<PAGE>
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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 May 31, 1998 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.
7,929,086 Common shares, $0.01 par value, as of July 10, 1998.
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<PAGE>
UniComp, Inc.
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 1998
and May 31, 1998 3
Consolidated Statements of Operations for the
three months ended May 31, 1997 and 1998 5
Consolidated Statements of Cash Flows for the
three months ended May 31, 1997 and 1998 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results
of Operations, Financial Conditions, and
Liquidity and Capital Resources 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------------
UniComp, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
(audited) (unaudited)
February 28, May 31,
1998 1998
--------------- ---------------
(In Thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents ($3 million restricted)................................... $ 3,904 $ 3,332
Accounts and other receivables:
Trade, net of allowance of $1,655 and $1,665 at February 28, 1998 and May 31, 1998,
respectively................................................................... 14,735 12,861
Other receivables................................................................ 448 571
Inventory........................................................................... 4,556 4,607
Prepaid expenses.................................................................... 531 476
Other............................................................................... 338 357
--------------- ---------------
Total current assets........................................................... 24,512 22,204
--------------- ---------------
Property and equipment, net............................................................ 4,746 4,968
--------------- ---------------
Other assets:
Acquired and developed software, net of accumulated amortization of $4,945 and $5,561
at February 28, 1998 and May 31, 1998, respectively.............................. 6,403 6,338
Goodwill, net of accumulated amortization of $542 and $690 at February 28, 1998 and
May 31, 1998, respectively....................................................... 4,510 4,330
Deferred income taxes............................................................... 446 495
Prepaid pension..................................................................... 754 754
Investments in joint ventures....................................................... 673 623
Receivables from related parties................................................... 422 429
Other............................................................................... 39 68
--------------- ---------------
Total other assets............................................................. 13,247 13,037
--------------- ---------------
Total assets................................................................... $ 42,505 $ 40,209
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
UniComp, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(audited) (unaudited)
February 28, May 31,
1998 1998
----------------- --------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Current liabilities:
Accounts payable.................................................................... $ 4,955 $ 3,438
Accrued expenses.................................................................... 2,080 2,037
Deferred revenue.................................................................... 3,634 3,188
Taxes payable....................................................................... 1,064 994
Other............................................................................... 200 131
Lines of credit..................................................................... 10,590 11,059
Current portion of notes payable.................................................... 1,358 1,390
----------------- --------------
Total current liabilities...................................................... 23,881 22,237
----------------- --------------
Long-term liabilities:
Notes payable....................................................................... 1,480 1,466
Deferred income taxes............................................................... 741 827
Other long-term liabilities......................................................... 110 74
----------------- --------------
Total long-term liabilities.................................................... 2,331 2,367
----------------- --------------
Total liabilities.............................................................. 26,212 24,604
----------------- --------------
Stockholders' equity:
Preferred stock: $1 par value, authorized 5,000, none issued and outstanding at
February 28, 1998 and May 31, 1998, respectively ................................ - -
Common stock: $.01 par value, authorized 25,000, issued and outstanding 7,965 at
February 28, 1998 and May 31, 1998............................................... 80 80
Additional contributed capital...................................................... 15,331 15,313
Retained earnings................................................................... 1,192 472
----------------- --------------
16,603 15,865
Less treasury stock................................................................. (206) (147)
Cumulative translation adjustment................................................... (104) (113)
----------------- --------------
Total stockholders' equity..................................................... 16,293 15,605
----------------- --------------
Total liabilities and stockholders' equity..................................... $ 42,505 $ 40,209
----------------- --------------
----------------- --------------
</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
-------------------------------------
May 31, May 31,
1997 1998
----------------- -----------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Revenue:
Equipment...................................................... $ 6,428 $ 6,325
Services....................................................... 3,812 4,837
Software....................................................... 2,416 1,850
----------------- -----------------
Total revenue............................................... 12,656 13,012
----------------- -----------------
