including UNIBOL400, UNIBOL36 NT, and year 2000 conversion services. The
Company also continues to expand its payment processing operations
particularly increasing the number of employees associated with sales,
marketing, programming, support and installation services. Additionally, the
Company anticipates the hiring of additional sales and technical service
personnel as the Company further rolls out its year 2000 conversion services.
These activities have increased selling, general, and administrative expenses
in advance of increases in revenue. While these expenditures will continue
for the foreseeable future, the Company believes that additional revenue will
be generated as the result of these activities and that these expenditures as
a percentage of total revenue will begin to decline.
In February 1997, the Company completed its acquisition of CEM Computers
Limited ("CEM") a provider of hardware and software support and systems
integration primarily in Northern Ireland and is a reseller of computer
systems primarily to the education and corporate marketplace. The acquisition
has been accounted for by the purchase method. As such, CEM's results of
operations have been included since the date of acquisition.
In April 1996, the Company completed its acquisition of Smoky Mountain
Technologies, Inc. ("Smoky Mountain") which designs, develops and markets
payment-processing systems. The acquisition has been accounted for by the
pooling-of-interests method. The 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 have been restated to present the resulting combined entity.
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 revenue for the fiscal years ended February
28, 1995, February 29, 1996 and February 28, 1997.
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/28/95 2/29/96 2/28/97
---------------------- --------------------- ---------------------
(in thousands, except per share and percentage data)
Total Revenue.............................................. $ 18,325 100.0% $ 22,291 100.0% $ 25,151 100.0%
Cost of sales.............................................. 6,443 35.2 7,978 35.8 10,493 41.7
--------- ----- --------- --------- --------- ---------
Gross profit............................................... 11,882 64.8 14,313 64.2 14,658 58.3
Operating expenses......................................... 9,665 52.7 11,758 52.7 12,584 50.0
--------- ----- --------- --------- --------- ---------
Operating income........................................... 2,217 12.1 2,555 11.5 2,074 8.3
Other expenses (income).................................... 100 0.5 293 1.3 236 1.0
--------- ----- --------- --------- --------- ---------
Income before taxes........................................ 2,117 11.6 2,262 10.2 1,838 7.3
Provision for taxes........................................ 495 2.7 203 0.9 312 1.2
--------- ----- --------- --------- --------- ---------
Net income................................................. $ 1,622 8.9% $ 2,059 9.3% $ 1,526 6.1%
--------- ----- --------- --------- --------- ---------
--------- ----- --------- --------- --------- ---------
</TABLE>
20
<PAGE>
FISCAL YEAR ENDED FEBRUARY 28, 1997 COMPARED TO FISCAL YEAR ENDED FEBRUARY 29,
1996
REVENUE. Revenue for fiscal year 1997 increased to $25.1 million
compared to $22.3 million for fiscal year 1996, an increase of $2.8 million,
or 12.8%.
Revenue from information technology services increased to $9.8 million
for fiscal year 1997 from $9.1 million for fiscal year 1996, an increase of
$0.7 million, or 7.9%, which was due principally to an increase in revenue
from additional contracts and the renewal of existing contracts.
Revenue from the sale of equipment and supplies increased to $6.2 million
for fiscal year 1997 from $5.5 million for fiscal year 1996, an increase of
$0.7 million, or 12.8%. The increase was principally due to $1.2 million in
equipment revenue generated from CEM which was acquired in February 1997. CEM
is one of the largest resellers of computer equipment to the educational
sector in Northern Ireland. This increase was offset by overall decreases in
the sale of computer equipment by the Company's existing operations which is
generally supplied as an adjunct to its software and services customers and
varies depending on customer needs.
Revenue from software licensing and maintenance increased to $9.1 million
for fiscal year 1997 compared to $7.7 million for fiscal year 1996, an
increase of $1.4 million or 18.6%.
Revenue generated from licensing platform migration software decreased to
$3.3 million for fiscal year 1997 compared to $4.6 million for fiscal year
1996. This decrease was primarily due to the recognition of $1.6 million in
revenue during fiscal year 1996 associated with a large sale of platform
migration software to Siemens Nixdorf. Revenue generated in fiscal year 1996
excluding the sale to Siemens Nixdorf would have been $3.0 million, all of
which related to UNIBOL36. UNIBOL36 licensing declined to $2.1 million for
fiscal year 1997. The Company anticipates the decline in UNIBOL36 revenue
will begin to subside with the recent release of a version of UNIBOL36
supporting Windows NT which is anticipated to expand the UNIBOL36 market.
Additionally with the GO2000 millenium conversion initiative, the Company
anticipates an increased interest from businesses to migrate from the
System/36 to open platforms. This decline in revenue was offset by revenue
generated by sales of UNIBOL400 totaling $1.2 million as the Company's
resellers and distributors utilize and market this product which was released
in February 1997.
Revenue generated from payment-processing systems increased to $2.1
million for fiscal year 1997 compared to $.08 million for fiscal year 1996,
and increase of $1.3 million, or 160%. Revenue generated from
payment-processing systems has grown substantially as these products expand
market penetration for existing products and gain market acceptance for new
products. At the end of fiscal year 1997, the Company began a program to
allow key customers the ability to outsource the installation, help desk,
deployment and on-site support to the Company, thereby allowing these
customers to focus on processing transactions rather than installing and
maintaining equipment. Under the new program, one time license fees are
replaced by monthly processing fees which ties the Company into a
longer-term, recurring revenue relationship with these customers. In May
1997, the Company entered into an agreement where one of its customers
requested that the Company allow it to return systems it had previously
purchased to be installed under the new contract terms. Because total revenue
expected to be generated from the customer over the next two to three years
is anticipated to be significantly increased under the new program as
compared to the one time license fee arrangement, the Company made a
strategic decision to enter into the new agreement even though it called for
the return of previously sold systems. As a result of this new agreement,
during the fourth quarter the Company reversed $430,000 of revenue and the
related cost as a result of the return provisions.
21
<PAGE>
INTERNATIONAL REVENUE. Revenue from international operations,
principally in Northern Ireland, increased to $20.9 million for fiscal year
1997 from $18.7 million for fiscal year 1996, an increase of $2.2 million or
12.3%. Revenue from domestic operations increased to $4.2 million for fiscal
year 1997 from $3.6 million for fiscal year 1996, an increase of $500,000, or
15.7%.
GROSS PROFIT. Gross profit for information technology services increased
slightly to 84.4% of services revenue for fiscal year 1997 from 81.2% for
fiscal year 1996. Gross profit for equipment declined to 12.3% of equipment
revenue for fiscal year 1997 compared to 22.2% for fiscal year 1996. Gross
profit margins for services and equipment vary depending on customer demands
and product mix.
Gross profit for software decreased to 61.5% of software revenue for
fiscal year 1997 compared to 74.3% for fiscal year 1996. Gross margins for
software can increase significantly as software licensing revenues increase
over amortization costs. The gross margin decline from fiscal year 1997 to
1996 is primarily attributed to the effect of the $1.6 million in revenue
recognized in fiscal year 1996 associated with a large sale of
platform-migration software to Siemens Nixdorf. Additionally, the Company
incurred an increase of approximately $880,000 in amortization expense on
internally developed software due to the release of the UNIBOL400 product in
February, 1997. These margins are expected to improve in future periods as
UNIBOL400 gains market acceptance and licensing revenues increase.
