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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 29, 2000
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 $19,950,000 on June 7, 2000.
The number of shares outstanding of the Registrant's Common Stock as of June 7,
2000 was 8,925,915.
DOCUMENTS INCORPORATED BY REFERENCE:
Specified sections of the registrant's 2000 Proxy Statement in
connection with its 2000 Annual Meeting of Stockholders are incorporated by
reference in Part III herein.
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PART I
ITEM 1. BUSINESS
OVERVIEW
UniComp, Inc. (the Company), founded in 1985, is a provider of retail
e-business solutions and legacy extension and innovative vertical application
software for small and large companies, resellers and system integrators
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 two reportable segments:
(1) Retail e-Business Solutions and (2) Legacy Transition and Vertical
Application Software. The Retail e-Business Solutions include:
- A full suite of e-commerce products and services including secure Internet
and/or traditional bricks and mortar transaction processing, web
development, and web hosting;
- A family of customer-activated wireless devices to enhance the retail
shopping experience and reduce vendors' overhead costs.
The Legacy Transition and Vertical Application Software and services include:
- A comprehensive suite of systems management software for IBM AS/400 users
and two legacy extension products for transitioning IBM/36 and AS/400
applications to open-system platforms such as Windows NT, Unix, and Linux;
- A workforce management, planning, and scheduling product suite;
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- A comprehensive human resource management system;
- A SCADA monitoring and control product suite.
- A process control, business automation, and financial management system for
the compound feed milling industry.
Financial information by reportable segment for the two years ended February 28,
1998 and 1999, and the year ended February 29, 2000 is included in Note 13 of
the Notes to Consolidated Financial Statements included in Part II of this
annual report.
PRODUCTS AND SERVICES
RETAIL E-BUSINESS SOLUTIONS
E-COMMERCE PRODUCTS AND SERVICES
UniComp has been developing e-commerce products since the early 1990's. Those
development efforts have yielded a web-enabled suite of products that deliver a
completely integrated solution for Internet merchants as well as those who have
yet to transition to e-commerce and continue to operate in the traditional
world. The primary piece of software involved, Universal Payment Software
("UPS"), facilitates both e-commerce and traditional commerce by providing a
secure method for processing credit and debit card transactions while supporting
check verification, authorization, and guarantee services. UniComp will not only
realize revenue from the sale of the software itself, but also will participate
in the recurring transaction processing revenue stream. The system also supports
other payment types including electronic benefits transfer and frequent shopper
programs, and allows for gift certificate issuance and validation. It can be
integrated with Point Of Sale ("POS") software, and batch processing following
each business day can provide immediate sales data.
Another key software offering is the recently completed Internet Payment
Processing System ("IPPS"). IPPS is a complete Shopping Cart system,
ECML-compliant Order Form, and a browser-based Merchant Account Control Panel
for secure on-line ordering, processing credit card sales, issuing refunds and
voids, viewing pending orders, and generating revenue, refund, and state sales
tax reports. This software will allow merchants to do business on-line through
their web-site.
UniComp complements these software offerings by supplying new and refurbished
transaction-processing equipment, thereby offering complete
transaction-processing systems to merchants worldwide.
The final offerings that complete the set are the web design and web hosting
services, which are targeted primarily at small and medium-sized businesses.
UniComp offers a full complement of web design capabilities, including site
design and layout, custom logos, buttons and background design, a custom site
map for navigation, and banner creation for increasing site and product
exposure. UniComp will also host and register a web site with four major
Internet search engines.
RETAIL WIRELESS DEVICES
By virtue of a recent strategic acquisition, UniComp is now a significant
supplier of high performance POS transaction processing terminals, and is
involved in the design, manufacturing, marketing, and servicing of a complete
line of hardware and software for remote transaction processing applications.
The initial set of products to be marketed and distributed worldwide consists of
two that are currently
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available and being sold in the United States and two in the final stages of
development that will be launched during calendar year 2000.
The Retail Display Adapter ("RDA") is a small, box shaped device that enables a
retailer to connect a full color graphics display device to any IBM 46xx
terminal. The RDA allows for fully configurable fields, increasing the amount of
information available on the POS display, including running subtotals,
multiple-item listing, coupon totals, frequent shopper rewards, and a Virtual
Receipt. The RDA provides three main benefits to retailers: 1) by configuring
the POS display to meet the specific needs of a retailer's operation through use
of the PC based RDA Configurator software, the RDA enhances checkout efficiency
and customer satisfaction through improved communication, 2) the RDA can be
utilized as a data collection device, which data can then be used to improve the
retailer's own marketing efforts, and 3) the RDA allows retailers to realize
substantial savings in capital investment by either extending the life and
providing increased functionality to legacy systems, thus postponing costly
system upgrades, or by allowing for installations of refurbished equipment that
would have increased usability, efficiency, and a longer effective lifetime
through the RDA.
The Price Checker Terminal ("PCT") is a small, customer activated device
retailers mount throughout their stores to enable the checking of product prices
and frequent-shopper information prior to arriving at the checkout counter by
scanning a bar code. This reduces store personnel requirements and improves
customer satisfaction. Additionally, as with the RDA, the PCT allows for data
collection for use in future customer marketing. The PCT ties directly into any
existing in-store network using a number of communications options including
radio frequency links, hard-wired network, or TCP/IP Ethernet. The most recent
wireless version of the PCT leverages the wireless open standard architecture of
IEEE 802.11 to simplify its integration into a wireless open-network
environment. Fast and accurate price verification is made possible through use
of a Symbol Technologies omni-directional scanner, which provides maximized read
rates with minimum delays. Other store-specific applications, such as in-store
promotions, printers, and location assistance, can be supported by the PCT.
The Micro Kiosk ("MK"), one of the products currently nearing completion, is a
family of upright, free standing, in-store customer kiosks that utilize a VGA
color display to interact with customers. As with the PCT, the MK ties directly
into the existing in-store network through a variety of communications options.
Through that link, the MK will provide price checking, in-store advertising,
frequent shopper status information, and a store locator. The MK will also allow
customers to enter orders for items that store personnel have to retrieve from
back rooms. As with the two existing products, another significant feature of
the MK is its data collection capability. The features found in the four
versions of the MK include operating systems from UniComp's proven, proprietary
CTX O/S to embedded Windows NT or Linux, processors as powerful as Intel's
Pentium, Symbol Technology scanners, color VGA flat panel screens, spectrum 24
WLAN, printer and touch screen options, and the availability of popular web
browsers such as Internet Explorer and Netscape.
The MK is being integrated with a 802.11, 2.4 GHz radio to make it compatible
with Symbol, Lucent, and Telxon wireless networks, which is a critical step
towards ensuring that those products will be inter-operable with customers'
communications infrastructure worldwide and will conform with the differing
international radio frequency restrictions.
LEGACY TRANSITION AND VERTICAL APPLICATION SOFTWARE
IBM AS/400 SYSTEMS MANAGEMENT AND LEGACY TRANSITION PRODUCTS
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The Company designs, develops and markets legacy extension 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 or Windows
NTsystems.
Advantages of the UNIBOL rehosting solution include:
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 released a version of UNIBOL400 that
supports Windows NT in fiscal year 2000.
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.
UniComp's AS/400 systems management product, mAStermind, includes disk
management, job scheduling, spool file management, back up/recovery, object
auditing, source code management, SMS messaging, and software implementation
features, providing a complete systems management tool for AS/400 professionals.
HUMAN RESOURCE MANAGEMENT PRODUCTS
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UniComp has two human resource management products: PeopleTrack is a workforce
management, planning, and scheduling software solution; uniPims HR is a
comprehensive human resource management software solution that includes
Personnel Management, Attendance Management, and Payroll Management modules.
SUPERVISORY CONTROL AND DATA ACQUISITION ("SCADA") MONITORING AND CONTROL
PRODUCT SUITE
SCADA systems are most commonly used to monitor and control manufacturing plants
and equipment. They function by collecting information, transferring it back to
a central site, carrying out the necessary analysis and control, and then
displaying the results on operator screens. Control of the system may be
automatic or can be initiated by operator commands.
PROCESS CONTROL, BUSINESS AUTOMATION, AND FINANCIAL MANAGEMENT SYSTEM
UniComp offers two products, InFeed 600 and the Mill Wheel System, for companies
that manufacture animal and aquaculture feeds, primarily in Europe. InFeed 600
is a Windows NT client server based system that provide complete production
management, including process supervision, control, and automation. The Mill
Wheel System is an Informix based system operating within a Unix environment
that provides a complete, turn key solution for all aspects of the compound feed
milling business, from production management through financial reporting.
MARKETS
RETAIL E-BUSINESS SOLUTIONS
E-COMMERCE PRODUCTS AND SERVICES
The market for UniComp's Retail e-Business Solutions consist of merchants
engaged in e-commerce, traditional commerce, or, as is becoming more and more
prevalent, both.
Continued, rapid growth of the Internet is fueling huge gains in
Internet-generated revenues. ActivMedia Research estimates that those revenues
will grow from the $38 billion in 1998 to in excess of $225 billion in 2000.
Forrester Research predicts that the global Internet economy will reach $6.9
trillion in 2004. UniComp's two primary markets lead the way with North America
making up $3.5 trillion and Europe $1.5 trillion of the worldwide total.
This expansion of e-commerce will directly impact the markets for UniComp's
products. According to Forrester Research, as companies develop their online
businesses, packaged e-commerce software spending in the United States alone is
anticipated to grow from $3.1 billion in 1999 to $14.5 billion in 2003.
UniComp's UPS and IPPS products should participate in that growth.
The e-payment, or transaction processing, market will show similarly impressive
growth. The Nilson Report expects that the volume of payment card transactions
should increase in the United States from 16 billion in 1997 to over 39 billion
in 2005. As the volume of transactions grows, the need for complete transaction
processing systems such as those offered by UniComp increases in step, and the
available recurring transaction processing revenue streams expand as well.
The e-commerce explosion also bodes well for the Web site development and Web
hosting markets. Web hosting is one of the fastest-growing markets in the
information technology industry, according to International Data Corp., with the
U.S. market expected to increase 10-fold from the $1.8 billion market
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in 1999 to almost $19 billion in 2003. ActivMedia Research has determined that
Web site development has already become a $10 billion industry, with
particularly high growth rates for mid-range and smaller online operations.
While the growth in each of the markets above is impressive and promising for
each of UniComp's e-commerce products individually, it is UniComp's ability to
offer a complete solution, including software, hardware, transaction processing,
and web site development and hosting, that will allow UniComp to participate
fully in the transition towards an Internet economy.
RETAIL WIRELESS DEVICES
The current shift towards e-commerce has generated a sense of urgency among
traditional retailers to respond to the threat and keep the customers who come
through their doors satisfied with the bricks-and-mortar shopping experience.
Increasingly, those traditional merchants are learning from their on-line
competitors and looking toward technology to deliver some of the same benefits
as online shopping. UniComp's Retail Wireless Devices, particularly the Micro
Kiosk product line, are some of the solutions those merchants are turning to.