Cost of sales:
Equipment...................................................... 5,429 5,435
Services....................................................... 679 536
Software....................................................... 963 901
----------------- -----------------
Total cost of sales......................................... 7,071 6,872
----------------- -----------------
Gross profit...................................................... 5,585 6,140
----------------- -----------------
Selling, general and administrative expenses...................... 4,811 6,620
----------------- -----------------
Operating income (loss)........................................... 774 (480)
----------------- -----------------
Other income (expense):
Other, net..................................................... (1) 9
Interest, net.................................................. (35) (213)
----------------- -----------------
Total other income (expense)................................ (36) (204)
----------------- -----------------
Income (loss) before provision for income taxes................... 738 (684)
----------------- -----------------
Provision for income taxes........................................ 216 36
----------------- -----------------
Net income (loss)................................................. 522 $ (720)
----------------- -----------------
----------------- -----------------
Basic earnings (loss) per share................................... $ 0.07 $ (0.09)
----------------- -----------------
----------------- -----------------
Diluted earnings (loss) per share................................. $ 0.07 $ (0.09)
----------------- -----------------
----------------- -----------------
Weighted average number of shares................................. 7,551 7,929
Weighted average number of shares assuming dilution............... 7,994 7,929
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
UniComp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended
----------------------------------------
May 31, May 31,
1997 1998
------------------ ------------------
(In Thousands)
<S> <C> <C>
Net cash provided (used) by operating activities:
Net income (loss)........................................... $ 522 $ (720)
Adjustments to reconcile net income to net cash provided
(used) by operations:
Depreciation and amortization............................ 802 1,112
Allowance for doubtful accounts.......................... 25 10
Deferred income taxes.................................... 31 38
Changes in assets and liabilities:
Accounts and other receivables......................... 24 1,741
Inventory.............................................. (822) (50)
Prepaid expenses....................................... (140) 55
Accounts payable....................................... 766 (1,562)
Accrued expenses....................................... 251 (112)
Deferred revenue....................................... 614 (446)
Income taxes payable................................... 186 (70)
Other.................................................. (516) (2)
------------------ ------------------
Net cash provided (used) by operating activities.... 1,743 (6)
------------------ ------------------
Cash flow from investing activities:
Capital expenditures........................................ (861) (472)
Acquired and developed software............................. (512) (605)
------------------ ------------------
Net cash used by investing activities............... (1,373) (1,077)
------------------ ------------------
Cash flow from financing activities:
Payments on borrowings...................................... (1,457) (1,783)
Proceeds from borrowing..................................... 843 2,269
Issuance of common stock, net............................... 171 41
Receivables from related parties............................ (100) (7)
------------------ ------------------
Net cash provided (used) by financing activities.... (543) 520
------------------ ------------------
Net increase (decrease) in cash................................ (173) (563)
Effect of exchange rate changes on cash........................ 30 (9)
Cash and cash equivalents at beginning of period............... 3,810 3,904
------------------ ------------------
Cash and cash equivalents at end of period..................... $ 3,667 $ 3,332
------------------ ------------------
------------------ ------------------
Cash paid for interest......................................... $ 114 198
------------------ ------------------
------------------ ------------------
Cash paid for taxes............................................ $ 86 32
------------------ ------------------
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. 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 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. 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, 1998.
The consolidated financial statements have been prepared to give
retroactive effect of the acquisition Novatek Corporation and Sun and Sky
Development Corporation (together "Novatek"). This acquisition has been
accounted for as pooling-of-interests. Generally accepted accounting principles
require giving retroactive effect to business combinations accounted for as
pooling-of-interests. As such, the historical consolidated financial statements
have been restated to reflect the resulting combined entities.
Certain amounts previously presented in the consolidated financial
statements have been reclassified to conform to current presentation.
7
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS, FINANCIAL
CONDITIONS, AND LIQUIDITY AND CAPITAL RESOURCES:
The following discussion should be read in conjunction with the
Company's consolidated financial statements and notes thereto and with the
Company's annual report on Form 10-K for the fiscal year ended February 28,
1998. Except for the historical information contained herein, this discussion
contains forward-looking statements that are subject to risks and uncertainties,
including economic, competitive and technological factors affecting the
Company's operations, markets, products, services and prices as well as other
factors discussed in the Notes to the Consolidated Financial Statements and the
Company's annual report on Form 10-K. These and other factors may cause actual
results to differ materially from those anticipated.
