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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 0-23239
UBICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1744587
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
333 TECHNOLOGY DRIVE, SUITE 210, CANONSBURG, PENNSYLVANIA 15317
(Address of Principal Executive Offices) (Zip Code)
(724) 746-6001
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
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 such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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The aggregate market value of the voting and non-voting common equity
of the registrant held by non-affiliates of the registrant as of March 15, 2001
(based on the closing price of such stock on the Nasdaq National Market on such
date) was $10,959,992
The number of shares of the registrant's Common Stock, par value $.01
per share, outstanding as of March 15, 2000 was 7,012,151.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the
indicated Part of this Form 10-K:
Proxy Statement relating to 2001 Annual Meeting of Stockholders (Part III)
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UBICS, INC.
FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 15
Item 8. Financial Statements 15
Consolidated Balance Sheets as of December 31, 1999
and December 31, 2000 18
Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000 19
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1998, 1999 and 2000 20
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000 21
Notes to Financial Statements 22
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 29
PART III
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners and Management 29
Item 13. Certain Relationships and Related Transactions 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 29
SIGNATURES
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PART I
ITEM 1. BUSINESS
SUMMARY
UBICS, Inc. ("UBICS" or the "Company") provides information technology
("IT") professional services to large and mid-sized organizations. UBICS
provides its clients with a wide range of professional services in such areas as
client/server design and development, enterprise resource planning ("ERP")
package implementation and customization, e-commerce applications design and
development, applications maintenance programming and database and systems
administration. UBICS' services are provided primarily on a time-and-materials
basis to client-managed projects, with UBICS IT professionals providing integral
support as project team members. With respect to website design and development
projects, UBICS' services are provided on a fixed price basis. Over the last
three years, the Company's revenues have grown from $30.3 million for 1998 to
$42.3 million for 2000. During 2000, UBICS provided IT professional services to
more than 190 clients in a range of industries and locations. The Company's
clients include Advance Auto Parts, Caterpillar, El Paso Natural Gas, Fruit of
the Loom, State Farm and The Hartford. UBICS' high standards for responsiveness
and service quality promote growing client relationships and recurring revenues.
The Company believes that its centralized, low-overhead operating model enables
it to respond quickly to client demand for IT professional services. UBICS meets
this demand through its employed IT professionals and its management of an
extensive network of subcontractors. The Company currently has approximately 285
IT professionals deployed with its clients in the U.S.
One of the key factors supporting UBICS' growth has been its ability to
recruit and deploy, on short notice, skilled IT professionals. The Company
recruits IT professionals from India and other countries worldwide. In order to
ensure a continuous supply of IT professionals the Company has established a
recruiting and training center in India. The initial phase of the center was
placed in operation in the fall of 1998 and an expansion was completed in 1999.
The Company uses this center to enhance its recruiting efforts and to train its
IT professionals prior to placement. The Company also selectively uses the
substantial resources and established reputation of the UB Group, to support its
recruiting efforts. The UB Group is a multinational group of companies
headquartered in Bangalore, India with operations in Asia, the Far East, the
Middle East, Africa, Europe and the U.S. The UB Group consists of companies
under the control of Vijay Mallya, Chairman of the Company and the indirect
beneficial owner of approximately 55% of the outstanding shares of common stock
of the Company. Companies in the UB Group are principally engaged in the
manufacture and sale of beer, spirits, pharmaceuticals, paint and coating
products and in the hotel and resort business. The worldwide revenue of the
companies in the UB Group is currently approximately $2 billion per annum.
The Company completed the acquisition of Cobalt Creative, Inc. in July 2000.
The Company currently has offices in the Pittsburgh, Pennsylvania, San
Francisco, California and Scottsdale, Arizona areas.
SERVICES
The Company's IT professionals help clients identify, analyze and solve data
processing and computing problems in such areas as: (i) client/server design and
development; (ii) ERP package implementation and customization; (iii) e-commerce
applications design and development; (iv) applications maintenance programming;
and (v) database and systems administration. These services are provided in a
variety of computing environments utilizing leading technologies including
client/server architectures, object-oriented programming languages and tools,
distributed database management systems, computer-aided software engineering
("CASE") tools, ERP packages, groupware and advanced networking and
communications technologies. The Company's engagements cover every aspect of the
life cycle of computer systems, from strategy and design to development and
implementation and, finally, to maintenance and support.
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The majority of the Company's services are provided on a time-and-materials
basis with UBICS IT professionals providing services as members of the client's
project team. The Company's UB Interactive Division & Cobalt subsidiary provides
web-site design services on a fixed-price basis. Generally, these services are
provided on-site to clients whose current personnel do not have the requisite
technical skills or to clients with specific projects requiring additional
staffing that do not justify permanent personnel increases. The scope of the
work performed by the Company ranges from specific, minor tasks of three months
in duration involving a single IT professional to large, complex tasks that
require several IT professionals for a year or longer. Examples of larger tasks
include developing new client/server systems and maintaining mature mainframe
systems that cannot be quickly replaced.
ERP software services consist primarily of assisting clients in implementing
and customizing package application software on client/server systems. Clients
seeking these services are generally businesses that are migrating from legacy
mainframe applications or are implementing enterprise-wide client/server
architectures. The Company is seeking to expand the volume of ERP software
services that it provides by developing relationships with package software
firms. In addition, the Company has purchased additional hardware and software
and supporting facilities that will enable it to train its IT professionals in
the use and implementation of such ERP package software. The Company also
continually adjusts the scope of services which it provides in order to meet the
changing needs of its clients.
The Company's UB Interactive Division and Cobalt Creative subsidiary provide
a complete cycle of service, from strategic planning and project management, to
the creative and technical services required in the areas of website design and
development, digital media, corporate design and branding, e-commerce and
virtual tours. While most of this work is done at UBICS' facilities in
Canonsburg, Pennsylvania and Scottsdale, Arizona, customer participation is
generally very high. Customers seeking these services range from small start-ups
to niche firms to large companies. The project length and scope can range from
one week to year long development and marketing campaigns.
The Company's services are described below:
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- ------------------------------- ----------------------------------- -----------------------------
UBICS SERVICES METHODS/TOOLS DESCRIPTION
- ------------------------------- ----------------------------------- -----------------------------
Client/Server Design and o Tools/Languages: o System design
Development PowerBuilder, Visual Basic, o Requirements analysis and
Developer 2000, Delphi, SQL definition
Windows, Visual C++, Java, o Data modeling
Lotus Notes, Smalltalk o Prototyping
o Development
o Databases: Oracle, o Testing and
Informix, Sybase, SQL Server, implementation
Unify o Network design
o Internet/intranet
o CASE Tools: ER-Win, solutions
Designer 2000, IEF o Legacy transformation/
data porting
- ------------------------------- ----------------------------------- -----------------------------
ERP Package Implementation o ERP Packages: Baan, o Implementation of
and Customization PeopleSoft, Oracle, SAP packaged
software solutions
o Customization
o Integration
o Data modeling
o System support
o Database administration
o End-user training
- ------------------------------- ----------------------------------- -----------------------------
E-Commerce / Internet o Tools/Languages: o Web development, Internet/
Java, Pearl, CGI, Java Beans, Intranet solutions, Applet
HTML DHTML, ActiveX, ASP, Domino, Developments, Workflow,
Oracle Webserver Firewalls (security)
- ------------------------------- ----------------------------------- -----------------------------
Applications Maintenance o Programming environments: o System design
Programming COBOL, CICS, PL/1, o Development
RPG/400, COBOL/400 o Program conversion
o Data conversion
o Databases: DB2, IMS, IDMS o User interface conversion
o Testing and
o Y2K Tools: MicroFocus implementation
Revolve o Date conversion
- ------------------------------- ----------------------------------- -----------------------------
Database and System o Databases: Oracle, o Database administration
Administration Informix, Sybase, SQL Server, o Datawarehousing
Unify o Network administration
o Unix and Windows NT
o Tools: HP OpenView, System administration
CiscoWorks, Bytex Network
Management System,
AT&T OneVision
- ------------------------------- ----------------------------------- -----------------------------
SALES AND MARKETING
UBICS focuses its sales effort primarily on placing its IT professionals in
high value-added positions within large and mid-sized organizations through a
direct sales force currently consisting of 15 professionals. The Company serves
the U.S. market primarily through its headquarters in the Pittsburgh,
Pennsylvania area. UBICS leverages the mobility of its IT professionals and its
centralized, low-overhead sales and marketing effort to service all areas of the
U.S.
The Company's sales force is organized primarily by geographic region and/or
practice lines. The Company's sales professionals are responsible for managing
client relationships and identifying new business opportunities within their
assigned regions and/or practice lines. UBICS' sales professionals are required
to meet monthly targets for new accounts and placements, based upon the
experience and tenure of the sales professional. Compensation of sales
professionals is based heavily upon incentives for strong financial performance,
including gross margin contribution, within their region and/or practice lines.
