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, 1997
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.
Yes X No
State the issuer's revenues for its most recent fiscal year: $13,817,231
The aggregate market value at March 13, 1998 of the voting stock held by
non-affiliates, based on the closing price as reported by NASDAQ National
Market System (NMS), was approximately $10,049,108. The aggregate market
value has been computed by reference to a share price of $4.25 (The price at
which stock was sold, or the average bid or asked price of such stock on
March 13, 1998). All directors and more than five percent of 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 13, 1998, was 3,412,493.
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 hand-held 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 changes its
name in November 1994 from Laser Data Technology, Inc. to Ultradata
Systems, Incorporated.
The Company's primary focus today remains in 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 to allow the
consumer to gain easy and immediate access to useful information stored in
convenient hand-held units. The Company's products generally sell
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 services available along the U.S. Interstate Highway System.
Some versions include 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 other travel software products in the market.
The Company's database of over 100,000 services, however, is proprietary to
the Company's travel computers. The Company sells its products through
independent sales representatives, catalog companies, department stores,
office supply stores, direct mail promotions, luggage stores and selected
television shopping channels. During 1996, the Company made a breakthrough in
the private label market. Private label sales contributed $6.9 million, or
52.1% of total consumer sales of $13.3 million for fiscal 1997. The private
label market is viewed as an important strategic growth opportunity for the
Company.
MAJOR PRODUCT OFFERINGS
ROAD WHIZ FAMILY
ROAD WHIZ was introduced during 1990. Since 1990, the Company has developed
other travel computer versions of the ROAD WHIZ, including ROAD WHIZ PLUS,
ROAD WHIZ ULTRA and ROAD WHIZ COMPANION, ROAD & CITY, TOWN & COUNTRY,
ULTRAFINDER and more recently, KIDS ROAD WHIZ. The Company's growth strategy
for the Road Whiz family of products is to expand its line of travel
computers to include additional features and functions at generally lower
retail prices. In fiscal 1997, research and development was incre
e Company to develop other hand-held information products, including Global
Positioning Satellite (GPS)-based products and Personal Data Assistant (PDA)
type products.
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 first generation travel
computers, including ROAD WHIZ PLUS and ROAD WHIZ COMPANION. ROAD WHIZ ULTRA
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 included 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 feature
travel guide. The RV NAVIGATOR database includes a location and feature
directory of over 13,000 campgrounds and RV repair and serviced 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 and 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 had the exclusive right to use the database
until March 1997 when the milestone of 20,000 units for exclusivity was
satisfied. The exclusive licensing agreement was not renewed and expired
during March 1997. However, database information continues to be regularly
updated, and the product continues as a staple in the Company's product line.
ULTRAFINDER
ULTRAFINDER was introduced in 1995. It is the most powerful hand-held 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 updateable plug-in memory module. It is
priced to sell at $99.95 at retail. During 1996, the Company received a
$4.0 million order for a custom UltraFinder, with follow-on rights for
additional quantities. During fiscal 1997, the Company essentially completed
this order, realizing revenue in excess of $6.9 million.
GREENSFINDER/GOLF GUIDE
GREENSFINDER and GOLF GUIDE represent the Company's two entries into the
sports leisure and travel market. Introduced in December 1994, GREENSFINDER
is a hand-held 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 scores.GOLF GUIDE lists more than 13,000
courses in the U.S., with directions and phone numbers. Other information
includes course descriptions, number of holes, hours, fees and senior
citizen discount availability. The Company acquired the software database
for these products from a third party. The Company is required to pay this
third party a royalty of 10% based on net sales and 20% for upgrades to
the software developer.
TOWN & COUNTRY
The TOWN & COUNTRY, introduced in 1996, provides a list of 60,000 services
along the nation's highways, parkways and toll roads and directions to over
7,000 towns on Interstates and U.S. Highways. This product was sold
exclusively on the QVC home television network during September 1996.
Following the expiration of the exclusivity period, the company began
selling the product through upscale retail locations such as Brookstone
and Rand McNally.
SUPER ROAD WHIZ
The SUPER ROAD WHIZ was introduced during 1997. It lists interstate highway
services including gas stations, restaurants, motels, campgrounds, malls,
tourist sites and hospitals in over 160 major cities.
