SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
( X ) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
Commission File Number: 33-85218C
ULTRADATA SYSTEMS, INCORPORATED
(Name of small business issuer in its charter)
Delaware 43-1401158
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
9375 Dielman Industrial Drive, St. Louis, MO. 63132
(Address of principal executive office) (Zip code)
Issuer's telephone number, including area code: (314) 997-2250
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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____
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to the Form 10-KSB.
State the issuer's revenues for its most recent fiscal year: $9,092,920
The aggregate market value at March 21, 1997, of the voting stock held by non-
affiliates, based on the closing price as reported by NASDAQ National Market
System (NMS), was approximately $16,614,727. The aggregate market value as
been computed by reference to a share price of $6.75 (The price at which
stock was sold, or the average bid or asked prices of such stock on March 21,
1997). All directors and more than five percent stockholders of the Registrant
have been deemed "affiliates" for the purpose of calculating such aggregate
market value.
The number of shares outstanding of the issuer's common stock, as of March 21,
1997, was 3,403,493.
Transitional Small Business Disclosure Format: Yes No X
DOCUMENTS INCORPORATED BY REFERENCE: None
PART I
Item 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Ultradata Systems, Incorporated ("The Company") is engaged in the manufacture
and marketing of a line of handheld data retrieval devices that employ the
Company's proprietary data compression technology. During 1987, the Company
identified this area of its business as having the greatest strategic value
for its stockholders. The Company, therefore, elected to reduce its initial
focus on research and development activities leading to the manufacture of
laser communication systems and target electronic data retrieval devices as its
core growth path for the future. To better reflect this business
reorientation, the Company changed its name, in November 1994, from Laser Data
Technology, Inc. to Ultradata Systems, Incorporated.
The Company's primary focus today remains the research, development, and
marketing of electronic consumer travel products which utilize the Company's
proprietary data compression technology for storing large quantities of
information on, and retrieving it rapidly from a microprocessor memory chip.
Each of the Company's consumer products is designed for the consumer to gain
easy and immediate access to practical information stored in convenient hand-
held units. The Company's products generally sell at retail prices between
$29.95 to $129.95 a unit.
PRODUCTS
CONSUMER PRODUCTS
The Company's Consumer Products Division primarily develops and markets hand-
held travel computers, the majority of which bear the ROAD WHIZ registered
trademark. Various models contain custom developed data to provide the traveler
with directions and information regarding the travel services available along
the U.S. Interstate Highway System. Some versions add in city information as
well. The travel database contained in most of the models offered by the
Company is proprietary and contained on a memory chip built into each unit.
The travel database contains over 100,000 services. This service information
includes destination, mileage, gas stations, hotels, motels, hospitals, 24-hour
restaurants, and highway patrol emergency numbers along the United States
Interstate Highway System. ROAD WHIZ owners can update their unit by
purchasing memory updates or upgrades as offered by the Company.
The hand-held travel computers made by the Company provide routing and services
similar to software products in the market. Such products include PC compatible
travel programs and other "shrink-wrap" formats. The Company's database of
100,000 services, however, is proprietary to the Company's travel computer. The
Company sells its products through independent sales representatives, catalog
companies, department stores, office supply stores, direct mail promotion,
luggage stores and The QVC Network (hereafter "QVC"), a leading television
shopping channel. During 1996, the Company made a breakthrough in marketing
custom products to the private label market. The private label market is
viewed as an important strategic growth opportunity for the Company.
ROAD WHIZ
ROAD WHIZ was introduced during 1990. Since 1990, the Company has released
numerous versions of the ROAD WHIZ, including ROAD WHIZ PLUS, ROAD WHIZ
ULTRA and ROAD WHIZ COMPANION, ROAD & CITY and ULTRAFINDER and more recently,
TOWN and COUNTRY and KIDS ROAD WHIZ. The Company's growth strategy has been to
expand its line of travel computers to include additional features and
functions at generally lower retail prices. In 1996, R & D increased to also
emphasize other hand-held information products and also expand vertically with
products tied more directly to the PC market and the auto market.
CURRENT PRODUCT OFFERINGS:
ROAD WHIZ PLUS
ROAD WHIZ PLUS was the second model travel computer introduced by the Company
in 1992. It offered new features including detailed directions to 90 cities
and additional travel data such as shopping malls.
ROAD WHIZ ULTRA
ROAD WHIZ ULTRA was introduced in April, 1994. It contains all of the
features and data offered by ROAD WHIZ and ROAD WHIZ PLUS, plus additional data
of over 3,000 small towns and shopping outlet malls. It also provides
complete routing information for over 250 cities giving distances, driving time
and detailed directions to cities. ROAD WHIZ ULTRA contains over 60,000 services
and has double the memory capacity of the ROAD WHIZ PLUS or the ROAD WHIZ
COMPANION. ROAD WHIZ ULTRA is marketed in upscale retail outlets, through mass
mailings primarily to oil company credit card customers, and magazine ads.
ROAD WHIZ COMPANION
ROAD WHIZ COMPANION was introduced by QVC in the summer of 1994. ROAD WHIZ
COMPANION includes the low price advantage of the ROAD WHIZ PLUS blended
with several advanced features and services of the ROAD WHIZ ULTRA.
OTIS-THE RV NAVIGATOR
OTIS - The ("RV NAVIGATOR") was developed for owners of recreational vehicles
(RV's). This unit functions as both an RV campground guide and an interstate
travel guide. The RV NAVIGATOR database includes a location and feature
directory of over 13,000 campgrounds and RV repair and service providers
throughout the U.S. The RV NAVIGATOR contains over 40,000 attractions and
directions, including gas and diesel fuel stations, interstate mile markers,
restaurants, hospitals, and rest stops. RV NAVIGATOR features an updatable
plug-in memory card and long life batteries. The Company purchased exclusive
rights to this campground database from Trailer Life Enterprises for an initial
fee of $10,000 and a royalty of one dollar ($1.00) for each unit sold over the
first 5,000 units. The Company's right to exclusive use of the database will
terminate, unless renegotiated, after 20,000 units are sold. The licensing
agreement itself may be terminated by either party on twelve (12) months notice.
If Trailer Life Enterprises were to terminate the licensing agreement, the
Company would be required to find an alternate source, or discontinue the
product.
ULTRAFINDER
ULTRAFINDER was introduced in 1995. It is the most powerful handheld travel
unit marketed by the Company. It contains over 60,000 services and specific
routes to over 500 cities, giving distance and driving time. ULTRAFINDER
features a two-line display and an updatable plug-in memory module. It is priced
to sell at $99.95 at retail. During 1996 the Company received a $4.0 million
custom order, with follow-on rights for additional quantities.
GREENSFINDER
GREENSFINDER is the Company's one entry into the sports leisure and travel
market. Introduced in December 1994, GREENSFINDER is a handheld data retrieval
device which contains information on over 10,000 U.S. golf courses, including
greens fees, restaurant facilities, phone numbers, types of terrain, travel
directions to the course, availability of carts, caddies, clubs, and other
course features. GREENSFINDER also contains a four-player scorekeeper with
player name entry and records individual player's scores. The Company acquired
the software database for this product from a third party. The Company is
required to pay a royalty of 10% based on sales and 20% for upgrades to the
software developer.
TOWN and COUNTRY
The TOWN and COUNTRY introduced in 1996 provides 60,000 services along the
nation's highways, parkways and toll roads and directions to over 7,000 towns
on Interstates & US Highways. This product was introduced on QVC in September,
1996.
KIDS ROAD WHIZ
The KIDS ROAD WHIZ introduced in December 1996 is a travel computer providing
directions to amusement parks, water parks and other entertainment sites for
children traveling with parents. It also includes word games.
LASER SYSTEMS CONTRACTS
The business of the Company when it was initially founded was primarily focused
on the fulfillment of research and development contracts leading to the
manufacture of laser communications systems. The Company submits bids for laser
system research and development contracts and production contracts from
government and government-related agencies, typically under cost plus or fixed-
fee contracts. Most of the Company's research and development laser systems
contracts are beyond one year in scope. Upon the award of a R&D contract, the
Company realizes revenues from progress payments received during the course of
such contracts. Any required capital equipment is generally supplied to the
Company by the customer. The technology developed during the Company's
performance of a research and development contract becomes the exclusive
property of the contracting party.
During 1994, the Company engaged in a research and development contract to
develop modifications and upgrades to U.S. Army Laser Pointing and Tracking
Systems (PATS). This contract was completed in early 1995. In 1995, the
Company received an $1.7 million production contract from the Yuma Proving
Ground to manufacture their PATS design. For the two years ended December 31,
1996 and 1995, the Company realized revenues of $810,484 and $675,465,
respectively, against this contract. At December 31, 1996, there remains
approximately $120,915 in progress billings to complete the contract. The
original contract provided for an override clause, which the customer exercised
in February, 1997. To date, this override portion totaled $337,888. The
government retains the right to order additional units within the terms of the
original contract.
MANUFACTURING
The Company does not manufacture any of its consumer products, has no
manufacturing capacity and is entirely dependent upon third parties to
manufacture and assemble the components comprising its products. Since 1988 to
1994, Siemens Manufacturing Co. of Freeburg, Illinois ("Siemens") had been the
exclusive manufacturing source of travel computers for the Company. A alternate
foreign manufacturer was established late in 1995. This manufacturer supplied
approximately 20% of the production requirements during 1996. The Company
generally receives annual pricing from each of its manufacturers based upon
estimated annual quantities. Thereafter, the Company releases individual
purchase orders for production. The Company's arrangements with each
manufacturer are terminable at will by either party. If either or both
arrangements were to be terminated, the Company believes that alternate sources
are readily available. The sudden loss of one of the manufacturers or
unanticipated interruptions or delays from present manufacturers would likely
result in a temporary interruption to the Company's planned operations. The
Company intends to maintain its practice of engaging subcontractors to meet its
manufacturing requirements for the forseeable future.
Raw materials used by the Company include hardware, keypads, computer memory
chips, microprocessors, and other discrete electronic parts used in building
circuit boards. Most of these are standard stock items that are generally
available from several vendors. To date, the Company has been able to obtain
adequate and timely supplies of raw materials. The Company presently has two
sole sourced components. The supplier for these items is a major microcircuit
vendor with whom the Company has enjoyed a solid relationship for years. The
inability to obtain timely or sufficient deliveries of these sole-source
components would materially disrupt production until an alternative vendor
could be located, qualified and begin production. The Company has alternate
vendors for all of its other raw materials.
BACKLOG
As of December 31, 1996, the Company's consumer products backlog was
approximately $6.8 million versus a comparable backlog of $75,000 on December
31, 1995. Included in the 1996 backlog were two orders for private label
products valued at approximately $6.5 million. One of the two private label
orders is financed by an irrevocable Letter of Credit. At December 31, 1996,
there was $3,492,000 remaining to be shipped against the Letter of Credit.
Generally, orders for standard products are subject to cancellation without
penalty. The Company has occasionally experienced cancellations or
postponements in its delivery of orders.