OPERATING EXPENSES. Selling, general and administrative expenses
increased to $11.8 million for fiscal year 1997 compared to $11.0 million for
fiscal year 1996, an increase of $800,000 or 7.2%. $250,000 of this increase
was related to increased costs associated with the CEM acquisition. Selling,
general and administrative expenses as a percentage of total revenue improved
slightly to 47.1% for fiscal year 1997 as compared to 49.6% for fiscal year
1996.
OTHER EXPENSES. Interest, the primary component of other expenses,
increased to $282,000 for fiscal year 1997 from $251,000 for fiscal year
1996, an increase of $31,000 or 12.1%. The increase in interest expense was
due to the issuance of $2.0 million principal amount of 7.0% convertible
notes in fiscal year 1996 and additional borrowings related to the
acquisition of CEM. All of the notes were converted into shares of the
Company's common stock during fiscal year 1997.
TAXES. The effective income tax rate (income taxes expressed as a
percentage of pretax income) was 17.0% for fiscal year 1997, compared to 9.0%
for fiscal year 1996. During the fourth quarter of fiscal 1997, the Company
recognized an income tax credit of $320,000 related to reduction of the
cumulative deferred tax liability in the United Kingdom. The effective income
tax rate for 1997 excluding this tax credit would have been approximately 35%.
FISCAL YEAR ENDED FEBRUARY 29, 1996 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
1995
REVENUE. Revenue 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%.
Revenue from information technology services increased to $9.1 million
for fiscal year 1996 from $7.2 million for fiscal year 1995, an increase of
$1.9 million or 25.7%. Revenue 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 an
increase in revenue from additional contracts and the renewal of existing
contracts.
22
<PAGE>
Revenue from the sale of equipment and supplies increased to $5.5 million
in 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.
Revenue from software licensing and maintenance increased to $7.7 million
for fiscal year 1996 compared to $6.5 million for fiscal year 1995, an
increase of $1.2 million or 17.9%. During fiscal year 1996, the Company
recognized approximately $1.5 million in revenue associated with a large sale
of platform-migration software to Siemens Nixdorf. Software sales from
payment-processing systems increased $430,000 with software revenue
increasing to $790,000 for fiscal year 1996 from $360,000 for fiscal year
1995, an increase of 119.2%. These increases were partially offset by an
overall decline in UNIBOL36 software revenue as this product reaches maturity.
The foregoing were partially offset by the elimination of sound system
revenue for fiscal year 1996 as a result of the divestiture of the Company's
sound systems business in the prior fiscal year.
INTERNATIONAL REVENUE. Revenue 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%. Revenue from domestic operations 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 information technology services declined
slightly to 81.2% of services revenue for fiscal year 1996 from 85.7% for
fiscal year 1995, primarily due to reduced profits attributable to increased
price competition. Gross profit for equipment declined slightly to 22.2% of
equipment revenue for fiscal year 1996 compared to 25.4% for fiscal year
1995. Gross profit margins for equipment and services vary depending on
customer demands and product mix.
Gross profit for software increased to 74.3% of software revenue for
fiscal year 1996 compared to 68.8% for fiscal year 1995. Gross margins for
software can increase significantly as software licensing revenues increase
over amortization costs. The gross margin increase from fiscal year 1995 to
1996 is primarily attributed to the effect of the $1.6 million in revenue
associated with a large sale of platform-migration software to Siemens
Nixdorf and substantial improvement in gross margins associated with
payment-processing systems as these products begin to penetrate their target
markets with revenue growth of $430,000 from fiscal year 1995 to fiscal year
1996.
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 revenue remained
relatively constant at 49.6% for fiscal year 1996 as compared to 49.2% for
fiscal year 1995.
OTHER EXPENSES. Other expenses increased to $293,000 for fiscal year
1996 as 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 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.
23
<PAGE>
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 Northern Ireland. Approximately $450,000
of tax expense was recorded for operations in Northern Ireland 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant growth with total revenue growing
to $25.1 million for fiscal year 1997, from $18.3 million for fiscal year
1994. During this period, the Company has met its liquidity requirements
primarily through operations, placements of debt and equity securities, bank
financing and grants from the government of Northern Ireland.
The Company has generated positive operating cash flows of $0.9 million,
$2.5 million and $2.8 million for each of fiscal years 1997, 1996 and 1995.
At February 28, 1997, the Company had approximately $3.8 million in cash and
equivalents as compared to $1.3 million at February 29, 1996.
During the fiscal year ended February 28, 1997, the Company expended $1.4
million for capital improvements. Other significant investing expenditures in
fiscal year 1997 included the CEM acquisition for approximately $3.7 million,
which was financed principally with debt, and capitalization of internally
developed software costs of $2.5 million in fiscal year 1997 compared to $2.6
million in fiscal year 1996.
On November 18, 1996, the Company completed a secondary offering of an
additional 1,500,000 shares of common stock at $5.00 per share. The proceeds,
net of underwriters discounts, commissions and expenses were $5.7 million.
The Company issued $2.0 million principal amount of 7.0% convertible
notes in fiscal year 1996. The proceeds from the convertible 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.
During fiscal year 1997, all the principal and related accrued interest
thereon was converted into shares of common stock.
The Company received grants to fund research and development from the
government of Northern Ireland of approximately $388,000, $389,000 and
$369,000 for fiscal years 1997, 1996 and 1995, 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.
24
<PAGE>
The Company believes that 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
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.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The business of the Company is subject to national and worldwide economic
and political influences such as recession, political instability, the
economic strength of governments, and rapid change in technology. The
Company's operating results are dependent on its ability to rapidly develop,
manufacture, and market innovative products that meet customers demands.
Inherent in this process are a number of risks that the Company must manage
in order to achieve favorable operating results. The process of developing
new high technology products is complex and uncertain, requiring innovative
designs and features that anticipate customer needs and technological trends.
The products, once developed, must be manufactured and distributed in
sufficient volumes at acceptable costs to meet demand.
This annual report contains both historical facts and forward-looking
statements. Any forward-looking statements involve risks and uncertainties,
including but not limited to risk of product demand, market acceptance,
economic conditions, competitive products and pricing, difficulties in
product development, commercialization, technology, and other risks detailed
in this filing. Although the Company believes it has the product offerings
and resources for continued success, future revenue and margin trends cannot
be reliably predicted. Factors external to the Company can result in
volatility of the Company's common stock price. Because of the forgoing
factors, recent trends are not necessarily reliable indicators of future
stock prices or financial performance.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-24 attached hereto and incorporated herein.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
25
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen A. Hafer...................................... 48 Chairman of the Board, President and Chief Executive
Officer
J. Patrick Henry...................................... 43 President of Unibol, Inc. and Director
B Michael Wilson...................................... President of Smoky Mountain Technologies, Inc. and
Director
L. Allen Plunk........................................ 26 Vice President of Finance and 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.
B. MICHAEL WILSON. Mr. Wilson has been President of Smoky Mountain since
October 1993, and a Director of the Company since January 1997. 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.
26
<PAGE>
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 of ICS Computing Group Limited.
Mr. Millar holds a Higher National Diploma in Business Studies from Queens
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 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.
