<PAGE>
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended AUGUST 31, 2000.
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transaction period from ____ to ____
Commission file number 0-15671
UNICOMP, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 84-1023666
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1850 PARKWAY PLACE, SUITE 925
MARIETTA, GA 30067
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (770) 424-3684
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
There were 8,201,770 Common Shares outstanding as of August 31, 2000.
--------------------------------------------------------------------------------
<PAGE>
UNICOMP, INC.
Index
<TABLE>
<CAPTION>
PART I. FINANACIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of February 29, 2000
and August 31, 2000 3
Consolidated Statements of Operations for the
three months ended August 31, 1999 and 2000 5
Consolidated Statements of Operations for the
six months ended August 31, 1999 and 2000 7
Consolidated Statements of Cash Flows for the
six months ended August 31, 1999 and 2000 9
Notes to the Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About
Market Risks 33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 34
Item 2. Changes in Securities and Use of Proceeds 34
Item 6. Exhibits and Reports on Form 8-K 36
Signatures 37
Exhibits 38
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------------
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
FEBRUARY 29, AUGUST 31,
2000 2000
----------- ---------
(In Thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................................... $ 3,288 $ 392
Accounts and other receivables:
Trade, net of allowance of $322 and 392 ........................................
5,185 4,432
Other receivables ............................................................... 333 231
Inventory .......................................................................... 3,429 3,736
Prepaid expenses and Other ......................................................... 880 655
----------- ---------
Total current assets .......................................................... 13,115 9,446
----------- ---------
Property and equipment, net ........................................................... 4,147 3,805
----------- ---------
Other assets:
Acquired and developed software, net of accumulated amortization of $8,974
and $9,521 ....................................................................... 6,895 6,486
Goodwill and other intangibles, net of accumulated amortization of $1,138
and $1,584 ....................................................................... 3,892 3,446
Prepaid pension .................................................................... 695 695
Note receivable from officer/director .............................................. 525 398
Other .............................................................................. 629 595
Net assets of discontinued operations .............................................. 104 0
----------- ---------
Total other assets ............................................................ 12,740 11,620
----------- ---------
Total assets .................................................................. $30,002 $24,871
=========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(AUDITED) (UNAUDITED)
FEBRUARY 29, AUGUST 31,
2000 2000
----------- ---------
<S> <C> <C>
Current liabilities:
Bank Overdraft ............................................................. $ 0 $ 0
Accounts payable ........................................................... 2,155 3,624
Accrued expenses ........................................................... 884 1,834
Deferred revenue ........................................................... 816 1,208
Taxes payable .............................................................. 588 485
Lines of credit ............................................................ 3,931 4,173
Other ...................................................................... 235 610
Current portion of notes payable ........................................... 561 341
----------- ---------
Total current liabilities ............................................. 9,170 12,275
----------- ---------
Long-term liabilities:
Notes payable .............................................................. 2,664 2,481
Deferred income taxes ...................................................... 525 525
Other long-term liabilities ................................................ 325 838
Net liabilities of discontinued operations ................................. 0 723
----------- ---------
Total long-term liabilities ........................................... 3,514 4,567
----------- ---------
Total liabilities ..................................................... 12,684 16,842
----------- ---------
Stockholders' equity:
Preferred stock: $1 par value, authorized 5,000, 1 issued and outstanding at
February 29, 2000 ....................................................... 1,045 0
Common stock: $.01 par value, 100,000 authorized 8,918 and 9,014 issued,
respectively ............................................................ 89 90
Common stock issuable ...................................................... 210 405
Additional contributed capital ............................................. 17,920 16,765
Retained earnings (deficit) ................................................ 1,624 (4,985)
----------- ---------
20,888 12,275
Less treasury stock ........................................................ (3,115) (3,413)
Cumulative translation adjustment .......................................... (455) (833)
----------- ---------
Total stockholders' equity ............................................ 17,318 8,029
----------- ---------
Total liabilities and stockholders' equity ............................ $ 30,002 $ 24,871
=========== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
----------------------
AUGUST 31, AUGUST 31,
1999 2000
---------- ---------
<S> <C> <C>
Revenue:
Equipment ................................................ $ 2,786 $ 2,696
Services ................................................. 1,567 623
Software ................................................. 2,456 891
---------- ---------
Total revenue ......................................... 6,809 4,210
---------- ---------
Cost of sales:
Equipment ................................................ 1,705 1,893
Services ................................................. 196 131
Software ................................................. 556 327
---------- ---------
Total cost of sales ................................... 2,457 2,351
---------- ---------
Gross profit ................................................ 4,352 1,859
---------- ---------
Reorganization cost and asset impairment .................... -- 2,406
Selling, general and administrative expenses ................ 4,015 4,302
---------- ---------
Operating loss .............................................. 337 (4,849)
---------- ---------
Other income (expense):
Other, net ............................................... 22 30
Interest, net ............................................ (136) (132)
---------- ---------
Total other income (expense) .......................... (114) (102)
---------- ---------
Income (loss) from continuing operations before provision
for Income taxes ........................................ 223 (4,951)
---------- ---------
Provision for income taxes .................................. (136) 0
---------- ---------
Net income (loss) from continuing operations ................ $ 359 $(4,951)
Income from discontinued operations ......................... 197 --
---------- ---------
Net income (loss) ........................................... $ 556 $(4,951)
========== =========
</TABLE>
5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<S> <C> <C>
Net income (loss) ................................................ $ 556 $ (4,951)
=============== ==============
Preferred stock dividends and accretion ......................... $ 37 $ 0
=============== ==============
Income(loss) available to common shareholders ................... $ 519 $ (4,951)