The Company's sales organization employs a variety of methods to identify
potential clients and industry trends, including referrals from existing clients
and the Company's IT professionals. The Company's sales
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professionals begin the sales process by identifying and analyzing the
prospective client's existing software configuration and development
requirements, and the size and scope of its internal IT resources. The sales
professional then submits a proposal with the resumes of IT professionals having
skills that match the prospective client's project requirements. The Company's
ability to closely match its IT professionals with the client's IT needs enables
the Company's sales professionals to offer a 30 day guarantee. If the client is
not satisfied with an IT professional's services during the first 30 days of an
assignment, the Company will not charge the client for such professional's
services. After the client has engaged the Company, the sales professional
continuously monitors and builds the relationship between the client and the IT
professionals to ensure client satisfaction and the successful progress and
completion of the assignment.
While the Company's focus remains on expanding its sales and marketing
efforts in the U.S., it has expanded its international operations by opening its
recruiting and training center in India. Because UBICS currently has a
sufficient supply of IT professionals awaiting deployment, the Company has
deferred previously disclosed plans to establish offshore recruiting offices in
various foreign locations (other than stated above).
In addition to UBICS' pursuit of new clients, the Company actively markets
its services to its existing clients, seeking to proactively meet the needs of
its clients and maximize placement success. The Company's success in developing
and retaining clients is due, in large part, to its ability to maintain a
continuous supply of qualified IT professionals. This is made possible by the
Company's extensive network of nearly 80 subcontracting firms from which it can
source qualified IT professionals to supplement, if necessary, its employed IT
professionals. The Company believes that this network of subcontractors provides
the Company with a significant sales and marketing advantage. The Company's
relationship with these subcontractors ensures that the Company can effectively
meet client needs quickly, thus establishing UBICS as a primary provider of IT
professional services.
The Company's efforts in the area of web design have been towards building a
focused and penetrative approach. Utilizing the customer base in all areas of
the company, sales managers are compensated based on the development of
additional services and products to these customers. Vertical focus areas within
commercial real estate, architecture and software are identified through
national, regional and local periodicals and research forums. The sales process
begins with an initial phone call but outside sales is the primary communication
model. A consultative and creative approach is taken to match the Company's
services with the immediate needs of the potential customer. Once a formal
proposal is submitted and approved, the customer is assigned a full time project
manager who is responsible for delivery, quality, budget and coordination. Long
term relationships are developed through adherence to strict timelines and
quality standards.
CLIENTS
Substantially all of the Company's clients are large and mid-sized
companies, systems integrators or other significant users of IT. During 2000,
the Company provided services to over 190 clients in a range of industries in
the U.S. During 2000, approximately 20% of the Company's revenues were derived
from its top five clients--The Hartford, El Paso Natural Gas, Visual Services,
MRJ Technology and Dana Corporation. The Hartford accounted for approximately
6%, 5% and 6% of the Company's revenues for 1998, 1999 and 2000, respectively.
The following is a partial list of organizations to which the Company has
provided, or is providing, services:
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TECHNOLOGY RETAIL INDUSTRIAL
---------- ------ ----------
Access Graphics Advance Auto Parts Caterpillar
Ceridian Corp Charming Shoppes ABB Power
Baan Boscov's Department El Paso Natural Gas
Computer Associates Stores Ablestik Labs
Hughes Network Systems Advent Johnson Controls
Ansys Blockbuster General Electric
Oracle Alfa Laval Separators
CONSUMER PRODUCTS FINANCIAL
Fruit of the Loom Associates
Dow Corning Ag First Credit Union
Kent Electronics GE Capital
Philips Electronics State Farm
Greencheck Fans The Hartford
The Company seeks to provide high quality, responsive service in order to
maximize its client retention rate and secure follow-on engagements. A
significant number of the Company's clients have selected UBICS to provide
additional services.
HUMAN RESOURCES
The Company's success depends in large part on its ability to attract,
develop, motivate and retain highly skilled IT professionals. As of December 31,
2000, the Company had 291 IT professionals deployed at client sites. The Company
currently has five full-time practice managers, all of whom have technical
backgrounds that enable them to effectively evaluate the skills and
qualifications of potential candidates. The Company also has a recruiting team
dedicated to managing relationships with the Company's network of
subcontractors. UBICS takes a proactive approach to recruiting based on skills
requirements forecasts. The Company continually receives resumes from
prospective employees in response to advertisements placed in trade publications
and newspapers and on the internet. In addition, UBICS IT professionals are
actively involved in identifying and referring new employees and screening
candidates for new positions. The Company recruits primarily in India, but also
has recruited from other areas of the world, including the U.S., the United
Kingdom, the Middle East and the Far East.
As a result of its relationship with the UB Group, UBICS benefits from the
established reputation and infrastructure that the UB Group has in India. The
Company has also established a recruiting and training infrastructure in India.
UBICS employs a stringent selection method that consists of a three-stage
interview process. During the first stage, a general interview is conducted to
gather background information and references. The candidate next has a technical
interview with a technical panel which comprises of experts in their respective
skill areas. During the final step, the candidate is interviewed to assess the
candidate's client interaction skills and to verify the candidate's suitability
for assignment to a project in the U.S.
The Company believes that the qualifications of its IT professionals give it
a competitive edge. To maintain and enhance their skills, UBICS IT professionals
attend training workshops and seminars where they learn to use the latest tools
and techniques. The Company utilizes its training facility in India, to train
UBICS IT professionals in ERP software packages and other higher value-added
technologies, and thereby enhance the skill base of such professionals.
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The Company maintains a database which catalogs the technical profiles,
location, availability, mobility and other factors relating to available IT
professionals. This database enables the Company to quickly identify and deploy
appropriate IT professionals for various client engagements.
The Company's IT professionals typically have Masters or Bachelors degrees
in Computer Science or another technical discipline as well as at least two
years of IT experience. As of December 31, 2000, the Company had 340 employees
comprised of 260 IT professionals, 26 sales and marketing personnel and 54
general and administrative personnel. Over 90% of the Company's IT professionals
are citizens of other countries, with most of those in the U.S. working under
H-1B temporary work permits. UBICS engages legal counsel to prepare, file and
process H-1B visa applications with the U.S. Immigration and Naturalization
Service.
The Company also uses subcontracted IT professionals to effectively meet
client needs when UBICS IT professionals are unavailable. The Company maintains
strong relationships with nearly 80 vendor subcontractors located worldwide. As
of December 31, 2000, 99 of its deployed IT professionals, or approximately 34%,
were supplied by subcontractors. As the Company increases its investment in
recruiting and retaining qualified IT professionals, it believes the ratio of
UBICS IT professionals to IT professionals deployed from subcontractors will
increase. It has been and continues to be to the Company's advantage, however,
to maintain this subcontractor network to help meet its clients' needs. The
Company applies the same process and standards in selecting IT professionals
from subcontractors as it does in recruiting its employed IT professionals.
The Company has a focused employee retention strategy that includes career
planning, training and benefits.
COMPETITION
The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. Primary competitors include participants
from a variety of market segments, including "Big Five" accounting firms,
systems consulting and implementation firms, applications software firms,
service groups of computer equipment companies, general management consulting
firms, contract programming companies and temporary staffing firms. Many of
these competitors have substantially greater financial, technical and marketing
resources and greater name recognition than the Company. In addition, there is a
risk that clients may elect to increase their internal IT resources or limit the
number of outside service providers to satisfy their applications solutions
needs. The Company believes that the principal competitive factors in the IT
services industry include the range of services offered, technical expertise,
responsiveness to client needs, quality of service and perceived value. The
Company believes that it competes favorably with respect to these factors.
The interactive and multimedia market is very diverse and competitive,
making it difficult for the various competitors to distinguish themselves. In
most regional markets, the Company competes against traditional advertising and
IT companies as well as individuals operating out of a small office or home.
With this vast difference, competition based on actual capability and depth is
often overshadowed by price and relationship. The Company believes that it is
well positioned from a pricing and size perspective and its biggest competitive
edge is in penetration of services and products within specific industries.
INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other contractual
arrangements, including entering into confidentiality agreements with its
employees, and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company has filed a U.S. trademark
registration application covering the service mark "UBICS" which, if granted,
would give the Company the presumption of ownership in the U.S. of the "UBICS"
mark for the services identified in the registration. Although the Company does
not deem trademarks or service
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marks to be material to its business, when in its best interests, the Company
seeks such protection for its services. There can be no assurance that the steps
taken by the Company in this regard will be adequate to deter misappropriation
of proprietary information or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its intellectual property
rights.
