<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 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
Securities registered pursuant to Section 12(b) of the Act: "None"
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
---------------------------------------
(title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $33,000,000 on June 9, 1999.
The number of shares outstanding of the Registrant's Common Stock as of June 9,
1999 was 7,564,553.
DOCUMENTS INCORPORATED BY REFERENCE:
Specified sections of the registrant's 1999 Proxy Statement in
connection with its 1999 Annual Meeting of Stockholders are incorporated by
reference in Part III herein.
1
<PAGE>
PART I
ITEM 1. BUSINESS
OVERVIEW
UniComp, Inc. (the Company), founded in 1985, develops, markets and
supports platform-migration, vertical market applications and e-commerce payment
processing systems for Windows NT and UNIX-based computer systems and point of
transaction processors worldwide. The Company licenses its technology to a cross
section of industries including manufacturing, distribution, transportation,
public-sector, point of sale and transaction processors. Additionally, the
Company provides installation, training, and systems integration, serving a
worldwide network of end user customers, dealers and distributors. The Company's
strategy is to emphasize its software products, acquire synergistic technologies
and businesses, and to expand its services business within its existing
geographic markets.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This annual report, including all documents incorporated herein by
reference, includes certain "forward-looking statements" within the meaning of
that term in Section 27A of the Securities Act of 1993, and Section 21E of the
Exchange Act, including, among others, those statements preceded by, followed by
or including the words "believes," "expects," "anticipates" or similar
expressions.
These forward-looking statements are based largely on our current
expectations and are subject to a number of risks and uncertainties. Our actual
results could differ materially from these forward-looking statements. In
addition to the other risks described in the "Factors That May Affect Results"
discussion under Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations in Part II of this annual report, important
factors to consider in evaluating such forward-looking statements include risk
of product demand, market acceptance, economic conditions, competitive products
and pricing, difficulties in product development, commercialization and
technology. In light of these risks and uncertainties, there can be no assurance
that the events contemplated by the forward-looking statements contained in this
annual report will, in fact, occur.
REPORTABLE SEGMENTS
The Company's business units have been aggregated into three reportable
segments: (1) Platform-Migration Software; (2) Transaction-Processing; and (3)
Other Professional Services, Vertical market applications, and Equipment Sales.
Financial information by reportable segment for each of the three years ended
February 28 is included in Note 11 of the Notes to Consolidated Financial
Statements included in Part II of this annual report.
PLATFORM-MIGRATION SOFTWARE
During the past several years, the computer industry has been moving
from proprietary systems toward open and portable systems. The Company believes
that decreasing prices, increasing functionality of hardware and software
systems and the inherent constraints of proprietary platforms have contributed
to increased market acceptance of open systems and customer demand for products
based on such systems. Changing computing platforms from proprietary to open or
portable systems, however, often results in
2
<PAGE>
significant disruption of business operations as users are retrained and
software errors are discovered and corrected. Also critical is the potential
loss of data contained in existing databases that may result from a change to
new software applications.
In response to the demand for software applications capable of running
on multiple computing platforms, the Company has developed platform-migration
software that rehosts code written for certain proprietary platforms to open
computing platforms. The Company believes that its rehosting solution allows
businesses and independent software vendors (ISV's) to migrate their software
applications to open systems in a more cost-effective manner than competing
methodologies. Rehosting enables businesses to retain their investment in
existing software and databases. Rehosting also allows ISV's to expand their
market opportunities without replacing or rewriting applications, retraining or
replacing software developers or incurring the cost and disruption of
re-engineering their products.
TRANSACTION-PROCESSING SYSTEMS
Electronic transaction-processing refers to the sequence of activities
that occur among a customer, a merchant and a transaction processor when goods
or services are sold via debit or credit cards, checks, or other transactions
which are not settled in cash. Electronic transaction-processing for commercial
businesses has grown rapidly in recent years as a result of an increased usage
of credit and debit cards and wider acceptance of such cards among merchants.
Advances in transaction-processing and telecommunication technologies have also
been key factors contributing to such growth. The Company believes that the
transition from paper-based to electronic-based transaction-processing provides
greater convenience to merchants and consumers, reduces fees charged to
merchants and facilitates faster, more accurate settlement of payments.
OTHER PROFESSIONAL SERVICES, VERTICAL MARKET APPLICATIONS AND EQUIPMENT
SALES
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs required to maintain
internal information technology resources capable of responding to such change.
The Company believes that, as businesses strive to compete and utilize complex
new technologies, more businesses will move toward outsourcing their information
technology requirements. The Company believes that this movement will enhance
its information technology services business.
The Company provides a wide variety of vertical market applications and
professional services, including proprietary and third party software products,
support services, installation and integration of software and hardware systems
and outsourcing of information technology services. The Company's vertical
application software products consist of accounting software, process management
products for the manufacturing industry, a human resource time and attendance
product, as well as other third party software products. Support services
consist of system upkeep including hardware and software support and
maintenance, technical support and training. Installation and integration
services include system consulting and design, custom software development,
system installation and testing, as well as a broad range of systems
configuration and integration services for computer networks. The Company also
provides information technology services to businesses on an outsourced basis,
thereby offering its customers an opportunity to reduce information technology
overhead while continuing to respond to technological change. Outsourcing
services include disaster recovery, facilities management and related
information technology support services.
3
<PAGE>
The Company provides computer equipment to the transaction-processing
market in North America and to the corporate market worldwide. The Company began
providing computer equipment for the transaction-processing industry with the
acquisition of Novatek Corporation (Novatek) in fiscal year 1998. The Company
also provides computer equipment to the corporate market worldwide, which is
generally supplied as an adjunct to its software and services.
Transaction-processing systems include the software and hardware
combinations that allow electronic settlement of payment transactions. The
Company designs, develops and markets transaction-processing systems, which may
include both software and hardware, that provide merchants a high degree of
hardware independence by supporting a variety of hardware platforms, including
personal computers, point-of-sale terminals and other peripheral devices. The
Company's transaction-processing systems also provide merchants a high degree of
independence by supporting most major payment processors.
ACQUISITION HISTORY
Through 1992, the Company's primary business was as a reseller of third
party software products. The Company has grown since 1992, primarily through
acquisition. Following is a brief overview of the Company's acquisition history.
In May 1993, the Company acquired ICS Computing Group Limited (ICGL),
for $4.1 million, a United Kingdom holding company consisting of three
subsidiary companies, one of which, Unibol, Ltd., is the developer of the
UNIBOL36 and UNIBOL400 platform-migration software. The acquisition of ICGL also
included two other subsidiaries specializing in the delivery of information
technology products and services: ICS Computing Limited (ICS), specializing in
vertical-market applications software and professional services, and Computer
Maintenance Ireland Limited (CMI), providing independent hardware and software
support, systems integration services, and training primarily in Northern
Ireland.
In September 1994, in exchange for assuming the net liabilities and
forgiving a $200,000 working capital loan made by the Company to the seller, the
Company acquired CI Computer Software Limited (CICS), a United Kingdom company
that provides software consultancy and custom software applications for the IBM
AS/400 marketplace in Northern Ireland.
In August 1995, the Company acquired for $420,000 certain assets and
liabilities of Advec Limited (Advec), a United Kingdom company specializing in
hardware support and systems integration services. Subsequent to the acquisition
Advec was merged into CMI.
In April 1996, the Company acquired, for 500,000 shares of the
Company's Common Stock, Smoky Mountain Technologies, Inc. (Smoky Mountain), a
North Carolina corporation specializing in the development of
transaction-processing systems.
In February, 1997, the Company acquired CEM for $3.7 million, a United
Kingdom company that provides computer equipment, independent hardware and
software support, systems integration services and training primarily in
Northern Ireland. Subsequent to the CEM acquisition, CEM and CMI were merged and
renamed Aurora UniComp Limited (Aurora).
In November 1997, the Company acquired for 788,708 shares of the
Company's Common Stock, Novatek Corporation and Sun and Sky Development
Corporation (together Novatek). Novatek is a Florida corporation that provides
new and refurbished transaction-processing equipment primarily in North America.
Subsequent to the Novatek acquisition, Novatek was merged with Smoky Mountain.
4
<PAGE>
In January 1998, the Company acquired for 107,453 shares of the
Company's Common Stock, Industrial Computing Machines Limited (ICM), an Irish
company that provides software products for the manufacturing industry primarily
in Ireland and the United Kingdom.
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.
ACQUISITION SUBSEQUENT TO YEAR-END
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 shares of the Company's common stock.
DISPOSITION
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 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 SUBSEQUENT TO YEAR-END
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.
MARKETS
PLATFORM-MIGRATION SOFTWARE
IBM's midrange computing platforms, the System/36 and AS/400, have
served as popular computing solutions for business applications since IBM's
introduction of these two systems in 1983 and 1988, respectively. While IBM
discontinued producing the System/36 in 1988, industry publications estimate
approximately 90,000 System/36 systems remained in use worldwide at the end of
1997. Industry publications also estimate that over 450,000 AS/400 systems were
in use worldwide at the end of 1997. The installed base of AS/400 systems is
estimated to increase by 30,000 to 50,000 systems per year for at least the next
few years, while the installed base of System/36 users is declining.
5
<PAGE>
In adopting IBM's midrange computing platforms, businesses, and the
software vendors that support them, have invested substantial resources
developing software applications that provide a wide variety of manufacturing,
accounting and other information-management functions. According to industry
sources, over 25,000 software applications have been developed for use on the
AS/400 system.
Development of software applications intended for use on IBM's midrange
computing platforms continues, assisted by more than 8,000 ISV's that IBM
estimates develop and market software applications for the AS/400 platform.
IBM midrange system computing platform users and developers have
historically been constrained by the nonportable and proprietary nature of IBM's
operating systems. Software applications written for the System/36 and AS/400
platforms would not run on other computing platforms, including those using open
operating systems such as UNIX, or other portable operating systems such as
Windows NT. These other computing platforms often offer users significant
advantages, including access to a wider range of software and hardware vendors,
as well as increased system capacity, interoperability and scalability.
Since the late 1980's, vendors of hardware and, to a lesser extent,
software have experienced recognizable price reductions of their products due to
increased competition and the availability of alternative operating systems. The
Company believes that decreasing prices and increasing functionality in
information technology products have also led to increased market acceptance of
open systems and customer demand for software applications based on such
systems.
Changing computing platforms from proprietary to open or portable
systems often results in significant disruption of business operations as users
are retrained and errors in the new software are discovered and corrected. Even
more critical to many businesses is the potential loss of data contained in
existing databases that may result from a change to new software applications.
ISV's must adapt to customer demands associated with increased popularity of new
computing platforms. ISV's that have developed successful AS/400 software
applications are faced with the challenge of migrating their products to new
platforms to meet customer demands while maintaining their existing customer
base for software applications running on the AS/400 platform. Additionally, the
users that have legacy systems which are highly customized may not be able to
acquire a new packaged product that meets their business needs. For those
reasons both ISV's and users need the ability to migrate those legacy
applications to newer computing platforms.
Approaches to migrating System/36 and AS/400 systems may be summarized
as follows:
<TABLE>
<S> <C>
REFACING Refacing involves replacing the "green-screen"
interface with a graphical user interface. Because
refacing affects only the end-user interface, the
source code must still be operating on the original
computing platform, thereby defeating the goal of
many users to upgrade system performance,
interoperability and scalability.
RE-ENGINEERING Re-engineering requires rewriting existing software
applications to enable such software to operate on a
new computing platform. Since this entails completely
rewriting software applications to meet customer
requirements, this process often results in increased
cost, risk of failure, disruption and delay.
PACKAGED SOLUTIONS Migrating to a new computing platform can sometimes
be accomplished by installing a software package that
has been independently developed to run on open or
portable platforms. While a substantial number of
packaged software
6
<PAGE>
applications are available, businesses implementing
this approach will often have to abandon their
investment in existing databases and software and may
incur substantial retraining costs. Additionally,
substantial modifications to packaged software may be
necessary to meet specialized customer needs. These
modifications often result in increased cost,
disruption and delay.
REHOSTING Rehosting involves migration of software applications
to a new computing platform with minimal change to
the source code or user interface. Rehosting is
achieved by rebuilding software applications to run
efficiently on the new computing platform. This
solution often enables businesses to enjoy the
continued use of their existing programs and
databases, reduce retraining costs and obtain the
advantages of a new computing platform. The Company
offers a rehosting solution through its UNIBOL
product line.
</TABLE>
TRANSACTION-PROCESSING SYSTEM
The market for transaction-processing systems has grown noticeably over
the last several years as electronic-based transaction settlement has begun to
replace paper-based settlement. The market for check verification services has
also demonstrated increased growth over that period.
The transaction-processing market is dominated by a few large
transaction-processing and check verification organizations, the five largest of
which, according to industry publications, accounted for almost 50% of the total
United States market for electronic transaction-processing.
The Company designs, develops and markets software and hardware systems
to facilitate the processing of electronic payment transactions. Functions
supported by the Company's transaction-processing systems include credit, debit
and purchase-card processing, check authorization and guarantee, signature
capture, communication and retrieval and address verification. To address the
lack of interoperability that now exists among many vendors' hardware and
software products, the Company's transaction-processing systems are designed to
provide transaction processors and merchants with a high degree of hardware
independence by supporting a variety of hardware platforms, including personal
computers, certain point-of-sale terminals and other peripheral devices, while
also providing a high degree of processor independence by supporting most major
transaction and check processing organizations.
OTHER PROFESSIONAL SERVICES, VERTICAL MARKET APPLICATIONS INFORMATION
TECHNOLOGY SERVICES AND EQUIPMENT SALES
The worldwide information technology industry is characterized by rapid
technological change, which often leads to increased costs required to maintain
internal information technology resources capable of responding to such change.
The Company believes that the information technology markets in the United
Kingdom, where the majority of the Company's information technology service
customers are based, are regionally focused and highly fragmented. The Company
believes that as companies strive to compete and utilize complex new
technologies, more companies will move toward outsourcing their information
technology requirements.
The Company provides a wide variety of vertical market applications and
professional services including proprietary and third party software products,
support services, installation and integration of software and hardware systems
and outsourcing of information technology services. The Company's vertical
application software products consist of accounting software, process management
products for the manufacturing industry, a human resource time and attendance
product, as well as other third party
7
<PAGE>
software products. Support services consist of system upkeep including hardware
and software support and maintenance, technical support and training.
Installation and integration services include system consulting and design,
custom software development, system installation and testing, as well as a broad
range of systems configuration and integration services for computer networks.
The Company also provides information technology services to businesses on an
outsourced basis, thereby offering its customers an opportunity to reduce
information technology overhead while continuing to respond to technological
change. Outsourcing services include disaster recovery, facilities management
and related information technology support services.
The Company provides computer equipment to the transaction-processing
market and as an adjunct to their software and services customers. The Company
began providing computer equipment for the transaction-processing industry with
the acquisition of Novatek in fiscal year 1998. The primary market for the
Company's transaction-processing equipment is the United States. The Company
also provides computer equipment to the corporate market worldwide, which is
generally supplied as an adjunct to its software and services sales.
PRODUCTS AND SERVICES
PLATFORM-MIGRATION SOFTWARE
The Company designs, develops and markets platform-migration software
under its UNIBOL brand.
UNIBOL36. The UNIBOL36 system rehosts software applications written in
RPG or COBOL, and related data, from IBM's System/36 to UNIX or Windows NT
systems.
UNIBOL400. The UNIBOL400 system rehosts software applications written
in RPG or COBOL, and related data, from IBM's AS/400 to UNIX systems. The
Company is currently developing an AS/400-to-Windows NT migration solution.
Advantages of the UNIBOL rehosting solution include:
<TABLE>
<S> <C>
VERSATILITY The UNIBOL36 system enables the migration to open
systems of applications software written in either
RPG or COBOL languages. The Company currently offers
the UNIBOL36 system on most major UNIX or Windows NT
platforms, including IBM RS/6000, HP9000, Siemens
Nixdorf RM Series, DEC Alpha, Sun SPARCstation, Data
General Aviion and Intel/SCO UNIX.
The UNIBOL400 system currently supports applications
software written in RPG or COBOL. The UNIBOL400
system is currently available on the IBM RS/6000,
HP9000, Siemens Nixdorf RM Series, Sun Ultra Sparc
and the Data General Aviion UNIX hardware platforms.
The Company expects to release a version of UNIBOL400
that supports Windows NT late in fiscal year 1998 or
early fiscal year 1999.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
USER INTERFACE The UNIBOL systems preserve the "look and feel" of
the legacy system's user interface, thereby saving
businesses that are migrating to a new computing
platform substantial retraining, documentation and
technical support costs. By enabling the use of a
single set of end-user documentation, this feature
allows for efficient technical support of software
applications running on multiple computing platforms.