=============== ==============
Basic earnings per common share:
Income(loss) from continuing operations ......................... $ .04 $ (.60)
Income(loss) from discontinued operations ....................... .03 --
--------------- --------------
Net income(loss) ................................................ $ .07 $ (.60)
=============== ==============
Diluted earnings per common share:
Income(loss) from continuing operations ......................... $ .04 $ (.60)
Income(loss) from discontinued operations ....................... .02 --
--------------- --------------
Net income(loss) ................................................ $ .06 $ (.60)
=============== ==============
Weighted average shares ......................................... 7,495 8,202
=============== ==============
Weighted average shares assuming dilution ....................... 8,750 8,202
=============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
UNICOMP, INC. AND UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
-----------------------
AUGUST 31, AUGUST 31,
1999 2000
--------- ---------
<S> <C> <C>
Revenue:
Equipment .................................................... $ 5,789 $ 6,056
Services ..................................................... 3,265 1,546
Software ..................................................... 4,341 2,013
--------- ---------
Total revenue ............................................. 13,395 9,615
--------- ---------
Cost of sales:
Equipment .................................................... 3,589 4,219
Services ..................................................... 546 198
Software ..................................................... 1,256 809
--------- ---------
Total cost of sales ....................................... 5,391 5,226
--------- ---------
Gross profit .................................................... 8,004 4,389
--------- ---------
Reorganization cost and asset impairment ........................ -- 2,406
Selling, general and administrative expenses .................... 7,673 8,340
--------- ---------
Operating profit (loss) ......................................... 331 (6,357)
--------- ---------
Other income (expense):
Other, net ................................................... 23 14
Interest, net ................................................ (240) (266)
--------- ---------
Total other income (expense) .............................. (217) (252)
--------- ---------
Income (loss) from continuing operations before provision for
Income taxes ................................................ 114 (6,609)
--------- ---------
Provision for income taxes ...................................... (240) 0
--------- ---------
Net income (loss) from continuing operations .................... $ 354 $ (6,609)
Income from discontinued operations ............................. 430 --
--------- ---------
Net income (loss) ............................................... $ 784 $ (6,609)
========= =========
</TABLE>
7
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<S> <C> <C>
Net income (loss) ................................................ $ 784 $ (6,609)
=============== ===============
Preferred stock dividends and accretion........................... $ 68 $ 0
=============== ===============
Income(loss) available to common shareholders..................... $ 716 $ (6,609)
=============== ===============
Basic earnings per common share:
Income(loss) from continuing operations........................... $ .04 $ (.80)
Income(loss) from discontinued operations......................... .06 --
--------------- ---------------
Net income(loss) ................................................. $ .10 $ (.80)
=============== ===============
Diluted earnings per common share:
Income(loss) from continuing operations........................... $ .03 $ (.80)
Income(loss) from discontinued operations......................... .05 --
--------------- ---------------
Net income(loss) ................................................. $ .08 $ (.80)
=============== ===============
Weighted average shares........................................... 7,503 8,220
=============== ===============
Weighted average shares assuming dilution......................... 8,683 8,220
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
SUBSIDIARIES
8
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
----------------------
AUGUST 31 AUGUST 31
1999 2000
--------- ---------
(In Thousands)
<S> <C> <C>
Net cash provided (used) by operating activities:
Net income (loss) from continuing operations ................. $ 354 $(6,609)
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization ............................. 2,091 1,335
Write down of acquired and developed software ............. 0 944
Allowance for doubtful accounts ........................... 4 327
Gain on disposition of joint venture ...................... (36) (8)
Changes in assets and liabilities:
Accounts and other receivables .......................... (60) 250
Inventory ............................................... 920 (334)
Prepaid expenses ........................................ (835) 183
Accounts payable ........................................ (1,086) 1,502
Accrued expenses ........................................ 74 1,386
Deferred revenue ........................................ (259) 446
Taxes payable ........................................... (169) (58)
Other ................................................... (115) 662
-------- --------
Cash provided (used) by continuing operations ................... 883 26
Income from discontinued operations ....................... 430 --
Cash provided (used) by discontinued operations ........... 23 827
-------- --------
Net cash provided (used) by operating activities . 1,336 853
Cash flow from investing activities:
Capital expenditures ......................................... (283) (96)
Purchase of acquired company ................................. (259) (75)
Payment received on note for sale of joint venture ........... 85 18
Proceeds from disposition of joint venture ................... 10 0
Acquired and developed software .............................. (1,077) (1,227)
-------- --------
Net cash used by investing activities ............ (1,524) (1,380)
-------- --------
Cash flow from financing activities:
Common stock issued and to be issued, net .................... 0 348
Redemption of preferred stock ................................ 0 (2,353)
Bank overdraft ............................................... 0 0
Payments on borrowings ....................................... (647) (959)
Proceeds from borrowing ...................................... 703 825
Payment of preferred stock dividends ......................... (68) 0
Receivables from related parties ............................. 0 127
Purchase of Treasury Stock ................................... (536) (298)
-------- --------
Net cash provided (used) by financing activities . (548) (2,310)
-------- --------
Net increase (decrease) in cash ................................. (736) (2,837)
Effect of exchange rate changes on cash ......................... (52) (59)
-------- --------
Cash and cash equivalents at beginning of period ................ 1,400 3,288
-------- --------
Cash and cash equivalents at end of period ...................... $ 612 $ 392
======== ========
Cash paid for interest .......................................... $ 246 94
======== ========
Cash paid for taxes ............................................. $ 56 58
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
9
<PAGE>
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of UniComp,
Inc. and its subsidiaries (the "Company"). All material intercompany
balances and transactions have been eliminated in consolidation. The
preparation of financial statements requires management to make estimates
and assumptions underlying the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Changes in the status of certain
matters, facts or circumstances underlying these estimates could result
in material changes and actual results could differ from these estimates.