U.S. REGULATION OF IMMIGRATION
The Company's services historically have been performed in the U.S. and
the Company has recruited most of its IT professionals outside the U.S. The
Company's business, therefore, is subject to U.S. immigration laws. Over 90% of
the Company's IT professionals are citizens of other countries, with most of
those in the U.S. working under H-1B temporary work permits. There is a limit on
the number of new H-1B permits that may be approved in any U.S. government
fiscal year. In the federal fiscal year ended September 30, 1999, this limit was
reached in June and in the federal fiscal year ended September 30, 2000, this
limit was reached in March. The inability to obtain additional H-1B permits
during the federal fiscal years ended September 30, 1999 and 2000 resulted in
increased use of subcontractor professionals by UBICS.
In October 2000, the U.S. government increased the limit of new H-1B
permits to 195,000 for each of the next three federal fiscal years starting from
fiscal year 2001.
In future years where the limit on H-1B permits is reached, the Company
may again be unable to obtain enough H-1B permits to meet its requirements. If
the Company were unable to obtain H-1B permits for its IT professionals in
sufficient quantities or at a sufficient rate, the Company's business, operating
results and financial condition could be materially adversely affected
The U.S. government in connection with its increase in the limit on
H-1B permits, also imposed a fee to be paid by companies for new approvals and
for renewals. UBICS does not anticipate that the imposition of such fees will
have a material adverse impact on its results of operations.
Congress and administrative agencies with jurisdiction over immigration
matters have periodically expressed concerns over the levels of legal and
illegal immigration into the U.S. These concerns have often resulted in proposed
legislation, rules and regulations aimed at reducing the number of work permits
that may be issued. Any changes in such laws making it more difficult to hire
foreign nationals or limiting the ability of the Company to retain foreign
employees could require the Company to incur additional unexpected labor costs
and expenses. Any such restrictions or limitations on the Company's hiring
practices could have a material adverse effect on the Company's business,
operating result and financial condition.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in the Borough of
Canonsburg, Pennsylvania, approximately 22 miles south of Pittsburgh,
Pennsylvania. The Company's senior management, administrative personnel, human
resources and sales and marketing functions are housed in this 22,815 square
foot facility which is leased by the Company pursuant to a lease agreement which
expires on August 27, 2003. The Company believes that this location has
sufficient space for its current and anticipated near-term needs. The Company
leases two facilities in Scottsdale, Arizona to house Cobalt Creative's
administrative personnel, production team, design team, and sales and marketing
personnel. The first facility is approximately 1,400 square foot which is leased
pursuant to a lease agreement which expires on December 31, 2001. The second
facility of 3,653 square foot is leased by [the Company/by Cobalt?] pursuant to
a lease agreement which expires on May 31, 2003. The Company also subleases a
4,439 square foot office in the San Francisco suburb of Sausalito, California
for use as a sales and marketing office. The Company subleases this space from a
member of the UB Group.
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ITEM 3 LEGAL PROCEEDINGS
The Company is not a party to any litigation that is expected to have a
material adverse effect on the Company or its business.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its 2000 Annual Meeting of Shareholders (the "2000
Annual Meeting") on November 15, 2001.
(b) Two Directors of the Company, Vijay Mallya and Manohar B. Hira,
were elected at the 2000 Annual Meeting to serve a term of three years.
Directors whose terms continued after the 2000 Annual Meeting were Robert C.
Harbage, Scott R. Heldfond, Christopher C. Melton, Sr., Rahul Merchant, and Kent
D. Price.
(c) The following matters were voted upon at the 2000 Annual Meeting,
with the results indicated:
1. Election of Director: The following votes were cast for the
nominees standing for election as director of the Company for a three year term:
Nominee: Vijay Mallya
Votes For: 6,480,611
Votes Withheld: 358,830
Nominee: Manohar B. Hira
Votes For: 6,479,611
Votes Withheld: 359,830
2. Amendment of the Company's 1997 Stock Option Plan to
increase the maximum number of shares of Common Stock authorized for issuance
thereunder from 1,300,00 to 1,800,000:
Votes For: 6,474,761
Votes Against: 364,680
Abstentions: 0
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information:
The sole class of outstanding equity securities of the Company is its
common stock, par value $.01 per share (the "Common Stock"). The Common Stock is
traded on the Nasdaq National Market under the symbol "UBIX". The following
table sets forth, for the periods indicated the range of high and low closing
sale prices for the Common Stock on the Nasdaq National Market. The Common Stock
commenced trading on the Nasdaq National Market on October 31, 1997 at an
initial public offering price of $10.00 per share.
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Quarter Ended High Low
- ------------- ---- ---
December 31, 1999 $ 3.500 $ 1.531
March 31, 2000 $ 11.750 $ 2.563
June 30, 2000 $ 5.250 $ 2.375
September 30, 2000 $ 3.438 $ 2.250
December 31, 2000 $ 2.375 $ 1.250
As of March 20, 2001, there were approximately 68 record holders of
Common Stock.
The Company has never paid dividends on its Common Stock. The Company
currently intends to retain all of its future earnings to fund growth and the
operation of its business and therefore does not anticipate paying any cash
dividends in the foreseeable future. The payment of future cash dividends, if
any, will be at the discretion of the Company's Board of Directors and will
depend upon, among other things, the Company's future operations and earnings,
capital requirements and surplus, general financial condition, contractual
restrictions and such other factors as the Board of Directors may deem relevant.
On June 7, 2000, the Company issued 100,000 shares of its Common Stock
to Robert C. Harbage in connection with the Company's hiring of Mr. Harbage as
its President and Chief Executive Officer. The issuance of such shares was
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2) of the Securities Act in that it was a transaction not involving
any public offering.
(b) Use of Proceeds of Initial Public Offering:
The following information relates to the Company's use of the net
proceeds of the Company's initial public offering (the "Offering"):
On October 27, 1997, the Company's registration statement on Form S-1,
No. 333-35171, became effective. The Company sold a total of 1,500,000 shares of
common stock, par value $.01 per share at a price per share of $10.00 pursuant
to the Offering. The Offering, which was managed by Parker/Hunter Incorporated,
as lead underwriter, and Scott & Stringfellow, Inc., as co-manager, closed on
November 4, 1997.
The following table summarizes the estimated expenses incurred for the
Company's account in connection with the Offering:
Underwriting discounts $1,050,000
Finder's fees --
Expenses paid to or for underwriters --
Other expenses 775,000*
----------
TOTAL $1,825,000
- -------------------
*Estimated.
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The following table summarized the amount of net offering proceeds to
the Company ($13,175,000) used for the purposes listed below:
Purchase and installation of machinery 3,104,000
and equipment
Repayment of indebtedness 775,000
Temporary investments* 9,296,000
------------
Total $13,175,000
===========
- -------------
*Approximately $5,600,000 of such amount is currently invested in a Prudential
money market mutual fund with the balance invested in certificates of deposit
with PNC Bank.
ITEM 6. SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
INCOME STATEMENT DATA: 1996 1997 1998 1999 2000
- ----------------------------- ------ ------- ------- ------- -------
Revenues .......................... $9,072 $20,549 $30,314 $37,875 $42,324
Cost of revenues .................. 6,208 13,695 20,896 27,722 31,344
------ ------- ------- ------- -------
Gross profit ...................... 2,864 6,854 9,418 10,153 10,980
Selling, general and
administrative expenses(1) ...... 2,392 3,738 6,495 8,849 11,537
Merger related expenses (2) ....... -- -- -- 869 --
------ ------- ------- ------- -------
Income / (Loss) from operations ... 472 3,116 2,923 435 (557)
Interest income (expense), net .... (23) 71 611 556 659
------ ------- ------- ------- -------
Income before income taxes ........ 449 3,187 3,534 991 102
Provision for income taxes ........ 230 1,307 1,438 382 95
------ ------- ------- ------- -------
Net income ........................ $ 219 $ 1,880 $ 2,096 $ 609 $ 7
====== ======= ======= ======= =======
Basic and diluted earnings
per share ....................... $ 0.04 $ 0.36 $ 0.32 $ 0.09 $ 0.00
====== ======= ======= ======= =======
Weighted average shares ........... 5,000 5,259 6,496 6,480 6,747
Diluted average shares ............ 5,000 5,275 6,530 6,489 6,831
DECEMBER 31,
---------------------------------------------------------------
BALANCE SHEET DATA: 1996 1997 1998 1999 2000
- ------------------------ ------ ------- ------- ------- -------
Working capital............... $ 179 $15,158 $15,459 $15,544 $14,553
Total assets.................. 2,601 18,132 21,218 21,684 24,898
Total debt.................... 300 -- -- -- --
Total stockholders' equity.... 229 15,284 17,280 17,889 18,774
- -----------------
(1) Includes expenses of $257 incurred on behalf of the UB Group for the
year ended December 31, 1996. Beginning January 1, 1997, such expenses
ceased to be incurred by the Company.
(2) These expenses relate to the termination of the Company's proposed
acquisition of R Systems, Inc.
10
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the financial statements and notes thereto
included in Item 8 of this report.
