<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1999
OR
- ----- TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ______________________
Commission file number 0-15671
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 filed 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, 480,643 Common shares, $0.01 par value, as of October 8, 1999.
- --------------------------------------------------------------------------------
<PAGE>
UNICOMP, INC.
Index
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 1999
and August 31, 1999 3, 4
Consolidated Statements of Operations for the
three months ended August 31, 1998 and 1999 5, 6
Consolidated Statements of Operations for the
six months ended August 31, 1998 and 1999 7, 8
Consolidated Statements of Cash Flows for the
six months ended August 31, 1998 and 1999 9
Notes to the Consolidated Financial Statements 10 - 14
Item 2. Management's Discussion and Analysis of Results
of Operations, Financial Conditions, and
Liquidity and Capital Resources 15 - 29
Item 3. Quantitative and Qualitative Disclosures about Market Risk 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities and Use of Proceeds 30, 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 33
Exhibits 34
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
FEBRUARY 28, AUGUST 31,
1999 1999
------- -------
(In Thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................... $ 1,400 $ 612
Accounts and other receivables:
Trade, net of allowance of $824 and $746 at February 28, 1999 and August 31,
1999, respectively ............................................................. 7,192 7,158
Other receivables ................................................................ 531 553
Inventory ........................................................................... 3,444 3,452
Prepaid expenses and Other .......................................................... 1,255 1,945
------- -------
------- -------
Total current assets ........................................................... 13,822 13,720
------- -------
Property and equipment, net ............................................................ 3,611 5,660
------- -------
Other assets:
Acquired and developed software, net of accumulated amortization of $7,138 and $8,328
at February 28, 1999 and August 31, 1999, respectively ........................... 6,816 6,515
Goodwill, net of accumulated amortization of $489 and $692 at February 28, 1999 and
August 31, 1999, respectively .................................................... 2,454 4,194
Deferred income taxes ............................................................... 626 626
Prepaid pension ..................................................................... 1,202 1,202
Receivables from related parties .................................................... 525 525
Other ............................................................................... 1,159 595
------- -------
Total other assets ............................................................. 12,782 13,657
------- -------
Total assets ................................................................... $30,215 $33,037
------- -------
------- -------
</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, AUGUST 31,
1999 1999
-------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Current liabilities:
Accounts payable ..................................................................... $ 2,564 $ 2,286
Accrued expenses ..................................................................... 1,923 1,857
Deferred revenue ..................................................................... 1,652 1,526
Taxes payable ........................................................................ 801 801
Lines of credit ...................................................................... 3,611 4,421
Current portion of notes payable ..................................................... 1,069 2,017
-------- --------
Total current liabilities ....................................................... 11,620 12,908
-------- --------
Long-term liabilities:
Notes payable ........................................................................ 1,473 2,175
Deferred income taxes ................................................................ 1,151 1,151
Other long-term liabilities .......................................................... 163 289
-------- --------
Total long-term liabilities ..................................................... 2,787 3,615
-------- --------
Total liabilities ............................................................... 14,407 16,523
-------- --------
Stockholders' equity:
Preferred stock: $1 par value, authorized 5,000, of which 3 are issued and outstanding
at February 28, 1999 and August 31, 1999, respectively ............................ 2,800 2,800
Common stock: $.01 par value, 25,000 authorized 7,965 and 8,085 issued at February
28, 1999 and August 31, 1999, respectively ........................................ 80 81
Additional contributed capital ....................................................... 15,810 16,387
Retained earnings (deficit) .......................................................... (697) 19
-------- --------
17,993 19,287
Less treasury stock .................................................................. (2,052) (2,588)
Cumulative translation adjustment .................................................... (133) (185)
-------- --------
Total stockholders' equity ...................................................... 15,808 16,514
-------- --------
Total liabilities and stockholders' equity ...................................... $ 30,215 $ 33,037
-------- --------
-------- --------
</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
----------------------
AUGUST 31, AUGUST 31,
1998 1999
------- -------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Revenue:
Equipment ...................................................... $ 2,540 $ 3,042
Services ....................................................... 2,691 2,788
Software ....................................................... 2,013 3,526
------- -------
Total revenue ............................................... 7,244 9,356
------- -------
Cost of sales:
Equipment ...................................................... 1,887 1,944
Services ....................................................... 166 385
Software ....................................................... 805 949
------- -------
Total cost of sales ......................................... 2,858 3,278
------- -------
Gross profit ...................................................... 4,386 6,078
Selling, general and administrative expenses ...................... 4,020 5,385
------- -------
Operating income .................................................. 366 693
------- -------
Other income (expense):
Other, net ..................................................... (13) 22
Interest, net .................................................. (154) (159)
------- -------
Total other income (expense) ................................ (167) (137)
------- -------
Income from continuing operations before provision for income taxes 199 556
Provision (Benefit) for income taxes .............................. (83) --
------- -------
Net income from continuing operations ............................. $ 282 $ 556
Income from discontinued operations ............................... 178 --
------- -------
Net income ........................................................ $ 460 $ 556
------- -------
------- -------
</TABLE>
5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
---------------------
AUGUST 31, AUGUST 31,
1998 1999
---------- ------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Net income .............................. $ 460 $ 556
---------- ------
---------- ------
Preferred stock dividends and accretion . $ -- $ 37
---------- ------
---------- ------
Income available to common shareholders . $ 460 $ 519
---------- ------
---------- ------
Basic earnings per common share:
Income(loss) from continuing operations . $ 0.04 $ 0.07
Income(loss) from discontinued operations 0.02 --
---------- ------
Net income(loss) ........................ $ 0.06 $ 0.07
---------- ------
---------- ------
Diluted earnings per common share:
Income(loss) from continuing operations . $ 0.04 $ 0.06
Income(loss) from discontinued operations 0.02 --
---------- ------
---------- ------
Net income(loss) ........................ $ 0.06 $ 0.06
---------- ------
---------- ------
Weighted average shares ................. 7,908 7,495
---------- ------
---------- ------
Weighted average shares assuming dilution 7,908 8,695
---------- ------
---------- ------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
-----------------------
AUGUST 31, AUGUST 31,
1998 1999
-------- --------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Revenue:
Equipment ................................................ $ 4,990 $ 6,380
Services ................................................. 5,150 5,733
Software ................................................. 3,863 6,540
-------- --------
Total revenue ......................................... 14,003 18,653
-------- --------
Cost of sales:
Equipment ................................................ 3,775 4,062
Services ................................................. 467 735
Software ................................................. 1,706 2,035
-------- --------
Total cost of sales ................................... 5,948 6,832
-------- --------
Gross profit ................................................ 8,055 11,821
Selling, general and administrative expenses ................ 8,141 10,774
-------- --------
-------- --------
Operating income ............................................ (86) 1,047
-------- --------
-------- --------
Other income (expense):
Other, net ............................................... (3) 23
Interest, net ............................................ (296) (286)
-------- --------
Total other income (expense) .......................... (299) (263)
-------- --------
-------- --------
Income (loss) from continuing operations before provision for
income taxes ............................................. (385) 784
Provision (benefit) for income taxes ........................ (41) --
-------- --------
Net income (loss) from continuing operations ................ $ (344) $ 784
Income from discontinued operations ......................... 84 --
-------- --------
Net Income (loss) ........................................... $ (260) $ 784
