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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
------------
Exchange Act of 1934 for the fiscal year ended December 31, 1997
Transition Report Pursuant to Section 13 or 15(d) of the
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Securities Exchange Act of 1934 for the transition period from _____ to _____
Commission File Number: 0-27468
ULTRADATA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2746681
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5000 Franklin Drive, Pleasanton, CA 94588-3031
(Address of principal executive officer) (Zip Code)
Registrant's telephone number, including area code:
925/463-8356
Securities registered pursuant to section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act: COMMON STOCK
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 16, 1998, was approximately $13,957,866 (based on the
last reported sale price of $4.625 per share on March 16, 1998 on the NASDAQ
National Market.)
As of March 16, 1998, Registrant had outstanding 7,652,597 shares of Common
Stock, $.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Location in Form 10-K Incorporated Document
Part III Specifically identified portions of
the Registrant's proxy statement to
be filed in connection with the
Registrant's Annual Meeting to be
held on May 8, 1998.
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ULTRADATA CORPORATION
TABLE OF CONTENTS
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PAGE
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PART 1
ITEM 1 - Business 3
ITEM 2 - Properties 8
ITEM 3 - Legal Proceedings 8
ITEM 4 - Submission of Matters to a Vote of
Security Holders 8
PART II
ITEM 5 - Market for Registrant's Common Equity
and Related Stockholder Matters 10
ITEM 6 - Selected Financial Data 10
ITEM 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
ITEM 8 - Financial Statements and Supplementary Data 17
ITEM 9 - Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 17
PART III
ITEM 10 - Directors and Executive Officers of the Registrant 17
ITEM 11 - Executive Compensation 17
ITEM 12 - Security Ownership of Certain Beneficial Owners and
Management 17
ITEM 13 - Certain Relationships and Related Transactions 17
PART IV
ITEM 14 - Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 18
SIGNATURES 21
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PART I
Except for the historical information contained herein, the matters discussed in
this Form 10-K are forward-looking statements that involve risks and
uncertainties, including the timely availability and acceptance of new products,
the impact of competitive products and pricing, the management of growth and the
other risks detailed herein, including, without limitation, the risks discussed
in this Item 1, "Business" and in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The actual results that the
Company achieves may differ materially from any forward-looking statements due
to such risks and uncertainties.
Item 1. BUSINESS.
ULTRADATA Corporation (the "Company") provides information management software
and solutions for relationship-oriented financial institutions. These solutions
allow the Company's customers to provide, among other things, financial services
such as checking, savings and investment accounts, home banking, credit and
debit cards, ATM access and consumer lending. The Company's products are today
primarily targeted at large and mid-sized credit unions for use as an in-house
installation and to value-added resellers ("VARs") for distribution to small-
sized credit unions that operate in service bureau environments. Combining the
in-house installations with services provided by the Company's VARs, the
approximately 425 credit unions using the Company's software represent over 5.6
million members and $30.0 billion in assets.
Markets for the Company's Products and Services
A credit union is a member-owned, not-for-profit financial cooperative. Unlike
banks and some other financial institutions, credit unions return "profits" to
their members in the form of premium services, such as lower interests rates
charged on loans and higher interest paid on deposits. Because of this focus,
credit unions pride themselves on delivering superior service.
According to the Credit Union Journal, credit union membership has grown from
62.5 to 71.5 million members, or 14.4%, over the five-year period from 1993 to
1997. The industry has also been characterized by significant merger activity
over this period of time. Over this same five-year period, the total number of
credit unions has decreased from approximately 12,912 to 11,560 institutions.
The results of these mergers has led to typically stronger credit unions in
terms of total size, capital base, and buying power for technology and other
products and services.
With expanded service offerings and increased buying power, credit union assets
under management have increased 26.7% from $277.4 billion to $350.6 billion over
the last five years. According to the Credit Union Journal, the growth of
credit union assets has exceeded that of banks and most other financial
institutions.
As with many financial institutions, these assets are concentrated in larger
credit unions. The largest 250 credit unions, while only 2% of the total number
of credit unions, account for over 41% of the industry's asset base. The
largest 1,350 credit unions account for 12% of the total credit unions and 74%
of the industry's asset base.
The credit union industry has significant buying power. According to the Credit
Union Journal, credit unions purchased more than $5.0 billion in products and
services from technology and processing, facilities, loan services and
conference travel in 1996. Growth rates in expenditures have typically exceeded
10% in the 90's.
Products and Services
The Company offers the ULTRAFIS transaction processing engine together with a
family of information management modules, which consist of a number of client-
server applications that can be purchased together or separately to enhance the
services offered by a financial institution. In addition, the Company has
established VAR relationships with service organizations to provide service
bureaus for customers that wish to utilize the ULTRAFIS system and related
modules without the accompanying information systems infrastructure.
Substantially all of the
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Company's revenues to date have been related to the Company's ULTRAFIS system,
including software, related information management modules, hardware,
maintenance and related services.
The Company's client-server information management modules include the FSP -
Front Office(TM) module which provides a tailored environment for tellers and
member services and call center operations; the Automated Loan Processing System
("ALPS"), which automates the entry, processing and evaluation of consumer loan
applications; the Ultra-Access(R) NT-based suite of remote banking products
which give financial institutions and their members efficient, reliable and
secure remote banking capabilities via personal computers using Internet,
Intranet or private dial-up access and self-service kiosks; the Ultra-Voice(TM)
NT-based voice response system for member inquiries, loan applications and
transaction processing, and the FSP - Collections(TM) module, which manages the
handling and collection of delinquent loan accounts.
ULTRAFIS provides a number of optional interfaces to third party applications,
including interfaces for mortgage loan processing, student loan processing,
asset/liability management, investment portfolio accounting, and marketing
analysis systems. Automated Teller Machine ("ATM") processing is supported for
offline and online processing. The Ultra-Link(TM) product provides an online
and optional terminal driving system for ATM, debit card and POS processing and
supports a wide array of ATM transactions, including savings and checking
deposits and withdrawals, transfers between savings and checking accounts, loan
payment and balance inquiry, and statement printing, as determined by the credit
union.
The Company has historically sold third party products supported by the ULTRAFIS
system, including RISC/UNIX based workstations from major suppliers such as
Hewlett Packard ("HP") and IBM. The Company also has historically resold
associated peripheral equipment such as printers, tape drives, and networking
devices. In the fall of 1997, the Company established a relationship with Ex-
Cel Solutions, Inc. ("ESI") under which the Company will be transferring these
hardware sales to ESI over the first half of 1998. ESI will configure, sell,
distribute, and provide service for the Company's customers' hardware needs so
that the Company can concentrate its efforts on the core business of software,
maintenance, and services. The Company also relicenses software products used
with the system, such as the UNIX operating system, the Unidata relational
database from Ardent Software Inc.("Ardent"), Uniplex office automation
products, and a variety of networking software.
Pricing
Historically, the total system price, including all hardware and software, for
the Company's core ULTRAFIS system ranged from approximately $300,000 to
$4,000,000, depending primarily on the customer size and requested modules. Of
the total price for a typical system, approximately 35% is for software, 45% is
for hardware, and 20% is for installation and training. The Company expects to
transfer most of its future hardware sales to ESI.
Pricing for information management applications, such as the FSP- Front Office,
ALPS, Ultra-Access and FSP- Collections modules, typically range from $10,000 to
$125,000.
The Company also charges a recurring software maintenance fee for software
support and periodic software updates. Currently, all of the customers
subscribe to the maintenance services, for which they pay a fee equal to a
percentage of the purchase price for the selected software. The Company also
charges for related training, implementation, and engineering services.
Technology
The Company's technology strategy is to employ the latest open computing
standards that allow for networking and hardware independence. This approach
allows the Company and its customers to take advantage of the most recent
performance improvements and cost reductions in software, operating systems,
databases and hardware.
The core ULTRAFIS software was originally released in 1981 and was significantly
reengineered in 1990 to operate on the industry-standard open architecture UNIX
operating system, making it able to run on a wide range of platforms, including
those from HP and IBM. The Company offers a fully integrated
system that
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provides a wide choice of hardware vendors based on the UNIX operating system.
Because UNIX provides for scalability and adaptability to growth and is
expandable and open to a variety of hardware, software and networking products,
the Company believes that products based on the UNIX operating system provide a
competitive advantage in the development of systems for credit unions and other
financial services providers.
The ULTRAFIS system utilizes the Unidata relational database management system
from Ardent, designed for high-volume, on-line transaction processing. This
nested, three-dimensional database uses the industry-standard SQL to interface
with the leading third party management and reporting packages. This model
allows for significant improvements in system performance and in data storage
compared to a relational system. This database allows the ULTRAFIS system to
take advantage of leading-edge technology such as multi-processor hardware,
distributed processing using TCP/IP and other standard networking protocols and
client-server technology, as well as providing a seamless interface to popular
personal computer ("PC") software products, such as the Microsoft Corporation
("Microsoft") suite of products and other advanced information tools. Under the
Company's agreement with Ardent, Ardent has granted the Company a nonexclusive
license to distribute and sublicense certain of Ardent's database products in
North America. The agreement expires in September 1998. The Company expects to
renew this relationship beyond this date. While the Company believes that there
are suitable alternatives to the Unidata database, any failure of the Company to
renew the Ardent agreement or to obtain a suitable alternative in the event the
Ardent agreement is not renewed, could have a material adverse effect on the
Company's business, financial condition and results of operations.
For its client-server products, the Company uses Microsoft Windows and Windows
NT operating systems, which provide easy-to-use graphical user interfaces and
enable the user to take advantage of the wide variety of PC applications that
operate with these operating systems. The Company is developing its products to
take advantage of new products and standards produced by Microsoft such as
Windows 95 and Windows NT, Visual Basic and Visual Voice. The Financial
Services Platform is an architecture developed by the Company for delivery of
its client-server information management modules. This environment provides a
consistent look and feel to the products, standard for design and navigation,
and a shortened development cycle for delivery of new products and features
within the architecture.
The Company's technology approach also provides for independence in local and
wide area networking. The Company's customers use a wide variety of networking
hardware and software. The Company believes that network independence is
critical for its customers with multiple branches, ATMs and other remote banking
needs such as remote electronic banking and electronic financial services.
Research and Development
The markets for the Company's products are characterized by changing technology
and improvements in database technology, network operating systems, programming
tools, programming languages, operating systems and computer hardware.
A principal focus of the Company's development activities continues in the
development of client-server products. The Company's success will depend in part
upon the development and sale of such products to the Company's current
customers and future customers outside of the Company's traditional credit union
base, such as banks, savings and loan associations, and other financial services
providers.
Product development expenses were $4.6 million, $6.2 million, and $3.9 million
in 1997, 1996, and 1995, respectively. Product development expenses as a
percent of total revenues increased to 16% in 1997 compared to 15% in 1996 and
12% in 1995. The reduction in product development total dollar spending in 1997
was primarily a result of a reallocation of resources to focus the Company on
client-server product lines, product standardization and customer support. The
Company also reduced the number of third party contractors and other overhead
expenses in product development. During 1996, the Company relied heavily on
third party contractors to provide development resources for certain client
server products that were then in development. This was a principal cause of the
increase in product development expenses between 1995 and 1996.
