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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
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 SOUTHPOINTE, CANONSBURG, PENNSYLVANIA 15317
(Address of principal executive offices) (Zip code)
(724) 746-6001
(Registrant's telephone number, including area code)
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 [_]
As of October 31, 2002, 6,936,209 shares of common stock, par value $0.01
per share, of the Registrant were outstanding.
UBICS, INC.
Form 10-Q
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements...................................................................... 3
Consolidated Balance Sheets as of September 30, 2002 (unaudited) and
December 31, 2001 ........................................................................ 4
Consolidated Statements of Operations (unaudited) for the three and nine
month periods ended September 30, 2002 and 2001 .......................................... 5
Consolidated Statements of Cash Flows (unaudited) for the nine month
periods ended September 30, 2002 and 2001 ................................................ 6
Notes to Unaudited Consolidated Financial Statements ..................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................... 18
Item 4. Controls and Procedures .................................................................. 18
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 19
Item 2. Changes in Securities and Use of Proceeds ................................................ 19
Item 3. Defaults Upon Senior Securities .......................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 19
Item 5. Other Information ........................................................................ 19
Item 6. Exhibits and Reports on Form 8-K ......................................................... 19
SIGNATURES ........................................................................................ 20
EXHIBIT INDEX ..................................................................................... 23
2
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
UBICS, Inc. ("UBICS" or the "Company") did not obtain a review of the
interim financial statements for the quarter ended September 30, 2002 included
in this Report on Form 10-Q by an independent accountant using professional
review standards and procedures, even though such review is required by Form
10-Q. The Company did not obtain such review because, on November 12, 2002, BDO
Seidman, LLP resigned as the Company's independent auditor of record and the
Company has not yet engaged a new independent auditor to perform the review. The
Company is in the process of identifying and interviewing new accountants to
serve as its independent auditor, and will refile its interim financial
statements for the quarter ended September 30, 2002 as promptly as practicable
following its engagement of a successor independent auditor.
3
UBICS, INC
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
September 30, December 31,
2002 2001
----------------- ----------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,845 $ 7,088
Accounts receivable, net of allowance for doubtful accounts of $500 and $500, respectively 805 2,464
Unbilled receivables 1,867 1,665
Employee advances 30 50
Prepaids and other 220 1,051
Notes receivable 733 -
Deferred tax asset 695 761
----------------- ----------------
Total current assets 12,195 13,079
----------------- ----------------
Property and equipment:
Leasehold improvements 135 135
Vehicles 86 92
Computer equipment and software 1,370 1,318
Furniture and fixtures 714 714
----------------- ----------------
Total property and equipment 2,305 2,259
Accumulated depreciation (1,677) (1,264)
----------------- ----------------
Net property and equipment 628 995
----------------- ----------------
Goodwill, net of amortization 1,932 4,376
Notes receivable 336 983
Deferred tax asset and other long-term assets - 1,175
----------------- ----------------
Total other non-current assets 2,268 6,534
----------------- ----------------
Total assets $15,091 $20,608
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $563 $ 1,172
Payroll liabilities 1,569 2,323
Other current liabilities 1,413 1,935
Deferred revenue - 91
Due to affiliates, net 12 10
----------------- ----------------
Total current liabilities 3,557 5,531
Deferred tax liability and other long-term liabilities 241 100
----------------- ----------------
Total liabilities 3,798 5,631
----------------- ----------------
Minority interest in consolidated subsidiary
- 13
----------------- ----------------
Common stock, subject to redemption, $0.01 par value, 183,200 shares issued and outstanding 550 550
----------------- ----------------
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,
7,003,324 shares issued 70 70
Additional paid-in capital 14,171 14,171
Treasury stock, 250,315 and 220,115 shares, respectively, at cost (259) (239)
Retained earnings (deficit) (3,240) 423
Accumulated other comprehensive income (loss) 1 (11)
----------------- ----------------
Total stockholders' equity 10,743 14,414
----------------- ----------------
Total liabilities and stockholders' equity $15,091 $20,608
================= ================
The accompanying notes are an integral part of these consolidated
financial statements.
4
UBICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Dollars in thousands, except per share amounts)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
2002 2001 2002 2001
------------ ---------- ----------- -----------
Revenues $ 6,377 $ 9,334 $ 19,778 $ 30,710
Cost of revenues 4,433 6,369 13,790 22,725
------------ ---------- ----------- -----------
Gross profit 1,944 2,965 5,988 7,985
Selling, general, and administrative expenses 2,132 5,871 6,766 13,063
Restructuring - 892 - 892
------------ ---------- ----------- -----------
Loss from operations (188) (3,798) (778) (5,970)
Minority interest - - 13 -
Interest income, net 35 70 101 317
------------ ---------- ----------- -----------
Loss before income taxes and cumulative effect of
a change in accounting principle (153) (3,728) (664) (5,653)
Cumulative effect of a change in accounting principle - - (2,444) -
Provision (benefit) for income taxes (37) (1,528) 555 (2,203)
------------ ---------- ----------- -----------
Net loss ($116) ($2,200) ($3,663) ($3,450)
============ ========== =========== ===========
Basic and diluted loss per share ($0.02) ($0.31) ($0.53) ($0.49)
============ ========== =========== ===========
Basic weighted average shares outstanding 6,935,033 7,050,304 6,940,382 7,025,296
============ ========== =========== ===========
Diluted weighted average shares outstanding 6,935,033 7,050,304 6,940,382 7,025,296
============ ========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
5
UBICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands, except per share amounts)
For the Nine Months Ended
September 30,
-------------------------
2002 2001
---------- ---------
Cash flows from operating activities:
Net loss ($3,663) ($3,450)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation 413 521
Amortization of goodwill - 156
Goodwill impairment 2,444 -
Deferred income taxes 555 -
Asset impairment - 618
Asset abandonment - 288
Minority interest (13) -
Changes in operating assets and liabilities:
Accounts receivable 1,659 2,136
Unbilled receivables (202) 379
Employee advances 20 26
Due to affiliates, net 2 24
Income tax refund 1,485 -
Prepaids and other 6 (2,176)
Notes receivable and other assets 101 -
Accounts payable (609) (1,797)
Payroll liabilities (754) 124
Accrued taxes and other current liabilities (525) 595
Long-term liabilities (100) 283
---------- ---------
Net cash provided (used) by operating activities 819 (2,273)
---------- ---------
Cash flows from investing activities:
Purchases of property and equipment (54) (187)
Cash paid for acquisitions, net of cash acquired - (1,651)
---------- ---------
Net cash used by investing activities (54) (1,838)
---------- ---------
Cash flows from financing activities:
Purchases of treasury stock (20) (66)
---------- ---------
Net cash used by financing activities (20) (66)
---------- ---------
Effect of currency translation on cash 12 -
---------- ---------
Net increase (decrease) in cash and cash equivalents 757 (4,177)
Cash and cash equivalents at beginning of period 7,088 10,477
---------- ---------
Cash and cash equivalents at end of period $ 7,845 $ 6,300
========== =========
Supplemental data:
Common stock issued for acquisition - $ 138
========== =========
Fair value of:
Assets acquired - $ 4,092
Liabilities assumed - (665)
Cash paid for acquisition - (1,676)
Acquisition-related expenses - (119)
Common stock issued for acquisition - (138)
Due to seller - (1,621)
Minority interest - (17)
---------- ---------
Cash acquired - ($144)
========== =========
The accompanying notes are an integral part of these consolidated financial
statements.
