<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934 for the quarterly period ended March 31, 1996
--- 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: 0-27468
ULTRADATA CORPORATION
(Exact name of registrant as specified its charter)
Delaware 94-2746681
(State or other jurisidiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5020 Franklin Drive, Pleasanton, CA 94588-3031
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code:
510/463-8356
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 Exchanges Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of April 30, 1996, Registrant had outstanding 7,392,000 shares of Common
Stock, $.01 par value.
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ULTRADATA CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART 1 FINANCIAL INFORMATION
ITEM 1-Financial Statements
Balance Sheets as of March 31, 1996
and December 31, 1995 3
Statements of Operations for the
Three Months Ended March 31, 1996 and 1995 4
Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2-Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II OTHER INFORMATION
ITEM 5-Other Information 13
ITEM 6-Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
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ULTRADATA CORPORATION
Balance Sheets
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
Assets 1996 1995
------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,044 $ 1,124
Trade accounts receivable 8,591 6,494
Inventories 1,588 1,251
Prepaid expenses and other current 888 774
assets
Deferred income taxes 680 843
------- --------
Total current assets 23,791 10,486
Property and equipment, net 3,072 2,940
Stockholder notes receivable -- 1,453
Deferred income taxes 46 64
Other assets 219 192
------- --------
$27,128 $15,135
======= ========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Bank borrowings $ -- $ 1,000
Current portion of debt 129 234
Accounts payable 3,891 5,219
Accrued expenses 3,209 1,735
Income taxes payable 154 107
Deferred revenue and customer
advances 1,724 3,737
------- --------
Total current liabilities 9,107 12,032
Deferred revenue and customer advances 1,626 1,542
Debt, excluding current portion 32 43
------- --------
Total liabilities 10,765 13,617
------- --------
Stockholder's equity:
Preferred stock; par value $.001; - -
2,000,000 shares authorized; none
outstanding
Common stock; par value $.001;
23,000,000 shares
authorized;7,392,000 and
5,742,000 shares issued
and outstanding in 1996
and 1995, respectively 7 6
Additional paid in capital 14,461 4
Retained earnings 1,895 1,508
------- --------
Total stockholders' equity 16,363 1,518
------- --------
$27,128 $15,135
======= ========
</TABLE>
1
<PAGE>
ULTRADATA CORPORATION
Statements of Operations
For the Three Months Ended March 31
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Revenues:
Software $ 3,155 $1,499
Maintenance 1,948 1,762
Services and other 1,875 1,112
Hardware 5,123 2,153
-------- --------
Total revenues 12,101 6,526
-------- --------
Cost of revenues:
Software 820 220
Maintenance 1,007 858
Services and other 1,723 774
Hardware 3,380 1,650
-------- --------
Total cost of revenues 6,930 3,502
-------- --------
Gross margin 5,171 3,024
-------- --------
Operating expenses:
Product development 1,418 931
Sales, marketing and support 2,004 1,616
General and administrative 1,216 938
-------- --------
Total operating expenses 4,638 3,485
-------- --------
Operating income (loss) 533 (461)
Interest income (expense), net 55 (7)
Other income 27 17
-------- --------
Income (loss) before income taxes 615 (451)
Income tax expense (benefit) 228 (171)
-------- --------
Net income (loss) $ 387 $ (280)
======== ========
Net income (loss) per common and common
equivalent $ 0.06 $(0.05)
======== ========
Shares used in per share computations 6,823 6,017
======== ========
</TABLE>
2
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ULTRADATA CORPORATION
Statements of Cash Flows
For the Three Months Ended March 31
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 387 $ (280)
Adjustments to reconcile net income
(loss) to net cash used for
operating activities:
Depreciation and amortization 246 177
Deferred income taxes 181 --
Equity in earnings of
unconsolidated subsidiary (27) (19)
Changes in operating assets and
liabilities:
Trade accounts receivable (2,097) (727)
Inventories (337) (19)
Prepaid expenses and other
assets (114) (24)
Accounts payable (1,328) (49)
Accrued expenses 1,474 122
Income taxes payable 47 (316)
Deferred revenue and customer
advances (1,929) 106
------- ------
Net cash used for operating
activities (3,497) (1,029)
------- ------
Cash flows from investing activities:
Capital expenditures (378) (223)
Proceeds from stockholder notes
receivables 1,453 --
------- ------
Net cash provided by (used for)
investing activities 1,075 (223)
------- ------
Cash flows from financing activities:
Bank borrowings, net (1,000) 700
Repayment of debt (116) (105)
Stockholder distributions -- (200)
Net Proceeds from IPO 14,458 --
------- ------
Net cash provided by (used for)
financing activities 13,342 395
------- ------
Net increase (decrease) in cash 10,920 (857)
Cash and cash equivalents at beginning
of period 1,124 881
------- ------
Cash and cash equivalents at end of
period $12,044 $ 24
======= ======
</TABLE>
3
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ULTRADATA CORPORATION
Notes to Financial Statements
March 31, 1995 and 1996
1. Basis of Presentation
These unaudited financial statements have been prepared in accordance with the
instructions for Form 10-Q and therefore certain information and footnote
disclosures normally contained in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The accompanying unaudited financial statements of the Company reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary to present a fair statement of the financial position as
of March 31, 1996 and the results of operations and cash flows for the interim
periods presented.