SALES AND MARKETING
The Company's primary sales and marketing objective is to remain the leading
supplier for low-cost travel computers. To support this objective, the Company
believes it must offer a growing line of affordable standard and custom travel
computers.
The Company identifies its prospective customers and markets through a
combination of direct mail, telemarketing, media advertising, tradeshow
participation, and periodic appearances on QVC. The Company advertises in
magazines and trade journals and periodically distributes promotional materials
to increase market awareness of its products. To date, the Company has focused
its primary marketing efforts on establishing customer relationships with local
and regional retailers and upscale retail outlets.
The Company's products are marketed through independent sales representatives,
mail order catalogs, and office supply stores. In 1996, the Company spent
$1,773,373 on advertising, promotion, and marketing programs, as compared to
$942,402 and $778,750 in 1995 and 1994, respectively. The Company spent $206,500
during 1996 to advertise monthly in SkyMall magazine, the popular airline buying
guide. During the fourth quarter of the year, the Company committed to a
national direct mail program with Roy Thomas, Inc., a sales and marketing firm.
The diredct mail program included approximately 23 million advertising inserts
packaged with oil credit card statements. It is expected that customer orders
from these mailings will carry over into the forthcoming year.
To further extend its market position, the Company entered into a joint
product agreement with a leading developer of trip planning software, TravRoute,
Inc., to integrate their software and database into a new product called
TripLink. The Company also acquired an exclusive U.S. and European license for
Time Tracker, a product which attaches to cellular phones and enables users to
track phone call costs on a continuous basis. These type of arrangements are
an extension of the Company's strategy of fostering alliances and other
marketing arrangements in order to maintain its objective of remaining the
leading supplier of hand-held travel devices.
DEPENDENCE ON CUSTOMER
During 1996, Roy Thomas, Inc. (See Sales And Marketing) accounted for 20.8% of
consumer sales. This customer had sales of $1,723,185 in 1996 compared to
$90,976 during 1995. Prior to 1996, QVC had been the largest customer of the
Company. For the two years ended December 31, 1996 and 1995, QVC sales totaled
$4,455,035 and $1,989,182, respectively, representing approximately 47% and 33%
of consumer sales. During 1996 QVC sales totaled $617,443 or $7.5% of consumer
sales.
COMPETITION
Competition in the electronics industry is intense. The Company believes that
the primary competitive factors necessary to maintain its market leadership in
the hand-held travel market include product features such as performance,
product reliability, functionality, ease of use, product reputation, price,
timeliness of product upgrades, and quality of customer support and service. The
Company believes that price is a significant factor in determining future sales
and which the Company carefully monitors. Mass merchandise discounters
regard $29.95 as an important retail consumer price for the Company's products
to be successful in the mass market.
The segment of the electronics industry in which the Company is engaged is
populated by competitors with substantially greater financial resources than
the Company. The consumer industry in which the Company competes is
characterized by rapid and significant technological advances, which often
result in rapid partial or total obsolescence of products. The Company is not
aware of any competitor selling affordable hand-held travel computers. Although
the Company attempts to protect its technology and patents wherever possible, it
is unable to provide any assurances that its patents and trade secrets will not
be circumvented in the future. The Company faces competition from developers
of travel software products currently marketed as "shrink-wrap" products. To
protect the Company's dominant market position in affordable travel computers,
the Company invested $1,001,646, or approximately 11% of its 1996 revenues in
research and product development. There can be no assurance, however, that the
Company will be able to develop or acquire new products or increase market
channels at a rate sufficient to keep the Company competitive. The Company also
cannot guarantee that new products or product updates will ultimately achieve
market acceptance.
RELATED PARTY - POIS, INC.
In September of 1993, the Company purchased an 81% ownership interest in
POIS, Inc. with the goal of developing "personal onboard information systems"
("POIS") for use in the Original Equipment Manufacturer (OEM) market and
automobile aftermarket. Such systems are to be installed in a vehicle
utilizing the 12-volt electrical system in the vehicle. Since inception, POIS
has realized sales of $511,650 in 1996, and $299,196 in 1995. POIS sales for
custom hand-held units that incorporated the ROAD WHIZ database along with
individual customer requirements and special information such as dealers names,
phone numbers, and locations around the country. POIS, Inc. has not yet
realized any sales for on-board information systems.
POIS, Inc.'s primary strategy is with the development of on-board navigation
and travel information products. The Company contemplates that its POIS on-
board products will be primarily marketed as an automobile aftermarket
accessory product sold to automobile dealers and auto supply stores.
There is no recognized market leader at the present time. POIS, Inc. will,
however, face strong competition from substantially larger companies that are
already in the market. For that reason, the Company's product development
strategy is to design its hardware products to provide maximum flexibility to
accommodate new features in additional to standard GPS functions. The POIS
design approach to in-car navigation enables a substantially lower cost product
and is different from existing products which are very expensive. POIS products
are targeted for the so-called "Road Warrior" segment of the automotive public
whose livelihood depends on the frequent and efficient use of their vehicles.
The typical POIS purchaser is believed to be a mobile professional who purchases
or leases an upscale automobile with factory installed accessory electronic data
and navigation systems. It is anticipated that the first POIS units would be
priced under $500. As aleased option, POIS would add approximately $10 per
month to the lease payments. Existing on-board products are currently priced
at $2,000 or more as original equipment options.
DATABASE RESEARCH AND UPDATE ORDERS
The Company believes that an accurate and updated proprietary database is one
of the most important factors for the future success and development of the
Company. The potential for additional net sales, as well as the need to
preserve the Company's reputation for accuracy and reliability, requires that
the Company continuously validate and update its database. The Company uses
various means to update its ROAD WHIZ database, including publicly available
geographic and demographic data. The majority of the ROAD WHIZ database is
compiled by "Road Helpers." Road Helpers are generally retirees and others
that travel extensively. Many of the Road Helpers are former customers of the
Company. Generally, the Road Helpers are compensated at a nominal amount by the
Company.
The Company maintains a full time staff of researchers who review and augment
the data gathered by the Road Helpers. In addition to the Road Helpers, the
research staff contacts travel services and Chambers of Commerce across the
country to gather other information.
The Company's Research and Development Group includes five full-time software
engineers and one hardware design engineer and one project consultant. In 1996,
the Company employed various subcontractors in order to augment its internal
research and development resources. Research and development expenses in 1996,
1995, and 1994 were $1,001,646, $556,213 and $290,996, respectively.
PATENTS AND TRADEMARKS
The Company's files patent applications, when applicable, to protect its
technology, inventions and improvements. The Company owns two patents. One
patent covers its method of compressing data relating to travel information.
This compression technology permits the Company's travel products to included
more data on smaller and less expensive memory devices.
The Company has a second patent on the methodology which enables its travel
devices to account for changes which occur when the traveler crosses a state
border. The Company believes that in order to manufacture a similar product, a
competitor would have to develop a substantially different methodology, at
considerable time and expense.
The Company's majority-owned subsidiary, POIS, Inc., has filed two patent
applications. One application covers the software which converts a Personal
Data Attendant (PDA) touch screen to display large characters, facilitating
visual contact while driving. The other application includes a base unit of
electronics with additional memory and application slots which can communicate
with the PDA via the infrared ("IR") transceiver in the PDA. If either of these
patents were to be granted by the Office of Patents and Trademarks, the Company
believes that it would afford them a significant competitive advantage for
personal on-board information systems. The Company cannot predict, however, as
to whether either application will result in a patent or what the breadth of
such a patent might be.
In addition to its patents, the Company attempts to further restrict access to
its proprietary technologies and processes. Key employees of the Company are
covered by an employment contract with restrictive covenants. These covenants
require such employees, as a condition of their employment to hold all
proprietary information confidential. They are prohibited from disclosing any
trade secrets to outside parties. The Company also restricts customers and
visitors site access to confidential information. There can be no assurance
that the Company can be successful in its efforts to protect either its patents
or its proprietary technologies and processes.
EMPLOYEES
The Company currently has 34 full-time employees, including 6 officers. The
Company employs 8 people for shipping, order entry and customer service, 9
people in product and database research, 5 people in administration, 3 people
devoted to government contract work, 3 people in product development, 1 person
in inventory management, and 4 people in sales and marketing and the President
and Chief Executive Officer. None of the Company's employees belong to a
collective bargaining union. The Company has never experienced a work stoppage
and believes that its employee relations are good.
Item 2. PROPERTIES
The Company's headquarters and principal administrative offices and research
and development facilities are located in approximately 10,000 square feet of
leased office space in an industrial building located at 9375 Dielman Industrial
Drive, St. Louis, Missouri. The Company maintains no manufacturing operations
on site and employs outside contractors to perform all of its manufacturing
requirements.
POIS, Inc. leases approximately 1,092 square feet of office space in
Southfield, Michigan.
Aggregate rental expense for both locations totaled $117,139 for the current
year.
The Company believes that its facilities are adequate for the Company's
present and foreseeable requirements.
Item 3. LEGAL PROCEEDINGS
There are no pending legal proceedings against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The following table sets forth the prices for the Company's Common Stock
(NASDAQ: ULTR) as quoted on the NASDAQ SmallCap Market from February 1, 1995
through December 27, 1995 and in the NASDAQ National Market from December 28,
1995 to December 31, 1996.
Bid Asked
Quarter Ending High Low High Low
March 31, 1995 $ 7.18 $ 5.90 $ 9.00 $ 5.97
June 30, 1995 $ 6.75 $ 5.75 $ 7.00 $ 6.06
September 30, 1995 $ 7.75 $ 6.12 $ 7.87 $ 6.37
December 31, 1995 $12.00 $ 6.25 $12.38 $ 6.63
March 31, 1996 $11.88 $ 8.87 $12.38 $ 9.37
June 30, 1996 $ 9.88 $ 6.88 $10.13 $ 7.13
September 30, 199 $ 9.63 $ 6.75 $ 9.88 $ 7.00
December 31, 1996 $ 9.25 $ 6.62 $ 9.63 $ 6.75
(b) Holders
At March 26, 1997, there were 163 stockholders of record of the Company's
Common Stock. Based upon information from nominee holders, the Company believes
the number of beneficial owners of its Common Stock exceeds 1,100 owners.
(c) Dividends
The Company has never paid or declared any cash dividends on its Common Stock
and does not contemplate doing so in the foreseeable future. The Company
intends to retain its earnings for the future operation and expansion of the
business. Any decision as to future payment of dividends will depend on the
available earnings, the capital requirements of the Company, its general
financial condition and other factors deemed pertinent by the Board of
Directors.
(d) Other
During 1996, the Company issued 1,051,987 additional shares of common stock
pursuant to a warrant redemption and exchange program.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
The Company's net sales are derived from two business segments: (1) consumer
products, marketed through retailers, catalog companies, and direct mail or
other marketing agencies or groups as employed by the Company, and (2) laser
system contract revenues, derived from research and development and production
contracts awarded by government agencies. During 1995, the Company received its
first production contract valued at $1.7 million. This contract was a system
previously designed by the Company in 1994 to fulfill a research and development
contract.