DEVELOPER INTERFACE The UNIBOL systems offer software developers many
System/36-style and AS/400-style development tools,
as well as access to native UNIX development
facilities. This feature facilitates the transition
from a System/36 or AS/400 development environment to
a UNIBOL environment on new computing platforms and
allows further development of migrated applications
software.
NATIVE ENVIRONMENT The UNIBOL36 and UNIBOL400 systems are native
System/36 and AS/400 application development and
execution environments for open systems, essentially
replacing the functionality of the proprietary
operating system under which the applications
software was written. The Company believes that, as a
native open-systems environment, the UNIBOL
environment generally enables software applications
to operate at least as efficiently as under the
original proprietary operating system.
</TABLE>
TRANSACTION-PROCESSING SYSTEMS
The Company designs, develops and markets software and hardware systems
to facilitate the processing of electronic payment transactions. Functions
supported by the Company's transaction-processing systems include credit, debit
and purchase-card processing, check authorization and guarantee, signature
capture, communication and retrieval and address verification. To address the
lack of interoperability that now exists among many vendors' hardware and
software products, the Company's transaction-processing systems are designed to
provide transaction processors and merchants with a high degree of hardware
independence by supporting a variety of hardware platforms, including personal
computers, certain point-of-sale terminals and other peripheral devices.
The Company believes its Universal Payment Software to be the most
critical component of its transaction-processing systems. The Universal Payment
Software facilitates transaction-processing at merchant locations and operates
on a variety of hardware platforms, including personal computers, the Company's
Universal Payment Adapter Master Controller and certain electronic cash
registers (ECR's). The Universal Payment Software facilitates a variety of
functions, including credit, debit and purchase-card processing, check
authorization and guarantee, signature capture, communication and retrieval and
address verification.
The Company also designs, develops and markets a variety of ancillary
hardware, software and related systems that comprise certain of its
transaction-processing systems. The Company's Universal Terminal Software acts
as the application environment for a variety of point-of-sale peripherals, while
the Universal Payment Host resides on a personal computer located at the payment
transaction processor and collects data for authorization and settlement
processing on the host computer as well as performs signature capture and
retrieval functions. The Company's Universal Payment Adapter Master Controller
and Universal LAN Adapter products provide the hardware platforms on which the
Universal Payment Software operates and support connectivity with up to 63
peripheral devices, including several types of point-of-sale terminals, ECR's,
printers and other devices, as well as entire local area networks. The Company's
Universal BackRoom Software for Windows allows the gathering of sales and
inventory data,
9
<PAGE>
generated from various point-of -sale registers at multiple stores, at a single
location. This information can be used to generate a variety of reports that can
be transmitted to a central location, such as a corporate office. The Company's
Universal Register Software is a touch screen point-of-sale system, initially
targeted at fast food outlets. This system can also support credit and debit
cards, as well as frequent shopper programs.
The Company is developing enhancements and add-ons to its
transaction-processing systems to provide data collection for time and
attendance reporting, inventory ordering, coupon processing, electronic benefits
processing and remote bill paying.
OTHER PROFESSIONAL SERVICES, VERTICAL MARKET APPLICATIONS AND
EQUIPMENT SALES
The Company provides a wide variety of vertical market applications and
professional services including proprietary and third party software products,
support services, installation and integration of software and hardware systems
and outsourcing of information technology services. The Company's vertical
application software products consist of accounting software, process management
products for the manufacturing industry, a human resource time and attendance
product, as well as other third party software products. Support services
consist of system upkeep including hardware and software support and
maintenance, technical support and training. Installation and integration
services include system consulting and design, custom software development,
system installation and testing, as well as a broad range of systems
configuration and integration services for computer networks. The Company also
provides information technology services to businesses on an outsource basis,
thereby offering its customers an opportunity to reduce information technology
overhead while continuing to respond to technological change. Outsourcing
services include disaster recovery, facilities management and related
information technology support services.
The Company began providing computer equipment for the
transaction-processing industry with the acquisition of Novatek. Novatek
provides a wide range of new and remanufactured equipment to its customers as
well as providing additional value added services. The Company also provides
computer equipment to the corporate market, which is generally supplied as an
adjunct to its software and services. Sales of computer equipment can vary from
quarter to quarter based on customer needs, seasonality, and political
influences impacting the purchases of educational computer equipment.
The Company is a distributor of point-of-sale equipment in the United
States. In addition, it repairs and remanufactures point-of-sale equipment for
resale. The Company provides a wide variety of computer equipment to the
corporate marketplace.
PRODUCT DEVELOPMENT AND ENHANCEMENT
The computer industry is characterized by rapid technological change in
computer hardware, operating systems and software. To keep pace with this change
the Company dedicates considerable resources in the development of new product
development and product enhancement. The majority of the Company's research and
development for platform migration software is performed in the United Kingdom
while research and development for its transaction-processing systems is
performed in the United States.
The Company intends to continue to recruit and hire experienced
software developers and to consider the acquisition of complementary software
businesses and technologies. In addition, the Company will continue to actively
collaborate with and support ISV's who offer products that enhance and
complement the software products the Company offers.
10
<PAGE>
From time to time, the Company has delayed or briefly suspended product
shipments to make programming corrections. These corrections, which are not
unusual in the software industry, have generally been made to fix errors or
"bugs" in the software. Additionally, there can be no assurance that the
Company's development efforts will result in the timely introduction of new
products or that such new products will be commercially successful. Failure to
successfully develop new products, delays in the introduction of these products,
or lower-than-anticipated demand for these products could have a material and
adverse effect on the Company's business.
See Note 1 to the Consolidated Financial Statements for further
discussion on research and development costs and capitalized software
development costs.
MARKETING AND DISTRIBUTION
PLATFORM-MIGRATION SOFTWARE
As of February 28, 1999, the Company marketed and sold its
platform-migration software through 14 direct sales and marketing personnel.
UNIBOL's direct sales and marketing force operates from the Company's offices in
Belfast, Northern Ireland, Atlanta, Georgia and Dallas, Texas. The Company
markets its UNIBOL products and services through telemarketing, direct mail,
public relations, advertising programs, seminars, audio conferences, trade
shows, newsletters and its internet homepage. In addition, the Company markets
its platform-migration software through ISV's and independent distributors in
over 30 countries. The Company has entered into strategic relationships with
major UNIX hardware system vendors, including Hewlett-Packard, Siemens Nixdorf
and Data General, as well as certain database providers such as Oracle. The
Company believes that its multi-channel distribution strategy enables it to
effectively market its platform-migration software to a wide range of potential
customers.
According to industry sources, there are more than 8,000 ISV's
currently supporting applications software for the AS/400 platform. The Company
believes that, by using the UNIBOL400 system, ISV's will be able to offer their
software applications on open systems and other portable platforms. The Company
believes it can accelerate market acceptance of its UNIBOL400 product by
leveraging its reputation in the System/36 market and focusing on the ISV
distribution channel. The Company also believes that, by using the ISV
distribution channel, it will derive licensing revenue from both the initial
sale to an ISV of the UNIBOL400 developer kit and from subsequent license fees
payable when an ISV licenses its migrated applications to end users.
TRANSACTION-PROCESSING SYSTEMS
As of February 28, 1999, the Company marketed and sold its
transaction-processing systems through 7 direct sales and marketing personnel.
Because the target market for the Company's transaction-processing systems
consists of a small number of large transaction processors and point-of-sale
hardware and software vendors, the Company's direct sales staff markets its
transaction-processing systems largely through system demonstrations, trade
shows and collateral sales materials.
OTHER PROFESSIONAL SERVICES, VERTICAL MARKET APPLICATIONS AND
EQUIPMENT SALES
As of February 28, 1999, the Company marketed and sold computer
equipment, vertical market application and professional services through 10
direct sales and marketing personnel. Specific marketing programs vary by target
customer. The Company believes that its direct sales approach, including having
Company project managers serve as client-relationship managers, lead to better
account penetration and management, better communications and long-term
relationships with its clients and greater opportunities
11
<PAGE>
for follow-on sales of products and services to its existing client base. To
date, the Company has focused its sales and marketing efforts for computer
equipment and professional services primarily on businesses in Northern Ireland
and vertical market applications and the related services to businesses in the
United Kingdom and the rest of Europe.
SIGNIFICANT CUSTOMERS
No one of the Company's customers accounted for more than 10% of the
Company's total revenues in any of its three most recent fiscal years.
COMPETITION
PLATFORM-MIGRATION SOFTWARE
The market for the Company's platform-migration software is highly
competitive. The Company faces direct competition from other developers of
rehosting solutions and companies that provide other migration solutions such as
refacing, re-engineering and packaged software applications. There are a number
of larger companies, including computer manufacturers and software companies,
that have greater financial resources than the Company and the technological
ability to develop software products similar to those offered by the Company.
These companies present a significant competitive challenge to the Company's
platform migration business. Many of the Company's competitors do not offer the
breadth of solutions that the Company offers. Additionally, many of the
competitors can only migrate object code (instead of migrating source code as in
the UNIBOL solution) which will not allow the end users to modify the code once
it has been migrated to the new platform. The Company believes that its UNIBOL
solutions provide end users with a wider variety of migration options while
maintaining the source code and thereby conserving the ability of end users to
update, enhance and modify the software application. The Company competes on the
basis of its service, price, system functionality and performance and
technological advances and believes that it competes favorably in all of these
categories.
TRANSACTION-PROCESSING SYSTEMS
The market for the Company's transaction-processing systems is highly
competitive. The Company believes that the principal competitive factors in the
business include the ability to provide comprehensive, integrated
transaction-processing systems, product performance, time to market for new
product introductions, adherence to industry standards, price, marketing and
distribution resources. The Company believes that it competes favorably in all
of these categories. There are a number of larger companies, including
point-of-sale terminal manufacturers and software companies, that have greater
financial resources than the Company and the technological ability to develop
software products similar to those offered by the Company. These companies
present a significant competitive challenge to the Company's
transaction-processing business.
OTHER PROFESSIONAL SERVICES, VERTICAL MARKET APPLICATIONS AND EQUIPMENT
SALES
The market for the Company's professional services and vertical market
applications is intensely competitive due primarily to low barriers to entry.
The Company believes that the primary competitive factors in this market include
familiarity with local customs and practices, price, technical expertise and
reputation.
The Company believes that it has many direct and indirect competitors,
none of which is dominant in the Company's marketplace. The Company faces
indirect competition from hardware manufacturers that
12
<PAGE>
service their own equipment such as Digital Equipment Company and IBM. The
Company also faces direct competition from various independent information
technology service providers in Northern Ireland. Some of the Company's current
and potential competitors have longer operating histories and financial, sales,
marketing, technical and other competitive resources that are substantially
greater than those of the Company. As a result, the Company's competitors may be
able to adapt more quickly to changes in customer needs or to devote greater
resources to this market than the Company. Such competitors could also attempt
to increase their presence in the Company's markets by forming strategic
alliances with other competitors of the Company, offering new or improved
products and services to the Company's customers or increasing their efforts to
gain and retain market share through competitive pricing. As the markets in
which the Company competes have matured, price competition has intensified and
is likely to continue to intensify. Such price competition could adversely
affect the Company's results of operations. There can be no assurance that the
Company will be able to continue to compete successfully with existing or new
competitors.
The Company believes that it competes by providing quality services at
competitive prices and distinguishing itself from its competition on the basis
of its technical expertise, vendor alliances, direct sales strategy and
customer-service orientation. Based on the level of the Company's recurring
business with many of its customers, the Company believes that it compares
favorably to many of its competitors with respect to the principal competitive
factors set forth above.
The Company faces competition in the corporate market for computer
equipment. The Company generally provides hardware to the corporate market. The
Company faces direct competition from outside computer equipment providers,
since the software or service customer is under no obligation to purchase the
equipment from the Company. However, due to the convenience of negotiating with
one vendor, the Company's competitive pricing with other hardware providers and
the quality software and services the Company provides, the Company believes it
compares favorably with its competitors.
The Company faces direct competition from transaction-processing
equipment manufacturers that sell their equipment through direct channels, as
well as other resellers of transaction-processing equipment in the US market.
While some of the equipment manufacturers may have an advantage in competitive
pricing on new equipment, the Company is able to offer refurbished equipment
with similar functionality and warranties at a discounted price. The Company
believes that because of the ability to provide refurbished equipment at a lower
price than new equipment, as well as providing new equipment, the Company
compares favorably with its competitors.
SEGMENT INFORMATION
The Company operates in three business segments; platform-migration
software, transaction-processing systems and other professional services,
vertical market applications and equipment sales. The following table
illustrates the total revenue dollars (in thousands) represented by the
Company's products and services by business segment.
<TABLE>
<CAPTION>
Dollars (In Thousands), Fiscal Year Ended
February 29, 1997 February 28, 1998 February 28, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Platform-Migration $ 4,572 $ 7,701 $ 8,437
Transaction-Processing 2,078 11,654 8,143
Other Professional Services 14,398 8,707 12,999
------- ------- --------
$21,048 $28,062 $ 29,579
------- ------- --------
------- ------- --------
</TABLE>
13
<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 the total revenue dollars (in thousands) represented by the
Company's products and services in the United States and the United Kingdom.
Operating income (loss) and identifiable assets are also presented.
<TABLE>
<CAPTION>
Dollars (In Thousands), Fiscal Year Ended
February 29, 1997 February 28, 1998 February 28, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues
United States $ 10,762 $ 13,100 $ 10,416
United Kingdom 10,286 14,962 19,163
-------- -------- --------
$ 21,048 $ 28,062 $ 29,579
-------- -------- --------
-------- -------- --------
Operating Income (loss)
United States $ 954 $(1,743) $ (1,836)
United Kingdom 225 1,535 1,155
-------- -------- --------
$ 1,179 $ (208) $ (681)
-------- -------- --------
-------- -------- --------
Identifiable Assets
United States $ 10,411 $ 12,622 $ 16,303
United Kingdom 21,054 21,984 13,912
-------- -------- --------
$ 31,465 $ 34,606 $ 30,215
-------- -------- --------
-------- -------- --------
</TABLE>
ENVIRONMENTAL STANDARDS
The Company believes its facilities and operations are within standards
fully acceptable to the Environmental Protection Agency and that all facilities
and procedures are in accordance with environmental rules and regulations, and
international, federal, state and local laws.
SEASONALITY
The Company believes there is no inherent seasonal pattern to its
business, with the exception of transaction-processing equipment, which is
attributable to retail establishments purchasing new systems during the summer
months (the Company's first and second quarters) in order to implement those
systems before the holiday buying season begins. Sales volume fluctuates
quarter-to-quarter due to relatively large and nonrecurring individual sales and
customer-established shipping dates. The Company has worked diligently to smooth
quarter-to-quarter revenues, however, there can be no assurance that the Company
will be successful in achieving this goal.
BACKLOG
Due to the nature of the Company's business, the Company maintains
minimal backlog. It is anticipated that most of the fiscal year 1999 backlog
will be realized as revenue in fiscal year 2000.
14
<PAGE>
EMPLOYEES
As of February 28, 1999, the Company employed approximately 350 full
time equivalents in the United Kingdom and the United States. The Company
believes that its relationship with its employees is good. None of the Company's
employees are subject to collective bargaining agreements.
DEPENDENCE ON SUPPLIERS
Most of the Company's parts and assemblies are readily available
through multiple sources in the open market, however, a limited number are
available only from a single source. In these cases, the Company stocks a
substantial inventory, or obtains the agreement of the vendor to maintain
adequate stock for future demands, and/or attempts to develop alternative
components or sources where appropriate.
INTELLECTUAL PROPERTY
UniComp maintains a significant intellectual property estate, including
some patents and extensive proprietary knowledge of products and systems. The
Company has applied for federal and international trademark protection for
numerous marks. Although management believes that the patents and trademarks
associated with the Company's various product lines are valuable to the Company,
it does not consider any of them to be essential to its business.
ITEM 2. PROPERTIES
The Company leases office space in Marietta, Georgia, which totals
approximately 10,745 square feet at an aggregate annual cost of approximately
$237,000. The lease expires in September 2000 and contains a renewal option for
one additional three-year term. The Company also owns office and warehouse space
in Murphy, North Carolina and Coral Springs, Florida. The North Carolina
facility is under an 8.83% fixed rate mortgage loan with an outstanding balance
as of February 28, 1999 of $279,000. Annual payments on this loan are
approximately $36,000. The Florida facility is under an 8.86% fixed rate
mortgage loan with an outstanding balance as of February 28, 1999 of $289,000.