It is suggested that these quarterly consolidated financial statements
and notes be read in conjunction with the financial statements and notes
included in the Annual Report on Form 10-K for the fiscal year ended
February 29, 2000.
Certain amounts previously presented in the consolidated financial
statements have been reclassified to conform to current presentation.
2. BASIC AND DILUTED EARNINGS PER SHARE
The calculation and presentation of earnings per share are in accordance
with SFAS No. 128 "Earnings Per Share." Basic earnings per share are
based on the weighted average number of shares outstanding. Diluted
earnings per share are based on the weighted average number of shares
outstanding and the dilutive effect of the stock options and warrants
outstanding (using the treasury stock method) and the conversion of
preferred stock (using the if-converted method). For the Company, the
numerator is the same for both basic and diluted EPS calculations. The
following is a reconciliation of the denominator used in the calculation
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED AUGUST 31 ENDED AUGUST 31
---------------- ----------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average shares 8,202 7,495 8,220 7,503
Dilutive effect of common stock options and
Warrants 0 1,255 0 1,180
----- ----- ----- -----
Weighted average shares assuming dilution 8,202 8,750 8,220 8,683
===== ===== ===== =====
</TABLE>
Options and warrants to purchase 400,000 shares of common stock at a
weighted average price of $7.12 per share for the six months ended August
31, 1999 were outstanding but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the
average market price for the Company's common stock for the period. All of
the options and warrants outstanding for the three and six months ended
August 31, 2000 were excluded from the calculation of diluted earnings per
share due to the net loss for the six month period.
3. BUSINESS COMBINATIONS
ACQUISITION OF CONTINUUM TECHNOLOGY CORPORATION
In January 1999, the Company acquired a $.6 million note receivable from
Continuum Technology Corporation ("Continuum"). Consideration consisted of
$.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
10
<PAGE>
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.
DISPOSITION OF SHOP WHILE YOU WAIT, INC.
In June 1998, the Company contributed accounts receivable of $.5 million
for a 67% ownership in a newly formed entity engaged in retail electronic
commerce. In April 1999, the Company sold its ownership percentage to the
minority shareholder for a $.7 million note receivable bearing interest at
8.5%. The note is receivable in monthly installments of $5,000-$10,000 per
month with a final payment of $240,000 due in August 2003. The note is
secured by the assets of the venture and the personal guarantee and pledged
assets of the purchaser. The gain of $.3 million on the sale will be
recognized as cash is received.
DISPOSITION OF ICS UNICOMP LIMITED
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 $2.6 million for the three months and $5.3
million for the six months ended August 31, 1999. 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 August 31, 2000 and
February 29, 2000, is as follows (in thousands):
<TABLE>
<CAPTION>
August, 2000 February, 2000
------------ --------------
<S> <C> <C>
Current assets $ 181 $ 1,384
Property and equipment, net -- 0
Other assets 695 631
Current liabilities (1,599) (1,911)
Long-term debt -- (0)
------------ --------------
$(723) $104
============ ==============
</TABLE>
11
<PAGE>
4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands) for
the three and six month periods ended August 31, 2000 and 1999.
<TABLE>
<CAPTION>
(THREE MONTHS ENDED) (SIX MONTHS ENDED)
-------------------- ------------------
8/31/00 8/31/99 8/31/00 8/31/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income (loss) (4,951) 556 (6,609) 784
Change in Cumulative Translation Adjustment (330) 38 (378) (52)
------ ------- ------ -------
Comprehensive Income (loss)
(5,281) 594 (6,987) 732
====== ======= ====== =======
</TABLE>
5. 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.*
- 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.
12
<PAGE>
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>
Three months ended August 31, 2000:
Revenues $ 1,439 $ 2,771 $ 4,210
Cost of sales 433 1,918 2,351
Gross profit 1,006 853 1,859
Operating expenses 4,593 2,115 6,708
Operating loss (3,587) (1,262) (4,849)
Total assets 15,208 9,663 24,871
Three months ended August 31, 1999:
Revenues $ 3,950 $ 2,859 $ 6,809
Cost of sales 861 1,596 2,457
Gross profit 3,089 1,263 4,352
Operating expenses 2,889 1,126 4,015
Operating income 200 137 337
Total assets 20,392 10,136 30,528
<CAPTION>
LEGACY
EXTENSION
AND
VERTICAL TRANSACTION
APPLICATION E-BUSINESS
SEGMENT REPORTING SOFTWARE SOLUTIONS TOTAL
---------------------------------------------- ------------ -------------- --------
<S> <C> <C> <C>
Six months ended August 31, 2000:
Revenues $ 3,454 $ 6,161 $ 9,615
Cost of sales 892 4,334 5,226
Gross profit 2,562 1,827 4,389
Operating expenses 7,605 3,141 10,746
Operating loss (5,043) (1,314) (6,357)
Total assets 15,208 9,663 24,871
Six months ended August 31, 1999:
Revenues $ 7,469 $ 5,926 $ 13,395
Cost of sales 1,777 3,614 5,391
Gross profit 5,692 2,312 8,004
Operating expenses 5,623 2,050 7,673
Operating income (loss) 69 262 331
Total assets 20,392 10,136 30,528
</TABLE>
13
<PAGE>
The vast majority of the Company's revenue is generated from products and
services provided in the United States and the United Kingdom, although
the Company does have customers in over 30 countries. The following table
illustrates a summary of the operations by geographic area.