The following is from a study of consumers' acceptance of retail technology
conducted by the Indiana University Center for Education and Research in
Retailing and KPMG's Retail Industry practice. The primary goal of the study was
to provide information that would help retailers decide what technologies to
implement in their stores. The demographics of the group participating in the
summary closely matched those of the population of the United States.
"Consumers were very positive about both the product information/ordering and
frequent shopper kiosks. On average, 76 percent rated the kiosks as an
advantage, 60 percent were more likely to shop at a store with these
technologies, and 80 percent expected to use the technologies at least some of
the time they shopped. Consumers felt that the product information/ordering
kiosk would make shopping faster and easier by helping them find what they
wanted and provide detailed/current product information. Shoppers liked the
frequent shopper kiosk because it would highlight items that were on special and
eliminate the need to clip and carry coupons, thus saving them money. Consumers
disliked the prospect of waiting in line to use the machines and recommended
that several kiosks be installed in each store to accommodate demand."
Retailers worldwide are getting the message that their customers are demanding a
better shopping experience, and they are beginning to understand that technology
can help them provide such an experience. UniComp's line of Retail Wireless
Devices will be one of the solutions those merchants can turn to.
MARKETING AND DISTRIBUTION
RETAIL E-BUSINESS SOLUTIONS
As of February 29, 2000, the Company marketed and sold its Retail e-Business
solutions through 10 direct sales and marketing personnel and also through
Independent Sales Vendors("ISVs") ISVs and independent distributors, primarily
in the United States and Europe.
LEGACY TRANSITION AND VERTICAL APPLICATION SOFTWARE
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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
less than 50,000 System/36 systems remained in use worldwide at the end of 1999.
Industry publications also estimate that over 700,000 AS/400 systems were in use
worldwide at the end of 1999. 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.
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:
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
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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 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.
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 computer equipment to the corporate market worldwide, which is
generally supplied as an adjunct to its software and services sales.
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 legacy transition and vertical application software is performed
in the United Kingdom while research and development for its retail e-business
solutions 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.
From time to time, the Company has delayed or briefly suspended product
shipments to make
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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
RETAIL E-BUSINESS SOLUTIONS
As of February 29, 2000, the Company marketed and sold its Retail
e-Business solutions through 10 direct sales and marketing personnel and also
through ISV's and independent distributors, primarily in the United States and
Europe.
LEGACY TRANSITION AND VERTICAL APPLICATION SOFTWARE
As of February 29, 2000, the Company marketed and sold its legacy
extension 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. Versions of
UNIBOL400 have been commercially available since the beginning of fiscal year
2000.
As of February 29, 2000, the Company marketed and sold all other
vertical application software through 11 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 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 application software and the related services to
businesses in the United Kingdom and the rest of Europe.
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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
RETAIL E-BUSINESS SOLUTIONS
The market for the Company's Retail e-Business Solutions systems is
highly competitive. The Company believes that the principal competitive factors
in the business include the ability to provide comprehensive, integrated
e-business solutions 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,
including NCR, IBM, Trintech, and Verifone, present a significant competitive
challenge to the Company's transaction-processing business.
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. Significant vendors include Checkmate
Electronics and Verifone.
LEGACY TRANSITION AND VERTICAL APPLICATION SOFTWARE
The market for the Company's legacy transition software is highly
competitive. The Company faces direct competition from other developers of
rehosting solutions and companies that provide other transition 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 transition 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 transitioned to the new platform. The Company believes that its
UNIBOL solutions provide end users with a wider variety of transition 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.
The market for the Company's vertical application software 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.
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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 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.
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.
12
<PAGE>
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
and renamed UniPay, Inc.
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.
In January 1999, the Company acquired a $.6 million note receivable
from Continuum Technology Corporation ("Continuum"). Consideration consisted of
$.2 million in cash and accounts receivable of $.4 million. In March 1999, the
Company purchased 97.5% of Continuum's outstanding common stock. Consideration
consisted of $259,361 in cash, 8% notes payable aggregating $572,128, and
200,000 shares of the Company's common stock. The remaining 2.5% of Continuum's
outstanding common stock was purchased in February, 2000 for $17,800 in cash and
18,953 shares of the Company's common stock.
DISPOSITIONS
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.
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 is being recognized as cash is
received.
On December 1, 1999, the Company completed the sale of certain assets
of the Company's Northern Ireland subsidiary, ICS UniComp Limited, to ZEC
Limited. ICS UniComp was an information technology service provider.
Consideration consisted of $8.4 million in cash, $0.9 of which was received
after year-end following final calculation of certain completion accounts. The
assets disposed of included, but were not limited to, plant and machinery and
motor vehicles, computer and office equipment, furniture, premises, tradename,
and intellectual property rights. Accounts receivable, accounts payable, and all
other
13
<PAGE>
liabilities as of December 1, 1999 were retained by ICS UniComp Limited. ICS
UniComp was one of the ICS Computing Group subsidiaries acquired in 1993.
SEGMENT INFORMATION
The Company operates in two business segments: retail e-business
solutions and legacy transition and vertical application software. 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 28 1998 FEBRUARY 28, 1999 FEBRUARY 29, 2000
---------------- ----------------- -----------------
<S> <C> <C> <C>
Retail e-Business Solutions 11,654 8,143 11,262
Legacy Transition and Vertical
Application Software 8,458 11,650 12,849
----- ------ ------
$20,112 $19,793 $24,111
======= ======= =======
</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 the total revenue dollars (in thousands) represented by the
Company's products and services in the United States and its foreign operations.
Operating income (loss) and identifiable assets are also presented.
<TABLE>
<CAPTION>
DOLLARS (IN THOUSANDS), FISCAL YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1999 FEBRUARY 29, 2000
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues
United States $ 13,100 $ 10,416 $ 14,818
Foreign 7,012 9,377 9,293
-------- -------- --------
$ 20,112 $ 19,793 $ 24,111
======== ======== ========
Operating (Loss)/ Income
United States $ (1,743) $ (1,836) $ 168
Foreign (284) (663) (998)
-------- -------- --------
$(2,027) $ (2,499) $ (830)
======== ======== ========
Identifiable Assets
United States $ 12,176 $ 15,677 $ 15,898
Foreign 19,053 11,018 14,104
-------- -------- --------
$ 31,229 $ 26,695 $ 30,002
======== ======== ========
</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
14
<PAGE>
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.
BACKLOG
Due to the nature of the Company's business, the Company maintains
minimal backlog. It is anticipated that most of the fiscal year 2000 backlog
will be realized as revenue in fiscal year 2001.
EMPLOYEES
As of February 29, 2000, the Company employed approximately 231 full
time equivalents in its foreign operations 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. Part-time employees
are utilized primarily to meet fluctuations in requirements for lower skill,
manufacturing and assembly positions, and do not have a significant role in the
Company's operations.
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
15
<PAGE>
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 , Coral Springs, Florida and Fletcher, North Carolina.
The Murphy, North Carolina facility is under an 8.83% fixed rate mortgage loan
with an outstanding balance as of February 29, 2000 of $270,000. 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 29, 2000 of
$279,000. Annual payments on this loan are approximately $36,000. The Fletcher,
North Carolina facility is under two mortgage loans with rates of 9.3% and 7.8%,
respectively, with an aggregate outstanding balance as of February 29, 2000 of
approximately $1.4 million. The annual payments on these loans are approximately
$168,000.
The Company leases a facility in Belfast, Northern Ireland, totaling
approximately 18,000 square feet of office and warehouse space at an annual cost
of approximately $303,000 under a lease expiring September, 2002.
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.
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.
The Company is pursuing litigation against one of its customers to
collect $2.9 million that the Company contends is due pursuant to work performed
under a software contract. Although Management is confident of a positive
resolution, due to the inherent uncertainty of this matter, the Company has not
recognized this amount as revenue, and there can be no assurances of collection.
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 29, 2000.
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 2000
Fourth Quarter ended February 29, 2000......................................................... $ 8.75 $ 3.37
Third Quarter ended November 30, 1999.......................................................... 5.00 3.12
Second Quarter ended August 31, 1999........................................................... 5.87 3.94
First Quarter ended May 31, 1999............................................................... 6.25 3.06
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
</TABLE>
On June 7, 2000, the closing sale price of the Common Stock on the
Nasdaq National Market was $ 3.00 per share. As of June 7, 2000, there were
approximately 504 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, 1998, February 28, 1999 and February 29, 2000 and with respect to
the Company's balance sheet data at February 28, 1999 and February 29, 2000 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 29, 1996 and
February 28, 1997 and the balance sheet data at February 29, 1996, and February
28, 1997 and 1998 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. 29, Feb. 28, Feb. 28, Feb. 28, Feb. 29,
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total revenue.............................. $ 13,096 $ 14,469 $ 20,112 $ 19,793 $ 24,111
Gross profit............................... 8,975 6,639 9,589 9,991 13,158
Operating income (loss).................... 1,076 229 (2,027) (2,499) (830)
Income (loss) before taxes from continuing 922 15 (2,296) (3,419) (1,487)
operations.................................
Net income (loss) from continuing operat... 920 295 (2,098) (3,100) (1,616)
Basic earnings per share from continuing
operations available to common $ 0.17 $ 0.04 $ (0.27) $ (0.45) $ (0.23)
shareholders...............................
Diluted earnings per share from continuing
operations available to common $ 0.15 $ 0.04 $ (0.27) $ (0.45) $ (0.23)
shareholders...............................
Weighted average shares.................... 5,672 6,465 7,727 7,802 7,557
Weighted average shares assuming dilution.. 6,064 6,865 7,727 7,802 8,007
BALANCE SHEET DATA:
Total assets.............................. $ 14,365 $ 21,722 $ 31,229 $ 26,695 $ 30,002
Working capital .......................... 363 1,807 1,555 2,089 3,945
Debt, including current portion........... 3,267 5,570 7,802 5,271 7,156
Total stockholders' equity................ 6,220 14,465 16,293 15,808 17,318
</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, and the disposition of ICS UniComp on December 1, 1999.
(See Note 2 of the Notes to the financial statements.)
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 an
effective tax rate of 0.2% 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 tax benefit of $0.3 million
for the 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 a
lower than normal tax benefit of 8.7% for the year. 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 a lower than normal tax benefit of 9.3% for the
year. During 2000, tax expense of $0.1 million was recognized.
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 is a provider of retail e-business solutions and legacy
extension and vertical application software for small and large companies,
resellers, and system integrators worldwide. In fiscal year 2000, the Company
generated $24.1 million in total revenue, of which $11.0 million was derived
from sales of transaction processing equipment and retail wireless devices and
$6.0 million was derived from information technology services. The remaining
$7.1 million in revenue was derived from license and maintenance fees for the
Company's legacy extension software, transaction-processing software and other
vertical application software products. The Company expects revenue from each
category to increase in future years as the Company pursues its strategy of
providing complete, integrated solutions to its retail e-business customers.
Approximately 35%, 47% and 39% of the Company's revenue was derived
from its international operations in fiscal years 1998, 1999, and 2000,
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 transaction processing equipment and retail wireless
devices 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 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 2000 levels.
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, 1998 and 1999, and February 29, 2000.