The following table summarizes the contributions of consumer products and
development contracts, respectively, to total net sales of the Company for each
of the last three years ended December 31, 1996. The table should be read in
conjunction with the audited financial statements for the periods indicated and
the related notes incorporated herein.
NET SALES
FOR THE THREE YEARS ENDED DECEMBER 31
(in Thousands)
1996 % 1995 % 1994 %
Consumer
Products $ 8,283 91.1 $ 9,437 93.3 $ 6,064 94.8
Development
Contracts 810 8.9 676 6.7 334 5.2
Total $ 9,093 100.0 $10,113 100.0 $ 6,398 100.0
Year Ended December 31, 1996, vs. Year Ended December 31, 1995.
During 1996 sales of consumer products decreased by $1,154,803 or approximately
12.2% from $9,437,239 to $8,282,436 in 1996. The decrease in sales was related
primarily to (a) lower sales to a key customer (QVC) and (b) product
development delays resulting in three new products planned for 1996 sales being
carried into 1997. During 1995, QVC accounted for $4,455,035 or 47% of consumer
product sales as compared to $617,443 or 7.5% of consumer product sales during
1996. The $3,837,592 drop in QVC sales was attributed to the combined result
of decreased demand from QVC viewers and fewer appearances on QVC in 1996 versus
1995. Management believes that QVC sales will not return to sales levels of
over $4 million as seen in 1995 with its current product offerings. In 1997
there are three new products, ROAD WHIZ EXPRESS, TOWN & COUNTRY, and HOME &
GARDEN planned for QVC appearances. Additional retail customers were
established during 1996, especially in direct mail through greater uses of oil
company credit card mailings. Exclusive of POIS sales, custom travel computer
sales increased by approximately $484,000 to $502,000 in 1996 compared to
$18,000 in 1995. The Company realized $511,650 in revenues from its POIS, Inc.
subsidiary in 1996 compared to $299,196 in 1995.
The majority of the Company's consumer product sales are highly seasonal.
The fourth quarter of 1996 was the highest quarter in the history of the
Company, posting $4,949,531 or 59.7% of the consumer product revenues. For the
comparable quarter ended December 31, 1995, the Company realized $4,143,530 in
revenues, or 43.9% of consumer product revenues. The Company has embarked on
a strategy to realize a more even distribution of its revenues throughout the
year. Accordingly, it allocated a greater portion of its resources, including
the hiring of a full time marketing executive, to locate and develop new
markets, and specifically new vertical markets. Many of these markets, such as
private label and premium, are of a non-seasonal nature.
Contract sales for 1996 totaled $810,484 compared to $675,465 for 1995.
Contract sales for 1996 were derived from progress billing against a government
contract that was received during August, 1995. This contract was originally
valued at $1.7 million and designed to provide time/space/position data during
tracking of aircraft and ground troops. At December 31, 1996, there was $120,915
remaining on this contract. During February, 1997 the customer exercised the
override clause in the original contract by ordering two additional units valued
at $337,888.
Gross profit for the consumer product group totaled $4,786,221 or 57.8% for the
year ended December 31, 1996, compared to $4,777,333 or 50.6% of sales for the
prior year. The 7.2% improvement in gross profit is the primarily the result
of cost savings in the form of lower cost units received from the foreign
manufacturer and an improved product mix.
Gross profit for contract sales totaled $430,277 or 53.1% of sales versus a
gross profit of $358,893 or 53.1% of sales last year.
Selling General and Administrative expenses (SG&A) for the year increased to
$4,023,026 from $2,480,576 for the prior year, representing an increase of
62.2% The increased expenses resulted from staff additions, increased
consulting and professional fees, and increased sales and marketing activities.
The Company has been more aggressive in promoting and advertising its products
in 1996 compared to 1995. SG&A will continue to increase in the future, but at
a slower rate. It also expects that such spending will diminish in the future
as a percentage of total revenues.
Research and Development expenses (R&D) for the year totaled $1,001,646
compared to $556,213 for the prior year, representing an increase of $445,433
or 80.1%. The increase in R&D was the result of higher prototype development
charges and design fees and expenses incurred in product development. During
the year the Company spent $509,956 in research and development for POIS
products.
Other income totaled $113,320 for 1996, as compared to $118,711 for the
year ended December 31, 1995.
The Company's effective tax rate for the year was 31.8% as compared to 37.7%
for the year ended December 31, 1995. The Company's lower tax rate attributable
to unused federal income tax research and development credits.
As a result of the foregoing, the Company's net income declined to $208,137
or $0.08 per share, as compared to net income of $1,381,901 or $0.49 per share
for the prior year. There were 2,773,245 and 2,872,207 common and equivalent
shares, respectively, used in calculating earnings per share for the two years
ended December 31, 1996 and 1995, representing a decrease of 3.3% in the shares
used in the calculation.
Year Ended December 31, 1995, vs. Year Ended December 31, 1994
The Company's net sales are derived from two primary sources: (1) consumer
products, marketed through retailers, catalogs, and direct mail or other
marketing agencies employed by the Company, and (2) contract revenues, derived
from research and development contracts in the laser communications systems
field for government agencies. During 1995, the Company received its first
production contract a $1.7 million production order for one of its prototype
designs.
During 1995 sales of consumer products rose by 56% from $6,064,331 in 1994 to
$9,437,239 in 1995. The reason for the growth in consumer product sales in 1995
compared to 1994 was due to increased demand for ROAD WHIZ products, expanded
channels of distribution and new products. The Company realized $4,455,035 in
net sales (47% of total consumer sales) to its key customer, the QVC Network in
fiscal 1995, as compared to $1,989,182 (33% of total consumer sales) in 1994.
Additional sales to other customers occurred as a result of the Company's
success in developing niche versions of the ROAD WHIZ products to specific
audiences, selling the ROAD WHIZ PLUS in stores geared to the retail market such
as Service Merchandise, Best Buy, and Office Max, while selling the ROAD WHIZ
ULTRA in upscale retail stores and catalogs, such as The Sharper Image,
Brookstone and Rand McNally.
The Company introduced three new consumer products in 1995, including ROAD &
CITY, a highway and city guide exclusive to QVC, and METRO & ULTRAFINDER.
ULTRAFINDER, which was introduced in September of 1995, is the most
sophisticated unit offered by the Company, containing over 100,000 highway and
city services and directions and driving time between cities.
Contract sales from laser systems totaled $675,465 for 1995, as compared to
$333,883 during 1994. These sales were primarily attributable to the Company's
ongoing contract with the U.S. Army. On December 31, 1994, the Company
completed a contract for the EC III, a private contractor, to produce a
prototype laser system to provide time/space/position data during tracking of
aircraft and ground troops. The Company received a production contract for its
prototype design on August 9, 1995. The production contract is valued at
approximately $1.7 million over 12 months.
The Company's consumer product sales are highly seasonal. Historically, the
fourth quarter which ended December 31, 1995 has been the highest quarter for
sales. The Company realized record consumer product sales in the fourth quarter
of $4,143,530 compared to the fourth quarter of 1994, which totaled $2,593,807.
Gross profit for the consumer product group totaled $4,777,833 or 50.6% of
sales for the year ended December 31, 1995, compared to $3,412,939 or 56.3% of
sales for the prior year. The decrease in gross margin in the year is due to
several factors, mainly product mix and lower margins from Special Value Day
sales made to QVC in the first and fourth quarter of fiscal 1995. The Company
recognizes that growth in certain channels, such as television shopping,
typically yields lower margins. Management believes that TV exposure is in-
valuable in increasing consumer awareness of its products which helps to attract
national retail customers and other merchants. The introduction of lower cost
versions of the Company's products during the fourth quarter and a second low-
cost manufacturer which was established during the second half of 1995 should
help margins in the future. The Company also intends to continue its
development efforts with respect to continuing design improvements to expand
features and functionality and to reduce manufacturing and material costs.
Selling, general and administrative expenses (SG & A) for the year increased
to $2,480,576, from $1,918,948 for the prior year, representing an increase of
29.3%. The increased expenses resulted from higher levels of revenue as well
as the expansion of the channels of distribution for the Company's products.
These events required a larger infrastructure, including additional marketing
and administrative support services. The Company expects that selling, general
and administrative spending will continue to increase in 1996 as compared to
such spending in 1995, although SG&A will decrease as a percentage of total
revenue.
Research and development expenses for the year totaled $556,213 compared to
$290,996 for the prior year, an increase of $265,217, or 91.1%. The increased
expenditures is the result of the Company's strategic decision to boost its
investment in product development, including $197,178 in such expenses for the
Company's joint venture with POIS, Inc.
Net interest income totaled $128,616 for 1995, as compared to $16,428 for the
year ended December 31,1994. The increase was the result of additional interest
income from marketable securities of approximately $1.5 million. These
securities were purchased primarily with funds derived from the initial public
offering.
The Company's effective tax rate for the year was 38% as compared to 28% for
the year ended December 31, 1994. The Company incurred a reduced tax liability
in 1994 due to a net operating loss carry-forward available from prior years
and unused research and development credits for federal income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company financed its business by supplementing cash
generated from operations with periodic borrowings from banks, equity raised
from private and public sources, and more recently from funds received from
a warrant redemption and exchange program. On August 6, 1996, the Company called
for redemption and exchange all of its outstanding purchase warrants. The
warrant redemption and exchange program was completed during September, 1996,
with the Company receiving $6,172,493 in additional capital.
The Company recorded a net loss of $485,049 during the first nine months of
1996. This net loss was a result of lower than expected sales and delays in
the development and market introduction of new products. The strong fourth
quarter performance helped narrow the sales deficit and turned a nine month net
loss into net income. Sales and net income for 1996 were below the prior year
by 10.1% and 84.9%, respectively. The Company sustained a net outflow of
$2,212,269 in cash from operations for the year. Cash flows from investing
activities provided $459,718 for the year, net of capital expenditures that
totaled $340,282. Net cash provided by financing activities totaled $5,724,493,
including $6,172,493 received from the sale of common stock. Total cash and
marketable securities increased from $815,065 at December 31, 1995 to
$3,960,577 at December 31, 1996.
The Company relies on outside vendors for all of its manufacturing.
Consequently, the Company's operations do not require substantial capital
outlays other than for the periodic purchase of tooling, test equipment, and
fixtures. During 1996, the Company spent $340,282 for capital expenditures.
The Company will require capital expenditures for its POIS subsidiary and other
new consumer products in 1997. Total capital expenditures are not expected to
be significant based on the current business outlook.
The Company's credit facility includes a $2.0 million unsecured revolving
bank line of credit with $500,000 for letters of credit facility. The bank's
line of credit is subject to renewal or cancellation at the end of every 12
month period from the date it was initiated. The Company pays interest monthly
on its outstanding loan balance at the Bank's Corporate Base (Prime) Rate, which
was 8.25% at December 31, 1996. On December 31, 1996, the Company's outstanding
loan balance was zero.