-------- --------
-------- --------
</TABLE>
7
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
-----------------------
AUGUST 31, AUGUST 31,
1998 1999
----------- ------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Net income (loss) ........................... $ (260) $ 784
----------- ------
----------- ------
Preferred stock dividends and accretion ..... $ -- $ 68
----------- ------
----------- ------
Income(loss) available to common shareholders $ (260) $ 716
=========== ======
Basic earnings per common share:
Income(loss) from continuing operations ..... $ (0.04) $ 0.10
Income(loss) from discontinued operations ... 0.01 --
----------- ------
Net income(loss) ............................ $ (0.03) $ 0.10
=========== ======
Diluted earnings per common share:
Income(loss) from continuing operations ..... $ (0.04) $ 0.08
Income(loss) from discontinued operations ... 0.01 --
=========== ======
Net income(loss) ............................ $ (0.03) $ 0.08
=========== ======
Weighted average shares ..................... 7,920 7,503
=========== ======
Weighted average shares assuming dilution ... 7,920 8,683
=========== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
8
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
---------------------
AUGUST 31, AUGUST 31,
1998 1999
------- -------
(In Thousands)
<S> <C> <C>
Net cash provided (used) by operating activities:
Net income (loss) ..................................................... $ (344) $ 784
Adjustments to reconcile net income to net cash provided
(used) by operations:
Depreciation and amortization ...................................... 1,727 2,021
Allowance for doubtful accounts .................................... 4 (31)
Deferred income taxes .............................................. 0 0
Gain on disposition of joint venture ............................... 0 (36)
Changes in assets and liabilities:
Accounts and other receivables ................................... 63 501
Inventory ........................................................ (60) 728
Prepaid expenses ................................................. (348) (635)
Accounts payable ................................................. 25 (1,363)
Accrued expenses ................................................. (274) (66)
Deferred revenue ................................................. (58) (126)
Income taxes payable ............................................. (30) 0
Other ............................................................ (713) (163)
------- -------
Net cash provided (used) by operating activities .............. (8) 1,614
------- -------
Cash flow from investing activities:
Capital expenditures .................................................. (381) (410)
Purchase of acquired company .......................................... 0 (259)
Payment received on note for sale of joint venture .................... 0 85
Proceeds from disposition of joint venture ............................ 0 10
Acquired and developed software ....................................... (1,362) (958)
------- -------
Net cash used by investing activities ......................... (1,743) (1,532)
------- -------
Cash flow from financing activities:
Bank Overdraft ........................................................ 0 0
Payments on borrowings ................................................ (108) (917)
Proceeds from borrowing ............................................... 227 703
Issuance of common stock, net ......................................... (76) 0
Payment of preferred stock dividends .................................. 0 (68)
Receivables from related parties ...................................... (144) 0
Purchase of Treasury Stock ............................................ 0 (536)
------- -------
Net cash provided (used) by financing activities .............. (101) (818)
------- -------
Net increase (decrease) in cash .......................................... (1,852) (736)
Effect of exchange rate changes on cash .................................. 96 (52)
Cash from discontinued activities ........................................ (1,530) 0
Cash and cash equivalents at beginning of period ......................... 3,904 1,400
------- -------
Cash and cash equivalents at end of period ............................... $ 618 $ 612
------- -------
------- -------
Cash paid for interest ................................................... $ 320 $ 246
------- -------
------- -------
Cash paid for taxes ...................................................... $ 12 $ 56
------- -------
------- -------
Common stock issued and to be issued for acquired company ................ $ 0 $ 578
------- -------
------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
9
<PAGE>
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, 1999.
Certain amounts previously presented in the consolidated financial
statements have been reclassified to conform to current presentation.
2. BASIC AND DILUTED EARNINGS PER SHARE
The calculation and presentation of earnings per share are in
accordance with SFAS No. 128 "Earnings Per Share." Basic earnings per share are
based on the weighted average number of shares outstanding. Diluted earnings per
share are based on the weighted average number of shares outstanding and the
dilutive effect of the stock options and warrants outstanding (using the
treasury stock method) and the conversion of preferred stock (using the
if-converted method). For the Company, the numerator is the same for both basic
and diluted EPS calculations. The following is a reconciliation of the
denominator used in the calculation (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31 SIX MONTHS ENDED AUGUST 31
---------------------------- --------------------------
1998 1999 1998 1999
---- ---- ---- ------
<S> <C> <C> <C> <C>
Weighted average shares 7,908 7,495 7,920 7,503
Dilutive effect of common stock options,
warrants and preferred shares 0 1,200 0 1,180
----- ----- ----- -----
Weighted average shares assuming dilution 7,908 8,695 7,920 8,683
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Options and warrants to purchase 400,000 shares of common stock at a weighted
average price of $7.12 per share for the six months ended August 31, 1999 were
outstanding but were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price for the
Company's common stock for the period. All of the options and warrants
outstanding for the three and six months ended August 31, 1998 were excluded
from the calculation of diluted earnings per share due to the net loss for the
six month period.
3. BUSINESS COMBINATIONS
ACQUISITION OF CONTINUUM TECHNOLOGY CORPORATION
In January 1999, the Company acquired a $.6 million note receivable from
Continuum Technology Corporation ("Continuum"). Consideration consisted of $.2
million in cash and accounts receivable of $.4 million. In March 1999, the
Company purchased 97.5% of Continuum's outstanding common stock.
10
<PAGE>
Consideration consisted of $259,361 in cash, 8% notes payable aggregating
$572,128, and 200,000 restricted shares of the Company's common stock.
DISPOSITION OF AURORA UNICOMP LIMITED
On December 17, 1998, the Company completed the sale of substantially all
of the assets of the Company's Northern subsidiary, Aurora UniComp Limited
("Aurora"), to Aurora SX3 Limited. Aurora maintained computer hardware and was a
reseller of computer equipment to the educational marketplace. Consideration
consisted of approximately $6.3 million in cash and assumption of debt totaling
approximately $5.5 million. The assets disposed of included, but were not
limited to, the plant machinery and motor vehicles, computer and office
equipment, furniture, premises, tradename, investments and intellectual property
rights. Aurora was a combination of the CEM acquisition, in 1997, ADVEC in 1995
and CMI, one of the ICS Computing Group subsidiaries acquired in 1993.
DISPOSITION OF SHOP WHILE YOU WAIT, INC.
In June 1998, the Company contributed accounts receivable of $.5 million
for a 67% ownership in a newly formed entity engaged in retail electronic
commerce. In April 1999, the Company sold its ownership percentage to the
minority shareholder for a $.7 million note receivable bearing interest at 8.5%.
The note is receivable in monthly installments of $5,000-$10,000 per month with
a final payment of $240,000 due in August 2003. The note is secured by the
assets of the venture and the personal guarantee and pledged assets of the
purchaser.
The gain of $.2 million on the sale will be recognized as cash is received.
4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands) for
the three month periods ended August 31, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31 SIX MONTHS ENDED AUGUST 31
---------------------------- --------------------------
1998 1999 1998 1999
---- ---- ---- ------
<S> <C> <C> <C> <C>
Net Income (loss) $ 460 $ 556 $ (260) $ 784
Change in Cumulative Translation
Adjustments 110 38 101 (52)
----- ----- ------ -----
Comprehensive Income (loss) $ 570 $ 594 $(159) $ 732
----- ----- ------ -----
----- ----- ------ -----
</TABLE>
SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in its financial statements for the year
ended February 28, 1999. The Company's business units have been aggregated into
three reportable segments: Platform Migration, Transaction Processing, and
Others, since the long-term financial performance within each of these segments
is affected by similar economic conditions. Each of these segments has its own
management team. The Platform Migration segment provides software that rehosts
code written for certain proprietary platforms to open computing platforms. The
Company markets its platform migration software through direct and indirect
sales channels. The Transaction Processing segment provides computer software
and hardware that allow merchants to settle noncash transactions. The Company
markets its transaction processing systems through a direct sales force. The
Company also provides certain other technology products and solutions, including
Year 2000 conversion tools and services and payroll processing software.
11
<PAGE>
The accounting policies of the reportable segments are the same as those
described in Note 1 to the financial statements.
The Company evaluates the performance of each operating division based on
income from operations. Summarized financial information concerning the
Company's reportable segments is shown in the following table. The "Other"
column includes corporate-related activities as well as results of smaller
operations of the Company.