The ROAD WHIZ RV SPECIAL
The ROAD WHIZ RV SPECIAL was introduced in 1997. It provides interstate
services, U.S. highway data, including distance and driving time between
towns with populations of over 1,000, and city-to-city directions for over
250 cities, including shortest complete route, total distance, and driving
time.
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.
HOME & GARDEN/GARDEN GURU
The HOME & GARDEN and GARDEN GURU products were introduced in late 1996 and
1997, respectively, to provide a convenient home reference on first aid and
helpful household hints on a variety of subjects, including spot removers
and home decor. For the garden enthusiast, information is provided on
planting and on plant care, with over 4,000 pages of related information.
The Company developed this database with the help of the Missouri Botanical
Garden, a non-profit foundation dedicated to the development and preservation
of plant species.
LASER SYSTEM 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
to 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 research
and development contract, the Company realizes revenues from progress payments
received during the course of completion 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 $1.7 million government production contract from the
Yuma Proving Ground to manufacture their PATS design. For the three years
ended December 31, 1997, 1996 and 1995, the Company realized revenues of
$563,251,$810,484 and $675,465, respectively, against this contract. At
December 31, 1997,there remain approximately $119,400 in direct costs to
complete the contract. The original contract provided for an override clause
for additional sites, which the customer exercised in February 1997. Since
August 1995, the Company received individual purchase orders totaling
$2,245,461 for this contract.
MANUFACTURING
The Company does not manufacture any of its consumer products and is
entirely dependent upon third parties to manufacture and assemble the
components comprising its products. From 1988 to 1994, Siemens
Manufacturing Co. of Freeburg, Illinois ("Siemens") was the exclusive
manufacturing source of travel computers for the Company. An alternate low
cost foreign manufacturer was established late in 1995 and supplied
approximately 18.6% of the total production units during 1997. 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 would become 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 foreseeable
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 multiple vendors. To date, the Company has been able to
obtain adequate and timely supplies of raw materials. The Company presently
has one sole source component. The sole supplier for this custom item is a
major vendor with whom the Company has enjoyed a solid relationship for years.
The inability to obtain timely or sufficient deliveries of this sole-source
component and certain custom parts would materialy disrupt production until an
alternative vendor could be located and qualified, and production could begin.
BACKLOG
As of December 31, 1997, the Company's total backlog was approximately
$280,000, versus a backlog of approximately $6.9 million on December 31,
1996. Included in the December 1996 backlog were two orders for private
label products valued at approximately $6.5 million. The first order valued
at $4.0 million was completed during the year. The second order, valued at
$2.5 million, was subsequently canceled. Generally, orders for standard
products are shipped within 24 hours and are subject to cancellation without
additional contracts of the type booked in late 1996, backlog is generally
very low at December 31, due to low post holiday demand and normally short
retailer lead times for standard products shipped from inventory. The
Company has occasionally experienced cancellations or postponements in its
delivery of orders.
SALES AND MARKETING
The Company's primary sales and marketing strategy is to remain the leading
supplier of low-cost, hand-held travel computers. To support this strategy,
the Company believes it must offer a growing line of affordable standard and
custom travel computers. Such new devices are principally aimed at
providing increased features and functionality.
The Company identifies its prospective customers and markets through a
combination of direct mail, telemarketing, media advertising, tradeshow
participation, and periodic appearances on home shopping television
channels. The Company advertises extensively in magazines and trade journals
and periodically distributes promotional materials to increase market
awareness of its products. Historically, the Company has focused its
primary marketing efforts on establishing customer relationships with local
and regional retailers and upscale retail outlets. During 1996 and
continuing into 1997, the Company has aggressively pursued programs to
develop new markets by offering custom versions of travel computers.
The Company's products are marketed through independent sales
representatives, mail order catalogs, and office supply stores. In fiscal
1997, the Company spent $2,066,472 on advertising, promotion, and marketing
programs, as compared to $1,773,373 and $942,402 in 1996 and 1995,
respectively. The Company spent $221,705 during 1997 to advertise in the
SkyMall magazine, the popular airline buying guide. In addition,
the Company generated sales for custom travel computers during fiscal 1997
of $6.9 million with a marketing firm using coupon promotions for gift
catalog redemption. The end customer for the 1997 redemption was an
international tobacco company. This program was completed at the end of
1997. A direct mail program similiar to one completed in 1996 was
undertaken again in 1997 with Roy Thomas, a direct mail customer.
It included approximately 23 million advertising inserts distributed
beginning with October 1997 oil credit card statements.
