<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 MAY 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 8,312,070 Common Shares outstanding as of July 7, 2000.
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<PAGE>
UNICOMP, INC.
Index
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANACIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of February 29, 2000
and May 31, 2000 3
Consolidated Statements of Operations for the
three months ended May 31, 1999 and 2000 5
Consolidated Statements of Cash Flows for the
three months ended May 31, 1999 and 2000 7
Notes to the Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risks 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities and Use of Proceeds 30
Item 6. Exhibits and Reports on Form 8-K 32
Signatures 33
Exhibits 34
</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, MAY 31,
2000 2000
--------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 3,288 $ 75
Accounts and other receivables:
Trade, net of allowance of $322 and $328 ..................................... 5,185 5,463
Other receivables................................................................ 333 384
Inventory........................................................................... 3,429 3,766
Prepaid expenses and Other.......................................................... 880 829
--------------- --------------
Total current assets........................................................... 13,115 10,517
--------------- --------------
Property and equipment, net............................................................ 4,147 3,853
--------------- --------------
Other assets:
Acquired and developed software, net of accumulated amortization of $8,974
and $9,246 ...................................................................... 6,895 7,412
Goodwill and other intangibles, net of accumulated amortization of $1,138
and $1,296 ...................................................................... 3,892 3,734
Prepaid pension..................................................................... 695 695
Note receivable from officer/director............................................... 525 364
Other............................................................................... 629 600
Net assets of discontinued operations............................................... 104 0
--------------- --------------
Total other assets............................................................. 12,740 12,805
--------------- --------------
Total assets................................................................... $ 30,002 $ 27,175
=============== ==============
</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, MAY 31,
2000 2000
--------------- ---------------
<S> <C> <C>
Current liabilities:
Bank Overdraft ............................................................... $ 0 $ 0
Accounts payable.............................................................. 2,155 2,228
Accrued expenses.............................................................. 884 970
Deferred revenue.............................................................. 816 686
Taxes payable................................................................. 588 516
Lines of credit............................................................... 3,931 4,756
Other......................................................................... 235 119
Current portion of notes payable.............................................. 561 279
--------------- ---------------
Total current liabilities................................................ 9,170 9,554
--------------- ---------------
Long-term liabilities:
Notes payable................................................................. 2,664 2,572
Deferred income taxes......................................................... 525 525
Other long-term liabilities................................................... 325 325
Net liabilities of discontinued operations.................................... 0 751
--------------- ---------------
Total long-term liabilities.............................................. 3,514 4,173
--------------- ---------------
Total liabilities........................................................ 12,684 13,727
--------------- ---------------
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......................................................... 210 330
Additional contributed capital................................................ 17,920 16,765
Retained earnings (deficit)................................................... 1,624 (34)
--------------- ---------------
20,888 17,151
Less treasury stock........................................................... (3,115) (3,200)
Cumulative translation adjustment............................................. (455) (503)
--------------- ---------------
Total stockholders' equity............................................... 17,318 13,448
--------------- ---------------
Total liabilities and stockholders' equity............................... $ 30,002 $ 27,175
=============== ===============
</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
-------------------------------------
MAY 31, MAY 31,
1999 2000
------------------ -----------------
<S> <C> <C>
Revenue:
Equipment...................................................... $ 3,003 $ 3,360
Services....................................................... 1,698 1,023
Software....................................................... 1,885 1,022
------------------ -----------------
Total revenue............................................... 6,586 5,405
------------------ -----------------
Cost of sales:
Equipment...................................................... 1,884 2,326
Services....................................................... 350 114
Software....................................................... 700 428
------------------ -----------------
Total cost of sales......................................... 2,934 2,868
------------------ -----------------
Gross profit...................................................... 3,652 2,537
------------------ -----------------
Selling, general and administrative expenses...................... 3,658 4,045
------------------ -----------------
Operating loss.................................................... (6) (1,508)
------------------ -----------------
Other income (expense):
Other, net..................................................... 1 (17)