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Customers
The Company's installed base includes approximately 425 credit unions using the
ULTRAFIS software either in an in-house or a service bureau environment. The
Company's strategy is to target in-house systems to credit unions with over
10,000 members and to provide the Company's software to smaller credit unions
through VARs. The Company's installed base currently serves approximately 5.6
million members, or 7.9%, of the approximately 71.5 million total credit union
members in the United States. No customer represented 10% or more of the
Company's revenues.
According to the Credit Union Journal, the credit union industry's assets have
grown from $277.4 billion to $350.6 billion, or 26.7% over the five-year period
from 1993 to 1997. This growth rate has exceeded that of banks and most other
financial intermediaries. The growth in the credit union market has been
predominantly from the larger institutions. The largest 250 credit unions,
while only 2% of the total market, control over 41% of the industry's asset
base. The largest 1,350 credit unions, or 12% of the total credit unions,
account for approximately 74% of the total market. Also according to the Credit
Union Journal, these larger institutions offer opportunities for vendors as
these credit unions have substantial purchasing power and are early adoptors of
technological changes.
Customer Service
Customer service and support are key elements of the Company's business. The
services and support products offered to its customers include product
installation and training, conversion programming services, custom programming,
disaster recovery planning and training services, and telephone customer
support.
Support
The Company offers standard, extended and emergency telephone customer support
to assist customers in resolving problems. Under the Company's standard
maintenance agreements, support is provided from 3:00 a.m. to 11:00 p.m. Pacific
Standard Time, Monday through Friday. Support is also provided on Saturday from
9:00 a.m. to 5:00 p.m. Pacific Standard Time. The Company offers 24-hour
customer support for an extra hourly charge.
Services
The Company offers a variety of product, technical and application training
to its customers, including on-site customer training upon installation,
continuing education at the client site as well as at the Company's Pleasanton,
California headquarters and regionally at credit union training facilities. For
financial institutions, the installation of a new data processing system is a
complex and time-critical undertaking. Typically, a new system must be
installed and made fully operational with data converted from the prior system
over a single weekend and without any period of parallel operation with the
system it replaces. After selecting the Company as the solution provider, the
installation process typically requires a minimum of four months of preparation
and planning to successfully install and convert from the customer's legacy
system.
The Company offers an optional service which allows customers to continue to
operate their ULTRAFIS systems in the event of a catastrophic system failure at
their own site through the Company's Disaster Recovery Center in Carrollton,
Texas.
Sales and Marketing
The Company sells its products and services in the United States through a
direct sales force of sales representatives located in the Company's main
offices in Pleasanton, California, and in sales offices in Georgia, Michigan,
Texas, New Jersey and Washington. Additionally, the sales force is supported by
a technical team of system consultants and system engineers. While the sales
cycle varies substantially from customer to customer, it typically takes from
six to twelve months.
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To date, the Company has marketed its products primarily through its internal
marketing staff. The Company also has been successful in marketing its products
through VARs, with the Company's largest VAR accounting for over 10% of
the total credit union members that use the Company's applications. The Company
anticipates that it will further develop and rely in part upon distribution
relationships to market its products. There can be no assurance that the
Company will be successful in establishing such relationships or that any
entities with which such relationships are established will be successful in
marketing or selling the Company's products.
Outside the United States, the Company distributes its products in Australia and
certain other countries in the Pacific Rim through a distributor, ULTRADATA
Australia, which is owned by two of the four principal stockholders of the
Company. Royalties from distribution of the Company's products by ULTRADATA
Australia are less than 1% of annual revenue and are expected to remain
immaterial in the future.
Competition
The market for information processing services to the credit union industry is
highly competitive and somewhat fragmented. There were several consolidations
in 1997 of information system providers. The Company competes primarily with
independent computer service firms and internal data processing departments of
potential customers. The Company's products are generally priced at the higher
end of the market because the Company believes that its products generally
provide more functionality and versatility and higher levels of integration than
its competitors' products.
The Company believes that the principal competitive factors in its target market
are product functionality, flexibility, ease-of-use, quality, performance,
customer service and support, company reputation, price, and use of new industry
standard technologies. Although the Company believes that it competes
effectively with respect to each of these factors, there can be no assurance
that the Company can maintain its competitive position against current and
potential competitors, some of which have greater financial, marketing and other
resources than the Company.
The Company's principal competitors are different across the credit union
market, as the size and complexity of financial institutions have different
functionality or pricing requirements. The Company's principal competitors
include various entities owned by FISERV, Inc., XP Systems, an affiliate of
Users Inc., Symitar Systems, Inc., and EDS Credit Union Services.
Proprietary Rights and Licenses
The Company seeks to protect its software, documentation and other proprietary
information under trade secret, copyright and trademark laws, which afford only
limited protection. The Company has no patents. ULTRADATA, Ultra-Access,
ULTRAFIS, and the ULTRADATA logo are registered U.S. trademarks of the Company.
ALPS, Ultra-Link, FSP-Front Office, FSP-Collections, Ultra-Voice, and Optical
Management are trademarks of the Company.
There are currently no pending claims that the Company's products, trademarks or
other proprietary rights infringe upon the proprietary rights of third parties.
A successful claim against the Company or the failure of the Company to develop
or license a substitute technology could have a material adverse effect on the
Company's business, financial condition and results of operations.
Government Regulation
The Company is not directly subject to federal or state regulations applicable
to credit unions and other financial institutions. As a provider of products to
these entities, however, the Company must take into account such regulations in
order to provide products that help its customers comply with such regulations.
The credit unions that utilize the Company's products are regulated by the
National Credit Union Association ("NCUA"), a federal government agency, and
various state regulatory authorities. The use by financial institutions of the
Company's products is subject to a number of laws and regulations promulgated by
the NCUA and the Federal Reserve Board. The implementation of the Company's
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products by its customers is reviewed from time to time by government regulators
in connection with compliance audits of the customers' operations and the
Company also monitors regulatory changes on its own and implements changes to
the Company's products as appropriate. Failure to reflect the terms of such
regulations in a timely or accurate manner could conceivably subject the Company
to liabilities that could have a material adverse effect on its business,
financial condition and results of operations. Furthermore, changes to these
regulations and standards or the adoption of new regulations or standards that
affect the Company's products could affect the performance of such products and
have a material adverse effect on the Company's business, financial condition
and results of operations.
Backlog
The Company generally does not carry a backlog of revenue. In December of 1997,
however, the Company had approximately a $1.0 million backlog which represented
a large customer upgrade, as well as a substantial backlog of the Company's
optical imaging products. The Company believes that it may not carry such a
backlog into the future.
Employees
The Company had approximately 184 employees as of December 31, 1997, a decrease
of 39% over the prior year. As of March 31, 1997 the Company effected a
reduction in its workforce and as of such date had approximately 225 employees.
This reduction was done to reallocate its resources to reduce administrative
overhead and to focus on client-server product lines, product standardization
and customer support. From March 31, 1997 through December 31, 1997, the Company
had made additional adjustments to its business model resulting in fewer
employees at the end of 1997. None of the Company's employees is represented by
a labor union. The Company has experienced no work stoppages and believes that
its employee relationships are good.
ITEM 2. PROPERTIES.
The Company's headquarters in Pleasanton, California consists of two facilities
under lease through January 1, 2007. The Company has consolidated its
headquarters operations into the larger of the two facilities, which has
approximately 60,000 square feet of office and warehouse space, and has entered
into a separate sub-leasing arrangement for its smaller facility through January
2002. The Company believes that the larger facility will meet its growth needs
for the foreseeable future.
The Company also has an office in Carrollton, Texas which houses the corporate
and customer disaster recovery center. The facility is under lease until
December 1998.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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EXECUTIVE OFFICERS OF REGISTRANT
The executive officers of the Company are as follows:
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NAME Age Title Officer Since
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Nigel P. Gallop................ 52 Chairman of the Board 1981
Robert J. Majteles............. 33 President and Chief Executive Officer 1996
Philip D. Ranger............... 41 Chief Financial Officer and Secretary 1996
David J. Robbins............... 39 Vice President, Customer Service 1995
Cindy L. Stinnette............. 40 Vice President, Product Development 1997
James R. Berthelsen............ 44 Vice President, Marketing 1997
Ronald H. Bissinger............ 47 Vice President, Finance 1998
</TABLE>
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Nigel P. Gallop - Mr. Gallop, a co-founder of the Company, has been a director
of the Company since its incorporation in May 1981 and has served as its
Chairman since October 1989. Mr. Gallop served as President of the Company from
October 1989 to October 1996, and served as Chief Executive Officer of the
Company from October 1989 to April 1997.
Robert J. Majteles - Mr. Majteles is a director of the Company, has served as
President and Chief Executive Officer since April 1997 and has served as
President and Chief Operating Officer from October 1996 to April 1997. From
January 1992 to June 1996, Mr. Majteles served in various executive positions at
Camax Systems, Inc., a computer software firm, including President and Chief
Executive Officer from June 1994 to June 1996. Mr. Majteles holds a Bachelor of
Arts from Columbia College and a Juris Doctor from Stanford University.
Philip D. Ranger - Mr. Ranger has served as Chief Financial Officer and
Secretary since December 1996. From December 1995 to December 1996, Mr. Ranger
served as the Company's Director, Financial Planning. From October 1989 to
December 1995, Mr. Ranger served in various managerial positions at Triad
Systems Corporation. Mr. Ranger holds a Bachelor of Arts from the University of
Texas.
David J. Robbins - Mr. Robbins has served as Vice President, Customer Services
since November 1995. From January 1992 to November 1995, Mr. Robbins served as
Director, Product Development at Automated Data Processing, Inc. From March 1986
to January 1992. He served as Branch Manager of Progressive Corporation.
Mr. Robbins holds a Bachelor of Arts from Westminister College and a Master of
Arts from the University of Phoenix.
Cindy L. Stinnette - Ms. Stinnette has served as Vice President, Product
Development since February 1997. Ms. Stinnette served as the Company's Product
Definition Specialist from July 1987 to August 1992, as Manager, Product
Development from August 1992 to January 1997, and as Director, Product
Development from January 1997 to February 1997.
James R. Berthelsen - Mr. Berthelsen has served as Vice President, Marketing
since October 1997. Mr. Berthelsen served as the Company's Director, Corporate
Communications from February 1997 to October 1997 and had previously held
positions in Strategic Accounts and Sales since joining the Company in 1991.
Mr. Berthelsen holds a Bachelor of Science from the University of Nebraska.
Ronald H. Bissinger - Mr. Bissinger has served as Vice President, Finance since
March 1998. From June 1996 to July 1997, Mr. Bissinger served as Chief Financial
Officer at the Alta Group. From September 1990 to March 1996, Mr. Bissinger
served as Chief Financial Officer and other Senior Financial and Operating
positions at MSI/Biosym, Crystalgraphics and SCO. Mr. Bissinger holds a Master
of Business Adminstration from the University of Denver, a Master of Science
from the University of California, Berkeley, and a Bachelor of Science in
Engineering from Clarkson University.
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PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
The Company's Common Stock is traded on the NASDAQ National Market under the
symbol of "ULTD". The following table sets forth the quarterly high and low
closing prices for the Company's Common Stock since its initial public offering
effective February 16, 1996.