6
UBICS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The financial statements of UBICS, Inc. ("UBICS" or the "Company")
presented herein are unaudited. Certain information and footnote disclosures
normally prepared in accordance with accounting principles generally accepted in
the United States have been either condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. Although the Company
believes that all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation have been made, interim periods are not
necessarily indicative of the consolidated financial results of operations for a
full year. As such, these unaudited consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for its fiscal year ended December 31,
2001.
2. OPERATIONS:
UBICS, a Delaware corporation, provides information technology ("IT")
professional services to large and mid-sized organizations. The Company provides
its clients with a wide range of professional services in such areas as
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.
3. OTHER CURRENT LIABILITIES:
Other current liabilities consisted of the following at September 30, 2002
and December 31, 2001:
September 30, 2002 December 31, 2001
------------------ -----------------
(unaudited)
Restructuring liabilities ....................................... $ 333 $ 539
Other current liabilities ....................................... 1,080 1,396
------- -------
Other current liabilities .................................. $ 1,413 $ 1,935
======= =======
4. COMPREHENSIVE LOSS:
Total comprehensive loss for the three months ended September 30, 2002 and
2001 and the nine months ended September 30, 2002 and 2001 was as follows (in
thousands):
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
---- ---- ---- ----
(unaudited)(unaudited)(unaudited)(unaudited)
Net loss .................................. $ (116) $(2,200) $(3,663) $(3,450)
Foreign currency translation
adjustments ...................... 7 (15) 12 (15)
------- ------- ------- -------
Comprehensive loss ............... $ (109) $(2,215) $(3,651) $(3,465)
======= ======= ======= =======
7
5. EARNINGS PER SHARE:
Reconciliation of diluted shares (dollars in thousands, except per share
amounts):
Three Months Ended September 30,
2002 2001
---- ----
(unaudited) (unaudited)
Basic loss per share
Net loss ........................................................ $ (116) $ (2,200)
----------- -----------
Divided by:
Weighted average common shares outstanding .......................... 6,935,033 7,050,304
----------- -----------
Basic loss per share ............................................ $ (0.02) $ (0.31)
=========== ===========
Diluted loss per share
Net loss ........................................................ $ (116) $ (2,200)
----------- -----------
Divided by:
Weighted average common shares outstanding .......................... 6,935,033 7,050,304
Dilutive effect of common stock equivalents ......................... - -
----------- -----------
Dilutive weighted average common shares
outstanding ..................................................... 6,935,033 7,050,304
----------- -----------
Diluted loss per share .......................................... $ (0.02) $ (0.31)
=========== ===========
Nine Months Ended September 30,
2002 2001
---- ----
(unaudited) (unaudited)
Basic loss per share
Net loss ........................................................ $ (3,663) $ (3,450)
----------- -----------
Divided by:
Weighted average common shares outstanding .......................... 6,940,382 7,025,296
----------- -----------
Basic loss per share ............................................ $ (0.53) $ (0.49)
=========== ===========
Diluted loss per share
Net loss ........................................................ $ (3,663) $ (3,450)
----------- -----------
Divided by:
Weighted average common shares outstanding .......................... 6,940,382 7,025,296
Dilutive effect of common stock equivalents ......................... - -
----------- -----------
Dilutive weighted average common shares outstanding ................. 6,940,382 7,025,296
----------- -----------
Diluted loss per share .......................................... $ (0.53) $ (0.49)
=========== ===========
For the three months and nine months ended September 30, 2002, options to
purchase 950,750 shares were excluded from the calculation of diluted loss per
share as the effect would be anti-dilutive due to the exercise price of such
options exceeding the average market price for the period. The number of
anti-dilutive stock options omitted from the computation of dilutive average
common shares for the three months and nine months ended September 30, 2001 were
1,002,000.