2. Revenue Recognition
The Company recognizes revenues from licenses of computer software provided that
a noncancelable license agreement has been signed, the software and related
documentation have been shipped, there are no material uncertainties regarding
customer acceptance, collection of the resulting receivable is deemed probable,
and no other significant vendor obligations exist. Maintenance revenues are
deferred and recognized over the related contract period, generally three months
to five years. Services and other revenues generated from professional
consulting and training services and software customization services are
recognized as the services are performed. Hardware revenues are recognized upon
shipment.
3. Accounts Receivable
A summary of accounts receivable follows (in thousands):
<TABLE>
<CAPTION>
Mar 31, Dec 31,
1996 1995
---------- ---------
<S> <C> <C>
Accounts receivable---billed $ 3,247 $ 4,242
Accounts receivable---unbilled 5,344 2,252
-------- --------
$ 8,591 $ 6,494
======== ========
</TABLE>
4. Accrued Expenses
A summary of accrued expenses follows (in thousands):
<TABLE>
<CAPTION>
Mar 31, Dec 31,
1996 1995
---------- ---------
<S> <C> <C>
Accrued payables $ 1,924 $ 621
Accrued vacation 584 496
Accrued 401(k) contribution 38 275
Other 663 343
-------- --------
$ 3,209 $ 1,735
======== ========
</TABLE>
4
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed below, that could cause results to differ materially
from historical results or those anticipated. In this report the words
"expects", "anticipates", "believes" and similar expressions identify forward-
looking statements, which speak only as of the date hereof.
Overview
ULTRADATA develops and markets open architecture, on-line information processing
systems for the credit union and financial services markets. The Company's core
ULTRAFIS system, together with its array of complementary application modules,
provides an open architecture, fully-integrated on-line information processing
system with advanced database management capabilities that supports financial
services such as checking, savings and investment accounts, credit and debit
cards, ATM access and consumer lending. The ULTRAFIS system was designed
specifically to take advantage of open mainstream computing standards such as
the UNIX operating system and SQL-compatible databases. The Company's products
provide networking independence and run on a broad range of industry-leading
UNIX hardware platforms.
The Company derives its revenues from software license fees, maintenance fees,
service bureau operation fees and disaster recovery services, custom
development, training and installation services and sales of third party
hardware products. A significant portion of the Company's revenues are derived
from substantial contracts with organizations that have long decision-making
cycles, typically from six to twelve months. The decision to purchase the
Company's products is followed by an installation and training cycle, which is
labor-intensive and generally requires from three to nine months to complete.
Results of Operations
Revenues
Revenues for the three months ended March 31, 1996 increased 85% over the same
period last year from $6.5 million to $12.1 million.
The following table sets forth the Company's revenue and gross margin by segment
for the three month periods ended March 31, 1996 and 1995 respectively:
<TABLE>
<CAPTION>
Revenue Gross Margin Gross Margin %
(in thousands) (in thousands)
Three Months Ended Three Months Ended Three Months Ended Increase
-----------------------------------------------------------------------------------------------------
March 31, March 31, March 31, (Decrease)
-----------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Segment
Software 3,155 1,499 2,335 1,279 74% 85% (11%)
Maintenance 1,948 1,762 941 904 48% 51% (3%)
Services & Other 1,875 1,112 152 338 8% 30% (22%)
Hardware 5,123 2,153 1,743 503 34% 23% 11%
------------------------------------------------------------------------------------------------------
$12,101 $6,526 $5,171 $3,024 43% 46% (3%)
=======================================================================================================
</TABLE>
5
<PAGE>
Software revenues increased by 110% from $1.5 million in the first quarter of
1995 to $3.2 million in the first quarter of 1996. Software revenues increased
primarily due to a higher number of new customer contracts and the release of
the Company's Ultra-Access Remote Banking module. Software revenues from
existing customers increased by $200,000 to $1.1 million with the release of the
Ultra-Access Remote Banking module, more than offsetting a decline in the sale
of the Voice Response module. The decline in demand for Voice Response resulted
from the high volume of add-on sales for this module during a fourth quarter
1995 promotion.