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Fiscal Year HIGH LOW
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First Quarter 1996 $10.13 $7.38
Second Quarter 1996 11.38 6.25
Third Quarter 1996 8.75 5.75
Fourth Quarter 1996 6.00 2.75
First Quarter 1997 5.25 3.63
Second Quarter 1997 4.00 2.13
Third Quarter 1997 4.38 2.00
Fourth Quarter 1997 5.50 2.88
</TABLE>
The Company has not declared or paid any cash dividends on its Common
Stock in the past two years. The Company currently anticipates that it will
retain all future earnings for use in its business and does not anticipate
paying any cash dividends in the foreseeable future. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and will
depend, among other things, upon future earnings, operations, capital
requirements, the financial condition of the Company, general business
conditions and contractual restrictions on payments of dividends, if any. The
Company's credit agreement currently prohibits the Company from paying cash or
stock dividends without the bank's consent.
As of March 16, 1998, there were approximately 24 stockholders of record of the
Company's Common Stock.
Item 6. Selected Financial Data
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FOR THE YEARS ENDED DECEMBER 31,
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1997 1996 1995 1994 1993
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(Amounts in thousands, except per share data)
STATEMENT OF OPERATIONS DATA
Revenues
Software $ 7,062 $ 9,452 $10,396 $ 6,431 $ 7,147
Maintenance 10,480 8,543 7,202 6,092 4,624
Services and other 6,068 8,198 5,244 6,102 4,063
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Subtotal 23,610 26,193 22,842 18,625 15,834
Hardware 5,493 14,251 8,292 7,066 9,700
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Total revenues 29,103 40,444 31,134 25,691 25,534
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Gross margin 12,184 14,409 15,865 12,473 10,043
Operating income (loss) (3,830) (7,289) 574 1,028 90
Net income (loss) (3,460) (6,960) 334 610 14
Diluted net income (loss) per $ (0.46) $ (0.97) $ 0.05 $ 0.11 $ --
share
Basic net income (loss) per share $ (0.46) $ (0.97) $ 0.06 $ 0.11 $ --
</TABLE>
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<TABLE>
<CAPTION>
December 31,
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1997 1996 1995 1994 1993
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BALANCE SHEET DATA
Cash, cash equivalents,
restricted
cash and short-term investments $ 1,325 $ 3,003 $ 1,124 $ 881 $2,050
Total assets 13,569 20,521 15,135 9,186 9,201
Debt, excluding current portion 120 323 43 274 228
Stockholders' equity 6,298 9,496 1,518 1,664 1,054
OTHER DATA
Cash dividends per share of
common stock (1) --- --- $ 0.07 --- ---
</TABLE>
(1) In June 1993, the Company purchased certain software technology from a
company which was wholly owned by three stockholders of the Company. The
Company paid $300,000 in 1993 and paid a final $80,000 in 1995 relating to a
contingent payment. As this technology had no historical cost basis, this
transaction was accounted for as a stockholder distribution.
ITEM 7. 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
The Company provides information management software and solutions for
relationship-oriented financial institutions. These solutions allow the
Company's customers to provide, among other things, financial services such as
checking, savings and investment accounts, home banking, credit and debit cards,
ATM access and consumer lending. The Company's products are today primarily
targeted at large and mid-sized credit unions who want to operate their system
in-house. For smaller credit unions, the Company works through VARs to provide
the Company's products. Combining the in-house installations with services
provided by the Company's VARs, the approximately 425 credit unions using the
Company's software represent over 5.6 million members and $30.0 billion in
assets.
The Company derives its revenues primarily from software license fees, service
fees including items such as training and installation, custom development and
disaster recovery, and maintenance fees. 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 at least four months to
complete. Each new customer system consists of the Company's ULTRAFIS product
and selected information management applications, services and hardware.
In the fourth quarter of 1997, the Company established a relationship with ESI
to configure, sell, distribute, and provide service for the HP and IBM hardware
products and operating systems used in conjunction with the Company's software
products. ESI is expected to source all hardware equipment from Gates/Arrow
Distributing, Inc., a division of Arrow Electronics, Inc., Gates/Arrow
Distributing, Inc., headquartered in Greenville, South Carolina, is the largest
provider of HP and IBM UNIX hardware in North America. Further, ESI will also
build, integrate, deliver, and support the Company's Ultra-Access(R) suite of
remote banking products including PC Browser Banking, self-serve kiosks, voice
response systems, and firewalls. This relationship was formed to allow
11
<PAGE>
the Company to focus on its core capabilities of providing software and related
services to the Company's customers. The Company will receive revenues on all
sales requiring ESI hardware.
In the third quarter of 1997, the Company transferred its direct service bureau
operations to Premier Systems, Incorporated ("PSI"), the Company's largest
service bureau VAR. The sale resulted in a gain of $558,000 in the third
quarter of 1997 and provides for an additional $350,000 to be paid to the
Company in four quarterly installments commencing December 31, 1998, contingent
upon renewal of service bureau contracts transferred to PSI. The Company
expects that it will only provide service bureau services through VARs in the
future.
In the second quarter of 1997, the Company entered into a Distributor Agreement
with USSI, Inc. ("USSI"), a division of Transaction Systems Architects, Inc.
("TSAI"), to develop and license the Company's Ultra-Link(TM) online and
optional terminal driving system. The Ultra-Link(TM) system is used for ATM and
debit card processing that supports a wide array of ATM transactions, including
savings and checking deposits and withdrawals, transfers between savings and
checking accounts, loan payment and balance inquiry, and statement printing, as
determined by the credit union. This agreement grants the Company exclusive
rights to the Ultra-Link system in the credit union marketplace and extends
through 2004. This agreement includes substantial fixed fees through 2004, most
of which would still be owed if the agreement were terminated by the Company.
These fees are included in Note 8 of the Notes to Financial Statements.
While the Company believes that demand for the product is strong, any failure of
the Company to successfully implement this product in its customer base could
have a material adverse effect on the Company's business, financial condition,
and results of operations.
The high volume of system sales in 1995 and 1996 and the introduction and demand
for the Company's new client-server applications across its customer base
exceeded the capacity of the Company's training, installation, and customer
support organization in the last two quarters of 1996 and in 1997. In addition,
the Company's customers expressed strong demand for the new information
management applications, causing the Company to release certain products before
implementation of an effective product field testing process. Customer
difficulties occurred as certain product errors and failures were encountered
and as customers became aware of certain perceived functionality issues. As a
result, broad market acceptance did not occur, and the Company made certain
economic accommodations to resolve the product issues. These difficulties
resulted in an increase in the Company's unbilled revenues, a significant
increase in the Company's reserve for doubtful accounts and sales returns and
contributed to significant decreases in new customers and software sales during
the last two quarters of 1996 and continuing through 1997. The Company has made
substantial management and operational changes in 1997 and now feels that it has
significantly improved its products, operations, and position with its
customers.
Software products as complex as those offered by the Company often contain
undetected errors or failures, or contain new functionality that may not meet
customer expectations. Nevertheless, through 1995 the Company had no history of
product returns or significant customer credits or other customer economic
accommodations. However, during 1996 and 1997, the Company experienced customer
difficulties in two areas; the introduction of certain new client-server
products and installation delays on several new customer installations. The
Company feels that it has made significant improvements in many areas to address
these issues. However, any failure to develop and deliver new products or
delays in the installation process inherent in products and services as complex
as those offered by the Company could cause a material adverse effect on the
Company's financial condition and results of operation.
RESULTS OF OPERATIONS
REVENUES
The Company's revenues are comprised of software license fees, customer
maintenance, services and other revenues and hardware revenues. Total revenues
were $29.1 million in fiscal 1997, compared to $40.4 million in 1996 and $31.1
million in 1995. Revenues in the Company's core business, excluding hardware
sales, were $23.6 million in 1997 compared to $26.2 million in 1996 and $22.8
million in 1995.
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Software revenues were $7.1 million in 1997, compared to $9.5 million in 1996,
and $10.4 million in 1995. This decline was associated with the high volume of
system sales in 1995 and 1996 and the emphasis the Company placed on its new
client-server applications for which demand outpaced the Company's ability to
perform and which resulted in lower system sales. This decline was partially
offset by re-licensing fees on the Company's software.
The Company's maintenance revenues are derived from quarterly, annual, and
multi-year support agreements with its customers. Maintenance revenue increased
23% in 1997 to $10.5 million, up from $8.5 million in 1996 and $7.2 million in
1995. The increases in 1997 and 1996 were primarily a result of growth in
new ULTRAFIS system customer installations and the volume of new information
management application modules introduced and installed during 1996 and 1997.
Services and other revenues include training and installation, custom
development, service bureau operation fees and disaster recovery contracts.
Services and other revenues were $6.1 million in 1997, compared to $8.2 million
in 1996 and $5.2 million in 1995. The decline in 1997 was primarily
attributable to the decline in new system sales and the sale of the Company's
own service bureau business to PSI. The increase in 1996 was primarily
attributable to new system sales and installations.
Hardware revenues decreased 61% in 1997 to $5.5 million, compared to $14.3
million in 1996 and $8.3 million in 1995. The hardware revenue decrease in 1997
is primarily attributable to the decrease in new system sales compared to 1996
and 1995. Additionally, hardware revenues depend on the mix of customer orders
and the timing of particular customer installations which fluctuate
substantially from year to year. In the fourth quarter of 1997 the Company
entered into a relationship with ESI to configure, sell, distribute, and provide
service for the Company's HP and IBM hardware products and operating systems.
The Company expects a significant decrease in its direct hardware revenues in
1998 due to its newly formed relationship with ESI.
GROSS MARGINS
Gross margin as a percentage of total revenues increased to 42% in 1997, up from
36% in 1996 and down from 51% in 1995. The primary cause of the increase in
1997 from 1996 was the mix of revenues in the Company's core business, which
includes software, maintenance, and services and other, which increased to 81%
of total revenues in 1997 compared to less than 65% in 1996. Additionally, the
margin improvement in 1997 was attributable to the Company's increase in
maintenance revenues and improvements in services and other resulting in
approximately a $400,000 gross margin in 1997 compared to approximately a
$300,000 negative gross margin in 1996. The primary cause of the decline in
1996 from 1995 was that installations and training for new system conversions, a
large component of the services and other segments, operated at a loss for 1996
due to cost overruns on committed contracts and associated travel expenses.
Software gross margin as a percentage of software revenue increased eight
percentage points in 1997 to 85% up from 77% in 1996 and 83% in 1995. Software
margins fluctuate based on the mix of sales of the Company's software and third
party software which is sold at lower margins. The increase in margins in 1997
was due to a reduction in new system sales which requires a third party
database. Additionally, there were fewer upgrades of the legacy database to the
current database as a majority of the Company's customers had already upgraded
their database prior to 1997. The decrease in 1996 from 1995 was due to a higher
proportion of sales of software purchased and licensed from third parties.
Maintenance gross margin as a percentage of maintenance revenues was
approximately the same in 1997 and 1996 at 41% and down from 54% in 1995. The
decrease from 1995 was primarily due to expanded product lines and an increase
in the customer base requiring additional resources.