19
<PAGE>
<TABLE>
<CAPTION>
Fiscal Years Ended
------------------------------------------------------------------
2/28/98 2/28/99 2/29/00
------- ------- -------
(in thousands, except per share and percentage data)
<S> <C> <C> <C> <C> <C> <C>
Total Revenue...................... $ 20,112 100.0% $ 19,793 100.0% $ 24,111 100.0%
Cost of sales...................... 10,523 52.3 9,802 49.5 10,953 45.4
------ ---- ----- ----- ------ ----
Gross profit....................... 9,589 47.7 9,991 50.5 13,158 54.6
Operating expenses................. 11,616 57.8 12,490 63.1 13,988 58.0
------ ---- ------ ----- ------ ----
Operating loss.................... (2,027) (10.1) (2,499) (12.6) (830) (3.4)
Other expenses .................... 269 1.3 920 4.6 657 2.7
------ ---- ------ ----- ------ ----
Loss before taxes.................. (2,296) (11.4) (3,419) (17.2) (1,487) (6.2)
Provision (benefit) for taxes..... (198) (1.0) (319) (1.6) 129 0.5
------ ---- ------ ----- ------ ----
Net loss from continuing
operations......................... $(2,098) (10.4)% $(3,100) (15.6)% $(1,616) (6.7)%
======= ===== ======= ===== ======= ====
</TABLE>
FISCAL YEAR ENDED FEBRUARY 29, 2000 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
1999
REVENUE. Revenue for fiscal year 2000 increased to $24.1 million
compared to $19.8 million for fiscal year 1999, an increase of $4.3 million, or
21.7%. The increase is primarily due to the Continuum acquisition in March,
1999.
EQUIPMENT REVENUE. The following table summarizes the revenue generated
from sales of transaction processing equipment and related wireless devices for
the year ended February 29, 2000 and the comparable periods from the prior
fiscal year.
<TABLE>
<CAPTION>
12 MONTHS ENDED INCREASE/(DECREASE)
--------------- -------------------
2/28/99 2/29/00 $ %
------- ------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Transaction-processing Equipment................ $7,122 $ 6,248 $ (874) (12.3)
Retail Wireless Devices and Other Equipment..... 299 4,769 4,470 1,495
--- ----- -----
Total Equipment Revenue......................... $7,421 $11,017 $ 3,596 48.5
====== ======= =======
</TABLE>
Revenue from the sale of transaction-processing equipment decreased
$0.9 million or 12.3% in 2000 compared to the prior year due to current product
market conditions.
The increase in retail wireless devices and other equipment is due to
the Continuum acquisition in March, 1999.
SERVICES REVENUE
Revenue from information technology services decreased to $6.0 million
for the fiscal year 2000 from $7.6 million for fiscal year 1999. This was due to
there being a particularly large service contract in fiscal year 1999.
SOFTWARE REVENUE
The following table summarizes the revenue from software licensing and
support for the year ended February 29, 2000 and the comparable period from the
prior fiscal year.
20
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED INCREASE/(DECREASE)
------------------- -------------------
2/28/99 2/28/00 $ %
------- ------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
Initial License Fees:
Legacy Extension............. $ 1,850 $4,615 $ 2,765 149.5%
E-commerce................... 108 179 71 65.7%
Other........................ 617 698 81 13.1%
------- ------ -------
Total Initial License Fees......... 2,575 5,492 2,917 113.28%
======= ====== =======
Software Support Fees:
Legacy Extension............. 973 974 1 0.1%
E-commerce................... 64 70 6 9.4%
Other........................ 1,119 526 (593) (53.0)%
------- ------ -------
Total Software Support Fees........ 2,156 1,570 (586) (27.2)%
------- ------ -------
Total Software Revenue............. $ 4,731 $7,062 $ 2,331 49.3%
======= ====== =======
</TABLE>
Revenue generated from legacy extension systems was $5.6 million for
fiscal year 2000 as compared to $2.8 million for the prior year. Legacy
extension revenue by major product class is as follows.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED INCREASE/(DECREASE)
------------------- -------------------
2/28/99 2/28/00 $ %
------- ------- - -
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36........................... $ 2,095 $2,797 $ 702 33.5%
UNIBOL400.......................... 728 2,792 2,064 283.5%
------- ------ ------
Total Platform Migration Revenue... $ 2,823 $5,589 $2,766 98.0%
======= ====== ======
</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 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 during
this period.
Sales of the UNIBOL400 product began to slow in the second half of
fiscal year 1999 as end-users were waiting for additional functionality and
enhancements to the product. The Company completed these enhancements during the
fourth quarter of fiscal year 1999 and did not have substantial UNIBOL400
revenue until after that time. Additionally, revenue increased approximately
$1.5 million due to the addition of a significant reseller partner.
INTERNATIONAL REVENUE . Revenue from international operations,
principally in Northern Ireland, was unchanged at $9.3 million.
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 29, 2000 and the comparable period for the prior
fiscal year.
21
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
-------------------------------------------
2/28/99 2/29/00
------- -------
(In Thousands, Except Percentage Data)
GROSS PROFIT GROSS PROFIT
------------ ------------
$ % $ %
----- ----- ----- ----
<S> <C> <C> <C> <C>
Equipment:
Transaction-processing Equipment.............. $ 1,341 18.8 $ 1,680 26.9%
Retail Wireless Devices and Other Equipment... 196 65.6 2,008 42.1%
------- ---- ------- -----
Total Equipment.................................... $ 1,537 20.7 $ 3,688 33.5%
======= ==== ======= ----
Information Technology Services.................... $ 6,086 79.6% $ 5,006 83.0%
------- ---- ------- -----
Software:
Legacy Extension.............................. $ 1,237 43.8 $ 3,926 70.2
E-Commerce.................................... 58 33.7 (288) (115.7)
Other......................................... 1,073 61.8 826 67.5
------- ---- ------- -----
Total Software..................................... $ 2,368 50.1% $ 4,464 63.2%
======= ==== ======= ====
Total Gross Profit................................. $ 9,991 50.5% $13,158 54.6%
======= ==== ======= ====
</TABLE>
Legacy extension software profit margins increased for fiscal year 2000
compared to the prior fiscal year. This increase is due principally to
relatively fixed amortization expense related to capitalized software
development costs for the UNIBOL400 product, for which revenues have increased
since the prior year, as described earlier.
E-commerce software gross profit margins were negative for the fiscal
year 2000. This is due to relatively fixed amortization of capitalized software
development costs. Management believes these revenues have yet to reach their
full potential. Gross margins for other software products increased to 67.5% for
fiscal year 2000 compared to 61.8% in the prior fiscal year.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses as a percentage of total revenue fell to 58.0% for
fiscal year 2000 as compared to 63.1% in the prior fiscal year, a decrease of
9.2%. Selling, general, and administrative expenses increased $1.5 million on
an increase in revenue of $4.3 million, an effective rate of 35%, which
caused the overall decrease of 9.2%.
OTHER EXPENSES. Interest, the primary component of other expenses, was
unchanged for fiscal year 2000 from fiscal year 1999 at $0.5 million.
TAXES. The Company recorded a provision for income taxes of $0.1
million in fiscal year 2000 while incurring a loss from continuing
operations. This is due to the Company's inability to offset losses at
certain foreign subsidiaries against income at other foreign subsidiaries. As
of February 29, 2000, the Company has net operating loss carryforwards (NOLs)
consisting of approximately $6.3 million for U.S. and $4.7 million for state.
The Company has recorded a valuation allowance against these NOLs that are
not anticipated to be utilized through normal operating results. During
fiscal year 1999, the Company recorded a valuation allowance of $1.0 million
related to these NOLs. The effective income tax rate (income taxes expressed
as a percentage of pretax income), excluding the valuation allowance, was
39.0% for fiscal year 1999.
FISCAL YEAR ENDED FEBRUARY 28, 1999 COMPARED TO FISCAL YEAR ENDED
FEBRUARY 28, 1998
REVENUE. Revenue for fiscal year 1999 decreased to $19.8 million
compared to $20.1 million for fiscal year 1998, a decrease of $0.3 million, or
1.5%.
22
<PAGE>
EQUIPMENT REVENUE
The following table summarizes the revenue generated from sales of
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.................... 47 299 252 536.2 %
------- ------- --------
Total Equipment Revenue............ $ 9,372 $ 7,421 $ (1,951) (20.8)%
======= ======= ========
</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 product market
conditions.
SERVICES REVENUE
Revenue from information technology services increased to $7.6 million
for the fiscal year 1999 from $4.5 million for fiscal year 1998, an increase of
$3.1 million. This increase is due in part to $1.8 million of additional service
revenue generated by ICM in fiscal 1999. The remainder of the increase is due to
normal increases in service sales prices to pass on the higher cost of labor.
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, 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:
Legacy Extension ............ $ 1,872 $ 1,850 $ (22) (1.2)%
E-commerce................... 2,077 108 (1,969) (94.8)
Other........................ 359 617 258 71.9
------- ------- --------
Total Initial License Fees......... $ 4,308 $ 2,575 $ (1,733) (40.2)%
======= ======= ========
Software Support Fees:
Legacy Transition............ $ 1,336 $ 973 $ (363) (27.2)%
E-commerce................... 74 64 (10) (13.5)
Other........................ 476 1,119 643 135.1
------- ------- --------
Total Software Support Fees........ $ 1,886 $ 2,156 $ 270 14.3%
======= ======= ========
Total Software Revenue............. $ 6,194 $ 4,731 $ (1,463) 23.6%
======= ======= ========
</TABLE>
Revenue generated from legacy extension systems was $2.8 million for
fiscal year 1999 as compared to $3.2 million for the prior year. Legacy
extension revenue by major product class is as follows.
23
<PAGE>
<TABLE>
<CAPTION>
YEAR 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 Legacy Extension 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
was 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.
Sales of the UNIBOL400 product began to slow in the second half of the
1999 fiscal year as end-users were waiting for additional functionality and
enhancements to the product. The Company completed those enhancements during the
fourth quarter of fiscal year 1999 and did not generate substantial UNIBOL400
revenue until after that time.
Revenue generated from e-commerce license fees was down in conjunction
with the significant decrease in transaction processing equipment revenue.
Revenue generated from other software sales consist primarily of vertical
application software products. Revenues for these products vary depending on
customer demands and product mix. The large increase in software support fees is
a result of the Company's pricing structure for many of the vertical
applications which have lower initial license fees supplemented by longer-term
annual support fees, coupled with a number of new customers using these systems.
INTERNATIONAL REVENUE. Revenue from international operations,
principally in Ireland, increased to $9.4 million for the fiscal year ended
February 28, 1999 from $7.0 million for the prior fiscal year, an increase of
$2.4 million, or 34.3% due primarily to the acquisition of ICM which added $1.8
million to the 1999 total. Revenue from domestic operations decreased to $10.4
million for the fiscal year ended February 28, 1998 as compared to $13.1 million
for the prior fiscal year, a decrease of $2.7 million, or 20.6% primarily due to
decreasing transition processing equipment and e-commerce license fee revenues..
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, 1999 and the comparable numbers for the prior fiscal
year.