Maintenance revenues increased by 11% from $1.8 million in the first quarter of
1995 to $1.9 million in the first quarter of 1996. The increase was primarily a
result of a growth in new ULTRAFIS system customers and add-on module sales
combined with a price increase of 2.7%. The Company's installed customer base
grew from approximately 154 systems on March 31, 1995 to approximately 165
systems on March 31, 1996.
Services and other revenues increased by 69% from $1.1 million in the first
quarter of 1995 to $1.9 million in the first quarter 1996. The revenue growth
was mainly attributable to increases in training and installation activities.
Services and other revenues also includes custom development, service bureau
operation fees and disaster recovery contracts.
Hardware revenues increased from $2.2 million in first quarter 1995 to $5.2
million in the first quarter of 1996. This 138% increase was primarily
attributable to a doubling of both the number of existing customers upgrading
their systems as well as new customer hardware purchases. Additionally, the
shipment of hardware for the high volume of fourth quarter 1995 Voice Response
modules was completed during the period.
In the first quarter of 1996, revenues from hardware sales represented
approximately 42% of total revenues, compared to approximately 33% of total
revenues in the first quarter of 1995 and 27% of total revenues for the entire
year ended December 31, 1995. The percentage of hardware revenues depends on the
mix of customer orders and the timing of particular customer installations and
can be expected to fluctuate substantially from quarter to quarter. The Company
anticipates that during the remainder balance of 1996 the percentage of hardware
revenues will decline from the level experienced in the first quarter of 1996
and return to a proportion consistent with the Company's historical mix of
revenues.
Gross Margin
Gross margin as a percentage of total revenue declined 3% from 46% in the first
quarter of 1995 to 43% in the first quarter of 1996 primarily due to a higher
mix of hardware revenues and declines in margin for the software and services
and other revenues segments which were partially offset by an improved margin in
the hardware segment.
Software gross margin as a percentage of software revenue declined 11% due to a
higher proportion of sales of software purchased and licensed from third
parties. This change in mix was due to the higher volume of upgrades and new
customer sales requiring this third party software.
Gross margin percentage from services and other revenues declined by 22% from
the prior year, primarily due to a $200,000 third party vendor expense for a
revision of the Company's estimate of the profit margin relating to a new
customer installation currently in process. Additional reductions in margin were
caused by an increase in the proportion of zero margin travel and direct expense
activities as well as an increase in lower margin training and installation
labor services.
6
<PAGE>
Hardware gross margin as a percentage of hardware revenues increased 11% due to
the increased volume of higher margin Voice Response hardware and a reduction in
the discounting of lower margin hardware for upgrades.
Operating Expenses
<TABLE>
<CAPTION>
Three Months Ended Increase As a percent of
March 31 Revenue
(in thousands)
------------------------------- -----------------
1996 1995 $ % 1996 1995
------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Operating Expenses
Product development 1,418 931 487 52% 12% 14%
Sales, marketing and support 2,004 1,616 388 24% 17% 25%
General and administrative 1,216 938 278 30% 10% 14%
------------------------------- -----------------
$4,638 $3,485 $1,153 33% 38% 53%
=============================== ==================
</TABLE>
Product development expenses increased from $931,000 in the first quarter of
1995 to $1.4 million in the first quarter of 1996. The increase was primarily
for staffing to support new product development programs such as Ultra-Access
Remote Banking modules, Optical Disk Systems modules, product enhancements,
regulatory compliance and custom development. Product development expenses as a
percentage of total revenues declined from 14% to 12%. The Company anticipates
that future product development expenses will increase in absolute dollars.
Sales, marketing and support expenses increased from $1.6 million in first
quarter 1995 to $2.0 million in first quarter 1996. The increase was primarily
due to staff increases to address the sale of the Company's increasing array of
application modules to the existing customer base and for enhancing the product
marketing function for these and other new products. Sales, marketing and
support expenses as a percentage of total revenues decreased from 25% to 17%.
