<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal quarter ended November 30, 1997 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, including area code: (770) 424-3684
Indicate by check mark whether the registrant (1) has filed all reports
required to be files by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
7,916,000 Common shares, $0.01 par value, as of January 9, 1998.
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<PAGE>
UNICOMP, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANACIAL INFORMATION PAGE
- ---------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of November 30, 1997 and February 28, 1997................................. 3
Consolidated Statements of Operations for the three months ended November 30, 1997 and 1996............... 5
Consolidated Statements of Operations for the nine months ended November 30, 1997 and 1996................ 6
Consolidated Statements of Cash Flows for the nine months ended November 30, 1997 and 1996................ 7
Notes to the Consolidated Financial Statements............................................................ 8
Item 2. Management's Discussion and Analysis of Results of Operations, Financial Conditions, and Liquidity
and Capital Resources................................................................................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................................. 17
Signatures................................................................................................ 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UniComp, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
NOVEMBER 30, FEBRUARY 28,
1997 1997
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ($3 million restricted).................................... $ 3,454,081 $ 3,752,484
Accounts and other receivables:
Trade, net of allowance of $463,515 and $222,097 at November 30, 1997 and
February 28, 1997, respectively................................................ 15,892,129 10,056,566
Receivables from related parties................................................... 438,146 353,500
Taxes receivable................................................................... 131,998 2,805
Other receivables.................................................................. 543,820 150,611
Inventory............................................................................ 4,258,395 2,237,620
Prepaid expenses..................................................................... 947,538 802,304
Deferred income taxes................................................................ 249,555 58,395
Other................................................................................ 86,810 63,655
------------- -------------
Total current assets............................................................. 26,002,472 17,477,940
------------- -------------
Property and equipment, net............................................................ 4,655,934 4,130,709
------------- -------------
Other assets:
Acquired and developed software, net of accumulated amortization of $4,353,175 and
$2,852,779 at November 30, 1997 and February 28, 1997, respectively................ 6,312,238 5,846,712
Goodwill, net of accumulated amortization of $356,074 and $125,946 at November 30,
1997 and February 28, 1997, respectively........................................... 3,158,341 3,161,431
Prepaid pension...................................................................... 670,093 442,030
Deferred income taxes................................................................ 95,200 99,346
Other................................................................................ 344,525 307,648
------------- -------------
Total other assets............................................................... 10,580,397 9,857,167
------------- -------------
Total assets..................................................................... $ 41,238,803 $ 31,465,816
------------- -------------
------------- -------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
UniComp, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
November 30, February 28,
1997 1997
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable................................................................. $ 3,649,717 $ 3,476,561
Accrued expenses................................................................. 1,675,937 1,193,273
Deferred revenue................................................................. 3,116,009 2,092,847
Lines of credit.................................................................. 10,698,365 7,320,828
Income taxes payable............................................................. 531,572 176,632
Other accrued taxes.............................................................. 925,341 602,325
Current portion of notes payable................................................. 440,211 492,428
------------- -------------
Total current liabilities.................................................... 21,037,152 15,354,894
------------- -------------
Long-term liabilities:
Notes payable.................................................................... 1,413,311 1,195,546
Deferred income taxes............................................................ 900,572 432,914
------------- -------------
Total long-term liabilities.................................................. 2,313,883 1,628,460
------------- -------------
Total liabilities............................................................ 23,351,035 16,983,354
------------- -------------
Stockholders' equity:
Preferred stock: $1 par value, authorized 5,000,000, none issued and outstanding
at November 30, 1997 and February 28, 1997, respectively....................... -- --
Common stock: $.01 par value, authorized 25,000,000, issued and
outstanding7,857,970 and 7,667,553 at November 30, 1997 and February 28, 1997,
respectively................................................................... 78,580 76,676
Additional contributed capital................................................... 14,567,878 13,116,636