Overview
UniComp provides computer equipment primarily to businesses in the
United Kingdom and North America, vertical market applications and professional
services to businesses located primarily in the United Kingdom and platform
migration software and transaction-processing systems to users worldwide. In the
first quarter of fiscal year ending February 28, 1999, the Company generated
$13.0 million in total revenue, of which $6.3 million was derived from sales of
computer equipment and $4.8 million was derived from information technology
services. The remaining $1.9 million in revenue was derived from license and
maintenance fees for the Company's platform-migration software,
transaction-processing systems and other vertical market software products.
Cost of sales for computer equipment consists of the actual costs 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, as well as 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.
On November 30, 1997, the Company completed the acquisition of Novatek.
Novatek maintains, repairs, remanufactures and distributes a wide variety of
point-of-sale and transaction-processing equipment and supplies. The Company
issued 788,708 shares of its common stock for all outstanding common stock of
Novatek. This transaction has been accounted for as a pooling-of-interest;
therefore, the Company's historical financial statements have been restated to
reflect this merger.
In January 1998, the Company acquired for 107,453 shares of the
Company's Common Stock, Industrial Computing Machines Limited ("ICM"), an Irish
company that provides software products and services for the manufacturing
industry primarily in Ireland and the United Kingdom. The acquisition has been
accounted for by the purchase method. As such, ICM's results of operations have
been included since the date of acquisition.
8
<PAGE>
Results of Operations
The following table summarizes the Company's results of operations in
dollars and as a percentage of total revenue for the three months ended May 31,
1997 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
5/31/97 5/31/98
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Total Revenue .......... $ 12,656 100.0% $ 13,012 100.0%
Cost of sales .......... 7,071 55.9 6,872 52.8
-------- ------ -------- ------
Gross profit ........... 5,585 44.1 6,140 47.2
Selling, general, &
administrative expenses 4,811 38.0 6,620 50.9
-------- ------ -------- ------
Operating income ....... 774 6.1 (480) (3.7)
Other expense .......... 36 0.3 204 1.6
-------- ------ -------- ------
Income before taxes .... 738 5.8 (684) (5.3)
Provision for taxes .... 216 1.7 36 0.2
-------- ------ -------- ------
Net income ............. $ 522 4.1% $ (720) (5.5)%
-------- ------ -------- ------
-------- ------ -------- ------
</TABLE>
Three Months Ended May 31, 1998 Compared to Three Months Ended May 31,
1997
Revenue
-------
Revenue for the three months ended May 31, 1998 increased slightly to
$13.0 compared to $12.7 million for the three months ended May 31, 1997, an
increase of $0.3 million, or 2.4%.
Equipment Revenue
-----------------
The following table summarizes the revenue generated from sales of
computer equipment for the three months ended May 31, 1998 and the comparable
period from the prior fiscal year.
<TABLE>
<CAPTION>
Three Months Ended Increase/(Decrease)
------------------ -------------------
(in thousands, except percentage data)
5/31/97 5/31/98 $ %
------- ------- - -
<S> <C> <C> <C> <C>
Transaction-processing Equipment.. $ 2,167 $ 2,093 (74) (3.4)
Educational Equipment............. 1,765 1,751 (14) (0.8)
Other Equipment................... 2,496 2,481 (15) (0.6)
------- ------- ----- -----
Total Equipment Revenue........... $ 6,428 $ 6,325 (103) (1.6)
------- ------- ----- -----
</TABLE>
Equipment revenues in all three divisions remained relatively
consistent for the three months ended May 31, 1998 as compared to the same
period in the prior fiscal year. Sales of computer equipment can vary from
quarter to quarter based on customer needs.
Services Revenue
----------------
Revenue from information technology services increased to $4.8 million
for the three months ended May 31, 1998 from $3.8 million for the comparable
period in the prior fiscal year, an increase of $1.0 million or 26.3%. This
increase was primarily attributable to revenues related to the acquisition of
ICM which accounted for $0.6 million of revenue for the three months ended May
31, 1998. In addition, revenues for software services, primarily relating to
customized software and software implementation services, increased to $1.2
million for the three months ended May 31, 1998 compared to $0.9 million for the
comparable period in the prior fiscal year an increase of $0.3 million or 33.3%.