The Company anticipates that future sales, marketing and support expenses will
increase in absolute dollars and in particular expects to include a charge of
approximately $150,000 in the second quarter of 1996 with respect to a
management reorganization.
General and administrative expenses increased from $938,000 in first quarter
1995 to $1.2 million in first quarter 1996. The increase resulted primarily from
hiring additional staff to support the Company's growth. While the Company has
had minimal bad debt experience in its history, an additional accrual of
$100,000 was recorded in the first quarter of 1996 for potential exposures that
may arise due to the rapid introduction of new products combined with the rate
of revenue growth outpacing the ability of the Company's training and
installation resources to deliver implementations. The Company expects to
continue to add additional accruals to offset potential future exposure as sales
of new products increase. General and administrative costs as a percentage of
total revenues declined from 14% to 10%. The Company anticipates that general
and administrative expenses will increase in absolute dollars.
Interest income, net
Interest income (expense), net increased to $55,000 in the first quarter of 1996
compared to interest expense of $7,000 in the first quarter of 1995, primarily
because of the earnings from investment of the funds generated from the initial
public offering offset in part by interest cost on the Company's line of credit.
As a result of the Company's initial public offering completed on February 22,
1996, the company generated net proceeds of $14.5 million and had a cash and
cash equivalent balance of approximately $12 million on March 31, 1996 and
expects to report net interest income from its cash balances in future periods.
7
<PAGE>
Future Operating Results
The Company's operating performance each quarter is subject to various risks and
uncertainties as discussed in this report and in the Company's Prospectus dated
February 15, 1996. This report on Form 10-Q should be read in conjunction with
such Prospectus, particularly "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained therein.
The Company's future operating results will depend upon conditions in its market
that may affect demand for its products and its abilities to enhance its
existing products and introduce new products on a timely basis. The Company must
also manage growth effectively as failure to do so could materially and
adversely affect its business and operating results. In addition, installation
of the Company's ULTRAFIS system is a complex process that must typically be
done without any disruption of the customer's service. Failure by the Company to
successfully install an ULTRAFIS system could result in significant loss of
revenue in a particular quarter and fluctuation in the Company's results of
operations. Although the Company schedules the installations of its products
several months in advance, its ability to achieve its revenue plans, both in the
near term and in the long term, depends on the Company's continued ability to
sign new customer contracts. There can be no assurance that sales will continue
to occur at historical rates or in accordance with the Company's expectations.
Because the Company's operating expenses are based on anticipated revenue levels
and a high percentage of the Company's expenses are relatively fixed, a small
variation in the timing of the recognition of specific revenues could cause
significant variations in operating results from quarter to quarter.
Substantially all of the Company's revenues to date have been related to the
Company's ULTRAFIS system, and the Company expects that for several years a
substantial portion of its revenues will continue to be related to the ULTRAFIS
system. The Company's success will depend in large part on its ability to
maintain and enhance the ULTRAFIS system and to develop, on a timely and cost-
effective basis utilizing new technologies, add-on modules for the ULTRAFIS
system that meet evolving customer needs. In addition, a principal focus of the
Company's development activities at this time is the development of standalone
products. This is a market with which the Company is unfamiliar and, although
the Company is marketing its first standalone product, ALPS and Ultra-Access
Remote Banking, the Company has not made a commercial shipment of a standalone
product to date. There can be no assurance that the Company will be successful
in developing and marketing new standalone products on a timely basis, if at
all, or that there will be customer demand for, or acceptance of, such products.
Any failure by the Company to anticipate or to respond adequately to new and
changing market conditions, enhance the ULTRAFIS system and develop add-on
modules, compete with new product offerings by third parties, complete new
standalone product offerings, respond to emerging industry standards, adapt to
changing technologies, maintain sales of the Company's products, or continue to
sign new customer contracts would have a material adverse effect on the
Company's results of operations.
Liquidity and Capital Resources
The Company's management believes current cash and cash equivalents, primarily
generated from the proceeds of the initial public offering and expected cash
generated from operations, will satisfy its expected working capital and capital
expenditure requirements through the foreseeable future.
The Company currently has a $500,000 term loan bearing interest at the bank's
prime rate plus 0.5% with an outstanding balance of $83,000. This loan was
repaid in full effective May 1, 1996. The Company had an available bank line of
credit of $1 million through March 31, 1996. The line of credit was paid in
full using the proceeds from the initial stock offering. The Company is
currently in negotiations for new
8
<PAGE>
credit facilities, which are expected to be available for working capital, as
required, and the financing of future capital requirements.