8
6. ACQUISITIONS:
Oakwood Technical Services Limited, European Software Services (UK) Limited, and
Reflex I.T. Solutions Limited
The Company completed the acquisition of all of the outstanding common
stock of Oakwood Technical Services Limited, European Software Services (UK)
Limited and Reflex I.T. Solutions Limited (collectively referred to as
"Oakwood") in the United Kingdom on March 30, 2001 for a consideration of 1.4
million Pounds Sterling, or approximately US $2.0 million. The 1.4 million
Pounds Sterling was to be paid by the Company to an escrow agent as follows: 1.1
million Pounds Sterling paid on the purchase date, 151,667 Pounds Sterling paid
twelve months after the closing and the remaining 151,667 Pounds Sterling
eighteen months after the closing. On December 21, 2001 the parties agreed to
reduce the purchase price to 1.1 million Pounds Sterling or approximately US
$1.6 million, thereby eliminating the Company's obligation to make subsequent
payments to the escrow agent. The Company felt the acquisition was necessary to
expand its European presence. Oakwood engages in the business of information,
consulting and technical services ranging from high-level strategic human
resources planning to project outsourcing and on-site consulting. The Oakwood
acquisition expanded the Company's presence in the European market. The results
of Oakwood's operations have been included in the consolidated financial
statements since April 1, 2001. The consideration of 1.1 million Pounds Sterling
was paid to the escrow agent on the closing and is to be distributed to the
seller as follows:
(a) First installment of 490,000 Pounds Sterling on closing
(b) Second installment of 303,333 Pounds Sterling six months after the
closing date
(c) Third installment of 60,667 Pounds Sterling on January 1, 2002
(d) Fourth installment of 60,666 Pounds Sterling on April 1, 2002
(e) Fifth installment of 60,667 Pounds Sterling on July 1, 2002
(f) Sixth installment of 60,666 Pounds Sterling on October 1, 2002; and
(g) Seventh and final installment of 60,667 Pounds Sterling on December
31, 2002.
The excess of the purchase price over the net assets acquired ($1,822,583)
has been allocated to goodwill. None of the goodwill is expected to be
deductible for tax purposes. The Company was willing to pay the purchase price
based on the acquired workforce and synergies which were expected to increase
future profits.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition (in thousands):
Current assets..................................... $ 499
Net property and equipment......................... 34
Goodwill........................................... 1,823
------
Total assets acquired......................... 2,356
Current liabilities................................ 655
------
Total liabilities............................. 655
------
Net assets acquired........................... $1,701
======
DSF Internet Services Private Limited
The Company, through its UBIX Computer Services subsidiary, completed the
acquisition of seventy percent (70%) of the equity share capital of DSF Internet
Services Private Limited ("DSF") in India on September 6, 2001 for a
consideration of US $825,000. DSF engages in the business of offshore
development of software, including video/audio streaming, web designing and
content management. The Company believed the acquisition was necessary to obtain
cost effective offshore capabilities. The DSF acquisition provides the Company
an offshore development option for its clients. The results of DSF's operations
have been included in the consolidated financial statements since that date. In
the transaction, UBICS also agreed to satisfy the seller's obligation to Fifth
Dimension Limited ("Fifth Dimension") for its mediation services in connection
with the transaction by paying $175,000 and issuing 219,173 shares of the common
stock of the Company to Fifth Dimension. The $825,000 is payable to the seller
as follows:
(a) An amount of $87,500 was paid by wire transfer to the seller as a down
payment on June 5, 2001
(b) An amount of $125,000 was paid to the seller on the closing date
(c) An amount of $612,500 was deposited into an escrow account on
September 28, 2001. Of such amount, $112,500 may be released to the
seller six months after the closing date, $200,000 may be released to
the seller on the first anniversary of the closing date, $200,000 may
be released to the seller eighteen months after the closing date, and
the remaining $100,000 may be released to the seller on the later of:
i. May 30, 2003
9
ii. Ten days after all taxes payable by DSF in connection with the
agreement have been determined
iii. The business day following the date that UBICS receives payment
of the working capital adjustment, if any, under the agreement.
The $175,000 was paid to Fifth Dimension on the closing date. The 219,173 shares
of the common stock of the Company were issued to Fifth Dimension on the closing
date and deposited into escrow. The shares may be released to Fifth Dimension as
follows:
(a) 65,752 shares of the common stock of the Company may be released to
Fifth Dimension at any time on or after the closing date
(b) Second installment of 43,835 shares of the common stock of the Company
may be released to Fifth Dimension six months after the closing date
(c) Third installment of 43,835 shares of the common stock of the Company
may be released to Fifth Dimension on the first anniversary of the
closing date
(d) Fourth installment of 43,835 shares of the common stock of the Company
may be released to Fifth Dimension eighteen months after the closing
date
(e) Fifth installment of 21,916 shares of the common stock of the Company
may be released to Fifth Dimension on the later of:
i. May 30, 2003
ii. Ten days after all taxes payable by DSF in connection with the
agreement have been determined
iii. The business day following the date that UBICS receives payment
of the working capital adjustment, if any, under the agreement
The excess of the purchase price over the net assets acquired ($1,166,848)
has been allocated to goodwill. None of the goodwill is expected to be deducible
for tax purposes. The Company was willing to pay the purchase price based on the
acquired workforce and expected future profits as a result of lowered costs of
sales.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition (in thousands).
Current assets..................................... $ 81
Net property and equipment......................... 51
Intangible assets.................................. 5
Goodwill........................................... 1,167
------
Total assets acquired......................... 1,304
Current liabilities................................ 147
Long-term liabilities.............................. 2
------
Total liabilities............................. 149
------
Net assets acquired........................... $1,155
======
The Company has consolidated the results of operations for each of the
acquired entities as of the respective merger date. The following table reports
pro forma information as if the acquisitions of Oakwood and DSF had been
completed at the beginning of the stated periods (unaudited, in thousands,
except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues As reported ......................... $ 6,377 $ 9,334 $ 19,778 $ 30,710
Pro forma ........................... 6,377 9,367 19,778 31,610
Net loss As reported ......................... $ (116) $ (2,200) $ (3,663) $ (3,450)
Pro forma ........................... (116) (2,199) (3,663) (3,431)
Basic and diluted loss per share As reported ......................... $ (0.02) $ (0.31) $ (0.53) $ (0.49)
Pro forma ........................... (0.02) (0.31) (0.53) (0.49)
7. 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.