<TABLE>
<CAPTION>
YEAR 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 $ 1,341 18.8
Other Equipment............... 8 17.0 196 65.6
------- ---- ------- ----
Total Equipment.................... $ 2,321 24.8 $ 1,537 20.7
======= ---- ======= ----
Information Technology Services.... $ 3,695 81.3 $ 6,086 80.3
======= -------
Software:
Legacy Extension ............. $ 1,553 48.4 $ 1,237 43.8
E-commerce.................... 1,443 67.1 58 33.7
Other......................... 577 69.1 1,073 61.8
------- ---- ------- ----
Total Software..................... $ 3,573 57.7 2,368 50.1
======= ---- ======= ----
Total Gross Profit................. $ 9,589 47.7 $ 9,991 50.5
======= ==== ======= ====
</TABLE>
24
<PAGE>
Gross profit margins for equipment and services vary depending on
customer demands and product mix. The types of equipment the Company sold in
fiscal years 1999 and 1998 were generally commodity products. As a result,
overall profit margins for equipment were declining. Information technology
services gross profit margin remained flat year to year.
Software profit margins decreased for fiscal year 1999 compared to the
prior fiscal year. This decrease was due principally to relatively fixed
amortization expense related to capitalized software development costs and
declining revenues as described earlier. These margins were expected to improve
in future periods as new or enhanced versions were released, the products began
to gain market acceptance and licensing revenues increased.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. S,G&A as a percentage of
total revenue was 63.1% for fiscal year 1999 compared to 52.4% in the prior
fiscal year. In dollar terms, S,G & A increased 18.6% from $10.5 million in 1998
to $12.5 million in 1999. Revenues, however, declined slightly from 1998 to
1999, resulting in the increase as a percentage of revenue.
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 from $263 thousand to $543 thousand as the Company borrowed against
its working capital lines to fund operations.
TAXES. During the fiscal year 1999, the Company recorded a valuation
allowance of $1.0 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 39.0% for fiscal year 1999. During fiscal
1998, the Company recorded a valuation allowance of $0.5 million related to
certain deferred tax assets that were not anticipated to be utilized through
normal operating results. The effective income tax rate for 1998 excluding this
tax credit would have been approximately 30%.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company had approximately $3.3 million in cash and
equivalents as compared to $1.4 million at February 28, 1999. The $1.9
million increase was primarily attributable to positive operating cash from
continuing operations of $1.9 million. The net cash generated by the
discontinued operations of $6.8 million effectively funded capital
expenditures and software development efforts of $4.2 million, $0.3 million
spent in the Continuum acquisition, reduction of debt of $1.0 million,
purchase of treasury stock of $1.0 million, and exchange rate variances of
$0.3 million.
As of May 31, 2000, the Company's cash balance had been reduced to $125,000, and
the lines of credit had increased to $4.4 million from the $3.9 million
outstanding at February 29, 2000. This use of cash in the first quarter was
primarily attributable to the $2.4 million expended to redeem the preferred
stock outstanding as of February 29, 2000, with the remainder absorbed by
increasing working capital needs. Additionally, the Company's line of credit
is fully utilized and matures June 30, 2000. Management is currently in
discussions with the lender and believes these discussions will be successful
in securing adequate financing through February 28, 2001. Additionally, the
Company is currently exploring several financing alternatives to maintain
liquidity and support continuing growth. Those alternative include combined
debt and equity financing, short-term bridge loans from lenders with which
the Company has prior experience, increases in the current lines of credit,
and equipment financing as an alternative to capital expenditures. While
there can be no assurance that any of these alternatives will be successful,
Management is confident that it will secure the funding necessary to achieve
its growth objectives. If Management is unsuccessful in its efforts to obtain
necessary financing, the Company's operations could be severely and
negatively impacted.
25
<PAGE>
During fiscal 1999, to supplement operating cash flows, the Company issued 3,000
shares of Series A convertible preferred stock, netting $2.8 million.
The Company generated negative operating cash flows from continuing
operations of $2.9 million for fiscal year 1998, primarily as a result of an
increase in accounts receivable of $5.5 million. The Company experienced a
significant slow-down in the collection of receivables related to its
transaction-processing and legacy extension 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
$1.7 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.
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 29, 2000 the Company was in
default of a covenant under its $3 million United States line of credit.
Management is currently discussing this violation and believes such
discussions will be successful in obtaining a waiver.
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 29, 2000.
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 1998, 1999 and 2000. These grants are subject to the legislative
rules and regulations of Northern Ireland and the United Kingdom. Management
does not anticipate that the receipt of grants will diminish significantly in
the foreseeable future; however, there can be no assurance that the Company will
be able to continue to receive such grants.
The Company believes available credit will be sufficient to meet its
working capital needs both on a short and a long-term basis. However, the
Company's capital needs will depend on many factors, including the Company's
ability to 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1
was effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use, including the requirement to
capitalize specified costs and amortization of such costs. Adoption of this
standard did not have a material effect on our capitalization policy.
Financial Accounting Standards Board Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivatives and
Hedging Activities", as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. Historically, the Company has not
entered into derivatives contracts either to hedge existing risks or for
speculative purposes. Accordingly, the Company does not expect adoption of
this new standard on March 1, 2001, to affect its financial statements.
YEAR 2000 COMPLIANCE
26
<PAGE>
THE PROBLEM REVISITED. The scope of the Year 2000 problem applied to
any device, software or firmware that makes references to dates. Specifically it
applied to the Real Time Clock (RTC) which stores the year portion of the date
in two digit formats (e.g. 98 instead of 1998). Estimates indicated that many
computers built prior to 1996 would not switch over correctly from 1999 to 2000.
The impact of this would greatly affect any date-sensitive projects such as
budgets and financial projections in the forthcoming year.
CURRENT STATUS AND OVERALL IMPACT OF THE YEAR 2000. UniComp experienced
minimal problems to their business through the millennium changeover. All
network systems and company data remained intact and unaffected. The Company
will continue to monitor their systems and continue to review all information
through out the fiscal year. The following table identifies each of the seven
phases that were addressed during this project. UniComp completed all phases by
the projected date.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
PROJECT PHASE PROJECT % COMPLETED COMPLETION COMMENTS
------------- ------------------- ---------- --------
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Awareness 100% Completed
---------------------------------------------------------------------------------------------------------------------
Identification 100% Completed
---------------------------------------------------------------------------------------------------------------------
Impact Analysis 100% Completed
---------------------------------------------------------------------------------------------------------------------
Risk Evaluation 100% Completed All significant suppliers have
been evaluated.
---------------------------------------------------------------------------------------------------------------------
Remediation 100% Completed All critical systems are
completed..
---------------------------------------------------------------------------------------------------------------------
Testing 100% Completed Secondary tests for critical
systems completed.
---------------------------------------------------------------------------------------------------------------------
Contingency Plan 100% Completed Implemented.
---------------------------------------------------------------------------------------------------------------------
Overall Completion 100% Completed Implemented and completed on
Estimate schedule.
---------------------------------------------------------------------------------------------------------------------
</TABLE>
CONTINGENCY PLAN. UniComp continues to have a disaster recovery program
implemented company wide. 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. This routine was created to allow
information to be transported to various machines should the need arise.
COST. The overall cost incurred for activities relating to the Year
2000 issue was not material in amount over the two-year period from 1998 to
1999. Most of the expense would have been considered a part of the ongoing
routine of maintenance and upkeep of internal systems. The current
infrastructure has a system in place to allocate personnel to perform such
tasks. UniComp used internal resources to oversee the most intensive phases of
the Year 2000 project. Expense in this area was limited to man hours and
personnel expense. In addition, a consultant was hired to help the larger sites
in the United Kingdom to transition their systems to millennium compliance. The
cost of this course of action was nominal. The cost to replace fully
27
<PAGE>
depreciated systems was 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 from
one-third to one-half of our total revenues for fiscal years 1998 through 2000.
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
28
<PAGE>
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 e- commerce 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 to generate
additional revenue by providing other products and services to these clients.
POTENTIAL FOR DELAYS IN PRODUCT INTRODUCTION
Our delay in any potential product development and introduction may
have an adverse effect on the product's success and on our reputation and
results of operations. Additionally, competitors may introduce products and gain
market share during any such delays. Our failure to introduce new products and
product enhancements that are responsive to market conditions and customer
requirements may have an adverse effect on our business, results of operations
and financial condition. Furthermore, our complex software products may contain
undetected errors when first introduced or when new versions are released. We
cannot be certain that current or future releases of our products will not
contain errors or that any such errors will not result in loss or delay of
market acceptance of such products. We have previously experienced delays in
developing and introducing new products, and there can be no assurance that we
will not experience delays in the future.
DISTRIBUTION OF MANAGEMENT OF OVERSEAS OPERATIONS
Any significant disruption in the management of our international
operations could have a material adverse effect on our business, results of
operations and financial condition. Our headquarters and administrative offices
are located in Atlanta, Georgia; however, as of May 31, 2000, approximately 133
of our 220 employees work in our international facilities. This geographical
distance, as well as the time-zone difference, can isolate management from
operational issues, delay communications and require
29
<PAGE>
devotion of a significant amount of time, effort and expense to international
travel. In the future, we may face significant management demands associated
with our international operations.
CHANGES IN OPERATIONS IN NORTHERN IRELAND
A substantial majority of our personnel and operations are located in
Northern Ireland. Northern Ireland has historically experienced periods of
religious, civil and political unrest. Northern Ireland may experience further
unrest which could disrupt our ability to provide information technology
services and product development programs and have a material adverse effect on
our results of operations and financial condition. For each of the past three
fiscal years, the Northern Ireland government has granted to us approximately
$0.4 million to fund our research and development programs. Our use of these
funds is subject to various rules and regulations, including the requirement
that we repay such funds in the event we remove certain operations from Northern
Ireland. We cannot be sure that we will continue to be eligible for or will
receive similar grants in the future or, if such grants are received, whether
additional restrictions will apply to our use of such funds.
RISK OF ACQUISITION PROGRAM
To date, our acquisition program has substantially contributed to our
growth. We have no assurance that we will complete any future acquisitions or
that we will benefit from any completed acquisition in the future. We obtain
most of our acquisitions by taking advantage of opportunities that are presented
to us. We require significant administrative, operational and financial
resources to successfully integrate and manage our diverse businesses. There are
numerous operational and financial risks involved in managing acquired
businesses, including (1) difficulties in assimilating acquired operations, (2)
diversion of management's attention, (3) amortization of acquired intangible
assets, (4) increases in administrative costs, (5) additional costs associated
with debt or equity financing, and (6) potential loss of key employees or
customers of acquired operations. We may not be successful in integrating our
current acquisitions or retaining and motivating key personnel of our acquired
companies. Our failure to integrate businesses, to expand our acquired customer
and technology base and to retain key employees of our acquired companies could
have an adverse effect on our business, results of operations and financial
condition. Although we currently do not have any understandings, commitments or
agreements with respect to any acquisition, we anticipate future potential
acquisition opportunities.
SUCCESS DEPENDENT ON ABILITY TO HIRE AND RETAIN TECHNICAL PERSONNEL AND KEY
EMPLOYEES
Our success depends in part on our ability to attract, hire, train and
retain qualified managerial, technical and sales and marketing personnel.