Information other than the listing of Directors and Executive Officers of
the Company, which is set forth above, required under this Item is incorporated
by reference to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated by reference to
the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item is incorporated by reference to
the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is incorporated by reference to
the Company's Proxy Statement.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the Form 10-K
(1) Financial Statements
Reports of Independent Certified Public Accountants
Consolidated Balance Sheets as of February 28, 1997 and
February 29, 1996
Consolidated Statements of Operations for the years ended
February 28, 1997, February 29, 1996, and February 28, 1995
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 1997, February 29, 1996, and February 28, 1995
Consolidated Statements of Cash Flow for the years ended
February 28, 1997, February 29, 1996, and February 28, 1995
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Report of Independent Certified Public Accountants
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted as the required information is not
applicable, the amounts are not significant or the information is set forth in
the consolidated financial statements or the notes thereto.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last quarter of
the fiscal year ended February 28, 1997.
Exhibits:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- ------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of the Registrant (previously filed with
Form S-18, filed April 15, 1986 (Reg. No. 33-04906-D) and
incorporated herein by reference)
3.2 Amendment to Articles of Incorporation changing the
Registrant's name from Liberty Ventures, Ltd. to UniComp, Inc.
(previously filed with Form S-18, filed April 15, 1986 (Reg. No.
33-04906-D) and incorporated herein by reference)
3.3 Amended and Restated Bylaws of the Registrant (previously filed
with Form S-1, dated September 18, 1996, as amended, (Reg. No.
333-12209) and incorporated herein by reference)
10.1 End-User Purchase Agreement between the Registrant and
Hewlett-Packard dated October 25, 1994 (previously filed with
Form 10-K/A amendment no. 2
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- ------------------------------------------------------------------
<S> <C>
for the fiscal year ended February 28, 1994 and incorporated
herein by reference)
10.2 Business Partner Agreement between the Registrant and IBM dated
March 1, 1994 (previously filed with Form 10-K/A amendment no. 2 for the
fiscal year ended February 28, 1994 and incorporated herein by reference)
10.3 Agreement between the Registrant and Siemens Nixdorf dated
January 3, 1995 (previously filed with Form 10-K for the fiscal year ended
February 28, 1995 and incorporated herein by reference)
10.4 Agreement for Sale of a Business between the Registrant and Euro
Software Limited dated September 25, 1995 for the acquisition of the assets
of Advec Limited (previously filed with Form 10-K for the fiscal year ended
February 29, 1996 and incorporated herein by reference)
10.5 Offshore Warrant Agreement between the Registrant and First
Bermuda Securities, Ltd. dated December 20, 1995 (previously filed with Form
10-K for the fiscal year ended February 29, 1996 and incorporated herein by
reference)
10.6 Form of 7% Convertible Promissory Notes dated December 20, 1995
issued by the Registrant to certain offshore investors (previously filed with
Form 10-K for the fiscal year ended February 29, 1996 and incorporated herein
by reference)
10.7 Stock Purchase Agreement between the Registrant and Smoky
Mountain Technologies, Inc., dated April 16, 1996 (previously filed with Form
8-K dated May 1, 1996, as amended, and incorporated herein by reference)
10.8 Employment Agreements, dated April 16, 1996 between the
Registrant and each of B. Michael Wilson and George Gruber, (previously filed
with Form 8-K dated May 1, 1996, as amended, and incorporated herein by
reference)
10.9 Form of Indemnification Agreement used between the Registrant
and members of the Board of Directors and executive officers of the
Registrant (previously filed with Form S-1, dated September 18, 1996, as
amended, (Reg. No. 333-12209) and incorporated herein by reference)
10.10 Agreement between Smoky Mountain Technologies, Inc. and the
Atalla Division of Tandem, Inc. dated October 30, 1996 (previously filed with
Form S-1, dated September 18, 1996, as amended, (Reg. No. 333-12209) and
incorporated herein by reference)
10.11 Stock Purchase Agreement between the Registrant and Eurodis
Electron Plc, dated February 20, 1997 (previously filed with Form 8-K on
March 6, 1997 and incorporated herein by reference)
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Accountants
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Marietta, State of Georgia, on the 29th day of May, 1997.
UNICOMP, INC.
BY: /s/ L. ALLEN PLUNK
-----------------------------------------
L. Allen Plunk
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated below on the 29th day of May, 1997.
<TABLE>
<CAPTION>
Signature Title
------------------------------------------ -------------------------------------------------------
<S> <C>
/s/ STEPHEN A. HAFER
------------------------------------------- Chairman of the Board, President and Chief Executive
Stephen A. Hafer Officer (Principal Executive Officer)
/s/ L. ALLEN PLUNK
------------------------------------------- Chief Financial Officer (Principal Financial and
L. Allen Plunk Accounting Officer)
/s/ J. PATRICK HENRY
------------------------------------------- Director
J. Patrick Henry
/s/ B. MICHAEL WILSON
------------------------------------------- Director
B. Michael Wilson
/s/ NELSON J. MILLAR
------------------------------------------- Director
Nelson J. Millar
/s/ THOMAS ZIMMERER
------------------------------------------- Director
Thomas Zimmerer
</TABLE>
30
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-1
Consolidated Financial Statements:
Consolidated Balance Sheets as of February 28, 1997 and February 29, 1996.............................. F-2
Consolidated Statements of Operations for the years ended February 28, 1997, February 29, 1996 and
February 28, 1995..................................................................................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the years ended February 28, 1997,
February 29, 1996 and February 28, 1995............................................................... F-5
Consolidated Statements of Cash Flows for the years ended February 28, 1997, February 29, 1996 and
February 28, 1995..................................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
<PAGE>
Report of Independent Accountants
To the Stockholders and Board of Directors
of UniComp, Inc. and Subsidiaries:
We have audited the consolidated financial statements and financial
statement schedule of UniComp, Inc. and subsidiaries listed in Item 14(a) of
this Form 10-K. These financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
the financial statement schedule 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 consolidated 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 consolidated financial statements.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of UniComp, Inc. and subsidiaries at February 28, 1997 and February 29, 1996,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended February 28, 1997 in conformity
with generally accepted accounting principles. In addition, in our opinion,
the financial statement schedule referred to above, when considered in
relation to the basic financial statments taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
May 22, 1997
F1
<PAGE>
Unicomp, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ($3 million restricted, see Note 1).................. $ 3,810,195 $ 1,261,153
Accounts and other receivables:
Trade, net of allowance of $222,097 and $137,878 in 1997 and 1996,
respectively............................................................... 9,924,738 4,721,909
Receivables from related party............................................... 353,500 404,478
Other receivables............................................................ 150,611 205,636
Inventory...................................................................... 1,910,821 715,944
Prepaid expenses............................................................... 802,304 625,020
Deferred income taxes.......................................................... 61,200 --
Other.......................................................................... 63,655 171,396
------------- -------------
Total current assets....................................................... 17,077,024 8,105,536
------------- -------------
Property and equipment, net........................................................ 4,124,800 2,401,969
------------- -------------
Other assets:
Acquired and developed software, net of accumulated amortization of $2,852,779
and $1,371,355 in 1997 and 1996, respectively................................ 5,846,712 4,802,724
Goodwill, net of accumulated amortization of $125,946 and $57,345 in 1997 and
1996, respectively........................................................... 3,161,431 694,489
Prepaid pension................................................................ 442,030 227,030
Deferred income taxes.......................................................... 99,346 348,638
Other.......................................................................... 307,438 91,667
------------- -------------
Total other assets......................................................... 9,856,957 6,164,548
------------- -------------
Total assets............................................................... $ 31,058,781 $ 16,672,053
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F2
<PAGE>
Unicomp, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable............................................................... $ 3,210,582 $ 2,128,526
Accrued expenses............................................................... 1,186,232 1,195,896
Deferred revenue............................................................... 2,092,847 1,662,864
Lines of credit................................................................ 7,610,846 1,078,933
Income taxes payable........................................................... 175,878 148,015
Other accrued taxes............................................................ 602,325 393,915
Current portion of notes payable............................................... 492,428 375,105
------------- -------------
Total current liabilities.................................................. 15,371,138 6,983,254