10
8. SHARE REPURCHASE PROGRAM:
On July 3, 2001, the Company announced that its Board of Directors had
approved a stock repurchase plan for up to an additional $500,000 of the total
outstanding shares of the Company. The repurchases of common stock may occur
from time to time on the open market or through privately negotiated
transactions funded through cash on hand. As of September 30, 2002, the Company
has purchased 250,315 shares at a cost of $259,225 and has placed these shares
in treasury. Any gains or losses incurred on the transactions based upon these
shares will be properly offset to additional paid-in capital in accordance with
accounting principles generally accepted in the United States.
9. INCOME TAXES:
The Company's effective tax benefit was 24.2% for the three months ended
September 30, 2002, compared to an effective tax benefit of 41.0% for the three
months ended September 30, 2001. The difference in rate was primarily the result
of the mix of net losses from domestic and foreign operations. In addition, for
domestic operations, there are temporary differences between financial and tax
reporting for accruals, primarily related to restructuring costs. Tax benefits
for domestic operations for both years have been recorded on the basis of
carrying the net losses back to offset prior taxable income. A valuation
allowance has been provided for the tax benefits relating to net losses from
foreign operations due to the uncertainty of realizing those benefits.
For the nine-month periods ended September 30, 2002 and 2001, the effective
tax rates were a tax provision of 18% and a tax benefit of 39%, respectively.
The difference in rates was primarily the result of the differences between
financial and tax reporting for goodwill impairment, a valuation allowance for
deferred tax assets, and the mix of net losses from foreign and domestic
operations.
10. RECENTLY ISSUED ACCOUNTING STANDARDS:
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," and Accounting Research Bulletin No. 51, "Consolidated
Financial Statements." SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001, and for interim periods within those fiscal years. The
adoption of SFAS No. 144 has had no impact on the Company's consolidated
financial position or results of operations.
In April 2002, Financial Accounting Standards Board ("FASB") issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS No. 145 updates, clarifies,
and simplifies existing accounting pronouncements. The Company is currently
evaluating the provisions of this statement.
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a company recognize a liability for a cost associated with an exit or
disposal activity only when it meets the definition of liability (i.e., when the
liability is incurred). SFAS No. 146 also requires that the initial measurement
of the liability be at its fair value. This statement is effective on a
prospective basis for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company is currently
evaluating the provisions of this SFAS No. 146.
11. GOODWILL:
At the beginning of fiscal year 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets," under which goodwill and other
intangible assets with indefinite lives are not amortized. In accordance with
SFAS No. 142, the Company evaluated the carrying amount of its existing goodwill
and $2.4 million was deemed to be impaired under these standards. The fair value
used to evaluate goodwill was determined based upon a comparison of carrying
value to fair market value as determined by a valuation technique using
comparative sales values. This impairment loss is an estimate that has not yet
been finalized as of September 30, 2002. The amount will be finalized upon
completion of step 2 of the impairment test. In addition, the Company will
evaluate the goodwill for impairment each year, with any resulting impairment
reported as an operating expense.
The change in the carrying amount of goodwill for the nine months ended
September 30, 2002 is as follows (dollars in
11
thousands):
Balance as of January 1, 2002 .............................. $4,376
Impairment losses .......................................... (2,444)
------
Balance as of September 30, 2002 ........................... $1,932
======
The following table is the Company's disclosure of what reported net
income, basic earnings per share, and diluted earnings per share would have been
if the non-amortization provisions of SFAS 142 had been adopted in all periods
presented (dollars in thousands except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
Reported net loss .......................................... $ (116) $ (2,200) $(3,663) $(3,450)
Goodwill amortization ................................. -- 65 -- 156
------ -------- ------- -------
Adjusted net loss .......................................... $ (116) $ (2,135) $(3,663) $(3,294)
====== ======== ======= =======
Basic loss per share ....................................... $(0.02) $ (0.31) $ (0.53) $ (0.49)
Goodwill amortization ................................. -- .01 -- .02
------ -------- ------- -------
Adjusted basic loss per share .............................. $(0.02) $ (0.30) $ (0.53) $ (0.47)
====== ======== ======= =======
Diluted loss per share ..................................... $(0.02) $ (0.31) $ (0.53) $ (0.18)
Goodwill amortization ................................. -- .01 -- .02
------ -------- ------- -------
Adjusted diluted loss per share ............................ $(0.02) $ (0.30) $ (0.53) $ (0.47)
====== ======== ======= =======
12. SUBSEQUENT EVENTS:
On October 21, 2002, the Company, through its subsidiary, UBICS Holding
Company ("UHC") purchased an aircraft from Davis Oil Company pursuant to an
Aircraft Purchase Agreement dated October 10, 2002. The purchase price of the
aircraft was $3,350,000, paid in cash at the closing. Title to the aircraft was
registered in the name of Wells Fargo Bank Northwest, National Association
("Wells Fargo") as Trustee under a Trust Agreement dated October 21, 2002
between Wells Fargo and UHC, as trustor and sole beneficiary of such Trust.
The aircraft will be leased for a five-year term to United Breweries
Holdings, Ltd. ("UBH") pursuant to the terms of an Aircraft Lease Agreement (the
"Lease") to be entered into between Wells Fargo, as owner trustee, and UBH.
During the term of the Lease, UBH will pay rent in the amount of $50,000 per
month, and will be responsible for payment of all expenses relating to the
operation and maintenance of the aircraft. The lease also provides that UBH will
purchase the aircraft at any time upon 90 days written notice from the lessor
for a purchase price of $4.0 million.