At December 31, 1996, the Company had a working capital surplus of $10,761,352,
as compared to a working capital surplus of $4,638,639 at December 31, 1995.
Included in working capital was $3,960,577 in cash and cash equivalents.
Inventories increased by $1,334,869 during the year as a result of a decision to
increase inventory levels to shorten customer delivery times and a small
increase in manufacturing lead times. Accounts receivable rose by $1,814,032
to $4,608,285. The increase in accounts receivable results from the record
shipments posted for the foutrth quarter including Roy Thomas, Inc. receivbles
which totaled $1,657,571. The Company anticipates a substantial decrease in
accounts receivable during the first quarter. However, the business is
undergoing a significant expansion into 1997, which may require additional
investments from time to time in accounts receivable and inventory.
The Company's management is currently working toward a strategy that will
minimize the seasonality in their traditional business. Management believes
that the continued placement of orders for private label products will help to
minimize quarterly swings in financial performance and corresponding changes in
cash and liquidity. There can be no assurance that such efforts will be
successful, which may place periodic peak seasonal demands on the liquidity
position of the Company.
The Company expects that its existing working capital, future net sales and
bank borrowings will be sufficient to fund ongoing operations for the next
twelve months.
FORWARD-LOOKING INFORMATION
Except for the historical information, the information set forth herein
includes forward looking statements that are dependent on certain risks and
uncertainties. Important factors that could cause the actual results to differ
materially from the anticipated results include, but are not limited to, the
positioning, release dates and consumer acceptance of new products; quarterly
fluctuations and seasonality; the competitive environment and technology
change and obsolescence factors in the Company's primary markets; and
dependence on distribution channels and key personnel, all of which are
difficult to predict and many of which are beyond the control of the Company.
Item 7. CONSOLIDATED FINANCIAL STSTEMENTS
The consolidated financial statements of Ultradata Systems, Incorporated,
together with notes and the Independent Auditors' Report, are set forth
immediately following Item 13 of this Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information regarding the officers and
directors of the Company as of March 21, 1997:
NAME AGE POSITION
Monte Ross 64 President & Chief Executive Officer, Director
Mark L. Peterson 39 Vice President-Engineering, Secretary, Director
Ernest Clarke 56 Vice President - Government Programs, Director
Leonard Missler 50 Vice President - Software Development
Duane Crofts 60 Vice President - Advanced Products
Daniel Muehlemann 33 Vice President - Sales
Steve H. Akre, Esq. 44 Director
Bruce L. Miller 54 Director
John J. Clancy 59 Director
Directors hold office until the annual meeting of the Company's stockholders
and the election and qualification of their successors. Officers hold office,
subject to removal at any time by the Board, until the meeting of directors
immediately following the annual meeting of stockholders and until their
successors are appointed and qualified.
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS
Monte Ross founded the Company in 1986 and has served as its President and
Chief executive Officer since inception. For over 20 years prior to founding
the Company, Mr. Ross was employed by McDonnell Douglas Corporation in a variety
of positions. When he left McDonnell Douglas, Mr. Ross was Director of Laser
Systems, responsible for the group of approximately 400 employees which
developed the first laser space communication system and first space laser
radar. Mr. Ross is a Fellow of the Institute of Electrical and Electronic
Engineers and the past President of the International Laser Communication
Society.
Mr. Ross was awarded a Master of Science degree in Electrical Engineering by
Northwestern University in 1962. He is the father-in-law of Mark L. Peterson,
the Company's Vice President-Engineering.
Mark L. Peterson has been a Director of the Company since it was founded in
1986. He has served as the Company's Vice President of Engineering since 1988.
He is responsible for the design of the Company's handheld products. During the
four years prior to joining the Company, Mr. Peterson was employed by McDonnell
Douglas Corporation as an electronics engineer for fiber optic products and
satellite laser crosslink programs. Mr. Peterson was awarded a Master of
Science degree in Electrical Engineering by Washington University in 1980. He
is the son-in-law of Monte Ross.
Ernest Clarke has been employed as the Company's Vice President - Government
Programs since 1990. His primary responsibility has been the development of
custom test systems for organizations involved in government laser systems
programs. For over 20 years prior to joining Ultradata, Mr. Clarke was employed
by McDonnell Douglas Corporation in a variety of positions. When he left
McDonnell Douglas, Mr. Clarke was its Laser Product Development Manager with
responsibility to supervise over 40 engineers. Mr. Clarke was awarded a Master
of Science degree in Electrical Engineering by Stanford University in 1966.
Steven Akre has served as a member of the Board of Directors and as the
corporate counsel for the Company since it was founded. Mr. Akre is an
attorney-at-law, whose specialization is in taxation and corporate mergers and
acquisitions.
Bruce L. Miller has been a Director of the Company since 1989. Since 1992 he
has been employed as Chairman of the Board of CoreSource, Inc., located in
Chicago, Illinois, which is engaged in the business of organizing and managing
health care programs for employees and providers. From 1989 until 1992, Mr.
Miller was the President of Crabtree Capital Corp., a firm engaged in financial
services. Mr. Miller is presently a Director of Harris Bank Glencoe, which
is a subsidiary of Harris Bank Corp. of Chicago.
Leonard Missler has served as Vice President - Software Development for the
Company since 1990. His primary responsibility has been the development of
software for the Company's handheld products. For over 20 years prior to
joining Ultradata, Mr. Missler was employed in software and electronics
development and management by Microterm, Inc., Magpower, Magnavox, and Interface
Technology. At Microterm, his most recent employer before joining the Company,
Mr. Missler was the Director of Operations. Mr. Missler was awarded a Master
of Science degree in Electrical Engineering by Washington University in 1970.
Duane Crofts joined the Company as Vice President - Advanced Products in 1994.
Prior to joining the Company, Mr. Crofts served for over five years as a Program
Director with McDonnell Douglas Corporation. In that role he was responsible
for engineering management, production management, subcontract management, and
program management. Mr. Crofts most recently was manager of a multimillion
dollar electro-optic development program. Mr. Crofts was awarded a Bachelor of
Science degree in Mechanical Engineering by the University of Missouri at Rolla.
Daniel B. Muehlemann joined the Company in October, 1996 as Vise President -
Sales. Prior to joining the Company Mr. Muehlemann served for five years as
Senior Accounts Manager for Maxim Technologies, Inc. In that position he
developed and implemented key sales and marketing strategies to increase Maxim
Technology's national client base. Mr. Muehlemann holds a Bachelor's degree
in Communications from Southwest Missouri State University.
John J. Clancy joined the Company in 1995 to serve as a member of the Board
of Directors. Mr. Clancy has served on the Board of Directors at Cimplex
Corporation, Inc. in San Jose, and Engineering Software Research & Development,
Inc. in St. Louis. Mr. Clancy was employed by McDonnell Douglas in a variety
of positions progressing from Programmer, Salesman to Divisional President.
Mr. Clancy was awarded a Bachelor of Science, Chemical Engineering: University
of Illinois, Master of Science: The John Hopkins University, Master of Business
Administration: Washington University St. Louis, Master of Liberal Arts:
Washington University, Candidate of Doctor of Philosophy in History and
Business: Washington University St. Louis.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
None of the directors, officers or beneficial owners of more than 10% of the
Company's common stock failed to file on a timely basis reports required during
1996 by Section 16 (a) of the Exchange Act, except as follows: each of the
Company's five officers was late in filing a report on Form 4, each report
containing one transaction.
Item 10. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth all compensation awarded to, earned by, or
paid by the Company to the following persons for services rendered in all
capacities to the Company during each of the fiscal years ended December 31,
1996, 1995, and 1994: (1) the Registrant's Chief Executive Officer, and (2)
each of the other executive officers whose total salary and bonus for the fiscal
year ended December 31, 1996 exceeded $100,000.
Summary Compensation Table
Annual Compensation Long-Term Comp.
Name and
Position Year Salary Bonus Other(1) Options
Monte Ross, 1996 $114,404 $14,000 $ 3,000 (2)
President 1995 $105,000 $ 2,000 $ 15,000 (3)
1994 $100,000 $ 0 $22,200 (4)
(1) Includes five annual payments beginning in 1991, of $12,800 to a Rabbi trust
for the benefit of Mr. Ross. The trust was established in 1991 as deferred
compensation for services rendered prior to 1991, for which he received $50,000
less than his base salary.
Also included are premiums of $6,400 per year which the Company pays to
maintain a $1 million term life insurance policy on Mr. Ross. The Company had
agreed with Mr. Ross that in the event of his death, the Company would place the
proceeds of the policy in an investment fund for ten years make annual payments
to Mr. Ross's designee totalling the greater of $50,000 or the income earned
from the fund. On September 30, 1994, that arrangement was terminated and
replaced by a $250,000 Company-paid life insurance policy purchased on October
18, 1994, for the benefit of Mr. Ross's beneficiaries. The Company is now the
sole beneficiary of the $1 million life insurance policy.
Also included are contributions of $3,000 per year which the Company makes to
its Pension Plan for the benefit of Mr. Ross.
(2) During 1996 the Board's Stock Option Committee awarded Mr. Ross options to
purchase an additional 15,000 shares of Common Stock at an exercise price of
$7.39. None of the options have been exercised.
(3) During 1995 the Board's Stock Option Committee awarded Mr. Ross options to
purchase a total of 15,000 shares of Common Stock at an average price per share
of $5.25. None of the options have been exercised.
(4) In March 1994 Mr. Ross was awarded as a bonus an option to purchase up to
4,159 shares of common stock at a price of $1.20 for a period expiring in March
1999. Mr. Ross exercised the option on August 31, 1994.
STOCK OPTION AWARDS
The following table sets forth certain information regarding the stock options
or warrants acquired by the Company's Chief Executive Officer during the year
ended December 31, 1996 and those options or warrants held by him on December
31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent Potential Realizable
of Total Value At Assumed
Options Annual Rates of
Number of Granted Stock Price
Securities To Appreciation
Underlying Employees Exercise For Option Term
Option In Fiscal Price Expiration
Name Granted (#) Year ($/SH) Date 5% ($) 10% ($)
Monte Ross 15,000 29% $7.39 12/14/01 $30,630 $67,680
AGGREGATED FISCAL YEAR OPTION VALUES
Number of Securities Underlying Value of Unexercised in-
Unexercised Options at Fiscal the-Money Options at
Name Year-End (#) Fiscal Year-End ($)
Monte Ross 45,000 $30,000
EMPLOYMENT AGREEMENTS; ROYALTY AGREEMENT
Messrs. Ross, Peterson and Clarke have individual employment agreements with
the Company beginning September 1, 1994. Except as noted herein, the terms of
the employment agreements are substantially identical. The agreements terminate
on October 31, 1997, unless terminated by the Company for cause. The
agreements provide for base salaries, which are adjusted annually by the Board
of Directors. If the majority of the Board cannot agree as to a level of salary
adjustment, the salary will increase by 10% for Mr. Clark and Peterson,
respectively, and 5% for Mr. Ross. The employment agreements restrict each
officer from competing with the Company for one year after the termination of
his employment unless that employee establishes that his employment by a
competitor will not involve the use of any information which is considered
confidential by the Company.