Interest, net.................................................. (104) (133)
------------------ -----------------
Total other income (expense)................................ (103) (150)
------------------ -----------------
Loss from continuing operations before provision for
Income taxes.................................................. (109) (1,658)
------------------ -----------------
Provision for income taxes........................................ (104) 0
------------------ -----------------
Net loss from continuing operations............................... $ (5) $ (1,658)
Income from discontinued operations............................... 233 -
------------------ -----------------
Net income (loss) ................................................ $ 228 $ (1,658)
================== =================
</TABLE>
5
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<S> <C> <C>
Net income (loss) ................................................ $ 228 $ (1,658)
=============== =================
Preferred stock dividends and accretion........................... $ 31 $ 0
=============== =================
Income(loss) available to common shareholders..................... $ 197 $ (1,658)
=============== =================
Basic earnings per common share:
Income(loss) from continuing operations........................... $ (0.01) $ (.20)
Income(loss) from discontinued operations......................... .04 -
--------------- -----------------
Net income(loss) ................................................. $ .03 $ (.20)
=============== =================
Diluted earnings per common share:
Income(loss) from continuing operations........................... $ (0.01) $ (.20)
Income(loss) from discontinued operations......................... .04 -
=============== =================
Net income(loss) ................................................. $ .03 $ (.20)
=============== =================
Weighted average shares........................................... 7,511 8,265
=============== =================
Weighted average shares assuming dilution......................... 7,712 8,265
=============== =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
6
<PAGE>
UNICOMP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
----------------------------------------
MAY 31 MAY 31
1999 2000
------------------ ------------------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided (used) by operating activities:
Net loss from continuing operations......................... $ (5) $ (1,658)
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization............................ 1,128 844
Allowance for doubtful accounts.......................... (49) 6
Gain on disposition of joint venture..................... (9) (8)
Changes in assets and liabilities:
Accounts and other receivables......................... 239 (335)
Inventory.............................................. 705 (337)
Prepaid expenses....................................... (340) 51
Accounts payable....................................... (1,176) 73
Accrued expenses....................................... (446) (29)
Deferred revenue....................................... (392) (130)
Taxes payable.......................................... 609 (72)
Other.................................................. (163) 94
------------------ ------------------
Cash provided (used) by continuing operations.................. 101 (1,501)
Income from discontinued operations................... 233 -
Cash provided (used) by discontinued operations....... 10 855
------------------ ------------------
Net cash provided (used) by operating activities 344 (646)
Cash flow from investing activities:
Capital expenditures........................................ (166) 0
Purchase of acquired company................................ (259) (75)
Payment received on note for sale of joint venture.......... 25 18
Proceeds from disposition of joint venture.................. 10 0
Acquired and developed software............................. (545) (909)
------------------ ------------------
Net cash used by investing activities............... (935) (966)
------------------ ------------------
Cash flow from financing activities:
Common stock issued and to be issued, net................... 0 273
Redemption of preferred stock............................... 0 (2,353)
Bank overdraft ............................................ 591 0
Payments on borrowings...................................... (542) (374)
Proceeds from borrowing..................................... 0 825
Payment of preferred stock dividends........................ (31) 0
Receivables from related parties............................ 0 161
Purchase of Treasury Stock.................................. (451) (85)
------------------ ------------------
Net cash provided (used) by financing activities.... (433) (1,553)
------------------ ------------------
Net increase (decrease) in cash................................ (1,024) (3,165)
Effect of exchange rate changes on cash........................ (90) (48)
------------------ ------------------
Cash and cash equivalents at beginning of period............... 1,400 3,288
------------------ ------------------
Cash and cash equivalents at end of period..................... $ 286 $ 75
================== ==================
Cash paid for interest......................................... $ 137 68
================== ==================
Cash paid for taxes............................................ $ 0 0
================== ==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
7
<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of UniComp,
Inc. and its subsidiaries (the "Company"). All material intercompany
balances and transactions have been eliminated in consolidation. The
preparation of financial statements requires management to make estimates
and assumptions underlying the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Changes in the status of certain
matters, facts or circumstances underlying these estimates could result
in material changes and actual results could differ from these estimates.
It is suggested that these quarterly consolidated financial statements
and notes be read in conjunction with the financial statements and notes
included in the Annual Report on Form 10-K for the fiscal year ended
February 29, 2000.
Certain amounts previously presented in the consolidated financial
statements have been reclassified to conform to current presentation.