Prior to leasing the aircraft to UBH, UHC will cause the aircraft to be
refurbished at a cost to UHC of not more than $650,000. Any cost of
refurbishment in excess of $650,000 will be paid by UBH.
UBH is a controlled affiliate of United Breweries (Holdings) Limited, an
Indian company, which will enter into a Guaranty and Suretyship Agreement,
absolutely and unconditionally guaranteeing all obligations of UBH under the
Lease. The Chairman and ultimate beneficial owner of 55% of the outstanding
common stock of UBICS, Vijay Mallya, is the Chairman and a shareholder of United
Breweries (Holdings) Limited, which controls UBH.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction
with Part II, Item 7 of the Company's Annual Report on Form 10-K for the year
ended December 31, 2001 (the "2001 Form 10-K"). The following discussion should
also be read in conjunction with the Consolidated Financial Statements and notes
thereto appearing elsewhere in this Quarterly Report on Form 10-Q ("Form 10-Q").
The information contained herein is not a comprehensive management overview and
analysis of the financial condition and results of operations of the Company,
but rather updates disclosures made in the 2001 Form 10-K.
Some of the statements in this Form 10-Q that are not historical facts
are forward-looking statements. These forward-looking statements include the
Company's financial, growth, and liquidity projections, as well as statements
concerning the Company's plans, strategies, intentions and beliefs concerning
the Company's business, cash flows, costs, and the markets in which the Company
operates. These statements are based on information currently available to the
Company, and the Company assumes no obligation to update these statements as
circumstances change. There are risks and uncertainties that could cause actual
events to differ materially from these forward-looking statements. These risks
include, but are not limited to, the level of market demand for the Company's
services, the highly-competitive market for the types of services that the
Company offers, market conditions that could cause the Company's customers to
reduce their spending for the Company's services or cause prospective customers
to decide not to engage third-party providers of Information Technology ("IT")
services, the Company's ability to acquire new businesses and to grow its
existing businesses, the Company's ability to attract and retain qualified
personnel, currency fluctuations and market conditions in India and elsewhere
around the world, and the Company's ability to reduce costs and conserve cash in
an uncertain economic environment. While the Company cannot predict all of these
risks and uncertainties, investors should also review the risks and
uncertainties described in the 2001 Form 10-K.
OVERVIEW
UBICS, founded in 1993, provides 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 Package (ERP) 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.
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.
For the nine months ended September 30, 2002, approximately 35% of the Company's
revenues were derived from IT professionals deployed from subcontractors. As of
September 30, 2002, IT professionals deployed from subcontractors comprised 66
of the Company's 186 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 700 clients
in a range of industries and currently has IT professionals deployed at nearly
80 of these clients. The Company's five largest clients accounted for
approximately 31% of revenues for the nine months ended September 30, 2002.
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 wide range
of industries, in order to reduce credit risk from conditions or occurrences
within any specific industry or region in which these clients operate.
On March 30, 2001, the Company completed the acquisition of all of the
outstanding common stock of Oakwood Technical Services Limited, European
Software Services (UK) Limited and Reflex I.T. Solutions Limited in the United
Kingdom for a consideration of 1.4 million Pounds Sterling or approximately US
$2.0 million. On December 21, 2001, the parties agreed to reduce the total
consideration to be paid by the Company to 1.1 million Pounds Sterling or
approximately US $1.6 million.
13
On September 6, 2001, the Company, through its UBIX Computer Services
Limited subsidiary, completed the acquisition of seventy percent (70)% of the
equity share capital of DSF Internet Services Private Limited in India for a
purchase price of $825,000. In the transaction, UBICS has agreed to satisfy the
seller's obligation to Fifth Dimension Limited ("Fifth Dimension") for its
mediation services in connection with the transaction by paying $175,000 and
issuing 219,173 shares of the common stock of the Company to Fifth Dimension.
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
------------------------------------------------------------
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------------- ----------------------------
2002 2001 2002 2001
------------- ------------- ------------ -------------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 69.5% 68.2% 69.7% 74.0%
------------- ------------- ------------ -------------
Gross profit 30.5% 31.8% 30.3% 26.0%
Selling, general, and administrative expenses 33.4% 62.9% 34.2% 42.5%
Restructuring 0.0% 9.6% 0.0% 2.9%
------------- ------------- ------------ -------------
Loss from operations -2.9% -40.7% -3.9% -19.4%
Minority interest 0.0% 0.0% 0.1% 0.0%
Interest income, net 0.6% 0.8% 0.5% 1.0%
------------- ------------- ------------ -------------
Loss before income taxes and cumulative effect
of a change in accounting principle -2.3% -39.9% -3.3% -18.4%
Cumulative effect of a change in accounting principle 0.0% 0.0% -12.4% 0.0%
Provision (benefit) for income taxes -0.6% -16.3% 2.8% -7.2%
------------- ------------- ------------ -------------
Net loss -1.7% -23.6% -18.5% -11.2%
============= ============= ============ =============
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001.
Revenues
Revenues for the quarter ended September 30, 2002 were $6.4 million,
compared to $9.3 million for the quarter ended September 30, 2001, a decrease of
$2.9 million, or 31%. The decrease in revenues was due to weaker demand in the
IT staffing industry. The number of the Company's deployed IT professionals
decreased to 186 at September 30, 2002 from 235 at September 30, 2001.
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 the quarter ended September 30, 2002 was $1.9 million, compared to $3.0
million for the quarter ended September 30, 2001, a decrease of $1.1 million, or
36.7%. Gross profit as a percentage of revenues decreased to 30.5% for the
quarter ended September 30, 2002 from 31.8% for the quarter ended September 30,
2001.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses consist of costs
associated with the Company's sales and marketing efforts, executive, finance
and human resource functions, facilities, telecommunications and other general
overhead expenses. SG&A expenses for the quarter ended September 30, 2002 were
$2.1 million, compared to $5.9 million for the quarter ended September 30, 2001,
a decrease of $3.8 million or 64%. The decrease in SG&A was primarily due to
reductions in home office staffing. SG&A expenses as a percentage of revenues
decreased to 33.4% for the quarter ended September 30, 2002 from
14
62.9% for the comparable quarter in 2001. The decrease was primarily due to a
decrease in overhead staff.