Services and other revenues gross margin as a percentage of services and other
revenues increased to 7% in 1997 from a 3% loss in 1996 and down from 28% in
1995. The margins in 1996 were negatively impacted by costs for travel and
direct expenses on contracts higher than those contracted for by the Company's
customers.
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Hardware gross margin as a percentage of hardware revenues decreased slightly
during 1997 to 25% compared to 28% in 1996 and up from 23% in 1995. Hardware
margins fluctuate depending on the mix of high-end host system sales versus
lower-end client server hardware. Sales discounts offered to customers also
impact hardware margins.
OPERATING EXPENSES
Product development expenses decreased to $4.6 million in 1997 down from $6.2
million in 1996 and up from $3.9 million in 1995. Product development expenses
as a percent of total revenue increased to 16% in 1997 compared to 15% in 1996
and 12% in 1995. The decrease in total dollar spending in 1997 compared to 1996
was primarily the result of a reallocation of resources to focus the Company on
client-server product lines, product standardization and customer support, the
reduction of the number of consultants used in product development, and a
reduction in other product development overhead expenses. The increase in total
dollar spending in 1996 compared to 1995 was primarily due to an increase in
staffing and contract programmers to develope new client server applications and
regulatory compliance.
Selling, general and administrative expenses decreased to $12.0 million in 1997
from $15.5 million in 1996 and increased from $11.4 million in 1995. The
decrease in 1997 from 1996 was primarily attributable to significant cost
reductions in overhead expenses in 1997, including consolidating its
headquarters from two facilities to one in the first quarter on 1997 as well as
other general cost reductions. Additionally, the Company made significant
reductions in staffing levels to support lower new account sales volumes in
1997.
INTEREST INCOME (EXPENSE), NET
Interest income net of interest expense decreased to $18,000 in 1997 compared to
net interest income of $329,000 in 1996 and interest expense of $71,000 in 1995.
The increase of interest income net of interest expense was due primarily to
higher earnings in 1996 from the investment of the funds generated by the
Company's initial public offering.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's future operating results will depend upon conditions in its market
that may affect demand for its products and its ability to enhance its existing
products and introduce new products on a timely basis. The Company must also
manage growth and change effectively as failure to do so could materially and
adversely affect its business and operating results. In connection with the
audit of the Company's 1996 financial statements, the Company's independent
accountants identified certain "reportable conditions" relating to material
weaknesses in the Company's internal controls. With respect to the Company's
process for new product releases, the Company's independent accountants noted
material weaknesses in its field testing procedures and customer communication,
resulting in installation delays and aging of receivables and unbilled revenues
and the shipment of products in advance of the Company's capacity to install on
a timely basis resulting in a significant increase in unbilled revenues.
Material weaknesses were also identified in the Company's procedures for timely
analyzing customer balances, estimating the overall cost of training and
installation obligations and the cost to complete at any particular time. These
material weaknesses were exacerbated by inefficiencies in the Company's
accounting system. As a result of these material weaknesses in the Company's
accounting system, the auditors expressed significant concerns about the
Company's ability to report timely, accurate financial information in the
future. The Company believes it has made a significant progress addressing many
of these issues, especially with respect to its product release cycle and
installation procedures. However, there can be no assurance the Company will
resolve all of these issues in a timely manner.
Installation of the Company's ULTRAFIS system is a complex process that must
typically be done without any disruption of the Customer's services. 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
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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 and to complete such contracts on schedule. Failure to close
new customer contracts as a result of lost sales or deferrals of customer
decisions could have a material adverse impact on the future operating results.
There can be no assurance that sales or installations 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.
The Company has previously experienced delays in the development and
introduction of new products and product enhancements, including certain of its
client-server products. The length of these delays has varied depending upon
the size and scope of the project and the nature of the problems encountered.
Any significant delay in the development of new products, or the failure of
these new products, if and when installed, to achieve a significant degree of
market acceptance, could have a material adverse effect upon the Company's
business, financial condition and results of operations.
The Company's quarterly and annual revenues and operating results have varied
significantly in the past, and may do so in the future. Operating results may
fluctuate due to factors such as the demand for the Company's products, the
introduction and acceptance of new products and product enhancements by the
Company or its competitors, changes in the levels of operating expenses,
customer order deferrals in anticipation of new products, competitive conditions
in the credit union and financial services markets and economic conditions
generally or in various industry segments. In addition, a significant portion
of the Company's business has been derived from substantial contracts with large
organizations with long decision-making cycles, and the timing of such orders
has caused material fluctuations in the Company's operating results. The
Company's expense levels are based in part on its expectations regarding future
revenues and in the short term are fixed to a large extent. Therefore, the
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. As a result, if anticipated revenues do not
occur or are delayed, the Company's operating results would be
disproportionately affected. The Company expects quarterly and annual
fluctuations to continue for the foreseeable future. Accordingly, the Company
believes that period-to-period comparisons of its financial results should not
be relied upon as an indication of future performance.
In addition, software products as complex as those offered by the Company often
contain undetected errors or failures when first introduced or as new versions
are released. There can be no assurance that, despite testing by the Company
and by current and potential customers, errors will not be found in new products
after commencement of commercial shipments. The occurrence of such errors could
result in loss of, or delay in, market acceptance of the Company's products,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
Substantially all of the Company's revenues historically have been related to
the Company's ULTRAFIS system, and the Company expects that a substantial
portion of its future revenues will be generated by the integration of its
ULTRAFIS system with its client server products. The Company's success will
depend in large part on its ability to sell, install, maintain and enhance the
ULTRAFIS system and client-server products and to develop, on a timely and cost-
effective basis utilizing new technologies, application modules that meet
evolving customer needs. The Company has recently discontinued its ALPS
standalone product and client-server products for third party platforms. Any
failure by the Company to anticipate or to respond adequately to new and
changing market conditions, enhance the ULTRAFIS system and client server
products, develop application 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 and complete new customer contracts
would have a material adverse effect on the Company's results of operations.
Statement of Position (SOP) 97-2 "Software Revenue Recognition," which was
issued October 27, 1997, supersedes SOP 97-1 and is effective for transactions
entered into for fiscal years beginning after December 15, 1997. SOP 97-2
addresses revenue recognition from a conceptual level and does not specifically
address implementation guidance.
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The Company believes, based on its reading and interpretation of SOP 97-2, that
this statement may result in a deferral of revenue recognition, but the Company
feels that any impact of this statement will be reduced by its current software
backlog and by anticipated changes to its business practices relative to its
direct sale and service of hardware through the Company's recently formed
relationship with ESI. SOP 97-2 is a complex issue that must be integrated into
the Company's current and future business practices. The final implementation of
this statement may differ from the Company's current interpretation with respect
to the impact of future earnings.
On February 25, 1998, the United States Supreme Court affirmed a ruling by a
United States District Court providing that federal credit unions may not extend
membership benefits to individuals who are not part of the credit union's
original charter group. This ruling imposes limits on new customers that a
federal credit union may attract. As a result, some federal credit unions have
expressed a reluctance to pursue extensive capital purchases until the impact of
the ruling is further assessed. While federal credit unions represent
approximately 60% of all credit unions, less than half of these credit unions
are affected by this ruling. The interpretation of this ruling could have a
material adverse effect upon the Company's business, financial condition and
results of operations. Since this Supreme Court ruling, there has been
significant congressional legislative activity. The Company is monitoring this
activity to determine the impact on its current and future business.
YEAR 2000 DISCLOSURE
Many software computer programs in the industry rely on an internal date format
using two-digit data programs to perform computation and decision-making
functions that may cause computer systems generally to malfunction with respect
to dates beginning with the year 2000. The Company uses an internal date format
that has never relied on two-digit data programs and that was upgraded and made
available to the Company's customers in August 1994. The Company believes that
date entry will not be a material issue either with the Company's core
transaction processing engine or the Company's own information management
applications.
The Company is currently evaluating Year 2000 compliance issues with third party
hardware and software products and support providers. The Company has determined
that some of the third party products it markets or which are used within its
products are not Year 2000 compliant. The Company is working with such third
party product providers to identify courses of action that may lead to third
party product compliance. In addition, the Company has communicated the status
of these compliance issues to its customers and is working on making
alternatives available to its customers as appropriate. Because the Company's
customers depend on some of the products from these third party providers, both
the Company and its customers may be adversely impacted depending upon the
ability of such third party providers to comply with Year 2000 requirements.
As a result of changes made by third parties in their products to make them Year
2000 compliant, the Company is modifying certain of its software that interfaces
with, and is continuing to test its software to demonstrate interoperability
with, such third party products. The Company does not expect that it will incur
material net expenses as a result of such efforts.
As required by the National Credit Union Administration (NCUA), the Company's
customers must ensure their computer systems are Year 2000 compliant. The
Company is currently providing, and expects to continue providing, systems
testing, training and other assistance to its customers to help them achieve
such compliance. The costs to the Company of providing such systems testing,
training and assistance are not expected to be material.
The assessment of the Company's Year 2000 remediation costs and timing is based
on the Company's estimates derived from numerous assumptions of future events,
including, among others, the continued availability of certain resources to help
its customers attain Year 2000 compliance as well as the ability of third party
product providers to comply with Year 2000 requirements. Factors that could
affect these estimates include, among other items, the cost and availability of
personnel with the ability to modify relevant computer codes and to address
other issues relating to the Year 2000. There can be no assurance that the
Company's estimates will be achieved and actual results could differ materially
from these estimates. To the extent that these estimates differ from actual
results, the Year 2000 issue could have a material impact on the business
operations and financial condition of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's management believes current cash, cash equivalents and short-term
investments and expected cash generated from operations will satisfy its
expected working capital and capital expenditure requirements for the
foreseeable future.
In September 1996, the Company entered into an agreement with a bank to obtain a
$5.0 million revolving line of credit, bearing interest at the bank's prime
rate, and a $1.5 million capital equipment facility bearing interest at prime
plus 0.25%. The Company was in violation of certain financial covenants under
this agreement as of December 31, 1996. In May 1997, the bank waived these
violations, and the Company and the bank restructured their relationship
replacing the revolving line of credit with a factoring agreement. The
factoring agreement provides for borrowing by the Company of up to $1.5 million,
to be effected by the bank's purchase of eligible accounts receivable and
payment to the Company of an amount equal to 80% of the purchased accounts
receivable. Purchases of receivables and
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corresponding advances to the Company are at the discretion of the bank. There
is a 0.5% administrative fee for each receivable purchased and a 1.75% monthly
finance charge for as long as each purchased receivable remains outstanding. The
factoring agreement renews, unless terminated by the Company or the bank, in
April 1998. The agreement also provides that the borrowings under the factoring
agreement and capital equipment facility are secured by all tangible and
intangible assets of the Company. As of December 31, 1997 and 1996, the
outstanding balance on the capital equipment facility was $539,000 and $388,000,
respectively. As part of the new agreement, no further draws will be available
and the Company established cash collateral for the capital equipment facility
balance. The Company is paying off this balance and reducing the cash collateral
in monthly installments of $17,000.
Capital expenditures of $3.0 million in 1997 were primarily for furniture and
fixtures for the Company's new headquarters facility and purchased software.