8
<PAGE>
2. BASIC AND DILUTED EARNINGS PER SHARE
The calculation and presentation of earnings per share are in accordance
with SFAS No. 128 "Earnings Per Share." Basic earnings per share are
based on the weighted average number of shares outstanding. Diluted
earnings per share are based on the weighted average number of shares
outstanding and the dilutive effect of the stock options and warrants
outstanding (using the treasury stock method) and the conversion of
preferred stock (using the if-converted method). For the Company, the
numerator is the same for both basic and diluted EPS calculations. The
following is a reconciliation of the denominator used in the calculation
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MAY 31
-------------------------
2000 1999
---- ----
<S> <C> <C>
Weighted average shares 8,265 7,511
Dilutive effect of common stock options and
Warrants 0 201
----- -----
Weighted average shares assuming dilution 8,265 7,712
===== =====
</TABLE>
Options and warrants to purchase 440,000 shares of common stock at a
weighted average price of $7.08 per share for the three months ended May
31, 1999 were outstanding but were not included in the computation of
diluted EPS because the options' exercise prices were greater than the
average market price for the Company's common stock for the period. All of
the options and warrants outstanding for the three months ended May 31,
2000 were excluded from the calculation of diluted earnings per share due
to the net loss for that period. The conversion of preferred stock for the
three months ended May 31, 1999 is anti-dilutive and therefore excluded
from the calculation of weighted average shares assuming dilution.
3. BUSINESS COMBINATIONS
ACQUISITION OF CONTINUUM TECHNOLOGY CORPORATION
In January 1999, the Company acquired a $.6 million note receivable from
Continuum Technology Corporation ("Continuum"). Consideration consisted of
$.3 million in cash and accounts receivable of $.4 million. In March 1999,
the Company purchased 97.5% of Continuum's outstanding common stock.
Consideration consisted of $259,361 in cash, 8% notes payable aggregating
$572,128 and 200,000 shares of the Company's common stock. The remaining
2.5% of Continuum's outstanding common stock was purchased in February,
2000 for $17,800 in cash and 18,953 shares of the Company's common stock.
Continuum, headquartered in Fletcher, North Carolina, is involved in the
design, manufacturing, marketing, and servicing of a complete line of
hardware and software for customer activated terminals used in a retail
setting. The acquisition has been accounted for as a purchase, and
accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on their estimated fair values at the date of
acquisition. The results of operations have been included from March 1,
1999, the effective date of the acquisition. The excess consideration above
the fair value of net assets acquired of approximately $2.0 million has
been recorded in goodwill.
9
<PAGE>
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 $2.7 million for the three months ended May
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 May 31, 2000 and February 29, 2000, is as follows (in
thousands):
<TABLE>
<CAPTION>
MAY, 2000 FEBRUARY, 2000
--------- --------------
<S> <C> <C>
Current assets $186 $1,384
Property and equipment, net - 0
Other assets 695 631
Current liabilities (1,632) (1,911)
Long-term debt - (0)
------- -------
$(751) $104
======= =======
</TABLE>
4. COMPREHENSIVE INCOME
The components of comprehensive income are as follows (in thousands) for
the three month periods ended May 31, 2000 and 1999.
<TABLE>
<CAPTION>
(THREE MONTHS ENDED)
--------------------
5/31/00 5/31/99
------- -------
<S> <C> <C>
Net Income (loss) (1,658) 228
Change in Cumulative Translation Adjustment (48) (90)
------- -------
Comprehensive Income (loss) (1,706) 138
======= =======
</TABLE>
10
<PAGE>
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.
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 May 31, 2000:
Revenues $2,015 $3,390 $5,405
Cost of sales 452 2,416 2,868
Gross profit 1,563 974 2,537
Operating expenses 3,019 1,026 4,045
Operating loss (1,456) (52) (1,508)
Total assets 15,301 11,874 27,175
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C>
Three months ended May 31, 1999:
Revenues $3,519 $3,067 $6,586
Cost of sales 916 2,018 2,934
Gross profit 2,603 1,049 3,652
Operating expenses 2,734 924 3,658
Operating income (loss) (131) 125 (6)
Total assets 18,917 11,201 30,118
</TABLE>
The vast majority of the Company's revenue is generated from products and
services provided in the United States and the United Kingdom, although
the Company does have customers in over 30 countries. The following table
illustrates a summary of the operations by geographic area.
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN TOTAL
------ ------- -----
<S> <C> <C> <C>
Three months ended May 31, 2000:
Revenues $3,866 $1,539 $5,405
Cost of sales 2,428 440 2,868
Gross profit 1,438 1,099 2,537
Operating expenses 1,928 2,117 4,045
Operating income (loss) (490) (1,018) (1,508)
Long-term assets 7,961 8,697 16,658
Total assets 14,136 13,039 27,175
Three months ended May 31, 1999:
Revenues 3,600 2,986 6,586
Cost of sales 2,105 829 2,934
Gross profit 1,495 2,157 3,652
Operating expenses 1,467 2,191 3,658
Operating income (loss) 28 (34) (6)
Long-term assets 8,645 10,684 19,329
Total assets 15,411 14,707 30,118
</TABLE>
The Company sells its products and services to a variety of customers. No
individual customer accounted for more than 10% of company revenue during
the three month periods ended May 31, 2000 and 1999.