<TABLE>
<CAPTION>
TRANS-
PLATFORM ACTION
SEGMENT REPORTING MIGRATION PROCESSING OTHER TOTAL
- ---------------------------------- --------- ---------- ----- -------
<S> <C> <C> <C> <C>
THREE MONTHS ENDED AUGUST 31, 1999:
(IN THOUSANDS)
Revenues $3,015 $ 1,803 $ 4,538 $ 9,356
Cost of sales 442 1,282 1,554 3,278
------ ------- ------- --------
Gross profit 2,573 521 2,984 6,078
Operating expenses 1,589 527 3,269 5,385
------ ------- ------- --------
Operating income (loss) $ 984 $ (6) $ (285) $ 693
------ ------- ------- --------
------ ------- ------- --------
THREE MONTHS ENDED AUGUST 31, 1998:
(IN THOUSANDS)
Revenues $2,325 $ 2,308 $ 2,611 $ 7,244
Cost of sales 728 1,713 417 2,858
------ ------- ------- --------
Gross profit 1,597 595 2,194 4,386
Operating expenses 913 671 2,436 4,020
------ ------- ------- --------
Operating income (loss) $ 684 $ (76) $ (242) $ 366
------ ------- ------- --------
------ ------- ------- --------
<CAPTION>
TRANS-
PLATFORM ACTION
SEGMENT REPORTING MIGRATION PROCESSING OTHER TOTAL
- ---------------------------------- --------- ---------- ----- -------
SIX MONTHS ENDED AUGUST 31, 1999:
(IN THOUSANDS)
Revenues $5,772 $ 3,856 $ 9,025 $ 18,653
Cost of sales 962 2,537 3,333 6,832
------ ------- ------- --------
Gross profit 4,810 1,319 5,692 11,821
Operating expenses 3,102 1,339 6,333 10,774
------ ------- ------- --------
Operating income (loss) $1,708 $ (20) $ (641) $ 1,047
------ ------- ------- --------
------ ------- ------- --------
SIX MONTHS ENDED AUGUST 31, 1998:
(IN THOUSANDS)
Revenues $3,908 $ 4,595 $ 5,500 $ 14,003
Cost of sales 1,166 3,473 1,309 5,948
------ ------- ------- --------
Gross profit 2,742 1,122 4,191 8,055
Operating expenses 2,398 1,418 4,325 8,141
------ ------- ------- --------
Operating income (loss) $ 344 $ (296) $ (134) $ (86)
------ ------- ------- --------
------ ------- ------- --------
</TABLE>
12
<PAGE>
The vast majority of the Company's revenue is generated from products and
services provided in the United States and the United Kingdom, although
the Company does have customers in over 30 countries. The following table
illustrates a summary of the operations by geographic area.
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM TOTAL
------------- ------------- --------------
<S> <C> <C> <C>
THREE MONTHS ENDED AUGUST 31, 1999
(IN THOUSANDS)
Revenues $ 4,272 $ 5,084 $ 9,356
Cost of sales 1,878 1,400 3,278
--------------------------------------------
Gross profit 2,394 3,684 6,078
Operating expenses 1,696 3,689 5,385
--------------------------------------------
Operating income (loss) $ 698 $ (5) $ 693
--------------------------------------------
--------------------------------------------
THREE MONTHS ENDED AUGUST 31, 1998
(IN THOUSANDS)
Revenues $ 2,949 $ 4,295 $ 7,244
Cost of sales 1,900 958 2,858
--------------------------------------------
Gross profit 1,049 3,337 4,386
Operating expenses 1,420 2,600 4,020
--------------------------------------------
Operating income (loss) $ (371) $ 737 $ 366
--------------------------------------------
--------------------------------------------
UNITED UNITED
STATES KINGDOM TOTAL
------------- ------------- --------------
SIX MONTHS ENDED AUGUST 31, 1999
(IN THOUSANDS)
Revenues $ 8,472 $ 10,181 $ 18,653
Cost of sales 4,020 2,812 6,832
--------------------------------------------
Gross profit 4,452 7,369 11,821
Operating expenses 3,163 7,611 10,774
--------------------------------------------
Operating income (loss) $ 1,289 $ (243) $ 1,047
--------------------------------------------
--------------------------------------------
SIX MONTHS ENDED AUGUST 31, 1998
(IN THOUSANDS)
Revenues $ 5,557 $ 8,446 $ 14,003
Cost of sales 3,782 2,166 5,948
--------------------------------------------
Gross profit 1,775 6,280 8,055
Operating expenses 2,921 5,220 8,141
--------------------------------------------
Operating income (loss) $(1,146) $ 1,060 $ (86)
--------------------------------------------
--------------------------------------------
</TABLE>
The Company sells its products and services to a variety of customers. No
individual customer accounted for more than 10% of company revenue during
the three and six months periods ended August 31, 1998 and 1999.
13
<PAGE>
6. USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statement and the reported amounts or revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The consolidated financial statements include all adjustments
that, in the opinion of management, are necessary for a fair presentation of
the results for the periods indicated. All such adjustments are of a normal
recurring nature.
14
<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,
1999. 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, Inc. (the "Company" or "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. For the six months ended
August 31, 1999, the Company generated $18.7 million in total revenue, of
which $6.4 million was derived from sales of computer equipment and $5.7
million was derived from information technology services. The remaining $6.6
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.
In December 1998, the Company acquired for approximately $403,000 a
United Kingdom company, Carlton Software Productions Limited, which develops,
sells and supports IBM AS/400 Systems management software tools.
In January 1999, the Company acquired a $.6 million note receivable
from Continuum Technology Corporation ("Continuum"). Consideration consisted
of $.2 million in cash and accounts receivable of $.4 million. In March 1999,
the Company purchased 97.5% of Continuum's outstanding common stock.
Consideration consisted of $259,361 in cash, 8% notes payable aggregating
$572,128, and 200,000 restricted shares of the Company's common stock.
15
<PAGE>
On December 17, 1998, the Company completed the sale of
substantially all of the assets of the Company's Northern Ireland subsidiary,
Aurora UniComp Limited ("Aurora"), to Aurora SX3 Limited. Aurora maintained
computer hardware and was a reseller of computer equipment to the educational
marketplace. Consideration consisted of approximately $6.3 million in cash
and assumption of debt totaling approximately $5.5 million. The assets
disposed of included, but were not limited to, the plant machinery and motor
vehicles, computer and office equipment, furniture, premises, tradename,
investments and intellectual property rights. Aurora was a combination of the
CEM acquisition, in 1997, ADVEC in 1995 and CMI, one of the ICS Computing
Group subsidiaries acquired in 1993.
In June 1998, the Company contributed accounts receivable of $.5
million for a 67% ownership in a newly formed entity engaged in retail
electronic commerce. In April 1999, the Company sold its ownership percentage
to the minority shareholder for a $.7 million note receivable bearing
interest at 8.5%. The note is receivable in monthly installments of
$5,000-$10,000 per month with a final payment of $240,000 due August 2003.
The note is secured by the assets of the venture and the personal guarantee
and pledged assets of the purchaser. The gain of $.2 million on the sale will
be recognized as cash is received.
On October 7, 1998, the Company issued 3,000 shares of Series A
Convertible Preferred Stock, par value $1.00 per share, and warrants for
102,127 shares of the Company's Common Stock for an aggregate consideration
of $3 million. Each share of Series A Convertible Preferred Stock may be
converted into a number of shares of the Company's Common Stock pursuant to
the terms of the Series A Convertible Preferred Stock Purchase Agreement;
provided that, absent shareholder approval, the maximum number of shares of
Common Stock that may be issued upon conversion of the Series A Convertible
Preferred Stock is 1,576,000. The warrants entitle the holders thereof to
purchase an aggregate of 102,127 shares of the Company's Common Stock at an
exercise price of $4.4063 per share. The holders of the Series A Convertible
Preferred Stock have certain registration rights.
In connection with the issuance of the Series A Convertible
Preferred Stock, the Company has certain mandatory redemption obligations if
certain events occur, such as upon conversion of the Series A convertible
Preferred Stock if the shares of Common Stock of the Company to be issued
would exceed 1,576,000 shares of Common Stock.
Holders of the Series A Convertible Preferred Stock are not entitled
to vote on any matter.
In May, 1999, the Company and the holder of the Series A Convertible
Preferred Stock entered into a letter agreement whereby the Company would
repurchase 2,000 of the 3,000 shares of Series A Convertible Preferred Stock
for approximately $4 million and the remaining 1,000 shares of the Company
Series A Convertible Preferred Stock would be exchanged for an equal number
of shares of a newly created Series B Convertible Preferred Stock having
substantially similar terms as the Series A Convertible Preferred Stock,
except the Series B Convertible Preferred Stock would be convertible into a
maximum of 286,000 shares of the Company's common stock (the "Repurchase").
The Repurchase is subject to the negotiation and agreement of the definitive
Repurchase documents between the Company and the holder of the Series A
Convertible Preferred Stock. See "Liquidity and Capital Resources."