Competition for such personnel is intense. We cannot be certain that we will be
successful in attracting and retaining the technical personnel we require to
conduct and expand our operations successfully. Our results of operations could
be materially adversely affected if we are unable to attract, hire, train and
retain qualified personnel. Our success also depends to a significant extent on
the continued service of our management team. The loss of any member of the
management team could have a material adverse effect on our business, results of
operations and financial condition. We do not have any employment or noncompete
agreements with any of our executive officers.
30
<PAGE>
UNCERTAINTY OF FUTURE RESULTS
It is difficult 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 retail e-business companies. In addition,
although our service revenues are more predictable than our product revenues,
unexpected variations in job pricing and complexity could have an adverse effect
on the profitability of customer service projects. We base our expense levels,
which are relatively fixed in the short term, in significant part on our
expectations of future product revenues and service demands. If demand for our
products and services is below expectations, our results of operations could be
adversely affected.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Much of our future success depends on our ability to protect our
proprietary technology. We rely principally on trade secret and copyright law,
as well as nondisclosure agreements and other contractual arrangements, to
protect such proprietary technology. We are not certain that such measures will
be adequate to protect our technologies from infringement by others or that we
will be effective in preventing misappropriation of our proprietary rights. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States.
CONTROL BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS
Our executive officers and directors and their affiliates beneficially
hold an aggregate of approximately 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.
INABILITY TO COLLECT ACCOUNTS RECEIVABLE
We have no assurance that we will be able to collect all of our
accounts receivable. Our worldwide customer base of trade accounts receivable is
generally diversified with respect to credit risks due to the large number of
such accounts. We perform ongoing credit evaluations on certain of our
customers' financial conditions, but we generally do not require collateral to
support customer receivables. We establish an allowance for uncollectible
accounts based on factors surrounding the credit risk of specific customers,
historical trends and other information. We cannot be sure that our
procedures will identify all potential uncollectible accounts in a timely
manner, therefore, we may have to make additional significant adjustments to
our allowance for uncollectible accounts from time to time.
OPERATING RESULTS DEPENDENT ON PRODUCT DEVELOPMENT
Our continued success depends on our ability to develop, produce and
transition technologically complex and innovative products that meet customer
needs. Inherent in this process are various risks that we must manage to achieve
favorable operating results. The process of developing new high technology
products is complex and uncertain, requiring innovative designs and features
that anticipate customer needs and technological trends. The products, once
developed, must be manufactured and distributed in sufficient volumes at
acceptable costs to meet demand. The development of such products involves risks
31
<PAGE>
and uncertainties, including but not limited to risk of product demand, market
acceptance, economic conditions, competitive products and pricing,
commercialization, technology, and other risks. Our business is also subject to
national and worldwide economic and political influences such as recession,
political instability, economic strength of governments, and rapid change in
technology. Additionally, we are experiencing increasing competition in our
products and services businesses, and there can be no assurance that our current
products or services will remain competitive or that our development efforts
will produce products with the cost and performance characteristics necessary to
remain competitive.
ESTIMATES CONTAINED IN FINANCIAL STATEMENTS
Our preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements. Our
estimates and assumptions affect the reported amounts of revenues and expenses
during the reporting period as well. For example, our estimates affect estimated
useful lives, amortization expense, carrying values, accrued reserves, and
estimates to complete fixed price contracts. Changes in the status of certain
matters or facts or circumstances underlying these estimates could result in
material changes to these estimates, and actual results could differ from these
estimates.
VOLATILITY OF STOCK PRICE
Our stock price is subject to significant volatility and will likely be
adversely affected if revenues or earnings in any quarter fail to meet the
investment community's expectations. Additionally, the market price of our
common stock could be subject to significant fluctuations in response to (1)
announcements of new products or services offered by us or our competitors, (2)
loss of key customer, distributor or vendor relationships, (3) general
conditions in the computer software industry, or (4) other events or factors.
Furthermore, in recent years, the stock market in general, and the market for
shares of stock in technology companies in particular, has experienced extreme
price fluctuations. Such fluctuations could materially and adversely affect the
market price of our common stock in the future.
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Our Board of Directors has the authority to issue up to five million
shares of preferred stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by our shareholders. The rights of the holders of
common stock will be subject to, and may be adversely affected by, the rights of
the holders of any preferred stock. The issuance of preferred stock may have the
effect of delaying, deterring or preventing a change in control of UniComp
without further action by the shareholders and may adversely affect the voting
and other rights of the holders of common stock. Furthermore, certain provisions
of our charter documents may have the effect of delaying or preventing changes
in control or management of UniComp, which could have an adverse effect on the
market price of the common stock.
NO DIVIDENDS ON COMMON STOCK
We have not paid any cash dividends on the common stock since our
inception and we do not anticipate paying cash dividends for the foreseeable
future.
32
<PAGE>
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 revenues, which accounted for 39% of the Company's total revenues
in 2000 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, 2000, 28.5% 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 $4.3 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 $1.3 million of foreign lines
of credit, 27.1% of the Company's total debt would be in fixed-rate instruments.
In addition, the Company maintains an average maturity of its short-term
investment portfolio under twelve months to avoid large changes in its market
value. As of February 29, 2000, the average maturity of the Company's short-term
investments was less than one month.
33
<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.
Effective March 23, 2000, UniComp, Inc. (the "Company") replaced its independent
auditors, Arthur Andersen L.L.P. ("Arthur Andersen") with BDO Seidman, LLP ("BDO
Seidman"). Arthur Andersen's report on UniComp's financial statements for the
fiscal years ended February 28, 1998 and 1999, contained no adverse opinions 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 Board of Directors.
During the fiscal years ended February 28, 1998 and 1999, there were no
disagreements between the Company and Arthur Andersen 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 Arthur Andersen, 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
34
<PAGE>
to the Company during the fiscal years ended February 28, 1998 and 1999.
The Company has requested Arthur Andersen furnish it with a letter addressed to
the Securities and Exchange Commission stating whether it agrees with the above
statements. A copy of such letter dated, March 27, 2000, is filed as Exhibit
16.1 to this Form 10-K.
During the fiscal years ended February 28, 1998 and 1999 and the subsequent
interim period to the date hereof, the Company did not consult BDO Seidman
regarding any of the matters or events set forth in Item 304 (a)(2)(I) and (ii)
of Regulation S-K.
35
<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........... 52 Chairman of the Board, President and Chief
Executive Officer
J. Patrick Henry........... 47 President of Unibol, Inc. and Director
Nelson J. Millar........... 63 Director
Thomas Zimmerer............ 59 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
36
<PAGE>
States and foreign corporations. 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.
37
<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 29, 2000 and
February 28, 1999
Consolidated Statements of Operations for
the years ended
February 29, 2000, February 28, 1999, and February 28, 1998
Consolidated Statements of Stockholders' Equity for the years
ended February 29, 2000 February 28, 1999, and February 28, 1998
Consolidated Statements of Cash Flow for the years ended
February 29, 2000, February 28, 1999, and February 28, 1998
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:
Exhibits Description
---------- ---------------------------------------------------------------------
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.
4.1 UniComp, Inc. Articles of Amendment to the Articles of Incorporation,
filed
38
<PAGE>
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 dated November 29, 1997 and
incorporated herein by reference)
39
<PAGE>
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 Letters of Coopers & Lybrand and Arthur Andersen LLP re: Change in
Certified Public Accountants (previously filed with Forms 8-K dated
February 27, 1998 and March 29, 2000, respectively.)
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, previously
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.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on December 15, 1999, relating
to the sale of assets of the Company's subsidiary ICS UniComp Limited.
The Company filed a report on Form 8-K on March 29, 2000 relating to
the change in the Company's certifying accountant.
40
<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 13th day of June, 2000.
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 13th day of June, 2000.
SIGNATURE TITLE
--------- -----
/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
41
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
TABLE OF CONTENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of February 29, 2000 and February 28,
1999
Consolidated Statements of Operations for the Years Ended February 29,
2000 and February 28, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended February 29, 2000 and February 28, 1999 and 1998
Consolidated Statements of Cash Flows for the Years Ended February 29,
2000 and February 28, 1999 and 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
SCHEDULE SUPPORTING CONSOLIDATED FINANCIAL STATEMENTS
Schedule II: Valuation and Qualifying Accounts for the Years
Ended February 29, 2000 and February 28, 1999 and
1998
42
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
UniComp, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of UNICOMP, INC.
AND SUBSIDIARIES as of February 29, 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year
then ended. We have also audited the accompanying schedule of valuation and
qualifying accounts as of and for the year ended February 29, 2000. These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements and schedule are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the consolidated financial statements and schedule. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements and schedule. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UniComp,
Inc. and subsidiaries as of February 29, 2000 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Also, in our opinion the schedule presents fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Atlanta, Georgia
June 7, 2000
43
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To UniComp, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of UNICOMP, INC.
(a Colorado corporation) AND SUBSIDIARIES as of February 28, 1999 and the
related consolidated statements of operations, stockholders equity, and cash
flows for the years ended February 28, 1999 and 1998. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 the results of their operations and
their cash flows for the years ended February 28, 1999 and 1998 in conformity
with accounting principles generally accepted in the United States.
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.
Arthur Andersen LLP
Atlanta, Georgia
June 9, 1999 (except with respect
to the matters regarding the discontinued operations
of ICS UniComp Limited discussed in Note 3, for
which the date is June 12, 2000)
44
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,288 $ 1,400
Accounts and other receivables:
Trade, net of allowance of $322 and $800 5,185 5,255
Other receivables 333 427
Inventories 3,429 3,261
Prepaid expenses and other 880 876
------- --------
Total current assets 13,115 11,219
------- --------
PROPERTY AND EQUIPMENT, NET 4,147 2,240
------- --------
OTHER ASSETS:
Acquired and developed software, net of accumulated amortization of $8,974
and $6,631 6,895 5,678
Goodwill and other intangibles, net of accumulated amortization of $1,138 and
$489 3,892 2,454
Prepaid pension 695 602
Note receivable from officer/director 525 525
Other 629 1,159
Net assets of discontinued operations 104 2,818
------- --------
Total other assets 12,740 13,236
------- --------
Total assets $30,002 $26,695
======= ========
</TABLE>
See the accompanying notes to consolidated
financial statements and schedule.
45
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,155 $ 2,105
Accrued expenses 884 1,455
Deferred revenue 816 1,210
Taxes payable 588 158
Lines of credit 3,931 3,205
Other 235 -
Current portion of notes payable 561 997
--------- ---------
Total current liabilities 9,170 9,130
Notes payable 2,664 1,069
Deferred income taxes 525 525
Other 325 163
--------- ---------
Total liabilities 12,684 10,887
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par value; 5,000 authorized, 1 and 3 issued and
outstanding, respectively 1,045 2,800
Common stock; $.01 par value, 100,000 authorized, 8,918 and 7,965 issued,
respectively 89 80
Common stock issuable 210 -
Additional contributed capital 17,920 15,810
Retained earnings (deficit) 1,624 (697)
--------- ---------
20,888 17,993
Less treasury stock (3,115) (2,052)
Cumulative translation adjustment (455) (133)
--------- ---------
Total stockholders' equity 17,318 15,808
--------- ---------
$30,002 $26,695
========= =========
</TABLE>
See the accompanying notes to consolidated
financial statements and schedule.