The remainder of the
9
<PAGE>
increase related to year 2000 services of $0.3 million for the three months
ended May 31, 1998 as compared to $0.2 million for the same period in the prior
fiscal year, an increase of $0.1 million or 50%.
Software Revenue
The following table summarizes the revenue from software licensing and
support.
Three months ended Increase/(Decrease)
------------------ -------------------
(in thousands, except percentage data)
5/31/97 5/31/98 $ %
------- ------- - -
Initial License Fees:
Platform Migration ... $ 767 $ 368 (399) (52.0)
Transaction-processing 424 43 (381) (89.9)
Other ................ 148 144 (4) (2.7)
------ ------ ----- ------
Total Initial License Fees . 1,339 555 (784) (58.6)
------ ------ ----- ------
Software Support Fees:
Platform Migration ... 329 252 (77) (23.4)
Transaction-processing 42 15 (27) (64.3)
Other ................ 706 1,028 322 45.6
------ ------ ----- ------
Total Software Support Fees 1,077 1,295 218 20.2
------ ------ ----- ------
Total Software Revenue ..... $2,416 $1,850 (566) (23.4)
------ ------ ----- ------
------ ------ ----- ------
Revenue generated from initial license fees for platform migration
software decreased to $0.4 million for the three months ended May 31, 1998
compared to $0.8 million for the comparable period in the prior fiscal year, a
decrease of $0.4 million or 50%. Platform migration revenue by major product
class is as follows.
<TABLE>
<CAPTION>
Twelve months ended Increase/(Decrease)
------------------- -------------------
5/31/97 5/31/98 $ %
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36 ........................ 659 517 (142) (21.5)
UNIBOL400 ....................... 437 103 (334) (76.4)
------ ------ -----
Total Platform Migration Revenue $1,096 $ 620 (476) (43.4)
------ ------ -----
------ ------ -----
</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
has been able to slow the decline in UNIBOL36 product sales through marketing
the product along with its year 2000 conversion tools and services and with the
release of a version of UNIBOL36 which supports Microsoft NT. Although there is
a decline in the market, revenue from this product is expected to continue for
the next few years, however, there may be fairly volatile revenue fluctuations
from quarter to quarter during this period.
Revenue generated by the UNIBOL400 product decreased to $0.1 million
for the three months ended May 31, 1998 from $0.4 million for the comparable
period in the prior fiscal year. Sales of the UNIBOL400 product began to slow in
the second half of fiscal year 1998 as end-users were waiting for additional
functionality and enhancements to the product. These enhancements have been
released during fiscal year 1999. The revenues related to the UNIBOL400 product
are expected to improve in future periods as the enhanced versions of the
product begin to gain market acceptance.
Revenue generated from initial license fees of transaction-processing
systems decreased to $40,000 for the three months ended May 31, 1998 compared to
$400,000 for the comparable period in the prior fiscal
10
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year, a decrease of $360,000, or 90%. Transaction-processing support fees
decreased to $15,000 for the three months ended May 31, 1998 as compared to
$42,000 for the three months ended May 31, 1997 a decrease of $27,000 or 64% in
correlation to the decrease in initial license fees. The Company has begun
restructuring the transaction-processing business unit during the second quarter
of fiscal year 1999, which has included the termination of the President of that
subsidiary and the evaluation of the strategic direction of that business unit,
including product offerings, organizational structure, and integration with the
transaction-processing equipment business acquired during the prior fiscal year.
The Company anticipates finalizing a formal restructuring plan by the completion
of the quarter ending August 31, 1998, and anticipates substantially reduced
revenues from transaction-processing software initial license and support fees
for the next several quarters until the impact of the restructuring is realized.
Revenue generated from other software sales consist primarily 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. Revenue from initial license fees
of other software products remained relatively consistent for the three months
ended May 31, 1998 compared to the same period in the prior fiscal year, while
revenue generated from software support fees for other software products
increased to $1.0 million from $0.7 million for the same periods. The decrease
in initial license fees and the increase in software support fees is principally
a result of the Company's pricing structure for many of the vertical market
applications having a lower initial license fee replaced with longer-term annual
support fees, coupled with the number of new customers using these systems.