------------- -------------
Long-term liabilities:
Notes payable.................................................................. 879,063 1,072,926
Convertible notes.............................................................. -- 1,980,000
Deferred income taxes.......................................................... 432,914 519,109
------------- -------------
Total long-term liabilities................................................ 1,311,977 3,572,035
------------- -------------
Total liabilities.......................................................... 16,683,115 10,555,289
------------- -------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock: $1 par value, authorized 5,000,000, none issued and
outstanding at February 28, 1997 and February 29, 1996, respectively......... -- --
Common stock: $.01 par value, authorized 25,000,000, issued and outstanding
6,887,845 and 5,163,432 at February 28, 1997 and February 29, 1996,
respectively................................................................. 68,878 51,634
Additional contributed capital................................................. 13,076,378 6,229,829
Retained earnings.............................................................. 2,001,711 475,636
------------- -------------
15,146,967 6,757,099
Less treasury stock............................................................ (608,810) (460,554)
Cumulative translation adjustment.............................................. (162,491) (179,781)
------------- -------------
Total stockholders' equity................................................. 14,375,666 6,116,764
------------- -------------
Total liabilities and stockholders' equity................................. $ 31,058,781 $ 16,672,053
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F3
<PAGE>
Unicomp, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
<S> <C> <C> <C>
February 28, February 29, February 28,
1997 1996 1995
------------ ------------ -------------
Revenue:
Services.......................................................... $ 9,799,144 $ 9,077,845 $ 7,219,178
Software.......................................................... 9,129,207 7,696,704 6,527,072
Equipment......................................................... 6,222,698 5,516,470 4,110,066
Sound systems..................................................... -- -- 468,268
------------ ------------ -------------
Total revenue................................................. 25,151,049 22,291,019 18,324,584
------------ ------------ -------------
Cost of sales:
Services.......................................................... 1,525,840 1,704,963 1,032,415
Software.......................................................... 3,511,392 1,980,072 2,038,418
Equipment......................................................... 5,456,042 4,292,687 3,066,841
Sound systems..................................................... -- -- 304,570
------------ ------------ -------------
Total cost of sales........................................... 10,493,274 7,977,722 6,442,244
------------ ------------ -------------
Gross profit.......................................................... 14,657,775 14,313,297 11,882,340
------------ ------------ -------------
Selling, general and administrative expenses.......................... 11,841,767 11,048,431 9,014,043
Depreciation expense.................................................. 741,731 709,858 651,551
------------ ------------ -------------
Total operating expenses...................................... 12,583,498 11,758,289 9,665,594
Operating income...................................................... 2,074,277 2,555,008 2,216,746
------------ ------------ -------------
Other income (expense):
Other, net........................................................ 45,730 (41,701) 123,707
Interest, net..................................................... (282,112) (251,182) (224,034)
------------ ------------ -------------
Total other income (expense).................................. (236,382) (292,883) (100,327)
------------ ------------ -------------
Income before provision for income taxes.............................. 1,837,895 2,262,125 2,116,419
------------ ------------ -------------
Provision for income taxes............................................ 311,820 202,615 494,741
------------ ------------ -------------
Net income............................................................ $ 1,526,075 $ 2,059,510 $ 1,621,678
------------ ------------ -------------
------------ ------------ -------------
Earnings per share.................................................... $ 0.26 $ 0.40 $ 0.34
------------ ------------ -------------
------------ ------------ -------------
Weighted average number of shares..................................... 5,970,522 5,188,092 4,710,228
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F4
<PAGE>
Unicomp, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
------------------------
Number of Additional Retained Cumul. Total
Shares Contributed Earnings Treasury Trans. Stockholders'
Issued Amount Capital (Deficit) Stock Adjust. Equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance February 28, 1994.............. 4,841,434 $ 48,414 $5,460,913 $(3,165,261) $(350,000) $(143,308) $1,850,758
Stock issued......................... 159,800 1,598 98,541 100,139
Treasury stock purchased............. (143,654) (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) (4,873)
--------------------------------------------------------------------------------------
Balance February 28, 1995.............. 5,001,234 50,012 5,527,454 (1,583,874) (493,654) (148,181) 3,351,757
Stock issued......................... 162,198 1,622 603,375 604,997
Change in treasury stock............. 33,100 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) (31,600)
--------------------------------------------------------------------------------------
Balance February 29, 1996.............. 5,163,432 51,634 6,229,829 475,636 (460,554) (179,781) 6,116,764
Stock issued......................... 1,506,000 15,060 5,737,139 5,752,199
Conversion of debt................... 426,813 4,268 1,947,384 1,951,652
Treasury stock purchased............. (1,042,314) (1,042,314)
Retirement of treasury stock......... (208,400) (2,084) (891,974) 894,058 0
Warrants issued...................... 54,000 54,000
Net income........................... 1,526,075 1,526,075
Change in cumulative translation
adjustment......................... 17,290 17,290
--------------------------------------------------------------------------------------
Balance February 28, 1997.............. 6,887,845 $ 68,878 $13,076,378 $2,001,711 $(608,810) $(162,491) $14,375,666
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F5
<PAGE>
Unicomp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended
-------------------------------------------
<S> <C> <C> <C>
February 28, February 29, February 28,
1997 1996 1995
------------- ------------- -------------
Net cash provided (used) by operating activities:
Net income......................................................... $ 1,526,075 $ 2,059,510 $ 1,621,678
Adjustments to reconcile net income to net cash provided by
operations:
Depreciation and amortization.................................... 2,291,756 1,449,240 956,664
Issuance of warrants............................................. 54,000 -- --
Allowance for doubtful accounts.................................. 62,429 10,872 60,812
Deferred income taxes............................................ 101,897 60,855 7,825
Changes in assets and liabilities:
Accounts and other receivables................................. (862,511) (1,241,638) (591,999)
Inventory...................................................... (221,218) (184,056) (39,123)
Prepaid expenses............................................... (219,727) (295,175) (212,152)
Accounts payable............................................... (724,375) 820,467 19,459
Accrued expenses............................................... (308,803) 313,847 318,719
Other accrued taxes............................................ (99,768) 381,390 12,525
Deferred revenue............................................... (398,303) (635,962) 738,925
Income taxes payable........................................... (42,537) (50,485) 198,500
Pension liability.............................................. -- -- (265,000)
Other.......................................................... (260,995) (232,989) (24,072)
------------- ------------- -------------
Net cash provided by operating activities.................... 897,920 2,455,876 2,802,761
------------- ------------- -------------
Cash flow from investing activities:
Capital expenditures............................................... (1,445,239) (1,493,224) (924,800)
Acquired and developed software.................................... (2,525,412) (2,695,328) (1,067,783)
Business disposition............................................... -- -- (154,208)
Business acquisition............................................... -- (422,083) (78,558)
------------- ------------- -------------
Net cash used by investing activities........................ (3,970,651) (4,610,635) (2,225,349)
------------- ------------- -------------
Cash flow from financing activities:
Proceeds from issuance of convertible notes, net................... -- 1,900,000 --
Payments on notes payable.......................................... (240,858) (228,291) (463,702)
Proceeds from borrowing............................................ 1,049,357 1,099,693 159,430
Issuance of common stock, net...................................... 5,752,199 717,097 68,139
Smoky Mountain distributions....................................... -- -- (40,291)
Receivables from related party..................................... (338,401) (126,832) (214,850)
Purchase of treasury stock......................................... (617,814) -- (143,654)
------------- ------------- -------------
Net cash provided (used) by financing activities............. 5,604,483 3,361,667 (634,928)
------------- ------------- -------------
Net increase (decrease) in cash...................................... 2,531,752 1,206,908 (57,516)
Effect of exchange rate changes on cash.............................. 17,290 (31,600) (4,873)
Cash and cash equivalents at beginning of year....................... 1,261,153 85,845 148,234
------------- ------------- -------------
Cash and cash equivalents at end of year............................. $ 3,810,195 $ 1,261,153 $ 85,845
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F6
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
Basis of Presentation
The consolidated financial statements include the accounts of UniComp, Inc.