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN TOTAL
------------- ------------- -------
<S> <C> <C> <C>
Three months ended August 31, 2000:
Revenues $3,155 $1,055 $4,210
Cost of sales 2,009 342 2,351
Gross profit 1,146 713 1,859
Operating expenses 3,124 3,584 6,708
Operating loss (1,978) (2,871) (4,849)
Long-term assets 8,388 7,037 15,425
Total assets 14,527 10,344 24,871
Three months ended August 31, 1999:
Revenues 4,872 1,937 6,809
Cost of sales 1,915 542 2,457
Gross profit 2,957 1,395 4,352
Operating expenses 1,696 2,319 4,015
Operating income 1,261 (924) 337
Long-term assets 8,481 10,451 18,932
Total assets 14,826 15,702 30,528
<CAPTION>
UNITED
STATES FOREIGN TOTAL
------------- ------------- -------
<S> <C> <C> <C>
Six months ended August 31, 2000:
Revenues $7,021 $2,594 $9,615
Cost of sales 4,444 782 5,226
Gross profit 2,577 1,812 4,389
Operating expenses 5,045 5,701 10,746
Operating loss (2,468) (3,889) (6,357)
Long-term assets 8,388 7,037 15,425
Total assets 14,527 10,344 24,871
Six months ended August 31, 1999:
Revenues 8,472 4,923 13,395
Cost of sales 4,020 1,371 5,391
Gross profit 4,452 3,552 8,004
Operating expenses 3,163 4,510 7,673
Operating income 1,289 (958) 331
Long-term assets 8,481 10,451 18,932
Total assets 14,826 15,702 30,528
</TABLE>
The Company sells its products and services to a variety of customers.
Symbol Technologies represented 17.6% of company revenue for the three
month and 16.0% of company revenue for the six month period ended August
31, 2000. Symbol Technologies represented 11.4% of company revenue for the
three month and 10.4% of company revenue for the six month periods ended
August 31, 1999.
6. SERIES A CONVERTIBLE PREFERRED STOCK
14
<PAGE>
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.
7. USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statement and the reported amounts or revenues and
expenses during the reporting period. Actual results could differ from
those estimates. The consolidated financial statements include all
adjustments that, in the opinion of management, are necessary for a fair
presentation of the results for the periods indicated. All such
adjustments are of a normal recurring nature.
8. IMPAIRMENT OF ASSETS AND REORGANIZATION COSTS
During the second quarter and as of September 1, 2000, the Company
reorganized through plans to consolidate and refocus existing business
units. These plans will allow the Company to more effectively manage its
existing businesses in the current, rapidly changing market conditions. In
connection therewith, management also reevaluated the Company's investment
in capitalized software in light of current market conditions and the
reorganization plans. Management determined that, based on current market
conditions, evolving sales strategies, and an analysis of projected
undiscounted future cash flows calculated in accordance with the
provisions of SFAS No. 121, the carrying amount of certain long-lived
assets, notably software of its transaction processing subsidiary, may not
be recoverable. The resultant impairment of long-lived assets, due
principally to the impact of current market conditions and a shift in
sales strategy in the direction of transaction processing revenues,
necessitated a write-down of approximately $.9 million.
In connection with effecting the reorganization, the Company has also
recorded costs and accrued liabilities to close inactive operations. The
reorganization, which was substantially completed in the third quarter of
fiscal 2001, also included the termination of certain redundant staff
positions. Details
15
<PAGE>
of this element of the reorganization were finalized and communicated in
the second and third quarters of fiscal 2001. Compensation costs,
including severance and other termination benefits, and other future
costs related to the reorganization, were recognized in the second and
third quarters of the current fiscal year as noted below.
Asset impairment and reorganization costs for the quarters ended
August 31, 2000 and November 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
Cost related to 8/31/00 11/30/00
--------------- -------- --------
<S> <C> <C>
Write-off of capitalized software development
costs................................................ $ 945 $
Inactive operation closure............................. 400
Compensation costs for severance and other
termination benefits................................ 24 281
Other asset write-downs and costs...................... 1,037 205
-------- --------
$ 2,406 $ 486
</TABLE>
As of October 16, 2000, approximately 80 employee terminations and
resignations were related to reorganization actions. Accrued reorganization
and related costs at October 16, 2000 totaled approximately $500,000, which
is considered adequate to cover the employee related costs, including leased
vehicle leases, which remain as a result of the reorganization plan.
As a result of these reorganization efforts, the Company has reduced its
annual selling, general, and administrative costs, primarily through payroll
and related cost reduction, by approximately $5,000,000 annually. See
discussion in the MD&A where the Company breaks total selling, general, and
administrative costs for the three and six month periods ended 8/31/00 into
recurring, non-recurring, and one time, reorganization and asset
impairment costs.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND WITH THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2000. EXCEPT
FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND UNCERTAINTIES,
INCLUDING ECONOMIC, COMPETITIVE AND TECHNOLOGICAL FACTORS AFFECTING THE
COMPANY'S OPERATIONS, MARKETS, PRODUCTS, SERVICES AND PRICES AS WELL AS OTHER
FACTORS DISCUSSED IN THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AND THE
COMPANY'S ANNUAL REPORT ON FORM 10-K. THESE AND OTHER FACTORS MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED.
OVERVIEW
UniComp, Inc. (the Company), 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. In the first two quarters of fiscal year ending
February 28, 2001, the Company generated $9.6 million in total revenue, of
which $6.1 million was derived from sales of computer equipment, primarily
transaction processing equipment and retail wireless devices, and $1.5
million was derived from information technology
16
<PAGE>
services. The remaining $2.0 million in revenue was derived from license and
maintenance fees for the Company's platform-migration software,
transaction-processing systems and other vertical market software products.