The following Management's Discussion and Analysis of Results of
Operations and Financial Condition contains certain forward looking statements
that involve substantial risks and uncertainties. When used in this section, the
words "anticipate," "believe," "estimate," "expect" and similar expressions as
they relate to the Company or its management are intended to identify such
forward looking statements. The factors that may cause actual results to differ
materially from the forward-looking statements include ability to recruit and
maintain qualified IT professionals, changes in laws and regulations
specifically immigration laws, competition and economic conditions in the
geographic regions in which the Company conducts its operations, general
economic conditions, success of the Company's marketing efforts and the demand
for outsourced IT professionals. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward looking statements.
OVERVIEW
UBICS, founded in 1993, provides IT professional services to large and
mid-sized organizations. UBICS provides its clients with a wide range of
professional services in such areas as client/server design and development, ERP
package implementation and customization, e-commerce applications design and
development, applications maintenance programming and database and systems
administration. UBICS' services are provided primarily on a time-and-materials
basis to client-managed projects, with UBICS IT professionals providing integral
support as project team members. With respect to website design and development
projects, UBICS' services are provided on a fixed price basis.
The Company's revenues are based on the hourly billing of its IT
professional services and on the fixed prices for its website design and
development services. Revenue is recognized as services are provided. The
Company has increased the average billing rates of its IT professionals as the
demand for skilled and experienced professionals has expanded, in particular for
IT professionals placed on ERP package implementation and customization
projects. As of December 31, 2000, 55 IT professionals, or approximately
one-fifth of the Company's deployed IT professionals, were placed on such
projects.
UBICS effectively minimizes the number of days IT professionals are not
assigned to projects by proactively marketing these professionals to clients.
Resource managers closely monitor the availability of IT professionals and
utilize subcontractors when UBICS IT professionals are unavailable. The Company
maintains strong relationships with nearly 80 subcontractors located worldwide.
During 2000, approximately 38% of the Company's revenues were derived from IT
professionals deployed from subcontractors. As of December 31, 2000, IT
professionals deployed from subcontractors comprised 99 of the Company's 291
deployed IT professionals. The Company believes that its network of
subcontractors enables it to maintain closer relationships with clients by
fulfilling more of their needs for IT professional services. Management believes
that as the Company increases its investment in recruiting and retaining
qualified IT professionals, the ratio of UBICS IT professionals to subcontractor
IT professionals will increase.
Since inception the Company has developed relationships with 586
clients in a range of industries and currently has IT professionals deployed at
nearly 156 of these clients. The Company's five largest clients accounted for
approximately 21% of revenues for 2000. While this revenue concentration has
remained fairly constant, the Company believes that the continuing growth in its
client base and revenues should reduce the percentage of revenue attributable to
its largest clients. The Company's strategy is to continue to provide services
to clients in a range of industries, in order to reduce credit risk from
conditions or occurrences within any specific industry or region in which these
clients operate.
11
15
On July 7, 2000, the Company completed the acquisition of Cobalt
Creative, Inc., an Arizona corporation, by issuing 432,351 shares of the
Company's Common Stock for 100% of the stock of Cobalt.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:
PERCENTAGE OF REVENUES
---------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1999 2000
---- ---- ----
Revenues............................. 100.0% 100.0% 100.0%
Cost of revenues..................... 68.9 73.2 74.1
----- ----- -----
Gross profit......................... 31.1 26.8 25.9
Selling, general and administrative
expenses.......................... 21.5 23.4 27.2
Merger related expenses (1).......... -- 2.3 --
----- ----- -----
Income / (Loss) from operations...... 9.6 1.1 (1.3)
Interest income, net................. 2.0 1.5 1.5
----- ----- -----
Income before income taxes........... 11.6 2.6 0.2
Provision for income taxes........... 4.7 1.0 0.2
----- ----- -----
Net income........................... 6.9% 1.6% 0.0%
===== ===== =====
- ------------
(1) These expenses relate to the termination of proposed acquisition of R
Systems, Inc.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Revenues
Revenues for the year ended December 31, 2000 were $42.3 million,
compared to $37.9 million for the year ended December 31, 1999, an increase of
$4.4 million, or 12%. Approximately 80% of the increase in revenues was due to
an increase in the number of IT professionals deployed to provide services to
new and existing clients and approximately 20% of the increase in revenues was
due to higher average hourly billing rates. The number of deployed IT
professionals increased to 291 at December 31, 2000 from 270 at December 31,
1999, and the Company broadened its client base since inception to 586 clients
through December 31, 2000 from 427 clients through December 31, 1999.
Gross Profit
Gross profit consists of revenues less cost of revenues. Cost of
revenues is comprised principally of IT professional salaries and benefits,
including subcontractor professional costs and relocation expenses. Gross profit
for 2000 was $11.0 million, compared to $10.2 million for 1999, an increase of
$0.8 million, or 8%. Gross profit as a percentage of revenues decreased to 25.9%
for 2000, compared to 26.8 for 1999. The decrease in gross profit as a
percentage of revenues resulted primarily from increase in the ratio of employee
consultants waiting to be deployed and from increases in rates charged by
subcontractors.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consists of costs
associated with the Company's sales and marketing efforts, executive, finance
and human resource functions, facilities, telecommunications and other general
overhead expenses. Selling, general and administrative expenses for 2000 was
$11.5 million, compared to $8.8 million for 1999, an increase of $2.7 million,
or 30%. Selling, general and administrative expenses as a
12
16
percentage of revenues increased to 27.2% for 2000 from 23.4% for 1999. The
increase in expenses was primarily due to one-time expenses aggregating $0.9
million and greater salary expense due to staff and executive restructurings in
2000. The one-time expenses included $450,000 payable to the Company's former
Chief Executive Officer as part of his severance agreement, $100,000 paid to the
Company's new Chief Executive Officer as a signing bonus pursuant to his
employment agreement and $352,000 representing the value of 100,000 shares of
common stock granted to the Company's new Chief Executive Officer pursuant to
his employment agreement.
Merger-related expenses
Merger related expenses for 1999 were $0.9 million or 2.3% as a
percentage of revenues. These are non-recurring in nature and relate to the
termination of the Company's proposed acquisition of R Systems, Inc.
Interest Income, net
Interest income, net for 2000 was $659,000 compared to interest income
of $556,000 for 1999. The increase resulted from reinvesting of interest earned
on short term investments.
Provision for Income Taxes
The Company's effective tax rate was 93.1% for 2000 compared to 38.5%
for 1999. The increase is mainly due to the effect of non-deductible goodwill on
a relatively small pretax income in 2000.
Net Income
Net income for 2000 was $7,000, compared to $609,000 for 1999, a
decrease of $602,000 or 99%. The net income as a percentage of revenues
decreased to 0% for 2000, compared to 1.6% for 1999. The decrease in net income
as a percentage of revenues resulted primarily from the reduction of gross
profit as a percentage of revenues and increase in selling, general and
administrative expenses as a percentage of revenues.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues
Revenues for the year ended December 31, 1999 were $37.9 million,
compared to $30.3 million for the year ended December 31, 1998, an increase of
$7.6 million, or 25%. Approximately 85% of the increase in revenues was due to
an increase in the number of IT professionals deployed to provide services to
new and existing clients and approximately 15% of the increase in revenues was
due to higher average hourly billing rates. The number of deployed IT
professionals decreased to 270 at December 31, 1999 from 276 at December 31,
1998, and the Company broadened its client base since inception to 427 clients
through December 31, 1999 from 313 clients through December 31, 1998.
Gross Profit
Gross profit for 1999 was $10.2 million, compared to $9.4 million for
1998, an increase of $0.8 million, or 8%. Gross profit as a percentage of
revenues decreased to 26.8% for 1999, compared to 31.1% for 1998. The decrease
in gross profit as a percentage of revenues resulted primarily from increase in
the ratio of employee consultants waiting to be deployed and from increases in
rates charged by subcontractors.
13
17
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 1999 was $8.8 million,
compared to $6.5 million for 1998, an increase of $2.3 million, or 36%. Selling,
general and administrative expenses as a percentage of revenues increased to
23.4% for 1999 from 21.5% for 1998. The increase in expenses was primarily due
to increases in salaries, and other personnel and administrative costs to
support the Company's growth.
Merger-related expenses
Merger related expenses for 1999 were $0.9 million or 2.3% as a
percentage of revenues. These are non-recurring in nature and relate to the
termination of the Company's proposed acquisition of R Systems, Inc.
Interest Income, net
Interest income, net for 1999 was $556,000 compared to interest income
of $611,000 for 1998. The decrease resulted from a reduction in the amount of
net proceeds of the Company's 1997 initial public offering available for
investment.
Provision for Income Taxes
The Company's effective tax rate was 38.5% for 1999 compared to 40.7%
for 1998.