On February 22, 1996, the Company completed the sale of 2,500,000 million shares
of common stock. Of the total number of shares sold 1,650,000 shares were sold
by the Company and 850,000 shares were sold by the selling stockholders. The
Company did not directly receive any of the proceeds from the sale of the
shares by the selling stockholders. The net proceeds generated from the
Company's shares sold were $14.5 million. The Company had stockholder loans
outstanding of $1.453 million on December 31, 1995. These loans were paid in
full by the stockholders' out of the proceeds received from the sale of their
shares.
Capital expenditures of $378,000 in the first quarter of 1996 were primarily for
computer equipment to accommodate the headcount growth in customer service and
product development.
Net cash used by operations was $3.5 million for the three months ending March
31, 1996 compared to $1.0 million for the same period in 1995. Accounts
receivable, which consists of billed and unbilled receivables, increased to
$8.6 million for the three months ending March 31, 1996 compared to $6.5 million
at December 31, 1995. Unbilled receivables increased to $5.3 million at March
31, 1996 compared to $2.3 million at December 31, 1996. Unbilled receivables
result from the fact that the billing terms of the Company's contracts typically
are spread out over a series of events (from contract execution through final
acceptance) that generally span a six to nine month period and do not always
match the timing of the recognition of revenue. The increase in unbilled
accounts receivable was primarily related to a single large contract sale and to
add-on and upgrade sales to existing customers for hardware and third party
software. In addition, the increase was due in part to the introduction of new
products combined with the rate of revenue growth, which outpaced the ability of
the Company's training and installation resources to deliver customer
implementations. The Company is currently reviewing its billing policies on
all sales, and in particular those transactions comprised of a high content of
hardware or third party vendor software, to reduce the relative level of the
unbilled receivables.
During the three months ended March 31, 1996 deferred revenue decreased $1.9
million primarily due to recognizing revenue from prior period contract sales
that was not replaced by new contract sales during this period. Deferred
revenue is also a function of the timing differences between the Company's
contractual billing cycle and the revenue recognition policy.
During the three months ended March 31, 1996 the increase in accrued expense is
primarily due to accruing for the higher volume of third party vendor hardware
delivered to customers but not yet invoiced to the Company and third party
vendor services.
Accounts payable was reduced by $1.3 million from the period ending December 31,
1995 to March 31, 1996 as aged accounts payable were brought to a more current
status using a portion of the proceeds from the initial public offering. The
Company's increased volumes combined with the existing billing policy
accelerated accounts payable ahead of billing. As mentioned above, the Company
is currently reviewing billing policies on all sales to improve the Company's
cash flow.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 is effective for fiscal years beginning after
December 15, 1995, and requires that the Company either recognize in its
financial statements costs related to its employee stock-based compensation
plans, such as stock option and stock purchase plans, or pro forma disclosures
of such costs in a footnote to the financial statements.
The Company will continue to use the intrinsic value based method of Accounting
Principles Board Opinion No. 25, as allowed under SFAS No. 123, to account for
all of its employee stock-based
9
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compensation plans. Therefore, in its financial statements for fiscal 1996, the
Company will make the required pro forma disclosures in a footnote to the
financial statements. SFAS No. 123 is not expected to have a material effect on
the Company's results of operations or financial position.
10
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
The Company announced on April 24, 1996 a reorganization of management. James
R. Graham, II was appointed President and Chief Operating Officer while Nigel P.
Gallop remains Chairman and Chief Executive Officer. The Company has eliminated
the position of Executive Vice President of Training and Installation. The
costs associated with this reorganization are expected to impact the earnings
for the second quarter by approximately $150,000.
In addition, on April 30, 1996, Ronald J. Tchorzewski resigned as Chief
Financial Officer of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.01 Computation of Earnings per Share
<TABLE>
<CAPTION>
March 31,
--------------
1996 1995
------ ------
<S> <C> <C>
Net Income 387 (280)
===== =====
Weighted average outstanding shares 6,431 5,742
Common stock equivalents 392 275
----- -----
Total shares used in per share computation 6,823 6,017
===== =====
0.06 (0.05)
===== =====
</TABLE>
27.1 Financial Data Schedule
(b) There have been no reports filed on Form 8-K during the quarter.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Ultradata
Corporation has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ULTRADATA CORPORATION
Date May 14, 1996 By /s/ NIGEL P. GALLOP
---------------------- -----------------------------
Nigel P. Gallop
Chief Executive Officer and
Chief Accounting Officer
12