Annual payments on this loan are approximately $36,000.
The Company leases a facility in Belfast, Northern Ireland, totaling
approximately 25,200 square feet of office and warehouse space at an annual cost
of approximately $303,000 under a lease expiring September, 2002. The Company
also owns a facility in Belfast, Northern Ireland under a 10-year 7.25% variable
rate mortgage loan with an outstanding principal balance as of February 28, 1999
of approximately $476,000. The annual payments on this loan are approximately
$72,000.
The Company believes that its current facilities are either adequate to
meet its needs for the foreseeable future or that adequate space is readily
available in all geographical areas in which the Company does business.
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any material legal proceeding
and, to management's knowledge, no material legal proceeding is threatened
against the Company. However, the Company is involved from time to time in
routine legal matters incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal year ended February 28, 1999.
16
<PAGE>
PART II
ITEM 5. MARKET OF REGISTRANT'S COMMON STOCK AND RELATED MATTERS
The Company's Common Stock trades on the Nasdaq National Market under
the symbol "UCMP". The following table sets forth, for the periods indicated,
the high and low sale prices of the Common Stock as reported by the Nasdaq
National Market. Such quotations do not include retail mark-ups, mark-downs, or
other fees or commissions.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL YEAR 1999
Fourth Quarter ended February 28, 1999......................................................... $ 5.00 $ 2.68
Third Quarter ended November 30, 1998.......................................................... 3.81 2.00
Second Quarter ended August 31, 1998........................................................... 6.62 1.93
First Quarter ended May 31, 1998............................................................... 7.18 4.53
FISCAL YEAR 1998
Fourth Quarter ended February 28, 1998......................................................... $ 9.88 $ 6.13
Third Quarter ended November 30, 1997.......................................................... 11.50 7.63
Second Quarter ended August 31, 1997........................................................... 9.63 6.63
First Quarter ended May 31, 1997............................................................... 8.56 5.38
</TABLE>
On June 9, 1999 the closing sale price of the Common Stock on the
Nasdaq National Market was $5.50 per share. As of June 9, 1999, there were
approximately 550 owners of record of the Common Stock. Because many of such
shares may be held by brokers and other institutions on behalf of stockholders,
the Company is unable to estimate the total number of beneficial owners
represented by these record holders.
DIVIDEND POLICY
The Company has never paid cash dividends on the Common Stock, and
presently intends to retain any future earnings to finance its operations and
expand its business. It therefore does not anticipate paying cash dividends for
the foreseeable future.
17
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect
to the Company's statement of operations data for the fiscal years ended
February 28, 1997, February 28, 1998 and February 28, 1999 and with respect to
the Company's balance sheet data at February 28, 1998 and February 28, 1999 are
derived from the audited consolidated financial statements of the Company
included elsewhere herein and are qualified by reference to such consolidated
financial statements and notes thereto. The selected consolidated financial data
with respect to the statement of operations data for February 28, 1995 and 1996
and the balance sheet data at February 28, 1995, 1996 and 1997 are derived from
audited consolidated financial statements not included herein. The selected
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
Fiscal Year Ended
---------------- ---------------- --------------- --------------- ----------------
Feb. 28, Feb. 29, Feb. 28, Feb. 28, Feb. 28,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: (in thousands except per share data)
Total revenue.................. $ 15,652 $ 19,311 $ 21,048 $ 28,062 $ 29,579
Gross profit................... 8,841 12,576 10,494 15,373 16,958
Operating income............... 1,972 1,827 1,179 (208) (681)
Income (loss) before taxes from
continuing operations......... 1,894 1,595 948 (562) (1,692)
Net income (loss) from continuing
operations.................... $ 1,396 $ 1,391 $ 912 $ (902) $ (1,891)
Basic earnings per share from
continuing operations......... $ 0.25 $ 0.25 $ 0.14 $ (0.12) $ (0.30)
Diluted earnings per share from
continuing operations......... $ 0.25 $ 0.23 $ 0.13 $ (0.12) $ (0.30)
Weighted average shares........ 5,499 5,672 6,465 7,727 7,802
Weighted average shares assuming
dilution....................... 5,690 6,064 6,865 7,727 7,802
BALANCE SHEET DATA:
Total assets................... $ 10,419 $ 18,340 $ 24,665 $ 34,606 $ 30,215
Working capital (deficit)...... (481) 1,306 1,203 435 2,202
Debt, including current portion 1,663 4,496 6,086 9,063 6,153
Total shareholders' equity..... 3,449 6,220 14,465 16,293 15,808
</TABLE>
The statement of operations data and balance sheet data presented above
have been restated to give retroactive effect to the merger with Smoky Mountain
Technologies on April 16, 1996, and the merger with Novatek on November 29,
1997, both of which have been accounted for as a pooling-of-interests
transactions. They also have been restated to reflect the disposition of Aurora
on December 17, 1998 (See Note 2 of the Notes to the financial statements.)
During fiscal year 1995, the Company experienced a lower than normal
effective tax rate of 23.3%, as a result of reductions in the valuation
allowance on deferred tax assets. In fiscal year 1996, the Company recognized a
credit to tax expense of $0.3 million related to the recognition of the
remaining deferred tax asset in the United States when the Company determined
that it was more likely than not that the deferred tax asset would be realized
in future periods, resulting in a lower than normal tax rate of 9.0% for that
year. During fiscal year 1997, the Company recognized an income tax credit of
$0.3 million related to recognition of previously unrecognized deferred tax
assets in the United Kingdom when it was determined that it was more likely than
not that the deferred tax assets would be realized in future tax periods,
resulting in a lower than normal tax rate of 17.0% for that year. During fiscal
year 1998, the Company recorded a valuation allowance of $0.5 million for the
deferred tax asset in the US, resulting in recording a tax expense of $0.4
million for the fiscal year, despite having a loss before provision for income
taxes. During fiscal year 1999, the Company recorded a valuation allowance of
$1.0 million for the deferred tax asset in the U.S., resulting in recording a
tax expense of $0.2 million for the fiscal year, despite having a loss before
provision for income taxes.
During fiscal year 1998, the Company recorded non-recurring expenses of
$1.1 million. $0.7 million of this amount related to compensation expense
recorded for the value of certain compensatory stock options at Novatek for
which the applicable compensation expense could only be determined upon the sale
of Novatek. Therefore, the Company recorded a one-time non-cash compensation
expense upon consummation of the merger with Novatek. Additionally, the Company
recorded $0.3 million in expenses relating to the pooling-of-interests
transaction with Novatek. The Company also recorded $0.1 million of expenses
related to other potential acquisitions that the Company is no longer pursuing.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT ARE
SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING ECONOMIC, COMPETITIVE AND
TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S OPERATIONS, MARKETS, PRODUCTS,
SERVICES AND PRICES, AS WELL AS OTHER FACTORS. THESE AND OTHER FACTORS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED.
OVERVIEW
UniComp provides 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 fiscal year 1999, the Company generated $29.6 million in total
revenue, of which $9.3 million was derived from sales of computer equipment and
$11.8 million was derived from information technology services. The remaining
$8.5 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. The Company expects revenue from software
licensing to increase as a percentage of total revenue in the future as these
relatively new software products penetrate their target markets and gain market
acceptance.
Approximately 49%, 53% and 65% of the Company's revenue was derived
from its international operations in fiscal years 1997, 1998, and 1999,
respectively. Denomination of the Company's revenue and expenses are generally
in corresponding currencies. As a result, to date, the Company has not hedged
against foreign currency exchange rate risks.
Cost of sales for 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 licensing includes amortization
of capitalized software development costs, as well as any royalties payable on
embedded technologies and any other direct costs of providing its software
products and support. The Company amortizes capitalized software development
costs over the estimated life of the product, generally three to four years.
Selling, general and administrative expenses include salaries and
related costs for all employees, travel, costs associated with internal
equipment, sales commissions, premises and marketing costs, general office and
administrative costs, and the amortization of goodwill. Development grants
received from the government of Northern Ireland have been recorded as a
reduction in selling, general and administrative expenses, or a reduction in
capitalized development costs, and are anticipated to remain relatively constant
for the foreseeable future. Although the Company expects the dollar amount of
selling, general and administrative expenses to increase as the Company grows,
it anticipates that these expenses will remain constant or decrease as a
percentage of total revenue from fiscal 1999 levels.
On November 30, 1997, the Company completed its acquisition of Novatek
Corporation ("Novatek"). Novatek distributes, maintains, repairs, remanufactures
and modifies a wide variety of point-of-sale and transaction-processing
equipment and supplies. The Company issued 788,708 shares of its common stock
for all outstanding common stock of Novatek. This transaction has been accounted
for as a
19
<PAGE>
pooling-of-interest; therefore, the Company's historical financial statements
have been restated to reflect this merger.
Prior to the merger, Novatek prepared its financial statements based on
a December 31 year-end. As a result, the restated historical financial
statements include the Company's historical results of operations for the year
ended February 28, 1997 combined with Novatek's historical results of operations
for the year ended December 31, 1996.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations
from continuing operations in dollars and as a percentage of total revenue
for the fiscal years ended February 28, 1997, February 28, 1998 and February
28, 1999.
<TABLE>
<CAPTION>
Fiscal Years Ended
----------------------------------------------------------------
2/28/97 2/28/98 2/28/99
------- ------- -------
(in thousands, except per share and percentage data)
<S> <C> <C> <C> <C> <C> <C>
Total Revenue...................... $ 21,048 100.0% $ 28,062 100.0% $ 29,579 100.0%
Cost of sales...................... 10,554 50.1 12,689 45.2 12,621 42.7
------ ----- ------ ----- ------ -----
Gross profit....................... 10,494 49.9 15,373 54.8 16,958 57.3
Operating expenses................. 9,315 44.3 15,581 55.5 17,639 59.6
------ ----- ------ ----- ------ ----
Operating income (loss)............ 1,179 5.6 (208) (.7) (681) (2.3)
Other expenses (income)............ 231 1.1 354 1.3 1,011 3.4
------ ----- ------ ----- ------ -----
Income (loss) before taxes......... 948 4.5 (562) (2.0) (1,692) (5.7)
Provision for taxes................ 36 0.2 340 1.2 199 0.7
------ ----- ------ ----- ------ -----
Net income (loss).................. $ 912 4.3% $ (902) (3.2)% $ (1,891) (6.4)%
------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ -----
</TABLE>
FISCAL YEAR ENDED FEBRUARY 28, 1999 COMPARED TO FISCAL YEAR ENDED
FEBRUARY 28, 1998
REVENUE. Revenue for fiscal year 1999 increased to $29.6 million
compared to $28.1 million for fiscal year 1998, an increase of $1.5 million, or
5.3%. The increase is due to inclusion of a full year's results in fiscal 1999
from the ICM acquisition.
EQUIPMENT REVENUE
The following table summarizes the revenue generated from sales of
computer equipment for the year ended February 28, 1999 and the comparable
periods from the prior fiscal year.
<TABLE>
<CAPTION>
12 Months Ended Increase/(Decrease)
-------------------- -------------------
2/28/98 2/28/99 $ %
------- ------- ------- -----
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Transaction-processing Equipment... $9,325 $ 7,122 $(2,203) (23.6)%
Other Equipment.................... 1,536 2,153 617 40.2
-------- ------- -------
Total Equipment Revenue............ $ 10,861 $ 9,275 $(1,586) (14.6)%
-------- ------- -------
-------- ------- -------
</TABLE>
Revenue from the sale of transaction-processing equipment decreased
$2.2 million or 23.6% in 1999 compared to the prior year due to current
product market conditions.
20
<PAGE>
The increase in other equipment is generally supplied as an adjunct to
software and services customers.
SERVICES REVENUE
Revenue from information technology services increased to $11.8 million
for the fiscal year 1999 from $7.9 million for fiscal year 1998. This increase
of $3.9 million was in part due to $1.8 million of additional service revenue
generated by ICM for fiscal year 1999. The remainder of the increase is due to
normal increases in the sales prices of the services revenues to pass on the
higher cost of labor.
SOFTWARE REVENUE
The following table summarizes the revenue from software licensing and
support for the year ended February 28, 1999 and the comparable period from the
prior fiscal year.
<TABLE>
<CAPTION>
Twelve Months Ended Increase/(Decrease)
-------------------- -------------------
2/28/98 2/28/99 $ %
------- ------- ----- -----
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Initial License Fees:
Platform Migration........... $ 1,872 $1,850 $ (22) (1.2)%
Transaction-processing....... 2,077 108 (1,969) (94.8)
Other........................ 897 1,383 486 54.2
------- ------ -------
Total Initial License Fees......... $ 4,846 $3,341 $(1,505) (31.1)%
------- ------ -------
Software Support Fees:
Platform Migration........... $ 1,336 $973 $ (363) (27.2)%
Transaction-processing....... 74 64 (10) (13.5)
Other........................ 3,029 4,148 1,119 36.9
------- ------ -------
Total Software Support Fees........ $ 4,439 $5,185 $ 746 16.8%
------- ------ ------
Total Software Revenue............. $ 9,285 $8,526 $ (759) (8.2)%
------- ------ ------
------- ------ ------
</TABLE>
Revenue generated from platform migration systems was $2.8 million for
fiscal year 1999 as compared to $3.2 million for the prior year. Platform
migration revenue by major product class is as follows.
<TABLE>
<CAPTION>
Twelve months ended Increase/(Decrease)
-------------------- -------------------
2/28/98 2/28/99 $ %
------- ------- ----- -----
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36........................... $ 2,370 $2,095 $ (275) (11.6)%
UNIBOL400.......................... 838 728 (110) (13.1)
------- ------ ------
Total Platform Migration Revenue... $ 3,208 $2,823 $ (385) (12.0)%
------- ------ ------
------- ------ ------
</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 this market, revenue for 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.
21
<PAGE>
Sales of the UNIBOL400 product began to slow in the second half of the
current fiscal year as end-users were waiting for additional functionality and
enhancements to the product. The Company completed these enhancements during the
fourth quarter of fiscal year 1999 and did not have substantial UNIBOL400
revenue until after that time.
Revenue generated from transaction-processing systems software was down
in conjunction with the decrease in transaction processing equipment as
explained in prior sections. Revenue generated from other software sales
consists 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. The large
increase in software support fees is principally as a result of the Company's
pricing structure for many of the vertical market applications having a lower
initial license fee replaced with longer-term annual support fees, coupled with
the number of new customers using these systems.
INTERNATIONAL REVENUE. Revenue from international operations,
principally in Northern Ireland, increased to $19.2 million for the fiscal year
ended February 28, 1999 from $15.0 million for the prior fiscal year, an
increase of $4.2 million, or 28%. The increase is primarily due to the
acquisition of ICM which accounted for approximately $2.2 million in revenue for
the fiscal year ended February 28, 1999 as compared to $0.4 million for the
three months included in the prior fiscal year. The remaining increase is due to
normal increases in the sales prices of the software and equipment sold.
GROSS PROFIT. The following table summarizes the Company's gross profit
information in dollars and as a percentage of the associated revenues for the
fiscal year ended February 28, 1999 and the comparable period for the prior
fiscal year.
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------------------------------
2/28/98 2/28/99
------- -------
(In Thousands, Except Percentage Data)
Gross Profit Gross Profit
------------ ------------
$ % $ %
--- --- --- ---
<S> <C> <C> <C> <C>
Equipment:
Transaction-processing Equipment $ 2,313 24.8 $1,188 16.7
Other Equipment............... 368 24.0 869 40.4
------- ----- ------ -----
Total Equipment.................... $ 2,681 24.7% $2,057 22.2%
------- ----- ------ -----
Information Technology Services.... $6,930 86.7% $10,038 85.2%
------- ----- ------ -----
------- ----- ------ -----
Software:
Platform Migration............ $ 1,553 48.5 $1,237 43.8
Transaction-processing........ 1,443 67.1 58 33.5
Other......................... 2,766 70.5 3,568 64.5
------- ----- ------ -----
Total Software..................... $ 5,762 62.1% $4,863 57.0%
------- ----- ------ -----
Total Gross Profit................. $ 15,373 54.8% $16,958 57.3%
------- ----- ------ -----
------- ----- ------ -----
</TABLE>
Gross profit margins for equipment and services vary depending on
customer demands and product mix. The types of transaction processing equipment
the Company sells are generally commodity products. As a result, overall profit
margins for this type of equipment are declining. Other equipment is generally
sold as an adjunct to software and service sales and as a result higher margins
can be maintained. Information technology services gross profit margin, which
does not include salary costs, has remained relatively unchanged.