Restructuring
The Company recorded a restructuring charge of $892,000 in the quarter
ended September 30, 2001, of which, approximately $460,000 was associated with a
write-off of unused office space, approximately $170,000 was related with
merging the Company's UB Interactive division with its SquareRadius, Inc.
subsidiary, approximately $160,000 was related to a write-off of obsolete
assets; and approximately $100,000 was related to a reduction in workforce to
better reflect market opportunities.
Interest Income, Net
Interest income, net for the three months ended September 30, 2002,
was $35,000 compared to interest income of $70,000 for the three months ended
September 30, 2001. The decrease resulted primarily from the reduction in the
amount of cash available for short-term investments and lower interest rates.
Provision (Benefit) for Income Taxes
The Company's effective tax benefit was 24.2% for the three months
ended September 30, 2002, compared to an effective tax benefit of 41.0% for the
three months ended September 30, 2001. The difference in rate was primarily the
result of the mix of domestic and foreign net income. The Company did not record
a tax benefit for its foreign subsidiaries due to the uncertainty of realizing
the benefits of the net operating loss carryforwards in those countries. The
Company recorded a tax benefit in the United States to the extent that its
estimated current year tax loss may be carried back to offset prior taxable
income.
Goodwill Impairment
At the beginning of fiscal year 2002, the Company adopted SFAS No.
142, under which goodwill and other intangible assets with indefinite lives are
not amortized. In accordance with SFAS No. 142, the Company evaluated the
carrying amount of its existing goodwill and $2.4 million was deemed to be
impaired under this standard. This impairment loss is an estimate that has not
yet been finalized as of September 30, 2002. The amount will be finalized upon
completion of Step 2 of the impairment test. In addition, each year the Company
will evaluate the goodwill for impairment with any resulting impairment
reflected as an operating expense.
The change in the carrying amount of goodwill for the three months
ended September 30, 2002 is as follows (dollars in thousands):
Balance as of July 1, 2002 ................................. $1,932
Impairment losses .......................................... --
------
Balance as of September 30, 2002 ........................... $1,932
======
Net Loss
Net loss for the three months ended September 30, 2002 was $116,000,
compared to net loss of $2.2 million for the three months ended September 30,
2001, a decrease of $2.1 million, or 94.7%. The net loss as a percentage of
revenues decreased to (1.7)% for the three months ended September 30, 2002, from
(23.6)% for the three months ended September 30, 2001. Although sales were
weaker in the 2002 period compared to the 2001 period, the Company's net loss
decreased from the three months ended September 30, 2001 to the three months
ended September 30, 2002. The primary reason for the decrease in net loss was a
decrease in SG&A expenses and a one-time restructuring charge of $0.9 million
taken in the three months ended September 30, 2001.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001.
Revenues
Revenues for the nine months ended September 30, 2002 were $19.8
million, compared to $30.7 million for the six months ended September 30, 2001,
a decrease of $10.9 million, or 35.5%. The decrease in revenues was due to
weaker demand in the IT staffing industry. The number of the Company's deployed
IT professionals decreased to 186 at September 30, 2002 from 235 at September
30, 2001.
15
Gross Profit
Gross profit for the nine months ended September 30, 2002 was $6.0
million, compared to $8.0 million for the nine months ended September 30, 2001,
a decrease of $2.0 million, or 25%. Gross profit as a percentage of revenues
increased to 30.3% for the nine months ended September 30, 2002 from 26.0% for
the nine months ended September 30, 2001. The increase in gross profit as a
percentage of revenues resulted primarily from better management of the
Company's bench, i.e., its undeployed IT professionals.
Selling, General and Administrative Expenses
SG&A expenses for the nine months ended September 30, 2002 were $6.8
million, compared to $13.1 million for the nine months ended September 30, 2001,
a decrease of $6.3 million or 49.0%. The decrease in SG&A expenses was primarily
due to reductions in home office staffing and a charge in the nine months ended
September 30, 2001 for expenses associated with a computer system
implementation. SG&A expenses as a percentage of revenues decreased to 34.2% for
the nine months ended September 30, 2002 from 42.5% for the comparable period in
2001. The decrease was due to the reduction in SG&A expenses, partially offset
by a decline in revenues.
Restructuring
The Company recorded a restructuring charge of $892,000 in the nine
months ended September 30, 2001, of which, approximately $460,000 was associated
with a write-off of unused office space, approximately $170,000 was related with
merging the Company's UB Interactive division with its SquareRadius, Inc.
subsidiary, approximately $160,000 was related to a write-off of obsolete
assets; and approximately $100,000 was related to a reduction in workforce to
better reflect market opportunities.
Interest Income, Net
Interest income, net for the nine months ended September 30, 2002, was
$101,000 compared to interest income, net of $317,000 for the nine months ended
September 30, 2001. The decrease resulted primarily from the reduction in the
amount of cash available for short-term investments and lower interest rates.
Provision (Benefit) for Income Taxes
The Company's effective tax provision was (17.8)% for the nine months
ended September 30, 2002, compared to an effective tax benefit of 39.0% for the
nine months ended September 30, 2001. The change in rate was primarily the
result of the effect of various international tax rates and the mix of domestic
and foreign net income and the reduction in deferred tax assets as a result of
the utilization of the net operating loss carrybacks in the current period and
resulting tax refund of $1.5 million.
Goodwill Impairment
At the beginning of fiscal year 2002, the Company adopted SFAS No.