Retained earnings................................................................ 3,562,270 2,060,451
------------- -------------
18,208,728 15,253,763
Less treasury stock.............................................................. (233,611) (608,810)
Cumulative translation adjustment................................................ (87,349) (162,491)
------------- -------------
Total stockholders' equity................................................... 17,887,768 14,482,462
------------- -------------
Total liabilities and stockholders' equity................................... $41,238,803 $31,465,816
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
UniComp, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
--------------------------
November 30, November 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenue:
Equipment.......................................................................... $ 5,816,182 $3,107,201
Services........................................................................... 5,193,857 2,961,111
Software........................................................................... 2,533,081 2,286,791
------------ ------------
Total revenue.................................................................. 13,543,120 8,355,103
------------ ------------
Cost of sales:
Equipment.......................................................................... 4,889,951 2,531,763
Services........................................................................... 875,386 536,380
Software........................................................................... 913,141 754,696
------------ ------------
Total cost of sales............................................................ 6,678,478 3,822,839
------------ ------------
Gross profit......................................................................... 6,864,642 4,532,264
------------ ------------
Selling, general and administrative expenses......................................... 5,846,409 3,357,949
Depreciation expense................................................................. 341,760 180,533
------------ ------------
Total operating expenses....................................................... 6,188,169 3,538,482
Operating income..................................................................... 676,473 993,782
------------ ------------
Other income (expense):
Other, net......................................................................... 14,930 1,717
Interest, net...................................................................... (210,347) (114,694)
------------ ------------
Total other income (expense)................................................... (195,417) (112,977)
------------ ------------
Income before provision for income taxes............................................. 481,056 880,805
------------ ------------
Provision for income taxes........................................................... 151,368 307,673
------------ ------------
Net income........................................................................... $ 329,688 $ 573,132
------------ ------------
------------ ------------
Earnings per share................................................................... $ 0.04 $ 0.09
------------ ------------
------------ ------------
Weighted average number of shares.................................................... 8,307,661 6,597,322
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED
---------------------------
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------- ------------
Revenue:
Equipment...................................... $ 19,181,749 $9,021,024
Services....................................... 13,788,027 8,186,402
Software....................................... 7,166,893 6,049,569
------------- ------------
Total revenue............................... 40,136,669 23,256,995
------------- ------------
Cost of sales:
Equipment...................................... 16,042,614 6,978,191
Services....................................... 2,098,995 1,667,209
Software....................................... 2,654,183 2,247,348
------------- ------------
Total cost of sales......................... 20,795,792 10,892,748
------------- ------------
Gross profit...................................... 19,340,877 12,364,247
------------- ------------
Selling, general and administrative expenses...... 15,635,529 9,646,082
Depreciation expense.............................. 991,586 533,390
------------- ------------
Total operating expenses.................... 16,627,115 10,179,472
Operating income.................................. 2,713,762 2,184,775
------------- ------------
Other income (expense):
Other, net..................................... 10,290 (1,592)
Interest, net.................................. (384,020) (259,583)
------------- ------------
Total other income (expense)................ (373,730) (261,175)
------------- ------------
Income before provision for income taxes.......... 2,340,032 1,923,600
------------- ------------
Provision for income taxes........................ 771,532 607,913
------------- ------------
Net income........................................ $ 1,568,500 $1,315,687
------------- ------------
------------- ------------
Earnings per share................................ $ 0.19 $ 0.21
------------- ------------
------------- ------------
Weighted average number of shares................. 8,152,037 6,380,049
The accompanying notes are an integral part of these
consolidated financial statements
6
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
--------------------------
NOVEMBER 30, NOVEMBER 30,
1997 1996
------------ ------------
Net cash provided (used) by operating activities:
Net income..................................... $1,568,500 $1,315,688
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and amortization............... 2,722,110 1,506,730
Allowance for doubtful accounts............. 241,418 33,262
Deferred income taxes....................... 280,644 334,581
Changes in assets and liabilities:
Accounts and other receivables........... (6,666,064) (1,545,071)
Inventory................................ (2,020,775) (425,927)