16
<PAGE>
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED AUGUST 31, 1999 COMPARED TO THREE AND SIX
MONTHS ENDED AUGUST 31, 1998
The following table summarizes the Company's results of operations
in dollars and as a percentage of total revenue for the three and six month
periods ended August 31, 1999 and 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------------------- ----------------------------------------------
8/31/98 8/31/99 8/31/98 8/31/99
------- ------- ------- -------
(in thousands, except percentage data) (in thousands, except percentage data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue $7,244 100.0% $9,356 100.0% $14,003 100.0% $18,653 100.0%
Cost of sales 2,858 39.5% 3,278 35.0% 5,948 42.5% 6,832 36.6%
------- ------ ------ ------ ------- ----- ------- ------
Gross profit 4,386 60.5% 6,078 65.0% 8,055 57.5% 11,821 63.4%
Selling, general and 4,020 55.5% 5,385 57.6% 8,141 58.1% 10,774 57.8%
administrative ------- ------ ------ ------ ------- ----- ------- ------
expenses
Operating income 366 5.0% 693 7.4% (86) -0.6% 1,047 5.6%
Other expense 167 2.3% 137 1.5% 299 2.1% 263 1.4%
------- ------ ------ ------ ------- ----- ------- ------
Income before taxes 199 2.7% 556 5.9% (385) -2.7% 784 4.2%
Provision for taxes (83) -1.1% - 0.0% (41) -0.3% - 0.0%
------- ------ ------ ------ ------- ----- ------- ------
Net income $282 3.8% $556 5.9% ($344) -2.4% $784 4.2%
------- ------ ------ ------ ------- ----- ------- ------
------- ------ ------ ------ ------- ----- ------- ------
</TABLE>
REVENUE. Revenue for the three months ended August 31, 1999
increased to $9.4 million compared to $7.2 million for the three months ended
August 31, 1998, an increase of $2.2 million, or 30.6%. $1.0 million of that
increase is from Continuum, the March 1999 acquisition, and the remaining
increase is primarily attributable to higher platform migration license fees.
Revenue for the six months ended August 31, 1999 increased to $18.7 million
compared to $14.0 million for the three months ended August 31, 1998, an
increase of $4.7 million, or 33.6%. $2.0 million of the increase is from
Continuum and the balance primarily from increased platform migration license
fees.
EQUIPMENT REVENUE. The following table summarizes the revenue
generated from sales of computer equipment for the three and six months ended
August 31, 1999 and the comparable periods from the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
-------------------- -------------------
8/31/98 8/31/99 $ %
------- ------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Transaction Processing Equipment. $2,093 $1,575 $(518) (24.7)
Other Equipment.................. 447 1,467 1,020 228.2
------ ------ ------
Total Equipment Revenue.......... $2,540 $3,042 $ 502 19.8
------ ------ ------
------ ------ ------
SIX MONTHS ENDED INCREASE/(DECREASE)
-------------------- -------------------
8/31/98 8/31/99 $ %
------- ------- - -
(in thousands, except percentage data)
Transaction Processing Equipment. $4,189 $3,422 $(767) (18.3)
Other Equipment.................. 801 2,958 2,157 269.3
------ ------ ------
Total Equipment Revenue.......... $4,990 $6,380 $1,390 27.9
------ ------ ------
------ ------ ------
</TABLE>
The increase in other equipment sales was primarily attributed to
revenues from Continuum which provided $1.0 million and $2.0 million for the
three and six month periods ended August 31, 1999 respectively. Sales of
transaction processing equipment are typically made up of large orders and
can vary significantly depending on timing of those orders.
17
<PAGE>
SERVICES REVENUE. Revenues from information technology services
increased to $5.7 million for the six months ended August 31, 1999 from $5.1
million for the comparable period in the prior fiscal year, an increase of
$0.6 million (11.8%). Revenues for the three month periods ended August 31,
1999 and 1998 were flat at $2.8 million.
SOFTWARE REVENUE. The following table summarizes the revenue from
software licensing and support.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
-------------------- -------------------
8/31/98 8/31/99 $ %
------- ------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Initial License Fees:
Platform Migration......... $593 $1,871 $1,278 215.5%
Transaction Processing..... 40 16 (24) (60.0)%
Other...................... 227 369 142 62.6%
------ ------- ------- ------
Total Initial License Fees....... $ 860 $2,256 $1,396 162.3%
------ ------- ------- ------
Software Support Fees:
Platform Migration......... $217 $287 $ 70 32.3%
Transaction Processing..... 17 8 (9) (52.9)%
Other...................... 919 975 56 6.1%
------ ------- ------- ------
Total Software Support Fees...... $1,153 $1,270 $ 117 10.1%
------ ------- ------- ------
Total Software Revenue........... $2,013 $3,526 $1,513 75.2%
------ ------- ------- ------
------ ------- ------- ------
SIX MONTHS ENDED INCREASE/(DECREASE)
-------------------- -------------------
8/31/98 8/31/99 $ %
------- ------- - -
(in thousands, except percentage data)
Initial License Fees:
Platform Migration......... $ 961 $3,162 $2,201 229.0%
Transaction-processing..... 83 60 (23) (27.7)%
Other...................... 371 737 366 98.7%
------ ------- ------- ------
Total Initial License Fees....... $1,415 $3,959 $2,544 179.8%
------ ------- ------- ------
Software Support Fees:
Platform Migration......... $469 $511 $ 42 9.0%
Transaction-processing..... 32 44 12 37.5%
Other...................... 1,947 2,026 79 4.1%
------ ------- ------- ------
Total Software Support Fees...... $2,448 $2,581 $ 133 5.4%
------ ------- ------- ------
Total Software Revenue........... $3,863 $6,540 $2,677 69.3%
------ ------- ------- ------
------ ------- ------- ------
</TABLE>
Platform migration revenue by major product class is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
-------------------- --------------------
8/31/98 8/31/99 $ %
------- ------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36......................... $ 702 $ 1,024 $322 45.9
UNIBOL400........................ 108 1,134 1,026 950.0
------ ------- ------- ------
Total Platform Migration Revenue. $ 810 $2,158 $1,348 166.4
------ ------- ------- ------
------ ------- ------- ------
SIX MONTHS ENDED INCREASE/(DECREASE)
-------------------- -------------------
8/31/98 8/31/99 $ %
------- ------- - -
(in thousands, except percentage data)
UNIBOL36......................... $ 1,219 $ 1,567 $ 348 28.5
UNIBOL400........................ 211 2,106 1,895 898.1
------ ------- ------- ------
Total Platform Migration Revenue. $ 1,430 $3,673 $2,243 156.9
------ ------- ------- ------
------ ------- ------- ------
</TABLE>
18
<PAGE>
The Company has been able to improve 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.
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.
Revenue generated by the UNIBOL400 product increased to $1.1million
and $2.1 million for the three and six months ended August 31, 1999,
respectively from $0.1 million and $0.2 million for the comparable periods in
the prior fiscal year, respectively. Unibol400 sales were slow because
end-users were waiting for additional functionality and enhancements. These
enhancements have been made available during fiscal year 2000. The revenues
related to the UNIBOL400 product are expected to continue to improve in
future periods as the enhanced versions of the product gain market acceptance.
Revenue generated from initial license fees of
transaction-processing systems decreased to $16 thousand and $60 thousand for
the three and six months ended August 31, 1999, respectively from $40
thousand and $80 thousand for the comparable periods in the prior fiscal
year, respectively. Transaction-processing support fees decreased to $8
thousand and increased to $44 thousand for the three and six months ended
August 31, 1999, respectively from $17 thousand and $32 thousand for the
comparable periods in the prior fiscal year, respectively.
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. Revenue from initial
license fees of other software products increased to $369 thousand and $737
thousand for the three and six months ended August 31, 1999, respectively,
from $227 thousand and $371 thousand for the comparable periods in the prior
fiscal year, respectively. Revenue generated from software support fees for
other software products increased to $1.0 million and $2.0 million for the
three and six months ended August 31, 1999, respectively from $0.9 million
and $1.9 million for the comparable periods in the prior fiscal year,
respectively.