Cost of sales for computer equipment consists of the actual costs of the
products sold. Cost of sales for information technology services includes
supplies, parts, subcontractors and other direct costs of delivering the
services, except for salary costs, which are included in selling, general and
administrative costs. Cost of sales for software includes amortization of
capitalized software development costs, as well as royalties payable on
embedded technologies and any other direct costs of providing its software
products and support. The Company amortizes capitalized software development
costs over the estimated life of the product, generally three to four years.
Selling, general and administrative expenses include salaries and related
costs for all employees, travel, costs associated with internal equipment,
sales commissions, premises and marketing costs, as well as general office
and administrative costs, and the amortization of goodwill. Development
grants received from the government of Northern Ireland have been recorded as
a reduction in selling, general and administrative expenses, or a reduction
in capitalized development costs, and are anticipated to remain relatively
constant for the foreseeable future.
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;
- 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 three and six month
periods ended August 31, 2000 and 1999 is included in Note 6 of the Notes to
Consolidated Financial Statements.
PRODUCTS AND SERVICES
17
<PAGE>
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 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
18
<PAGE>
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
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.
19
<PAGE>
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
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
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<PAGE>
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 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
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<PAGE>
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.
ACQUISITIONS AND DISPOSITIONS
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.
In April, 2000, the Company acquired 51% of the outstanding shares of
Commitment Software Ltd. a United Kingdom software development company.
Consideration consisted of approximately $75,000 in cash and approximately
7,000 shares of the Company's common stock. The purchase agreement provides
the Company with the option to acquire the remaining 49% by August 1, 2000
for approximately $75,000.
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 liabilities as of December 1, 1999 were retained by ICS UniComp
Limited. ICS UniComp was one of the ICS
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<PAGE>
Computing Group subsidiaries acquired in 1993.
In June 1998, the Company contributed accounts receivable of $.5 million for
a 67% ownership in a newly formed entity engaged in retail electronic
commerce. In April 1999, the Company sold its ownership percentage to the
minority shareholder for a $.7 million note receivable bearing interest at
8.5%. The note is receivable in monthly installments of $5,000-$10,000 per
month with a final payment of $240,000 due August 2003. The note is secured
by the assets of the venture and the personal guarantee and pledged assets of
the purchaser. The gain of $.2 million on the sale will be recognized as cash
is received.
RESULTS OF CONTINUING OPERATIONS
The following table summarizes the Company's results of continuing operations
in dollars and as a percentage of total revenue for the three and six months
ending August 31, 1999 and 2000.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------------ ----------------------------------------------
8/31/99 8/31/00 8/31/99 8/31/00
------- ------- ------- -------
(in thousands, except percentage data) (in thousands, except percentage data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue ................ $ 6,809 100.0% $ 4,210 100.0% $ 13,395 100.0% $ 9,615 100.0%
Cost of sales ................ 2,457 36.1 2,351 55.8 5,391 40.2 5,226 54.4
-------- ------ -------- ------ -------- ------ -------- -------
Gross profit ................. 4,352 63.9 1,859 44.2 8,004 59.8 4,389 45.6
Selling, general and
administrative expenses ...... 4,015 59.0 6,708 159.3 7,673 57.3 10,746 111.7
-------- ------ -------- ------ -------- ------ -------- -------
Operating income (loss) ...... 337 4.9 (4,849) (115.1) 331 2.5 (6,357) (66.1)
Other expense ................ 114 1.7 102 2.4 217 1.6 252 2.6
-------- ------ -------- ------ -------- ------ -------- -------
Income (loss) before taxes ... 223 3.2 (4,951) (117.5) 114 0.9 (6,609) (68.7)
Provision for taxes .......... (136) (2.0) 0 0.0 (240) (1.8) 0 0.0
-------- ------ -------- ------ -------- ------ -------- -------
Net income (loss) ............ $ 359 5.2 $ (4,951) (117.5) $ 354 2.7 $ (6,609) (68.7)
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
THREE AND SIX MONTHS ENDED AUGUST 31, 1999 COMPARED TO THREE AND SIX MONTHS
ENDED AUGUST 31, 2000.
REVENUE
Revenue for the three months ended August 31, 2000 decreased to $4.2 compared
to $6.8 million for the three months ended August 31, 1999, a decrease of
$2.6 million, or 38.2%. Revenue for the six months ended August 31, 2000 fell
to $9.6 million from $13.4 million for the six months ended August 31, 1999,
a decrease of $3.8 million, or 28.4%. These decreases are detailed below.
EQUIPMENT REVENUE
The following table summarizes the revenue generated from sales of computer
equipment for the three months ended August 31, 2000 and the comparable
period from the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
(in thousands, except percentage data)
8/31/99 8/31/00 $ %
------- ------- ------ -----
<S> <C> <C> <C> <C>
Transaction-processing Equipment ....... $ 1,575 $ 1,252 (323) (20.5)
Retail Wireless Devices and Other
Equipment .............................. 1,211 1,444 233 19.2
------- ------- ------ -----
Total Equipment Revenue ................ $ 2,786 $ 2,696 (90) (3.2)
======= ======= ====== =====
<CAPTION>
SIX MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
(in thousands, except percentage data)
8/31/99 8/31/00 $ %
------- ------- ------ -----
23
<PAGE>
<S> <C> <C> <C> <C>
Transaction-processing Equipment ....... $ 3,422 $ 2,981 (441) (12.9)
Retail Wireless Devices and Other
Equipment .............................. 2,367 3,075 708 29.9
------- ------- ------ -----
Total Equipment Revenue ................ $ 5,789 $ 6,056 267 4.6
======= ======= ====== =====
</TABLE>
The increase in revenue from retail wireless devices and other equipment for
both the three and six month periods is due to the continuing strong
performance of the Continuum business unit. The decrease in revenue from
transaction processing equipment for both the three and six month periods is
largely due to the Company's tight cash position.