Net cash used for operations was $0.4 million for the year ending December 31,
1997. For the year ending December 31, 1996, net cash used for operations was
$11.9 million. Unbilled revenue decreased to $2.3 million at December 31, 1997
compared to $3.9 million at December 31, 1996. Trade accounts receivable also
decreased to $4.1 million at December 31, 1997 compared to $6.6 million in 1996.
These declines in billed and unbilled receivables are partially attributable to
the decline in revenues and to the improvement in the Company's product release
cycle and installation procedures throughout 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is incorporated by reference herein from Part
IV, Item 14(a)(1) and (2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Items 10 - 13.
Except as indicated below, the information required by Part III is omitted from
this Annual Report on Form 10-K and, pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended, is incorporated herein by reference
to the definitive proxy statement with respect to the Company's 1998 Annual
Meeting of Stockholders to be filed by the Company with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
covered by the report. The information required by Part III will appear under
the Headings "Security Ownership of Certain Beneficial Owners and Management,"
"Election of Directors--Nominees," "--Board and Committee Meetings," "--
Directors' Compensation," "--Executive Compensation," "Compensation Committee
Interlocks and Insider Participation" and "Compliance with Section 16(a)" of the
Securities Exchange Act of 1934." Information regarding executive officers of
the Company is furnished in Part I of this Annual Report on Form 10-K under the
heading "Executive Officers of the Company."
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
The following financial statements and schedules are filed as part of this
report.
(a)(1) Financial Statements.
The following financial statements of ULTRADATA Corporation are filed as part of
this Report:
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1997 and 1996 F-3
Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-4
Statements of Stockholders' Equity for the years ended December 31, 1997, 1996
and 1995 F-5
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-6
Notes to Financial Statements F-7
</TABLE>
(a)(2) Financial Statement Schedule.
The following financial statement schedule of ULTRADATA Corporation is filed as
part of this Report and should be read in conjunction with the financial
statements of ULTRADATA Corporation.
<TABLE>
<CAPTION>
(a)(3) and (c) Exhibits.
<S> <C>
</TABLE>
The following exhibits are filed herewith or incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
<C> <S>
2.01 Form of Agreement and Plan of Merger by and between the Company and ULTRADATA Corporation, a
California corporation.(1)
3.01 Certificate of Incorporation.(1)
3.02 Bylaws.(1)
4.01 Form of Specimen Certificate for the Company's Common Stock.(1)
10.01 1994 Equity Incentive Plan and related documents.(1)
10.02 1995 Directors Stock Option Plan and related documents.(1)
10.03 1995 Employee Stock Purchase Plan and related documents.(1)
10.04 Acquisition Agreement dated as of June 4, 1993 between the Company and GCS Pty, Ltd.(1)
10.06 Employment Agreement dated as of July 31, 1995 between the Company and Nigel P. Gallop.(1)
10.07 Nonqualified Stock Option Agreement between the Company and Nigel P. Gallop and related
documents.(1)
10.08 Consulting Agreement dated as of September 14, 1995 between the Company and Stephen H. Pitt.(1)
10.09 Form of Indemnity Agreement entered into by the Company with each of its directors and executive
officers.(1)
10.10 Office Building Lease dated as of April 21, 1986 between the Company and Union Mutual Life
Insurance Co. and Union Mutual Stock Life Insurance Co. of America and related documents.(1)
10.11 Credit Agreement dated as of December 14, 1995 between the Company and Wells Fargo Bank, National
Association and related documents.(1)
</TABLE>
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<TABLE>
<CAPTION>
<C> <S>
10.12 Asset Purchase Agreement dated as of January 1, 1994 between the Company and GCS Pty, Ltd.(1)
10.13 Agreements for Sale of Stock of ULTRADATA Australia dated as of July 31, 1995 and related
documents.(1)
10.14 Promissory Note of ULTRADATA Australia (as debtor) dated as of July 31, 1995 and related
documents.(1)
10.15 Value Added Reseller Agreement dated as of September 3, 1992 between the Company and Unidata,
Inc. and related documents.(1)*
10.16 Shareholder Loan Note of Nigel P, Gallop dated July 22, 1991.(1)
10.17 Form of International Exclusive Distributor Agreement dated as of July 31, 1995 between the
Company and ULTRADATA Australia.(1)
10.18 Memorandum of Assignment and Termination of Agreement among the Company and its founders dated as
of January 1, 1993.(1)
10.19 Standard industrial/commercial single-tenant lease dated as of June 22, 1996 between the Company
and UNUM Life Insurance Company of America and related documents.[prior facility](2)
10.20 Standard industrial/commercial single-tenant lease dated as of June 22, 1996 between the Company
and UNUM Life Insurance Company of America and related documents.[current facility](2)
10.21 ULTRADATA CORPORATION LOAN AGREEMENT (UNSECURED) between the Company and Silicon Valley Bank
dated as of September 23, 1996.(3)
10.22 CORPORATE RESOLUTION TO BORROW between the Company and Silicon Valley Bank dated as of September
23, 1996.(3)
10.23 LIBOR SUPPLEMENT TO AGREEMENT between the Company and Silicon Valley Bank dated as of September
23, 1996.(3)
10.24 Loan Agreements between the Company and Silicon Valley Bank dated as of September 28, 1996.(3)
10.25 Employment Agreement dated as of October 17, 1996 between the Company and Robert Majteles.(4)
10.26 Nonqualified Stock Option Agreement between the Company and Robert Majteles and related
documents.(4)
10.27 Distributor Agreement dated June 30, 1997 between the Company and USSI, Inc. and related
documents.(5)*
10.28 Employment Agreements dated June 5, 1997 between the Company and Executive Management Team and
related documents.(5)
10.29 Severance Agreement dated April 30, 1997 between the Company and Nigel P. Gallop and related
documents.(5)
10.30 Sublease and Consent to Sublease dated June 22, 1997 between the Company and 24 Hour Fitness and
related documents.(5)
10.31 Purchase Agreement dated September 30, 1997 between Company and Premier Systems, Incorporated,
and schedules thereto.(6)*
10.32 Letter of Understanding dated February 26, 1998 between the Company and Ex-Cel Solutions, Inc.(7)**
21.01 Subsidiaries of the Company.(7)
23.01 Consent of KPMG Peat Marwick LLP.(7)
24.01 Power of Attorney (see page 21 of this Form 10-K).
27.01 Financial Data Schedule, which is submitted electronically to the Securities and Exchange
Commission for information only and is not filed.
</TABLE>
(1) Incorporated by reference to the Company's Form S-1 Registration Statement
declared effective February 14, 1996 (File No. 33-80807).
(2) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended June 30, 1996.
(3) Incorporated by reference to the Company's Form 10-Q for the quarterly
period ended September 30, 1996.
(4) Incorporated by reference to the Company's Form 10-K for the period ended
December 31, 1996.
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(5) Incorporated by reference to the Company's Form 10-Q for the period ended
June 30, 1997.
(6) Incorporated by reference to the Company's Form 10-Q for the period ended
September 30, 1997.
(7) Filed herewith.
* Confidential treatment was received with respect to certain portions of
these exhibits. Such portions have been filed separately with the
Securities and Exchange Commission.
** Confidential treatment has been requested for portions of this document.
(b) There have been no reports filed on Form 8-K during the quarter ended
December 31, 1997.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 31st day of March,
1998.
ULTRADATA Corporation
/s/ Robert J. Majteles
---------------------------------------
By: Robert J. Majteles
President, Chief Executive Officer, and
Director
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Robert J.
Majteles and Philip D. Ranger, jointly and severally, his true and lawful
attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign amendments to this Report on Form 10-K, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and conforming all
that said attorneys-in-fact, or his or her substitute or substitutes, may do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------- ----------------------------------- --------------
PRINCIPAL EXECUTIVE OFFICER:
<S> <C> <C>
/s/Robert J. Majteles
- --------------------- President, Chief Executive Officer March 31, 1998
Robert J. Majteles and Director
PRINCIPAL INANCIAL AND
PRINCIPAL ACCOUNTING OFFICER:
/s/Philip D. Ranger
- -------------------- Chief Financial Officer March 31, 1998
Philip D. Ranger and Secretary
Additional Directors:
/s/Nigel P. Gallop
- -------------------- Director March 31, 1998
Nigel P. Gallop
/s/John F. Carlson
- -------------------- Director March 31, 1998
John F. Carlson
/s/Lawrence M. Howell
- --------------------- Director March 31, 1998
Lawrence M. Howell
/s/M. M. Stuckey
- --------------------- Director March 31, 1998
M. M. Stuckey
</TABLE>
21
<PAGE>
ULTRADATA Corporation
Index to Financial Statements and Financial Statement Schedule
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1997 and 1996 F-3
Statements of Operations for the years ended December 31, 1997, 1996 and 1995 F-4
Statements of Stockholders' Equity for the years ended December 31, 1997, 1996
and 1995 F-5
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
ULTRADATA CORPORATION:
We have audited the financial statements of ULTRADATA Corporation as listed in
the accompanying index. In connection with our audits of the financial
statements, we have also audited the accompanying financial statement schedule.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ULTRADATA Corporation as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
MOUNTAIN VIEW, CALIFORNIA
FEBRUARY 12, 1998
F-2
<PAGE>
ULTRADATA CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, DECEMBER 31,
Assets 1997 1996
- ----------------------------------------------------- ------------------ -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 486 $ 1,583
Short term investments 303 1,420
Restricted cash 536 ---
Trade accounts receivable, net 4,057 6,586
Unbilled revenues 2,330 3,870
Inventories 815 1,173
Prepaid expenses and other current assets 456 1,027
Income taxes receivable 53 1,076
---------------- ---------------
Total current assets 9,036 16,735
Property and equipment, net 4,533 3,532
Other assets --- 254
---------------- ---------------
Total assets $13,569 $20,521
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Bank borrowings and current portion of debt $ 663 $ 96
Accounts payable 2,284 3,659
Accrued expenses 1,239 2,126
Deferred revenue and customer advances 1,852 3,508
---------------- ---------------
Total current liabilities 6,038 9,389
Deferred revenue and customer advances 1,113 1,313
Debt, excluding current portion 120 323
---------------- ---------------
Total liabilities 7,271 11,025
---------------- ---------------
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; 7,607,133 and 7,525,864 shares
outstanding in 1997 and 1996, respectively 8 7
Additional paid-in capital 15,202 14,941
Accumulated deficit (8,912) (5,452)
---------------- ---------------
Total stockholders' equity 6,298 9,496
---------------- ---------------
Total liabilities and stockholders' equity $13,569 $20,521
================ ===============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ULTRADATA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
<S> <C> <C> <C>
Revenue:
Software $ 7,062 $ 9,452 $10,396
Maintenance 10,480 8,543 7,202
Services and other 6,068 8,198 5,244
------------------ ------------------ -------------------
Subtotal 23,610 26,193 22,842
Hardware 5,493 14,251 8,292
------------------ ------------------ -------------------
Total revenue 29,103 40,444 31,134
------------------ ------------------ -------------------
Cost of goods sold:
Software 1,034 2,202 1,790
Maintenance 6,139 5,037 3,314
Services and other 5,631 8,465 3,764
Hardware 4,115 10,331 6,401
------------------ ------------------ -------------------
Total cost of goods sold 16,919 26,035 15,269
------------------ ------------------ -------------------
Gross margin 12,184 14,409 15,865
------------------ ------------------ -------------------
Operating expenses:
Product development 4,608 6,180 3,859
Selling, general and administrative 11,964 15,518 11,432
Gain on transfer of service bureau
contracts (558) --- ---
------------------ ------------------ -------------------
16,014 21,698 15,291
------------------ ------------------ -------------------
Operating income (loss) (3,830) (7,289) 574
Interest income (expense), net 18 329 (71)
Other income 352 --- 31
------------------ ------------------ -------------------
Income (loss) before income taxes (3,460) (6,960) 534
Income tax expense --- --- 200
------------------ ------------------ -------------------
Net income (loss) $(3,460) $(6,960) $ 334