Leonard Missler, Vice President - Software Development, has a Royalty
Agreement with the Company dated September 14, 1989. The Agreement terminates
on September 13, 2009. Mr. Missler covenants in the Agreement that he will keep
confidential all of the Company's information regarding its technology and
products. In exchange, the Agreement provides that the Company will pay Mr.
Missler a royalty equal to 1% of net sales of the Company's ROAD WHIZ products
and 1/2% of net sales of other products incorporating the ROAD WHIZ database.
During the three years ended December 31, 1996, royalty expense totalling
$55,540, $66,477, and $56,235, respectively, was recognized.
STOCK OPTION PLAN
THE 1994 STOCK OPTION PLAN
On September 28, 1994, the Board of Directors of the Company adopted and the
shareholders approved the Ultradata Systems, Inc. 1994 Stock Option Plan (the
"Option Plan"). The Option Plan is designed to permit the Company to grant
either incentive stock options under Section 422A of the Internal Revenue Code
(the "Code") or nonqualified stock options. Under the Option Plan, a Stock
Option Committee (the "Option Committee") of the Board is authorized to grant
options to purchase up to 175,000 shares of stock to key employees, officers,
directors, and consultants of the Company. The Option Committee administers
the Option Plan and designates the optionees, the type of options to be granted
(i.e., nonqualified or incentive stock options), the number of shares subject
to the options, and the terms and conditions of each option. The terms and
conditions include the exercise price, date of grant, and date of exercise of
each option. An employee may, at the discretion of the Option Committee, be
permitted to exercise an option and make payment by giving a personal note.
Incentive stock options may only be granted to employees of the Company and
not to directors or consultants who are not so employed. The exercise price for
incentive stock options must be at least one hundred percent (100%) of the fair
market value of the Common Stock as determined by the Option Committee on the
date of grant. All incentive stock options under the Option Plan must be
granted within ten (10) years from the date of adoption of the Option Plan and
each option must be exercised, if at all, within ten (10) years of the date of
the grant. In no event may an employee given incentive stock options whereby
more than $100,000 of options become exercisable for the first time in a single
calendar year. All incentive stock options must be exercised by an optionee
within thirty (30) days after termination of optionees employment, unless such
termination is as a result of death, disability, or retirement. In the event
an optionees employment is terminated as a result of death or disability, such
optionee or his designated beneficiary shall be entitled to exercise any and all
options for a period of six (6) months after such termination. If an optionees
employment is terminated as a result of retirement, the optionee shall be
entitled to exercise his options for a period of three (3) months following
such termination.
Nonqualified stock options under the Option Plan are generally subject to the
same rules as discussed above. Nonqualified stock options may, however, also
be granted to directors and consultants, whether or not such individuals are
employees of the Company. The exercise price for nonqualified stock options
may not be granted at less than eighty-five percent (85%) of the fair market
value of the shares on the date of grant.
THE 1996 STOCK OPTION PLAN
The 1996 Plan is designed to permit the Company to grant either incentive stock
options under Section 422A of the Internal Revenue Code (the "Code") or
nonqualified stock options. Under the 1996 Plan, a Stock Option Committee (the
Option Committee") of the Board is authorized to grant options to purchase up to
175,000 shares of stock to key employees, officers, directors and consultants of
the Company. The Option Committee administers the 1996 plan and designates the
optionees, the type of options to be granted (i.e., nonqualified or incentive
stock options), the number of shares subject to the options, and the terms and
conditions of each option. The terms and conditions include the exercise price,
date of grant, and date of exercise of each option. An employee may, at the
discretion of the Option Committee, be permitted to exercise an option and make
payment by giving a personal note.
Incentive stock options may only be granted to employees of the Company and not
to directors or consultants who are not employed. The exercise price for
incentive stock options must be at least one hundred percent (100%) of the fair
market value of the Common Stock as determined by the Option Committee on the
date of grant. All incentive stock options under the 1996 Plan must be granted
within ten (10) years from the date of adoption of the Option Plan and each must
be exercised, if at all, within ten (10) years of the date of grant. In no
event may any employee be given incentive stock options whereby more than
$100,000 of options become exercisable for the first time in a single calendar
year. All incentive stock options must be exercised by an optionee within
thirty (30) days after termination of optionee's employment, unless such term-
ination is the result of death or disability, such optionee or his designated
beneficiary shall be entitled to exercise any and all options for a period of
six (6) months after such termination. If an optionee's employment is term-
inated as a result of retirement, the optionee shall be entitled to exercise his
options for a period of three (3) months following such termination.
Nonqualified stock options under the 1996 Plan are generally subject to the
same rules as discussed above. Nonqualified stock options may, however, also
be granted to directors and consultants, whether or not such individuals are
employees of the Company. The exercise price for nonqualified stock options may
not be granted at less than eighty-five percent (85%) of the fair market value
of the shares on the date of grant.
During 1996 the Company issued incentive stock options for 51,500 shares of
Common Stock. The average exercise price of the options is $7.39. The
following officers were recipients of options:
Number of Average
Officer Shares Exercise Price
Monte Ross 15,000 7.39
Mark Peterson 7,500 7.39
Ernest Clarke 7,500 7.39
Leonard Missler 2,000 7.39
Duane Crofts 2,000 7.39
REMUNERATION OF DIRECTORS
Prior to April 21, 1994 the Directors of the Company who were not officers
received 208 shares of Common Stock per meeting as compensation for their
services. That policy was terminated on April 21, 1994. Outside Directors now
receive $250 per meeting and are reimbursed for out-of-pocket expenses incurred
on the Company's behalf.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of outstanding shares
of Common Stock of the Company as of March 21, 1997 by any person who, to the
knowledge of the Company, owns beneficially more than 5% of the outstanding
Common Stock, by all directors of the Company, and by the directors and officers
of the Company as a group. None of the persons identified below owns any
securities of the Company other than the Common Stock listed below:
Name and Amount and
Address of Nature of Percentage
Beneficial Beneficial of Outstanding
Owner (1) Ownership Shares (6)
Monte Ross(2) 679,000 19.95%
shares of
record
Mark L. Peterson(3) 171,705 5.05%
shares of
record
Ernest Clarke(4) 152,632 4.49%
shares of
record
Steven Akre(5) 3,496 0.10%
shares of
record
Bruce Miller 2,872 0.08%
shares of
record
John Clancy 3,692 0.11%
shares of
record
All officers and 1,038,244 30.51%
directors as a shares of
group (7 persons) record
(1) The address of each of these shareholders is c/o Ultradata Systems,
Incorporated, 9375 Dielman Industrial Drive, St. Louis, Missouri 63132
(2) Includes 630,000 shares owned by the Monte Ross and Harriet J. Ross Living
Trust. Mr. Ross and his wife share investment control over the trust; they may
revoke it or amend it at will; and they receive all income from the trust during
the life of either of them.
(3) Includes 134,387 shares owned by the Mark L. Peterson and Ryia Peterson
Living Trust and 8,318 owned by Ryia Peterson. Mr. Peterson and his wife share
investment control over the trust; they may revoke it or amend it at will; and
they receive all income from the trust during the life of either of them.
(4) Includes 130,852 shares owned jointly by Mr. Clarke with his wife. Also
includes 2,080 shares owned by children residing with Mr. Clarke.
(5) Includes 2,080 shares owned by the G. Akre Irrevocable Trust, over which
Mr. Akre's wife has investment control.
(6) In determining the percentage of outstanding shares, all presently
exercisable options owned by the shareholder or the group are treated as having
been exercised.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 8, 1987, the Monte Ross and Harriet Ross Living Trust (the "Ross Trust")
sold 93,582 shares of common stock to the Company for $100,000. The Company
paid for the shares by issuing to Monte Ross, the Company's President, a
promissory note in the principal amount of $100,000. The note bore interest at
8% per annum and was payable in five equal installments of $20,000 plus accrued
interest, commencing January 1, 1990. Mr. Ross had the option on each
installment date to convert the annual installment and accrued interest into
31,588 shares. He did not exercise that option on any of the five installment
dates, nor did the Company make payments to him on the note. On February 22,
1994, the Board of Directors offered payment of the total principal and accrued
interest by issuing 157,941 shares of Common Stock. Mr. Ross accepted the
offer. The Company has allocated these shares on its consolidated financial
statements among the five years in which the options were exercisable.
On September 17, 1994, the Board of Directors of the Company approved the sale
of 150,000 shares of Common Stock to the Company's three officers/directors as
follows:
Monte Ross 100,000 shares
Mark L. Peterson 25,000 shares
Ernest Clarke 25,000 shares
The purchase price for the shares was $1.875 per share, which was paid by each
officer/director in the form of a promissory note bearing interest at 6% per
annum. The principal amount of each note, plus accrued interest, is payable on
July 1, 1997.
In August and September of 1994 nine employees of the Company, including all
five of its officers, exercised incentive stock options and paid the purchase
price of $1.20 per share by delivering to the Company promissory notes. The
promissory notes bear interest at 6% per year and are payable upon the earlier
of the date on which the employee's employment by the Company is terminated or
the date on which the employee sells the shares. The number of shares so
purchased and the principal amount of the notes given were as follows:
Employee Shares Note
Monte Ross 55,734 $ 66,500
Mark Peterson 13,725 $ 16,750
Ernest Clarke 13,725 $ 16,750
Leonard Missler 17,676 $ 21,250
Duane Crofts 2,080 $ 2,500
Other Employees 6,862 $ 8,250
TOTAL 109,802 $ 132,000
The Company has an agreement with Leonard Missler, its Vice President -
Software Development, under which, through September 13, 2009, it pays Mr.
Missler a 1% royalty on all net sales of ROAD WHIZ products and 1/2% on net
sales of other products incorporating the ROAD WHIZ database. During the years
ended December 31, 1996, 1995, and 1994, the Company paid royalties to Mr.
Missler of $55,540, $66,477, and $56,235, respectively.
Steven H. Akre, Esquire, a member of the Company's Board of Directors, has
performed legal services as general counsel for the Company since its inception.
During 1996, 1995 and 1994, Mr. Akre was paid $20,219, $21,453 and $24,423,
respectively, for legal services.
Item 13. EXHIBITS, LIST, AND REPORTS
(a) Consolidated Financial Statements
List of Consolidated Financial Statements Under Item 7 of this
Report:
Report of Independent Auditors.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations for each of the years in the three-
year period ended December 31, 1996.
Consolidated Statements of Stockholders' Equity for each of the years in
the three-year period ended December 31, 1996.
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended December 31, 1996.
Notes to Consolidated Financial Statements for the years ended December 31,
1996.