INTERNATIONAL REVENUE. Revenue from international operations,
principally in Northern Ireland, increased to $10.2 million for the six
months ended August 31, 1999 from $8.4 million for the comparable period in
the prior fiscal year, an increase of $1.8 million or 21.4%. This increase
came primarily from increased growth of information technology services and
software. Revenue from domestic operations increased to $8.5 million for the
six months ended August 31, 1999 as compared to $5.6 million for the
comparable period in the prior fiscal year, an increase of $2.9 million or
51.8%. This increase was due to $2 million of revenues added by Continuum and
increased revenues from platform migration software
For the quarters ended August 31, 1999 and 1998, revenue from
international operations grew to $5.1 million from $4.3 million due to
improved platform migration license fees and growth in information technology
services and software. Revenue from domestic operations grew to $4.3 million
from $2.9 million due to revenues generated by Continuum and platform
migration license fee growth.
19
<PAGE>
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 six months ended August 31, 1999 and the comparable periods
for the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
8/31/98 8/31/99
------- -------
(in thousands, except percentage data)
GROSS PROFIT GROSS PROFIT
------------ ------------
$ % $ %
- - - -
<S> <C> <C> <C> <C>
Information Technology Services.... $2,525 93.9 $2,403 86.2%
------ -------
Equipment:
Transaction-processing........ 514 24.6 630 40.0
Other......................... 139 31.1 468 31.9
------ -------
Total Equipment.................... 653 25.7 1,098 36.1
------ -------
Software:
Platform Migration............ 386 47.5 1,802 83.5
Transaction-processing........ (77) (135.1) (90) (375.0)
Other......................... 899 78.4 865 64.4
------ -------
Total Software..................... 1,208 60.0 2,577 73.1
------ -------
Total Gross Profit................. $4,386 60.5 $6,078 65.0
------ -------
------ -------
SIX MONTHS ENDED
-----------------------------------------------
8/31/98 8/31/99
------- -------
(in thousands, except percentage data)
GROSS PROFIT GROSS PROFIT
------------ ------------
$ % $ %
- - - -
Information Technology Services.... $4,683 90.9 $4,998 87.2
------ -------
Equipment:
Transaction-processing........ 987 23.6 1,324 38.7
Other......................... 228 28.5 994 33.6
------ -------
Total Equipment.................... 1,215 24.3 2,318 36.3
------ -------
Software:
Platform Migration............ 580 40.6 2,905 79.1
Transaction-processing........ (156) (135.7) (143) (137.5)
Other......................... 1,733 74.8 1,743 63.1
------ -------
Total Software..................... 2,157 55.8 4,505 68.9
------ -------
Total Gross Profit................. $8,055 57.5 $11,821 63.4
------ -------
------ -------
</TABLE>
Gross profit margins for services and equipment vary from quarter to
quarter depending on customer demands and product mix. Information technology
services gross profit margin, which does not include salary costs, decreased
for the three and six month periods compared to the prior year, due to a
greater proportion of the services being hardware related which yield a lower
margin than software related services. Equipment margins rose in both the
three and six month periods largely due to healthy margins realized from
sales at Continuum.
Platform-migration software profit margins increased to 83.5% from
47.5% for the three months ending August 31, 1999, as compared to the three
months ending August 31, 1998, and to 79.1% from 40.6% for the six months
ending August 31, 1999 compared to the six months ended August 31, 1998. This
increase is directly related to the increase in platform migration license
fee revenues and constant cost of sales made up primarily of amortization of
capitalized software development costs.
20
<PAGE>
Gross margins for other software products changed to 64.4% and 63.1%
for the three and six months ended August 31, 1999, respectively, compared to
78.4% and 74.8% for the comparable periods in the prior fiscal year. The
decrease is due to continued and increasing amortization of software
development costs and constant or slightly shrinking revenues for the
periods. Other software primarily consist of vertical market software
products such as the Company's Distributex product as well as other third
party software products.
SELLING, GENERAL, & ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses increased to $5.4 million and $10.8 million for the
three and six months ended August 31, 1999, respectively from $4.0 million
and $8.1 million for the comparable periods in the prior fiscal year,
respectively. Those are increases of $1.4 million or 35% and $2.7 million or
33.3% respectively. Selling, general and administrative expenses as a
percentage of total revenue for the three and six month periods is unchanged
from year to year.
OTHER EXPENSES. Net interest expense is unchanged year to
year for both the three and six month periods.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1999, the Company had approximately $0.6 million in
cash and equivalents as compared to $1.4 million at February 28, 1999.
The Company generated positive operating cash flows of $1.6 million
for the three and six months ended August 31, 1999. 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, 2000. 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. At February 28, 1999, the
Company was in default of the minimum tangible net worth covenant under its
$3 million United States line of credit.
During the six months ended August 31, 1999, the Company expended
$0.4 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 August 31, 1999.
During the three months ended May 31, 1999, the Company expended
$0.2 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, 1999.
During the six months ended August 31, 1999, the Company expended
$0.5 million to buy shares of its own common stock on the open market.
The Company received grants to fund research and development from
the government of Northern Ireland of approximately $66,000 for the three
months and $123,000 for the six months ended August 31, 1999. 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
21
<PAGE>
foreseeable future; however, there can be no assurance that the Company will
be able to continue to receive such grants.
On October 7, 1998, the Company issued 3,000 shares of Series A
convertible Preferred Stock, par value $1.00 per share, and warrants for
102,127 shares of the Company's Common Stock for an aggregate consideration
of $3 million. Each share of Series A Convertible Preferred Stock may be
converted into a number of shares of the Company's Common Stock pursuant to
the terms of the Series A convertible Preferred Stock Purchase Agreement;
provided that, absent shareholder approval, the maximum number of shares of
Common Stock that may be issued upon conversion of the Series A Convertible
Preferred Stock is 1,576,000. The warrants entitle the holders thereof to
purchase an aggregate of 102,127 shares of the Company's Common Stock at an
exercise price of $4.4063 per share. The holders of the Series A Convertible
Preferred Stock have certain registration rights.
In connection with the issuance of the Series A Convertible
Preferred Stock, the Company has certain mandatory redemption obligations if
certain events occur, such as upon conversion of the Series A convertible
Preferred Stock if the shares of Common Stock of the Company to be issued
would exceed 1,576,000 shares of Common Stock.
In May, 1999, the Company and the holder of the Series A Convertible
Preferred Stock entered into a letter agreement whereby the Company would
repurchase 2,000 of the 3,000 shares of Series A Convertible Preferred Stock
for approximately $4 million and the remaining 1,000 shares of the Company
Series A Convertible Preferred Stock would be exchanged for an equal number
of shares of a newly created Series B Convertible Preferred Stock having
substantially similar terms as the Series A Convertible Preferred Stock,
except the Series B Convertible Preferred Stock would be convertible into a
maximum of 286,000 shares of the Company's common stock (the "Repurchase").
The Repurchase is subject to the negotiation and agreement of the definitive
Repurchase documents between the Company and the holder of the Series A
Convertible Preferred Stock. See "Recent Developments."
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.
YEAR 2000 COMPLIANCE
THE PROBLEM. The scope of the Year 2000 problem applies to any
device, software or firmware that makes references to dates. Specifically it
applies to the Real Time Clock (RTC) which stores the year portion of the
date in two digit formats (e.g. 98 instead of 1998). Estimates indicate that
many computers built prior to 1996 will not switch over correctly from 1999
to 2000. The impact of this can greatly affect any date-sensitive projects
such as budgets and financial projections in the forthcoming year.
RISK ASSESSMENT. UniComp uses a variety of third party vendor
products. We have contacted our suppliers and service providers to obtain the
appropriate Year 2000 statements. We expect minimal maintenance issues to be
addressed in the form of Service Packs and Software Patches.
22
<PAGE>
CURRENT STATUS OF READINESS EFFORTS. In 1998, a comprehensive
project plan to address the Year 2000 issue was created and implemented to
insure the Company's operational stability. This seven phase project has been
completed. The following table identifies each of the seven phases of that
project.
<TABLE>
<CAPTION>
- -------------------------------- ------------------------------- ------------------- -----------------------------------
PROJECT PHASE PROJECT % COMPLETED COMPLETION COMMENTS
- -------------------------------- ------------------------------- ------------------- -----------------------------------
<S> <C> <C> <C>
Awareness 100% Completed
- -------------------------------- ------------------------------- ------------------- -----------------------------------
Identification 100% Completed
- -------------------------------- ------------------------------- ------------------- -----------------------------------
Impact Analysis 100% Completed
- -------------------------------- ------------------------------- ------------------- -----------------------------------
Risk Evaluation 100% Completed Suppliers & Service have been
contacted and evaluated.