Prepaid expenses......................... (373,297) 278,800
Accounts payable......................... 83,156 623,749
Accrued expenses......................... 482,664 (12,398)
Other accrued taxes...................... 323,016 11,633
Deferred revenue......................... 1,023,162 (361,781)
Income taxes payable..................... 354,940 60,136
Other.................................... (287,070) (358,298)
------------ ------------
Net cash provided (used) by operating
activities......................... (2,267,596) 1,461,104
------------ ------------
Cash flow from investing activities:
Capital expenditures........................... (1,516,811) (740,845)
Acquired and developed software................ (1,875,922) (1,626,634)
------------ ------------
Net cash provided (used) by investing
activities......................... (3,392,733) (2,367,479)
------------ ------------
Cash flow from financing activities:
Payments on borrowings......................... (2,161,295) (267,022)
Proceeds from borrowing........................ 5,704,380 749,844
Issuance of common stock, net.................. 1,828,345 5,711,450
Purchase of treasury stock..................... -- (383,419)
Receivables from related parties............... (84,646) (9,869)
------------ ------------
Net cash provided (used) by financing
activities......................... 5,286,784 5,800,984
------------ ------------
Net increase (decrease) in cash................... (373,545) 4,894,609
Effect of exchange rate changes on cash........... 75,142 105,299
Cash and cash equivalents at beginning of period.. 3,752,484 1,128,647
------------ ------------
Cash and cash equivalents at end of period........ $3,454,081 $6,128,555
------------ ------------
------------ ------------
Cash paid for interest............................ $ 239,413 $ 243,344
Cash paid for taxes............................... $ 86,422 $ 123,487
The accompanying notes are an integral part of these
consolidated financial statements
7
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of management, the information furnished herein reflects all
adjustments which are necessary for the fair presentation of the results for the
periods reported. Certain information and footnote disclosure normally included
in financial statements prepared in accordance with generally accepted
accounting principles has been omitted. It is suggested that these quarterly
consolidated financial statements and notes be read in conjunction with the
financial statements and notes included in the Annual Report on Form 10-K for
the fiscal year ended February 28, 1997.
All material intercompany balance and transactions have been eliminated in
consolidation. Certain amounts previously presented in the consolidated
financial statements have been reclassified to conform to current presentation.
2. ACQUISITION OF NOVATEK
On November 30, 1997, the Company completed its acquisition of Novatek
Corporation ("Novatek"). Novatek is a reseller of new and refurbished
transaction processing and point-of-sale equipment and supplies. The Company
issued 788,708 shares of its common stock for all of the outstanding common
stock of Novatek. This transaction has been accounted for as a pooling of
interests; therefore, the Company's historical financial statements have been
restated to reflect this merger.
Prior to the merger, Novatek prepared its financial statements based on a
December 31 year end. As a result, the restated historical financial statements
include the Company's historical results of operations for the three and nine
months ended November 30, 1996 combined with Novatek's historical results of
operations for the three and nine months ended September 30, 1996 as summarized
below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
--------------------------------------------------------
<S> <C> <C> <C>
UNICOMP NOVATEK
(NOV. 30, 1996) (SEPT. 30, 1996) TOTAL
----------------- ---------------- ------------
Revenue.................. $ 6,625,108 $ 1,729,995 $ 8,355,103
Net income............... 572,670 462 573,132
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1996
---------------------------------------------------------
<S> <C> <C> <C>
UNICOMP NOVATEK
(NOV. 30, 1996) (SEPT. 30, 1996) TOTAL
----------------- ----------------- -------------
Revenue................. $ 18,244,625 $ 5,012,370 $ 23,256,995
Net income.............. 1,315,017 670 1,315,687
</TABLE>
The results of operations for the three and nine months ended November 30,
1997 reflect the combined results of operations of the Company and Novatek as of
that date.
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS,
FINANCIAL CONDITIONS, AND LIQUIDITY AND CAPITAL RESOURCES:
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the Company's consolidated
financial statements and notes thereto contained in Item 1 of this report and
with the Company's annual report on Form 10-K for the fiscal year ended
February 28, 1997. The statements contained herein that are not purely
historical are forward looking statements, including statements regarding the
Company's expectations, hopes, beliefs, intentions or strategies regarding
the future. These forward looking statements and remarks relative to future
events and financial performance are subject to the risks and uncertainties
described in reports filed from time to time with the Securities and Exchange
Commission. These documents contain and identify important factors that could
cause actual results to differ materially from those contained in our forward
looking statements. These factors include, but are not limited to, timely
development and market acceptance of its products (and upgrades to those
products) and services, the impact of competitive products, pricing, and the
fact that the company's software product license revenue can fluctuate from
quarter to quarter as a result of various factors and conditions. The company
maintains minimal backlog, thus any weakening of customer demand can have an
immediate adverse effect on the company's operating results. All forward
looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statements.
