<PAGE>
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended May 31, 1999.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSACTION 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
----- -----
There were 7,503,443 Common Shares outstanding as of July 14, 1999.
- ------------------------------------------------------------------------------
<PAGE>
UNICOMP, INC.
Index
PART I. FINANACIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of February 28, 1999
and May 31, 1999 3
Consolidated Statements of Operations for the
three months ended May 31, 1998 and 1999 5
Consolidated Statements of Cash Flows for the
three months ended May 31, 1998 and 1999 7
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Results
of Operations, Financial Conditions, and
Liquidity and Capital Resources 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Exhibits 27
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------------------------------
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
FEBRUARY 28, MAY 31,
1999 1999
----------------- --------------
(In Thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 1,400 $ 286
Accounts and other receivables:
Trade, net of allowance of $824 and $818 at February 28, 1999 and May 31, 1999,
respectively................................................................... 7,192 7,592
Other receivables................................................................ 531 425
Inventory........................................................................... 3,444 3,702
Prepaid expenses and Other.......................................................... 1,255 1,501
----------------- -------------
Total current assets........................................................... 13,822 13,506
----------------- -------------
Property and equipment, net............................................................ 3,611 5,639
----------------- -------------
Other assets:
Acquired and developed software, net of accumulated amortization of $7,138 and $7,772
at February 28, 1999 and May 31, 1999, respectively.............................. 6,816 6,667
Goodwill, net of accumulated amortization of $489 and $542 at February 28, 1999 and
May 31, 1999, respectively....................................................... 2,454 4,344
Deferred income taxes............................................................... 626 626
Prepaid pension..................................................................... 1,202 1,202
Receivables from related parties................................................... 525 525
Other............................................................................... 1,159 665
----------------- -------------
Total other assets............................................................. 12,782 14,029
----------------- -------------
Total assets................................................................... $ 30,215 $ 33,174
----------------- -------------
----------------- -------------
</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,
1999 1999
----------------- --------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Current liabilities:
Bank Overdraft ..................................................................... $ 0 $ 591
Accounts payable.................................................................... 2,564 2,271
Accrued expenses.................................................................... 1,923 1,997
Deferred revenue.................................................................... 1,652 1,308
Taxes payable....................................................................... 801 801
Lines of credit..................................................................... 3,611 4,566
Current portion of notes payable.................................................... 1,069 1,686
----------------- -------------
Total current liabilities...................................................... 11,620 13,220
----------------- -------------
Long-term liabilities:
Notes payable....................................................................... 1,473 2,414
Deferred income taxes............................................................... 1,151 1,151
Other long-term liabilities......................................................... 163 316
----------------- -------------
Total long-term liabilities.................................................... 2,787 3,881
----------------- -------------
Total liabilities.............................................................. 14,407 17,101
----------------- -------------
Stockholders' equity:
Preferred stock: $1 par value, authorized 5,000, 3 issued and outstanding at February
28, 1999 and May 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 May 31, 1999, respectively.......................................... 80 81
Additional contributed capital...................................................... 15,810 16,387
Retained earnings (deficit)......................................................... (697) (469)
----------------- -------------
17,993 18,799
Less treasury stock................................................................. (2,052) (2,503)
Cumulative translation adjustment................................................... (133) (223)
----------------- -------------
Total stockholders' equity..................................................... 15,808 16,073
----------------- -------------
Total liabilities and stockholders' equity..................................... $ 30,215 $ 33,174
----------------- -------------
----------------- -------------
</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,
1998 1999
------------------ -----------------
(In Thousands, Except Per Share Data)
<S> <C> <C>
Revenue:
Equipment...................................................... $ 2,587 $ 3,338
Services....................................................... 2,322 3,357
Software....................................................... 1,850 2,602
------------------ -----------------
Total revenue............................................... 6,759 9,297
------------------ -----------------
Cost of sales:
Equipment...................................................... 1,888 2,118
Services....................................................... 301 442
Software....................................................... 901 994
------------------ -----------------
Total cost of sales......................................... 3,090 3,554
------------------ -----------------
Gross profit...................................................... 3,669 5,743
------------------ -----------------
Selling, general and administrative expenses...................... 4,121 5,389
------------------ -----------------
Operating income (loss)........................................... (452) 354
------------------ -----------------
Other income (expense):