- -------------------------------- ------------------------------- ------------------- -----------------------------------
Remediation 100% Completed All critical systems are
completed.
- -------------------------------- ------------------------------- ------------------- -----------------------------------
Testing 100% Completed We will continue to monitor and
regression test on an as needed
basis.
- -------------------------------- ------------------------------- ------------------- -----------------------------------
Contingency Plan 100% Completed Already in place.
- -------------------------------- ------------------------------- ------------------- -----------------------------------
Overall 100% Completed On schedule.
Completion
Estimate
- -------------------------------- ------------------------------- ------------------- -----------------------------------
</TABLE>
CONTINGENCY PLAN. UniComp has a disaster recovery program already
implemented company wide. Key personnel at each site participated on the Year
2000 board and are a part of the data recovery process. Routinely information
is backed up to diskette and tape. This regiment incorporates daily, weekly
and monthly backups. These backups are divided into on-site (primary) and
off-site (secondary) data copies. The secondary copies are archived up to
three months and kept in a secure location to help maintain an ongoing
disaster recovery program. This methodology of damage control was integrated
into UniComp's Year 2000 contingency plan to safeguard all mission critical
data. Any information lost would be minimal at most. The backups allow
information to be transported from machine to machine if the need arises. It
is anticipated that this scenario would have no significant impact on the day
to day dealings with the company.
COST. The overall cost incurred for this plan is not material in
amount over the two-year period from 1998 to 1999. Most of the expense would
be considered a part of the ongoing routine of maintenance and upkeep of
internal systems. The current infrastructure has a system in place to
allocate personnel to perform such tasks. UniComp used internal resources to
oversee the most intensive phases of the Year 2000 project. Expense in this
area of implementation would be limited to man hours and personnel expense.
In addition, a consultant was hired to help the larger sites in the United
Kingdom to help transition their systems to millennium compliance. The cost
of this action was nominal. The cost to replace fully depreciated systems was
not included, but is considered to be a part of normal business operations
and not directly related to the Year 2000 issue.
23
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD LOOKING STATEMENTS
The foregoing contains forward-looking statements that involve risks
and uncertainties, including but not limited to quarterly fluctuations in
results, the timely availability and customer acceptance of new products, the
impact of competitive products and pricing, general market trends and
conditions, and other risks detailed below in "Factors That May Affect Future
Results." Actual results may vary materially from projected results.
UniComp's domestic and international businesses operate in highly
competitive markets that involve a number of risks, some of which are beyond
the Company's control. While UniComp is optimistic about its long-term
prospects, the following discussion highlights some risks and uncertainties
that should be considered in evaluating its future growth prospects.
SUCCESS DEPENDENT ON ABILITY TO COMPETE IN HIGHLY COMPETITIVE INFORMATION
TECHNOLOGY INDUSTRY
Our success depends on our ability to compete in an industry that is
intensely competitive and subject to rapid change. In competing in the
information technology industry, we believe the principal competitive factors
we face are reputation and quality of service, relative price and
performance, technical expertise and product availability. Our competitors in
the information technology service market include installation and service
organizations within many established companies, computer manufacturers,
custom software developers, regional systems integrators, software and
hardware distributors, and systems consultants. The market for our
platform-migration software is highly competitive as well. We believe that
the principal competitive factors in this area include product performance,
time to market for new product introductions, adherence to industry
standards, price, marketing and distribution resources. The market for our
transaction-processing systems is also highly competitive. We believe that
the principal competitive factors in this area include the ability to provide
a comprehensive, integrated transaction-processing system, product
performance, time to market for new product introductions, adherence to
industry standards, price, marketing and distribution resources. Some of our
current and potential competitors have longer operating histories and
substantially greater competitive resources than ours. As a result, our
competitors may be able to adapt more quickly to changes in customer needs or
to devote greater resources to sales, marketing and product development. As
the markets in which we compete have matured, product price competition has
intensified and such intensity will likely continue. Such price competition
could adversely affect our results of operations. There can be no assurance
that we will be able to continue to compete successfully with existing or new
competitors.
DEPENDENCE ON FOREIGN SALES
Any reduction of our international business could significantly
affect our revenues. Our revenues from international operations represented
slightly more than half of our total revenues for fiscal years 1997 through
1999. We expect that our international operations will continue to account
for a significant percentage of our total revenues. Certain risks are
inherent in international operations, including (1) unexpected changes in
regulatory requirements, (2) currency exchange rate fluctuations, (3) changes
in trade policy or tariff regulations, (4) customs matters, (5) longer
payment cycles, (6) higher tax rates, (7) additional tax withholding
requirements, (8) difficulty in enforcing agreements, (9) intellectual
property protection difficulties, (10) foreign collection problems, and (11)
military, political and transportation obstacles. In addition, foreign
operations involve uncertainties arising from local business practices,
cultural considerations and international political and trade tensions. Our
revenues and expenses are generally denominated in corresponding currencies.
As a result, to date we have not hedged against foreign
24
<PAGE>
currency exchange rate risks. In the future; however, we may implement
hedging techniques with respect to foreign currency transactions.
Nevertheless, such hedging activities cannot assure that we could
successfully protect ourselves against foreign currency exchange losses or
against other international sales risks such as exchange limitations, price
controls or other foreign currency restrictions.
SUCCESS DEPENDENT ON ABILITY TO ADJUST TO RAPID TECHNOLOGICAL CHANGE AND
INTRODUCTION OF NEW PRODUCTS AND SERVICES
The information technology industry is characterized by rapid
technological advances, numerous changes in customer requirements and
frequent new product introductions and enhancements, which could disrupt our
services business and render our products obsolete. Our future success will
depend in large part on our ability to anticipate and respond to such
advances, changes and new product introductions. Our failure to respond could
have a material adverse effect on our competitive position and results of
operations. In addition, we are subject to the risks generally associated
with new product introductions and applications, including lack of market
acceptance, delays in development or failure of products to perform as
expected. Many of our software products, including certain
transaction-processing products and UNIBOL400, have yet to achieve a
substantial installed user base. We cannot be certain that these products
will ever achieve a substantial market acceptance or user base. Our growth
strategy includes using our current business relationships and our current
knowledge of our year 2000 customers' computer systems to generate additional
revenue by providing other products and services to these clients. There can
be no assurance, however, that we will be successful in generating additional
business from our year 2000 customers. In addition, by using significant
resources during the remainder of this year to solve our customers' year 2000
problems, our ability to continue to deliver other products and services
could be adversely affected.
POTENTIAL FOR DELAYS IN PRODUCT INTRODUCTION
Our delay in any potential product development and introduction may
have an adverse effect on the product's success and on our reputation and
results of operations. Additionally, competitors may introduce products and
gain market share during any such delays. Our failure to introduce new
products and product enhancements that are responsive to market conditions
and customer requirements may have an adverse effect on our business, results
of operations and financial condition. Furthermore, our complex software
products may contain undetected errors when first introduced or when new
versions are released. We cannot be certain that current or future releases
of our products will not contain errors or that any such errors will not
result in loss or delay of market acceptance of such products. We have
previously experienced delays in developing and introducing new products, and
there can be no assurance that we will not experience delays in the future.
DISTRIBUTION OF MANAGEMENT OF OVERSEAS OPERATIONS
Any significant disruption in the management of our international
operations could have a material adverse effect on our business, results of
operations and financial condition. Our headquarters and administrative
offices are located in Atlanta, Georgia; however, as of June 9, 1999,
approximately 250 of our 350 employees work in our United Kingdom facilities.
This geographical distance, as well as the time-zone difference, can isolate
management from operational issues, delay communications and require devotion
of a significant amount of time, effort and expense to international travel.
In the future, we may face significant management demands associated with our
international operations.