6. SERIES A CONVERTIBLE PREFERRED STOCK
On October 7, 1998, the Company issued 3,000 shares of Series A
convertible preferred stock, par value $1 per share, and warrants for
102,127 shares of the Company's common stock at an exercise price of
$4.41, for aggregate consideration of $3 million. Transaction costs of $.2
million were paid in connection with the offering. Dividends are payable
quarterly in cash or additional preferred stock at a rate of 5% per annum.
The preferred shares, together with any accrued and unpaid dividends, are
convertible into shares of the Company's common stock at the lower of 90%
of the Company's stock price for 30 days preceding the conversion or $5
per share. The beneficial conversion feature and the warrants have been
allocated $300,000 and $110,000, respectively, of the proceeds. The
discount of $300,000 resulting from the allocation to the beneficial
conversion feature was recognized as an additional return to the preferred
shareholders through the earliest conversion date. In the event the
12
<PAGE>
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.
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 quarter of fiscal year ending February 28, 2001, the Company generated
$5.4 million in total revenue, of which $3.4 million was derived from sales of
computer equipment and $1.0 million was derived from information technology
services. The remaining $1.0 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.
13
<PAGE>
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 month periods ended
May 31, 2000 and 1999 is included in Note 5 of the Notes to Consolidated
Financial Statements.
PRODUCTS AND SERVICES
RETAIL E-BUSINESS SOLUTIONS
E-commerce products and services
UniComp has been developing e-commerce products since the early 1990's. Those
development efforts have yielded a web-enabled suite of products that deliver a
completely integrated solution for Internet merchants as well as those who have
yet to transition to e-commerce and continue to operate in the traditional
world. The primary piece of software involved, Universal Payment Software
("UPS"), facilitates both e-commerce and traditional commerce by providing a
secure method for processing credit
14
<PAGE>
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 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
15
<PAGE>
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.
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.
16
<PAGE>
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
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.
17
<PAGE>
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
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.
18
<PAGE>
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 Computing Group subsidiaries acquired in 1993.
19
<PAGE>
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 months ended May 31,
1999 and 2000.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
5/31/99 5/31/00
------- -------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Total Revenue...................... $6,586 100.0% $ 5,405 100.0%
Cost of sales...................... 2,934 44.5 2,868 53.1
----- ----- -------- -----
Gross profit....................... 3,652 55.5 2,537 46.9
Selling, general, &
administrative expenses............ 3,658 55.5 4,045 74.8
----- ----- -------- -----
Operating loss..................... (6) (0.0) (1,508) (27.9)
Other expense...................... 103 1.6 150 2.8
----- ----- -------- -----
Loss before taxes.................. (109) (1.6) (1,658) (30.7)
Income tax expense (benefit)....... (104) (1.6) 0 0.0
----- ----- -------- -----
Net loss........................... $ (5) (0.0)% $ (1,658) (30.7)%
===== ========
</TABLE>
THREE MONTHS ENDED MAY 31, 1999 COMPARED TO THREE MONTHS ENDED MAY 31, 2000
REVENUE
Revenue for the three months ended May 31, 2000 decreased to $5.4 compared to
$6.6 million for the three months ended May 31, 1999, a decrease of $1.2
million, or 18.2%. This decrease in revenue is detailed below.
EQUIPMENT REVENUE
The following table summarizes the revenue generated from sales of computer
equipment for the three months ended May 31, 2000 and the comparable period from
the prior fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
5/31/99 5/31/00 $ %
------- ------- -- --
<S> <C> <C> <C> <C>
Transaction-processing Equipment... $ 1,847 $ 1,729 (118) (6.4)
Retail Wireless Devices and Other
Equipment.......................... 1,156 1,631 475 41.1
------- ------- ----
Total Equipment Revenue............ $ 3,003 $ 3,360 357 11.9
======= ======= ====
</TABLE>
Sales of computer equipment can vary from quarter to quarter based on customer
needs. The increase in revenue from retail wireless devices and other equipment
is due to the continuing strong performance of the Continuum business unit.