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. For the nine months ended
November 30, 1997, the Company generated $40.1 million in revenue, of which
$19.2 million was derived from sales of computer equipment and $13.8 million was
derived from information technology services. The remaining $7.1 million in
revenue was derived from license and support fees for the Company's platform
migration software, transaction processing systems and other vertical market
software products. The Company expects revenue from software licensing and
support to increase as a percentage of total revenue in the future as the
Company's relatively new software products penetrate their target markets and
gain market acceptance.
Cost of sales for computer equipment consists of the actual cost of the
products sold. Cost of sales for 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 software includes amortization of
capitalized software development costs, as well as royalties payable on embedded
technologies and any other direct costs of providing its software products and
support. The Company amortizes capitalized software development costs over the
estimated life of the product, generally three to four years.
Selling, general and administrative expenses include salaries and related
costs for all employees, travel, costs associated with internal equipment, sales
commissions, premises and marketing costs, general office and administrative
costs, and the amortization of goodwill. 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
9
<PAGE>
administrative expenses to increase as the Company grows, it anticipates that
these expenses will remain constant or decrease as a percentage of total
revenue.
In February 1997, the Company completed its acquisition of CEM Computers
Limited ("CEM") a provider of computer equipment, software support and systems
integration primarily in Northern Ireland and a reseller of computer equipment
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.
On November 30, 1997, the Company completed its acquisition of Novatek
Corporation ("Novatek"). Novatek is a reseller of new and refurbished
transaction processing and point-of-sale equipment and supplies. The Company
issued 788,708 shares of its common stock for all of the outstanding common
stock of Novatek. This transaction has been accounted for as a pooling of
interests; therefore, the Company's historical financial statements have been
restated to reflect this merger.
Prior to the merger, Novatek prepared its financial statements based on a
December 31 year end. As a result, the restated historical financial statements
include the Company's historical results of operations for the three and nine
months ended November 30, 1996 combined with Novatek's historical results of
operations for the three and nine months ended September 30, 1996 as summarized
below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996
-------------------------------------------------------
<S> <C> <C> <C>
UNICOMP NOVATEK
(NOV. 30, 1996) (SEPT. 30, 1996) TOTAL
--------------- ---------------- ------------
Revenue................... $ 6,625,108 $ 1,729,995 $ 8,355,103
Net income................ 572,670 462 573,132
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1996
--------------------------------------------------------
<S> <C> <C> <C>
UNICOMP NOVATEK
(NOV. 30, 1996) (SEPT. 30, 1996) TOTAL
-------------- ---------------- -------------
Revenue.................. $ 18,244,625 $ 5,012,370 $ 23,256,995
Net income............... 1,315,017 670 1,315,687
</TABLE>
The results of operations for the three and nine months ended November 30,
1997 reflect the combined results of operations of the Company and Novatek as of
that date.
10
<PAGE>
RESULTS OF OPERATIONS
Three and Nine Months Ended November 30, 1997 Compared to Three and Nine
Months Ended November 30, 1996
The following table summarizes the Company's results of operations in
dollars and as a percentage of total revenue for the three and nine month
periods ended November 30, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------------------------- ------------------------------------------
11/30/97 11/30/96 11/30/97 11/30/96
--------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA) (IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue.......... $ 13,543 100.0% $ 8,355 100.0% $ 40,137 100.0% $ 23,257 100.0%
Cost of sales.......... 6,678 49.3 3,823 45.8 20,796 51.8 10,893 46.8
--------- ----- ----------- ----- --------- --------- --------- ---------
Gross profit........... 6,865 50.7 4,532 54.2 19,341 48.2 12,364 53.2
Operating expenses..... 6,188 45.7 3,538 42.3 16,627 41.4 10,179 43.8
--------- ----- ----------- ----- --------- --------- --------- ---------
Operating income....... 677 5.0 994 11.9 2,714 6.8 2,185 9.4
Other expense.......... 196 1.4 113 1.4 374 1.0 261 1.1
--------- ----- ----------- ----- --------- --------- --------- ---------
Income before taxes.... 481 3.6 881 10.5 2,340 5.8 1,924 8.3
Provision for taxes.... 151 1.1 308 3.6 771 1.9 608 2.6
--------- ----- ----------- ----- --------- --------- --------- ---------
Net income............. $ 330 2.5% $ 573 6.9% $ 1,569 3.9% $ 1,316 5.7%
--------- ----- ----------- ----- --------- --------- --------- ---------
--------- ----- ----------- ----- --------- --------- --------- ---------
</TABLE>
REVENUE. Revenue increased to $13.5 million for the three months ended
November 30, 1997 from $8.4 million for the comparable period in the prior
year, and to $40.1 million for the nine months ended November 30, 1997 from
$23.3 for the comparable period in the prior year. The vast majority of these
increases have been from acquisitions which have occurred over the past year
as explained in more detail under the captions below.