To further extend its market position, in 1997 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 CD-Rom
based product called TripLink. The development of TripLink was placed on
hold during 1997 due to unanticipated design delays and the decision to
enter into newly emerging technology. A significant portion of the
technical and engineering development effort expended to-date is being
incorporated into a new line of advanced Global Positioning System (GPS)
products.
During 1996, 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. Time Tracker
was discontinued during 1997 due to technical and other design problems.
During 1997, the Company established a joint product and marketing alliance
with SmartTime Network to develop and market e-mail and data retrieval
appliances on the Internet. Both parties agreed to share certain expenses
in a 50/50 development project. The Company invested $290,635 of deferred
software development costs and spent an additional $131,577 in other
development expense related to this project during 1997. Such strategic and
partnering arrangements with other technology marketers are an outgrowth of
the Company's strategy to maintain its dominant position as the leading
supplier of hand-held travel devices.
DEPENDENCE ON CUSTOMERS
During 1997, the Company recorded revenue of $6.9 million, representing
52.1% of total consumer sales, to one customer. This order was the largest
ever received by the Company. It was completed during 1997. Since this
type of promotion is a one-time event, management does not expect
significant residual benefits to occur during 1998, although discussions on
new promotions for 1998 are on-going, and some benefit may result from the
sale of updates.
During 1997, Roy Thomas, Inc., a direct mail customer, accounted for 14.5% of
consumer sales. This customer accounted for sales of $1,918,987 in 1997
compared to $1,723,185, or 20.8% of total consumer sales, during 1996.
Prior to 1997, The QVC Network had been the largest customer of the Company.
For the three years ended December 31, 1997, 1996 and 1995, QVC sales
totaled $349,223, $617,443 and $4,455,035 respectively, representing
approximately 2.6%, 7.5% and 47.2% 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 the Company carefully monitors this.
Mass merchandise discounters regard $29.95 as an important retail consumer
price for the Compnay's [products to be successful in the mass market. The
Company introduced ROAD WHIZ which is priced to sell at retail for $29.95,
and is attempting to position this product as a mass market item. It has
not yet achieved a mass market status is any major retail account.
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
with visual mapping displays. To protect the Company's dominant market
position in affordable travel computers, the Company invested $1,022,095,
or approximately 7.4% of its' 1997 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 sufficientto 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 automotive Original Equipment Manufacturer (OEM)
market and aftermarket. Such systems were intended to be installed and
operated on board in a vehicle by utilizing their 12-volt electrical system.
During 1997, 1996 and 1995, POIS realized sales of $1,579, $511,650 and
$299,196, respectively. The sales in 1996 and 1995 were attributed to two
custom orders. POIS hand-held units incorporate the ROADWHIZ software
and database along with individual customer requirements and special
information such as dealers names, phone numbers, and locations around
the country. POIS has not yet realized any sales for on-board (installed
directly in the car) information systems.
During the fourth quarter, the Company decided to close its POIS location
and consolidate POIS operations from Detroit, Michigan to the corporate
headquarters in St. Louis. The five active employees were terminated,
including the founder, who was retained for one year as a transitional
consultant. The Company acquired the remaining 19% interest of stock
then owned by the POIS founder and now owns 100% of POIS. The Company
contemplates that products bearing the POIS brand name will be marketed
as an after market accessory product sold primarily through automotive
dealers and auto supply stores. If the POIS products receive sufficient
customer recognition in the automotive aftermarket, the Company may again
seek to more aggressively position POIS products to suppliers in the
OEM market.
RESEARCH AND DEVELOPMENT
The Company performs ongoing research and development, seeking to improve
existing products and to develop new products. These activities are
primarily done at the Company's corporate headquarters, and at POIS. The
Company periodically engages experienced computer system design consultants
to expedite the completion of the development and test stages.
In 1997, the Company began a project in conjunction with SmartTime Network,
a company owned by Intelidata Technologies Corp. (Nasdaq Symbol: INTD).
The product under development is a low-cost portable Internet device that
aims to provide access to E-mail and other personal information without a
laptop computer. During January 1998, the Company displayed two prototype
models - PalmNet and E@sy Mail - at the Consumer Electronics Show (CES) in
Las Vegas. The Company expects to finalize development and make these
products available in catalogs, consumer electronics stores, computer and
office superstores, department stores, mass merchants and warehouse clubs.