and its subsidiaries (the "Company"). All material intercompany balances and
transactions have been eliminated in consolidation. The equity method of
accounting is used when the Company does not have effective control and has a
20% to 50% interest in other companies. Under the equity method, original
investments are recorded at cost and adjusted by the Company's share of
undistributed earnings or losses of these companies.
The 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. The acquisition has been accounted for by the
pooling-of-interests method. Generally accepted accounting principles require
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. As such, the historical consolidated financial statements have
been restated to reflect the resulting combined entity.
The preparation of financial statements requires management to make
estimates and assumptions underlying the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Changes in the status of certain matters,
facts or circumstances underlying these estimates could result in material
changes, and actual results could differ from these estimates.
Certain amounts previously presented in the consolidated financial
statements have been reclassified to conform to current presentation.
Revenue Recognition
The Company's revenue is generated primarily in the United Kingdom and the
United States from licensing software products, providing various information
technology services, and the sale of computer equipment.
Revenue from the sale of the Company's software products, the resale of
third-party software products, and the sale of computer equipment is 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 those obligations are satisfied. Revenue from information technology
services is recognized as the services are provided. Revenue from post-contract
customer support and other annual support contracts is deferred and recognized
over the life of the contract.
F7
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued):
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 currency 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.
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. $3 million of
cash and cash equivalents is restricted and held as collateral on certain
indebtedness of the Company as described in Note 7.
Inventory
Inventory consists primarily of computer equipment available for resale and
payment-processing systems. Inventory is stated at the lower of cost or market,
cost being determined on a first-in first-out ("FIFO") basis. Components of
inventory are as follows:
<TABLE>
<CAPTION>
February 28, February 29,
1997 1996
------------ -----------
<S> <C> <C>
Computer equipment................................. $ 1,420,403 $ 604,971
Payment-processing systems......................... 490,418 110,973
------------ -----------
$ 1,910,821 $ 715,944
------------ -----------
------------ -----------
</TABLE>
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided based on the straight-line method over the estimated
useful lives of the related assets, except for leasehold improvements, which are
depreciated 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.
F8
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued):
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 revenue as compared to the current and estimated future
revenue 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 and subsequent to general
availability have been expensed in the period which they were incurred and
totaled approximately $250,000, $610,000 and $235,000 in fiscal years 1997, 1996
and 1995, 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 $2,516,315, $2,695,328 (including $1,000,000 of
purchased software) and $1,067,783 during fiscal years 1997, 1996, and 1995,
respectively, with amortization of $1,481,454, $681,936 and $305,113 during the
same periods. Capitalized software costs are net of amounts reimbursed by
Northern Ireland government grants totaling approximately $388,000, $389,000 and
$369,000 in fiscal years 1997, 1996 and 1995, 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 estimated
lives established for these assets are determined based upon many factors which
are subject to change because of the nature of the Company's operations.
Accordingly, the Company evaluates the appropriateness of these lives and the
recoverability of goodwill based upon the latest available economic factors and
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 has not historically used hedging strategies to reduce the
effects of unfavorable price movements on profitability as a result of
fluctuations in foreign exchange rates.
F9
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
1. Summary of Significant Accounting Policies (Continued):
Income Taxes
Income taxes are provided on taxable income at the statutory rates
applicable to such income in the United States and Europe 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. No deferred tax liability has been recognized
relating to taxable temporary differences attributable to the excess of the
amount for financial reporting over the tax basis of investments in foreign
subsidiaries due to the fact that such taxable temporary differences are not
expected to reverse in the foreseeable future. The determination of the amount
of such liability is not practicable.
Long-Lived Assets
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 adopted FAS 121 on March 1, 1996. The effect of
adoption was not material to the Company's financial condition or results of
operations.
Earnings Per Share
Earnings 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 earnings per share are the same. The weighted average
number of shares includes 371,683 and 294,656 common equivalent shares for
fiscal years 1997 and 1996, respectively, assuming the conversion of options and
warrants which are dilutive. The weighted average number of shares for fiscal
year 1995 include no common equivalent shares since dilutive securities do not
reduce earnings per share by at least 3%.
New Accounting Standards
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("FAS 128"), was issued. FAS 128 is designed to improve the
earnings per share information provided in financial statements by simplifying
the existing standards and guidelines, revising the disclosures required, and
increasing the comparability of earnings per share on an international basis.
FAS 128 is effective for financial statements issued for periods ending after
December 15, 1997 and earlier application is not permitted. The Company will
adopt FAS 128 on its effective date. The Company's earnings per share computed
using FAS 128 is not materially different from earnings per share computed using
the existing standards and guidelines.
F10
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Property and Equipment:
The components of property and equipment at February 28, 1997 and February
29, 1996 are as follows:
<TABLE>
<CAPTION>
Estimated
Useful Life February 28, February 29,
(years) 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Buildings............................. 30-50 $ 1,417,607 $ 964,054
Land.................................. N/A 45,000 58,737
Leasehold improvements................ 5-10 858,980 421,071
Computer equipment.................... 3-5 4,025,803 2,032,816
Computer software..................... 3 136,959 148,237
Furniture and fixtures................ 5 1,045,300 761,982
Vehicles.............................. 2-4 417,468 139,207
------------- -------------
7,947,117 4,526,104
Less accumulated depreciation......... (3,822,317) (2,124,135)
------------- -------------
$ 4,124,800 $ 2,401,969
------------- -------------
------------- -------------
</TABLE>
3. Business Combinations and Disposal:
Acquisition of CEM Computers Limited
On February 20, 1997, the Company completed its acquisition of CEM Computers
Limited (CEM) for approximately $3.7 million. CEM, headquartered in Northern
Ireland, principally provides computer equipment, hardware and software support
and systems integration services. 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 their estimated fair values at the
date of acquisition. The results of operations have been included from February
1, 1997, the effective date of the acquisition. The excess consideration above
the fair value of net assets acquired of approximately $2.5 million has been
recorded as goodwill.