20
<PAGE>
SERVICES REVENUE
Revenue from information technology services decreased to $1.0 million for the
three months ended May 31, 2000 from $1.7 million for the comparable period in
the prior fiscal year, a decrease of $.7 million or 41.2%. This decrease is
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)
5/31/99 5/31/00 $ %
------- ------- -- --
<S> <C> <C> <C> <C>
Initial License Fees:
Legacy Extension............. $ 1,291 $ 526 (765) (59.3)
E-commerce................... 44 22 (22) (50.0)
Other........................ 102 58 (44) (43.1)
------- ---- ----
Total Initial License Fees......... 1,437 606 (831) (57.8)
------- ---- ----
Software Support Fees:
Legacy Extension............. 224 294 70 31.3
E-commerce................... 36 24 (12) (33.3)
Other........................ 188 98 (90) (47.9)
------- ---- ----
Total Software Support Fees........ 448 416 (32) (7.1)
------- ---- ----
Total Software Revenue............. $ 1,885 $ 1,022 (863) (45.8)
======= ======== ====
</TABLE>
Platform migration software revenue by major product class is as follows.
<TABLE>
<CAPTION>
THREE MONTHS ENDED INCREASE/(DECREASE)
------------------ -------------------
5/31/99 5/31/00 $ %
------- ------- -- --
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
UNIBOL36........................... 543 820 277 51.0
UNIBOL400.......................... 972 0 (972) (100.0)
------- ----- ----
Total Platform Migration Revenue... $ 1,515 $ 820 (695) (45.9)
======= ===== ====
</TABLE>
The Company continues to record revenue with its UNIBOL 36 product, despite a
generally declining market.
The revenue recorded in the quarter ended May 31, 1999 from the UNIBOL400
product was primarily related to a single customer. The Company is currently
pursuing litigation against that customer. The UNIBOL400 product became
generally available in the second quarter of the current fiscal year, and the
Company expects to record revenues on that product going forward.
INTERNATIONAL REVENUE.
Revenue from international operations, principally in Northern Ireland,
decreased to $1.5 million for the three months ended May 31, 2000 from $3.0
million for the comparable period in the prior fiscal year, a decrease of $1.5
million or 50%. This revenue decrease is due to shortfalls in all significant
foreign business units. Revenue from domestic operations increased to $3.9
million for the three months ended May 31, 2000 from $3.6 million for the
comparable period in the prior fiscal year, an increase of $.3 million, or 8.3%.
This is due primarily to increasing sales at Continuum.
21
<PAGE>
GROSS PROFIT. The following table summarizes the Company's gross profit
information in dollars and as a percentage of the associated revenues for the
three months ended May 31, 1999 and the comparable period for the prior fiscal
year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
5/31/99 5/31/00
------- -------
GROSS PROFIT GROSS PROFIT
------------ ------------
$ % $ %
-- -- -- --
<S> <C> <C> <C> <C>
Information Technology Services........ 1,348 79.4 909 88.9
----- -----
Equipment:
Transaction-processing Equipment.. 693 37.5 453 26.2
Retail Wireless Devices and Other
Equipment ........................ 426 36.9 581 35.6
----- -----
Total Equipment........................ 1,119 37.3 1,034 30.8
----- -----
Software:
Legacy Extension.................. 979 64.6 568 69.3
E-commerce........................ (53) (66.3) (75) (163.0)
Other............................. 259 89.3 101 64.7
----- -----
Total Software......................... 1,185 62.9 594 58.1
----- -----
Total Gross Profit..................... 3,652 55.5 2,537 46.9
===== =====
</TABLE>
Gross profit margins for equipment and services vary from quarter to quarter
depending on customer demands and product mix. Information technology services
gross profit margin, which does not include salary costs, increased to 88.9% of
services revenue for the three months ended May 31, 2000 from 79.4% for the
comparable period in the prior fiscal year. Equipment margins shrank due to
decreasing margins on sales from its transaction processing business units.
SELLING, GENERAL, & ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses increased to $4.0 million for the three months ended May
31, 2000 compared to $3.7 million for the comparable period in the prior fiscal
year, an increase of $.3 million or 8.1%. Selling, general, and administrative
expenses as a percentage of total revenue increased to 74.8% for the three
months ended May 31, 2000 as compared to 55.5% for the comparable period in the
prior fiscal year because revenues shrank despite increased spending by the
business units.
OTHER EXPENSES. Interest, the primary component of other expenses, increased to
$133,000 for the three months ended May 31, 2000 from $104,000 for the
comparable period in the prior fiscal year, an increase of $29,000 or 27.9%. The
increase in interest expense is related to increased borrowings on the Company's
lines of credit and other short-term borrowings to fund operations.
LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, the Company had approximately $3.3 million in cash and
equivalents. As of May 31, 2000, the Company's cash balance had been reduced to
$75,000, and the lines of credit had increased to $4.8 million from the $3.9
million outstanding at February 29, 2000. This use of cash in the first quarter
was primarily attributable to the $2.4 million expended to redeem the preferred
stock outstanding as of February 29, 2000, with the remainder absorbed by
increasing working capital needs. Additionally, the
22
<PAGE>
Company's line of credit is fully utilized and matures July 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. It
should be noted, however, that the Company's revolving credit lenders have been
flexible regarding the stated credit limits, allowing the Company to borrow up
to approximately $750,000 more than the stated amount of the facility. While
there can be no assurance that the lenders would allow excess borrowings in
those amounts in the future, management believes the lenders will continue to be
flexible to help the Company meet its working capital needs. The Company is also
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 alternative include combined debt and equity financing, short-term bridge
loans from lenders with which the Company has prior experience, increases in the
current lines of credit, and equipment financing as an alternative to capital
expenditures. While there can be no assurance that any of these alternatives
will be successful, Management is confident that it will secure the funding
necessary to achieve its growth objectives. If Management is unsuccessful in its
efforts to obtain necessary financing, the Company's operations could be
severely and negatively impacted.
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 May 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 three month
periods ended May 31, 2000 and 1999. These grants are subject to the legislative
rules and regulations of Northern Ireland and the United Kingdom. Management
does not anticipate that the receipt of grants will diminish significantly in
the foreseeable future; however, there can be no assurance that the Company will
be able to continue to receive such grants.
The Company believes available credit will be sufficient to meet its working
capital needs both on a short and a long-term basis. However, the Company's
capital needs will depend on many factors, including the Company's ability to
achieve profitable operations, the need to develop and improve products, and
various other factors. Depending on its working capital requirements, the
Company may seek additional financing through debt or equity offerings in the
private or public markets at any time. The Company's ability to obtain
additional financing will depend on its results of operations, financial
condition and business prospects, as well as conditions then prevailing in the
relevant capital markets. There can be no assurance that financing will be
available or, if available, will be on terms acceptable to the Company.
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.
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<PAGE>
CURRENT STATUS AND OVERALL IMPACT OF THE YEAR 2000. UniComp experienced minimal
problems to their business through the millennium changeover. All network
systems and company data remained intact and unaffected. The Company will
continue to monitor their systems and continue to review all information through
out the fiscal year. The following table identifies each of the seven phases
that were addressed during this project. UniComp completed all phases by the
projected date.
<TABLE>
<CAPTION>
---------------------------------- ------------------------------ ------------------- -----------------------------------
PROJECT PHASE PROJECT % COMPLETED COMPLETION COMMENTS
------------- ------------------- ---------- --------
---------------------------------- ------------------------------ ------------------- -----------------------------------
<S> <C> <C> <C>
Awareness 100% Completed
---------------------------------- ------------------------------ ------------------- -----------------------------------
Identification 100% Completed
---------------------------------- ------------------------------ ------------------- -----------------------------------
Impact Analysis 100% Completed
---------------------------------- ------------------------------ ------------------- -----------------------------------
Risk Evaluation 100% Completed All significant suppliers have
been evaluated.
---------------------------------- ------------------------------ ------------------- -----------------------------------
Remediation 100% Completed All critical systems are
completed..
---------------------------------- ------------------------------ ------------------- -----------------------------------
Testing 100% Completed Secondary tests for critical
systems completed.
---------------------------------- ------------------------------ ------------------- -----------------------------------
Contingency Plan 100% Completed Implemented.
---------------------------------- ------------------------------ ------------------- -----------------------------------
Overall Completion 100% Completed Implemented and completed on
Estimate schedule.
---------------------------------- ------------------------------ ------------------- -----------------------------------
</TABLE>
CONTINGENCY PLAN. UniComp continues to have a disaster recovery program
implemented company wide. Routinely information is backed up to diskette and
tape. This regiment incorporates daily, weekly and monthly backups. These
backups are divided into on-site (primary) and off-site (secondary) data copies.
The secondary copies are archived up to three months and kept in a secure
location to help maintain an ongoing disaster recovery program. This methodology
of damage control was integrated into UniComp's Year 2000 contingency plan to
safeguard all mission critical data. This routine was created to allow
information to be transported to various machines should the need arise.