46
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- ------
<S> <C> <C> <C>
REVENUE:
Equipment $11,017 $7,421 $ 9,372
Services 6,032 7,641 4,546
Software 7,062 4,731 6,194
------- ------ -------
Total revenue 24,111 19,793 20,112
------- ------ -------
COST OF SALES:
Equipment 7,329 5,884 7,051
Services 1,026 1,555 851
Software 2,598 2,363 2,621
------- ------ -------
Total cost of sales 10,953 9,802 10,523
------- ------ -------
GROSS PROFIT 13,158 9,991 9,589
------- ------ -------
SELLING, GENERAL, AND ADMINISTRATIVE 13,988 12,490 10,531
ACQUISITION-RELATED CHARGES - - 1,085
------- ------ -------
Total operating expenses 13,988 12,490 11,616
------- ------ -------
OPERATING LOSS (830) (2,499) (2,027)
------- ------ -------
OTHER:
Other, net 148 377 6
Interest, net 509 543 263
------- ------ -------
Other expense, net 657 920 269
------- ------ -------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (1,487) (3,419) (2,296)
INCOME TAXES (BENEFIT) 129 (319) (198)
------- ------ -------
LOSS FROM CONTINUING OPERATIONS (1,616) (3,100) (2,098)
DISCONTINUED OPERATIONS:
Income from operations, less provision for income taxes 868 911 1,315
Gain on disposal, net of taxes 3,207 821 -
------- ------ -------
NET INCOME (LOSS) 2,459 (1,368) (783)
PREFERRED STOCK DIVIDENDS AND ACCRETION 138 443 -
------- ------ -------
NET INCOME (LOSS ) AVAILABLE TO COMMON SHAREHOLDERS $2,321 $(1,811) $(783)
======= ====== =======
BASIC (LOSS) EARNINGS PER COMMON SHARE:
Loss from continuing operations $(0.23) $(0.45) $(0.27)
Discontinued operations:
Income from operations 0.12 0.11 0.17
Gain on disposal 0.42 0.11 0.00
------- ------ -------
$ 0.31 $(0.23) $(0.10)
======= ====== =======
DILUTED (LOSS) EARNINGS PER COMMON SHARE:
Loss from continuing operations $(0.23) $(0.45) $(0.27)
Discontinued operations:
Income from operations 0.12 0.11 0.17
Gain on disposal 0.40 0.11 0.00
------- ------ -------
$ 0.29 $(0.23) $(0.10)
======= ====== =======
WEIGHTED AVERAGE SHARES - BASIC 7,557 7,802 7,727
======= ====== =======
WEIGHTED AVERAGE SHARES ASSUMING DILUTION 8,007 7,802 7,727
======= ====== =======
</TABLE>
See the accompanying notes to consolidated
financial statements and schedule.
47
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
(In Thousands, Except Preferred Stock Shares)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ----------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
--------- ------ --------- -------
<S> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1997 0 $ 0 7,677 $ 77
Net loss from Novatek's two months ended
February 28, 1997 0 0 0 0
Net loss 0 0 0 0
Options and warrants exercised 0 0 181 2
Stock issued for acquisition of ICM 0 0 107 1
Change in cumulative translation 0 0 0 0
adjustment
------ ------ ----- -----
BALANCE, FEBRUARY 28, 1998 0 0 7,965 80
Net loss 0 0 0 0
Options and warrants exercised 0 0 0 0
Issuance of warrants in connection with 0 0 0 0
debt financing
Issuance of preferred stock 3,000 2,357 0 0
Preferred stock dividends 0 0 0 0
Preferred stock accretion 0 443 0 0
Treasury stock purchased 0 0 0 0
Change in cumulative translation 0 0 0 0
adjustment
------ ------ ----- -----
BALANCE, FEBRUARY 28, 1999 3,000 2,800 7,965 80
Net Income
Stock issued for acquisition of 139 1
Continuum
Common stock issuable
Options exercised 55 1
Preferred stock conversion (1,880) (1,755) 759 7
Preferred stock dividends
Treasury stock purchased/net
Changes in cumulative translation
adjustment
------ ------ ------ ------
BALANCE, FEBRUARY 29, 2000 1,120 $1,045 8,918 $89
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED CUMULATIVE COMPRE-
STOCK CONTRIBUTED EARNINGS TREASURY TRANSLATION HENSIVE
ISSUABLE CAPITAL (DEFICIT) STOCK ADJUSTMENT INCOME
-------- ----------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 28, 1997 $ 0 $ 13,117 $ 2,042 $ (609) $ (162) $ 0
Net loss from Novatek's two months ended
February 28, 1997 0 0 (67) 0 0 0
Net loss 0 0 (783) 0 0 (783)
Options and warrants exercised 0 1,459 0 403 0 0
Stock issued for acquisition of ICM 0 755 0 0 0 0
Change in cumulative translation 0 0 0 0 58 58
adjustment
--------- -------- ------- --------- -------- ---------
BALANCE, FEBRUARY 28, 1998 0 15,331 1,192 (206) (104) (725)
=========
Net loss 0 0 (1,368) 0 0 (1,368)
Options and warrants exercised 0 0 (18) 58 0 0
Issuance of warrants in connection with 0 36 0 0 0 0
debt financing
Issuance of preferred stock 0 443 0 0 0 0
Preferred stock dividends 0 0 (60) 0 0 0
Preferred stock accretion 0 0 (443) 0 0 0
Treasury stock purchased 0 0 0 (1,904) 0 0
Change in cumulative translation adjustment 0 0 0 0 (29) (29)
--------- -------- ------- --------- -------- ---------
BALANCE, FEBRUARY 28, 1999 0 15,810 (697) (2,052) (133) ($ 1,397)
=========
Net Income 0 2,459 2,459
Stock issued for acquisition of 0 365 0
Continuum
Common stock issuable 210 0
Options exercised 0 0
Preferred stock conversion 0 1,745 0
Preferred stock dividends (138) 0
Treasury stock purchased/net (1,036) 0
Changes in cumulative translation
adjustment 0 (322) (322)
--------- -------- ------- --------- -------- ---------
BALANCE, FEBRUARY 29, 2000 $ 210 $17,920 $1,624 $(3,115) $(455) $ 2,137
--------- -------- ------- --------- -------- ---------
</TABLE>
See the accompanying notes to consolidated
financial statements and schedule.
48
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
------- ----- -----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss from continuing operations $(1,616) $(3,100) $(2,098)
Adjustments to reconcile net loss to cash provided
(used) by operating activities
Depreciation and amortization 3,782 3,160 2,622
Issuance of warrants - 36 0
Allowance for doubtful accounts 209 594 1,454
Reserve for inventory obsolescence 193 293 23
Deferred income taxes - 80 22
Gain of disposition of joint venture (40) - -
Changes in current assets and liabilities net acquired business:
Accounts and other receivables 413 872 (5,480)
Inventory 375 (708) (1,730)
Prepaid expenses (120) (225) (211)
Accounts payable (1,035) (796) 1,650
Accrued expenses (174) (969) 839
Deferred revenue (394) (460) 527
Taxes payable 430 (474) 63
Other (123) (774) (551)
------ ------ ------
Cash provided (used) by continuing operations 1,900 (2,471) (2,870)
Income from discontinued operations 868 911 1,315
Gain on sale of discontinued operations (3,207) (821) -
Cash provided (used) by discontinued operations 1,574 (1,156) (364)
------ ------ ------
Net cash provided (used) by operating activities 1,135 (3,537) (1,919)
------ ------ ------
INVESTING ACTIVITIES:
Payment received on note for sale of joint venture 120 - -
Proceeds from disposition of joint venture 10 - -
Capital expenditures (594) (680) (1,036)
Purchase of acquired businesses (259) (91) 0
Acquired and developed software (3,593) (2,279) (2,272)
Cash received from sale of discontinued operations 7,554 5,980 -
------ ------ ------
Net cash provided (used) by investing activities 3,238 2,930 (3,308)
------ ------ ------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net - 2,800 -
Payment of preferred stock dividends (138) (53) -
Payments on debt (2,435) (6,213) (1,201)
Proceeds from borrowing 1,484 3,572 3,429
Issuance of common stock, net - 40 1,868
Receivables from related party - (135) 1,204
Purchase of treasury stock (1,059) (1,904) 0
------ ------ ------
Net cash (used) provided by financing activities (2,148) (1,893) 5,300
------ ------ ------
NET CHANGE IN CASH 2,225 (2,500) 73
EFFECT OF EXCHANGE RATE CHANGES ON CASH (337) (4) 21
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,400 3,904 3,810
------ ------ ------
CASH AND CASH EQUIVALENTS, END OF YEAR $3,288 $1,400 $3,904
====== ====== ======
CASH PAID FOR INTEREST $ 509 $ 688 $ 766
====== ====== ======
CASH PAID FOR TAXES $ 200 $ 393 $ 358
====== ====== ======
</TABLE>
See the accompanying notes to consolidated
financial statements and schedule.
49
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
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. Revenue relating to transactions
with resellers is recognized upon delivery of the product to the end user,
unless the Company receives nonrefundable payments up front from the
reseller.
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 completion for a
contract. Changes in estimates to complete and losses, if any, are
recognized in the period in which they are determined.
50
<PAGE>
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. Statement of
operations 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.
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 29, 2000 and
February 28, 1999 are as follows (in thousands):
2000 1999
---- ----
Computer equipment $ 2,172 $ 664
Transaction-processing equipment 1,766 2,913
Reserve for obsolescence (509) (316)
--------- ---------
$ 3,429 $ 3,261
========= =========
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.
51
<PAGE>
The components of property and equipment as of February 29, 2000 and
February 28, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful
Life
(Years) 2000 1999
---------- ------ -----
<S> <C> <C> <C>
Buildings 30 to 50 $2,085 $ 775
Land N/A 710 70
Leasehold improvements 5 to 10 483 528
Computer software 3 364 325
Furniture, fixtures, and equipment 3 to 5 3,446 2,675
Vehicles 2 to 4 121 112
------- -------
7,209 4,485
Less accumulated depreciation (3,062) (2,245)
------- -------
$4,147 $2,240
======= =======
</TABLE>
Depreciation charged to expense was $0.8 million, $0.7 million, and $0.6
million for fiscal years 2000, 1999, and 1998, 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, and 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 $1.0 million, $1.2
million, and $.9 million for fiscal years 2000, 1999, and 1998,
respectively.
The Company capitalized software development costs of $3.6 million, $2.5
million, and $2.3 million during fiscal years 2000, 1999, and 1998,
respectively, with amortization expense of $2.3 million, $2.5 million, and
$2.0 million during the same periods. Capitalized software costs are net
of amounts reimbursed by Northern Ireland government grants of $.4
million, $.3 million, and $.4 million in fiscal years 2000, 1999, and
1998, 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.