FINANCIAL STATEMENT SCHEDULE
(b) EXHIBITS INDEX AND REPORTS ON FORM 8-K
Regulation S-B
Exhibit Number
3-a. Articles of Incorporation, and 1989 amendment. (1)
3-a.(1) Amendment to Articles of Incorporation dated March 4, 1991,
March 22, 1994, and November 18, 1994. (1)
3-a.(2) Certification of Correction of Articles of Incorporation. (1)
3-b. By-laws. (1)
4-a. Specimen of Common Stock Certificate. (1)
4-b. Form of Warrant Agreement. (1)
4-b.(1) Specimen of Class A Warrant. (1)
10-a. Lease dated May 23, 1990, as amended on November 31, 1993, for
premises at 9375 Dielman Industrial Drive, St. Louis, Missouri.(1)
10-a.(1) Lease Addendum dated October 17, 1995, for premises at 9375 Dielman
Industrial Drive, St. Louis, Missouri.(1)
10-b. 1994 Stock Option Plan.(1)
10-c. Employment Agreement with Monte Ross.(1)
10-d. Employment Agreement with Mark L. Peterson.(1)
10-e. Employment Agreement with Ernest Clarke.(1)
10-f. Royalty Agreement dated September 14, 1989, between the Company and
Leonard Missler.(1)
10-f.(1) Modification Agreement dated November 4, 1995, to Royalty Agreement
dated September 14, 1989, between the Company and Leonard Missler.
(1)
10-g. Promissory Note and Security Agreement dated March 4, 1994, between
the Company and The Boatman's National Bank of St. Louis.(1)
10-h. Letter of Agreement dated March 16, 1992, between the Company and
Trailer Life Enterprises.(1)
10-i. Agreements dated March 18, 1994, April 25, 1994, and May 23, 1994,
among the Company, Howard Kenig, and POIS, Inc.(1)
10-j. Promissory Note and Security Agreement dated April 1, 1995, between
the Company and the Boatmen's National Bank of St. Louis Missouri.
(1)
10-k Licensing Agreement between Kiniticom, Inc., and the Company dated
March 15, 1996 (3)
10-l Credit Agreement-Between Boatmen's National Bank of St. Louis and the
Company, dated May 1, 1996. (3)
10-m Call for Redemption of Class A Warrants on Form 8-K, dated August 6,
1996. (3)
10-n Letter of Agreement dated September 17, 1996 between the Company and
TravRoute Software. (2)
11. Computation of per share earnings.(2)
12. Subsidiaries - POIS, Inc.
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2 (33-85218 C) and incorporated herein by
reference.
(2) Included herewith.
(3) Previously filed.
(c) Reports on Form 8-K
None during the fourth quarter.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
Current assets:
Cash and cash equivalents $ 3,960,577 $ 15,065
Marketable securities - 800,000
Trade accounts receivable, net of
allowance for doubtful accounts of
$16,644 and $15,000 at December 31,
1996 and 1995, respectively 4,608,285 2,794,254
Costs and estimated earnings on
long-term contracts 438,670 612,317
Inventories 3,289,453 1,954,584
Deferred tax assets 62,600 49,515
Prepaid expenses and other current assets 641,376 122,852
Total current assets 13,000,961 6,348,587
Property and equipment, net 642,245 403,023
Deferred compensation trust 91,689 83,164
Other assets 43,968 17,538
Total assets $13,778,863 $6,852,312
Liabilities and Stockholders' Equity
Current liabilities:
Note payable to bank - 448,000
Accounts payable 1,374,346 673,216
Accrued expenses and other liabilities 865,263 588,732
Total current liabilities 2,239,609 1,709,948
Deferred rent 8,708 1,244
Deferred compensation liability 91,689 83,164
Deferred tax liabilities 23,330 23,060
Total liabilities 2,363,336 1,817,416
Commitments and contingencies
Minority interest - -
Stockholders' equity:
Common stock, $.01 par value;
10,000,000 shares authorized;
3,403,493 and 2,351,171 shares
issued and outstanding at December 31,
1996 and 1995, respectively 34,035 23,512
Additional paid-in capital 9,763,001 3,601,030
Retained earnings 2,028,991 1,820,854
Notes receivable issued for purchase
of common stock (410,500) (410,500)
Total stockholders' equity 11,415,527 5,034,896
Total liabilities and stockholders'
equity $13,778,863 $6,852,312
See accompanying notes to consolidated financial statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1996, 1995, and 1994
1996 1995 1994
Net sales:
Consumer products $ 8,282,436 $ 9,437,239 $ 6,064,331
Contract 810,484 675,465 333,883
Total net sales 9,092,920 10,112,704 6,398,214
Cost of sales:
Consumer products 3,496,215 4,659,406 2,651,392
Contract 380,207 316,572 192,022
Total cost of sales 3,876,422 4,975,978 2,843,414
Gross profit 5,216,498 5,136,726 3,554,800
Selling, general, and
administrative expenses 4,023,027 2,480,576 1,918,948
Research and development
expense 1,001,646 556,213 290,996
Operating profit 191,825 2,099,937 1,344,856
Other income (expense):
Interest expense (3,428) (13,743) (14,302)
Interest income 120,693 142,359 30,730
Royalty income 503 114 -
Loss on marketable securities - (104) (17,537)
Other, net (4,448) (9,915) (19,676)
Total other income
(expense), net 113,320 118,711 (20,785)
Income before income
tax expense 305,145 2,218,648 1,324,071
Income tax expense 97,008 836,746 367,158
Net income $ 208,137 $ 1,381,902 $ 956,913
Earnings per share:
Primary $ 0.08 $ 0.52 $ 0.50
Fully diluted $ 0.08 $ 0.49 $ 0.50
See accompanying notes to consolidated financial statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating
activities:
Net income $ 208,137 $ 1,381,902 $ 956,913
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and amortization 101,060 62,841 42,231
Deferred income tax provision (12,815) 14,545 (41,000)
Discount accretion - (53,064) -
Loss on marketable securities - 104 17,537
Increase (decrease) in cash due
to changes in operating assets
and liabilities:
Trade accounts receivable, net (1,814,031) (1,741,044) (509,152)
Costs and estimated earnings on
long-term contracts 173,647 (612,317) -
Inventories (1,334,869) (514,411) (793,631)
Prepaid expenses and other
current assets (518,524) (91,843) (15,322)
Other assets (26,430) 10,740 (20,524)
Accounts payable 701,130 (156,631) 489,840
Accrued expenses and
other liabilities 276,531 32,829 408,332
Deferred rent 7,464 (6,137) (1,950)
Net cash (used in) provided
by operating activities (2,238,700) (1,672,486) 533,274
Cash flows from investing activities:
Purchase of marketable securities - (2,498,189) (100,000)
Sale of marketable securities 800,000 1,852,917 212,143
Capital expenditures (340,282) (274,809) (114,889)
Net cash provided by (used in)
investing activities 459,718 (920,081) (2,746)
Cash flows from financing activities:
Proceeds from line of credit - 765,500 350,000
(Repayments of) proceeds from
bridge loan financing - (135,000) 135,000
Principal payments on line
of credit (448,000) (317,500) (350,000)
Proceeds from sale of stock 6,172,494 - 109,875
Repurchase of stock - (12,500) -
Net proceeds from initial
public offering - 1,492,572 -
Decrease (increase) in deferred
offering costs - 183,208 (183,208)
Proceeds from repayment of
notes receivable to
purchase common stock - 2,750 -
Increase in deferred
compensation trust (8,525) (28,997) (12,387)
Increase in deferred
compensation liability 8,525 21,049 3,645
Net cash provided by
financing activities 5,724,494 1,971,082 52,925
Net increase (decrease) in
cash and cash equivalents 3,945,512 (621,485) 583,453
Cash and cash equivalents at
beginning of year 15,065 636,550 53,097
Cash and cash equivalents at
end of year $ 3,960,577 $ 15,065 $ 636,550
Supplemental disclosure of cash flow information:
Cash paid during the year
for interest $ 5,440 $ 15,761 $ 10,263
Cash paid during the year
for taxes 341,389 635,998 199,000
Supplemental disclosure of noncash financing activities:
Conversion of notes payable,
including accrued interest,
to stock $ - $ - $ 21,600
Shares issued for investment
in POIS, Inc. - - 25,000
Notes receivable issued for
purchase of common stock - - (413,250)
Change in unrealized loss
on marketable securities - 104 6,725
Director's compensation - - 4,250
Officer's stock bonus - - 10,000
Warrant expense - - 22,500
See accompanying notes to consolidated financial statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
Notes
receivable
Unrealized issued
Additional loss on Retained for purchase Total
Common paid-in marketable earnings of common stockholders'
stock capital securities (deficit) stock equity
Balance at December 31, 1993
$ 16,075 1,583,670 (6,829) (517,961) - 1,074,955
Note payable conversion
for 31,589 shares
316 21,284 - - - 21,600
Director's compensation
of 3,535 shares
35 4,215 - - - 4,250
Exercise of stock options
for 124,880 shares
1,249 148,876 - - (132,000) 18,125
Sale of 33,274 shares of
common stock
333 39,667 - - - 40,000
Officer's stock bonus of
8,318 shares
83 9,917 - - - 10,000
Sale of 150,000 shares to
key executives
1,500 279,750 - - (281,250) -
Sale of Class A warrants in connection
with bridge loan financing
- 37,500 - - - 37,500
Net income
- - - 956,913 - 956,913
Decrease in unrealized loss on
marketable securities
- - 6,725 - - 6,725
Balance at December 31, 1994
19,591 2,124,879 (104) 438,952 (413,250) 2,170,068
Repurchase of 10,400 shares
of common stock
(104) (12,396) - - - (12,500)
Net proceeds of initial public offering
of 402,500 shares
4,025 1,488,547 - - - 1,492,572
Net income
- - - 1,381,902 - 1,381,902
Decrease in unrealized loss on
marketable securities
- - 104 - - 104
Repayment of notes receivable
issued for purchase of common stock
- - - - 2,750 2,750
Balance at December 31, 1995
23,512 3,601,030 - 1,820,854 (410,500) 5,034,896
Exercise of warrants for
1,051,987 shares options
10,520 6,160,099 - - - 6,170,619
Exercise of stock options
for 300 shares
3 872 - - - 1,875
Net income
- - - 208,137 - 208,137
Balance at December 31, 1996
$ 34,035 9,763,001 - 2,028,991 (410,500) 11,415,527
See accompanying notes to consolidated financial statements.
Independent Auditors' Report
The Board of Directors and Stockholders
Ultradata Systems, Incorporated:
We have audited the accompanying consolidated balance sheets of Ultradata
Systems, Incorporated and subsidiary (the Company) as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements 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 ou
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ultradata Systems,
Incorporated and subsidiary as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
March 7, 1997
(1) Summary of Significant Accounting Policies
(a) Description of Business
The principal business activity of Ultradata Systems, Incorporated (the
Company) is the design, manufacture, and sale of hand-held electronic
information products. In addition, the Company performs laser system
development work and manufacturing under certain contracts with the United
States government.