COST. The overall cost incurred for activities relating to the Year 2000 issue
was not material in amount over the two-year period from 1998 to 1999. Most of
the expense would have been considered a part of the ongoing routine of
maintenance and upkeep of internal systems. The current infrastructure has a
system in place to allocate personnel to perform such tasks. UniComp used
internal resources to oversee the most intensive phases of the Year 2000
project. Expense in this area was limited to man hours and personnel expense. In
addition, a consultant was hired to help the larger sites in the United Kingdom
to transition their systems to millennium compliance. The cost of this course of
action was nominal. The cost to replace fully depreciated systems was considered
to be a part of normal business operations and not directly related to the Year
2000 issue.
24
<PAGE>
FACTORS THAT MAY AFFECT FUTURE RESULTS
FORWARD LOOKING STATEMENTS
The foregoing contains forward-looking statements that involve risks and
uncertainties, including but not limited to quarterly fluctuations in results,
the timely availability and customer acceptance of new products, the impact of
competitive products and pricing, general market trends and conditions, and
other risks detailed below in "Factors That May Affect Future Results." Actual
results may vary materially from projected results.
UniComp's domestic and international businesses operate in highly competitive
markets that involve a number of risks, some of which are beyond the Company's
control. While UniComp is optimistic about its long-term prospects, the
following discussion highlights some risks and uncertainties that should be
considered in evaluating its future growth prospects. See "Forward-Looking
Statements and Associated Risks" in Part I of this annual report.
SUCCESS DEPENDENT ON ABILITY TO COMPETE IN HIGHLY COMPETITIVE INFORMATION
TECHNOLOGY INDUSTRY
Our success depends on our ability to compete in an industry that is intensely
competitive and subject to rapid change. In competing in the information
technology industry, we believe the principal competitive factors we face are
reputation and quality of service, relative price and performance, technical
expertise and product availability. Our competitors in the information
technology service market include installation and service organizations within
many established companies, computer manufacturers, custom software developers,
regional systems integrators, software and hardware distributors, and systems
consultants. The market for our platform-migration software is highly
competitive as well. We believe that the principal competitive factors in this
area include product performance, time to market for new product introductions,
adherence to industry standards, price, marketing and distribution resources.
The market for our transaction-processing systems is also highly competitive. We
believe that the principal competitive factors in this area include the ability
to provide a comprehensive, integrated transaction-processing system, product
performance, time to market for new product introductions, adherence to industry
standards, price, marketing and distribution resources. Some of our current and
potential competitors have longer operating histories and substantially greater
competitive resources than ours. As a result, our competitors may be able to
adapt more quickly to changes in customer needs or to devote greater resources
to sales, marketing and product development. As the markets in which we compete
have matured, product price competition has intensified and such intensity will
likely continue. Such price competition could adversely affect our results of
operations. There can be no assurance that we will be able to continue to
compete successfully with existing or new competitors.
DEPENDENCE ON FOREIGN SALES
Any reduction of our international business could significantly affect our
revenues. Our revenues from international operations represented from one-third
to one-half of our total revenues for fiscal years 1998 through 2000. We expect
that our international operations will continue to account for a significant
percentage of our total revenues. Certain risks are inherent in international
operations, including (1) unexpected changes in regulatory requirements, (2)
currency exchange rate fluctuations, (3) changes in trade policy or tariff
regulations, (4) customs matters, (5) longer payment cycles, (6) higher 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
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generally denominated in corresponding currencies. As a result, to date we have
not hedged against foreign currency exchange rate risks. In the future; however,
we may implement hedging techniques with respect to foreign currency
transactions. Nevertheless, such hedging activities cannot assure that we could
successfully protect ourselves against foreign currency exchange losses or
against other international sales risks such as exchange limitations, price
controls or other foreign currency restrictions.
SUCCESS DEPENDENT ON ABILITY TO ADJUST TO RAPID TECHNOLOGICAL CHANGE AND
INTRODUCTION OF NEW PRODUCTS AND SERVICES
The information technology industry is characterized by rapid technological
advances, numerous changes in customer requirements and frequent new product
introductions and enhancements, which could disrupt our services business and
render our products obsolete. Our future success will depend in large part on
our ability to anticipate and respond to such advances, changes and new product
introductions. Our failure to respond could have a material adverse effect on
our competitive position and results of operations. In addition, we are subject
to the risks generally associated with new product introductions and
applications, including lack of market acceptance, delays in development or
failure of products to perform as expected.