52
<PAGE>
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 $.6 million, $.4 million, and $.2 million for
fiscal years 2000, 1999, and 1998, 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 29, 2000
and February 28, 1999 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
29, 2000 and February 28, 1999 based on market rates for similar issues.
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 the foreign earnings are not expected to be repatriated into
the United States. The determination of the amount of such liability is
not practical.
53
<PAGE>
ADVERTISING
The Company expenses advertising and marketing costs as incurred. The
costs of sales brochures are capitalized as prepaid supplies and expensed
as used. Advertising and marketing costs were $.8 million, $.6 million,
and $.4 million during fiscal years 2000, 1999, and 1998, respectively.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
The calculation and presentation of earnings (loss) per share are in
accordance with SFAS No. 128 "Earnings Per Share." Basic earnings (loss)
per share are based on the weighted average number of shares outstanding.
Diluted earnings (loss) 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>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Weighted average shares - basic 7,557 7,802 7,727
Dilutive effect of stock options and warrants
outstanding 194 - -
Dilutive effect of the conversion of preferred stock
256 - -
------ ------ ------
Weighted average shares - dilutive 8,007 7,802 7,727
====== ====== ======
</TABLE>
Options and warrants to purchase 425,001 shares of common stock at a
weighted average price of $7.09 per share for fiscal year 2000 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 potential
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 was
effective for financial statements for years beginning after December
15, 1998. SOP 98-1 provides guidance over accounting for computer
software developed or obtained for internal use, including the
requirement to capitalize specified costs and amortization of such
costs. Adoption of this standard did not have a material effect on our
capitalization policy.
Financial Accounting Standards Board Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivatives and Hedging
Activities", as amended, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives),
and for hedging activities. Historically, the Company has not entered
into derivatives contracts either to hedge existing risks or for
speculative purposes. Accordingly, the Company does not expect adoption
of this new standard on March 1, 2001, to affect its financial
statements.
2. MANAGEMENT'S PLANS REGARDING OPERATIONS
The Company has suffered recurring losses from operations for the three
years ended February 29, 2000. Management believes that through its
strategic restructing efforts, including the disposition of its IT
consulting operation, ICS, and hardware sales subsidiary, Aurora, and the
acquisition of Continuum, it is now positioned to take advantage of the
rapid growth in demand for retail e-business solutions while continuing to
pursue opportunities in the legacy extension and vertical application
software niches it now occupies. Fiscal 2000 resulted in increased
revenues and a shrinking loss from continuing operations. Although there
can be no assurances Management expects this trend to continue and
accelerate in fiscal 2001 and beyond.
The Company, subsequent to February 29, 2000 is experiencing cash flow
difficulties, primarily due to the redemption of preferred stock in March
2000 (See Note 10). The Company's line-of-credit is fully utilized and
matures June 30, 2000. Management is currently in discussions with the
lender and believes these discussions will be successful in securing
adequate financing through February 28, 2001. Additionally, management is
seeking other sources of equity and debt financing necessary to provide
adequate working capital and to finance the Company's strategic plan
discussed above. While there can be no assurances, management believes
these measures will be successful. If Management is unsuccessful in its
efforts to obtain necessary financing, the Company's operations could
be severely and negatively impacted.
54
<PAGE>
3. 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. 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 and $24 million, in fiscal years
1999 and 1998, respectively.
On December 1, 1999, the Company completed the sale of certain assets of
the Company's Northern Ireland subsidiary, ICS UniComp Limited ("ICS
UniComp") to ZEC Limited. ICS UniComp was an information technology
service provider. Consideration consisted of $8.4 million in cash, $.9
million of which was received after year-end following final calculation
of the purchase price. The assets disposed of included, but were not
limited to, plant and machinery and motor vehicles, computer and office
equipment furniture, premises, tradename, and intellectual property
rights. Accounts receivable, accounts payable, and all other liabilities
as of December 1, 1999 were retained by ICS UniComp. ICS UniComp was one
of the ICS Computing Group subsidiaries acquired in 1993.
Revenues of ICS UniComp were $7.9 million, $9.8 million, and $7.9 million
in fiscal years 2000, 1999, and 1998, respectively. ICS UniComp was
charged management fees, which eliminate in consolidation, of $.1
million and $.1 million for the years ended February 28, 1999 and 1998
by the Company's corporate office. The provisions for income taxes
recorded by ICS against income from operations were $0.1 million, $0.5
million and $0.5 million in fiscal years 2000, 1999, and 1998. Tax of
$2.0 million was netted against the gain on disposal. The results of
operations of ICS UniComp and all other discontinued operations have
been excluded from the Company's continuing operations in all periods
presented. A summary of the net assets of ICS UniComp, which have been
reflected separately in the consolidated balance sheets as of February
29, 2000 and February 28, 1999, is as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Current assets $1,384 $2,603
Property and equipment, net - 1,371
Other assets 631 1,738
Current liabilities (1,911) (2,490)
Long-term debt - (404)
------- ------
$104 $2,818
======= ======
</TABLE>
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
55
<PAGE>
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 is being recognized as cash
is received.
4. BUSINESS COMBINATIONS
In January 1999, the Company acquired a $.6 million note receivable from
Continuum Technology Corporation ("Continuum"). Consideration consisted of
$.3 million in cash and accounts receivable of $.4 million. In March 1999,
the Company purchased 97.5% of Continuum's outstanding common stock.
Consideration consisted of $259,361 in cash, 8% notes payable aggregating
$572,128 and 200,000 shares of the Company's common stock. The remaining
2.5% of Continuum's outstanding common stock was purchased in February,
2000 for $17,800 in cash and 18,953 shares of the Company's common stock.
Continuum, headquartered in Fletcher, North Carolina, is involved in the
design, manufacturing, marketing, and servicing of a complete line of
hardware and software for customer activated terminals used in a retail
setting. The acquisition has been accounted for as a purchase, and
accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the date
of acquisition. The results of operations have been included from March 1,
1999, the effective date of the acquisition. The excess consideration
above the fair value of net assets acquired of approximately $2.0 million
has been recorded in goodwill.
56
<PAGE>
The following table summarizes unaudited pro forma financial information
of the Company for the years ended February 28, 1999 and 1998 as if
Continuum was acquired effective March 1, 1997:
<TABLE>
<CAPTION>
(in thousands, except per share
data)
1999 1998
-------- ------
<S> <C> <C>
Net Revenues $22,266 $22,432
Pro Forma Net Loss from Continuing Operations
Applicable to Common Shareholders (3,825) (3,612)
Pro Forma Basic and Diluted Net Loss Per Share from Continuing
Operations Applicable to Common Shareholders $(0.48) $(0.45)
</TABLE>
Proforma amounts have been adjusted to give effect to the amortization of
goodwill.
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 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
57
<PAGE>
equity. The results of Novatek's operations for the two months ended
February 28, 1997 are summarized as follows (in thousands):
Revenue $713
Net loss 67
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.
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.
5. INCOME TAXES
The sources of loss from continuing operations before provision for income
taxes are as follows (in thousands) for the years ended February 29, 2000
and February 28, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
United States $ (245) $(2,691) $(2,121)
Foreign (1,242) (728) (175)
--------- ------- -------
$ (1,487) $(3,419) $(2,296)
========= ======= =======
</TABLE>
The significant components of income taxes (benefit) are as follows (in
thousands) for the years ended February 29, and February 28, 1999 and
1998:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Current provision:
Federal $ 0 $ 0 $ 0
State 0 0 7
Foreign 129 (456) (265)
------ ------ -----
129 (456) (258)
------ ------ -----
Deferred provision:
Federal 0 0 (191)
State 0 0 (100)
Foreign 0 137 351
------ ------ -----
$ 0 137 60
------ ------ -----
$ 129 $ (319) $ (198)
====== ======= =======
</TABLE>
58
<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) for the years ended February 29, 2000
and February 28, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------- ------- ------
<S> <C> <C> <C>
Income at statutory rate (34%) $ (506) $(1,299) $(872)
Increase (decrease) in provision from:
State income taxes, net of federal tax deduction 0 (76) (22)
Non-utilizable foreign losses 664 - -
Differences in foreign and U.S. rates 3 82 33
Nondeductible transaction costs 0 0 139
Effect of deferred tax asset valuation allowance 0 1,016 500
Other (32) (42) 24
------- ------ -------
Tax provision $ 129 $ (319) $ (198)
======= ====== =======
</TABLE>
An analysis of the net deferred income tax assets and liabilities as of
February 29, 2000 and February 28, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred tax asset (liability):
Net operating loss carryforwards $2,336 $ 2,313
Allowance for doubtful accounts and other 232 223
Depreciation from foreign operations - 188
Deferred tax asset valuation allowance (989) (1,516)
Capitalized software development costs (2,104) (1,733)
------- -------
Total net deferred tax liability $ (525) $ (525)
======= =======
</TABLE>
As of February 29, 2000, 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 2020 totaling $6.3 million for Federal purposes
and $4.7 million for state purposes. The Company has recorded a valuation
allowance 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.
6. RELATED-PARTY TRANSACTIONS
The note receivable from officer/director at February 29, 2000 and
February 28, 1999 totaled $.5 million. Interest is payable quarterly at a
rate of 10%. The note is payable in five equal annual installments
beginning March 1, 2000.
59
<PAGE>
7. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Audit 167 174
Legal 54 126
Salaries and related 161 742
All other 502 413
------ ------
Total 884 1,455
====== ======
</TABLE>
8. LINES OF CREDIT
The Company maintains a series of working capital lines of credit with
maximum borrowing available of $1.3 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 $0.8 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%, (7.75% at
February 29, 2000).
In March 1998, the Company replaced an existing $1.5 million line of
credit in the United States 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% (8.85% at February 29, 2000). At February 29, 2000,
$3.0 million was outstanding and no amounts were available for future
borrowings under the line. The line of credit was due March 1999 and was
subsequently extended to June 30, 2000. Additionally, at February 29,
2000, the Company was in default of a covenant under this line of
credit. Management is currently in discussions with the lender
regarding the violations as well as the extension and renewal of the
line. While there can be no assurances, Management believes these
discussions will be successful.
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.
9. NOTES PAYABLE
Notes payable as of February 29, 2000 and February 28, 1999 are as follows
(in thousands):
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Mortgage payable, interest of prime + 1% (9.25% at February 29, 2000),
collateralized by building, payable in monthly installments of $5 through November $ 858 $ _
12, 2009
Mortgage payable, interest of 7.82%, collateralized by building, payable in
monthly installments of $8 through April 1, 2015 505 -
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Mortgage payable, interest 8.83%, collateralized by a building in North
Carolina, payable in monthly installments of approximately $3 through
February 2004 with a final balloon payment due at maturity. 270 279
Mortgage payable, interest 8.86%, collateralized by a building in Florida,
payable in monthly installments of approximately $3 through February 2005
with a final balloon payment due at maturity. 279 289
Note payable, interest of 12%, interest due monthly, due on demand
500
Note payable to an individual, interest of 8%, $26 due in monthly installments
through March 1, 2001 321
Note payable in U.K. pounds, interest at a variable rate of LIBOR plus
1.75%, (7.6% at February 29, 2000,) collateralized by certain accounts
receivable and other assets of the Company, payable in quarterly
installments of approximately $40 through February 2000 - 163
Note payable in U.K. pounds, interest at a variable rate of LIBOR plus .5%,
(6.5% at February 29, 2000,) collateralized by guarantee and debenture,
payable in monthly installments of approximately $68 through July, 2000 330 1,153
Note payable to an individual, past due, interest at 8% per annum,
Unsecured 162 -
Other - 182
------ ------
Total notes payable 3,225 2,066
Less current portion 561 997
------ ------
$2,664 $1,069
====== ======
</TABLE>
<TABLE>
<S> <C>
Maturities of long-term debt are as follows (in thousands):
2001 $ 561
2002 153
2003 123
2004 319
2005 339
Thereafter 1,730
-------
$3,225
=======
</TABLE>
10. 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
61
<PAGE>
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 29, 2000, 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 29, 2000. 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 29, 2000.