Net Income
Net income for 1999 was $609,000, compared to $2.1 million for 1998, a
decrease of $1.5 million or 71%. Net income as a percentage of revenues
decreased to 1.6% for 1999, compared to 6.9% for 1998. The decrease in net
income as a percentage of revenues resulted primarily from the reduction of
gross profit as a percentage of revenues, increase in selling, general and
administrative expenses as a percentage of revenues and non-recurring expenses
relating to the termination of the Company's proposed acquisition of R Systems,
Inc.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal uses of $13.2 million cash generated out of the
initial public offering (the "Offering") have been to fund receivables and other
working capital, reflecting the Company's growth. Net cash used by operating
activities was $747,000 for 2000 compared to net cash provided by operating
activities of $1,331,000 for 1999. Net cash used by operating activities for
2000 is primarily due to increase in accounts receivable of $1,559,000 offset by
net income and non-cash charges for depreciation, goodwill and stock based
compensation aggregating $695,000. Net cash provided by operating activities for
1999 is primarily due to reduction in unbilled receivables of $610,000 and net
income and non-cash charges for depreciation aggregating to $909,000.
Capital expenditures for 2000 and 1999 were $415,000 and $774,000
respectively. The Company intends to use approximately $2.0 million of its
available cash to expand its existing operations, including approximately $1.2
million for the eventual expansion of the Company's recruiting and training
center in India. The initial phase of the center was placed in operation in the
fall of 1998 and the expansion is expected to be operational by the end of 2001
(including additional purchase of hardware and software with respect thereto).
Because the Company currently has a sufficient supply of IT professionals
awaiting deployment, as well as a shift in the Company's strategic focus in
favor of domestic sales growth, the Company has deferred previously disclosed
plans to establish offshore recruiting offices in various foreign locations.
Except as set forth above, the Company currently has no material commitments for
capital expenditures.
14
18
The Company currently anticipates that the remaining proceeds from the
Offering, together with the existing sources of liquidity and cash generated
from operations, will be sufficient to satisfy its cash needs at least through
the next twelve months.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). The Statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contract) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's gains and
losses to offset related results in the hedged item in the income statement, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No 133 was
originally effective for fiscal years beginning after June 15, 1999.
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137")
delaying the effective date of SFAS 133 for all fiscal quarters of all fiscal
years beginning after June 15, 2000. Since the Company currently does not invest
in derivative instruments, this will have no impact on the Company's financial
position or results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. SAB No. 101 explains the SEC's general framework for revenue
recognition. SAB No. 101 does not change existing literature on revenue
recognition, but rather clarifies the SEC's position on preexisting literature.
Adoption of this SAB had no impact on the Company's financial position or
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company currently does not invest excess funds in derivative
financial instruments or other market risk sensitive instruments for the purpose
of managing its foreign currency exchange rate risk or for any other purpose.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL FINANCIAL DATA
The financial statements and supplemental financial data required by
this Item are set forth on the following pages.
15
19
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying financial statements of UBICS, Inc. have been prepared
by management, who are responsible for their integrity and objectivity. The
statements have been prepared in conformity with generally accepted accounting
principles and necessarily include amounts based on management's best estimates
and judgments.
Management has established and maintains a system of internal controls
designed to provide reasonable assurance that assets are safeguarded and that
the Company's financial records reflect authorized transactions of the Company.
The system of internal controls included widely communicated statements of
policies and business practices that are designed to require all employees to
maintain high ethical standards in the conduct of Company affairs. The internal
controls are augmented by organizational arrangements that provide for
appropriate delegation of authority and division of responsibility.
The Company's financial statements have been audited by Arthur Andersen
LLP, independent public accountants, whose report thereon appears on page 18 of
this Form 10-K. As part of its audit of the Company's financial statements,
Arthur Andersen LLP considered the Company's system of internal controls to the
extent it deemed necessary to determine the nature, timing and extent of its
audit tests. Management has made available to Arthur Andersen LLP the Company's
financial records and related data.
The Board of Directors will pursue its responsibility for the Company's
financial reporting and accounting practices through its Audit Committee, a
majority of the members of which are non-employee directors. The independent
public accountants have direct access to the Audit Committee with and without
the presence of management representatives, to discuss the results of their
audit work and their comments on the adequacy of internal accounting controls,
and the quality of financial reporting.
/s/Dr. Vijay Mallya
Dr. Vijay Mallya
Chairman and Director
/s/Babu Srinivas
Babu Srinivas
Vice President Finance and Acting Chief Financial Officer
March 20, 2001
16
20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of UBICS, Inc.:
We have audited the accompanying consolidated balance sheets of UBICS, Inc.
(a Delaware corporation) as of December 31, 1999 and 2000, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the three years ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of UBICS, Inc. as of December
31, 1999 and 2000, and the results of their operations and their cash flows for
each of the three years ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
March 14, 2001
17
21
UBICS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
December 31,
------------------------
1999 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 12,027 $ 10,477
Accounts receivable, net of allowance for
doubtful accounts of $885 and $1,100,
respectively ................................ 4,103 5,743
Unbilled receivables ........................... 2,363 2,412
Employee advances .............................. 52 83
Prepaids and other ............................. 299 683
Deferred tax asset ............................. 495 607
-------- --------
Total current assets ........................ 19,339 20,005
-------- --------
Property and equipment:
Leasehold improvements ......................... 40 40
Vehicles ....................................... 89 89
Computer equipment and software ................ 1,732 2,214
Furniture and fixtures ......................... 662 696
Office and other equipment ..................... 42 93
-------- --------
Total property and equipment ................ 2,565 3,132
Accumulated depreciation ....................... (470) (849)
-------- --------
Net property and equipment ................... 2,095 2,283
-------- --------
Goodwill, net of accumulated amortization of
$0 and $56, respectively ................... -- 1,627
-------- --------
Notes receivable ............................. 250 983
-------- --------
Total assets ........................... $ 21,684 $ 24,898
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $ 1,981 $ 2,649
Payroll liabilities ............................ 1,717 2,246
Other current liabilities ...................... 97 557
-------- --------
Total current liabilities 3,795 5,452
Deferred tax liabilities -- 122
-------- --------
Total liabilities ........................... 3,795 5,574
-------- --------
Common stock, subject to redemption, 183,200
shares issued and outstanding ............... -- 550
Stockholders' equity:
Preferred stock, $0.01 par value, 2,000,000
shares authorized, no shares issued and
outstanding ................................. -- --
Common stock, $0.01 par value, 20,000,000
shares authorized, 6,500,000 and 6,849,151
shares issued respectively................... 65 68
Additional paid-in capital ..................... 13,160 14,035
Treasury stock - 20,200 shares, at cost ........ (100) (100)
Retained earnings .............................. 4,764 4,771
-------- --------
Total stockholders' equity .................. 17,889 18,774
-------- --------
Total liabilities and stockholders'
equity ............................... $ 21,684 $ 24,898
======== ========
The accompanying notes are an integral part of these financial statements.
18
22
UBICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
Year Ended December 31,
------------------------------------------
1998 1999 2000
---- ---- ----
Revenues .................... $ 30,314 $ 37,875 $ 42,324
Cost of revenues ............ 20,896 27,722 31,344
---------- ---------- ----------
Gross profit .............. 9,418 10,153 10,980
Selling, general and
administrative expenses.... 6,495 8,849 11,537
Merger related expenses ..... -- 869 --
---------- ---------- ----------
Income / (Loss ) from
operations ................ 2,923 435 (557)
Interest income, net ........ 611 556 659
---------- ---------- ----------
Income before income taxes... 3,534 991 102
---------- ---------- ----------
Provision for income/taxes... 1,438 382 95
Net income ................ $ 2,096 $ 609 $ 7
========== ========== ==========
Basic and diluted earnings
per share ................. $ 0.32 $ 0.09 $ 0.00
========== ========== ==========
Weighted average shares
outstanding ............... 6,495,823 6,479,800 6,746,900
Diluted average shares
outstanding ............... 6,529,667 6,489,258 6,830,545
The accompanying notes are an integral part of these financial statements.
19
23
UBICS, INC.
(Dollars in thousands, except share amounts)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock
--------------------- Additional Total
Paid-in Treasury Retained Stockholders'
Shares Amount Capital Stock Earnings Equity
------ ------ ------- ----- -------- ------
Balance, December 31, 1997.... 6,500,000 65 13,160 -- 2,059 15,284
Acquisition of treasury
stock ................... -- -- -- (100) -- (100)
Net income ................. -- -- -- -- 2,096 2,096
--------- --- ------- ----- ------ -------
Balance, December 31, 1998.... 6,500,000 65 13,160 (100) 4,155 17,280
Net income ................. -- -- -- -- 609 609
--------- --- ------- ----- ------ -------
Balance, December 31, 1999.... 6,500,000 65 13,160 (100) 4,764 17,889
Stock grant ................ 100,000 1 252 -- -- 253
Common stock, subject to
redemption .............. (183,200) (2) (548) (550)
Issuance of Common Stock
for acquisition of
Cobalt Creative, Inc..... 432,351 4 1,171 -- -- 1,175
Net income ................. -- -- -- -- 7 7
--------- --- ------- ----- ------ -------
Balance, December 31, 2000.... 6,849,151 $68 $14,035 $(100) $4,771 $18,774
========= === ======= ===== ====== =======
The accompanying notes are an integral part of these financial statements.