EQUIPMENT REVENUE
The following table summarizes the revenue generated from sales of
computer equipment for the three and nine months ended November 30, 1997 and
the comparable periods from the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/ (DECREASE)
------------------------ --------------------
11/30/97 11/30/96 $ %
----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Transaction Processing Equipment....... $ 1,886 $ 1,730 $ 156 9.0%
Educational Equipment.................. 1,659 0 1,659 100.0
Other Equipment........................ 2,271 1,377 894 64.9
----------- ----------- --------- ---------
Total Equipment Revenue................ $ 5,816 $ 3,107 $ 2,709 87.2%
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED INCREASE/ (DECREASE)
---------------------- --------------------
11/30/97 11/30/96 $ %
-------- -------- --- ---
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Transaction Processing Equipment...... $ 6,865 $ 5,012 $ 1,853 37.0%
Educational Equipment................. 6,028 0 6,028 100.0
Other Equipment....................... 6,289 4,009 2,280 56.9
--------- ----------- --------- ---------
Total Equipment Revenue............... $ 19,182 $ 9,021 $ 10,161 112.6%
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
Revenue from the sale of transaction processing equipment, which is
generated by the recently acquired Novatek, increased by 9% for the third
quarter and 37% for the nine month period. Revenue for transaction processing
equipment is somewhat seasonal due to retail establishments purchasing new
systems during the summer months (the Company's first and second quarters) in
order to implement those
11
<PAGE>
systems before the holiday buying season begins. Revenue increases are due to
a trend of transaction processing equipment manufacturers selling more
through resellers and less direct sales. Novatek has been able to capitalize
on this trend by providing a wide range of new and refurbished equipment to
its customers and providing additional value added services. While the
Company believes that this trend will continue for the forseeable future,
there can be no assurance of such.
In connection with the acquisition of CEM, the Company became a reseller
of computer equipment to the educational marketplace in Northern Ireland
which accounts for all of the revenue generated from the sale of educational
computer equipment. The increase in other equipment, which is generally
supplied as an adjunct to software and services customers, is principally due
to the acquisition of CEM. Sales of computer equipment can vary from quarter
to quarter based on customer needs and political influences impacting the
purchases of educational computer equipment.
SERVICES REVENUE
Revenue from information technology services increased to $5.2 million
for the three months ended November 30, 1997 from $3.0 million for the for
the comparable period in the prior fiscal year and to $13.8 million for the
nine months ended November 30, 1997 from $8.2 million as compared to the same
period in the prior fiscal year. This increase of $2.2 million for the three
months ended November 30, 1997 and $5.6 million for the nine month period
ended November 30, 1997 was in part due to $900,000 and $2.7 million of
service revenue generated by CEM for the three and nine months ended November
30, 1997, respectively. Additionally, during the three and nine months ended
November 30, 1997, the Company generated $1.0 million and $2.7 million,
respectively, of revenue from year 2000 conversion services. The majority of
the revenue generated from year 2000 conversion services is attributable to a
long-term contract with DHL Worldwide Express which is expected to generate a
total of $3.5 million to $4.0 million in revenue.