142, under which goodwill and other intangible assets with indefinite lives are
not amortized. In accordance with SFAS No. 142, the Company evaluated the
carrying amount of its existing goodwill and $2.4 million was deemed to be
impaired under this standard. This impairment loss is an estimate that has not
yet been finalized as of September 30, 2002. The amount will be finalized upon
completion of Step 2 of the impairment test. In addition, each year, the Company
will evaluate the goodwill for impairment with any resulting impairment
reflected as an operating expense.
The change in the carrying amount of goodwill for the six months ended
September 30, 2002 is as follows (dollars in thousands):
Balance as of January 1, 2002 ............................... $ 4,376
Impairment losses ........................................... (2,444)
--------
Balance as of September 30, 2002 ............................ $ 1,932
========
Net Loss
Net loss for the nine months ended September 30, 2002 was $3.7
million, compared to net loss of $3.5 million for the nine months ended
September 30, 2001, an increase of $0.2 million or 5.7%. The net loss as a
percentage of revenues increased to (18.5)% for the nine months ended September
30, 2002, compared to (11.2)% for the nine months ended September 30, 2001.
16
The increase in net loss was primarily due to lower revenue, the $2.4 million
cumulative effect of a change in accounting principle the Company incurred in
conjunction with the adoption of SFAS No. 142, and a higher effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $0.8 million for the
nine months ended September 30, 2002 compared to net cash used by operating
activities of $2.3 million for the comparable period in 2001. Net cash provided
by operating activities for the nine months ended September 30, 2002 is
primarily due to a tax refund of $1.5 million resulting from a net operating
loss carryback, offset by payments for various liabilities. Net cash used by
operating activities of $2.3 million for the nine months ended September 30,
2001 is primarily due to a net loss of $3.5 million and payments made on various
liabilities.
Net cash used by investing activities was $54,000 for the nine months
ended September 30, 2002, as compared to $1.8 million for the same period in
2001. The cash used in the 2002 period was for purchases of property and
equipment. In the 2001 period, the company used $1.6 million in cash to fund
acquisitions, and $0.2 million for purchases of property and equipment. Because
of the economic slowdown, the Company has deferred previously-disclosed plans to
establish offshore recruiting offices in various foreign locations.
Net cash used by financing activities was $20,000 for the nine months
ended September 30, 2002, compared to $66,000 for the same period in 2001, a
decrease of $47,000. The use of cash in both years was due to treasury stock
purchased under the Company's share repurchase program in 2002.
During the nine months ended September 30, 2002, the Company continued
its program to repurchase, from time to time, up to $500,000 of its outstanding
capital stock for investment or other general corporate purposes. This
Board-approved repurchase program was announced on July 3, 2001. During the nine
months ended September 30, 2002, the Company purchased 30,000 shares of its
capital stock at a total cost of $20,000, bringing the total number of shares
purchased to 250,315 shares. The repurchases were financed principally from cash
on hand. Repurchases may be made from time to time in the open market, in
negotiated or other permissible transactions.
On October 21, 2002, the Company announced that it had purchased an
aircraft that it will lease to a related party. The total cost of the aircraft,
including renovations, is expected to be approximately $4.0 million. Under the
terms of the lease, the lessee will pay $50,000 per month for five years, and
will pay all expenses associated with the operation and maintenance of the
aircraft. The lessee has agreed to purchase the aircraft from the Company at any
time at a price of $4.0 million.
Except as set forth above, the Company currently has no material
commitments for capital expenditures.
The Company currently anticipates that $3.8 million in available cash
balances, 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.
The Company's functional currency for financial reporting purposes is
the U.S. Dollar. The Company generally invoices its clients and pays expenses in
the local currency of the country in which the client is located. Statement of
Operations translation gains and losses arising from differences between the
functional and local currencies are recognized in the Consolidated Statement of
Operations, and have not had a significant impact on the results of operations.
Balance Sheet gains and losses as a result of fluctuations in foreign currency
exchange rates are recognized in the Consolidated Balance Sheet as a component
of comprehensive income or loss. The Company continually evaluates the economic
conditions of each country in which it operates, and bases its foreign currency
accounting policies on those assessments.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," and Accounting Research Bulletin No. 51,
"Consolidated Financial Statements." SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001, and for interim periods within those fiscal
years. The adoption of SFAS 144 has had no impact on the Company's consolidated
financial position or results of operations.
In April 2002, Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." SFAS No. 145 updates,
17
clarifies, and simplifies existing accounting pronouncements. The Company is
currently evaluating the provisions of this statement.
In July 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a Company recognize a liability for a cost associated with an exit or
disposal activity only when it meets the definition of liability (i.e., when the
liability is incurred). SFAS No. 146 also requires that the initial measurement
of the liability be at its fair value. SFAS No. 146 is effective on a
prospective basis for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The Company is currently
evaluating the provisions of SFAS 146.
ITEM 3. QUANTATIVE 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.
The fair values and carrying amounts of the Company's financial
instruments, primarily accounts receivable and accounts payable are
approximately equivalent. All other financial instruments are classified as
current and will be utilized within the next 12 months.
The financial statements of foreign subsidiaries are translated using
the exchange rate in effect at period-end for balance sheet accounts and at the
average exchange rate in effect during the period for revenue and expense
accounts.
The Company's functional currency for financial reporting purposes is
the U.S. Dollar. The Company generally invoices its clients and pays expenses in
the local currency of the country in which the client is located. Statement of
Operations translation gains and losses arising from differences between the
functional and local currencies are recognized in the Consolidated Statements of
Operations and have not had a significant impact on the results of operations.
Balance Sheet gains and losses as a result of fluctuations in foreign currency
exchange rates are recognized in the Consolidated Statements of Changes in
Stockholders' Equity as a component of accumulated other comprehensive loss. The
Company continually evaluates the economic conditions of each country in which
it operates, and bases its foreign currency accounting policies on those
assessments.