25
<PAGE>
CHANGES IN OPERATIONS IN NORTHERN IRELAND
A substantial majority of our personnel and operations are located
in Northern Ireland. Northern Ireland has historically experienced periods of
religious, civil and political unrest. Northern Ireland may experience
further unrest which could disrupt our ability to provide information
technology services and product development programs and have a material
adverse effect on our results of operations and financial condition. For each
of the past three fiscal years, the Northern Ireland government has granted
to us approximately $0.4 million to fund our research and development
programs. Our use of these funds is subject to various rules and regulations,
including the requirement that we repay such funds in the event we remove
certain operations from Northern Ireland. We cannot be sure that we will
continue to be eligible for or will receive similar grants in the future or,
if such grants are received, whether additional restrictions will apply to
our use of such funds.
RISK OF ACQUISITION PROGRAM
To date, our acquisition program has substantially contributed to
our growth. We have no assurance that we will complete any future
acquisitions or that we will benefit from any completed acquisition in the
future. We obtain most of our acquisitions by taking advantage of
opportunities that are presented to us. We require significant
administrative, operational and financial resources to successfully integrate
and manage our diverse businesses. There are numerous operational and
financial risks involved in managing acquired businesses, including (1)
difficulties in assimilating acquired operations, (2) diversion of
management's attention, (3) amortization of acquired intangible assets, (4)
increases in administrative costs, (5) additional costs associated with debt
or equity financing, and (6) potential loss of key employees or customers of
acquired operations. We may not be successful in integrating our current
acquisitions or retaining and motivating key personnel of our acquired
companies. Our failure to integrate businesses, to expand our acquired
customer and technology base and to retain key employees of our acquired
companies could have an adverse effect on our business, results of operations
and financial condition. Although we currently do not have any
understandings, commitments or agreements with respect to any acquisition, we
anticipate future potential acquisition opportunities.
SUCCESS DEPENDENT ON ABILITY TO HIRE AND RETAIN TECHNICAL PERSONNEL AND KEY
EMPLOYEES
Our success depends in part on our ability to attract, hire, train
and retain qualified managerial, technical and sales and marketing personnel.
Competition for such personnel is intense. We cannot be certain that we will
be successful in attracting and retaining the technical personnel we require
to conduct and expand our operations successfully. Our results of operations
could be materially adversely affected if we are unable to attract, hire,
train and retain qualified personnel. Our success also depends to a
significant extent on the continued service of our management team. The loss
of any member of the management team could have a material adverse effect on
our business, results of operations and financial condition. We do not have
any employment or noncompete agreements with any of our executive officers.
26
<PAGE>
UNCERTAINTY OF FUTURE RESULTS
We are unable to accurately forecast revenues from our software
products and services because of (1) the evolving product lifecycle of the
UNIBOL36 product, (2) the recent introductions of the UNIBOL400 product and
(3) the recent acquisitions of our transaction-processing businesses. In
addition, although our service revenues are more predictable than our product
revenues, unexpected variations in job pricing and complexity could have an
adverse effect on the profitability of customer service projects. We base our
expense levels, which are relatively fixed in the short term, in significant
part on our expectations of future product revenues and service demands. If
demand for our products and services is below expectations, our results of
operations could be adversely affected.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Much of our future success depends on our ability to protect our
proprietary technology. We rely principally on trade secret and copyright
law, as well as nondisclosure agreements and other contractual arrangements,
to protect such proprietary technology. We are not certain that such measures
will be adequate to protect our technologies from infringement by others or
that we will be effective in preventing misappropriation of our proprietary
rights. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States.
CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Our executive officers and directors and their affiliates
beneficially hold an aggregate of approximately 22% of our outstanding shares
of common stock. As a result, these shareholders, acting together, may be
able to exert significant influence on many matters requiring shareholder
approval, including the election of directors.
UNICOMP'S OPERATIONS WILL BE SIGNIFICANTLY IMPAIRED IF IT FAILS TO BE YEAR
2000 COMPLIANT
We have no assurance that all of our internal systems, products and
services, and suppliers will be Year 2000 compliant and that the lack of
compliance will not significantly impact our operations and financial results
including our ability to continue as a going concern. The Year 2000 issue is
the result of potential problems with computer systems or any equipment with
computer chips that store the year portion of the date as just two digits
(e.g. 98 for 1998). Systems using this two-digit approach will not be able to
determine whether "00" represents the year 2000 or 1900. The problem, if not
corrected, will make those systems fail altogether or, even worse, allow them
to generate incorrect calculations causing a disruption of normal operations.
Although we have created a company-wide Year 2000 team to identify
and resolve Year 2000 issues associated with our information and
non-information technology systems and our products and services, we have no
assurance that we will address all potential problems. There can be no
assurance that there will not be a delay in, or increased costs associated
with, the implementation of Year 2000 modifications, or that our suppliers
will adequately prepare for the Year 2000 issue. It is possible that any such
delays, increased costs, or supplier failures could have a material adverse
impact on our operations and financial results, by, for example, impacting
our ability to deliver products or services to our customers. In mid-1999 we
expect to finalize our contingency plan to cope with potential Year 2000
problems.
27
<PAGE>
For third-party products that we distribute with our products, we
have sought information from the product manufacturers regarding the
products' Year 2000 readiness status. We direct customers who use the
third-party products to the product manufacturer for detailed Year 2000
status information. We have no assurance that the third-party products will
be Year 2000 ready or that a lack of readiness by such third parties will not
materially adversely impact our operations and financial results.
INABILITY TO COLLECT ACCOUNTS RECEIVABLE
We have no assurance that we will be able to collect all of our
accounts receivable. Our worldwide customer base of trade accounts receivable
is generally diversified with respect to credit risks due to the large number
of such accounts. We perform ongoing credit evaluations on certain of our
customers' financial conditions, but we generally do not require collateral
to support customer receivables. We establish an allowance for uncollectible
accounts based on factors surrounding the credit risk of specific customers,
historical trends and other information. We cannot be sure that our
procedures will identify all potential uncollectible accounts in a timely
manner, therefore, we may have to make additional significant adjustments to
our allowance for uncollectible accounts from time to time.
OPERATING RESULTS DEPENDENT ON PRODUCT DEVELOPMENT
Our continued success depends on our ability to develop, produce and
transition technologically complex and innovative products that meet customer
needs. Inherent in this process are various risks that we must manage to
achieve favorable operating results. The process of developing new high
technology products is complex and uncertain, requiring innovative designs
and features that anticipate customer needs and technological trends. The
products, once developed, must be manufactured and distributed in sufficient
volumes at acceptable costs to meet demand. The development of such products
involves risks and uncertainties, including but not limited to risk of
product demand, market acceptance, economic conditions, competitive products
and pricing, commercialization, technology, and other risks. Our business is
also subject to national and worldwide economic and political influences such
as recession, political instability, economic strength of governments, and
rapid change in technology. Additionally, we are experiencing increasing
competition in our products and services businesses, and there can be no
assurance that our current products or services will remain competitive or
that our development efforts will produce products with the cost and
performance characteristics necessary to remain competitive.
ESTIMATES CONTAINED IN FINANCIAL STATEMENTS
Our preparation of financial statements in conformity with generally
accepted accounting principles requires us 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.
Our estimates and assumptions affect the reported amounts of revenues and
expenses during the reporting period as well. For example, our estimates
affect estimated useful lives, amortization expense, carrying values, accrued
reserves, 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.
VOLATILITY OF STOCK PRICE
Our stock price is subject to significant volatility and will likely
be adversely affected if revenues or earnings in any quarter fail to meet the
investment community's expectations. Additionally, the market price of our
common stock could be subject to significant fluctuations in response to (1)
announcements of new products or services offered by us or our competitors,
(2) loss of key customer, distributor or vendor
28
<PAGE>
relationships, (3) general conditions in the computer software industry, or
(4) other events or factors. Furthermore, in recent years, the stock market
in general, and the market for shares of stock in technology companies in
particular, has experienced extreme price fluctuations. Such fluctuations
could materially and adversely affect the market price of our common stock in
the future.
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Our Board of Directors has the authority to issue up to five million
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by our shareholders. Currently the Company has
designated 3,600 of such preferred stock as Series A Convertible Preferred
Stock. The rights of the holders of common stock will be subject to, and may
be adversely affected by, the rights of the holders of any preferred stock.
The issuance of preferred stock may have the effect of delaying, deterring or
preventing a change in control of UniComp without further action by the
shareholders and may adversely affect the voting and other rights of the
holders of common stock. Furthermore, certain provisions of our charter
documents may have the effect of delaying or preventing changes in control or
management of UniComp, which could have an adverse effect on the market price
of the common stock.