================== ================== ===================
Earnings (loss) per share information:
- --------------------------------------------
Basic net income (loss) per share $(0.46) $(0.97) $0.06
Diluted net income (loss) per share $(0.46) $(0.97) $0.05
Shares used to compute basic net income
(loss) per share 7,585 7,195 5,742
Shares used to compute diluted net
income (loss) per share 7,585 7,195 6,195
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ULTRADATA CORPORATION
Statements of Stockholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Stock Retained
------------ Earnings Total
Shares Additional (Accumulated Stockholders'
Outstanding Amount Paid-In Capital Deficit) Equity
----------- ----------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1994 5,742,000 $ 6 $ 4 $ 1,654 $ 1,664
Stockholders distributions --- --- --- (480) (480)
Net income --- --- --- 334 334
----------- ----------- --------------- ------------ ------------
Balances as of December 31, 1995 5,742,000 6 4 1,508 1,518
Net proceeds from initial public
offering 1,650,000 1 14,241 --- 14,242
Net proceeds from issuance of common stock 133,864 --- 696 --- 696
Net loss --- --- --- (6,960) (6,960)
----------- ----------- --------------- ------------ ------------
Balances as of December 31, 1996 7,525,864 7 14,941 (5,452) 9,496
Net proceeds from issuance of common stock 81,269 1 261 --- 262
Net loss --- --- --- (3,460) (3,460)
----------- ----------- --------------- ------------ ------------
Balances as of December 31, 1997 7,607,133 $ 8 $ 15,202 $ (8,912) $ 6,298
=========== =========== =============== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ULTRADATA CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
----------------- ------------------ --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($3,460) ($6,960) $ 334
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Depreciation and amortization 1,436 864 850
Deferred income taxes --- 907 403
Gain on sale of joint venture (238) --- ---
Equity in earnings of unconsolidated subsidiary (16) (62) (86)
Loss on disposition of property and equipment --- 250 ---
Changes in operating assets and liabilities:
Trade accounts receivable 2,529 (2,344) (1,963)
Unbilled revenues 1,540 (1,618) (1,557)
Inventories 358 78 (858)
Prepaid expenses and other assets 579 (253) (699)
Income taxes receivable 1,023 (958) ---
Accounts payable (1,375) (1,560) 3,304
Accrued expenses (887) 166 314
Deferred revenue and customer advances (1,856) (458) 1,926
----------------- ------------------ --------------------
Net cash provided by (used for) operating activities (367) (11,948) 1,968
----------------- ------------------ --------------------
Cash flows from investing activities:
Capital expenditures (2,997) (1,706) (1,796)
Proceeds from disposition of service bureau assets 192 --- ---
Proceeds from disposition of other assets 368 --- ---
Sale of joint venture 500 --- ---
Purchases of short-term investments --- (4,276) ---
Sale of short-term investments 1,117 2,856 ---
Stockholder notes receivable --- 1,453 ---
----------------- ------------------ --------------------
Net cash used for investing activities (820) (1,673) (1,796)
----------------- ------------------ --------------------
Cash flows from financing activities:
Bank borrowings, net 474 (1,000) 1,000
Proceeds from debt 250 388 ---
Restricted cash (536) --- ---
Repayment of debt (360) (246) (449)
Stockholder distributions --- --- (480)
Net proceeds from initial public offering --- 14,242 ---
Net proceeds from issuance of common stock 262 696 ---
---------------- ------------------ --------------------
Net cash provided by financing activities 90 14,080 71
---------------- ------------------ --------------------
Net increase (decrease) in cash and cash equivalents (1,097) 459 243
Cash and cash equivalents at beginning of year 1,583 1,124 881
---------------- ------------------ --------------------
Cash and cash equivalents at end of year $ 486 $ 1,583 $ 1,124
================= ================== ====================
Supplemental disclosure of cash flow information:
Cash paid for taxes $ --- $ 87 $ 346
================= ================== ====================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ULTRADATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
ULTRADATA Corporation (the "Company") provides information management software
and solutions for relationship-oriented financial institutions. These solutions
allow the Company's customers to provide, among other things, financial services
such as checking, savings and investment accounts, home banking, credit and
debit cards, ATM access and consumer lending. The Company's products are today
primarily targeted at large and mid-sized credit unions for use as an in-house
installation and to value-added resellers ("VARs") for distribution to small-
sized credit unions that operate in service bureau environments. Combining the
in-house installations with services provided by the Company's VARs, the
approximately 425 credit unions using the Company's software represent over 5.6
million members and $30 billion in assets.
Exclusion of Subsidiary
On July 31, 1995, the Company determined that maintaining the Company's interest
in ULTRADATA Australia Pty. Ltd. ("ULTRADATA Australia"), its wholly owned
subsidiary, was not consistent with the Company's business strategy, primarily
as a result of the dissimilarity of business operations. The Company sold its
interest in ULTRADATA Australia to two majority stockholders. The Company has
accounted for the sale in a manner similar to a spin-off in accordance with SEC
Staff Accounting Bulletin No. 93, which permitted the Company, in connection
with its initial public offering ("IPO"), to exclude from its financial
statements, on a retroactive basis, recently spun-off businesses whose
operations are dissimilar from continuing operations. Accordingly, the
accompanying financial statements do not include the financial position, results
of operations and cash flows for ULTRADATA Australia for any period presented.
Reincorporation
In September 1995, the Board of Directors approved the Company's reincorporation
in the State of Delaware, providing for 23,000,000 authorized shares of common
stock with a $.001 par value per share and for 2,000,000 authorized shares of
preferred stock with a $.001 par value per share. The accompanying financial
statements have been retroactively restated to give effect to the
reincorporation.
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.
Software cost of revenues includes direct costs of software purchased from third
parties and royalties. Maintenance cost of revenues comprises the direct costs
of supporting customer maintenance contracts. Services and other cost of
revenues include the direct and indirect costs of providing training,
installation and consulting services relating to customer contracts. Services
personnel costs incurred that do not support specific customer contracts are
included in general and administrative expenses. Hardware cost of revenues
comprises the costs of the hardware and freight.
Statement of Position (SOP) 97-2 "Software Revenue Recognition," which was
issued October 27, 1997, supersedes SOP 97-1 and is effective for transaction
entered into for fiscal years beginning after December 15, 1997. SOP 97-2
address revenue recognition from a conceptual level and does not specifically
address implementation guidance. The Company believes, based on its reading and
interpretation of SOP 97-2, that this statement may result in a deferral of
revenue recognition, but the Company feels that any impact of this statement
will be reduced by its current software backlog and by anticipated changes to
its business practices relative to its direct sale and service of hardware
through the Company's recently formed relationship with ESI. SOP 97-2 is a
complex issue that must be integrated into the Company's current and future
business practices. The final implementation of this statement may differ from
the Company's current interpretation with respect to the impact of future
earnings.
F-7
<PAGE>
ULTRADATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Concentration of Credit Risk and Fair Value of Financial Instruments
Financial instruments that potentially expose the Company to a concentration of
credit risk principally consist of cash and cash equivalents, restricted cash,
short-term investments and accounts receivable. The carrying value of the
Company's financial instruments approximates fair market value.
The Company limits the amounts invested in any one type of investment. The
Company maintains cash and cash equivalents and restricted cash with two
financial institutions. Management believes the financial risks associated with
such deposits are minimal.
The Company's customers are primarily comprised of credit unions throughout the
United States. Although the Company is directly affected by the financial
cycles of the credit union industry, management does not believe that
significant credit risks existed as of December 31, 1997. The Company maintains
a reserve for potential doubtful accounts and sales returns aggregating
$1,094,000 and $2,059,000 as of December 31, 1997 and 1996, respectively.
No customer accounted for more than 10% of the Company's total revenues in 1997
and 1996. No customer accounted for more than 10% of the Company's accounts
receivables in 1996. One customer accounted for 11% of the Company's total
revenues in 1995. One customer accounted for 13% of total trade accounts
receivable at December 31, 1997.
Use of Estimates
Management of the Company has made a number of estimates and assumptions related
to the reported assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Cash and Cash Equivalents and Short-Term Investments
Cash equivalents consist of short-term financial instruments with original
maturities of three months or less that are carried at cost, which approximates
market.
The Company classifies its short-term investments as "available for sale". Such
investments are recorded at fair value, with unrealized gains and losses
reported as a separate component of stockholders' equity. The cost of
securities sold is based upon the specific identification method.
Inventories
Inventories consist of hardware and software purchased from third parties
pending shipment to customers recorded at the lower of cost or market.
Software Development Costs
Capitalization of computer software costs, when material, begins upon the
establishment of technological feasibility. Such costs are amortized over
periods not exceeding three years. To date, software development costs incurred
subsequent to the establishment of technological feasibility have not been
material.
F-8
<PAGE>
ULTRADATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the shorter of the estimated useful life (three to
five years for computer equipment and software or three to seven years for
furniture and fixtures) or the lease term (ten years for leasehold
improvements).
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. As such, deferred tax assets and liabilities are established to
recognize the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. The measurement of deferred tax assets is reduced,
if necessary, by a valuation allowance for any tax benefits of which future
realization is uncertain
Net Income (Loss) Per Share
On December 31, 1997, the Company adopted SFAS No. 128, Earnings Per Share. In
accordance with SFAS No. 128, basic earnings per share is computed using the
weighted average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period, using the
treasury stock method for options. Pursuant to SEC Staff Accounting Bulletin
No. 98, common stock and convertible preferred stock issued for nominal
consideration, prior to the anticipated effective date of the IPO, are included
in the calculation of basic and dilutive net loss per share, as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Shares used to compute basic net income
(loss) per share- weighted average number
of common shares outstanding 7,585 7,195 5,742
Effect of dilutive common equivalent shares -
stock options outstanding --- --- 453
------------- ------------- -------------
Shares used to compute diluted net income
(loss) per share 7,585 7,195 6,195
============= ============= =============
</TABLE>
Options to purchase common stock of 1,911,740, with weighted average exercise
prices of $4.71, were excluded from the Company's dilutive net income (loss) in
1997 because their effect was anti-dilutive.
Employee Stock Option and Purchase Plans
The Company accounts for its stock-based compensation plans in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense would be recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price. On January 1,
1996, the Company adopted the disclosure requirements of Statement
F-9
<PAGE>
ULTRADATA CORPORATION
Notes to Financial Statements
December 31, 1997, 1996 and 1995
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. Under SFAS No. 123, the Company must disclose pro forma net income
and pro forma earnings per share for employee stock option grants and employee
stock purchases made in 1995 and future years as if the fair value method
defined in SFAS No. 123 had been applied.