22
<PAGE>
Platform migration profit margins decreased for fiscal year 1999
compared to the prior fiscal year. These declines are due principally to
relatively fixed amortization expense related to capitalized software
development costs for the UNIBOL400 product, for which revenues have declined
since the prior year, as described earlier. These margins are expected to
improve in future periods as the enhanced versions of the UNIBOL400 product are
released, the product begins to gain market acceptance and licensing revenues
increase.
Transaction-processing software gross profit margins declined slightly
for fiscal year 1999 compared to the prior fiscal year. These declines are due
principally to the decrease in revenues discussed previously. Gross margins for
other software products decreased slightly to 64.5% for fiscal year 1999
compared to 70.5% in the prior fiscal year. Other software primarily consist of
vertical market software products such as the Company's Distributex product as
well as other third party software products.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses as a percentage of total revenue increased to 59.6%
for fiscal year 1999 as compared to 51.7% in the prior fiscal year tax an
increase of $3.1 million. Approximately $2 million of the increase was due to
the inclusion of the ICM acquisition for a full year in 1999. The remainder
was primarily normal annual salary increases.
ACQUISITION RELATED EXPENSES. During fiscal year 1998, the Company
recorded non-recurring acquisition related expenses of $1.1 million. $0.7
million of this amount related to one-time non-cash compensation expense
recorded for the value of certain compensatory stock options for which the
applicable compensation expense could only be determined upon the sale of
Novatek. Additionally, the Company recorded $0.3 million in expenses relating to
the pooling of interests transaction with Novatek. The Company also recorded
$0.1 million of expenses related to other potential acquisitions which the
Company is no longer pursuing.
OTHER EXPENSES. Interest, the primary component of other expenses,
increased to $0.6 million for fiscal year 1999 from $0.4 million for fiscal year
1998, an increase of $0.2 million or 50%. The increase in interest expense was
due primarily to continued borrowings on the Company's lines of credit to fund
operations.
TAXES. During fiscal years 1999 and 1998, the Company recorded
valuation allowances of $1.0 and $0.5 million respectively, related to certain
deferred tax assets that are not anticipated to be utilized through normal
operating results. The effective income tax rate (income taxes expressed as a
percentage of pretax income), excluding the valuation allowances, was 48.3% for
fiscal year 1999, compared to 28.5% for fiscal year 1998.
FISCAL YEAR ENDED FEBRUARY 28, 1998 COMPARED TO FISCAL YEAR ENDED
FEBRUARY 28, 1997
REVENUE. Revenue for fiscal year 1998 increased to $28.0 million
compared to $21.0 million for fiscal year 1997, an increase of $7.0 million, or
33.3%.
23
<PAGE>
EQUIPMENT REVENUE
The following table summarizes the revenue generated from sales of
computer equipment for the year ended February 28, 1998 and the comparable
periods from the prior fiscal year.
<TABLE>
<CAPTION>
12 Months Ended Increase/(Decrease)
-------------------- -------------------
2/28/97 2/28/98 $ %
------- ------- ----- -----
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Transaction-processing Equipment... $ 6,315 $ 9,325 $ 3,010 47.7
Other Equipment.................... 1,476 1,536 60 4.1
------- -------- -------
Total Equipment Revenue............ $ 7,791 $ 10,861 $ 3,070 39.4%
------- -------- -------
------- -------- -------
</TABLE>
Revenue from the sale of transaction-processing equipment, which was
generated by the acquisition of Novatek, increased by 3.0 million or 47.7% for
the fiscal year 1998 as compared to the prior fiscal year. Revenue increases are
due to a trend of transaction-processing equipment manufacturers selling more
through resellers and less direct sales. Novatek has been able to capitalize on
this trend by providing a wide range of new and refurbished equipment to its
customers and providing additional value added services. While the Company
believes that this trend will continue for the forseeable future, there can be
no assurance of such.
SERVICES REVENUE
Revenue from information technology services increased to $7.9 million
for the fiscal year 1998 from $5.4 million for fiscal year 1997, an increase of
$2.5 million. This increase is due to the fact that during the fiscal year 1998,
the Company generated $2.8 million of revenue from year 2000 conversion
services. The majority of the revenue generated from year 2000 conversion
services was attributable to a long-term contract with DHL Worldwide Express.
SOFTWARE REVENUE
The following table summarizes the revenue from software, which
includes both initial license fees and software support fees, for the year ended
February 28, 1998 and the comparable period from the prior fiscal year.
<TABLE>
<CAPTION>
Twelve Months Ended Increase/(Decrease)
-------------------- -------------------
2/28/97 2/28/98 $ %
------- ------- ----- -----
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Initial License Fees:
Platform Migration........... $ 2,019 $ 1,872 $ (147) (7.3)%
Transaction-processing....... 2,078 2,077 (1) (0.0)
Other........................ 776 897 121 15.6
------- ------- -------
Total Initial License Fees......... $ 4,873 $ 4,846 $ (27) (0.6)%
------- ------- -------
Software Support Fees:
Platform Migration........... $ 1,316 $ 1,336 $ 20 1.5%
Transaction-processing....... - 74 74 100.0
Other........................ 1,699 3,029 1,330 78.3
------- ------- -------
Total Software Support Fees........ $ 3,015 $ 4,439 $ 1,424 47.2%
------- ------- -------
Total Software Revenue............. $ 7,888 $ 9,285 $ 1,397 17.7%
------- ------- -------
------- ------- -------
</TABLE>
24
<PAGE>
Revenue generated from platform migration systems was $3.2 million for
fiscal year 1998 as compared to $3.3 million for the prior year. Platform
migration revenue by major product class is as follows.
<TABLE>
<CAPTION>
Year Ended Increase/(Decrease)
-------------------- -------------------
2/28/97 2/28/98 $ %
------- ------- --- ---
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36........................... $ 2,119 $2,370 $ 251 11.8%
UNIBOL400.......................... 1,216 838 (378) (31.1)%
------- ------ ------
Total Platform Migration Revenue... $ 3,335 $3,208 $ (127) (3.8)%
------- ------ ------
------- ------ ------
</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 this market, revenue for this product is expected to continue for
the next few years, however, there may be fairly volatile revenue fluctuations
from quarter to quarter.
Sales of the UNIBOL400 product began to slow in the second half of the
1998 fiscal year as end-users were waiting for additional functionality and
enhancements to the product. The Company completed these enhancements during the
first quarter of fiscal year 1999 and did not generate substantial UNIBOL400
revenue until after that time.
Revenue generated from transaction-processing systems remained
relatively consistent for the fiscal year ending February 28, 1998 as compared
to the prior fiscal year. 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. The large increase
in software support fees is principally as a result of the Company's pricing
structure for many of the vertical market applications having a lower initial
license fee replaced with longer-term annual support fees, coupled with the
number of new customers using these systems.
INTERNATIONAL REVENUE. Revenue from international operations,
principally in Ireland, increased to $14.9 million for the fiscal year ended
February 28, 1998 from $10.3 million for the prior fiscal year, an increase of
$4.6 million, or 44.7% due primarily from the acquisition of ICM and the revenue
from Year 2000 conversion services as described above. Revenue from domestic
operations increased to $13.1 million for the fiscal year ended February 28,
1998 as compared to $10.8 million for the prior fiscal year, an increase of $2.3
million, or 21.3% primarily due to an increase in transaction-processing
equipment revenue OF $3.0 million as described above under "Equipment Revenue".
25
<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 year ended February 28, 1998 and the comparable periods for the prior fiscal
year.
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------
2/28/97 2/28/98
------- -------
(in thousands, except percentage data)
Gross Profit Gross Profit
------------ ------------
$ % $ %
--- --- --- ---
<S> <C> <C> <C> <C>
Equipment:
Transaction-processing Equipment $ 1,195 18.9 $ 2,313 24.8
Other Equipment............... 376 25.5 368 24.0
Total Equipment.................... $ 1,571 20.2 $ 2,681 24.7
------- -------
Information Technology Services.... $ 4,046 75.4 $ 6,930 86.7
------- -------
Software:
Platform Migration............ $ 1,940 58.2 $ 1,553 48.5
Transaction-processing........ 1,552 74.7 1,443 67.1
Other......................... 1,385 55.9 2,766 70.5
------- -------
Total Software..................... $ 4,877 61.8 5,762 62.1
------- -------
Total Gross Profit................. $ 10,494 49.9 $ 15,373 53.9
------- -------
------- -------
</TABLE>
Gross profit margins for equipment and services vary depending on
customer demands and product mix. The types of equipment the Company sells are
generally commodity products. As a result, overall profit margins for equipment
are declining. Information technology services gross profit margin increased
primarily due to the higher gross profit margins on the revenue from year 2000
conversion services as described above.
Platform migration profit margins decreased for fiscal year 1998
compared to the prior fiscal year. These declines are due principally to
relatively fixed amortization expense related to capitalized software
development costs for the UNIBOL400 product, for which revenues have declined
since the prior year, as described earlier. These margins are expected to
improve in future periods as the enhanced versions of the UNIBOL400 product are
released, the product begins to gain market acceptance and licensing revenues
increase.
Transaction-processing software gross profit margins declined slightly
for fiscal year 1998 compared to the prior fiscal year. These declines are due
principally to an increase in amortization expense for the current fiscal year
related to capitalized software development costs for newly released
transaction-processing software, for which revenues have remained constant since
the prior year, as described earlier. Gross margins for other software products
increased to 70.5% for fiscal year 1998 compared to 55.9% in the prior fiscal
year. Other software primarily consists of vertical market software products
such as the Company's Distributex product as well as other third party software
products. Gross margins for these products have increased due to the increase in
related annual support fees as more customers are added.
OPERATING EXPENSES. Operating expenses as a percentage of total revenue
are 55.5% for fiscal year 1998 compared to 44.3% in the prior fiscal year.
During the fourth quarter of fiscal year 1998, the Company adjusted the accounts
receivable allowance and accrued special charges regarding certain contingencies
totaling $1.6 million, which is included in selling, general, and administrative
expenses. Of the $1.6 million, $1.3 related to an adjustment to the accounts
receivable allowance for the transaction-processing business unit. This increase
in the allowance was related to slow collections on certain accounts
26
<PAGE>
experienced by that business during fiscal year 1998. The remaining $0.3 million
relates to increases in accounts receivable allowances and the accrual of
charges for certain other contingencies related to platform migration and other
business units of the Company.
Additionally, during the fiscal year 1998, the Company recorded
non-recurring acquisition related expenses of $1.1 million. $0.7 million of this
amount related to one-time non-cash compensation expense recorded for the value
of certain compensatory stock options for which the applicable compensation
expense could only be determined upon the sale of Novatek. Additionally, the
Company recorded $0.3 million in expenses relating to the pooling of interests
transaction with Novatek. The company also recorded $0.1 million of expenses
related to other potential acquisitions which the Company is no longer pursuing.
OTHER EXPENSES. Interest, the primary component of other expenses,
remained relatively constant from year to year.
TAXES. During the fiscal year 1998, the Company recorded a valuation
allowance of $0.5 million related to certain deferred tax assets that are not
anticipated to be utilized through normal operating results. The effective
income tax rate (income taxes expressed as a percentage of pretax income),
excluding the valuation allowance, was 28.5% for fiscal year 1998. During the
fourth quarter of fiscal 1997, the Company recognized an income tax credit of
$0.3 million related to reduction of the cumulative deferred tax liability in
the United Kingdom. The effective income tax rate for 1997 excluding this tax
credit would have been approximately 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced growth during the past two fiscal years
with total revenue growing to $29.6 million for fiscal year 1999, from $21.0
million for fiscal year 1997. During this period, the Company has satisfied its
liquidity requirements primarily through operations, placements of debt and
equity securities, bank financing and grants from the government of Northern
Ireland.
At February 28, 1999, the Company had approximately $1.4 million in
cash and equivalents as compared to $3.9 million at February 28, 1998, $3.0
million of which was restricted at February 28, 1998. See Notes 1 and 6 to the
financial statements.
The Company generated positive operating cash flows of $.7 million
for fiscal year 1999 as a result of improved management of working capital.
During fiscal 1999, to supplement the operating cash flows, the company
issued 3,000 shares of Series A convertibe preferred stock netting $2.8
million.
The Company generated negative operating cash flows of $1.7 million for
fiscal year 1998, primarily as a result of an increase in accounts receivable of
$5.8 million. The Company experienced a significant slow-down in the collection
of receivables related to its transaction-processing and platform migration
business units, which resulted in the Company recording an increase in the
allowance for doubtful accounts of $1.4 million. The Company changed its revenue
recognition and collection procedures in light of this issue. The Company also
experienced an increase in inventory of $1.8 million as a result of
corresponding increases in the transaction-processing equipment inventory. As a
result of significant increases in the sale of transaction-processing equipment,
the Company saw the need to increase its inventory levels to provide a wider
array of equipment to its customers. Additionally, the Company grew these
inventory levels for the peak sales months of April through September.
Transaction-processing equipment sales are somewhat seasonal due to retail
establishments purchasing new systems during the summer months (the Company's
first and second quarters) in order to implement those systems before the
holiday buying season begins.
27
<PAGE>
During fiscal year 1998, in order to offset the declining operating
cash flows, the Company obtained $1.0 million of short-term financing through a
subordinated note payable. This note carried an interest rate of 12% and was
paid in full in February 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. 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.
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 February 28, 1999.
On November 18, 1996, the Company completed a secondary offering of an
additional 1,500,000 shares of common stock at $5.00 per share. The proceeds,
net of underwriters discounts, commissions and expenses were $5.7 million.
The Company issued $2.0 million principal amount of 7.0% convertible
notes in fiscal year 1996. The proceeds from the convertible notes were used to
acquire the rights to use and modify the source code of the database embedded in
the UNIBOL400 product and for general working capital purposes. During fiscal
year 1997, all the principal and related accrued interest thereon was converted
into shares of common stock.
The Company received grants to fund research and development from
the government of Northern Ireland of approximately $0.4 million for each of
the fiscal years 1997, 1998 and 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 foreseable future; however, there can be no assurance
that the Company will be able to continue to receive such grants.
The Company believes available credit will be sufficient to meet its
working capital needs both on a short and a long-term basis. However, the
Company's capital needs will depend on many factors, including the Company's
ability to achieve 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.
28
<PAGE>
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.
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% April 30, All significant suppliers have
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
29
<PAGE>
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.
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 nearly
three-fourths of our total revenues for fiscal years 1996
30
<PAGE>
through 1998. 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 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.
31
<PAGE>
DISTRIBUTION OF MANAGEMENT OF OVERSEAS OPERATIONSMANAGEMENT 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.
CHANGES IN OPERATIONS IN NORTHERN IRELANDOPERATIONS 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 PROGRAMRISK 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.
32
<PAGE>
UNCERTAINTY OF FUTURE RESULTSUNCERTAINTY 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 TECHNOLOGYDEPENDENCE 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 SHAREHOLDERSCONTROL BY MANAGEMENT AND
PRINCIPAL SHAREHOLDERS
Our executive officers and directors and their affiliates beneficially
hold an aggregate of approximately 18 % 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.
33
<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 have recently experienced problems
in collecting receivables from the transaction-processing business unit. These
problems resulted in a $0.4 million increase in the allowance for uncollectible
accounts in fiscal year 1999. 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.
34
<PAGE>
VOLATILITY OF STOCK PRICEVOLATILITY 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 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 PROVISIONSANTITAKEOVER 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 STOCKNO 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 7A. 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 65% of the Company's total sales in
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 high proportion of its debt in fixed-rate instruments. As of
February 29, 1999, 12.2% of the Company's total debt was in fixed-rate
instruments; however, 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
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, 10.4% of the Company's total debt would be in fixed-rate instruments.
In addition, the Company
35
<PAGE>
maintains an average maturity of its short-term investment portfolio under
twelve months to avoid large changes in its market value. As of February 28,
1999, the average maturity of the Company's short-term investments was less than
one month.
36
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-27 attached hereto and incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective February 23, 1998, the Company replaced its independent auditors,
Coopers & Lybrand L.L.P. ("Coopers & Lybrand") with Arthur Andersen LLP ("Arthur
Andersen"). Coopers & Lybrand's report on UniComp's financial statements during
the two most recent fiscal years preceding the date hereof contained no adverse
opinion or a disclaimer of opinions, and was not qualified or modified as to
uncertainty, audit scope or accounting principles. The decision to change
accountants was approved by the Company's Audit Committee.
During the two fiscal years and the subsequent interim period preceding February
23, 1998, there were no disagreements between the Company and Coopers & Lybrand
on any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreement(s), if not
resolved to the satisfaction of Coopers & Lybrand, would have caused it to make
a reference to the subject matter of the disagreement(s) in connection with its
reports.