SOFTWARE REVENUE
The following table summarizes the revenue from software licensing and
support for the three and nine months ended November 30, 1997 and the
comparable periods from the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/ (DECREASE)
------------------------ --------------------
11/30/97 11/30/96 $ %
----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Initial License Fees:
Platform Migration............... $ 347 $ 469 $ (122) (26.0)%
Transaction Processing........... 826 861 (35) (4.1)
Other............................ 275 164 111 67.7
----------- ----------- --------- -----
Total Initial License Fees.......... $ 1,448 $ 1,494 $ (46) (3.1)%
----------- ----------- --------- -----
Software Support Fees:
Platform Migration............... $ 323 $ 393 $ (70) (17.8)%
Other............................ 762 400 362 90.5
----------- ----------- --------- -----
Total Software Support Fees......... $ 1,085 $ 793 $ 292 36.8%
----------- ----------- --------- -----
Total Software Revenue.............. $ 2,533 $ 2,287 $ 246 10.8%
----------- ----------- --------- -----
----------- ----------- --------- -----
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED INCREASE/ (DECREASE)
------------------------ --------------------
11/30/97 11/30/96 $ %
----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Initial License Fees:
Platform Migration......................................................... $ 1,495 $ 1,441 $ 54 3.7%
Transaction Processing..................................................... 1,912 1,942 (30) (1.5)
Other...................................................................... 832 507 325 64.1
----------- ----------- ---------
Total Initial License Fees................................................... $ 4,239 $ 3,890 $ 349 9.0%
----------- ----------- ---------
Software Support Fees:
Platform Migration......................................................... $ 974 $ 977 $ (3) (0.3)%
Other...................................................................... 1,954 1,183 771 65.2
----------- ----------- ---------
Total Software Support Fees.................................................. $ 2,928 $ 2,160 $ 768 35.6%
----------- ----------- ---------
Total Software Revenue....................................................... $ 7,167 $ 6,050 $ 1,117 18.5%
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
Revenue generated from platform migration systems was $670,000 and $2.5
million for the three and nine months ended November 30, 1997, respectively, as
compared to $862,000 and $2.4 million for the comparable periods in the prior
year. Platform migration revenue by major product class is as follows.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/ (DECREASE)
------------------------ --------------------
11/30/97 11/30/96 $ %
----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
UNIBOL36...................................................................... $553 $728 $ (175) (24.0)%
UNIBOL400..................................................................... 117 134 (17) (12.7)
----- ----- ---------
Total Platform Migration Revenue.............................................. $670 $862 $ (192) (22.3)%
----- ----- ---------
----- ----- ---------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED INCREASE/ (DECREASE)
------------------------ --------------------
11/30/97 11/30/96 $ %
----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
UNIBOL36..................................................................... $ 1,674 $2,284 $(610) (26.7)%
UNIBOL400.................................................................... 795 134 661 493.2
----------- -------- ------
Total Platform Migration Revenue............................................. $ 2,469 $2,418 $ 51 2.1%
----------- -------- ------
----------- --------- ------
</TABLE>
The UNIBOL36 product is in a declining market as users of the IBM System
36 update their computer systems to more modern technology. The Company hopes
to slow the decline in UNIBOL36 product sales through marketing the product
as part of its year 2000 conversion services and with a recent release of a
version of UNIBOL36 which supports Microsoft NT. While revenue for this
product is declining, it is expected to continue for the next few years,
however, there may be fairly volatile revenue fluctuations from quarter to
quarter during this period.
Sales of the UNIBOL400 product began to slow in second and third quarters
of the current fiscal year as end-users are waiting for new releases of the
product which interface with the ORACLE database. The Company anticipates
completing these enhancements by the beginning of the next fiscal year and
does not anticipate substantial UNIBOL400 revenue to be generated until that
time.
Revenue generated from transaction processing systems remained relatively
consistent for the three and nine month periods ending November 30, 1997 as
compared to the comparable periods in the prior fiscal year. Revenue
generated from other software sales primarily consist of vertical market
software products such as the Company's Distributex product as well as other
third party software products. Revenues for these products vary depending on
customer demands and product mix.
13
<PAGE>
INTERNATIONAL REVENUE. Revenue from international operations,
principally in Northern Ireland, increased to $29.7 million for the nine
months ended November 30, 1997 from $14.5 million for the comparable period
in the prior fiscal year, an increase of $15.2 million, or 105%. This
increase is primarily due to the acquisition of CEM which accounted for
approximately $12 million in revenue for the nine months ended November 30,
1997. The remainder of the increase is primarily due to year 2000 conversion
services which accounted for $2.6 million of revenue during the nine month
period ended November 30, 1997. Revenue from domestic operations increased to
$10.4 million for the nine months ended November 30, 1997 as compared to $8.8
million for the comparable period in the prior fiscal year, an increase of
$1.6 million, or 18.1% primarily due to an increase in transaction processing
equipment revenue of $1.9 million as described above under "Equipment
Revenue".