20
24
UBICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Ended December 31,
-----------------------------------
1998 1999 2000
---- ---- ----
Cash flows from operating activities:
Net income ........................ $ 2,096 $ 609 $ 7
Adjustments to reconcile net
income to net cash provided
by operating activities--
Depreciation.................... 137 300 379
Amortization of goodwill........ -- -- 56
Stock based compensation ....... -- -- 253
Changes in operating assets
and liabilities--
Accounts receivable, net ..... (1,375) 49 (1,559)
Unbilled receivables ......... (1,007) 610 (49)
Employee advances ............ 6 112 (31)
Other long-term assets ....... (200) (50) (733)
Due to affiliates, net ....... (141) 174 --
Deferred tax asset, net ...... (105) (289) 10
Prepaids and other ........... (89) (41) (378)
Accounts payable ............. 1,111 (53) 511
Payroll liabilities .......... 568 89 477
Accrued taxes and other
current liabilities ....... (589) (179) 310
------- ------- -------
Net cash (used) provided by
operating activities ......... 412 1,331 (747)
------- ------- -------
Cash flows from investing
activities:
Purchases of property and
equipment ...................... (1,632) (774) (415)
Merger related expenses ........... -- -- (388)
------- ------- -------
Net cash used by
investing activities ......... (1,632) (774) (803)
------- ------- -------
Cash flows from financing
activities:
Acquisition of treasury stock ..... (100) -- --
------- ------- -------
Net cash used by
financing activities ......... (100) -- --
------- ------- -------
Net increase (decrease) in cash
and cash equivalents .............. (1,320) 557 (1,550)
Cash and cash equivalents, at
beginning of year ................. 12,790 11,470 12,027
------- ------- -------
Cash and cash equivalents, at
end of year ....................... $11,470 $12,027 $10,477
======= ======= =======
Supplemental data:
Cash payments for income taxes .... $ 2,097 $ 752 $ 297
Stock issued for purchase of
Cobalt Creative, Inc. ........... $ -- $ -- $ 1,175
The accompanying notes are an integral part of these financial statements.
21
25
UBICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS:
UBICS, Inc. ("UBICS" or "the Company"), a Delaware corporation, provides
information technology professional services to large and mid-sized
organizations. The Company provides its clients with a wide range of
professional services in such areas as web design and development, client/server
design and development, enterprise resource planning package implementation and
customization, e-commerce applications design and development, applications
maintenance programming and database and systems administration.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements reflect the application of the
following significant accounting policies:
Principles of Consolidation
Consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation.
Cash Equivalents
For purposes of the consolidated balance sheet, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
Revenue Recognition
The Company recognizes revenue on its time-and-materials contracts as the
services are performed for clients and upon completion for its website design
and development services, which are performed on a fixed price basis.
Unbilled Receivables
Unbilled receivables represent time and materials provided to customers in
the last month of each fiscal period which are billed early in the following
month.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the properties as
follows:
Years
-----
Computer equipment and software....... 5
Furniture and fixtures................ 7
Office and other equipment............ 7
Leasehold improvements................ 5
Vehicles.............................. 5
Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Cash and Cash Equivalents--The carrying amount approximates fair value
because of the short maturity of those instruments.
22
26
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
3. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK:
The Company has derived a significant portion of its revenues from a
relatively limited number of clients.
The following table presents the Company's largest clients during each of
the years ended December 31, 1998, 1999 and 2000 and the approximate percentage
of revenue from each client for the respective periods:
Year Ended December 31,
-----------------------
1998 1999 2000
---- ---- ----
The Hartford ............................. 9% 5% 6%
El Paso Natural Gas ...................... 10% 7% 5%
Visual Services
1% 1% 5%
MRJ Technology ........................... --% -- 2%
Dana Corporation 2% 4% 2%
Others, individually and collectively less
than 10% of revenue .................... --% 4% -%
-- -- --
Total of Five Largest Clients ....... 22% 21% 20%
== == ==
The Company grants credit to clients based upon management's assessment of
their creditworthiness. The Company's revenues and resulting accounts receivable
are derived primarily from large and mid-sized organizations in various
industries throughout the U.S.
4. LEASE OBLIGATIONS:
The Company leases real estate and facilities at several locations. Lease
expenses charged to operations were $388,091, $581,283 and $728,364,
respectively, for the years ended December 31, 1998, 1999 and 2000.
Minimum future rental payments under non-cancelable operating leases for
each of the next five years are as follows :
Year Ending
December 31,
------------
2001............... $688,293
2002............... 544,753
2003............... 362,840
2004............... 8,309
2005............... 1,487
----------
Totals............. $1,605,682
==========
23
27
5. RELATED PARTY TRANSACTIONS:
The Company subleases office space in San Francisco, California and
Bangalore, India from members of the UB Group. Rent expenses charged to
operations were $42,757, $142,246 and $138,000 respectively, for the years ended
December 31, 1998, 1999 and 2000.
The Company paid $100,000 in 2000 as a finder's fee to e-seed Capital, LLC.
in connection with the acquisition of Cobalt Creative, Inc. One of the directors
of the Company is a director of e-seed Capital.
6. STOCK-BASED COMPENSATION:
Effective September 2, 1997, the Company adopted the 1997 Stock Option Plan
(the "Plan") for directors, executive officers and other key employees. The
Compensation Committee of the Board of Directors is authorized to grant stock
options (with or without stock appreciation rights). The Plan provides for the
issuance of up to 1,800,000 stock options at no less than the market value of
the stock at the date of grant. The Company accounts for the Plan under
Accounting Principles Board Opinion No. 25, "Accounting for Stock issued to
Employees". Had compensation costs for the Plan been determined consistent with
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), net income for the years ended December 31,
1998, December 31, 1999 and December 31, 2000 would have been reduced by
$860,000, $720,000, and $539,000, respectively, and basic and diluted earnings
per share would have been reduced by $0.13, $0.11, and $0.08 per share,
respectively, for the same period.
The Company granted stock appreciation rights in connection with the grant
of 300,000 stock options at an exercise price of $3.22 per share to the
Company's new President & CEO. Since the market value of the Company's stock at
December 31, 2000 was less than $3.22 per share, no compensation expense was
recorded under this grant in 2000.
In 1999 and 2000, options covering a total of 125,000 and 824,000 shares,
respectively, of Common Stock were granted under the Plan. The right to purchase
shares upon exercise of these options expires 10 years from the date of grant or
earlier if an option holder ceases to be employed by the Company. A summary of
stock option activity follows:
December 31, 1999 December 31, 2000
-----------------------------------------------------------------------
Weighted Average Weighted Average
NUMBER OF SHARES Options Exercise Price Options Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding , beginning of period 418,000 $10.78 536,000 $ 8.82
Granted 125,000 $ 2.35 824,000 $ 3.20
Exercised -- -- -- --
Lapsed and forfeited 7,000 $10.51 38,000 $ 4.56
- -----------------------------------------------------------------------------------------------------------------------
Options outstanding , end of period 536,000 $ 8.82 1,322,000 $ 5.44
- -----------------------------------------------------------------------------------------------------------------------
Options exercisable, end of period 286,980 $9.98 650,645 $7.41
- -----------------------------------------------------------------------------------------------------------------------
24
28
STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1999
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------------------------------------------
Weighted Average
Range of Remaining Weighted Average Weighted Average
Exercise Price Options Contractual life (Yrs) Exercise Price Options Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
$ 1.88 20,000 9.83 $ 1.88 20,000 $ 1.88
$ 2.38 50,000 9.67 $ 2.38
$ 2.50 55,000 9.92 $ 2.50
$ 5.00 2,000 8.89 $ 5.00 667 $ 5.00
$ 5.50 4,000 8.72 $ 5.50 1,333 $ 5.50
$10.00 310,000 7.84 $10.00 219,982 $10.00
$13.63 70,000 8.51 $13.63 36,665 $13.63
$13.75 20,000 8.07 $13.75 6,666 $13.75
$14.50 5,000 8.38 $14.50 1,667 $14.50
- ----------------------------------------------------------------------------------------------------------------------------
536,000 8.87 $ 8.82 286,980 $ 9.98
=========================================================================================================================
STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 2000
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------------------------
Weighted Average
Range of Remaining Weighted Average Options Weighted Average
Exercise Price Options Contractual life (Yrs) Exercise Price Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
$ 1.88 20,000 8.84 $ 1.88 20,000 $ 1.88
$ 2.38 50,000 8.67 $ 2.38 33,330 $ 2.38
$ 2.50 55,000 8.92 $ 2.50 18,332 $ 2.50
$ 2.63 25,000 9.50 $ 2.63
$ 3.00 25,000 9.32 $ 3.00 25,000 $ 3.00
$ 3.22 720,000 9.38 $ 3.22 153,322 $ 3.22
$ 3.47 25,000 9.34 $ 3.47 25,000 $ 3.47
$ 5.50 4,000 7.70 $ 5.50 2,666 $ 5.50
$10.00 303,000 6.83 $10.00 303,000 $10.00
$13.63 70,000 7.49 $13.63 53,330 $13.63
$13.75 20,000 7.07 $13.75 13,332 $13.75
$14.50 5,000 7.37 $14.50 3,333 $14.50
- -------------------------------------------------------------------------------------------------------------------------
1,322,000 8.59 $ 5.44 650,645 $ 7.41
=========================================================================================================================
25
29
Summary of stock options Stock Option Price
- --------------------------------------------------------------------------------
Weighted average fair value of options granted during 1999* $4.26
================================================================================
Weighted average fair value of options granted during 2000* $2.18
================================================================================
* The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
1999 2000
- -------------------------------------------------------------------------------
Risk free interest rate 4.4% 5.76% to 6.74%
Expected dividend yield 0.0% 0.0%
Expected life of options 3 years 3 years
Expected volatility rate 75.0% 101% to 108%
- -------------------------------------------------------------------------------
There were 478,000 shares reserved for future grants under the Plan at
December 31, 2000.