None of the "reportable events" described in Item 304(a)(1)(v) of Regulation S-K
occurred with respect to the Company within the last two fiscal years and the
subsequent interim period preceding February 23, 1998.
Effective February 23, 1998, the Company engaged Arthur Andersen as its
independent auditors for the fiscal year ending February 28, 1998. During the
last two fiscal years and the subsequent interim period preceding February 28,
1999, the Company did not consult Arthur Andersen regarding any of the matters
or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.
The Company requested Coopers & Lybrand furnish it with a letter addressed to
the Securities and Exchange Commission stating whether it agreed with the above
statements. A copy of Coopers & Lybrand's letter to the Securities and Exchange
Commission was filed as Exhibit 16.1 to the Company report on Form 8-K filed
with the Securities and Exchange Commission on February 27, 1998.
37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Stephen A. Hafer..................... 50 Chairman of the Board, President and Chief
Executive Officer
J. Patrick Henry..................... 45 President of Unibol, Inc. and Director
Nelson J. Millar..................... 61 Director
Thomas Zimmerer...................... 57 Director
</TABLE>
STEPHEN A. HAFER. Mr. Hafer currently serves as the Company's Chairman
of the Board, President and Chief Executive Officer, positions he has held since
January 1993. From July 1990 to January 1993, Mr. Hafer was the Company's Chief
Financial Officer. Mr. Hafer has been Chairman of the Board of Linder Financial
Corporation, an asset-based lending company, since November 1994 and President
since September 1995. He has served as Treasurer of Foutz & Associates, a public
relations company, since 1981 and as President and Chairman of Arccom
Technologies, Inc., an investment holding company, since 1990. Mr. Hafer holds a
B.S. in Accounting from Florida State University.
J. PATRICK HENRY. Mr. Henry has been President of Unibol, Inc., which
controls the Company's North and South American UNIBOL operations, since January
1992 and a Director of the Company since 1992. Mr. Henry first joined the
Company in March 1991 as Vice President of Sales with seven years of data
processing experience as a Marketing Manager at Burroughs Corporation. Mr. Henry
holds a B.S. in Industrial Management from Georgia Institute of Technology and
an M.B.A. in Finance from Georgia State University.
NELSON J. MILLAR. Mr. Millar has been a Director of the Company since
November 1994. Mr. Millar has been the President and owner of Trafalgar
Management Consultants in Belfast, Northern Ireland since 1993. From September
1992 to May 1993, Mr. Millar acted as the Managing Director of the ICS Computing
Group Limited, the group of companies that the Company acquired in May 1993.
From 1976 to 1993, Mr. Millar was the Managing Director of CMI Limited, the
systems integration subsidiary of ICS Computing Group Limited. Mr. Millar holds
a Higher National Diploma in Business Studies from Queens University in Belfast,
Northern Ireland, and is a member of the British Computer Society and Fellow of
the Institute of Directors.
THOMAS ZIMMERER. Dr. Zimmerer has been a Director of the Company since
May 1994. Dr. Zimmerer serves as the Director of the Breech School of Business
Administration at Drury University. In addition he holds the academic rank of
Professor of Management. Dr. Zimmerer is responsible for all administrative
activities of the school and the leadership of faculty and staff. Dr. Zimmerer
formerly held the Allen and Ruth Harris Chair of Excellence in Business, and has
served as Professor of Management, at East Tennessee State University since
1993. Dr. Zimmerer co-founded Clemson University's Emerging Technology and
Marketing Center and has co-authored eight books and over 90 articles and
professional papers. In addition, he has served as a consultant to over 75
United States and foreign corporations.
38
<PAGE>
Dr. Zimmerer holds a B.S.B.A. in Management and Economics from the American
University in Washington, D.C., an M.S. in Economics from Louisiana State
University and a Ph.D. in Management from the University of Arkansas.
Information other than the listing of Directors and Executive Officers
of the Company, which is set forth above, required under this Item is
incorporated by reference to the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated by reference
to the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item is incorporated by reference
to the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is incorporated by reference
to the Company's Proxy Statement.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the Form 10-K
(1) FINANCIAL STATEMENTS
Reports of Independent Public Accountants
Consolidated Balance Sheets as of February 28, 1999 and
February 28, 1998
Consolidated Statements of Operations for the years ended
February 28, 1999, February 28, 1998, and February 28, 1997
Consolidated Statements of Stockholders' Equity for the years
ended February 28, 1999, February 28, 1998, and
February 28, 1997
Consolidated Statements of Cash Flow for the years ended
February 28, 1999, February 28, 1998, and February 28, 1997
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and qualifying accounts
All other schedules have been omitted as the required information is
not applicable, the amounts are not significant or the information is set forth
in the consolidated financial statements or the notes thereto.
(3) EXHIBITS:
<TABLE>
<CAPTION>
Exhibits Description
- ---------------- ---------------------------------------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement between the Registrant and Eurodis
Electron Plc, dated February 20, 1997 (previously filed with
Form 8-K on March 6, 1997 and incorporated herein by reference)
2.2 Agreement for the Sale and Purchase of Certain Assets and the
Goodwill of Aurora UniComp Limited, dated December 17, 1998,
previously filed with the Form 8-K on January 4, 1999.
3.1 Articles of Incorporation of the Registrant (previously filed
with Form S-18, filed April 15, 1986 (Reg. No. 33-04906-D) and
incorporated herein by reference)
3.2 Amendment to Articles of Incorporation changing the Registrant's
name from Liberty Ventures, Ltd. To UniComp, Inc. (previously
filed with Form S-18, filed April 15, 1986 (Reg. No. 33-04906-D)
and incorporated herein by reference)
3.3 Amended and Restated Bylaws of the Registrant (previously filed
with Form S-1, dated September 18, 1996, as amended,
(Reg. No. 333-12209) and incorporated herein by reference)
3.4 UniComp, Inc. Articles of Amendment to the Articles of
Incorporation, previously filed with the August 31, 1998 Form
10-Q and incorporated herein by reference.
</TABLE>
40
<PAGE>
<TABLE>
<S> <C>
4.1 UniComp, Inc. Articles of Amendment to the Articles of
Incorporation, filed herewith as Exhibit 3.1, previously filed
with the August 31, 1998 Form 10-Q and incorporated herein by
reference.
4.2 The Cruttenden Roth Bridge Fund, LLC Warrant, previously filed
with the August 31, 1998 Form 10-Q and incorporated herein by
reference.
4.3 Advantage Fund II Ltd. Warrant, previously filed with the
August 31, 1998 Form 10-Q and incorporated herein by reference.
4.4 Subscription Agreement dated as of October 7, 1998 by and
between UniComp, Inc. and Advantage Fund II Ltd., previously
filed with the August 31, 1998 Form 10-Q and incorporated
herein by reference.
4.5 Registration Rights Agreement dated as of October 7, 1998 by
and between UniComp, Inc. and Advantage Fund II ltd.,
previously filed with the August 31, 1998 Form 10-Q and
incorporated herein by reference.
10.1 End-User Purchase Agreement between the Registrant and
Hewlett-Packard dated October 25, 1994 (previously filed with
Form 10-K/A amendment no. 2 for the fiscal year ended February
28, 1994 and incorporated herein by reference)
10.2 Business Partner Agreement between the Registrant and IBM dated
March 1, 1994 (previously filed with Form 10-K/A amendment no.
2 for the fiscal year ended February 28, 1994 and incorporated
herein by reference)
10.3 Agreement between the Registrant and Siemens Nixdorf dated
January 3, 1995 (previously filed with Form 10-K for the fiscal
year ended February 28, 1995 and incorporated herein by
reference)
10.4 Agreement for Sale of a Business between the Registrant and
Euro Software Limited dated September 25, 1995 for the
acquisition of the assets of Advec Limited (previously filed
with Form 10-K for the fiscal year ended February 29, 1996 and
incorporated herein by reference)
10.5 Offshore Warrant Agreement between the Registrant and First
Bermuda Securities, Ltd. Dated December 20, 1995 (previously
filed with Form 10-K for the fiscal year ended February 29,
1996 and incorporated herein by reference)
10.6 Form of 7% Convertible Promissory Notes dated December 20, 1995
issued by the Registrant to certain offshore investors
(previously filed with Form 10-K for the fiscal year ended
February 29, 1996 and incorporated herein by reference)
10.7 Stock Purchase Agreement between the Registrant and Smoky
Mountain Technologies, Inc., dated April 16, 1996 (previously
filed with Form 8-K dated May 1, 1996, as amended, and
incorporated herein by reference)
10.8 Employment Agreements, dated April 16, 1996 between the
Registrant and each of B. Michael Wilson and George Gruber,
(previously filed with Form 8-K dated May 1, 1996, as amended,
and incorporated herein by reference)
10.9 Form of Indemnification Agreement used between the Registrant
and members of the Board of Directors and executive officers of
the Registrant (previously filed with Form S-1, dated September
18, 1996, as amended, (Reg. No. 333-12209) and incorporated
herein by reference)
10.10 Agreement between Smoky Mountain Technologies, Inc. and the
Atalla Division of Tandem, Inc. dated October 30, 1996
(previously filed with Form S-1, dated September 18, 1996, as
amended, (Reg. No. 333-12209) and incorporated herein by reference)
10.12 Agreement and Plan of Reorganization By and Among UniComp,
Inc., Smoky Mountain Technologies, Inc., Novatek Corporation,
its Shareholders, Sun and Sky Development Corp. and its
Shareholders (previously filed with Form 8-K
</TABLE>
41
<PAGE>
<TABLE>
<S> <C>
dated November 29, 1997 and incorporated herein by reference)
10.13 Stock Repurchase Agreement by and among the Company, The
Governor and Company of the Bank of Ireland, DCC Business
Expansion Fund Limited, Smurfit Venture Investments Limited and
Enterprise Ireland dated December 18, 1998 and previously filed
with the November 30, 1998 Form 10-Q and incorporated herein by
reference.
16.1 Letter of Coopers & Lybrand re: Change in Certified Public
Accountants (previously filed with Form 8-K dated February 27,
1998.)
21.1 Subsidiaries of the Registrant 23.1 Consent of Independent
Accountants 27.1 Financial Data Schedule (for SEC use only)
99.1 Loan Agreement by and between Aurora SX3 Limited and UniComp
Holdings (UK) Limited, dated December 17, 1998, previously
filed with the Form 8-K on January 4, 1999.
99.2 Mortgage by and between UniComp Holdings (UK) Limited and
Aurora SX3 Limited, dated December 17, 1998, previously filed
with the Form 8-K on January 4, 1999.
99.3 Fixed and Floating Charge and Debenture by and between ICS
UniComp Limited, Unibol Limited, ICS Computing Group Limited,
Aurora UniComp Limited, and Aurora SX3 Limited, dated December
17, 1998, previsously filed with the Form 8-K on January 4,
1999.
99.4 Guarantee and Indemnity by and between UniComp, Inc., ICS
UniComp Limited, Unibol Limited, ICS Computing Group Limited,
Aurora UniComp, Limited, and Aurora SX3 Limited, dated December
17, 1998, previously filed with the Form 8-K on January 4,
1999.
</TABLE>
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on January 4, 1999, relating to
the sale of assets of the Company's subsidiary Aurora UniComp Limited.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Marietta, State of Georgia, on the 9th day of June, 1999.
UNICOMP, INC.
By: /s/ HUGH MOORE
---------------------------------------
Hugh Moore
Vice President of Finance
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated below on the 9th day of June, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ STEPHEN A. HAFER Chairman of the Board, President and Chief Executive
---------------------------------
Stephen A. Hafer Officer (Principal Executive Officer)
/s/ J. PATRICK HENRY Director
---------------------------------
J. Patrick Henry
/s/ NELSON J. MILLAR Director
---------------------------------
Nelson J. Millar
/s/ THOMAS ZIMMERER Director
---------------------------------
Thomas Zimmerer
</TABLE>
43
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
AS OF FEBRUARY 28, 1999, 1998, AND 1997
TOGETHER WITH
AUDITORS' REPORT
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FEBRUARY 28, 1999, 1998, AND 1997
TABLE OF CONTENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets--February 28, 1999 and 1998
Consolidated Statements of Operations for the Years Ended February 28,
1999, 1998, and 1997
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended February 28, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the Years Ended February 28,
1999, 1998, and 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
SCHEDULE SUPPORTING FINANCIAL STATEMENTS
Schedule II: Valuation and Qualifying Accounts for the Years Ended
February 28, 1999, 1998, and 1997
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UniComp, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of UNICOMP, INC. (a
Colorado corporation) AND SUBSIDIARIES as of February 28, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended February 28, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UniComp, Inc. and subsidiaries
as of February 28, 1999 and 1998 and the results of their operations and their
cash flows for the years ended February 28, 1999 and 1998 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the table of
contents is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Atlanta, Georgia
June 9, 1999
<PAGE>
Page 1 of 2
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1999 AND 1998
(In Thousands, Except Per Share Data)
ASSETS
<TABLE>
<CAPTION>
1999 1998
---- ----
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents ($3 million restricted in 1998) $ 1,400 $ 3,904
Accounts and other receivables:
Trade, net of allowance of $824 and $1,613 in 1999 and 1998, respectively 7,192 8,360
Other receivables 531 371
Inventories 3,444 3,161
Prepaid expenses and other 1,255 754
------ ------
Total current assets 13,822 16,550
------ ------
PROPERTY AND EQUIPMENT, NET 3,611 3,599
------ ------
OTHER ASSETS:
Acquired and developed software, net of accumulated amortization of $4,945
and $2,853 in 1999 and 1998, respectively 6,816 6,403
Goodwill and other intangibles, net of accumulated amortization of $489 and
$163 in 1999 and 1998, respectively 2,454 1,755
Prepaid pension 1,202 754
Note receivable from officer/director 525 390
Deferred income taxes 626 446
Other 1,159 527
Net assets of discontinued operations 0 4,182
------ ------
Total other assets 12,782 14,457
------ ------
Total assets $30,215 $34,606
------ ------
------ ------
</TABLE>
<PAGE>
Page 2 of 2
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 2,564 $ 3,384
Accrued expenses 1,923 2,178
Deferred revenue 1,652 1,773
Taxes payable 801 1,064
Lines of credit 3,611 6,358
Current portion of notes payable 1,069 1,358
------ ------
Total current liabilities 11,620 16,115
------ ------
LONG-TERM LIABILITIES:
Notes payable 1,473 1,347
Deferred income taxes 1,151 741
Other 163 110
------ ------
Total long-term liabilities 2,787 2,198
------ ------
Total liabilities 14,407 18,313
------ ------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value; 5,000 authorized, 3,000 and 0 issued and
outstanding at February 28, 1999 and 1998, respectively 2,800 0
Common stock; $.01 par value, 100,000 and 25,000 authorized, 7,965 issued at
February 28, 1999 and 1998 80 80
Additional contributed capital 15,810 15,331
Retained earnings (deficit) (697) 1,192
------ ------
17,993 16,603
Less treasury stock (2,052) (206)
Accumulated other comprehensive income (133) (104)
------ ------
Total stockholders' equity 15,808 16,293
------ ------
Total liabilities and stockholders' equity $30,215 $34,606
------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 28, 1999, 1998, AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
REVENUE:
Equipment $ 9,275 $10,861 $ 7,791
Services 11,778 7,916 5,369
Software 8,526 9,285 7,888
------ ------ ------
Total revenue 29,579 28,062 21,048
------ ------ ------
COST OF SALES:
Equipment 7,065 8,180 6,220
Services 1,740 986 1,323
Software 3,816 3,523 3,011
------ ------ ------
Total cost of sales 12,621 12,689 10,554
------ ------ ------
GROSS PROFIT 16,958 15,373 10,494
------ ------ ------
SELLING, GENERAL, AND ADMINISTRATIVE 17,639 14,496 9,315
------ ------ -----
ACQUISITION-RELATED CHARGES 0 1,085 0
------ ------ ------
Total operating expenses 17,639 15,581 9,315
------ ------ ------
OPERATING (LOSS) INCOME (681) (208) 1,179
------ ------ ------
OTHER (INCOME) EXPENSE:
Other, net 375 3 (50)
Interest, net 636 351 281
------ ------ ------
Other expense, net 1,011 354 231
------ ------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES (1,692) (562) 948
PROVISION FOR INCOME TAXES 199 340 36
------ ------ ------
INCOME (LOSS) FROM CONTINUING OPERATIONS (1,891) (902) 912
DISCONTINUED OPERATIONS:
Income (loss) from operations, less provision for income taxes (298) 119 599
Gain on disposal, less provision for income taxes 821 0 0
------ ------ ------
NET INCOME (LOSS) $(1,368) $ (783) $ 1,511
------ ------ ------
------ ------ ------
PREFERRED STOCK DIVIDENDS AND ACCRETION $ 443 $ 0 $ 0
------ ------ ------
------ ------ ------
INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $(1,811) $ (783) $ 1,511
------ ------ ------
------ ------ ------
BASIC EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations $ (0.30) $ (0.12) $ 0.14
Discontinued operations:
Income (loss) from operations (0.04) 0.02 0.09
Gain on disposal 0.11 0.00 0.00
------ ------ ------