The Internet appliance products will offer on-board features including
stock quotes, sports scores, weather forecasts, news headlines, a calendar
reminder, fax-send, calculator and a directory which can be synchronized
to and restored from SmartTime's intelligent packet data network. This
product would retail at less than $200, which is significantly lower than
other products with portable e-mail capability. Product development was
jointly funded by both companies. To date, the company spent approximately
$290,635 for its 50% share of the software development cost and $131,577
in research and development for this project. Due to a reorganization
underway at Intelidata, the joint development efforts have slowed. However,
the introduction of this product is not expected to be significantly delayed.
In 1997, the Company spent $321,007 for research and development of a
portable Global Positioning Satellite (GPS) based travel computer, called
TravelStar. This product will have an integrated GPS satellite receiver
with the ROAD WHIZ data base and will be the first affordable and portable
GPS Driver Information System on the market. TravelStar was exhibited at
the Consumer Electronics Show in Las Vegas.
DATABASE RESEARCH
The Company believes that an accurate 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 formerly ROAD Whiz
customers. Generally, the Road Helpers are nominally compensated 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. During 1997, the Company employed various subcontractors in
order to augment its internal research and development resources.
PATENTS AND TRADEMARKS
The Company 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 store
more data on smaller and less expensive memory devices.
The Company has a second patent dealing with 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 is in the process of filing additional patent applications
related to navigational information products including Travel(Star. If any
of these patents were to be granted by the Office of Patents and Trademarks,
for any of the applications, the Company believes that it would afford them
a significant competitive advantage for personal navigation and information
systems. The Company cannot predict whether any application will result in
a patent, or what the scope of any such a patent might be.
In addition to its patents, the Company attempts to further restrict access
to its proprietary technologies, trade secrets and processes. Key
employees of the Company are covered by employment contracts containing
restrictive covenants. These covenants require key employees, as a
condition of their employment, to hold all proprietary information
confidential. 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.
Item 1. EMPLOYEES
The Company currently has 28 full-time employees, including six officers,
all of whom are located at the Company's headquarters in St. Louis, Mo. The
Company employs nine people in sales, customer service and shipping, seven
people in product and database research, five people in executive management
and administration, two people devoted to government contract work, three
people in product development, one person in inventory management, and a
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.
Aggregate rental expense totaled $120,088 for the current year, including
$16,401 for the POIS facility.
The Company believes that its facilities are adequate for the Company's
present and foreseeable requirements. The POIS lease was terminated as of
December 31, 1997.
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 National Market for the eight
quarters starting January 1, 1996 and ending December 31, 1997.
Bid Asked
Quarter Ending High Low High Low
March 31, 1996 $11.88 $8.87 $12.38 $9.37
June 30, 1996 $ 9.88 $6.88 $10.13 $7.13
September 30, 1996 $ 9.63 $6.75 $ 9.88 $7.00
December 31, 1996 $ 9.25 $6.62 $ 9.63 $6.75
March 31, 1997 $ 7.88 $5.88 $ 8.38 $6.25
June 30, 1997 $ 6.94 $5.63 $ 7.38 $6.00
September 30, 1997 $ 8.25 $5.00 $ 8.50 $5.25
December 31, 1997 $ 7.88 $5.63 $ 8.25 $5.88
(b) Holders
At March 11, 1998, there were 151 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.
(c) Dividends
The Company has never paid or declared any cash dividends on its Common
Stock and does not forsee 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.
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 group as employed by the Company, and (2) laser
systems contract revenues, derived from research and development and production
contracts awarded by government agencies.
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 year ended December 31. 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
1997 % 1996 %
Consumer Products $ 13,254 95.9 $ 8,283 91.1 $ 9,437 93.3
Laser Systems Contracts 563 4.1 810 8.9 676 6.7
Total $ 13,817 100.0 $ 9,093 100.0 $ 10,113 100.0
Year Ended December 31, 1997 vs. Year Ended December 31, 1996
During 1997, sales of consumer products increased by $4,971,544 to
$13,253,980 from $8,282,436 in 1996. The increase in sales was the result
of $6.9 million in revenue for a custom Ultrafinder designed and sold to one
customer. This unit was used as a gift selection item within a promotion
catalog for the benefit of an international cigarette company. Sales of
standard products decreased approximately $1,900,000 from the previous year.