7. INCOME TAXES:
The Company accounts for income taxes in accordance with the provisions of
SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes are
recognized for temporary differences between the tax and financial bases of the
Company's assets and liabilities, using the enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income.
The reconciliation of income taxes computed using the statutory U.S. income
tax rate and the provision for income taxes was as follows for the years ended
December 31, 1998, 1999 and 2000:
DECEMBER 31,
-------------------------------------
1998 1999 2000
-------------------------------------
Federal income taxes at the
statutory rate ................ $1,275,727 $330,927 $87,428
State income taxes net of federal
benefit ...................... 162,600 51,444 7,481
---------- -------- -------
Provision for income taxes ...... $1,438,327 $382,371 $94,909
========== ======== =======
The provision for income taxes as shown in the accompanying statement of
operations for the years ended December 31, 1998, 1999 and 2000 included the
following components:
DECEMBER 31,
-----------------------------------------
1998 1999 2000
-----------------------------------------
Current federal provision $1,453,134 $ 580,477 $177,553
Current state provision .. 190,988 90,659 29,729
Deferred federal provision (176,984) (249,550) (90,125)
Deferred state provision . (28,811) (39,215) (22,248)
---------- --------- --------
Provision for income taxes $1,438,327 $ 382,371 $ 94,909
========== ========= ========
The components of the deferred tax asset as of December 31, 1999 and 2000
were as follows:
DECEMBER 31,
----------------------
1999 2000
---------------------
Allowance for doubtful accounts $354,688 $445,500
Accrued liabilities ........... 139,872 161,433
-------- --------
Deferred tax asset ............ $494,560 $606,933
======== ========
Deferred tax liability ........ -- $122,358
Deferred tax asset, net ....... $494,560 $484,575
26
30
8. EARNINGS PER COMMON SHARE:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"), which establishes new standards for computing and presenting earnings per
share.
Basic earnings per share is calculated by dividing net income by the
weighted average number of shares outstanding during the year. Diluted earnings
per share is calculated by dividing net income by the weighted average number of
shares outstanding during the year adjusted for the assumed conversion of all
dilutive securities.
The following table sets forth the computation of earnings per share for the
periods indicated:
(Dollars in thousands, except per share data)
Year ended December 31,
---------------------------------------------
1998 1999 1999
---- ---- ----
Basic earnings per share
Net income $ 2,096 $ 609 $ 7
========== ========== ==========
Divided by:
Weighted average common shares 6,495,823 6,479,800 6,746,900
---------- ---------- ----------
Basic earnings per share $ 0.32 $ 0.09 $ 0.00
Diluted earnings per share
Net income $ 2,096 $ 609 $ 7
========== ========== ==========
Divided by:
Weighted average common shares 6,495,823 6,479,800 6,746,900
Dilutive effect of common stock
equivalents 33,844 9,458 83,645
Dilutive average common shares 6,529,667 6,489,258 6,830,545
---------- ---------- ----------
Diluted earnings per share $ 0.32 $ 0.09 $ 0.00
The exercise price of stock options to purchase an aggregate of 104,500,
411,000 and 402,000 shares in 1998, 1999 and 2000, respectively, was less than
the average stock price for the year. As such, these options have been excluded
from the calculation of diluted earnings per share as their effect would be
anti-dilutive.
9. STOCK GRANT AND COMMON STOCK SUBJECT TO REDEMPTION
In connection with the employment of the Company's new President & CEO (new
CEO), he was granted 100,000 shares of the Company's common stock. The market
value of the shares at the date of the grant ($253,000) is included as selling,
general and administrative expenses in 2000.
In addition, the new CEO purchased 183,200 shares of the Company's common
stock from the Company's controlling stockholder for $732,800. The Company
loaned the new CEO the funds to purchase these shares. In addition, the Company
granted the new CEO a put related to these shares at $3.00 per share. The put
value of these shares is shown as shares subject to redemption in the
accompanying balance sheet.
Until the note is repaid, the Company will record compensation expense if
the market value of the shares purchased exceeds the new CEO's purchase price.
When the note is repaid, the Company will record compensation expense if the
market value of these shares is lower than the new CEO's put price. No expense
was recorded in 2000 under this agreement.
27
31
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
(In thousands except per share data)
Quarter Ended
------------------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
1999 1999 1999 1999
---- ---- ---- ----
Revenues ............................... $ 9,239 $ 9,788 $ 9,731 $ 9,117
Cost of revenues ....................... 6,764 7,139 7,021 6,798
------- ------- ------- -------
Gross profit ........................... 2,475 2,649 2,710 2,319
Selling, general and
administrative expenses .............. 2,130 2,146 2,254 2,319
Merger related expenses ................ -- 869 -- --
------- ------- ------- -------
Income / (Loss) from operations ........ 345 (366) 456 --
Interest income, net ................... 130 130 136 160
------- ------- ------- -------
Income / (Loss) before income taxes .... 475 (236) 592 160
Provision / (Benefit ) for income taxes 182 (80) 256 24
------- ------- ------- -------
Net income / (loss) .................... $ 293 $ (156) $ 336 $ 136
======= ======= ======= =======
Basic and diluted earnings / (loss) per
share ................................ $ 0.05 $ (0.02) $ 0.05 $ 0.02
======= ======= ======= =======
(In thousands except per share data)
Quarter Ended
-----------------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31,
2000 2000 2000 2000
---- ---- ---- ----
Revenues ............................... $9,319 $10,213 $11,593 $11,199
Cost of revenues ....................... 6,888 7,435 8,378 8,643
Gross profit ........................... 2,431 2,778 3,215 2,556
Selling, general and
administrative expenses .............. 2,317 3,309 2,753 3,158
Income / (Loss) from operations ........ 114 (531) 462 (602)
Interest income, net ................... 158 171 159 171
Income / ( Loss) before income taxes ... 272 (360) 621 (431)
Provision / ( Benefit) for income taxes 105 (11) 302 (301)
Net income / ( loss ) .................. $ 167 $ (349) $ 319 $ (130)
Basic and diluted earnings / (loss) per
share ................................ $ 0.03 $ (0.05) $ 0.05 $ (0.02)
Earnings per share amounts for each quarter are required to be computed
independently and, therefore, may not equal the amount calculated for year end.
28
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
information in the registrant's definitive proxy statement to be filed with the
Commission on or about April 16, 2001 in connection with its 2001 annual meeting
of stockholders (the "2001 Proxy Statement") under the captions "Election of
Directors" and "Executive Officers".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information in the registrant's 2001 Proxy Statement under the caption
"Executive Compensation", provided that the information in such Proxy Statement
under the captions "Stock Performance Graph" and "Compensation Committee Report
on Executive Compensation" are not incorporated by referenced herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information in the registrant's 2001 Proxy Statement under the caption "Security
Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
information in the registrant's 2001 Proxy Statement under the caption
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of the registrant are included on pages
19 to 30 of this Form 10-K and the report of independent public accountants is
included on page 18 of this Form 10-K:
Consolidated Balance Sheets as of December 31, 1999 and 2000
Consolidated Statements of Operations for the years ended December 31, 1998,
1999 and 2000
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1998, 1999 and 2000
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1999 and 2000
29
33
2. Financial Statement Schedules
The following financial statement schedules shown below should be read
in conjunction with the financial statements on pages 17 to 26 of this Form
10-K. All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or Notes thereto.