GROSS PROFIT. The following tables summarizes the Company's gross profit
information in dollars and as a percentage of the associated revenues for the
three and nine months ended November 30, 1997 and the comparable periods for
the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
11/30/97 11/30/96
-------------------- --------------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
------------------------------------------
GROSS PROFIT GROSS PROFIT
-------------------- --------------------
$ % $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equipment:
Educational Equipment......................................................... $ 216 13.0% $ 0 0.0%
Transaction Processing Equipment.............................................. 343 18.2 338 19.5
Other Equipment............................................................... 367 16.2 237 17.2
--------- --------
Total Equipment................................................................. $ 926 15.9% $ 575 18.5%
--------- --------
Information Technology Services................................................. $ 4,319 83.2% $ 2,425 81.9%
Software: --------- ---------
Platform Migration............................................................ $ 255 38.1% $ 541 62.8%
Transaction Processing........................................................ 678 78.2 656 76.1
Other......................................................................... 687 66.3 335 59.5
--------- ---------
Total Software.................................................................. $ 1,620 64.0% $ 1,532 67.0%
--------- ---------
Total Gross Profit.............................................................. $ 6,865 50.7% $ 4,532 54.2%
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------------
11/30/97 11/30/96
-------------------- --------------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
------------------------------------------
GROSS PROFIT GROSS PROFIT
-------------------- --------------------
$ % $ %
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Equipment:
Educational Equipment...................................................... $ 625 10.4% $ 0 0.0%
Transaction Processing Equipment........................................... 1,480 21.6 1,293 25.8
Other Equipment............................................................ 1,034 16.4 750 18.7
--------- ---------
Total Equipment.............................................................. $ 3,139 16.4% $ 2,043 22.6%
--------- ---------
--------- ---------
Information Technology Services.............................................. $ 11,689 84.8% $ 6,519 79.6%
--------- ---------
Software:
Platform Migration......................................................... $ 1,217 49.3% $ 1,371 56.7%
Transaction Processing..................................................... 1,535 80.3 1,473 75.8
Other...................................................................... 1,761 63.2 958 56.7
--------- ---------
Total Software............................................................... $ 4,513 63.0% $ 3,802 62.9%
--------- ---------
Total Gross Profit........................................................... $ 19,341 48.2% $ 12,364 53.2%
--------- ---------
--------- ---------
</TABLE>
14
<PAGE>
Gross profit margins for equipment and services vary from quarter to
quarter depending on customer demands and product mix. The types of equipment
the Company sells are generally commodity products. As a result, overall
profit margins for equipment are declining. Information technology services
gross profit margin, which does not include salary costs, increased slightly
for both the three and nine month periods due primarily to substantial year
2000 services revenue generated during those periods.
Platform migration profit margins decreased for the three and nine month
periods ended November 30, 1997 compared to the same periods in the prior
fiscal year. These declines are due principally to relatively fixed
amortization expense related to capitalized software development costs for
the UNIBOL400 product, for which revenues have declined since the prior year
as described earlier. These margins are expected to improve in future periods
as the enhanced versions of the UNIBOL400 product are released, the product
begins to gain market acceptance and licensing revenues increase.
Transaction processing gross profit margins remained relatively
consistent for both the three and nine month periods ending November 30, 1997
compared to the same periods in the prior fiscal year. Gross margins for
other software products increased to 66.3% and 63.2% for the three and nine
months ended November 30, 1997, respectively, compared to 59.5% and 56.7% for
the comparable periods in the prior fiscal year. Other software primarily
consist of vertical market software products such as the Company's
Distributex product as well as other third party software products. Gross
margins for these products vary depending on customer demands and product mix.