New product sales were adversely impacted as a result of extended delays in
product development. The Company introduced its newest product, the Travel
Star, at the Consumer Electronics Show (CES) in Las Vegas during January
1998. TravelStar is a Global Positioning System (GPS) based product that
will begin shipping during March 1998. The Company believes that TravelStar
and other new products currently in development are important extensions to
the present line of travel computers, many of which are in their third year
of existence. The Company recognizes that retail electronics consumer
products have a relatively short life cycle due to the rapid advances of
technology and intense competition for premium retail shelf space. The
Company has employed a long-standing business strategy to expand its market
channels in hand-held information devices by leveraging its hardware and
software platforms. Generally, the Company's product entries into other
travel niche, or non-travel hand-held markets, such as the sports market
(with GREENSFINDER), the toy market (with KIDS ROAD WHIZ) and the home and
gardenmarket (with HOME & GARDEN) generally did not meet with original
expectations concerning consumer acceptance levels. In addition, the Company
closed its POIS location in Detroit, Michigan and moved tis operations there
to the corporate offfices in St. Louis. POIS sales to the automotive OEM
market were insufficient to justify the cost of a separate sales office. The
Company will continue to market trave computers under the POIS Brnad name to
the automotive aftermarket from its St. Louis location.
Contract sales from laser systems totaled $563,251 fir 1997 as compared to
$810,484 for 1996. Contract sales were derived from progress billings against
government contracts to upgrade systems which provide high resolution
trajectory information on airborne objects. The original contract was received
in 1995 and valued at $1.7 million. The contract contained and override
clause, which resulted in addtional orders fo $450,363 during the year. At
December 31, 1997, there was approximately $259,300 in contract revenue
remaining and $119,400 in cost to be expended.
Gross profit for the consumer products group totaled $7,888,673 or 59.5% of
sales for the year ended December 31, 1997, compared to $4,786,221, or 57.8%
of sales for the prior year. Gross profit was adversely impacted by
$260,000 during fiscal 1997 resulting from the write down of certain
inventories that became either obsolete or slow moving during the year. Similar
charges during 1996 amounted to $19,000. Exclusive of these charges for
inventory the Company would have achieved a 3.3% improvement in gross profit
percentage. This improvement is primarily the result of private label sales
at higher gross margins, and continued cost savings in the form of lower
cost units received from the foreign manufacturer.
Gross profit for contract sales totaled $271,034, or 48.1% of sales, versus
a gross profit of $430,277, or 53.1% of sales, last year.
Selling expenses for 1997 increased to $4,540,359 from $2,297,307 in 1996.
The increase of 97.6% resulted from increased sales commissions,
particularly related to private label and promotion orders, to $2,211,858
from $299,139 in 1996 and advertising outlays which increased 16.5% from
$1,773,454 to $2,066,472. The increases reflect the Company's commitment to
opening new markets and channels of distribution of information products.
General and administrative expenses increased to $2,237,498 from $1,691,458 in
1996 and increase of 32.3%. The increases relate primarily to salaries and
royalty expenses which increased $149,000 and $126,000 respectively.
The royalty expense increase relates to increased sales of Road WhiZ and
Ultrafinder products. In addition, the company experienced increases in
professional fees, public relations and legal expenses.
The Company made significant investments in research and development totaling
$1,022,095 during the year. Much of this investment was attributed to
TravelStar ($321,007), E@sy Mail ($131,577), and Personal-On-Board
Information System Products ($393,636) in addition to capitalized software
development costs of $290,635. TravelStar will begin limited shipments
during the first quarter of 1998. E@sy Mail, an Internet appliance used for
e-mail, stock quotes, lottery results, horoscopes and more in a hand-held
format is running behind schedule due to delays encountered with the
strategic partner providing access to the e-mail connection. The
introduction of this product is not expected to be significantly delayed,
however.
Other income totaled $225,575 for 1997, as compared to $113,320 for the year
ended December 31, 1996. The increase, primarily in interest income, is due
to high first quarter 1997 collections which were invested in short-term
municipal bonds at higher average yields than previously used money market
instruments.
The Company's effective tax rate of 31.9% for 1997 remained comparable to
the 31.8% rate for the year ended December 31, 1996.
As a result of the foregoing, the Company's net income increased to
$337,104, or $0.10 per share, computed on a basic and diluted method as
compared to net income of $208,137, or $0.08, computed on both basic and
diluted for the prior year. There were 3,400,967 and 2,717,837 basic common
shares and 3,425,613 and 2,773,239 diluted shares, respectively, used in
calculating earnings per share for the years ended December 31, 1997 and
1996. The computation of basic and diluted earnings per share has been
restated in accordance with SFAS 128.