NET INCOME (LOSS) $ (0.23) $ (0.10) $ 0.23
------ ------ ------
------ ------ ------
DILUTED EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations $ (0.30) $ (0.12) $ 0.13
Discontinued operations:
Income (loss) from operations (0.04) 0.02 0.09
Gain on disposal 0.11 0.00 0.00
------ ------ ------
NET INCOME (LOSS) $ (0.23) $ (0.10) $ 0.22
------ ------ ------
------ ------ ------
WEIGHTED AVERAGE SHARES 7,802 7,727 6,465
------ ------ ------
------ ------ ------
WEIGHTED AVERAGE SHARES ASSUMING DILUTION 7,802 7,727 6,865
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 28, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- -------------------
NUMBER NUMBER ADDITIONAL RETAINED
OF SHARES OF SHARES CONTRIBUTED EARNINGS
ISSUED AMOUNT ISSUED AMOUNT CAPITAL (DEFICIT)
------ ------ ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 29, 1996 0 $ 0 5,952 $60 $ 6,270 $ 531
Stock issued 0 0 1,506 15 5,737 0
Conversion of debt 0 0 427 4 1,948 0
Treasury stock purchased 0 0 0 0 0 0
Retirement of treasury stock 0 0 (208) (2) (892) 0
Warrants issued 0 0 0 0 54 0
Net income 0 0 0 0 0 1,511
Change in cumulative translation adjustment 0 0 0 0 0 0
----- ----- ----- ---- -------- -------
BALANCE, FEBRUARY 28, 1997 0 0 7,677 77 13,117 2,042
Net loss from Novatek's two months ended
February 28, 1997 (Note 3) 0 0 0 0 0 (67)
Options and warrants exercised 0 0 181 2 1,459 0
Stock issued for acquisition of ICM 0 0 107 1 755 0
Net loss 0 0 0 0 0 (783)
Change in cumulative translation adjustment 0 0 0 0 0 0
----- ----- ----- ---- -------- -------
BALANCE, FEBRUARY 28, 1998 0 0 7,965 80 15,331 1,192
Options and warrants exercised 0 0 0 0 0 (18)
Issuance of warrants in connection with debt
financing 0 0 0 0 36 0
Issuance of preferred stock 3,000 2,357 0 0 443 0
Preferred stock dividends 0 0 0 0 0 (60)
Preferred stock accretion 0 443 0 0 0 (443)
Treasury stock purchased 0 0 0 0 0 0
Net loss 0 0 0 0 0 (1,368)
Change in cumulative translation adjustment 0 0 0 0 0 0
----- ----- ----- ---- -------- -------
BALANCE, FEBRUARY 29, 1999 3,000 2,800 7,965 $80 $ 15,810 $ (697)
----- ----- ----- ---- -------- -------
----- ----- ----- ---- -------- -------
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
TREASURY TRANSLATION STOCKHOLDERS' COMPREHENSIVE
STOCK ADJUSTMENT EQUITY INCOME
----- ---------- ------ ------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 29, 1996 $ (461) $(180) $ 6,220 $ 0
Stock issued 0 0 5,752 0
Conversion of debt 0 0 1,952 0
Treasury stock purchased (1,042) 0 (1,042) 0
Retirement of treasury stock 894 0 0 0
Warrants issued 0 0 54 0
Net income 0 0 1,511 1,511
Change in cumulative translation adjustment 0 18 18 18
------- ----- ------- -------
BALANCE, FEBRUARY 28, 1997 (609) (162) 14,465 $1,529
-------
-------
Net loss from Novatek's two months ended
February 28, 1997 (Note 3) 0 0 (67) 0
Options and warrants exercised 403 0 1,864 0
Stock issued for acquisition of ICM 0 0 756 0
Net loss 0 0 (783) (783)
Change in cumulative translation adjustment 0 58 58 58
------- ----- ------- -------
BALANCE, FEBRUARY 28, 1998 (206) (104) 16,293 $ (725)
-------
-------
Options and warrants exercised 58 0 40 0
Issuance of warrants in connection with debt
financing 0 0 36 0
Issuance of preferred stock 0 0 2,800 0
Preferred stock dividends 0 0 (60) 0
Preferred stock accretion 0 0 0 0
Treasury stock purchased (1,904) 0 (1,904) 0
Net loss 0 0 (1,368) (1,368)
Change in cumulative translation adjustment 0 (29) (29) (29)
------- ----- ------- -------
BALANCE, FEBRUARY 29, 1999 $(2,052) $(133) $15,808 $(1,397)
------- ----- ------- -------
------- ----- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 28, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Income (loss) from continuing operations $(1,891) $ (902) $ 912
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operations:
Depreciation and amortization 3,405 2,854 1,875
Issuance of warrants 36 0 54
Allowance for doubtful accounts 589 1,446 66
Deferred income taxes 80 22 102
Changes in assets and liabilities:
Accounts and other receivables 366 (5,836) (1,102)
Inventory (283) (1,773) (375)
Prepaid expenses (351) (323) 19
Accounts payable (820) 1,750 (749)
Accrued expenses (781) 959 (314)
Deferred revenue (493) 621 (221)
Income taxes payable (263) 151 (288)
Other (999) (706) (262)
------ ------ ------
Net cash provided by (used in) continuing operations (1,405) (1,737) (283)
Net cash provided by (used in) discontinued operations (1,275) 165 1,362
------ ------ ------
Net cash provided by (used in) operating activities (2,680) (1,572) 1,079
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (824) (1,292) (937)
Purchase of acquired company (91) 0 0
Proceeds from disposition of discontinued operations, net of 5,980 (524) (513)
Acquired and developed software (2,588) (2,625) (2,525)
------ ------ ------
------ ------ ------
Net cash provided by (used in) investing activities 2,477 (4,441) (3,975)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net 2,800 0 0
Payment of preferred stock dividends (53) 0 0
Payments on debt (6,592) (1,268) (1,116)
Proceeds from borrowing 3,572 4,242 (3)
Issuance of common stock, net 40 1,868 5,752
Receivables from related party (135) 1,204 1,413
Purchase of treasury stock (1,904) 0 (618)
------ ------ ------
------ ------ ------
Net cash provided by financing activities (2,272) 6,046 5,428
NET INCREASE (DECREASE) IN CASH (2,475) 33 2,532
EFFECT OF EXCHANGE RATE CHANGES ON CASH (29) 61 18
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,904 3,810 1,260
------ ------ ------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,400 $3,904 $3,810
------ ------ ------
------ ------ ------
CASH PAID FOR INTEREST $ 688 $ 766 $ 324
------ ------ ------
------ ------ ------
CASH PAID FOR TAXES $ 393 $ 358 $ 165
------ ------ ------
------ ------ ------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FEBRUARY 28, 1999, 1998, AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of UniComp,
Inc. and its subsidiaries (the "Company"). All material intercompany
balances and transactions have been eliminated in consolidation. The
preparation of financial statements requires management to make estimates
and assumptions underlying the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Changes in the status of certain
matters, facts, or circumstances underlying these estimates could result
in material changes, and actual results could differ from these estimates.
Certain amounts previously presented in the financial statements have been
reclassified to conform to current presentation.
REVENUE RECOGNITION
The Company's revenue is generated primarily from licensing software
products, providing various professional services, and the sale of
computer equipment.
Revenue from the sale of the Company's software products, the resale of
third-party software products, and the sale of computer equipment is
recognized upon delivery, customer acceptance, fulfillment of significant
vendor obligations, if any, and determination that collectibility is
probable. Revenue related to sales which impose significant vendor
obligations on the Company is deferred until those obligations are
satisfied. Revenue from postcontract customer support is recognized
ratably over the life of the contract.
The Company provides professional services, including systems
implementation and integration, hardware and software support and
maintenance, custom software development, consulting, educational, and
other services. These services are generally provided under time and
materials or annual support contracts for which revenue is recognized as
the services are performed or ratably over the life of the contract. In
some circumstances, the Company performs professional services under fixed
price contracts, for which revenue is recognized on the basis of the
estimated percentage of completion. From time to time, adjustments are
made to the estimates used to calculate the percentage of
<PAGE>
completion for a contract. Changes in estimates to complete and losses, if
any, are recognized in the period in which they are determined.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
All assets and liabilities on the balance sheet of a foreign subsidiary
whose functional currency is other than the United States dollar are
translated at the period-end currency exchange rate. Income statement
items are translated at the average currency exchange rate for the period.
Translation gains and losses are accumulated as a separate component of
stockholders' equity and are not included in determining net income.
Transaction gains and losses are included in the results of operations in
the period in which they occur.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly liquid
investments with an original maturity of three months or less. At times,
cash in bank deposits may exceed the federally insured limits. The Company
has not experienced and does not anticipate any losses from such accounts.
At February 28, 1998, $3 million of cash and cash equivalents was
restricted and held as collateral on certain short-term indebtedness of
the Company. During the fiscal year ending February 28, 1999, the Company
refinanced the debt and the collateral was released.
INVENTORY
Inventory consists primarily of computer equipment and
transaction-processing equipment available for resale. Inventory is stated
at the lower of cost or market, cost being determined on a first-in,
first-out basis. Components of inventory as of February 28, 1999 and 1998
are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Computer equipment $ 847 $ 597
Transaction-processing equipment 2,597 2,564
------ ------
$3,444 $3,161
------ ------
------ ------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets, except for leasehold improvements,
which are depreciated over the life of the related lease.
<PAGE>
The components of property and equipment as of February 28, 1999 and 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIFE
(YEARS) 1999 1998
------- ---- ----
<S> <C> <C> <C>
Buildings 30 TO 50 $1,982 $1,911
Land N/A 70 70
Leasehold improvements 5 TO 10 528 458
Computer software 3 395 301
Furniture, fixtures, and equipment 3 TO 5 3,126 2,574
Vehicles 2 TO 4 139 102
------ ------
6,240 5,416
Less accumulated depreciation 2,629 1,817
------ ------
$3,611 $3,599
------ ------
------ ------
</TABLE>
Depreciation charged to expense was $.8 million, $.7 million, and $.4
million for fiscal years 1999, 1998, and 1997, respectively.
ACQUIRED AND DEVELOPED SOFTWARE
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed," certain costs incurred in the internal development
of computer software which is to be licensed to customers and costs of
purchased computer software are capitalized and amortized over their
estimated useful lives, generally three to five years, at the greater of
the amount computed using (i) the ratio that current gross revenues for a
product bear to the total of current and anticipated future gross revenues
of that product or (ii) the straight-line method.
Costs that are capitalized as part of internally developed software
primarily include direct and indirect costs associated with payroll,
benefits, computer usage, an allocation of depreciation, facilities, and
other direct allocable costs, among others. All research and development
costs incurred prior to the establishment of technological feasibility and
subsequent to the product becoming generally available have been expensed
in the period in which they were incurred. Product enhancements are
improvements to an existing product that are intended to extend the life
or significantly improve the marketability of the original product. Costs
incurred for product enhancements are charged to expense as research and
development until technological feasibility of the enhancement has been
established. Total research and development costs which were expensed as
they were incurred totaled $1.2 million, $.9 million, and $.6 million for
fiscal years 1999, 1998, and 1997, respectively.
The Company capitalized software development costs of $2.8 million, $2.6
million, and $2.5 million during fiscal years 1999, 1998, and 1997,
respectively, with amortization expense of $2.7 million, $2.1 million, and
$1.5 million during the same periods. Capitalized
<PAGE>
software costs are net of amounts reimbursed by Northern Ireland
government grants of $.3 million, $.4 million, and $.4 million in fiscal
years 1999, 1998, and 1997, respectively.
The amount by which unamortized software costs exceeds the net realizable
value, if any, is recognized as expense in the period it is determined.
GOODWILL AND OTHER INTANGIBLE ASSETS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Assets to Be Disposed Of," requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are
present and the expected future cash flows of those assets are less than
the assets' carrying amount. SFAS No. 121 also addresses the accounting
for long-lived assets that are expected to be sold or discarded.
Identifiable intangible assets and goodwill are recorded and amortized
over their estimated economic lives or periods of future benefit. The
lives established for these assets are a composite of many factors which
are subject to change because of the nature of the Company's operations.
This is particularly true for goodwill which reflects value attributable
to the going-concern nature of acquired businesses, the stability of their
operations, their market presence, and their reputation. Accordingly, the
Company evaluates the continued appropriateness of these lives and
recoverability of the carrying value of such assets based on the latest
available economic factors and circumstances.
The Company evaluates the recoverability of all long-lived assets,
including specific intangible assets and goodwill, based on a comparison
of estimated future cash flows from the related operations with the then
corresponding carrying values of those assets. Impairment of value, if
any, is recognized in the period in which it is determined. A rate
considered to be commensurate with the risk involved is used to discount
the cash flows for any recognized impairment.
The Company amortizes goodwill on a straight-line basis over an estimated
life of up to ten years for goodwill related to computer hardware and
service company acquisitions and five to seven years for goodwill related
to software company acquisitions. The Company believes that these lives
appropriately reflect the current economic circumstances for such
businesses and the related period of future benefit. Other identifiable
intangible assets are amortized on a straight-line basis over their
estimated period of benefit ranging from three to ten years. Amortization
charged to expense was $.4 million, $.2 million, and $.1 million for
fiscal years 1999, 1998, and 1997, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial assets and liabilities,
including cash and cash equivalents, accounts receivable, short-term notes
receivable, accounts payable, and lines of credit, at February 28, 1999
and 1998 approximate fair value because of the short-term maturity of
these instruments. The carrying value of the Company's long-term debt and
notes receivable approximates fair value at February 28, 1999 and 1998
based on market rates for similar issues.
<PAGE>
INCOME TAXES
The provision for income taxes and the corresponding balance sheet
accounts are determined in accordance with SFAS No. 109, "Accounting for
Income Taxes." Under SFAS No. 109, the deferred tax liabilities and assets
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes.
These differences are primarily attributable to differences in the
recognition of depreciation and amortization of property and equipment,
intangible assets, and capitalized software development costs. No deferred
tax liability has been recognized relating to taxable temporary
differences attributable to the excess of the amount for financial
reporting over the tax basis of investments in foreign subsidiaries due to
the fact that such taxable temporary differences are not expected to
reverse in the foreseeable future. The determination of the amount of such
liability is not practical.
ADVERTISING
The Company generally expenses advertising and marketing costs as
incurred. Advertising and marketing costs were $.9 million, $.7 million,
and $.5 million during fiscal years 1999, 1998, and 1997, respectively.
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Weighted average shares 7,802 7,727 6,465
Dilutive effect of common stock options and warrants 0 0 400
----- ----- -----
Weighted average shares assuming dilution 7,802 7,727 6,865
----- ----- -----
----- ----- -----
</TABLE>
Options and warrants to purchase 282,500 shares of common stock at a
weighted average price of $7.62 per share for fiscal year 1997 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 fiscal years 1999 and 1998 and the conversion
of preferred stock in fiscal year 1999 were excluded from the calculation
of diluted earnings per share due to the net loss for those periods.
<PAGE>
NEW ACCOUNTING STANDARDS
In early 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance on accounting for the costs of computer software
developed or obtained for internal use, and is effective for fiscal years
beginning after December 31, 1998. The adoption of SOP 98-1 is not
expected to have a material effect on the Company's financial statements.
2. DISCONTINUED OPERATIONS
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 (the "Sale"). Aurora was a
reseller of computer equipment to the educational marketplace.
Consideration consisted of approximately $6.3 million in cash and the
assumption of debt totaling approximately $5.5 million. In connection with
the sale, the Company recorded a gain of $.8 million, net of a tax benefit
of $.5 million.
In addition, the Company entered into a two-year loan agreement whereby
the Company was initially advanced approximately $1.2 million and will
receive an additional $.4 million after the Company timely meets the first
12 installment payments. The loan bears interest at .5% above the base
lending rate of the Bank of Ireland and shall be repaid in 24 equal
monthly installments.