(b) Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiary, POIS, Inc. (POIS). As a result of operating
losses incurred by POIS, the consolidated financial statements include 100% of
the POIS accounts, as the minority interest does not currently have the ability
to absorb these losses. All significant intercompany balances and transactions
have been eliminated in consolidation.
(c) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
(d) Cash and Cash Equivalents
For financial statement presentation purposes, cash and cash equivalents
include deposits with initial maturities of less than three months, including
money market accounts with investments in marketable securities.
(e) Marketable Securities
Marketable securities represent investments in Federal Home Loan Bank discount
notes at December 31, 1995. The securities were available for sale and were
carried at market value. At December 31, 1995, the cost of the Federal Home
Loan Bank discount notes approximated market. There were no marketable
securities outstanding at December 31, 1996.
(f) Accounting for Long-term Contracts
Revenue under the Company's long-term contract is recognized on the percentage
of completion method based upon incurred costs compared to total estimated costs
under the contract. Revisions to assumptions and estimates, primarily in
contract value and estimated costs, used for recording sales and earnings are
reflected in the accounting period in which the facts become known.
Costs and estimated earnings on long-term contracts represent unbilled
revenues, including accrued profits on long-term contracts accounted for under
the percentage-of-completion method.
(g) Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(h) Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are
expensed as incurred. Major improvements which materially extend useful lives
are capitalized. Depreciation is provided on the straight-line basis over the
estimated useful lives of the assets, generally five years. Leasehold
improvements are amortized over the shorter of the term of the related lease or
its useful life.
(i) Operating Lease
Lease expense on the corporate facilities is recognized on a straight-line
basis over the primary term of the lease. The lease provides for accelerating
rent over the lease term. Accordingly, deferred rent has been recorded in the
Company's consolidated balance sheet.
(j) Deferred Compensation Trust
Deferred compensation trust represents contributions made by the Company to a
Rabbi trust plus the related dividend and interest income earned on investments
(see note 7). The amounts are restricted from use for operation purposes and
investment decisions are made by the trust beneficiary. The deferred
compensation trust is recorded at its fair value.
(k) Revenue Recognition
Revenue is recognized upon shipment of consumer products. Revenue is
recognized on the percentage-of-completion method for contracts. Cost of sales
includes the material and other related costs.
(l) Research and Development Expense
Research and development costs related to product development and enhancement
are expensed currently.
(m) Royalty Expense
Royalty expense is recognized on a pro rata basis as units are sold.
(n) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(o) Earnings Per Share
For the third and fourth quarters of 1996 and the year ended December 31, 1996,
earnings per common and common equivalent share are based on the weighted
average number of common shares outstanding plus shares issuable upon the
assumed exercise of dilutive common share options and warrants by using the
treasury stock method. For the first and second quarters of 1996 and in 1995,
the modified treasury stock method was used in the calculation of earnings per
common and common equivalent share. For 1994, earnings per common and common
equivalentshare are based on the average shares outstanding including the
dilutive (or antidilutive) effect of all stock issued during 1994 for
consideration below the initial public offering price. For the years ended
December 31, 1996, 1995, and 1994, earnings per common and common equivalent
share for fully diluted and primary earnings are computed using 2,773,245,
2,872,207, and 1,924,265 common and common share equivalents outstanding,
respectively.
(p) Fair Value of Financial Instruments
The Company discloses estimated fair values for its financial instruments. A
financial instrument is defined as cash or a contract that imposes on one
entity a contractual obligation to deliver cash or another financial instrument
to a second entity, and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity.
(q) Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, encourages, but does not require companies to record
compensation costs for stock-based employee compensation at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees.
(r) Reclassifications
Certain 1995 and 1994 balances have been reclassified to conform with the 1996
presentation.
(2) Advertising
The Company expenses the production costs of advertising the first time
advertising takes place, except for direct response advertising, which is
capitalized and amortized over its expected period of future benefits.
At December 31, 1996 and 1995, $510,521 and $19,517 of advertising was reported
as assets. Included in the 1996 assets is $437,333 which represents capitalized
costs of direct-response advertising. Direct-response advertising consists
primarily of credit-card inserts that include order coupons for the Company's
products. The capitalized costs of the advertising are amortized on a declining
basis over the five-month period following the mailings. Advertising expense
totaled $1,773,373, $942,402, and $778,750 for fiscal years 1996, 1995, and
1994, respectively.
(3) Inventories
Inventories at December 31, 1996 and 1995 consist of the following:
1996 1995
Raw materials $ 1,783,741 $ 1,218,200
Work in process 130,876 161,219
Finished goods 1,374,836 575,165
Total $ 3,289,453 $ 1,954,584
(4) Property and Equipment
Property and equipment at December 31, 1996 and 1995 consist of the following:
1996 1995
Research and development equipment $ 127,144 $ 120,300
Production equipment 44,501 41,534
Tooling and test equipment 398,389 186,414
Office furniture and equipment 212,344 140,214
Sales displays 59,548 31,932
Tooling in process 57,569 47,800
Leasehold improvements 84,941 75,960
Subtotal 984,436 644,154
Less accumulated depreciation
and amortization 342,191 241,131
Total $ 642,245 $ 403,023
Depreciation and amortization expense for the years ended December 31, 1996,
1995, and 1994 totaled $101,060, $62,841, and $42,231, respectively.
(5) Leases
The Company revised and expanded its corporate facilities lease as of November
1, 1995. The lease is an operating lease which expires October 31, 2001. The
lease is cancelable after October 1998. The Company pays monthly rent plus 31%
of all building expenses. Rental expense totaled approximately $117,300,
$49,300, and $37,700 for the years ended December 31, 1996, 1995, and 1994,
respectively.
Future minimum lease payments and the related totals expensed for financial
reporting under the operating lease consist of the following:
Rent
Cash expense to be
payment recognized
Year ending December 31:
1997 $ 92,056 $ 99,520
1998 94,544 99,520
1999 106,984 99,520
2000 106,984 99,520
2001 89,153 82,933
$ 489,721 $ 481,013
(6) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 1996 and 1995 consist
of the following:
1996 1995
Accrued sales commissions and royalties $ 95,119 $ 95,049
Accrued advertising 433,811 -
Income taxes payable 173,637 405,203
Other 162,696 88,480
$ 865,263 $ 588,732
(7) Deferred Compensation
Deferred compensation represents the market value of investments made by the
Company in conjunction with a deferred compensation arrangement with the
Company's President for services provided prior to 1991. Five annual payments
of $12,800 were paid through December 31, 1995 to a Rabbi trust for the benefit
of the Company's President (see note 1).
(8) Line of Credit
On March 4, 1994, the Company entered into a revolving line of credit with a
commercial bank which requires monthly interest payments at the prime rate
(8.25% and 8.5% at December 31, 1996 and 1995, respectively) on outstanding
borrowings. The line of credit totaled $2,500,000 and $1,000,000 at December
31, 1996 and 1995, respectively. There were no outstanding borrowings at
December 31, 1996. The outstanding borrowings at December 31, 1995 were
$448,000, and there were no outstanding borrowings at December 31, 1994. The
line of credit is unsecured and expires May 1, 1997. Management anticipates
renewing the line of credit prior to that time.
(9) Initial Public Offering and Subsequent Warrant Conversion
Effective on February 7, 1995, the Company completed an initial public offering
of securities. The proceeds, net of underwriting fees and offering expenses,
from the aggregate sale of 402,500 shares of common stock and 402,500 redeemable
Class A warrants were $1,492,572. Each Class A warrant permitted the holder to
purchase one share of common stock for between $6.00 and $6.18 from January 31,
1996 through January 30, 1988. An additional 600,000 Class A warrants were sold
to the public by certain selling security holders at that time.
During 1996, the Class A warrants were converted into 1,051,987 shares of
common stock, including 1,022,887 shares which were converted in the fourth
quarter as a result of the Company calling for the redemption of all of its
outstanding warrants, including underwriters' warrants, at a redemption value
of $0.05 per warrant. Net proceeds totaled $6,172,494 after deducting expenses
totaling $135,603.
(10) Notes Receivable Issued for Purchase of Common Stock
Notes receivable issued for purchase of common stock represent unsecured
advances made by the Company to various employees for stock options exercised.
The notes bear interest at 6% per annum and are due, together with accrued
interest, on demand on either the termination of employment or the sale of
underlying stock, whichever comes first.
(11) Income Taxes
Income tax expense (benefit) for the years ended December 31, 1996, 1995, and
1994 consists of:
1996
Current Deferred Total
Federal $ 90,784 $ (11,466) $ 79,318
State 19,039 (1,349) 17,690
$ 109,823 $ (12,815) $ 97,008
1995
Current Deferred Total
Federal $ 755,277 $ 13,340 $ 768,617
State 66,924 1,205 68,129
$ 822,201 $ 14,545 $ 836,746
1994
Current Deferred Total
Federal $ 373,658 $ (36,700) $ 336,958
State 34,500 (4,300) 30,200
$ 408,158 $ (41,000) $ 367,158
Income tax expense for the years ended December 31, 1996, 1995, and 1994
differed from the amounts computed by applying the statutory U.S. federal
corporate income tax rate of 34% to income before income tax expense as a result
of the following:
1996 1995 1994
Expected income tax expense $ 103,749 $ 754,340 $ 450,184
Increase (decrease) in income
taxes resulting from:
Change in the beginning-of-year
balance of the valuation
allowance for deferred tax assets - - (99,318)
State income taxes, net of
federal benefit 11,675 44,966 19,932
Nondeductible expenses for
federal income tax purposes 15,100 65,195 -
Research and experimental credits (33,147) (27,755) -
Other, net (369) - (3,640)
$ 97,008 $ 836,746 $ 367,158
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1996 and 1995 are as
follows:
1996 1995
Deferred tax assets:
Capital loss carryforwards $ 6,664 $ 6,664
Accounts receivable, principally due to
accrual for financial reporting purposes 16,450 5,561
Inventories, principally due to additional
costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 31,316 29,944
Other 8,170 7,346
Total deferred tax assets 62,600 49,515
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation basis (23,330) (21,107)
Other - (1,953)
Total deferred tax liabilities (23,330) (23,060)
Net deferred tax assets $ 39,270 $ 26,455
Management of the Company believes the deferred tax assets will more likely
than not be realized and, therefore, no valuation allowance has been recorded
at December 31, 1996 and 1995.
(12) Employee Benefit Plans
(a) Simplified Employee Pension Plan
The Company maintains a simplified employee pension plan covering all full-
time employees. Subject to approval by the Board of Directors, the Company
matches employee contributions up to 3% of the compensation paid to
participating employees, as defined by the plan. Employees may contribute up to
12% of their compensation. Expense attributable to Company contributions
totaled $27,546, $17,848, and $13,513, during the years ended December 31, 1996,
1995, and 1994, respectively.