The Company held 706,980 and 484,280 shares of common stock in treasury at
February 29, 2000 and February 28, 1999, 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 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% per month on the
conversions with a maximum additional discount of 15%. At February 29,
2000, the conversion percentage was 75%. 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. As of February 29,
2000, 1,880 shares of the preferred had been converted into 759,000 shares
of the Company's common stock. In March 2000, the remaining 1,120
preferred shares and accrued dividends were redeemed by the Company for
cash in the amount of $2.4 million.
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
62
<PAGE>
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 for the years ended February 29, 2000, and February 28, 1999, and
1998:
<TABLE>
<CAPTION>
(in thousands, except exercise price information)
-------------------------------------------------------------
2000 1999 1998
----------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ --------- ------ --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at beginning of
year 713 $3.91 894 $4.30 1,012 $4.09
Granted 164 3.21 0 0.00 125 6.51
Exercised (142) 3.37 (13) 3.31 (198) 4.19
Forfeited (52) 4.29 (168) 6.03 (45) 6.18
--------- ------- --------
Shares under option at end of year 683 3.82 713 3.91 894 4.30
========= ======== ========
Shares under option exercisable at
end of year 516 3.94 457 3.41 366 3.63
========= ======== ========
Shares available for future grant
at end of year 496 608 440
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Outstanding Stock Options Exercisable Stock
Options
-------------------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractural Exercise Exercise
Shares Life Price Shares Price
------ --------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
Range of Exercise Prices
$3.00 to $3.99 583 6.2 years $ 3.38 429 $3.44
$6.00 to $6.99 100 7.3 years $ 6.40 87 $6.37
--------- ---------
683 6.3 years $3.82 516 $3.94
========= =========
</TABLE>
All options granted have exercise prices equal to 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.
Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation," 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 stock options
and has not recorded any expense related to the granting of options to
employees.
63
<PAGE>
Pro forma information regarding net income (loss) and earnings (loss) 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
-----------------
2000 1998
---- ----
<S> <C> <C>
Risk-free interest rate 5.9% 6.0%
Expected dividend yield 0.0% 0.0%
Expected lives (years) 3.0 2.25
Expected volatility 50% 65.0%
Weighted average fair value of options
granted during the yea $3.21 $2.69
</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) for the years ended
February 29, 2000 and February 28, 1999 and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- ------
<S> <C> <C> <C>
Loss from continuing operations available to common
shareholders
As reported $ (1,754) $ (3,543) $(2,098)
Pro forma (1,974) (3,741) (2,176)
Basic and diluted loss per share from continuing
operations available to common shareholders
As reported $(0.23) $(0.45) $(0.27)
Pro forma (0.26) (0.47) (0.28)
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space, automobiles, and certain other items
under noncancelable operating leases. Rental expense for fiscal years
2000, 1999, and 1998 was $0.6 million, $1.0 million, and $0.9 million,
respectively.
Future minimum lease payments for operating leases at February 29, 2000
are as follows (in thousands):
<TABLE>
<S> <C>
2001 $ 752
2002 648
2003 160
2004 81
2005 6
--------
$ 1,647
========
</TABLE>
64
<PAGE>
LITIGATION
The Company is not presently a defendant in 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.
The Company is pursuing litigation against one of its customers to collect
$2.9 million that the Company contends is due pursuant to work performed
under a software contract. Although Management is confident of a positive
resolution, due to the inherent uncertainty of this matter, the Company
has not recognized this amount as revenue, and there can be no assurances
of collection.
12. SUPPLEMENTAL CASH FLOW INFORMATION
In March 1999, the Company acquired Continuum for $1.5 million. $600,000
of the purchase price consisted of the Company's common stock and,
therefore, has been accounted for in the statement of cash flows as a
non-cash transaction.
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 non-cash
transaction.
13. SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," in fiscal 1999.
During fiscal 2000, management changed the way it viewed its business. In
prior years, the Company's segments were Platform Migration, Transaction
Processing, and Other, which included corporate level activities.
Management now views the business as retail e-Business solutions and
Legacy Extension and Vertical Application Software, since the long-term
financial performance within each of these segments is affected by similar
economic conditions, and each of these segments has its own management
team. Consequently, the prior year segment information has been restated.
Discontinued operations have been excluded from the following disclosures.
The Retail e-Business solutions segment includes:
- A full suite of e-commerce products and services including secure Internet
and/or traditional bricks and mortar transaction processing, web
development, and web hosting;
- A family of customer-activated wireless devices to enhance the retail
shopping experience and reduce vendors' overhead costs.
The Legacy Extension and Vertical Application Software and services include:
- A comprehensive suite of systems management software for IBM AS/400 users
and two legacy extension products for transitioning IBM/36 and AS/400
applications to open-system platforms such as Windows NT, Unix, and Linux;
- A workforce management, planning, and scheduling product suite;*
- A comprehensive human resource management system;*
- A SCADA monitoring and control product suite.*
65
<PAGE>
- A process control, business automation, and financial management system for
the compound feed milling industry.*
*These products are currently not material to the Company's consolidated
operations.
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.
<TABLE>
<CAPTION>
LEGACY
EXTENSION
AND
VERTICAL TRANSACTION
APPLICATION E-BUSINESS
SEGMENT REPORTING SOFTWARE SOLUTIONS TOTAL
-------------------------------------- ---------- --------- ---------
<S> <C> <C> <C>
Fiscal year 2000:
Revenues $12,849 $11,262 $24,111
Cost of sales 3,067 7,886 10,953
Gross profit 9,782 3,376 13,158
Operating expenses 10,424 3,564 13,988
Operating loss (642) (188) (830)
Total assets 19,939 10,063 30,002
Fiscal year 1999:
Revenues 11,650 8,143 19,793
Cost of sales 3,195 6,607 9,802
Gross profit 8,455 1,536 9,991
Operating expenses 9,178 3,312 12,490
Operating loss (723) (1,776) (2,499)
Total assets 21,710 4,985 26,695
Fiscal year 1998:
Revenues 8,458 11,654 20,112
Cost of sales 2,804 7,719 10,523
Gross profit 5,654 3,935 9,589
Operating expenses 6,393 5,223 11,616
Operating loss (739) (1,288) (2,027)
Total assets 27,020 4,209 31,229
</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.
66
<PAGE>
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN TOTAL
---------- --------- ---------
<S> <C> <C> <C>
Fiscal year 2000:
Revenues $14,818 $9,293 $24,111
Cost of sales 7,957 2,996 10,953
Gross profit 6,861 6,297 13,158
Operating expenses 6,693 7,295 13,988
Operating income (loss) 168 (998) (830)
Long-term assets 8,651 8,236 16,887
Total assets 15,898 14,104 30,002
Fiscal year 1999:
Revenues 10,416 9,377 19,793
Cost of sales 7,248 2,554 9,802
Gross profit 3,168 6,823 9,991
Operating expenses 4,509 7,981 12,490
Operating loss (1,836) (663) (2,499)
Long-term assets 3,804 11,672 15,476
Total assets 15,677 11,018 26,695
Fiscal year 1998:
Revenues $13,100 $ 7,012 $20,112
Cost of sales 8,124 2,399 10,523
Gross profit 4,976 4,613 9,589
Operating expenses 6,719 4,897 11,616
Operating loss (1,743) (284) (2,027)
Long-term assets 3,455 13,322 16,777
Total assets 12,176 19,053 31,229
</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 2000, 1999, or 1998.
14. 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 29, 2000 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, 1999 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.
67
<PAGE>
- 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.
The following table sets forth the plan's funded status and amounts
recognized as other assets on the accompanying balance sheet at February
29, 2000 and February 28, 1999:
<TABLE>
<CAPTION>
2000 1999
--------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $2,565 $2,565
Service cost 56 56
Interest cost 226 226
Contributions by plan participants 132 132
Actuarial loss 443 443
Benefits paid (15) (15)
Foreign currency exchange rate changes 167 (50)
------- ------
Benefit obligation at end of year $3,574 $3,357
======= ======
Change in plan assets:
Fair value of plan assets at beginning of year $3,167 $3,325
Actual return of plan assets 345 347
Employer contributions 164 164
Contributions by plan participants 131 132
Benefits paid (15) (19)
Plan transfers and other (70) (71)
Foreign currency exchange rate changes 547 (54)
------- ------
Fair value of plan assets at end of year $4,269 $3,824
======= ======
Funded status of the plan:
Funded status at the end of year $ 695 $ 602
Unrecognized loss (gain) 268 (1)
------- ------
Net amount recognized $ 963 $ 601
======== =======
Pension cost (income) for the year:
Service cost $ 182 $ 91
Interest cost 490 245
Expected return on plan assets (673) (336)
Amortization of transition amount (5) (3)
------- ------
Net periodic pension income $ (6) $ (3)
======= =======
</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, an employee must be 21 years of age, work
at least 30 hours per week, and be employed for 1 month. Eligible
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 Company contributes 50%
of every dollar the participant
68
<PAGE>
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 2000, 1999 and
1998.
15. 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 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
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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 a significant amount of revenue 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. 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.
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.
16. FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of fiscal 2000, the Company reversed
approximately $.5 million of receivables and revenue relating to a
contract accounted for on the percentage of completion method of
accounting.
Also during the fourth quarter of fiscal 2000, the Company recorded an
inventory adjustment of approximately $.5 million related to pricing
issues at one of its subsidiaries.
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SCHEDULE II
UNICOMP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
(In Thousands)
<TABLE>
<CAPTION>
BALANCE AT CHARGED
THE TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF THE PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1998:
Accounts receivable allowance $ 161 $ 1,454 $ 0 $ (32) $ 1,583
Reserve for inventory obsolescence 0 23 0 0 23
Deferred tax asset valuation
allowance 0 500 0 0 500
Year ended February 28, 1999:
Accounts receivable allowance 1,583 594 0 (1,377) 800
Reserve for inventory obsolescence 23 293 0 0 316
Deferred tax asset valuation
allowance 500 1,016 0 0 1,516
Year ended February 29, 2000:
Accounts receivable allowance 800 209 0 (687) 322
Reserve for inventory obsolescence 316 193 0 0 509
Deferred tax asset valuation
allowance 1,516 0 0 (527) 989
</TABLE>
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