Impairment of Long-Lived Assets and Long-Lived Assets To Be Disposed Of
The Company evaluates its long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell.
Reclassifications
Certain amounts in the accompanying 1996 and 1995 financial statements have been
reclassified to conform with the 1997 presentation.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. It does not, however, require a specific format, but requires the
Company to display an amount representing total comprehensive income for the
period in its financial statements. The Company is in the process of
determining its preferred format. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997.
The FASB also recently issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company has determined that it does not have any
separately reportable business segments.
(2) SHORT-TERM INVESTMENTS
Short-term investments as of December 31, 1997 consist of municipal obligations
with amortized cost approximating fair market value.
The contractual maturities of available-for-sale debt securities, regardless of
their balance sheet classification as of December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
Due within one year $103
Due after one year through five years 100
Due after five years through ten years ---
Due after ten years 100
---------------
Total short-term investments $303
===============
</TABLE>
F-10
<PAGE>
ULTRADATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(3) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of property and equipment follows (in thousands):
DECEMBER 31,
1997 1996
---------------------- ----------------------
<S> <C> <C>
Computer equipment $3,958 $6,618
Furniture and fixtures 2,687 1,993
Software 1,424 976
---------------------- ----------------------
Property and equipment, gross 8,069 9,587
Less accumulated depreciation and amortization 3,536 6,055
---------------------- ----------------------
Property and equipment, net $4,533 $3,532
====================== ======================
</TABLE>
(4) Accrued Expenses
A summary of accrued expenses follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1997 1996
-------------------- ----------------------
<S> <C> <C>
Accrued payables $ 305 $ 868
Accrued vacation 598 631
Accrued 401(k) contribution 26 213
Other 310 414
-------------------- ----------------------
Total accrued expenses $1,239 $2,126
==================== ======================
</TABLE>
(5) Bank Borrowings and Debt
Bank Borrowings
In September 1996, the Company entered into an agreement with a bank to obtain a
$5.0 million revolving line of credit, bearing interest at the bank's prime
rate, and a $1.5 million capital equipment facility bearing interest at prime
plus 0.25%. The Company was in violation of certain financial covenants under
this agreement as of December 31, 1996. In May 1997, the bank waived these
violations, and the Company and the bank restructured their relationship
replacing the revolving line of credit with a factoring agreement. The
factoring agreement provides for borrowing by the Company of up to $1.5 million,
to be effected by the bank's purchase of eligible accounts receivable and
payment to the Company of an amount equal to 80% of the purchased accounts
receivable. Purchases of receivables and corresponding advances to the Company
are at the discretion of the bank. There is a 0.5% administrative fee for each
receivable purchased and a 1.75% monthly finance charge for as long as each
purchased receivable remains outstanding. The factoring agreement renews,
unless terminated by the Company or the bank, in April 1998. The agreement also
provides that the borrowings under the factoring agreement and capital equipment
facility are secured by all tangible and intangible assets of the Company. As of
December 31, 1997 and 1996, the outstanding balance on the capital equipment
facility was $539,000 and $388,000, respectively. As part of the new agreement,
no further draws will be available and the Company established cash collateral
for the capital equipment facility balance. The Company is paying off this
balance and reducing the cash collateral in monthly installments of $17,000.
F-11
<PAGE>
ULTRADATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
Interest expense incurred during the year ended December 31, 1997, 1996, and
1995 was $102,000, $36,000, and $92,000 respectively.
(6) INCOME TAXES
The Company recorded no income tax expense or benefit in 1997. The components
of income tax expense (benefit) for the years ended December 31, 1996, and 1995
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
------------------- ------------------- ----------------------
1997:
<S> <C> <C> <C>
Federal $ (25) $ 0 $ (25)
State 25 0 25
------------------- ------------------- ----------------------
Total income tax expense $ 0 $ 0 $ 0
=================== =================== ======================
1996:
Federal $(932) $621 $(311)
State 25 286 311
------------------- ------------------- ----------------------
Total income tax expense $(907) $907 $ 0
=================== =================== ======================
1995:
Federal $(154) $436 $ 282
State (48) (34) (82)
------------------- ------------------- ----------------------
Total income tax expense $(202) $402 $ 200
=================== =================== ======================
</TABLE>
The difference between the "expected" income tax expense benefit computed at the
34% statutory federal income tax rate and the Company's actual income tax
expense for the years ended December 31, 1997, 1996 and 1995 were as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
-------------------- ------------------- -----------------
<S> <C> <C> <C>
Computed "expected" tax expense benefit $(1,176) $(2,366) $ 182
State income taxes, before valuation allowance
adjustment, 25 25 (54)
net of federal income tax effect
Change in the beginning of the year valuation allowance
on deferred tax assets --- 907 ---
Current year losses and temporary differences for
which no benefit was recognized 1,134 1,329 ---
Nondeductible expenses 39 37 31
Other, net (22) 68 41
-------------------- ------------------- -----------------
Actual income tax expense $ 0 $ 0 $ 200
==================== =================== =================
</TABLE>
F-12
<PAGE>
ULTRADATA CORPORATION
Notes to Financial Statements
December 31, 1997, 1996 and 1995
The tax effects of significant temporary differences that comprise deferred tax
assets are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable reserves $ 628 $ 916
Vacation accrual 244 225
Deferred revenue 787 903
Net operating loss carryforwards 1,867 444
Tax credit carryforwards 894 856
Other 12 11
------- -------
Gross deferred tax assets $ 4,432 $ 3,355
Less valuation allowance (4,281) (3,004)
------- -------
Deferred tax assets, net of valuation
allowance 151 $ 351
------- -------
Deferred tax liabilities
Accumulated depreciation (151) (298)
Equity in investment in subsidiary --- $ (53)
------- -------
Total deferred tax liabilities (151) $ (351)
------- -------
Net deferred tax assets $ --- $ ---
======= =======
</TABLE>
The net change in the valuation allowance for the year ended December 31, 1997
was an increase of approximately $1,277,000. Management believes that
sufficient uncertainty exists as to whether the deferred tax assets will be
realized, and accordingly, a valuation allowance is required.
The Company has net operating loss carryforwards for federal and California
income tax purposes of approximately $4,906,000 and $2,254,000, respectively.
The federal net operating loss carryforward will expire if it is not utilized by
the year 2011 through 2012. The California net operating loss carryforward will
expire if it is not utilized by the year 2001 through 2002. The Company has
research credit carryforwards for federal and California income tax purposes of
approximately $544,000 and $300,000, respectively. The federal research credit
carryforward will expire if not utilized beginning in the year 2008 through
2011. The California research credit carries forward indefinitely until
utilized. The Company also has minimum tax credit carryforwards for federal
income tax purposes of approximately $49,000 which will carry forward
indefinitely until utilized.
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
restrictions on the utilization of net operating loss and tax credit
carryforwards in the event of an "ownership change" as defined by the Internal
Revenue Code. If an "ownership change," as defined by the Internal Revenue
Code, has occurred, the Company's ability to utilize its net operating loss and
tax credit carryforwards may be subject to restriction pursuant to these
provisions.
(7) Stockholders' Equity
Employee Stock Option and Purchase Plans
1994 Equity Incentive Plan
The 1994 Equity Incentive Plan (the "1994 Plan") was adopted in March 1994. The
1994 Plan provides for the grant of incentive stock options and stock bonuses
and the issuance of restricted stock by the Company to its employees,
F-13
<PAGE>
ULTRADATA CORPORATION
Notes to Financial Statements
December 31, 1997, 1996 and 1995
officers, directors, consultants, independent contractors and advisers. There
are 1,300,000 shares of the Company's common stock reserved for issuance under
the 1994 plan. These options vest 25% after one year and ratably over thirty-
six months thereafter, and expire ten years from the date of grant.
1995 Directors Stock Option Plan
The 1995 Directors Stock Option Plan (the "Directors Plan") was adopted in July
1996. The Directors Plan provides non-qualified stock options to non-employee
directors of the Company. There are 150,000 shares of the Company's common
stock for issuance thereunder. Members of the Board of Directors who are not
employees, consultants or independent contractors of the Company, or any parent,
subsidiary or affiliate of the Company are eligible to participate in the
Directors Plan. These options vest 25% in each of four consecutive years. As of
December 31, 1997, 70,000 options have been granted under the Directors Plan.
Nonqualified Stock Option Grants
On July 31, 1995, the Company granted to the Company's then Chief Executive
Officer, outside of the 1994 Plan, nonqualified options to purchase 600,000
shares of common stock at $6.00 per share all of which were vested by December
31, 1997. On October 17, 1996, the Company granted to the Company's then
President, outside of the 1994 Plan, nonqualified options to purchase 600,000
shares of common stock at $3.50 per share. Options for 25% of this grant vested
on October 17, 1997 and the remaining shares vest in equal monthly increments
over the following 36 months.
1995 Employee Stock Purchase Plan
In September 1995, the Board of Directors adopted the 1995 Employee Purchase
Plan (the "Purchase Plan") and reserved 250,000 shares of the Company's common
stock for issuance thereunder. The Purchase Plan became effective upon the
effective date of the registration statement for the Company's IPO. The
Purchase Plan permits eligible employees to acquire shares of the Company's
common stock through payroll deductions. Each offering under the Purchase Plan
will be for a period of six months commencing on February 1 and August 1 of each
year, with the initial offering period commencing on February 16, 1996 and
expiring on July 31, 1996. Eligible employees may select a rate of payroll
deduction between 2% and 10% of their compensation, up to an aggregate total
payroll deduction not to exceed $21,250 in any calendar year.
The purchase price for the Company's common stock purchased under the Purchase
Plan is 85% of the lesser of the fair market value of the Company's common stock
on the first day of the applicable offering period or the last day of that
offering period.
ACCOUNTING FOR STOCK BASED COMPENSATION
The Company has elected to use the intrinsic value-based method to account for
all of its employee stock-based compensation plans. Under APB Opinion No. 25,
Accounting for Stock Issued to Employees, the Company has recorded no
compensation costs related to its stock options granted to employees for the
years ended December 31, 1997, 1996, and 1995 because the exercise price of each
option equaled or exceeded the fair value of the underlying common stock as of
its grant date.
Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company
is required to disclose the pro forma effects on net income (loss) and income
(loss) per share as if the Company had elected to use the fair value
F-14
<PAGE>
ULTRADATA CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
approach to account for all of its employee stock-based compensation plans. Had
compensation cost for the Company's plans been determined consistent with the
fair value approach described in SFAS No. 123, the Company's net income (loss)
and income (loss) per share for the years ended December 31, 1997 and 1996 would
have decreased as indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED
December 31,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss):
As reported $(3,460) $(6,960) $ 334
Pro forma $(4,261) $(7,623) $ (677)
Basic net income (loss) per share:
As reported $ (0.46) $ (0.97) $ 0.06
Pro forma $ (0.46) $ (0.97) $(0.12)
Diluted net income (loss) per share:
As reported $ (0.46) $ (0.97) $ 0.05
Pro forma $ (0.56) $ (1.06) $(0.12)
</TABLE>
The fair value of options granted was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996: risk-free interest rate of 6.08%
for both years; expected life of 3.5 years; 63% expected volatility; and no
dividends. The effect of the employee stock purchase rights under the Purchase
Plan has not been significant.