Revenues of Aurora were $19.5 million, $24 million, and $10.7 million in
fiscal years 1999, 1998, and 1997, respectively. A summary of the net
assets of Aurora, which have been reflected in the consolidated balance
sheet as of February 28, 1998, is as follows (in thousands):
<TABLE>
<S> <C>
Current assets $7,994
Property and equipment, net 1,147
Other assets 2,940
Current liabilities (7,899)
------
$4,182
------
------
</TABLE>
3. BUSINESS COMBINATIONS
ACQUISITION OF ICM COMPUTING MACHINES LIMITED
On January 8, 1998, the Company completed its acquisition of ICM Computing
Machines Limited ("ICM") for 107,453 shares of the Company's common stock,
or approximately $.8 million. ICM, headquartered in Ireland, principally
provides process management software and related services to the farming
industry. The acquisition has been accounted for as a purchase, and
accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on their estimated fair values at the
date of acquisition. The results of operations have been included from
January 1, 1998, the effective date of the acquisition. The excess
consideration above the fair value of net assets acquired of approximately
$1.2 million has been recorded as goodwill. Under the terms of
<PAGE>
the purchase agreement, the Company guaranteed approximately $.8 million
in proceeds from the sale of the company stock issued to consummate the
transaction. In December 1998, the Company purchased 90,786 of the shares
issued for approximately $.7 million.
Supplemental pro forma information is not presented, since this
acquisition was not material to the Company's consolidated results of
operations in the year of acquisition.
ACQUISITION OF NOVATEK
On November 29, 1997, the Company completed its acquisition of Novatek, a
provider of new and refurbished point-of-sale and transaction-processing
equipment and related services. The Company issued 788,708 shares of its
common stock for all of the outstanding common stock of Novatek. This
transaction has been accounted for as a pooling of interests; therefore,
the historical financial statements have been restated to reflect this
merger. Novatek historically prepared its financial statements on a
December 31 year-end. Subsequent to the acquisition, Novatek was merged
with one of the Company's subsidiaries, and thus, the fiscal year-end has
been changed to conform with the Company's year-end. The historical
financial data for Novatek is included in the consolidated financial
statements for all periods presented as of its year-end except for the
year ended February 28, 1998, where Novatek's results of operations have
been presented as of the Company's year-end. As a result of the change in
Novatek's fiscal year-end to conform to the Company's subsequent to
acquisition, the results of operations for Novatek for the two-month
period ended February 28, 1997 are not reflected in any of the periods
presented and have been charged directly to equity. The results of
Novatek's operations for the two months ended February 28, 1997 are
summarized as follows (in thousands):
<TABLE>
<S> <C>
Revenue $713
Net loss 67
</TABLE>
The stockholders' equity accounts have been adjusted to reflect the
conversion of all of Novatek's common stock into 788,708 shares of the
Company's common stock. No other adjustments were required to reflect the
consolidation, since the accounting policies of this company prior to the
transaction were substantially the same and prior to the date of the
acquisition, there were no significant transactions between the companies.
Novatek's revenue and net income included in the Company's statements of
operations for the years ended February 28, 1997 are summarized as follows
(in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28, 1997
-----------------------------------------------
UNICOMP, INC. Novatek
FEBRUARY 28, December 31,
1997 1996 Total
------------- ------------ ----------
<S> <C> <C> <C>
Revenue $14,490 $6,558 $21,048
Income from continuing
operations 927 (15) 912
</TABLE>
<PAGE>
In connection with this acquisition, the Company incurred charges totaling
$1 million. Of this amount, $.7 million related to compensation expense
recorded for the value of certain compensatory stock options at Novatek
for which the applicable compensation expense could only be determined
upon the sale of Novatek. Therefore, the Company recorded a one-time
noncash compensation expense upon consummation of the merger with Novatek.
Additionally, the Company recorded $.3 million in expenses relating to the
pooling-of-interests transaction with Novatek.
ACQUISITION OF CEM COMPUTERS LIMITED
On February 20, 1997, the Company completed its acquisition of CEM
Computers Limited ("CEM") for approximately $3.7 million. CEM,
headquartered in Northern Ireland, principally provides computer
equipment, hardware and software support, and systems integration
services. The acquisition has been accounted for as a purchase, and
accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on their estimated fair values at the
date of acquisition. The results of operations have been included from
February 1, 1997, the effective date of the acquisition. The excess
consideration above the fair value of net assets acquired of approximately
$2.9 million has been recorded as goodwill.
In June 1997, the operations of CEM and another subsidiary located in
Northern Ireland were combined to form Aurora. Accordingly, the operations
of CEM are reflected in discontinued operations.
ACQUISITION OF SMOKY MOUNTAIN
On April 16, 1996, the Company completed its acquisition of Smoky
Mountain, a software and hardware developer for the transaction-processing
industry. The Company issued 500,000 shares of its common stock for all of
the outstanding common stock of Smoky Mountain. This transaction has been
accounted for as a pooling of interests; therefore, the historical
financial statements have been restated to reflect this merger. Smoky
Mountain historically prepared its financial statements on a December 31
year-end. Smoky Mountain's fiscal year-end has been changed to conform
with the Company's year-end, and its historical financial data is included
in the consolidated financial statements for all periods presented as of
the Company's year-end.
ACQUISITION SUBSEQUENT TO YEAR-END
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 shares of the
Company's common stock.
<PAGE>
DISPOSITION SUBSEQUENT TO YEAR-END
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 $.3 million on the sale will
be recognized as cash is received.
4. INCOME TAXES
The sources of income from continuing operations before provision for
income taxes are as follows (in thousands) as of February 28, 1999, 1998,
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
United States $(2,691) $(2,121) $575
Foreign 800 1,559 373
------- ------- ----
$(1,891) $ (562) $948
------- ------- ----
------- ------- ----
</TABLE>
The significant components of income tax expense from income from
continuing operations are as follows (in thousands) as of February 28,
1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current provision:
Federal $ 0 $ 0 $ (7)
State 0 7 5
Foreign 62 274 130
Deferred provision:
Federal 0 (191) 191
State 0 (100) 32
Foreign 137 350 (315)
------ ------ ------
$ 199 $ 340 $ 36
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax rate to income before income
taxes is as follows (in thousands) as of February 28, 1999, 1998, and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income at statutory rate $ (643) $(191) $322
Increase (decrease) in provision from:
State income taxes, net of federal tax deduction (76) (22) 38
Differences in foreign and U.S. tax rates (56) (109) (26)
Nondeductible transaction costs 0 139 0
Deferred tax asset valuation allowance 1,016 500 0
Reduction of U.K. cumulative deferred liability 0 0 (320)
Other (42) 23 22
------- ----- ----
Tax provision $ 199 $ 340 $ 36
------- ----- ----
------- ----- ----
</TABLE>
An analysis of the net deferred income tax assets and liabilities as of
February 28, 1999 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset (liability):
Net operating loss carryforwards $2,429 $ 430
Allowance for doubtful accounts and other 223 516
Depreciation from foreign operations 188 449
Deferred tax asset valuation allowance (1,516) (500)
Capitalized software development costs (1,733) (1,498)
------ ------
Total net deferred asset $ (409) $ (603)
------ ------
------ ------
</TABLE>
As of February 28, 1999, the Company has net operating loss carryforwards
(NOLs) in the United States, subject to certain limitations under the
provisions of Internal Revenue Code Section 382, that expire at various
times from 2003 through 2018 totaling $6.3 million for federal purposes
and $4.6 million for state purposes. The Company recorded a valuation
allowance of $1.5 million and $.5 million as of February 28, 1999 and
1998, respectively, related to NOLs that are not anticipated to be
utilized through normal operating results. Realization of the remainder of
the deferred tax assets is dependent upon generating sufficient taxable
income in future periods. Although realization is not assured, management
believes that it is more likely than not that the remaining deferred tax
assets will be realized.
5. RELATED-PARTY TRANSACTIONS
During fiscal year 1997, the Company's board of directors approved the
exchange of 68,626 shares of the Company's common stock for $.4 million of
indebtedness owed to the Company by certain officers and affiliated
companies. These shares were recorded as treasury stock and were
subsequently retired.
<PAGE>
Note receivable from officer/director at February 28, 1999 and 1998
totaled $.5 million and $.4 million, respectively. Interest is payable
quarterly at a rate of 10%. The note is payable in five equal annual
installments beginning March 1, 2000.
6. LINES OF CREDIT
The Company maintains a series of working capital lines of credit with
maximum borrowing available of $1.7 million in the United Kingdom which
are secured by certain accounts receivable, inventories, and other assets
of the Company. The lines of credit are utilized for short-term borrowing
for general corporate use. From time to time, the bank in the United
Kingdom allows the borrowing under such lines to be in excess of the
maximum to accommodate the Company's peaks in spending. The total
outstanding balance on the lines of credit was $1.3 million, and interest
is charged based on the average outstanding balance at a variable rate
based on the lending bank's base lending rate plus 1.75%, or 7.25% as of
February 28, 1999.
In March 1998, the Company replaced an existing $1.5 million line of
credit with a new line of credit that provides for borrowings up to $3
million. Borrowings are based on eligible accounts receivables and
inventories and are secured by substantially all assets located in the
United States. Interest is charged at the 30-day commercial paper rate
plus 3% (7.85% at February 28, 1999). At February 28, 1999, $2.3 million
was outstanding and $0 was available for future borrowings under the line.
The line of credit was due March 1999 and was subsequently extended to
June 30, 1999.
At February 28, 1998, the Company maintained an additional line of credit
in the United Kingdom that was secured principally by $3 million of cash
and equivalents which were restricted as to use. This line of credit was
used to fund the purchase of CEM (Note 3). In August 1998, the Company
used the restricted cash to repay the obligations incurred under this line
of credit.
All of the Company's lines of credit are subject to customary covenants,
terms, and conditions, including debt and equity ratios and minimum
tangible net worth, among others.
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.
<PAGE>
7. LONG-TERM DEBT
NOTES PAYABLE
Notes payable as of February 28, 1999 and 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Mortgage payable in U.K. pounds, interest at a variable rate of LIBOR plus
1.75%, or 7.25% at February 28, 1999, collateralized by a building in
Northern Ireland, payable in quarterly installments of approximately $18
through July 2005 $ 476 $ 556
Mortgage payable, interest at a fixed rate of 8.83%, collateralized by a
building in North Carolina, payable in monthly installments of
approximately $3 through February 2004 279 286
Mortgage payable, interest at a fixed rate of 8.86%, collateralized by a
building in Florida, payable in monthly installments of approximately $3
through February 2005 289 300
Note payable in U.K. pounds, interest at a variable rate of LIBOR plus
1.75%, or 7.25% at February 29, 1999, collateralized by certain accounts
receivable and other assets of the Company, payable in quarterly
installments of approximately $40 through February 2000 163 329
Subordinated note payable, interest at a rate of 12%, collateralized by a
subordinated position in substantially all of the Company's assets, paid in
full in February 1999 0 1,000
Note payable in U.K. pounds, interest at a variable rate of LIBOR plus .5%,
or 6% at February 29, 1999, collateralized by guarantee and debenture,
payable in monthly installments of approximately $68 through January 2001 1,153 0
Other 182 234
----- -----
Total notes payable 2,542 2,705
----- -----
Less current portion 1,069 1,358
----- -----
$1,473 $1,347
----- -----
----- -----
</TABLE>
<PAGE>
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
2000 $1,069
2001 539
2002 153
2003 123
2004 319
Thereafter 339
------
$2,542
------
------
</TABLE>
8. STOCKHOLDERS' EQUITY
On November 18, 1996, the Company completed a secondary offering of an
additional 1.5 million shares of common stock at $5 per share. The
proceeds, net of underwriters' discounts, commissions, and expenses, were
$5.8 million. In accordance with this offering, the Company granted
warrants to purchase 150,000 shares of the Company's common stock at $8.25
per share to the underwriters of the transaction. These warrants expire on
November 13, 2001. As of February 28, 1999, these warrants had not been
exercised.
During fiscal year 1997, the Company granted warrants to purchase 175,000
shares of common stock at a weighted average exercise price of $6.50 to
its financial advisors (the "Advisor Warrants") and warrants to purchase
95,000 shares of common stock at a weighted average price of $5.32 to its
investor relations advisors (the "Investor Relations Warrants"). The
Company recorded $.1 million of consulting expenses during fiscal year
1997 in association with the granting of these warrants based on the fair
value of the services received in exchange for the warrants. During fiscal
year 1998, all of the Investor Relations Warrants were exercised. The
Advisor Warrants expire on July 15, 2001, and none have been exercised as
of February 28, 1999. During fiscal year 1999, the Company granted
warrants to purchase 25,000 shares of common stock at an exercise price of
$3 to a lender (the "Loan Warrants"). The $36,000 fair value of the
warrant was expensed as interest expense, as the debt was retired in
fiscal 1999. The Loan Warrants expire on September 30, 2003, and none have
been exercised as of February 28, 1999.
The Company held 484,280 and 43,837 shares of common stock in treasury
at February 28, 1999 and 1998, respectively. Treasury stock is held at
cost and is presented as a reduction of stockholders' equity. These
treasury shares are intended to be issued as options are exercised under
the Company's long-term incentive plan and director incentive plan.
SERIES A CONVERTIBLE PREFERRED STOCK
On October 7, 1998, the Company issued 3,000 shares of Series A
convertible preferred stock, par value $1 per share, and warrants for
102,127 shares of the Company's common stock at an exercise price of
$4.41, for aggregate consideration of $3 million. Transaction costs of $.2
million were paid in connection with the offering. Dividends are payable
quarterly in cash or additional preferred stock at a rate of 5% per annum.
The preferred shares, together with any accrued and unpaid dividends, are
convertible into shares of the
<PAGE>
Company's common stock at the lower of 90% of the Company's stock price
for 30 days preceding the conversion or $5 per share. The beneficial
conversion feature and the warrants have been allocated $300,000 and
$110,000, respectively, of the proceeds. The discount of $300,000
resulting from the allocation to the beneficial conversion feature was
recognized as an additional return to the preferred shareholders through
the earliest conversion date. In the event the Company does not register
the underlying common stock, the holder of the preferred shares receives
an additional discount of 2% on the conversion. At February 28, 1999, the
conversion percentage was 84%. Holders of the Series A preferred stock are
not entitled to vote on any shareholder matter.
The preferred stock agreement provides 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. If
the number of underlying shares of common stock exceeds 1,576,000, the
Company is mandatorily obligated to redeem the excess. At February 28,
1999, approximately 1,205,000 shares of common stock are issuable under
the preferred stock agreement. The Company also has certain optional
redemption rights, including, but not limited to, the right to redeem the
outstanding shares of Series A convertible preferred stock at a premium of
116% of the issue price.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space, automobiles, and certain other items
under noncancelable operating leases. Rental expense for fiscal years
1999, 1998, and 1997 was $1.3 million, $1.3 million, and $1.1 million,
respectively.
Future minimum lease payments for operating leases at February 28, 1999
are as follows (in thousands):
<TABLE>
<S> <C>
2000 $ 658
2001 416
2002 250
2003 146
2004 3
Thereafter 0
------
$1,473
------
------
</TABLE>
LITIGATION
The Company is not presently a party to any material litigation nor, to
the knowledge of management, is any material litigation threatened against
the Company. There are no other significant pending legal proceedings,
other than routine litigation incidental to the Company's business.
<PAGE>
10. SUPPLEMENTAL CASH FLOW INFORMATION
On January 8, 1998, the Company acquired ICM for $.8 million. The entire
purchase price was paid with the Company's common stock and, therefore,
has been accounted for in the statement of cash flows as a noncash
transaction.
On February 20, 1997, the Company acquired CEM Computers Limited for
approximately $3.7 million. The entire purchase price was financed with
debt and, therefore, has been accounted for in the statement of cash flows
as a noncash transaction.
During fiscal year 1997, convertible notes with principal amounts of $2
million were converted into shares of common stock which has been
accounted for in the statement of cash flows as noncash transactions.
During fiscal year 1997, 68,626 shares of the Company's common stock were
exchanged for $.4 million of indebtedness owed to the Company by certain
officers and affiliated companies which has been accounted for in the
statement of cash flows as a noncash transaction.
11. 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.
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.