International Revenue. Revenue from international operations,
principally in Northern Ireland, increased to $10.4 million for the three months
ended May 31, 1998 from $9.3 million for the comparable period in the prior
fiscal year, an increase of $1.1 million or 11.8%. This revenue increase is
primarily due to $0.6 million of revenue related to the ICM acquisition along
with internal growth related to information technology services. Revenue from
domestic operations decreased to $2.6 million for the three months ended May 31,
1998 from $3.3 million for the comparable period in the prior fiscal year, a
decrease of $0.7 million, or 21.2%. This decrease is primarily due to
transaction-processing and platform migration software revenue decreasing by
$0.4 million and $0.5 million, respectively as described above under "Revenue".
Gross Profit. The following table summarizes the Company's gross profit
information in dollars and as a percentage of the associated revenues for the
three months ended May 31, 1998 and the comparable period for the prior fiscal
year.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
(in thousands, except percentage data)
5/31/97 5/31/98
------- -------
Gross Profit Gross Profit
------------ ------------
$ % $ %
- - - -
<S> <C> <C> <C> <C>
Information Technology Services ....... 3,133 82.2 % 4,301 88.9 %
------ ------ ------ -----
Equipment:
Transaction-processing Equipment . 476 21.9 470 22.5
Educational Equipment ............ 140 7.9 146 8.3
Other Equipment .................. 383 15.4 274 11.0
------ ------ ------ -----
Total Equipment ....................... 999 15.5 890 14.1
------ ------ ------ -----
Software:
Platform Migration ............... 646 59.8 195 31.4
Transaction-processing ........... 358 77.1 (80) (139.4)
Other ............................ 449 52.6 834 71.2
------ ------ ------ -----
Total Software ........................ 1,453 60.1 949 51.3
------ ------ ------ -----
Total Gross Profit .................... 5,585 44.1 % 6,140 47.2 %
------ ------ ------ -----
------ ------ ------ -----
</TABLE>
11
<PAGE>
Gross profit margins for equipment and services vary 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 to 88.9% of services revenue for the three
months ended May 31, 1998 from 84.1% for the comparable period in the prior
fiscal year. This increase in gross profit is attributable to increases in
software related services revenue for the three months ended May 31, 1998
compared to the same period in the prior fiscal year, which have a higher gross
profit margin than hardware related services, which remained fairly constant for
that same period.
Platform migration profit margins decreased to 31.4% for the three
months ended May 31, 1998 from 59.8% for the comparable period 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 software gross profit margins declined to
(139.4)% for the three months ended May 31, 1998 from 77.1% for the comparable
period in the prior fiscal year. This decline is due principally to declines in
revenue for transaction-processing software, as described earlier, and an
increase in amortization expense for the current fiscal year related to
capitalized software development costs for newly released transaction-processing
software.
Gross profit margins for other software products increased to 71.2% for
the three months ended May 31, 1998 from 52.6% for the comparable period 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 have increased due to the
increase in related annual support fees and as more customers are added, as
discussed earlier in "Revenue".
Selling, General, & Administrative Expenses. Selling, general, and
administrative expenses increased to $6.6 million for the three months ended May
31, 1998 compared to $4.9 million for the comparable period in the prior fiscal
year, an increase of $1.7 million or 34.7%. $0.5 million of this increase is
attributable to the acquisition of ICM in January 1998. The remaining increase
is related to increases in salary and related expenses. These increases are
attributable new employees hired since May 31, 1997 as well as in part to
increased competition for qualified skilled workers in the Northern Ireland
market. This competition from new businesses in Northern Ireland has caused
increases in salary costs in order to retain key employees as well as recruit
new workers. Operating expenses as a percentage of total revenue increased to
50.9% for the three months ended May 31, 1998 as compared to 38.3% for the
comparable period in the prior fiscal year.
Other Expenses. Interest, the primary component of other expenses,
increased to $213,000 for the three months ended May 31, 1998 from $35,000 for
the comparable period in the prior fiscal year, an increase of $178,000 or 509%.