ITEM 4. CONTROLS AND PROCEDURES.
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company's Chief
Executive Officer and its Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
the Securities Exchange Act of 1934, Rules 13a-14(c) and 15d-14(c)) as of a date
within 90 days prior to the filing date of this Quarterly Report on Form 10-Q
(the "Evaluation Date"), have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those entities on a
timely basis, particularly during the period in which this Quarterly Report on
Form 10-Q was being prepared.
(b) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Company's internal controls or in other factors that could significantly
affect the Company's disclosure controls and procedures subsequent to the
Evaluation Date, nor any significant deficiencies or material weaknesses in
such disclosure controls and procedures requiring corrective action. As a
result, no corrective actions were taken.
18
PART II --OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor any of its subsidiaries is a party to any material
pending legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
Nothing to report under this item.
Item 3. Defaults Upon Senior Securities
Nothing to report under this item.
Item 4. Submission of Matters to a Vote of Security Holders
Nothing to report under this item.
Item 5. Other Information
Nothing to report under this item.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Share Purchase Agreement dated as of March 30, 2001 between
UBICS, Inc. and Teksys, Inc. (2)
2.2 Share Purchase Agreement, dated as of September 4, 2001, among
UBIX Computer Services Limited and Anmol Taneja and Vani Taneja
(3)
2.3 Amendment to Share Purchase Agreement dated as of December 21,
2001 between UBICS, Inc. and Teksys Inc. (4)
2.4 Aircraft Purchase Agreement dated as of October 10, 2002 between
UBICS Holding Company and Davis Oil Company, as amended. (5)
2.5 Agreement dated as of October 21, 2002 among UBICS Holding
Company, United Breweries Holdings Ltd., and United Breweries
(Holdings) Limited. (5)
3.1 Amended and Restated Certificate of Incorporation of UBICS, Inc.
(1)
3.2 Amended and Restated Bylaws of UBICS, Inc. (1)
99.1 Certification Pursuant to 18 U.S.G. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
99.2 Certification Pursuant to 18 U.S.G. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
(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 Form 8-K of the registrant dated
March 30, 2001
(3) Incorporated by reference to Form 8-K of the registrant dated
September, 2001
(4) Incorporated by reference to Form 10-K of the registrant for the
year ended December 31, 2001
(5) Incorporated by reference to Form 8-K of the registrant dated
November 5, 2002
(b) Reports on Form 8-K:
During the third quarter of 2002, the Company filed with the SEC a
report on Form 8-K, dated August 8, 2002, reporting the termination of Arthur
Andersen LLP and the engagement of BDO Seidman, LLP as the Company's principal
accountants to audit the Company's financial statements.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this Quarterly Report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized.
UBICS, Inc.
(Registrant)
Date: November 14, 2002
By: /s/ Robert C. Harbage
---------------------------------------
Robert C. Harbage
President and Chief Executive Officer
By: /s/ Neil M. Ebner
---------------------------------------
Neil M. Ebner
Vice President, Finance,
Chief Financial Officer and Secretary
(Principal Finance & Accounting Officer)
20
CERTIFICATIONS
I, Robert C. Harbage, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (the "Quarterly Report")
of UBICS, Inc. (the "Company").
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, and is not misleading with respect to the period
covered in this Quarterly Report.
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present, in all
material respects, the financial condition, the results of operations, and
cash flows of the Company as of and for the periods presented in this
Quarterly Report.
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14) for the
Company, and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly
Report is being prepared;
b. evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
c. presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the Audit Committee
of the Company's Board of Directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize, and report financial data, and have identified for
the Company's auditors any material weaknesses in internal controls;
and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Robert C. Harbage
--------------------------------------
Robert C. Harbage
President and Chief Executive Officer
21
CERTIFICATIONS
I, Neil M. Ebner, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q (the "Quarterly Report")
of UBICS, Inc. (the "Company").
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, and is not misleading with respect to the period
covered in this Quarterly Report.
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present, in all
material respects, the financial condition, the results of operations, and
cash flows of the Company as of and for the periods presented in this
Quarterly Report.
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14) for the
Company, and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly
Report is being prepared;
b. evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
c. presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the Audit Committee
of the Company's Board of Directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize, and report financial data, and have identified for
the Company's auditors any material weaknesses in internal controls;
and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Neil M. Ebner
----------------------------------------
Neil M. Ebner
Vice President, Finance,
Chief Financial Officer and Secretary
(Principal Finance & Accounting Officer)
22
EXHIBIT INDEX
2.1 Share Purchase Agreement dated as of March 30, 2001 between UBICS, Inc.
and Teksys, Inc. (2)
2.2 Share Purchase Agreement, dated as of September 4, 2001, among UBIX
Computer Services Limited and Anmol Taneja and Vani Taneja (3)
2.3 Amendment to Share Purchase Agreement dated as of December 21, 2001
between UBICS, Inc. and Teksys Inc. (4)
2.4 Aircraft Purchase Agreement dated as of October 10, 2002 between UBICS
Holding Company and Davis Oil Company, as amended. (5)
2.5 Agreement dated as of October 21, 2002 among UBICS Holding Company,
United Breweries Holdings Ltd. and United Breweries (Holdings) Limited.
(5)
3.1 Amended and Restated Certificate of Incorporation of UBICS, Inc. (1)
3.2 Amended and Restated Bylaws of UBICS, Inc. (1)
99.1 Certification Pursuant to 18 U.S.G. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
99.2 Certification Pursuant to 18 U.S.G. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
(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 Form 8-K of the registrant dated March 30,
2001
(3) Incorporated by reference to Form 8-K of the registrant dated September,
2001
(4) Incorporated by reference to Form 10-K of the registrant for the year
ended December 31, 2001
(5) Incorporated by reference to Form 8-K of the registrant dated November 5,
2002
23