Assuming this acquisition had occurred as of the beginning of the Company's
fiscal year (March 1, 1996), the unaudited pro forma results of operations for
fiscal year 1997 would have been as follows:
Fiscal Year Ended
February 28, 1997
-------------------
(all amounts in thousands except per share data)
Revenue......................... $ 43,779
Net income...................... $ 1,534
Earnings per share.............. $ 0.26
F11
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
3. Business Combinations and Disposal (Continued):
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 processing
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 historically 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 consolidated financial statements for all periods presented
as of the Company's year end.
The stockholders' equity accounts have been adjusted to reflect the
conversion of all of Smoky Mountain's common and preferred stock into 500,000
shares of the Company's common stock. No other adjustments were required to
reflect the consolidation of Smoky Mountain with 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 revenue and net income included in the Company's
consolidated statements of operations for the years ended February 29, 1996 and
February 28, 1995 are summarized as follows:
Fiscal year ended February 29, 1996
----------------------------------------
Smoky
UniComp Mountain Total
------------- ---------- -------------
Revenue....................... $ 21,305,287 $ 985,732 $ 22,291,019
Net income (loss)............. 2,061,938 (2,428) 2,059,510
Fiscal year ended February 29, 1995
----------------------------------------
Smoky
UniComp Mountain Total
------------- ---------- -------------
Revenue....................... $ 17,798,566 $ 526,018 $ 18,324,584
Net income (loss)............. 1,637,715 (16,037) 1,621,678
Acquisition of 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 $420,000. 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 their estimated fair values at the date of
acquisition. The results of operations have been included from August 1, 1995,
the date of acquisition. The excess consideration above the fair value of net
assets acquired of approximately $395,000 has been recorded as goodwill.
F12
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
3. Business Combinations and Disposal (Continued):
Disposition of Dominion Sound Systems, Plc.
In fiscal year 1995, 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. The resulting gain was recognized and is
included in other income.
Acquisition of CI Computer Software Limited
In fiscal year 1995, 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 their 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.
4. Income Taxes:
The significant components of income tax expense (benefit) are as follows:
Fiscal Year
-------------------------------
1997 1996 1995
--------- --------- ---------
(all amounts are in thousands)
Current provision:
Federal....................... $ 4 $ 14 $ --
State......................... 37 43 11
Foreign....................... 130 80 188
Deferred provision:
Federal....................... 176 (307) (14)
State......................... 4 -- --
Foreign....................... (39) 373 310
--------- --- ---------
$ 312 $ 203 $ 495
--------- --- ---------
--------- --- ---------
F13
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4. Income Taxes (Continued):
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:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(all amounts are in thousands)
Income tax at statutory rate............................ $ 625 $ 770 $ 716
State income taxes (net of federal tax deduction)....... 28 29 7
Impact of foreign taxes................................. (13) (52) (126)
Utilization of federal net operating losses............. -- (238) (112)
Reduction of deferred tax asset valuation allowance..... -- (302) --
Reduction of U.K. cumulative liability.................. (320) -- --
Other................................................... (8) (4) 10
--------- --------- ---------
Tax expense....................................... $ 312 $ 203 $ 495
--------- --------- ---------
--------- --------- ---------
</TABLE>
An analysis of the net deferred income tax liability is as follows:
February 28,
--------------------
1997 1996
--------- ---------
(all amounts are in
thousands)
Current deferred assets:
Net operating loss carryforward................. $ 32 $ --
Other........................................... 29 --
--------- ---------
Current deferred assets................. $ 61 $ --
Long-term deferred assets:
Net operating loss carryforward................. $ 99 $ 349
--------- ---------
Total deferred assets................... $ 160 $ 349
--------- ---------
--------- ---------
Long-term deferred liabilities:
Capitalized software development costs.......... $ 839 $ 550
Depreciation from foreign operations............ (406) --
Other........................................... -- (31)
--------- ---------
Total deferred liabilities.............. $ 433 $ 519
--------- ---------
--------- ---------
As of February 28, 1997, 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, 2004, 2005, 2010, and 2011 of
$14,653, $265,347, $40,000, $48,310, and $18,428, respectively. A deferred tax
asset of $131,491 has been recorded based on the future benefit derived from
these net operating loss carryforwards.
F14
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
5. Related Party Transactions:
During fiscal year 1997, the Company's Board of Directors approved the
exchange of 68,626 shares of the Company's common stock in lieu of $378,130 of
indebtedness owed to the Company by certain officers and affiliated companies.
These shares were recorded as treasury stock and subsequently retired.
Receivables from related parties at February 28, 1997 are comprised of
$353,500 due from certain officers which have borrowed funds from the Company
principally in the form of unsecured 10% notes which mature within one year.
6. Leases:
The Company leases office space and automobiles under non-cancelable
operating leases. Rental expense for fiscal years 1997, 1996 and 1995 was
$1,069,212, $1,033,006 and $869,586, respectively.
Future minimum lease payments for operating leases at February 28, 1997 are
as follows:
1998......................... $1,399,086
1999......................... 1,122,902
2000......................... 915,186
2001......................... 418,924
2002......................... 263,424
Thereafter................... 29,280
----------
$4,148,802
----------
----------
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. The total outstanding balance on
the line of credit was $3.3 million and interest is charged based on the average
outstanding balance at a variable rate based on the Bank of Ireland's Base
Lending Rate plus 1.75%, or 7.75% as of February 28, 1997.
The Company maintains two lines of credit in the United Kingdom which are
secured principally by $3 million of cash and equivalents which is restricted as
to use. These lines of credit were used to fund the purchase of CEM Computers
Limited (See Note 3). The outstanding balance on the first line of credit was
$2.8 million and interest is charged based on the average outstanding balance at
a variable rate based on LIBOR plus 0.375%, or 6.625% as of February 28, 1997.
The outstanding balance on the second line of credit was $1 million and interest
is charged based on the average outstanding balance at a variable rate based on
LIBOR plus 1.75%, or 8.25%, as of February 28, 1997.
F15
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. Lines of Credit (Continued):
The Company maintains separate lines of credit in the United States which
are secured by certain accounts receivables, fixed assets and other assets of
the Company. These lines of credit are used for short-term borrowing for general
corporate use. Interest is charged based on the average outstanding balance at a
variable rate based on Prime plus 3%, or 11.25% as of February 28, 1997. The
outstanding balance on the lines of credit was $490,000 as of February 28, 1997.
8. Long-Term Debt:
Notes Payable
Notes payable as of February 28, 1997 and February 29, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Note payable to the Bank of Ireland, interest at a variable rate of
LIBOR plus 1.75%, or 8.25% as of February 28, 1997,
collateralized by a building in Northern Ireland, payable in
quarterly installments of approximately $17,500 through July
2005............................................................. $ 621,563 $ 654,075
Note payable to the Bank of Ireland, interest at a variable rate of
LIBOR plus 1.75%, or 8.25% as of February 28, 1997,
collateralized by certain accounts receivable and other assets of
the Company, payable in quarterly installments of approximately
$40,000 through February 1999.................................... 487,500 612,000
Other.............................................................. 262,428 181,956
---------- ------------
Total notes payable................................................ 1,371,491 1,448,031
Less: current portion.............................................. 492,428 375,105
---------- ------------
$ 879,063 $ 1,072,926
---------- ------------
---------- ------------
</TABLE>
Maturities of long-term debt are as follows:
1998............................................ $ 492,428
1999............................................ 237,500
2000............................................ 230,000
2001............................................ 70,000
2002............................................ 70,000
Thereafter...................................... 271,563
-----------
$1,371,491
-----------
-----------
F16
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
8. Long-Term Debt (Continued):
Convertible Notes
In fiscal year 1996, the Company issued $2,000,000 aggregate principal
amount of two-year 7% convertible promissory notes. The notes were convertible
at the holder's option as follows: 20% of the principal and accrued interest
were 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
February 28, 1997, all of the principal and related accrued interest thereon had
been converted into shares of common stock.