The increase in interest expense is related to additional borrowings on the
Company's lines of credit and other short-term borrowings to fund operations.
Liquidity and Capital Resources
At May 31, 1998, the Company had approximately $3.3 million in cash and
equivalents as compared to $3.7 million at May 31, 1997, $3.0 million of which
was restricted at May 31, 1997 and 1998.
12
<PAGE>
The Company had neutral operating cash flows of $13,000 for the three
months ended May 31, 1998. The Company maintains 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 has minimum covenant
requirements that must be met by February 28, 1999. While there can be no
assurance, the Company expects to be able to meet these covenants as well as be
able to renew or replace these facilities in the ordinary course of business.
During the three months ended May 31, 1998, the Company expended $0.5
million for capital improvements. Although the Company anticipates spending
comparable amounts in the future on capital expenditures, the Company does not
have any significant commitments to purchase capital equipment as of May 31,
1998.
The Company received grants to fund research and development from the
government of Northern Ireland of approximately $189,000 for the three months
ended May 31, 1998. 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 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 the current and historical
results or the Company's anticipated future results.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements. In addition, these estimates and assumptions affect the reported
amounts of revenue and expenses during the reporting period as well. Amounts
affected by these estimates include, but are not limited to, the estimated
useful lives, related amortization expense and carrying value of the Company's
intangible assets and capitalized software development costs, accrued reserves
for contingencies and estimates to complete fixed price contracts. Changes in
the status of certain matters or facts or circumstances underlying these
estimates could result in material changes to these estimates, and actual
results could differ from these estimates.
The 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
13
<PAGE>
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 basis, and its ability to maintain a labor force sufficiently skilled to
compete in the current environment. Additionally, there is increasing
competition in the Company's current products or services businesses, and there
can be no assurance that the Company's current products and services will remain
competitive or that the Company's development efforts will produce products with
the cost and performance characteristics necessary to remain competitive.
The timing and amount of the Company's revenues are subject to a number
of factors, including, but not limited to, the timing of customers' decisions to
enter into license agreements with the Company, which makes estimation of
operating results prior to the end of the quarter or year extremely uncertain.
While management believes that the Company's financing needs for the foreseeable
future will be satisfied from cash flows from operations, the Company's existing
credit facilities, and the ability to raise additional capital through the
equity markets, 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.
Additionally, concentrations of credit risks with respect to trade accounts
receivable is generally diversified due to the large number of entities
comprising the Company's worldwide customer base. The Company performs ongoing
credit evaluations on certain of its customers' financial conditions, but
generally does not require collateral to support customer receivables. The
Company establishes an allowance for uncollectible accounts based on factors
surrounding the credit risk of specific customers, historical trends and other
information. There can be no assurance, however, that the Company's procedures
will identify all potential uncollectible accounts in a timely manner and
significant adjustments to the Company's allowance for uncollectible accounts
may be necessary from time to time.
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.
Forward Looking Statements
This report contains both historical facts and forward-looking
statements which represent the Company's expectations or beliefs concerning
future events, including sufficiency of funds from operations and available
borrowings to meet the Company's working capital and capital expenditure needs,
among others. 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.
14
<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:
Exhibits Description
- --------------------------------------------------------------------------------
27.1 Financial Data Schedule (for SEC use only)
15
<PAGE>
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 July 15, 1998
- ----------------------------------- ---------------------------
L. Allen Plunk Date
Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MAY 31,
1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 3,332
<SECURITIES> 0
<RECEIVABLES> 14,526
<ALLOWANCES> 1,665
<INVENTORY> 4,607
<CURRENT-ASSETS> 22,626
<PP&E> 10,570
<DEPRECIATION> 5,700
<TOTAL-ASSETS> 40,209
<CURRENT-LIABILITIES> 22,237
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 15,525
<TOTAL-LIABILITY-AND-EQUITY> 40,209
<SALES> 6,325
<TOTAL-REVENUES> 13,012
<CGS> 5,435
<TOTAL-COSTS> 6,872
<OTHER-EXPENSES> 6,620
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> 213
<INCOME-PRETAX> (684)
<INCOME-TAX> 36
<INCOME-CONTINUING> (720)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (720)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