(b) Incentive Stock Option Plans
At December 31, 1996, the Company has two fixed stock option plans, which are
described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed stock option plans. Had compensation cost
for the Company's two fixed stock option plans been determined consistent with
SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1996 1995
Net income As reported $ 208,137 $ 1,381,902
Pro forma $ 109,993 $ 1,179,853
Primary earnings As reported $0.08 $0.52
per share Pro forma $0.04 $0.45
Fully diluted
earnings As reported $0.08 $0.49
per share Pro forma $0.04 $0.42
Under the 1994 Incentive Stock Option Plan, the Company may grant incentive
stock options to its employees, officers, directors, and consultants of the
Company to purchase up to 175,000 shares of common stock. Under the 1996
Incentive Stock Option Plan the Company may grant incentive stock options to its
employees, officers, directors, and consultants of the Company to purchase up
to 175,000 shares of common stock. Under both plans, the exercise price of each
option equals the market price of the Company's stock on the date of the grant,
the options maximum term is five years. Options are granted at various times
and are exercisable immediately.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively; dividend yield of
zero for both years; expected volatility of 58.6% and 47.3%; risk-free interest
rates of 6.42% and 6.00%; expected lives of five years for both plans.
A summary of the status of the Company's two fixed stock option plans as of
December 31, 1996 and 1995 and changes during the years then ended is presented
below:
1996 1995
Weighted Weighted
average average
exercise exercise
Fixed options Shares price Shares price
Outstanding at beginning
of year 162,492 $5.91 - -
Granted 51,500 $7.39 162,992 $5.91
Exercised (300) $6.25 - -
Forfeited - - (500) $5.00
Outstanding at end
of year 213,692 $6.27 162,492 $5.91
Options exercisable
at year end 213,692 162,492
Weighted average fair value of
options granted to employees
during the year $3.88 $2.91
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
Options outstanding and exercisable
Number Weighted average
Range of outstanding at remaining Weighted average
exercise prices December 31, 1996 contractual life exercise price
$5.00 - $5.99 69,000 3.2 years $5.35
$6.00 - $6.99 93,192 3.8 years $6.31
$7.00 - $7.99 51,500 4.8 years $7.39
$5.00 - $7.99 213,692 3.9 years $6.27
(13) Commitments and Contingencies
On September 14, 1989, the Company entered a royalty agreement relating to its
Road Whiz product. After 20,000 Road Whiz units are sold, the agreement
provides for a 1% royalty payment on net sales of the Road Whiz product and 1/2%
on the Company's other products which incorporate the Road Whiz database.
Royalty payments are made quarterly until September 13, 2009. During the years
ended December 31, 1996, 1995, and 1994, royalty expense totaled $55,540,
$66,477, and $56,235, respectively.
On March 16, 1992, the Company entered into a royalty agreement for the use of
a database for its RV Navigator product. The agreement provides for an initial
payment of $10,000, representing the royalty payment for the first 5,000 RV
Navigator units sold. After 5,000 units are sold, the royalty fee will be $1
per unit sold. The agreement, which is cancelable with 12 months' written
notice by either party, is valid until the earlier of March 15, 1997 or the
sale of 20,000 RV Navigator units is achieved. Management intends to renew the
agreement during 1997. The Company is amortizing the initial payment using
the straight-line method over the 5,000 units sold, not to exceed five years.
During the years ended December 31, 1996, 1995, and 1994, royalty expense
totaling $2,508, $6,108, and $3,476, respectively, was recognized.
On October 17, 1994, the Company entered into a royalty agreement for the use
of a database for its Greensfinder product. The agreement provides for an
initial payment of $24,000, representing the royalty payment for the first 6,000
Greensfinder units sold. After 6,000 units are sold, the royalty fee will be
10% of the net sales price as defined in the agreement. In addition, the
Company will pay a royalty fee of 20% of the net sales price as defined in the
agreement for Greensfinder upgrades. The agreement is valid for five years. The
Company is amortizing the initial payment on a pro rata basis over 60,000 units
sold, not to exceed five years. During the years ended December 31, 1996, 1995
and 1994, royalty expense totaling $9,317, $16,352 and $3,388, respectively, was
recognized.
On September 1, 1994, the Company entered into employment agreements with its
President and two of its key officers. The agreements provide for salaries for
1994 ranging from $68,920 to $100,000, which are to be adjusted annually by the
Board of Directors. Salaries for 1995 range from $74,110 to $105,000. Salaries
for 1996 range from $78,040 to $114,404. If the majority of the Board of
Directors cannot agree as to the level of salary adjustment, the salary will
increase by 10% (5% for the President). The agreements restrict each officer
from competing with the Company for one year after employment termination,
unless the officer establishes that the employment by a competitor will not
involve the use of any information which is confidential to the Company. The
agreements terminate on the earlier of October 31, 1997 or employment
termination.
(14) Related-Party Transactions
On May 23, 1994, the POIS joint venture agreement was modified, resulting in
an 81% ownership for the Company. In connection with the agreement, the Company
issued 20,796 shares of its common stock to Howard Kenig, its joint venture
partner. The agreement between the Company and Mr. Kenig provides that if net
sales of POIS exceed $5 million in any single fiscal year after 1996, Mr. Kenig
has a right to return the 20,796 of the Company's shares in exchange for an
additional 13.4% interest in POIS, thereby increasing the minority interest to
33% and reducing the Company's 67%. If the net sales of POIS exceeds
$10 million in any fiscal year after 1996, Mr. Kenig need only return 14,557
of the Company's shares to obtain the 13.4% increase in POIS's ownership. In
addition to his salary, Mr. Kenig will receive a commission from POIS equal to
5% of the first $1 million of POIS's net sales, 2% of its next $9 million of
net sales, and 4% of its net earnings in excess of $250,000. Commissions of
$14,073 were paid to Mr. Kenig during 1996. No commisssions were paid to Mr.
Kenig during 1995 or 1994.
(15) Significant Customer
For the year ended December 31, 1996, the Company relied on one customer for
approximately 21% of consumer product sales. Accounts receivable from that
customer totaled $1,657,571 at December 31, 1996.
For the year ended December 31, 1995, the Company relied on a different
customer for approximately 47% of consumer product sales. Accounts receivable
from that customer totaled $2,007,388 at December 31, 1995.
(16) Disclosure About the Fair Value of Financial Instruments
For cash and cash equivalents, marketable securities, trade accounts
receivable, costs and estimated earnings on long-term contracts, prepaid
expenses and other current assets, accounts payable, and accrued expenses and
other liabilities, the carrying amount approximates fair value because of the
short-term maturity of these instruments.
Notes payable and long-term obligations carry variable interest rates and the
respective carrying amounts approximate fair value.
(17) Subsequent Event
In February 1997, the Company received two additional delivery orders related
to a project with the U.S. government totaling $337,888.
(18) Quarterly Financial Information (Unaudited)
First Second Third Fourth
quarter quarter quarter quarter
(Dollars in thousands, except per share amount)
1996:
Net sales $ 859 $ 1,747 $ 1,451 $ 5,036
Gross profit 470 946 784 3,016
Net income (loss) (294) (73) (118) 693
Earnings (loss) per
share primary and
fully diluted (.09) (.03) (.04) .20
1995:
Net sales $ 2,293 $ 1,190 $ 1,924 $ 4,706
Gross profit 1,166 623 1,016 2,332
Net income (loss) 360 (20) 272 770
Earnings (loss) per
share:
Primary .14 (.01) .10 .27
Fully diluted .14 (.01) .10 .26
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Ultradata Systems, Incorporated
By:
/s/ Monte Ross
__________________________________________Monte Ross, President, Chief
Executive Officer and Chairman
of the Board
In accordance with the Exchange Act, this report has been signed below by the
following persons, on behalf of the registrant and in the capacities and on
the dates indicated.
March 24, 1997
/s/ Monte Ross
________________________________________ Monte Ross, President, Chief
Executive Officer and Chairman
of the Board
March 24, 1997
/s/ Mark L. Peterson
________________________________________ Mark L. Peterson, Vice President
of Engineering, Secretary and
Director
March 24, 1997
/s/Ernest Clarke
________________________________________ Ernest Clarke, Vice President of
Government Programs, Director
March 24, 1997
/s/ Steven H. Akre
________________________________________ Steven H. Akre, Director
March 24, 1997
/s/ Bruce L. Miller
________________________________________ Bruce L. Miller, Director
March 24, 1997
/s/ John J. Clancy
________________________________________ John J. Clancy, Director
Agreement
Whereas: Ultradata Systems, Inc. (hereinafter, "UDS"), desires to expand and
improve the routing capability of its line of travel-related hardware products,
but has no desire to market software as a stand-alone product, and -
Whereas: TravRoute Software (a division of ALK Associates, hereinafter "TRS"),
wishes to improve and expand the utilization of its routing software and
navigation database, but has no desire to market electronic hardware, and -
Whereas: Both UDS and TRS wish to expand their respective market shares, by
expanding distribution channels, improving their respective products, and
through the introduction of new and innovative products, and -
Whereas: Both UDS and TRS believe that by working together, expanded market
opportunities and profitability can accrue to both parties,
Now Therefore: UDS and TRS affirm that is their intent to jointly explore the
benefits of collaboration and cooperation in the following areas:
* Joint product development
* Interconnected data base(s)
* Technology exchange
* Joint and cross marketing
Agreement:
Both parties hereto agree to proceed in good faith to explore the opportunities
set forth above. UDS and TRS agree, during the period of exploration, not to
employ the services of, nor engage in active business discussions with any
individual or business entity whom the other party would consider to be a direct
competitor, and therefore, inimical to their business interests. This obligation
will end upon entering into a superseding formal business arrangement between
the parties hereto, or 30 days after wri
forth below, whichever shall occur first. Obligations to protect the
confidential and proprietary business information of each party are the subject
of a separate Confidentiality Agreement, and will survive this agreement, in
accordance with the terms of the Confidentiality Agreement.
For UDS:________________________ For TRS:_________________________
Monte Ross (date) Dan Titus (date)
President President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,960,577
<SECURITIES> 0
<RECEIVABLES> 4,624,929
<ALLOWANCES> (16,644)
<INVENTORY> 3,289,453
<CURRENT-ASSETS> 13,000,961
<PP&E> 984,436
<DEPRECIATION> (342,191)
<TOTAL-ASSETS> 13,778,863
<CURRENT-LIABILITIES> 2,239,609
<BONDS> 0
0
0
<COMMON> 34,035
<OTHER-SE> 11,381,492
<TOTAL-LIABILITY-AND-EQUITY> 13,778,863
<SALES> 9,092,920
<TOTAL-REVENUES> 9,214,116
<CGS> 3,876,422
<TOTAL-COSTS> 5,024,673
<OTHER-EXPENSES> 4,448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,428
<INCOME-PRETAX> 305,145
<INCOME-TAX> 97,008
<INCOME-CONTINUING> 208,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208,137
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