A summary of the status of the Company's fixed option plans as of December 31,
1997, 1996, and 1995 is presented below:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
---------------------------- -------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- --------------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year: 1,820,149 $5.16 1,209,663 $5.64 605,000 $5.00
Granted 475,600 $3.91 918,600 $4.76 734,600 $6.05
Exercised -- $ -- (103,747) $5.00 -- $ --
Canceled (384,009) $5.83 (204,367) $6.27 (129,937) $5.02
---------- ---------- ----------
Outstanding at end of year 1,911,740 $4.71 1,820,149 $5.16 1,209,663 $5.64
========== ========== ==========
Weighted-average fair value
of options granted during
the year at exercise price
equal to fair value at
grant date $1.97 $2.39 $3.04
</TABLE>
F-15
<PAGE>
ULTRADATA CORPORATION
Notes to Financial Statements
December 31, 1997, 1996 and 1995
The following table summarizes information about fixed stock options outstanding
as of December 31, 1997:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
-------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Options Weighted Options Weighted
Outstanding at Average Weighted Exercisable Average
Range of December 31, Remaining Average at December Exercise
Exercise Prices 1997 Contractual Life Exercise Price 31, 1997 Price
- ------------------ ----------------- ------------------ --------------- ------------ --------------
$2.63 - 3.50 796,600 8.7 $3.46 200,465 $3.50
$4.00 - 6.00 1,015,729 7.5 $5.40 698,637 $5.86
$6.25 - 11.00 99,411 7.6 $7.75 53,040 $7.81
----------------- ------------
$2.63 - 11.00 1,911,740 8.0 $4.71 952,142 $5.47
================= ============
</TABLE>
Pro forma net income reflects only options granted in 1997, 1996 and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is over the options' vesting period of
generally five years, and compensation cost for options granted prior to January
1, 1995 is not considered.
(8) COMMITMENTS
Leases
In February 1997 the Company moved its administrative and operations offices
into new facilities that are leased through January 2007. The Company is
responsible for insurance and utilities related to the building lease. Its
prior office space is leased by the Company for the same term and has been
subleased through January 2002. Rental expense for operating leases for the
years ended December 31, 1997, 1996 and 1995 amounted to $1,070,000, $1,060,000
and $600,000, respectively, net of 1997 rental income of $124,000 under the
sublease.
Future minimum payments under noncancelable operating leases are as follows as
of December 31, 1997 (in thousands):
<TABLE>
<S> <C>
1998 $ 761
1999 $ 723
2000 $ 723
2001 $ 756
2002 $ 902
Thereafter $4,899
------------------
Total $8,764
==================
</TABLE>
Amounts above are net of sub-lease payments totaling approximately $275,000 for
each of the years 1998 through 2001 and approximately $160,000 for 2002.
F-16
<PAGE>
Software License and Maintenance Agreements
In 1997, the Company entered into various license and maintenance commitments as
follows:
<TABLE>
<S> <C>
1998 $ 572
1999 889
2000 658
2001 700
2002 428
Thereafter 857
--------------
Total $4,104
==============
</TABLE>
SCHEDULE II
ULTRADATA Corporation
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Account Description Beginning of Costs, Write-offs end of
Period Expenses, or ------------------ Period
------------------ Revenues ----------------------
-------------
<S> <C> <C> <C> <C>
Year ended December 31, 1997 $2,059 $1,425 $(2,390) $1,094
Allowance for doubtful accounts
and sales returns
Year ended December 31, 1996 $ 55 $2,304 $ (300) $2,059
Allowance for doubtful accounts
and sales returns
Year ended December 31, 1995 $ 55 $ --- $ --- $ 55
Allowance for doubtful accounts
and sales returns
</TABLE>
F-17
<PAGE>
EXHIBIT 10.32
[*]=CERTAIN INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Ex-Cel Solutions, Inc.
HP (DAR)
Distributor Authorized Reseller
&
ULTRADATA (ISV)
(Independent Software Vendor)
"LETTER OF UNDERSTANDING"
This "Letter of Understanding" is being written in order that both parties can
move forward with a generic Understanding or Agreement of what will be expected
from one another. Listed below are the already agreed upon items:
We the undersigned, agree that Ex-Cel Solutions, Inc. will be capable of and
authorized to install and integrate the ULTRADATA "Ultrafis" Operating System
Engine onto any and all HP 9000 Series systems ordered by ULTRADATA or its
customer base. This includes, but is not limited to, the following:
. General Ledger
. Accounts Payable
. MESA (Menu Enhances Security Application)
. ACH & Share Draft Processing
Additionally, we the undersigned mutually agree to market and sell Hewlett
Packard (HP/HPUX) hardware and software for the Independent Software Vendor
(ULTRADATA), in the following pre-defined territory described as: Nationwide.
----------
This agreement is valid and in effect between the undersigned parties as long
as:
1) Both parties' agreements with their respective hardware and
software vendors (HP series 9000 and the ISV listed above) are
valid.
2) Both parties are in full compliance with their HP agreement.
If there are any changes in responsibilities by either party listed below, all
parties should be notified in writing upon the effective date and/or changes as
soon as possible.
This agreement may be cancelled by either party at any time:
1) With a ninety (90) day written notice.
- --------------------- ------- --------------------- -------
HP DAR Representative Date HP ISV Representative Date
<PAGE>
LETTER OF UNDERSTANDING
-----------------------
Parties: Ex-Cel Solutions, Inc. and Ultradata Corporation
14614 Grove Street, Suite 200 5000 Franklin Drive
Omaha, NE 68144 Pleasanton, CA 94588-3354
(402) 333-6541 (510) 463-8356
Glenn J. Stenger, President Phil Ranger - CFO
Objective: Ex-Cel Solutions, Inc. (hereinafter "ESI") and Ultradata Corporation
(hereinafter "UDC") agree to mutually market, sell and support New UNIX-based
----------
systems (HP-UX and (IBM-AIX) within a nationwide customer base designated by
- ----------------------------
UDC. This agreement will enable UDC to concentrate on its core product (the
"Ultrafis" Operating System Engine) by allowing ESI to coordinate sales of such
UNIX-based systems.
The understanding between both parties listed above is as follows:
1. TERM The term of this Agreement is three (3) years from the date signed
----
herein. Termination of this Agreement, prior to the expiration of said
term, must be mutually agreed upon, and in writing, by both parties.
Termination subsequent to said term will be upon ninety (90) days
written notice by either party.
2. SALES PRESENCE ESI agrees to provide a sales representative(s), in the
--------------
Pleasanton, CA area, to assist UDC and its customer base in processing
sales and service activity related to this Agreement. This sales
representative(s) will be available for the duration of this Agreement,
unless UDC states in writing this provision is no longer required.
3. CERTIFICATION ESI ensures it will comply with all certification
-------------
requirements, as set forth by HP and IBM, for the sales and service of
said systems.
4. SALES ADMINISTRATION ESI will be responsible for the complete
--------------------
administration and direct client billing of all sales activity resulting
from this Agreement. This includes, but is not limited to, processing
sales orders, purchasing, inventory control, scheduling installation,
tracking serial numbers, warranty, billing, collections, etc.
5. PROFIT SPLITS ESI agrees to split all new UNIX-based hardware/system
-------------
sales margins as follows: ESI = [*] of profit margin; UDC = [*] of
--- ---
profit margin. Profit margin is based on net sales less ESI's cost of
hardware, as invoiced by its vendor(s). The end-user is responsible for
all freight and taxes, and will be invoiced by ESI for such charges.
6. INFORMATION UPDATES Within thirty (30) days after hardware/systems
-------------------
install, ESI agrees to provide accurate, updated information to UDC's
Baystone database. Such database will store information to be accessed
by both parties, and is expected to be operational by April 1, 1998.
7. CONTRACT ADMINISTRATION ESI will be responsible for the complete
-----------------------
administration of service contracts for UNIX-based hardware/systems
sales resulting from this Agreement. This includes, but is not limited
to, processing contracts for customer signatures, tracking serial
numbers, billing, collections, etc.
8. PROFIT SPLITS ESI agrees to share all *contract revenue as follows: ESI
-------------
= [*] of contract revenue; UDC = [*] of contract revenue. *Contract
--- ---
revenue is based on the total contract value.
9. PAYMENTS OF PROFIT SPLITS ESI agrees to pay UDC the profit splits, as
-------------------------
outlined above, on a monthly basis. ESI will provide a spreadsheet
summary of all sales and service activity for which this applies.
payment to UDC will be based upon payments received by ESI from the end-
user being billed for such sales and service activity.
10. ATTACHMENTS As part of this Agreement, separate Attachments will be
-----------
executed and mutually agreed to by both parties for the following:
a) NT (Remote Banking) Systems>outlines the terms, profit
splits, service issues, etc. and will be submitted to UDC for approval
by 12/15/98, with an expected inception date of 3/1/98
b) UNIX Sales and Marketing Procedures>outlines the procedures
to be followed by both parties in the sales and marketing process, with
an anticipated inception date of 3/1/98
c) Configuration procedures>outlines the procedures to be
followed by both parties in the accurate set-up and review of system
configurations, including time requirements, installation schedules,
etc., with an anticipated inception date of 3/1/98
11. Both parties agree to maintain the confidentiality of the other party
and shall not disclose, or otherwise make available, Confidential
Information to any person outside its organization, except by written
permission of the other party.
12. Both parties agree to adhere to the terms and conditions of this Letter
of Understanding.
Approved and accepted on this 26th day of February, 1998.
/s/ Glen J. Stenger /s/ Phil Ranger
___________________________________ ________________________________
Glen J. Stenger Phil Ranger
President CFO
Ex-Cel Solutions, Inc Ultradata Corporation
[*]=CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
<PAGE>
Exhibit 21.01
SUBSIDIARIES OF ULTRADATA CORPORATION
None.
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
ULTRADATA Corporation
We consent to the incorporation by reference in the registration statement (No.
333-01492) on Form S-8 of ULTRADATA Corporation of our report dated February 12,
1998 related to the balance sheets of ULTRADATA Corporation as of December 31,
1997 and 1996, and related statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997, and the related schedule, which report appears in the December 31, 1997,
annual report on Form 10-K of ULTRADATA Corporation.
KPMG PEAT MARWICK LLP
Mountain View, California
March 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the fiscal year ended December 31, 1997 and is qualified in its
entirety as reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 486
<SECURITIES> 839
<RECEIVABLES> 5,151
<ALLOWANCES> (1,094)
<INVENTORY> 815
<CURRENT-ASSETS> 9,036
<PP&E> 8,069
<DEPRECIATION> (3,536)
<TOTAL-ASSETS> 13,569
<CURRENT-LIABILITIES> 6,038
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 6,290
<TOTAL-LIABILITY-AND-EQUITY> 13,569
<SALES> 29,103
<TOTAL-REVENUES> 29,103
<CGS> 16,919
<TOTAL-COSTS> 16,919
<OTHER-EXPENSES> 16,014
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,460)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,460)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,460)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