SERVICES REVENUE
Revenue from information technology services decreased to $.6 and $1.5
million for the three and six months ended August 31, 2000 from $1.6 and $3.3
million for the comparable periods in the prior fiscal year, a decrease of
$1.0 and $1.8 million or 62.5% and 54.5%. These decreases are primarily due
to poor performances by the United Kingdom business units.
SOFTWARE REVENUE
The following table summarizes the revenue from software licensing and
support.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
(in thousands, except percentage data)
8/31/99 8/31/00 $ %
------- ------- ------ -----
<S> <C> <C> <C> <C>
Initial License Fees:
Legacy Extension .................... $ 1,871 $ 227 (1,644) (87.9)
E-commerce .......................... 16 7 (9) (56.3)
Other ............................... 124 190 66 53.2
------- ------- ------ -----
Total Initial License Fees ............. 2,011 424 (1,587) (78.9)
------- ------- ------ -----
Software Support Fees:
Legacy Extension .................... 287 364 77 26.8
E-commerce .......................... 8 8 0 0
Other ............................... 150 95 (55) (36.7)
------- ------- ------ -----
Total Software Support Fees ............ 445 467 22 4.9
------- ------- ------ -----
Total Software Revenue ................. $ 2,456 $ 891 $(1,565) (63.7)
======= ======= ====== =====
<CAPTION>
SIX MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
(in thousands, except percentage data)
8/31/99 8/31/00 $ %
------- ------- ------ -----
<S> <C> <C> <C> <C>
Initial License Fees:
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<PAGE>
Legacy Extension .................... $ 3,162 $ 853 (2,309) (73.0)
E-commerce .......................... 60 29 (31) (51.7)
Other ............................... 226 248 22 9.7
------- ------- ------- -----
Total Initial License Fees ............. 3,448 1,130 (2,318) (67.2)
------- ------- ------- -----
Software Support Fees:
Legacy Extension .................... 511 658 147 28.8
E-commerce .......................... 44 32 (12) (27.3)
Other ............................... 338 193 (145) (42.9)
------- ------- ------- -----
Total Software Support Fees ............ 893 883 (10) (1.1)
------- ------- ------- -----
Total Software Revenue ................. $ 4,341 $ 2,013 $(2,328) (53.6)
======= ======= ======= =====
</TABLE>
Legacy extension software revenue by major product class is as follows.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
8/31/99 8/31/00 $ %
------- ------- ------ -----
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36............................... 1,024 238 (786) (76.8)
UNIBOL400.............................. 1,134 353 (781) (68.9)
------- ------- ------- -----
Total Platform Migration Revenue....... $ 2,158 $ 591 (1,567) (72.6)
======= ======= ======= =====
<CAPTION>
SIX MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
8/31/99 8/31/00 $ %
------- ------- ------ -----
(in thousands, except percentage data)
<S> <C> <C> <C> <C>
UNIBOL36.............................. 1,567 817 (750) (47.9)
UNIBOL400............................. 2,106 694 (1,412) (67.0)
------- ------- ------- -----
Total Platform Migration Revenue...... $ 3,673 $ 1,511 (2,162) (58.9)
======= ======= ======= =====
</TABLE>
Legacy extension software revenue was negatively impacted for both the three
and six month periods ending August 31, 2000 by a failed management buy out
("MBO"). Partly as a result of the MBO, the Company has reorganized its UK
operations into a single trading entity under new management. The Company
expects legacy extension revenues for both the UNIBOL 36 and UNIBOL 400
products to stabilize and begin to ramp up again by the end of the current
fiscal year.
INTERNATIONAL REVENUE.
Revenue from international operations, principally in Northern Ireland,
decreased to $1.1 and $2.6 million for the three and six months ended August
31, 2000 from $1.9 and $4.9 million for the comparable periods in the prior
fiscal year, decreases of $0.8 and $2.3 million or 42% and 47%. These
decreases are due to shortfalls in all significant foreign business units.
Revenue from domestic operations decreased to $3.2 and $7.0 million for the
three and six months ended August 31, 2000 from $4.9 and $8.5 million for the
comparable period in the prior fiscal year, decreases of $1.7 and $1.5
million, or 34.7% and 17.6%. The decreases are due to shortfalls in
transaction processing equipment and legacy extension software sales.
GROSS PROFIT. The following table summarizes the Company's gross profit
information in dollars and as a percentage of the associated revenues for the
three and six months ended August 31, 2000 and the comparable period for the
prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------
25
<PAGE>
(in thousands, except percentage data)
8/31/99 8/31/00
------- -------
GROSS PROFIT GROSS PROFIT
------------ ------------
$ % $ %
------ ------ ----- -------
<S> <C> <C> <C> <C>
Information Technology Services .............. 1,371 87.5 492 79.0
------ -----
Equipment:
Transaction-processing Equipment ......... 630 40.0 630 50.3
Retail Wireless Devices and Other
Equipment ................................ 451 37.2 173 12.0
------ -----
Total Equipment .............................. 1,081 38.8 803 29.8
------ -----
Software:
Legacy Extension ......................... 1,802 83.5 371 62.8
E-commerce ............................... (90) (375.0) (16) (106.7)
Other .................................... 188 68.6 209 73.3
------ -----
Total Software ............................... 1,900 77.4 564 63.2
------ -----
Total Gross Profit ........................... 4,352 63.9 1,859 44.2
====== =====
<CAPTION>
SIX MONTHS ENDED
------------------------------------------
(in thousands, except percentage data)
8/31/99 8/31/00
------- -------
GROSS PROFIT GROSS PROFIT
------------ ------------
$ % $ %
------ ------ ----- -------
<S> <C> <C> <C> <C>
Information Technology Services .............. 2,719 83.3 1,348 87.2
------ -----
Equipment:
Transaction-processing Equipment ......... 1,324 38.7 1,083 36.2
Retail Wireless Devices and Other
Equipment ................................ 876 37.0 754 14.9
------ -----
Total Equipment .............................. 2,200 38.0 1,837 30.3
------ -----
Software:
Legacy Extension ......................... 2,905 79.1 939 62.1
E-commerce ............................... (143) (137.5) (91) (313.8)
Other .................................... 323 57.3 356 80.7
------ -----
Total Software ............................... 3,085 71.1 1,204 59.8
------ -----
Total Gross Profit ........................... 8,004 59.8 4,389 45.6
====== =====
</TABLE>
Gross profit margins for equipment and services vary from quarter to quarter
depending on customer demands and product mix. Equipment margins in both the
three and six month periods shrank due to decreasing margins on sales from
the Company's transaction processing business units.