Other, net..................................................... 10 1
Interest, net.................................................. (142) (127)
------------------ -----------------
Total other income (expense)................................ (132) (126)
------------------ -----------------
Income (loss) from continuing operations before provision for
Income taxes.................................................. (584) 228
------------------ -----------------
Provision for income taxes........................................ 42 -
------------------ -----------------
Net income (loss) from continuing operations...................... $ (626)$ 228
Loss from discontinued operations................................. (94) -
------------------ -----------------
Net income (loss) ................................................ $ (720)$ 228
------------------ -----------------
------------------ -----------------
</TABLE>
5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
<S> <C> <C>
Net income (loss) ................................................ $ (720) $ 228
------------------ -------------------
------------------ -------------------
Preferred stock dividends and accretion........................... $ - $ 31
------------------ -------------------
------------------ -------------------
Income(loss) available to common shareholders..................... $ (720) $ 197
------------------ -------------------
------------------ -------------------
Basic earnings per common share:
Income(loss) from continuing operations........................... $ (0.08) $ 0.03
Income(loss) from discontinued operations......................... (0.01) -
------------------ -------------------
Net income(loss) ................................................. $ (0.09) $ 0.03
------------------ -------------------
------------------ -------------------
Diluted earnings per common share:
Income(loss) from continuing operations........................... $ (0.08) $ 0.03
Income(loss) from discontinued operations......................... (0.01) -
------------------ -------------------
------------------ -------------------
Net income(loss) ................................................. $ (0.09) $ 0.03
------------------ -------------------
------------------ -------------------
Weighted average shares........................................... 7,929 7,511
------------------ -------------------
------------------ -------------------
Weighted average shares assuming dilution......................... 7,929 7,663
------------------ -------------------
------------------ -------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
----------------------------------------
MAY 31, MAY 31,
1998 1999
------------------ ------------------
(In Thousands)
<S> <C> <C>
Net cash provided (used) by operating activities:
Net income (loss)........................................... $ (626) $ 228
Adjustments to reconcile net income to net cash provided
(used) by operations:
Depreciation and amortization............................ 881 1,154
Allowance for doubtful accounts.......................... 4 (47)
Deferred income taxes.................................... 38 0
Gain on disposition of joint venture..................... 0 (9)
Changes in assets and liabilities:
Accounts and other receivables......................... 44 211
Inventory.............................................. (20) 478
Prepaid expenses....................................... (24) (201)
Accounts payable....................................... (436) (1,378)
Accrued expenses....................................... (378) 74
Deferred revenue....................................... (19) (344)
Income taxes payable................................... (34) 0
Other.................................................. 38 (163)
------------------ ------------------
Net cash provided (used) by operating activities.... (532) 3
------------------ ------------------
Cash flow from investing activities:
Capital expenditures........................................ (363) (237)
Purchase of acquired company................................ 0 (259)
Payment received on note for sale of joint venture.......... 0 25
Proceeds from disposition of joint venture.................. 0 10
Acquired and developed software............................. (605) (545)
------------------ ------------------
Net cash used by investing activities............... (968) (1,006)
------------------ ------------------
Cash flow from financing activities:
Bank Overdraft 0 591
Payments on borrowings...................................... (1,851) (509)
Proceeds from borrowing..................................... 2,269 348
Issuance of common stock, net............................... 41 0
Receivables from related parties............................ (7) 0
(451)
Purchase of Treasury Stock.................................. 0
------------------ ------------------
Net cash provided (used) by financing activities.... 452 (21)
------------------ ------------------
Net increase (decrease) in cash................................ (1,048) (1,024)
Effect of exchange rate changes on cash........................ 20 (90)
Cash from discontinued activities............................... 456 0
------------------ ------------------
Cash and cash equivalents at beginning of period............... 3,904 1,400
------------------ ------------------
Cash and cash equivalents at end of period..................... $ 3,332 $ 286
------------------ ------------------
------------------ ------------------
Cash paid for interest......................................... $ 127 137
------------------ ------------------
------------------ ------------------
Cash paid for taxes............................................ $ 0 0
------------------ ------------------
------------------ ------------------
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.
7
<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 MAY 31
1999 1998
---- ----
<S> <C> <C>
Weighted average shares 7,511 7,929
Dilutive effect of common stock options and
warrants 152 0
------ ------
Weighted average shares assuming dilution 7,663 7,929
------ ------
------ ------
</TABLE>
Options and warrants to purchase 390,000 shares of common stock at a weighted
average price of $7.17 per share for the three months ended May 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 months ended May 31, 1998 were excluded from the
calculation of diluted earnings per share due to the net loss for that
period. The conversion of preferred stock for the three months ended May 31,
1999 is anti-dilutive and therefore excluded from the calculation of weighted
average shares assuming dilution.
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
8
<PAGE>
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 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 or 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 May 31, 1999 and 1998.