<PAGE>
<TABLE>
<CAPTION>
PLATFORM TRANSACTION
SEGMENT REPORTING MIGRATION PROCESSING OTHER TOTAL
----------------- --------- ---------- ----- -----
<S> <C> <C> <C> <C>
Fiscal year 1999:
Revenues $8,437 $ 8,143 $ 12,999 $29,579
Cost of sales 1,019 6,607 4,995 12,621
Gross profit 7,418 1,536 8,004 16,958
Operating expenses 7,353 3,312 6,974 17,639
Operating income (loss) 65 (1,776) 1,030 (681)
Total assets 4,721 4,985 20,509 30,215
Fiscal year 1998:
Revenues $7,701 $ 11,654 $ 8,707 $28,062
Cost of sales 1,299 7,719 3,671 12,689
Gross profit 6,402 3,935 5,036 15,373
Operating expenses 4,333 5,223 6,025 15,581
Operating income (loss) 2,069 (1,288) (989) (208)
Total assets 2,423 4,209 27,974 34,606
Fiscal year 1997:
Revenues 4,572 2,078 14,398 21,048
Cost of sales 886 524 9,144 10,554
Gross profit 3,686 1,554 5,254 10,494
Operating expenses 4,186 931 4,198 9,315
Operating income (loss) (500) 623 1,056 1,179
Total assets 2,296 1,351 27,818 31,465
</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>
Fiscal year 1999:
Revenues $10,416 $19,163 $29,579
Cost of sales 7,248 5,373 12,621
Gross profit 3,168 13,790 16,958
Operating expenses 4,509 13,130 17,639
Operating income (loss) (1,836) 1,155 (681)
Total assets 16,303 13,912 30,215
Fiscal year 1998:
Revenues 13,100 14,962 28,062
Cost of sales 8,124 4,565 12,689
Gross profit 4,976 10,397 15,373
Operating expenses 6,719 8,862 15,581
Operating income (loss) (1,743) 1,535 (208)
Total assets 12,622 21,984 34,606
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM TOTAL
------ ------- -----
<S> <C> <C> <C>
Fiscal year 1997:
Revenues 10,762 10,286 21,048
Cost of sales 6,269 4,285 10,554
Gross profit 4,493 6,001 10,494
Operating expenses 3,539 5,776 9,315
Operating income 954 225 1,179
Total assets 10,411 21,054 31,465
</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
fiscal years 1999, 1998, or 1997.
12. EMPLOYEE BENEFIT PLANS
UNITED KINGDOM DEFINED BENEFIT AND CONTRIBUTION PENSION PLANS
The Company maintains a defined benefit pension plan in the United Kingdom
which is designed to provide death and retirement benefits for eligible
employees. On April 1, 1997, the Company also began to operate a defined
contribution pension plan in the United Kingdom. After April 1, 1997, any
new employees eligible to participate in the Company's pension plan may
only join the defined contribution pension plan. The Company contributed
minimal amounts to the defined contribution plan during fiscal year 1998,
the plan's first year in existence. Additionally, employees enrolled in
the defined benefit pension plan may transfer to the defined contribution
plan if they elect to do so. The pension costs associated with the defined
benefit pension plan are assessed in accordance with SFAS No. 87,
"Employers' Accounting for Pensions." Actuarial assumptions used for
defined benefit plan valuations as of February 28, 1999 included an 8.5%
long-term rate of return on assets, a 7% discount rate, and a salary
increase of 4.5%. Actuarial assumptions used for defined benefit valuation
as of February 28, 1998 included a 9% long-term rate of return on assets,
an 8.5% discount rate, and a salary increase of 5%. Additional information
on the pension plan is as follows:
- Benefit formula: annual pension to be 1/60 of final
pensionable salary for each year of pensionable service,
subject to a maximum fraction of 2/3.
- Funding policy: the employer contributes to the fund at rates
determined by the actuary. Employees contribute in accordance
with the plan.
- Assets held are fixed interest securities and deferred
annuities insurance policies.
<PAGE>
The following table sets forth the plan's funded status and amounts
recognized as other assets on the accompanying balance sheet at February
28, 1999:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 5,128 $ 4,155
Service cost 113 71
Interest cost 452 358
Contributions by plan participants 263 266
Actuarial loss 886 254
Benefits paid (31) (31)
Foreign currency exchange rate changes (98) 56
------ ------
Benefit obligation at end of year $ 6,713 $ 5,129
------ ------
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year $ 6,650 $ 4,998
Actual return of plan assets 693 1,215
Employer contributions 328 310
Contributions by plan participants 263 266
Benefits paid (38) (54)
Plan transfers and other (141) (192)
Foreign currency exchange rate changes (108) 103
------ ------
Fair value of plan assets at end of year $ 7,647 $ 6,646
------ ------
------ ------
Funded status of the plan:
Funded status at the end of year $ 934 $ 1,518
Unrecognized loss (gain) 268 (764)
------ ------
Net amount recognized $ 1,202 $ 754
------ ------
------ ------
Net pension cost for the year:
Service cost $ 182 $ 112
Interest cost 490 448
Expected return on plan assets (673) (613)
Amortization of transition amount (5) (38)
------ ------
Net periodic pension cost $ (6) $ (91)
------ ------
------ ------
</TABLE>
401(k) RETIREMENT SAVINGS PLAN
The Company maintains a defined contribution 401(k) profit-sharing plan
and trust (the "401(k) Plan") in the United States. To be eligible to
participate in the 401(k) Plan (the "Plan Eligibility Requirements"), an
employee must be 21 years of age, work at least 30 hours per week, and be
employed for 1 month. After satisfying the Plan Eligibility Requirements,
employees of the Company may enroll in the 401(k) Plan on the first of any
month. A participating employee, by electing to defer a portion of his/her
compensation, may make pretax contributions to the 401(k) Plan, subject to
limitations under the Internal Revenue Service Code, of a percentage (not
to exceed 15%) of his/her total compensation. The
<PAGE>
Company contributes 50% of every dollar the participant contributes up to
a total of 2% of the participant's gross compensation. Participant
contributions and earnings are 100% vested at all times, while company
matching contributions vest in 20% increments over a five-year period
beginning one year after the employee's eligibility date. Participants may
alter their contribution amounts at any time. Employees are responsible
for directing the investments of all assets in their individual accounts.
Contributions may be withdrawn, with possible penalties for certain early
withdrawals, only after (i) the employee reaches age 59 1/2, (ii) the
employee's retirement with the Company, (iii) the employee's death or
disability, (iv) the termination of the employee's employment with the
Company, or (v) the termination of the 401(k) Plan. The Company pays all
expenses associated with the 401(k) Plan and contributed minimal amounts
to the plan during fiscal years 1999, 1998, and 1997.
STOCK OPTION PLAN
The Company maintains a Long-Term Incentive Plan (the "LTI Plan") under
which options to purchase shares of the Company's common stock have been
granted to eligible employees. During fiscal year 1998, the Company
increased the total number of shares available for award under the LTI
Plan to 1.7 million from 1.2 million. The LTI Plan is administered by the
compensation committee of the board of directors. Option activity and
related weighted average prices under the LTI Plan are summarized as
follows as of February 28, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Shares under option at beginning of
year 894 $4.30 1,012 $4.09 573 $3.31
Granted 0 0.00 125 6.51 445 5.08
Exercised (13) 3.31 (198) 4.19 (6) 3.31
Forfeited (168) 6.03 (45) 6.18 0 0.00
------ ------ ------
Shares under option at end of year 713 3.91 894 4.30 1,012 4.09
------ ------ ------
------ ------ ------
Shares under option exercisable at
end of year 457 3.41 366 3.63 291 3.31
------ ------ ------
Shares available for future grant 608 440 20
------ ------ ------
------ ------ ------
</TABLE>
All options granted have exercise prices of 100% of the market value at
the date of grant and are generally exercisable at the rate of 25% per
year beginning two years from date of grant. Options expire ten years from
the date of grant unless otherwise specified in the option agreement.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 requires
companies with stock-based compensation plans to either recognize
compensation expense based on new fair value accounting methods or
continue to apply the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and disclose
pro forma net income and earnings per share assuming the fair value method
had been applied. The Company has elected to follow APB No. 25 in
accounting for its employee
<PAGE>
stock options and has not recorded any expense related to the granting of
options to employees.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method. The
fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Fiscal Year
-------------------
1998 1997
------ ------
<S> <C> <C>
Risk-free interest rate 6.00% 5.9%
Expected dividend yield 0.00% 0.0%
Expected lives (years) 2.25 2.0
Expected volatility 65.00 52.0
Weighted average fair value of options granted during the
year $ 2.69 $ 1.8
</TABLE>
The total value of the options granted, as calculated using the
Black-Scholes method, is amortized over the vesting periods of the
options. The Company's pro forma information required under SFAS No. 123
is as follows (in thousands, except per share data) as of February 28,
1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income (loss) from continuing operations as reported $(1,961) $ (902) $912
Pro forma net income (loss) (2,203) (1,100) 834
Diluted earnings per share as reported $ (0.30) $(0.12) $0.13
Diluted pro forma earnings per share (0.33) (0.14) 0.12
</TABLE>
13. SIGNIFICANT RISKS AND UNCERTAINTIES
The Company's operating results and financial condition can be impacted by
a number of factors, including but not limited to, any of the following
which could cause actual results to vary materially from current and
historical results or the Company's anticipated future results.
As discussed in Note 1, the preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements. In addition, these
estimates and assumptions affect the reported amounts of revenues and
expenses during the reporting period as well. Amounts affected by these
estimates include, but are not limited to, the estimated useful lives,
related amortization expense and carrying value of the Company's
intangible assets and capitalized software development costs, accrued
reserves for contingencies, and estimates to complete fixed price
contracts. Changes in the
<PAGE>
status of certain matters or facts or circumstances underlying these
estimates could result in material changes to these estimates, and actual
results could differ from these estimates.
The business of the Company is subject to national and worldwide economic
and political influences, such as recession, political instability, the
economic strength of governments, and rapid change in technology. The
Company's operating results are dependent on its ability to rapidly
develop, manufacture, and market innovative products that meet customers'
demands. Inherent in this process are a number of risks that the Company
must manage in order to achieve favorable operating results. The process
of developing new high-technology products is complex and uncertain,
requiring innovative designs and features that anticipate customer needs
and technological trends. The products, once developed, must be
manufactured 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,
difficulties in product development, commercialization, technology, and
other risks. The Company's success will depend on the level of market
acceptance and enhancements to the market on a timely and cost-effective
basis and its ability to maintain a labor force sufficiently skilled to
compete in the current environment. Additionally, there is increasing
competition in the Company's products and services businesses, and there
can be no assurance that the Company's current products or services will
remain competitive or that the Company's development efforts will produce
products with the cost and performance characteristics necessary to remain
competitive.
The timing and amount of the Company's revenues are subject to a number of
factors, including, but not limited to, the timing of customers' decisions
to enter into license agreements with the Company, which makes estimation
of operating results prior to the end of the quarter or year extremely
uncertain. While management believes that the Company's financing needs
for the foreseeable future will be satisfied from cash flows from
operations, the Company's existing credit facilities, and the ability to
raise additional capital through the equity markets, unforeseen events and
adverse economic or business trends may significantly increase cash
demands beyond those currently anticipated that affect the Company's
ability to generate or raise cash to satisfy financing needs.
The Company derives its revenue primarily from operations in Northern
Ireland. It is reasonably possible that this concentration of revenue
makes the Company vulnerable to the risk of a near-term severe impact due
to unforeseen political and economic forces as well as exchange rate
fluctuations. Additionally, concentration of credit risks with respect to
trade accounts receivable is generally diversified due to the large number
of entities comprising the Company's worldwide customer base. The Company
performs ongoing credit evaluations on certain of its customers' financial
conditions but generally does not require collateral to support customer
receivables. The Company establishes an allowance for uncollectible
accounts based on factors surrounding the credit risk of specific
customers, historical trends, and other information. There can be no
assurance, however, that the Company's procedures will identify all
potential uncollectible accounts in a timely manner, and significant
adjustments to the Company's allowance for uncollectible accounts may be
necessary from time to time.
<PAGE>
As a result of the above and other factors, the Company's operations and
financial position can vary significantly from quarter to quarter and year
to year. These variations may contribute to volatility in the market for
the Company's common stock.
14. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal years 1999 and 1998, the Company
recorded provisions for doubtful accounts and returns of $.4 million and
$1.3 million, respectively. The increases in the provision were due
principally to increases in the Company's general and specific reserves.
Also during the fourth quarter of fiscal year 1998, the Company recorded a
deferred tax asset valuation allowance of $.5 million. During the fourth
quarter of fiscal year 1997, the Company recognized an income tax credit
of $.3 million related to a reduction of the cumulative deferred tax
liability in the United Kingdom. Also during the fourth quarter of fiscal
year 1997, the Company recorded an additional prepaid pension asset of $.2
million related to the defined benefit pension plan in the United Kingdom
based on the computation of its actuarial determination of net periodic
pension cost. Additionally, during the fourth quarter of 1997, the Company
recorded a provision for returns for a specific customer of $.4 million.
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 28, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
BALANCE AT THE CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF THE PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended February 28, 1997:
Accounts receivable allowance $ 138 $ 66 $ 0 $ 204
Deferred tax asset valuation allowance 0 0 0 0
Year ended February 28, 1998:
Accounts receivable allowance 204 1,446 (37) 1,613
Deferred tax asset valuation allowance 0 500 0 500
Year ended February 28, 1999:
Accounts receivable allowance 1,613 589 (1,378) 824
Deferred tax asset valuation allowance 500 1,016 0 1,516
</TABLE>
<PAGE>
Exhibit 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE REGISTRANT JURISDICTION OF INCORPORATION
<S> <C>
UniComp U.K. Holdings, Limited United Kingdom
ICS Computing Group Limited United Kingdom
CI Computer Software Limited United Kingdom
Unibol Limited United Kingdom
Computer Maintenance Ireland Limited United Kingdom
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
Smoky Mountain Technologies, Inc. North Carolina
Novatek Corporation Florida
Sun and Sky Development Corporation Florida
Arccom Management Systems, Inc. Georgia
(d/b/a Unibol, Inc.)
UniComp Systems, Inc. Texas
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
UniComp, Inc. on Form S-and Form S-8 of our report dated May 22, 1997, except
for the third paragraph of Note 3 as to which the date is November 29, 1997, on
our audit of consolidated statements of income, of cash flow and of changes in
stockholders equity for the year ended February 28, 1997 which report is
included in the Company's annual Report on Form 10-K.
PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
June 11, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated June 9, 1999, with respect to the consolidated financial statements
of UniComp, Inc. as of February 28, 1999 and 1998 and for each of the two years
ended February 28, 1999, included in this Form 10-K, into the following
previously filed Registration Statements of UniComp, Inc.
- Form S-3 (File Numbers 33-64312, 333-11605-27857 and 33-61049)
- Form S-8 (File Numbers 33-98564 and 333-21313)
ARTHUR ANDERSEN LLP
Atlanta, Georgia
June 9, 1999
<PAGE>
PriceWaterhouseCoopers
Exhibit 23.3
REPORT OF INDEPENDENT ACCOUNTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF UNICOMP INC. AND SUBSIDIARIES
In our opinion, the consolidated statements of income, of cash flows and of
changes in stockholders' equity for the year ended February 29, 1997 present
fairly, in all material respects, the results of operations and cash flows of
UniComp, Inc. and subsidiaries for the year ended February 28, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Unicomp, Inc. and subsidiaries for any
period subsequent to February 28, 1997.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
ATLANTA, GEORGIA
MAY 22, 1997, EXCEPT FOR THE THIRD
PARAGRAPH OF NOTE 3 AS TO WHICH
THE DATE IS NOVEMBER 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Consolidated Financial Statements and Schedule as of February 28, 1999, 1998 and
1997 Together with Auditor's Report and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 1,400
<SECURITIES> 0
<RECEIVABLES> 8,016
<ALLOWANCES> 824
<INVENTORY> 3,444
<CURRENT-ASSETS> 13,822
<PP&E> 6,240
<DEPRECIATION> 2,629
<TOTAL-ASSETS> 30,215
<CURRENT-LIABILITIES> 11,620
<BONDS> 1,473
0
2,800
<COMMON> 80
<OTHER-SE> 12,928
<TOTAL-LIABILITY-AND-EQUITY> 30,215
<SALES> 17,801
<TOTAL-REVENUES> 29,579
<CGS> 10,881
<TOTAL-COSTS> 12,621
<OTHER-EXPENSES> 18,014
<LOSS-PROVISION> 589
<INTEREST-EXPENSE> 636
<INCOME-PRETAX> (1,692)
<INCOME-TAX> 199
<INCOME-CONTINUING> (1,891)
<DISCONTINUED> 523
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,368)
<EPS-BASIC> (.24)
<EPS-DILUTED> (.24)
</TABLE>