The following items appear immediately following the signature page:
Report of Independent Public Accountants on Supplemental Schedules
Financial Statement Schedules:
Valuation and Qualifying Accounts for the three years ended December
31, 2000.
3. Exhibits:
3(i) Amended and Restated Certificate of Incorporation of UBICS,
Inc.(1)
3(ii) Amended and Restated Bylaws of UBICS, Inc.(1)
10.1 UBICS, Inc. 1997 Stock Option Plan (2)
10.2 Noncompetition Agreement dated October 27, 1997 among the
Company, Vijay Mallya and UB Information Consultancy Services,
Ltd. (3)
10.3 Employment Agreement between the Registrant and Vijay Mallya
(3)
10.4 Employment Agreement between the Registrant and Manohar B.
Hira (3)
10.6 Employment Agreement between the Registrant and Babu Srinivas
(3)
10.7 Employment Agreement dated September 1, 1999 between the
Registrant and Dennis M. Stocker (4)
10.8 Agreement of Severance, Waiver and Release dated March 18,
1999 between the Company and Manohar B. Hira (5)
10.9 Services Agreement dated October 27, 1997 among the Company,
Vijay Mallya and United Breweries Limited (3)
10.10 Form of Director Indemnification Agreement (3)
10.11 Form of Sublease and Consent among the Company, Marin
Executive Park and United Breweries of American, Inc. (3)
10.12 Noncompetition Agreement dated October 27, 1997 among the
Company, Vijay Mallya and United Breweries Limited (3)
10.13 Noncompetition Agreement dated October 27, 1997 among the
Company, Vijay Mallya and UB International Limited (3)
10.14 Services Agreement dated October 27, 1997 among the Company,
Vijay Mallya and UB International Limited (3)
30
34
10.15 Lease Agreement dated June 30, 1998 between the Company and
Stealth Technology Associates (6)
10.16 Amendment to Agreement of Severance Waiver and Release dated
December 1, 1999 between the Company and Manohar B. Hira (7)
10.17 Amendment No. 2 to Agreement of Severance Waiver and Release
dated as of March 31, 1999 between the Company and Manohar B.
Hira (7)
10.18 Amendment No. 3 to Agreement of Severance Waiver and Release
dated as of March 31, 1999 between the Company and Manohar B.
Hira (8)
10.19 Employment Agreement dated June 22, 1998 between the Company
and Patrick Ghilani (8)
10.20 Agreement dated August 20, 1999 between the Company and
Patrick Ghilani (8)
10.21 Amendment to Employment Agreement dated as of January 1, 2000
between the Company and Babu Srinivas (8)
10.22 Employment Agreement dated June 7, 2000 between the Company
and Robert C. Harbage (9)
10.22 Acquisition and Stock Exchange Agreement dated July 5, 2000
among the Company, Cobalt Creative, Inc. and the Shareholders
of Cobalt Creative, Inc. (9)
26 Subsidiaries of the Registrant
- ----------
(1) Incorporated by reference to the registrant's Registration Statement on
Form S-1, No. 333-35171, filed September 8, 1997.
31
35
(2) Incorporated by reference to the registrant's Schedule 14A filed on
November 15, 2000.
(3) Incorporated by reference to Post-Effective Amendment No. 1, to the
registrant's Registration Statement on Form S-1, No. 333-35171, filed
October 29, 1997.
(4) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
(5) Incorporated by reference to the registrant's Annual Report on Form
10-K for the year ended December 31, 1998.
(6) Incorporated by reference to the registrant's Quarterly Report on Form
10-A for the quarter ended September 30, 1998.
(7) Incorporated by reference to the registrant's Annual Report on Form
10-K for the year ended December 31, 1998.
(8) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2001
(9) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000.
32
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
UBICS, Inc.
(Registrant)
By: /s/Robert Harbage
----------------------------------
Robert Harbage
President & CEO
March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
the following persons have signed this report in the capacities indicated on
March 30, 2001.
/s/Vijay Mallya
--------------------------------------
Vijay Mallya
Chairman and Director
/s/Robert Harbage
--------------------------------------
Robert Harbage
President, CEO and Director
(Principal Executive Officer)
/s/Babu Srinivas
--------------------------------------
Babu Srinivas
Vice President - Finance and Accounting
And Acting Chief Financial Officer
(Principal Finance & Accounting Officer)
/s/Scott Heldfond
--------------------------------------
Scott Heldfond
Director
/s/Kent D. Price
--------------------------------------
Kent D. Price
Director
/s/Christopher C. Melton, Sr.
--------------------------------------
Christopher C. Melton, Sr.
Director
33
37
/s/Rahul Merchant
--------------------------------------
Rahul Merchant
Director
/s/ Manohar B. Hira
--------------------------------------
Manohar B. Hira
Director
34
38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Stockholders of UBICS, Inc.:
We have audited in accordance with auditing standards generally
accepted in the United States, the financial statements included in this Form
10-K and have issued our report thereon dated March 14, 2001. Our audit was made
for the purpose of forming an opinion on the basic financial statements taken as
a whole. The schedule set forth on the following page is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
March 14, 2001
39
SCHEDULE II
UBICS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Charged Deductions--
Balance at to Costs Amounts Balance at
Beginning and Deemed to be End of
Period Ended Description of Period Expenses Uncollectible Period
------------ ----------- --------- -------- ------------- ------
December 31, 1998 Allowance for uncollectible 185 120 -- 305
accounts
December 31, 1999 Allowance for uncollectible 305 580 -- 885
accounts
December 31, 2000 Allowance for uncollectible 885 215 -- 1100
accounts
2
40
EXHIBIT INDEX
No. Description Page
- --- ----------- ----
3.1 Amended and Restated Certificate of Incorporation of UBICS, Inc.(1)
3.2 Amended and Restated Bylaws of UBICS, Inc.(1)
10.1 UBICS, Inc. 1997 Stock Option Plan (2)
10.2 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya and UB
Information Consultancy Services, Ltd. (3)
10.3 Employment Agreement between the Registrant and Vijay Mallya (3)
10.4 Employment Agreement between the Registrant and Manohar B. Hira (3)
10.6 Employment Agreement between the Registrant and Babu Srinivas (3)
10.7 Employment Agreement dated September 1, 1999 between the Registrant and Dennis M.
Stocker (4)
10.8 Agreement of Severance, Waiver and Release dated March 18, 1999 between the Company
and Manohar B. Hira (5)
10.9 Services Agreement dated October 27, 1997 among the Company, Vijay Mallya and United
Breweries Limited (3)
10.10 Form of Director Indemnification Agreement (3)
10.11 Form of Sublease and Consent among the Company, Marin Executive Park and United
Breweries of American, Inc. (3)
10.12 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya and
United Breweries Limited (3)
10.13 Noncompetition Agreement dated October 27, 1997 among the Company, Vijay Mallya and UB
International Limited (3)
10.14 Services Agreement dated October 27, 1997 among the Company, Vijay Mallya and UB
International Limited (3)
10.15 Lease Agreement dated June 30, 1998 between the Company and Stealth Technology
Associates (6)
10.16 Amendment to Agreement of Severance Waiver and Release dated December 1, 1999 between
the Company and Manohar B. Hira (7)
10.17 Amendment No. 2 to Agreement of Severance Waiver and Release dated as of March 31,
1999 between the Company and Manohar B. Hira (7)
3
41
10.18 Amendment No. 3 to Agreement of Severance Waiver and Release dated as of March 31,
1999 between the Company and Manohar B. Hira (8)
10.19 Employment Agreement dated June 22, 1998 between the Company and Patrick Ghilani (8)
10.20 Agreement dated August 20, 1999 between the Company and Patrick Ghilani (8)
10.21 Amendment to Employment Agreement dated as of January 1, 2000 between the Company and
Babu Srinivas (8)
10.22 Employment Agreement dated June 7, 2000 between the Company and Robert C. Harbage (9)
10.22 Acquisition and Stock Exchange Agreement dated July 5, 2000 among the Company, Cobalt
Creative, Inc. and the Shareholders of Cobalt Creative, Inc. (9)
26 Subsidiaries of the Registrant
- -----------
(1) Incorporated by reference to the registrant's Registration Statement on
Form S-1, No. 333-35171, filed September 8, 1997.
(2) Incorporated by reference to the registrant's Schedule 14A filed on
November 15, 2000.
(3) Incorporated by reference to Post-Effective Amendment No. 1, to the
registrant's Registration Statement on Form S-1, No. 333-35171, filed
October 29, 1997.
(4) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
(5) Incorporated by reference to the registrant's Annual Report on Form
10-K for the year ended December 31, 1998.
(6) Incorporated by reference to the registrant's Quarterly Report on Form
10-A for the quarter ended September 30, 1998.
(7) Incorporated by reference to the registrant's Annual Report on Form
10-K for the year ended December 31, 1998.
(8) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2001
(9) Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 2000.
4