9. Stockholders' Equity:
On November 18, 1996 the Company completed a secondary offering of an
additional 1,500,000 shares of common stock at $5.00 per share. The proceeds,
net of underwriters discounts, commissions, and expenses were $5.8 million. In
accordance with this offering, the Company granted warrants to purchase 150,000
shares of the Company's common stock at $8.25 per share. These warrants expire
on November 13, 2001. As of February 28, 1997, these warrants had not been
exercised.
During fiscal year 1997, the Company granted warrants to purchase 175,000
shares of common stock at a weighted average exercise price of $6.50 to its
financial advisors (the "Advisor Warrants") and warrants to purchase 95,000
shares of common stock at a weighted average price of $5.32 to its investor
relations advisors (the "Investor Relations Warrants"). The Company recorded
$54,000 of consulting expense during fiscal year 1997 in association with the
granting of these warrants based on the fair value of the services received in
exchange for the warrants. The Advisor Warrants and Investor Relations Warrants
expire on July 15, 2001 and November 21, 1998, respectively. As of February 28,
1997, none of the warrants had been exercised.
In accordance with the issuance of the convertible promissory notes in
fiscal year 1996, the Company granted warrants to purchase 25,000 shares of the
Company's common stock at $6.90 per share. As of February 28, 1997, these
warrants had not been exercised.
The Company held 130,000 shares of common stock in treasury at February 28,
1997. Treasury stock is held at cost and presented as a reduction of
stockholders' equity. These treasury shares are intended to be issued as options
are exercised under the Company's Long Term Incentive Plan and Director
Incentive Plan.
F17
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. Commitments and Contingencies:
In connection with its acquisition in 1993 of ICS Computing Group, Limited,
the Company incurred a claim by the seller related to pension overfunding. 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. 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 other significant pending legal
proceedings, other than routine litigation incidental to the Company's business.
11. Supplemental Cash Flow Information:
Cash paid for interest totaled $324,459, $249,307 and $245,682 in fiscal
years 1997, 1996 and 1995, respectively.
The Company paid income taxes of $164,650, $262,559 and $12,684 in fiscal
years 1997, 1996 and 1995, respectively.
On February 20, 1997, the Company acquired CEM Computers Limited for $3.7
million. The entire purchase price was financed with debt and therefore has been
accounted for in the statement of cash flows as a non-cash transaction.
During fiscal years 1997 and 1996, convertible notes with principal amounts
of $20,000 and $1,980,000, respectively, were converted into shares of common
stock in non-cash transactions.
During fiscal year 1997, 68,626 shares of the Company's common stock were
exchanged in a non-cash transaction in lieu of $378,130 of indebtedness owed to
the Company by certain officers and affiliated companies.
F18
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
12. Segment Information:
The Company operates in one business segment, the providing of computer
hardware and software systems and services. The vast majority of the Company's
revenue is generated from products and services provided in the United States
and Europe, although the Company does have customers in over 30 countries. The
following table illustrates a summary of the operations by geographic area.
United States Europe
------------- -------------
Fiscal Year 1997
Revenue.............................. $ 4,203,778 $ 20,947,271
Cost of sales........................ 1,147,873 9,345,401
Gross profit......................... 3,055,905 11,601,870
SG&A expense......................... 1,993,355 9,848,412
Depreciation......................... 93,913 647,818
Operating income..................... 968,637 1,105,640
Total assets......................... $ 9,963,800 $ 21,094,981
Fiscal Year 1996
Revenue.............................. $ 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
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
The Company sells its products and services to a variety of customers. No
individual customer accounted for more than 10% of Company revenue during fiscal
years 1997, 1996 or 1995.
F19
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. Employee Benefit Plans:
Defined Benefit Pension Plan
The Company maintains a defined benefit pension plan in the United Kingdom
which is designed to provide death and retirement benefits for eligible
employees. On April 1, 1997, the Company also began to operate a defined
contribution pension plan in the United Kingdom. After April 1, 1997, any new
employees eligible to participate in the Company's pension plan may only join
the defined contribution pension plan. Additionally, employees enrolled in the
defined benefit pension plan may transfer to the defined contribution plan if
they elect to do so. The pension costs associated with the defined benefit
pension plan are assessed in accordance with the advice of a qualified actuary.
Actuarial assumptions used as of February 28, 1997 included a 9% long-term rate
of return on assets, a 8.5% discount rate and a salary increase of 5% as well as
the following:
- 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.
- 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 fiscal year 1997 (in 000's):
Service cost............................................. $ 122
Interest cost............................................ 333
Return on assets......................................... (376)
Amortization and deferral of period service costs........ 11
---------
Net periodic pension cost.............................. $ 90
---------
---------
Reconciliation of funded status as of
February 29, 1997 (in 000's):
Accrued benefits obligation.............................. $ 3,976
---------
---------
Project benefit obligation............................... $ 4,155
Assets at market value................................... 4,998
---------
Funded status.......................................... 843
Unrecognized transitions asset........................... (59)
Unrecognized gain........................................ (342)
---------
Prepaid pension expense................................ $ 442
---------
---------
F20
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. Employee Benefit Plans (Continued):
401(k) Retirement Savings Plan
The Company maintains a defined contribution 401(k) profit-sharing plan and
trust (the "401(k) Plan") in the United States. To be eligible to participate in
the 401(k) Plan (the "Plan Eligibility Requirements"), an employee must be 21
years of age, work at least 30 hours per week and be employed for 1 month. After
satisfying the Plan Eligibility Requirements, employees of the Company may
enroll in the 401(k) Plan on the first of any month. 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 15%) 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 employees
eligibility date. Participants may alter their contribution amounts at any time.
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 , (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.
Stock Option Plan
The Company maintains a Long Term Incentive Plan (the "LTI Plan") under
which options to purchase shares of the Company's common stock have been granted
to eligible employees. There are a total of 1,200,000 shares of common stock
available for award under the LTI Plan which is administered by the Compensation
Committee of the Board of Directors. Option activity under the LTI Plan is
summarized as follows:
<TABLE>
<CAPTION>
February February February
28, 29, 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Shares under option at beginning of year................................. 572,500 980,000 690,000
Granted................................................................ 375,000 12,500 300,000
Exercised.............................................................. (6,000) (162,500) --
Forfeited.............................................................. -- (257,500) (10,000)
----------- ----------- -----------
Shares under option at end of year....................................... 941,500 572,500 980,000
----------- ----------- -----------
----------- ----------- -----------
Shares under option exercisable at end of year........................... 291,496 70,000 --
----------- ----------- -----------
----------- ----------- -----------
Shares available for future grant........................................ 90,000 465,000 220,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The exercise price of options exercised under the LTI Plan during fiscal
year 1997 was $3.31. The weighted average exercise price of shares under option
as of February 28, 1997 was $4.11.