<TABLE>
<CAPTION>
(THREE MONTHS ENDED)
--------------------
5/31/99 5/31/98
------- -------
<S> <C> <C>
Net Income (loss) 228 (720)
Change in Cumulative Translation Adjustment (90) 20
-------- --------
Comprehensive Income (loss) 138 (700)
-------- --------
-------- --------
</TABLE>
5. 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
9
<PAGE>
technology products and solutions, including Year 2000 conversion tools and
services and payroll processing software.
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>
PLATFORM TRANSACTION
SEGMENT REPORTING MIGRATION PROCESSING OTHER TOTAL
--------------------------------- --------- ----------- ------- -------
<S> <C> <C> <C> <C>
Three Months Ended May 31, 1999:
Revenues $2,583 $ 2,183 $ 4,531 $ 9,297
Cost of sales 469 1,255 1,830 3,554
Gross profit 2,114 928 2,701 5,743
Operating expenses 1,756 812 2,821 5,389
Operating income (loss) 358 116 (120) 354
Three Months Ended May 31, 1998:
Revenues 1,583 2,287 2,889 6,759
Cost of sales 438 1,760 892 3,090
Gross profit 1,145 527 1,997 3,669
Operating expenses 1,485 747 1,889 4,121
Operating income (loss) (340) (220) 108 (452)
</TABLE>
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 May 31, 1999
Revenues $ 3,600 $ 5,697 $ 9,297
Cost of sales 2,105 1,449 3,554
Gross profit 1,495 4,248 5,743
Operating expenses 1,467 3,922 5,389
Operating income (loss) 28 326 354
Three Months Ended May 31, 1998
Revenues $ 2,608 $ 4,151 $ 6,759
Cost of sales 1,882 1,208 3,090
Gross profit 726 2,943 3,669
Operating expenses 1,501 2,620 4,121
Operating income (loss) (775) 323 (452)
</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 months periods ended May 31, 1999 and 1998.
10
<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.
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. In the first quarter of
fiscal year ending February 28, 2000, the Company generated $9.3 million in
total revenue, of which $3.3 million was derived from sales of computer
equipment and $3.4 million was derived from information technology services.
The remaining $2.6 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.
11
<PAGE>
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 shares of the Company's common stock.
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.
RECENT DEVELOPMENTS
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
12
<PAGE>
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."
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, 1998 and 1999.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
5/31/98 5/31/99
------- -------
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Total Revenue...................... $6,759 100.0% $ 9,297 100.0%
Cost of sales...................... 3,090 45.7 3,554 38.2
------ ---- ----- ----
Gross profit....................... 3,669 54.3 5,743 61.8
Selling, general, & administrative
expenses......................... 4,121 61.0 5,389 58.0
------ ---- ----- ----
Operating income................... (452) (6.7) 354 3.8
Other expense...................... 132 2.0 126 1.4
------ ---- ----- ----
Income before taxes................ (584) (8.6) 228 2.5
Provision for taxes................ 42 0.6 - 0.0
------ ---- ----- ----
Net income......................... $ (626) (9.3)% $ 228 2.5%
------ -----
------ -----
</TABLE>
THREE MONTHS ENDED MAY 31, 1998 COMPARED TO THREE MONTHS ENDED MAY 31, 1999
REVENUE
Revenue for the three months ended May 31, 1999 increased to $9.3
compared to $6.8 million for the three months ended May 31, 1998, an increase
of $2.5 million, or 36.8%.
EQUIPMENT REVENUE
The following table summarizes the revenue generated from sales of
computer equipment for the three months ended May 31, 1999 and the comparable
period from the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
(in thousands, except percentage data)
5/31/98 5/31/99 $ %
------- ------- - -
<S> <C> <C> <C> <C>
Transaction-processing Equipment... $ 2,096 $ 1,847 (249) (11.9)
Other Equipment.................... 491 1,491 1,000 203.7
------- ------- -----
Total Equipment Revenue............ $ 2,587 $ 3,338 751 29.0
------- ------- -----
------- ------- -----
</TABLE>
The increase in other equipment sales was primarily attributable to
revenues from Continuum, which provided $1.0 million of revenue during the
three months ended May 31, 1999. Sales of computer equipment can vary from
quarter to quarter based on customer needs.
SERVICES REVENUE
Revenue from information technology services increased to $3.4
million for the three months ended May 31, 1999 from $2.3 million for the
comparable period in the prior fiscal year, an increase of $1.1 million or
47.8%. Revenues increased in all significant business units providing
information technology services.