Many of our software products, including certain e- commerce products and
UNIBOL400, have yet to achieve a substantial installed user base. We cannot be
certain that these products will ever achieve a substantial market acceptance or
user base. Our growth strategy includes using our current business relationships
to generate additional revenue by providing other products and services to these
clients.
POTENTIAL FOR DELAYS IN PRODUCT INTRODUCTION
Our delay in any potential product development and introduction may have an
adverse effect on the product's success and on our reputation and results of
operations. Additionally, competitors may introduce products and gain market
share during any such delays. Our failure to introduce new products and product
enhancements that are responsive to market conditions and customer requirements
may have an adverse effect on our business, results of operations and financial
condition. Furthermore, our complex software products may contain undetected
errors when first introduced or when new versions are released. We cannot be
certain that current or future releases of our products will not contain errors
or that any such errors will not result in loss or delay of market acceptance of
such products. We have previously experienced delays in developing and
introducing new products, and there can be no assurance that we will not
experience delays in the future.
DISTRIBUTION OF MANAGEMENT OF OVERSEAS OPERATIONS
Any significant disruption in the management of our international operations
could have a material adverse effect on our business, results of operations and
financial condition. Our headquarters and administrative offices are located in
Atlanta, Georgia; however, as of May 31, 2000, approximately 133 of our 220
employees work in our international facilities. This geographical distance, as
well as the time-zone difference, can isolate management from operational
issues, delay communications and require 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.
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CHANGES IN OPERATIONS IN NORTHERN IRELAND
A substantial majority of our personnel and operations are located in Northern
Ireland. Northern Ireland has historically experienced periods of religious,
civil and political unrest. Northern Ireland may experience further unrest which
could disrupt our ability to provide information technology services and product
development programs and have a material adverse effect on our results of
operations and financial condition. For each of the past three fiscal years, the
Northern Ireland government has granted to us approximately $0.4 million to fund
our research and development programs. Our use of these funds is subject to
various rules and regulations, including the requirement that we repay such
funds in the event we remove certain operations from Northern Ireland. We cannot
be sure that we will continue to be eligible for or will receive similar grants
in the future or, if such grants are received, whether additional restrictions
will apply to our use of such funds.
RISK OF ACQUISITION PROGRAM
To date, our acquisition program has substantially contributed to our growth. We
have no assurance that we will complete any future acquisitions or that we will
benefit from any completed acquisition in the future. We obtain most of our
acquisitions by taking advantage of opportunities that are presented to us. We
require significant administrative, operational and financial resources to
successfully integrate and manage our diverse businesses. There are numerous
operational and financial risks involved in managing acquired businesses,
including (1) difficulties in assimilating acquired operations, (2) diversion of
management's attention, (3) amortization of acquired intangible assets, (4)
increases in administrative costs, (5) additional costs associated with debt or
equity financing, and (6) potential loss of key employees or customers of
acquired operations. We may not be successful in integrating our current
acquisitions or retaining and motivating key personnel of our acquired
companies. Our failure to integrate businesses, to expand our acquired customer
and technology base and to retain key employees of our acquired companies could
have an adverse effect on our business, results of operations and financial
condition. Although we currently do not have any understandings, commitments or
agreements with respect to any acquisition, we anticipate future potential
acquisition opportunities.
SUCCESS DEPENDENT ON ABILITY TO HIRE AND RETAIN TECHNICAL PERSONNEL AND KEY
EMPLOYEES
Our success depends in part on our ability to attract, hire, train and retain
qualified managerial, technical and sales and marketing personnel. Competition
for such personnel is intense. We cannot be certain that we will be successful
in attracting and retaining the technical personnel we require to conduct and
expand our operations successfully. Our results of operations could be
materially adversely affected if we are unable to attract, hire, train and
retain qualified personnel. Our success also depends to a significant extent on
the continued service of our management team. The loss of any member of the
management team could have a material adverse effect on our business, results of
operations and financial condition. We do not have any employment or noncompete
agreements with any of our executive officers.
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.
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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.
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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 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.
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The Company reduces its exposure to changes in interest rates by maintaining a
high proportion of its debt in fixed-rate instruments. As of May 31, 2000, 25.3%
of the Company's total debt was in fixed-rate instruments. The Company has a
revolving line of credit that provides for borrowings by the Company of up to
$4.8 million, which is fully utilized as of May 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 May 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 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.
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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 been redeemed for a combination of cash and shares
of the Company's common stock.
(d) Not required.
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNICOMP, INC.
/s/ Hugh Moore July 17, 2000
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Hugh Moore Date
Vice President of Finance
Principal Accounting Officer
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