The Company recognized certain charges in the fourth quarter of 1997
totaling $496,000, which were comprised of aggregate inventory write-offs
totaling approximately $260,000, and a provision for returns, net of
inventory recovery, of $236,000 in 1997 compared to $27,000 in 1996.
Included in the inventory write-off was shrinkage of approximately $90,000
and excess or obsolete inventory of approximately $170,000. Almost one half
of the provision related to the private label promotional order and fourth
quarter deliveries against that order.
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. 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 believes that custom units sales will make up a larger portion
of consumer product revenues in the future. The Company realized $511,650
in revenues from its POIS 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 produced the highest quarter of consumer product
sales in the history of the Company, posting $4,949,531, or 59.7% of the
consumer products revenues. For the comparable quarter ended December 31,
1995, the Company realized $4,143,530 in revenues, or 43.9% of annual
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 especially 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 $4,777,833, or 50.6% of sales
for the prior year. The 7.2% improvement in gross profit is 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 expenses for 1996 increased 70.3% to $2,297,307, compared to
$1,348,780 in the prior year. The increase resulted primarily from an
increase in advertising costs from $942,402 to $1,773,373, which included a
major Roy Thomas credit card insert promotion in the fourth quarter of 1996.
General and administrative expenses increased by $593,924 (52.5%),
including an increase of $142,486 due primarily to increased personnel in
all functions, and professional services, which increased approximately
$150,000 for legal, accounting and consulting services.
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 1997, as compared to $118,711 for the year
ended December 31, 1996.
The Company's effective tax rate for the year was 31.8% as compared to 37.7%
for the year ended December 31, 1996. The Company's lower tax rate is
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 basic and diluted share, as compared to net income of
$1,381,902 or $0.60 basic and $0.54 diluted earnings per share for the
prior year. There were 2,717,837 and 2,308,945 basic common shares and
2,773,239 and 2,545,692 diluted shares, respectively, used in calculating
earnings per share for the two years ended December 31, 1997 and 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its business by supplementing cash
generated from operations with periodic borrowings from banks and equity
raised from private and public sources. On August 6, 1996, the Company
called for redemption and exchange all of its then outstanding purchase
warrants. The warrant redemption and exchange program was completed during
September 1996, with the Company receiving $6,172,493 in additional capital.
Total cash and cash equivalents increased from $3,960,577 at December 31,
1996 to $5,075,968 at December 31, 1997. This increase is due to the
collection of accounts receivable.
The Company recorded net income of $337,104 in 1997. The Company had a net
inflow of $1,560,415 in cash from operations for the year. The inflow was due
primarily to a decrease in accounts receivable of $2,936,244, which was
partially offset by a decrease of $866,223 in trade accounts payable and a
decrease of $436,000 of accrued expenses. Cash flows from investing
activities used funds totaling $351,962 for the year, representing capital
expenditures. Net cash used by financing activities totaled $93,062,
including $37,000 of proceeds from the exercise of stock options and
$130,062 used for the purchase of treasury stock related to the 1997 Stock
Repurchase Plan. During the quarter ended September 30, 1997 the Company
established a stock repurchase plan, whereby the Company may purchase up to
200,000 shares of it's Common Stock. The Company believes this program
represents efficient management of its cash resources and an excellent way
to provide additional returns to its shareholders. As of December 31, 1997
the Company had repurchased a total of 23,000 shares of Common Stock under
this plan.
At the end of 1997, there were no material capital spending commitments
outstanding. 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 1997, the Company spent $351,962 for
capital expenditures. 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 revolving 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 8.5 % at December 31, 1997. On
December 31, 1997, the Company's outstanding loan balance was zero.
At December 31, 1997, the Company had a working capital surplus of
$10,607,580, as compared to a working capital surplus of $10,761,352 at
December 31, 1996. Included in working capital at December 31, 1997 was
$5,075,968 in cash and cash equivalents. Inventories increased by
approximately 6.5%, or $215,382, during the year as a result of lower fourth
quarter sales. Accounts receivable decreased by 63.7%, or $2,936,244, to
$1,672,041. The decrease in accounts receivable results from the collection
of record shipments posted for the fourth quarter of 1996 including Roy
Thomas, Inc. receivables that totaled $1,657,571, primarily collected in the
first quarter of 1997. However, the business is expecting to launch a
number of new products in 1998, which will require additional investments
in inventories and accounts receivable.