OPERATING EXPENSES. Operating expenses as a percentage of total revenue
are 45.7% and 41.4% for the three and nine months ended November 30, 1997
compared to 42.4% and 43.8% for the comparable periods in the prior fiscal
year. During the third quarter ended November 30, 1997, the Company recorded
non-recurring expenses of $1.1 million. $700,000 of this amount related to
compensation expense recorded for the value of certain compensatory stock
options at Novatek for which the applicable compensation expense could only
be determined upon the sale of Novatek. Therefore, the Company recorded a
one-time non-cash compensation expense upon consummation of the merger with
Novatek. Additionally, the Company recorded $265,000 in expenses relating to
the pooling of interests transaction with Novatek. The Company also recorded
$120,000 of expenses related to other potential acquisitions which the
Company is no longer pursuing. Operating expenses as a percentage of total
revenue before the effect of the $1.1 million of non-recurring expenses are
37.7% and 38.7 for the three and nine months ended November 30, 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant growth with total revenue growing
to $40.1 million for the nine months ended November 30, 1997 from $23.3
million for the comparable period in the prior fiscal year. 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 generated negative operating cash flows of $2.3 million for
the nine months ended November 30, 1997. This negative operating cash flow
was funded primarily through cash generated from the exercise of stock
options and warrants, and borrowing against the Company's revolving credit
facilities.
The Company maintains two revolving credit facilities which are its
primary sources of liquidity. The facilities allow the Company to borrow
based on current levels of accounts receivable and inventory and contain
financial covenants including, but not limited to, requirements with respect
to minimum net worth and debt to net worth ratios. The Company does not
anticipate difficulty in complying with these
15
<PAGE>
covenants, and while there can be no assurance, expects to be able to renew
or replace these facilities in the ordinary course of business.
During the nine months ended November 30, 1997, the Company expended $1.5
million for capital improvements. During the first quarter of the current
fiscal year, the Company consolidated certain of its operations in the United
Kingdom to achieve operational efficiencies, as well as, future cost savings.
In the course of the consolidation, increased capital expenditures were
necessary to upgrade the Company's equipment and facilities to accommodate
the growth in the business, as well as, additional employees.
The Company received grants to fund research and development from the
government of Northern Ireland of approximately $365,000 for the nine months
ended November 30, 1997. These grants are subject to the legislative rules
and regulations of Northern Ireland and the United Kingdom. Management does
not anticipate that the receipt of grants will diminish significantly in the
foreseeable future; however, there can be no assurance that the Company will
be able to continue to receive such grants.
The Company believes available credit 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.
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 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 and other public filings. 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.
16
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4 and 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed.
Exhibits:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 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-
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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)
10.12 Agreement and Plan of Reorganization By and Among UniComp, Inc., Smoky Mountain Technologies, Inc.,
Novatek Corporation, its Shareholders, Sun and Sky Development Corp. and its Shareholders (previously
filed with Form 8-K dated November 29, 1997 and incorporated herein by reference)
21.1 Subsidiaries of the Registrant (previously filed with Form 10-K for the fiscal year ended February 28,
1997 and incorporated herein by reference)
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
SIGNATURES
Pursuant to the requirements 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.
UNICOMP, INC.
/s/ L. Allen Plunk January 14, 1998
- ----------------------------- --------------------------
L. Allen Plunk Date
Chief Financial Officer
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 3,454,081
<SECURITIES> 0
<RECEIVABLES> 16,355,644
<ALLOWANCES> 463,515
<INVENTORY> 4,258,395
<CURRENT-ASSETS> 26,002,472
<PP&E> 9,504,859
<DEPRECIATION> 4,848,925
<TOTAL-ASSETS> 41,238,803
<CURRENT-LIABILITIES> 21,037,152
<BONDS> 1,413,311
0
0
<COMMON> 78,580
<OTHER-SE> 17,809,188
<TOTAL-LIABILITY-AND-EQUITY> 41,238,803
<SALES> 26,348,642
<TOTAL-REVENUES> 40,136,669
<CGS> 18,696,797
<TOTAL-COSTS> 20,795,792
<OTHER-EXPENSES> 16,627,115
<LOSS-PROVISION> 151,303
<INTEREST-EXPENSE> 384,020
<INCOME-PRETAX> 2,340,032
<INCOME-TAX> 771,532
<INCOME-CONTINUING> 1,568,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,568,500
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