SELLING, GENERAL, & ADMINISTRATIVE EXPENSES. During the quarter ended August
31, 2000, the Company reorganized several of its business units in an effort
to reduce selling, general, and administrative expenses to more reasonable
levels in future quarters. Approximately 80 people who were on the Company's
payrolls at the beginning of the quarter are no longer employed by the
Company as of October 16, 2000.
The Company incurred certain costs related to the reduction of head count. An
additional $.5 million related to the reduction of head count will be
recognized in the third fiscal quarter. Additionally, the Company wrote down
the assets of its Australian operation pending disposal, wrote down the net
assets of two other inactive operations, and wrote off capitalized software
development costs at its transaction processing operation as that company's
revenue stream is shifting away from software sales toward
26
<PAGE>
transaction processing revenues. The following table summarizes selling,
general, and administrative expenses for the three and six month periods
ended August 31, 2000.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
8/31/00 8/31/00
------------ ----------
<S> <C> <C>
Reorganization related costs........... $ 2,406 $ 2,406
Non-recurring selling, general, &
administrative......................... 1,250 2,500
Recurring selling, general, &
administrative ........................ 3,052 5,840
------------ ----------
Total selling, general, & administrative 6,708 10,746
============ ==========
</TABLE>
The increase in selling, general, and administrative expenses of $.3 million
for the three months ended August 31, 2000 versus the three months ended
August 31, 1999 is primarily due to an increase in the bad debt provision.
The $.7 million increase in the six month period is due to increases in the
bad debt provision and salaries and a reduction in grant income recognized.
OTHER EXPENSES. Interest, the primary component of other expenses, was
relatively unchanged for both the three and six month periods ended August
31, 2000 compared with the same periods in the prior fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company had approximately $3.3 million in cash and
equivalents. As of August 31, 2000, the Company's cash balance had been
reduced to $392,000, and the lines of credit had increased to $4.2 million
from the $3.9 million outstanding at February 29, 2000. This use of cash
during the six months ended August 31, 2000 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 U. S. line of credit is fully utilized and
matures October 31, 2000. Management is currently in discussions with the
lender and believes these discussions will be successful in securing adequate
financing through February 28, 2001. The Company is expecting to collect
several large past-due receivables. Should collection of these amounts occur,
the Company's working capital situation would be significantly improved.
Additionally, the Company is currently exploring several financing
alternatives to maintain liquidity and support continuing growth. Those
alternatives 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.
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 in discussions with the lender regarding renewal of
the facility.
The Company does not have any significant commitments to purchase capital
equipment as of August 31, 2000.
The Company received grants to fund research and development from the
government of Northern Ireland of approximately $0.1 million for each of the
six month periods ended August 31, 2000 and 1999. These grants are subject to
the legislative rules and regulations of Northern Ireland and the United
Kingdom. Management does anticipate that the receipt of grants will decrease
in the foreseeable future.
27
<PAGE>
The Company believes available credit will be sufficient to meet its working
capital needs both on a short and a long-term basis. However, the Company's
capital needs will depend on many factors, including the Company's ability to
achieve profitable operations, the need to develop and improve products, and
various other factors. Depending on its working capital requirements, the
Company may seek additional financing through debt or equity offerings in the
private or public markets at any time. The Company's ability to obtain
additional financing will depend on its results of operations, financial
condition and business prospects, as well as conditions then prevailing in
the relevant capital markets. There can be no assurance that financing will
be available or, if available, will be on terms acceptable to the Company.
YEAR 2000 COMPLIANCE
THE PROBLEM 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
28
<PAGE>
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 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
29
<PAGE>
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 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 October 16, 2000, approximately 60
of our 140 employees work in our international facilities. This geographical
distance, as well as the time-
30
<PAGE>
zone difference, can isolate management from operational issues, delay
communications and require devotion of a significant amount of time, effort
and expense to international travel. In the future, we may face significant
management demands associated with our international operations.
As a result of the company-wide reorganization and continuing shift in
revenues and employees to the United States, the Company's Principal
Accounting position has been relocated to the United States. Until an
appropriate individual can be identified, the Chief Executive Officer will
serve as acting Chief Financial Officer.
CHANGES IN OPERATIONS IN NORTHERN IRELAND
A significant number 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.
31
<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 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.
32
<PAGE>
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.
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
33
<PAGE>
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 August 31,
2000, 27.4% of the Company's total debt was in fixed-rate instruments. The
Company has a revolving line of credit that provides for borrowings by the
Company of up to $3.0 million, which is fully utilized as of August 31. The
Company also has a UK revolving line of credit that is currently being
re-negotiated with the UK lender. There is no current availability on that
facility as of August 31. 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%. In addition, the Company maintains an average maturity of its
short-term investment portfolio under twelve months to avoid large changes in
its market value. As of August 31, 2000, the average maturity of the
Company's short-term investments was less than one month.