13
<PAGE>
SOFTWARE REVENUE
The following table summarizes the revenue from software licensing and
support.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
(in thousands, except percentage data)
5/31/98 5/31/99 $ %
------- ------- - -
<S> <C> <C> <C> <C>
Initial License Fees:
Platform Migration........... $ 368 $ 1,291 923 250.8
Transaction-processing....... 43 44 1 2.3
Other........................ 144 368 224 155.6
----- ------- -----
Total Initial License Fees......... 555 1,703 1,148 206.8
----- ------- -----
Software Support Fees:
Platform Migration........... 252 224 (28) (11.1)
Transaction-processing....... 15 36 21 140.0
Other........................ 1,028 639 (389) (37.8)
----- ------- -----
Total Software Support Fees........ 1,295 899 (396) (30.6)
----- ------- -----
Total Software Revenue............. $ 1,850 $ 2,602 752 40.6
----- ------- -----
----- ------- -----
</TABLE>
Platform migration software revenue by major product class is as follows.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
5/31/98 5/31/99 $ %
------- ------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36........................... 517 543 26 5.0
UNIBOL400.......................... 103 972 869 843.7
----- ------- -----
Total Platform Migration Revenue... $ 620 $ 1,515 895 144.4
----- ------- -----
----- ------- -----
</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 increased to $0.9 million
for the three months ended May 31, 1999 from $0.1 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 1999 as end-users were waiting for
additional functionality and enhancements to the product. These enhancements
have been released 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 begin to gain market acceptance.
Revenue generated from initial license fees of
transaction-processing systems increased to $44,000 for the three months
ended May 31, 1999 compared to $43,000 for the comparable period in the prior
fiscal year. Transaction-processing support fees increased to $36,000 for the
three months ended May 31, 1999 as compared to $15,000 for the three months
ended May 31, 1998.
14
<PAGE>
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 increased to $ 0.4 million from $0.1 million for the
same period in the prior fiscal year, while revenue generated from software
support fees for other software products decreased to $0.6 million from $1.0
million for the same periods.
INTERNATIONAL REVENUE.
Revenue from international operations, principally in Northern
Ireland, increased to $5.7 million for the three months ended May 31, 1999
from $4.1 million for the comparable period in the prior fiscal year, an
increase of $1.6 million or 39.0%. This revenue increase is due primarily to
internal growth related to information technology services and to the
increase in platform migration revenue mentioned above. Revenue from domestic
operations increased to $3.6 million for the three months ended May 31, 1999
from $2.6 million for the comparable period in the prior fiscal year, an
increase of $1.0 million, or 38.5%. This increase is due to the $1.0 million
in revenues added by Continuum and revenues related to information technology
services.
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, 1999 and the comparable period for the
prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
(in thousands, except percentage data)
5/31/98 5/31/99
GROSS PROFIT GROSS PROFIT
------------ ------------
$ % $ %
--- --- --- ---
<S> <C> <C> <C> <C>
Information Technology Services........ 2,022 87.0% 2,915 86.8
----- -----
Equipment:
Transaction-processing Equipment.. 470 22.5 693 37.5
Other Equipment................... 228 46.2 527 35.3
----- -----
Total Equipment........................ 698 27.0 1,220 36.5
----- -----
Software:
Platform Migration................ 195 31.4 979 64.6
Transaction-processing............ (80) (10.0) (53) (66.3)
Other............................. 834 71.2 682 67.7
----- -----
Total Software......................... 949 51.3 1,608 61.8
----- -----
Total Gross Profit..................... 3,669 54.3% 5,743 61.8
----- -----
----- -----
</TABLE>
Gross profit margins for equipment and services vary from quarter to
quarter depending on customer demands and product mix. Information technology
services gross profit margin, which does not include salary costs, increased
to 86.8% of services revenue for the three months ended May 31, 1999 from
87.0% for the comparable period in the prior fiscal year. Equipment margins
rose due to healthy margins on sales from the Continuum acquisition as well
as increasing margins realized at existing business units due to increased
sales and fixed overhead.
Platform migration software profit margins increased to 64.6% for
the three months ended May 31, 1999 from 31.4% for the comparable period in
the prior fiscal year. This increase is directly related to the increase in
platform migration revenue.
15
<PAGE>
Gross profit margins for other software products held relatively
steady at 67.7% for the three months ended May 31, 1999 compared with 71.2%
for the comparable prior fiscal period. 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 for the three months ended
May 31, 1999 compared to $4.1 million for the comparable period in the prior
fiscal year, an increase of $1.3 million or 31.7%. $0.2 million of this
increase is attributable to the acquisition of Continuum in March 1999.