The Company's management has been engaged in developing a strategy aimed at
a more equitable quarterly revenue distribution. Historically, up to 50% of
the Company's sales have been realized during the 4th Quarter of the year,
due to the importance of the Christmas season sales. This pattern resulted
in an inefficient use of financial resources during the year and generally
sharply lower financial results were posted for the first two quarters of
the year. Management decided to reduce its dependence on holiday products
by introducing a promotion strategy to develop and market private label
travel computers. The Company recorded consumer revenues of $9.5 million
for the first nine months ended September 30, 1997, representing over 70%
of consumer products revenue for the 1997 fiscal year. Of this amount,
however, one customer order accounted for approximately 52% of the total
revenue, but without the adverse impact of a short sales cycle. The Company
expects that its working capital and cash generated from operations will be
sufficient to fund operations for the next 12 months.
IMPACT OF ACCOUNTING PRONOUNCEMENTS
During 1997, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive
Income" and SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information". The company will be required to implement both of
these standards during 1998. Although the implementation of these standards
will have no effect on the reported operations, the Company is assessing the
impact of the required disclosures on its quarterly and annual reports.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Except for the historical information, the information set forth herein
includes forward-looking statements that are dependent on certain risks and
uncertainties. The Company's operating results are dependent upon its
ability to rapidly develop, manufacture, and market innovative products that
meet customer needs at moderate prices. The process of developing new high
technology products is both complex and uncertain, requiring innovative
designs and features which anticipate customer needs and anticipate
technology trends. As such, important factors which could cause actual
results to differ materially from anticipated results include, but are not
limited to, market positioning, release dates, and consumer acceptance of
the new products; quarterly fluctuations in promotional activity and
seasonal factors; timely manufacturing and logistics; the competitive
environment; technological change and obsolescence factors in the Company's
primary markets; and dependence on distribution channels and key personnel.
These factors are difficult to accurately predict, and in some cases are
beyond the control of the Company.
Item 7. CONSOLIDATED FINANCIAL STATEMENTS
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, 1998:
NAME AGE POSITION
Monte Ross 66 President & Chief Executive Officer, Director
Mark L. Peterson 41 Vice President - Engineering, Secretary, Director
Ernest Clarke 58 Vice President - Government Programs,Director
Leonard Missler 50 Vice President - Software Development
Duane Crofts 60 Vice President - Advanced Products
David Biernbaum 43 Chief Operating Officer
Daniel Muehlemann 33 Vice President of Sales
Steven H. Akre, Esq. 45 Director
Bruce L. Miller 55 Director
John J. Clancy 61 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
Elecrical and Electonic Engineers and the past President of the International
Laser Communication Society. Mr. Ross was awarded a Master fo Science degree in
Electrical Engineering by Northwestern University in 1962. He is the
father-in-law fo 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 hand-held 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 cross-link 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 dgree in Electrical Engineering by Washington
University in 1970.
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 hand-held 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 multi-million dollar electro-optic development program. Mr. Crofts was
awarded a Bachelor of Science degree in Mechanical Engineering by the
University of Missouri at Rolla.
David Biernbaum joined the Company in 1997 as Vice President and Chief
Operating Officer. Prior to joining the Company, Mr. Biernbaum had twenty
years experience in consumer products marketing, product development, sales
management and finance.
Daniel B. Muehlemann joined the Company in October 1996 as Vice President of
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.
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.
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, to Salesman,
to Divisional President. Mr. Clancy was awarded a Bachelor of Science;
Chemical Engineering: University of Illinois; Master of Science: The Johns
Hopkins University; Master of Business Administration; Washington University
- St. Louis; Master of Liberal Arts; Washington University - St. Louis; 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 1997 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
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,
1997, 1996, and 1995: (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, 1997 exceeded $100,000.
Annual
Compensation Long-Term Comp.
Name and Position Year Salary Bonus Other(1) Options
Monte Ross, 1997 $130,000 $ 0 $ 5,000 (2)
President 1996 $114,404 $ 14,000 $ 3,000 (3)
1995 $105,000 $ 2,000 $ 15,000 (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.