PART II. OTHER INFORMATION
ITEMS 4 AND 5 ARE NOT APPLICABLE.
ITEM 1. LEGAL PROCEEDINGS
The Company does not believe that there are any pending or threatened legal
proceedings other than non-material legal proceedings incidental to the
Company's business, that if adversely determined, could have a material
adverse effect on the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On October 6, 1998, the Company filed Articles of Amendment
to the Articles of Incorporation ("Articles of Amendment")
of the Company designating 3,600 shares of Preferred Stock
as Series A Convertible Preferred Stock, $1.00 par value, of
which 600 shares may be issued only as dividends on the
outstanding shares of Series A Convertible Preferred Stock
issued on October 7, 1998. The Series A Convertible
Preferred Stock ranks (i) senior to the Common Stock, now or
hereafter issued, as to payment of dividends and
distribution of assets upon liquidation, dissolution, or
winding upon the Company; (ii) senior to any additional
series of the class of Preferred Stock which series the
Company's Board of Directors may from time to time
authorize, both as to payment of dividends and as to
distributions of assets upon liquidation, dissolution, or
winding up the Company; and (iii) senior to any additional
class of preferred stock (or series of preferred stock of
such class) which the Board of Directors or the stockholders
may from time to time authorize in accordance with the
Articles of Amendment.
Holders of the Series A Convertible Preferred Stock are
entitled to receive, when, as, and if declared by the Board
of Directors out of funds legally available for such
purpose, dividends at the rate of $50.00 per annum per
share, which are fully cumulative, shall accrue without
interest (except for dividends in arrears) from the date of
original issuance of each share and are payable quarterly on
March 15, June 15, September 15, and December 15 of each
year commencing December 15, 1998. Dividends on the Series A
Convertible Preferred Stock may be paid in cash, or subject
to certain limitations, dividends of additional shares of
Series A Convertible Preferred Stock.
In connection with the issuance of the Series A Convertible
Preferred Stock, the Company has certain mandatory
redemption obligations if certain events occur, such as
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upon conversion of the Series A Convertible Preferred Stock if
the shares of Common Stock of the Company to be issue would
exceed 1,576,000 shares of Common Stock. The Company also
has certain optional redemption rights.
Holders of the Series A Convertible Preferred Stock may at
any time on or after January 5, 1999 convert all or from
time to time any part of such holder's shares of Series A
Convertible Preferred Stock into fully paid and
nonassessable shares of Common Stock of the Company and such
other securities and property pursuant to the conversion
formula set forth in the Articles of Amendment. However,
absent shareholder approval, the maximum number of shares of
Common Stock that may be issued upon conversion of the
Series A Convertible Preferred Stock is 1,576,000.
Holders of the Series A Convertible Preferred Stock are not
entitled to vote on any matter.
(b) None.
(c) On September 30, 1998, the Company issued warrants for
25,000 shares of the Company's Common Stock to an
"accredited investor" as defined by Rule 501 of Regulation D
promulgated by the Securities and Exchange Commission under
the Securities Act of 1933, as amended (the "Act"). The
warrants entitled the holders thereof to, upon exercise,
purchase an aggregate of 25,000 shares of the Company's
Common
Stock at an exercise price of $3.00 per share. This
transaction was exempt from the registration provisions of
the Act, pursuant to section 4(2) of the Act for
transactions not involving a public offering, based on the
fact that the securities were offered and sold to one
investor who had access to financial and other relevant data
concerning the Company, its financial condition, business,
and assets.
On October 7, 1998, the Company issued 3,000 shares of
Series A Convertible Preferred Stock, par value $1.00 per
share, and warrants for 102,127 shares of the Company's
Common Stock to an "accredited investor" as defined by Rule
501 of Regulation D promulgated by the Securities and
Exchange Commission under the Act for an aggregate
consideration of $3 million. This transaction was exempt
from the registration provision of the Act pursuant to Rule
506 of Regulation D as promulgated by the Securities and
Exchange Commission under the Act. Each share of Series A
Convertible Preferred Stock may be converted into a number
of shares of the Company's Common Stock pursuant to the
terms of the Series A Convertible Preferred Stock Purchase
Agreement; provided that, the maximum number of shares of
Common Stock that may be issued upon conversion of the
Series A Convertible Preferred Stock is 1,576,000. Absent
the Company's certain redemption rights, the holders of the
Series A Convertible Preferred Stock may at any time on or
after January 5, 1999 convert all or from time to time any
part of their shares of Series A Convertible Preferred Stock
into fully paid and nonassessable shares of Common Stock and
such other securities and property as provided in the
Articles of Amendment. Each Series A Convertible Preferred
Stock shall be converted pursuant to the conversion terms of
the Articles of Amendment; provided that absent shareholder
approval, the maximum number of shares of Common Stock that
may be issued upon conversion of the Series A Convertible
Preferred Stock is 1,576,000. See "Liquidity and Capital
Resources" and "Subsequent Events." The holders of the
Series A Convertible Preferred Stock have certain
registration rights.
As of May 31, 2000, all 3,000 shares of the Series A
Convertible Preferred Stock had
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been redeemed for a combination of cash and shares of the
Company's common stock.
(d) Not required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. The Company filed a report on Form 8-K
on March 29, 2000 relating to the change in the Company's
certifying accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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UNICOMP, INC.
/s/Stephen A. Hafer August 16, 2000
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Stephen A. Hafer Date
Chairman of the Board, President, Chief Executive Officer,
and acting Chief Financial Officer
Principal Executive Officer
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