F21
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. Employee Benefit Plans (Continued):
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 10 years from the date of
grant unless otherwise specified in the option agreement.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting of Stock Based
Compensation" ("FAS 123"). FAS 123 requires 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, "Accounting for Stock Issued to Employees" ("APB 25"), and
disclose pro forma net income and earnings per share assuming the fair value
method had been applied. The Company has elected to follow APB 25 in accounting
for its employee stock options and has not recorded any expense related to the
granting of options to employees in fiscal year 1997.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions: risk-free
interest rate of 5.92%; volatility factor of the expected market price of the
Company's common stock of 52%; and a weighted average expected life of the
options of 2 years. The Black Scholes option valuation model requires input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different than those the Black Scholes option valuation model was designed to
value, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable measure of the fair value of its employee
stock options. The Company's pro forma information required under FAS 123 is as
follows:
Fiscal Year
--------------------
1997 1996
--------- ---------
(in thousands except
per share data)
Net income as reported............................. $ 1,526 $ 2,059
Pro forma net income............................... $ 1,428 $ 2,043
Earnings per share as reported..................... $ 0.26 $ 0.40
Pro forma earnings per share....................... $ 0.24 $ 0.39
F22
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
14. 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.
The business of the Company is subject to national and worldwide economic
and political influences such as recession, political instability, the economic
strength of governments, and rapid change in technology. The Company's operating
results are dependent on its ability to rapidly develop, manufacture, and market
innovative products that meet customers demands. Inherent in this process are a
number of risks that the Company must manage in order to achieve favorable
operating results. The process of developing new high technology products is
complex and uncertain, requiring innovative designs and features that anticipate
customer needs and technological trends. The products, once developed, must be
manufactured and distributed in sufficient volumes at acceptable costs to meet
demand. The development of such products involve risks and uncertainties,
including but not limited to risk of product demand, market acceptance, economic
conditions, competitive products and pricing, difficulties in product
development, commercialization, technology, and other risks. 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 or raise cash to
satisfy financing needs.
The Company derives its revenue primarily from operations in Northern
Ireland. It is reasonably possible that this concentration of revenue makes the
Company vulnerable to the risk of a near-term severe impact 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.
F23
<PAGE>
UniComp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
15. Quarterly Consolidated Results of Operations (unaudited)
Fiscal Year Ended February 28, 1997
-------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share data)
Revenue............... $5,884 $5,735 $6,625 $6,906
Gross Profit.......... 3,444 3,433 4,194 3,586
Net Income............ $ 461 $ 282 $ 573 $ 211
Earnings Per Share.... $ 0.09 $ 0.05 $ 0.10 $ 0.03
16. Fourth Quarter Adjustments:
During the fourth quarter of fiscal 1997, the Company recognized an income
tax credit of $320,000 related to a reduction of the cumulative deferred tax
liability in the United Kingdom. Also during the fourth quarter of 1997, the
Company recorded an additional prepaid pension asset of $215,000 related to the
defined benefit pension plan in the United Kingdom based on the computation of
its actuarial determination of net periodic pension cost.
At the end of fiscal year 1997, the Company began a program to allow key
payment processing customers the ability to outsource the installation, help
desk, deployment and on-site support to the Company, thereby allowing these
customers to focus on processing transactions rather than installing and
maintaining equipment. Under the new program, one time license fees are
replaced by monthly processing fees which ties the Company into a
longer-term, recurring revenue relationship with these customers. In May
1997, the Company entered into an agreement where one of its customers
requested that the Company allow it to return systems it had previously
purchased to be installed under the new contract terms. Because total revenue
expected to be generated from the customer over the next two to three years
is anticipated to be significantly increased under the new program as
compared to the one time license fee arrangement, the Company made a
strategic decision to enter into the new agreement even though it called for
the return of previously sold systems. As a result of this new agreement,
during the fourth quarter the Company reversed $430,000 of revenue and the
related cost as a result of the return provisions.
During the fourth quarter of fiscal 1996, the Company recognized an income
tax credit of $302,000 to recognize the United States deferred tax asset related
to net operating loss carryforwards. Also during the fourth quarter of 1996, the
Company recorded a prepaid pension asset of $227,000 related to the defined
benefit pension plan in the United Kingdom based on the computation of its
actuarial determination of net periodic pension cost.
F24
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996
AND FEBRUARY 28, 1995
<TABLE>
<CAPTION>
BALANCE
AT THE CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
THE PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1995
Accounts receivable allowance.............. $ 66,194 $ 80,710 $10,759 $ (30,657) $127,006
Deferred tax asset valuation allowance..... $737,751 $ (197,751)(1) $540,000
Year ended February 29, 1996
Accounts receivable allowance.............. $127,006 $110,296 $ (99,424) $137,878
Deferred tax asset valuation allowance..... $540,000 $ (540,000)(2) $ 0
Year ended February 28, 1997
Accounts receivable allowance.............. $137,878 $ 68,703 $22,063 $ (6,547) $222,097
</TABLE>
- ------------------------
(1) To adjust the valuation allowance to reflect the utilization of net
operating losses during the year.
(2) To adjust the valuation allowance to reflect the utilization of net
operating losses during the year and realization of remaining deferred tax
asset.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARIES OF THE REGISTRANT INCORPORATION
<S> <C>
UniComp U.K. Holdings, Limited United Kingdom
ICS Computing Group Limited United Kingdom
CI Computer Software Limited United Kingdom
Unibol Limited United Kingdom
Computer Maintenance Ireland Limited United Kingdom
ICS Computing Limited United Kingdom
CEM Computers Limited United Kingdom
UniComp IOM Limited Isle of Man
Smoky Mountain Technologies, Inc. North Carolina
Arccom Management Systems, Inc. Georgia
(d/b/a Unibol,Inc.)
UniComp Systems, Inc. Texas
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of UniComp, Inc. on Forms S-3 (File Numbers 33-64312, 333-11605 and 333-27857)
and S-8 (File Numbers 33-98564 and 333-21313) of our report dated May 22,
1997, on our audits of the consolidated financial statements and financial
statement schedule of UniComp, Inc. as of February 28, 1997 and February 29,
1996, and for each of the three years in the period ended February 28, 1997,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
May 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 3,810,195
<SECURITIES> 0
<RECEIVABLES> 10,650,946
<ALLOWANCES> 222,097
<INVENTORY> 1,910,821
<CURRENT-ASSETS> 17,077,024
<PP&E> 7,947,117
<DEPRECIATION> 3,822,317
<TOTAL-ASSETS> 31,058,781
<CURRENT-LIABILITIES> 15,371,138
<BONDS> 0
0
0
<COMMON> 68,878
<OTHER-SE> 14,306,788
<TOTAL-LIABILITY-AND-EQUITY> 31,058,781
<SALES> 6,222,698
<TOTAL-REVENUES> 25,151,049
<CGS> 5,456,042
<TOTAL-COSTS> 10,493,274
<OTHER-EXPENSES> 12,629,228
<LOSS-PROVISION> 68,703
<INTEREST-EXPENSE> 282,112
<INCOME-PRETAX> 1,837,895
<INCOME-TAX> 311,820
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,526,075
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