NO DIVIDENDS ON COMMON STOCK
We have not paid any cash dividends on the common stock since our
inception and we do not anticipate paying cash dividends for the foreseeable
future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risks to which the Company is exposed are
changes in foreign currency exchange rates and changes in interest rates. The
Company's international sales, which accounted for 55% of the Company's total
sales in the quarter and six months ending August 31, 1999, are concentrated
in the United Kingdom. The Company manages its exposure to changes in foreign
currency exchange rates by entering into revenue and expense transactions in
corresponding currencies. As a result, today the Company has not hedged
against foreign currency exchange risk.
The Company reduces its exposure to changes in interest rates by
maintaining a proportion of its debt in fixed-rate instruments. As of August
31, 1999, 15.0% of the Company's total debt was in fixed-rate instruments.
The Company has a revolving line of credit that provides for borrowings by
the Company of up to $4.7 million. The borrowings bear interest at a variable
rate of the UK bank's base lending rate plus 1.75% or the U.S.30 day
commercial paper rate plus 3.0%. If the Company were to borrow all of the $3
million of the revolving line of credit and the $1.7 million of foreign lines
of credit, 14.6% of the Company's total debt would be in fixed-rate
instruments. In addition, the Company maintains an average maturity of its
short-term investment portfolio under twelve months to avoid large changes in
its market value. As of August 31, 1999, the average maturity of the
Company's short-term investments was less than one month.
29
<PAGE>
PART II. OTHER INFORMATION
ITEMS 3 AND 5 ARE NOT APPLICABLE.
ITEM 1. LEGAL PROCEEDINGS
The Company does not believe that there are any pending or
threatened legal proceedings other than non-material legal proceedings
incidental to the Company's business, that if adversely determined, could
have a material adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On October 6, 1998, the Company filed Articles of Amendment to
the Articles of Incorporation ("Articles of Amendment") of the Company
designating 3,600 shares of Preferred Stock as Series A Convertible Preferred
Stock, $1.00 par value, of which 600 shares may be issued only as dividends
on the outstanding shares of Series A Convertible Preferred Stock issued on
October 7, 1998. The Series A Convertible Preferred Stock ranks (i) senior to
the Common Stock, now or hereafter issued, as to payment of dividends and
distribution of assets upon liquidation, dissolution, or winding upon the
Company; (ii) senior to any additional series of the class of Preferred Stock
which series the Company's Board of Directors may from time to time
authorize, both as to payment of dividends and as to distributions of assets
upon liquidation, dissolution, or winding up the Company; and (iii) senior to
any additional class of preferred stock (or series of preferred stock of such
class) which the Board of Directors or the stockholders may from time to time
authorize in accordance with the Articles of Amendment.
Holders of the Series A Convertible Preferred Stock are entitled to
receive, when, as, and if declared by the Board of Directors out of funds
legally available for such purpose, dividends at the rate of $50.00 per annum
per share, which are fully cumulative, shall accrue without interest (except
for dividends in arrears) from the date of original issuance of each share
and are payable quarterly on March 15, June 15, September 15, and December 15
of each year commencing December 15, 1998. Dividends on the Series A
Convertible Preferred Stock may be paid in cash, or subject to certain
limitations, dividends of additional shares of Series A Convertible Preferred
Stock.
In connection with the issuance of the Series A Convertible
Preferred Stock, the Company has certain mandatory redemption obligations if
certain events occur, such as upon conversion of the Series A Convertible
Preferred Stock if the shares of Common Stock of the Company to be issue
would exceed 1,576,000 shares of Common Stock. The Company also has certain
optional redemption rights.
Holders of the Series A Convertible Preferred Stock may at any time
on or after January 5, 1999 convert all or from time to time any part of such
holder's shares of Series A Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock of the Company and such other securities
and property pursuant to the conversion formula set forth in the Articles of
Amendment. However, absent shareholder approval, the maximum number of shares
of Common Stock that may be issued upon conversion of the Series A
Convertible Preferred Stock is 1,576,000.
Holders of the Series A Convertible Preferred Stock are not entitled to vote
on any matter.
(b) None.
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<PAGE>
(c) On September 30, 1998, the Company issued warrants for 25,000 shares of
the Company's Common Stock to an "accredited investor" as defined by Rule 501
of Regulation D promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Act"). The warrants entitled the
holders thereof to, upon exercise, purchase an aggregate of 25,000 shares of
the Company's Common Stock at an exercise price of $3.00 per share. This
transaction was exempt from the registration provisions of the Act, pursuant
to section 4(2) of the Act for transactions not involving a public offering,
based on the fact that the securities were offered and sold to one investor
who had access to financial and other relevant data concerning the Company,
its financial condition, business, and assets.
On October 7, 1998, the Company issued 3,000 shares of Series A
Convertible Preferred Stock, par value $1.00 per share, and warrants for
102,127 shares of the Company's Common Stock to an "accredited investor" as
defined by Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission under the Act for an aggregate consideration of $3
million. This transaction was exempt from the registration provision of the
Act pursuant to Rule 506 of Regulation D as promulgated by the Securities and
Exchange Commission under the Act. Each share of Series A Convertible
Preferred Stock may be converted into a number of shares of the Company's
Common Stock pursuant to the terms of the Series A Convertible Preferred
Stock Purchase Agreement; provided that, the maximum number of shares of
Common Stock that may be issued upon conversion of the Series A Convertible
Preferred Stock is 1,576,000. Absent the Company's certain redemption rights,
the holders of the Series A Convertible Preferred Stock may at any time on or
after January 5, 1999 convert all or from time to time any part of their
shares of Series A Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock and such other securities and property
as provided in the Articles of Amendment. Each Series A Convertible Preferred
Stock shall be converted pursuant to the conversion terms of the Articles of
Amendment; provided that absent shareholder approval, the maximum number of
shares of Common Stock that may be issued upon conversion of the Series A
Convertible Preferred Stock is 1,576,000. See "Liquidity and Capital
Resources" and "Subsequent Events." The holders of the Series A Convertible
Preferred Stock have certain registration rights.
In January 1999, the Company acquired a $.6 million note receivable
from Continuum Technology Corporation ("Continuum"). Consideration consisted
of $.2 million in cash and accounts receivable of $.4 million. The note
receivable is classified as other assets in the accompanying balance sheet at
February 28, 1999. In March 1999, the Company purchased 97.5% of Continuum's
outstanding common stock. Consideration consisted of $259,361 in cash, 8%
notes payable aggregating $572,128, and 200,000 restricted shares of the
Company's common stock.
(d) Not required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders, held on August 24,
1999, the Company's shareholders approved the election of four Directors. The
following is a summary of the voting for the Directors who were elected.
<TABLE>
<CAPTION>
VOTES CAST FOR ABSTENTIONS
-------------- -----------
<S> <C> <C>
Stephen A. Hafer 6,427,275 611,622
J. Patrick Henry 6,419,075 149,872
Thomas W. Zimmerer 6,429,825 609,072
Nelson Millar 6,428,975 609,922
</TABLE>
31
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K have been filed.
32
<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/ Hugh Moore August 8, 1999
- ---------------------------- --------------
Hugh Moore Date
Vice President of Finance
Principal Accounting Officer
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE UNAUDITED FINANCIAL STATEMENTS AS OF AUGUST 31, 1999 AND 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 612
<SECURITIES> 0
<RECEIVABLES> 7,904
<ALLOWANCES> 746
<INVENTORY> 3,452
<CURRENT-ASSETS> 13,720
<PP&E> 8,776
<DEPRECIATION> 3,116
<TOTAL-ASSETS> 33,037
<CURRENT-LIABILITIES> 12,908
<BONDS> 2,175
0
2,800
<COMMON> 81
<OTHER-SE> 13,633
<TOTAL-LIABILITY-AND-EQUITY> 33,037
<SALES> 12,920
<TOTAL-REVENUES> 18,653
<CGS> 6,097
<TOTAL-COSTS> 6,832
<OTHER-EXPENSES> 10,774
<LOSS-PROVISION> (31)
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> 784
<INCOME-TAX> 0
<INCOME-CONTINUING> 784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 784
<EPS-BASIC> .10
<EPS-DILUTED> .08
</TABLE>