Selling, general, and administrative expenses as a percentage of total
revenue decreased to 58.0% for the three months ended May 31, 1999 as
compared to 61.0% for the comparable period in the prior fiscal year.
OTHER EXPENSES. Interest, the primary component of other expenses,
decreased to $176,000 for the three months ended May 31, 1999 from $213,000
for the comparable period in the prior fiscal year, a decrease of $37,000 or
17.4%. The decrease in interest expense is related to reduced borrowings on
the Company's lines of credit and other short-term borrowings to fund
operations.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1999, the Company had approximately $0.3 million in
cash and equivalents as compared to $1.4 million at February 28, 1999.
The Company had break even operating cash flows for the three months
ended May 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 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 three months ended May 31, 1999, the Company expended
$0.5 million to buy shares of its own common stock on the open market. The
Company does not anticipate spending comparable amounts in the future given
current market prices.
The Company received grants to fund research and development from
the government of Northern Ireland of approximately $57,000 for the three
months ended May 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
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
16
<PAGE>
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 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.
17
<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 is scheduled to be
completed by October 1, 1999. The following table identifies each of the
seven phases and completion date. At the moment, UniComp is over 90 percent
complete.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PROJECT PHASE PROJECT % COMPLETED COMPLETION COMMENTS
------------- ------------------- ---------- --------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Awareness 100% Completed
- -------------------------------------------------------------------------------------------------------------------------
Identification 100% Completed
- -------------------------------------------------------------------------------------------------------------------------
Impact Analysis 100% Completed
- -------------------------------------------------------------------------------------------------------------------------
Risk Evaluation 95% September All significant suppliers have
30, 1999 been evaluated. Other suppliers
will be completed by scheduled
date.
- -------------------------------------------------------------------------------------------------------------------------
Remediation 95% September All critical systems are
30, 1999 completed.
- -------------------------------------------------------------------------------------------------------------------------
Testing 90% September Secondary test for critical
30, 1999 systems completed
- -------------------------------------------------------------------------------------------------------------------------
Contingency Plan 95% September Implemented
30, 1999
- -------------------------------------------------------------------------------------------------------------------------
Overall Completion 96% October 1, On schedule for completion date
Estimate 1999
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The remaining unfinished phases will be completed by the scheduled date. We
anticipate to successfully finish this project agenda before October 1, 1999.
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
18
<PAGE>
was not included, but is considered to be a part of normal business
operations and not directly related to the Year 2000 issue.
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. See
"Forward-Looking Statements and Associated Risks" in Part I of this annual
report.
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
19
<PAGE>
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 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
20
<PAGE>
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.
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.
21
<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.
22
<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
23
<PAGE>
new products or services offered by us or our competitors, (2) loss of key
customer, distributor or vendor 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. 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.
24
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K have been filed.
25
<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 JULY 14, 1999
- ----------------------------- -----------------------------
Hugh Moore Date
Vice President of Finance
Principal Accounting Officer
26
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT JURISDICTION OF INCORPORATION
UniComp U.K. Holdings, Limited United Kingdom
ICS Computing Group Limited United Kingdom
CI Computing Group Limited United Kingdom
Unibol Limited United Kingdom
Computer Maintenance Ireland Limited United Kingdom
CEM Computers Limited United Kingdom
Aurora UniComp Limited United Kingdom
ICS Computing Limited United Kingdom
UniComp IOM Limited Isle of Man
Industrial Computing Machines Limited Ireland
UniPay, Inc. North Carolina
Arccom Management Systems, Inc.
(d/b/a Unibol, Inc.) Georgia
UniComp Systems, Inc. Texas
Carlton Software Productions Limited United Kingdom
Continuum Technology Corporation North Carolina
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS AS OF MAY 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 286
<SECURITIES> 0
<RECEIVABLES> 8,410
<ALLOWANCES> 818
<INVENTORY> 3,702
<CURRENT-ASSETS> 13,506
<PP&E> 8,605
<DEPRECIATION> 2,966
<TOTAL-ASSETS> 33,174
<CURRENT-LIABILITIES> 13,220
<BONDS> 2,414
0
2,800
<COMMON> 81
<OTHER-SE> 13,192
<TOTAL-LIABILITY-AND-EQUITY> 33,174
<SALES> 5,940
<TOTAL-REVENUES> 9,297
<CGS> 3,112
<TOTAL-COSTS> 3,554
<OTHER-EXPENSES> 5,388
<LOSS-PROVISION> (47)
<INTEREST-EXPENSE> 127
<INCOME-PRETAX> 228
<INCOME-TAX> 0
<INCOME-CONTINUING> 228
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 228
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