(2) During 1997 the Board's Stock Option Committee awarded Mr. Ross options
to purchase an additional 12,500 shares of Common Stock at an exercise price
of $5.75.
(3) 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.
(4) 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.
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,
which were scheduled to terminate on October 31, 1997, were extended by
action of the Board of Directors to October 31, 1999. 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 of
salary adjustment, the salary will increase by 10% for Mr. Clark and
Mr. Peterson 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 specifies 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 year ended December 31, 1997, royalty expense
totaling $116,480, $55,540, and $66,477 respectively were recognized.
STOCK OPTION AWARDS
The following tables set forth certain information regarding the stock
options acquired by the Company's Chief Executive Officer during the year
ended December 31, 1997 and those options held by him on December 31, 1997.
OPTION GRANTS IN CURRENT FISCAL YEAR
Percent Potential Realizable
of Total Value at Assumed
Options Annual Rates of
Number of Granted Stock Price
Securities to Appreciation
underlying Employees Exercise For Option Term
option in Fiscal Price Expiration
Name Granted(#) Year ($/Sh) Date 5% 10%
Monte Ross 12,500 24% $5.75 12/24/02 $19,860 $45,200
AGGREGATED FISCAL YEAR OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexerised Options at Fiscal in-the-Money Options at
Name Year-End(#) Fiscal Year-End
Monte Ross 57,50 $293,125
STOCK OPTION PLANS
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 non-qualified 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., non-qualified 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 years from the date of adoption of
the Option Plan and each option must be exercised, if at all, within five
years of the date of grant. In no event may any employee be given incentive
stock options whereby more than $100,000 of options are able to be exercised
for the first time in a single calendar year. All incentive stock options
must be exercised by an optionee within 30 days after termination of
optionee's employment, unless such termination is as a result of death,
disability, or retirement. In the event an optionee's 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 months after such termination. If an optionee's
employment is terminated as a result of retirement, the optionee shall be
entitled to exercise his options for a period of three months following such
termination.
Non-qualified stock options under the Option Plan are generally subject to
the same rules as discussed above. Non-qualified 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
non-qualified 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
non-qualified 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.
non-qualified 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 1996
Plan must be granted within ten years from the date of adoption of the
Option Plan and each option must be exercised, if at all, within five 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 30 days after termination of optionee's
employment, unless such termination is 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 months after such termination. If
an optionee's employment is terminated as a result of retirement, the
optionee shall be entitled to exercise his options for a period of three
months following such termination.
Non-qualified stock options under the 1996 Plan are generally subject to the
same rules as descussed above. Non-qualified 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 non-
qualified 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 1997, the Company canceled incentive stock options to purchase
118,100 shares of Common Stock at excercise prices ranging from $5.75 to
$7.39. The same number of new options was issued at a price of $5.50.
During 1997 the Company issued additional incentive stock options to
purchase 12,500, 3,000, 25,000, and 51,500 shares of Common Stock at
exercise prices of $6.75, $7.00, $6.88, and $5.75, respectively. The
following officers were recipients of options (other than those options
which were canceled and reissued):
Number of Average
Officer Shares Exercise Price
Monte Ross 12,500 $ 5.75
Mark Peterson 5,000 5.75
Ernest Clarke 5,000 5.75
Leonard Missler 2,500 5.75
Duane Crofts 5,000 5.75
David Biernbaum 27,500 6.77
Daniel Muehlemann 5,000 5.75
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 13, 1998 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) 598,500 17.54%
shares of
record
Mark L. Peterson(3) 176,705 5.17%
shares of
record
Ernest Clarke(4) 155,552 4.56%
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
Leonard Missler 37,936 1.11%
shares of
record
Duane Crofts 24,239 0.71%
shares of
record
David Biernbaum 27,500 0.81%
shares of
record
Daniel Muehlemann 5,000 0.15%
shares of
record
All officers and 1,035,492 30.30%
directors as a group (10 persons)
(1) The address of each of these shareholders is c/o Ultradata Systems,
Incorporated, 9375 Dielman Industrial Drive, St. Louis, Missouri 63132
(2) Includes 536,000 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 3,120 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 the option on ony 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 fo 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 financila statements among the five years in whcih 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:
Shares Notes
Monte Ross 100,000 $ 187,500
Mark L. Peterson 25,000 $ 46,875
Ernest Clarke 25,000 $ 46,875
TOTAL 150,000 $ 281,250
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, 1999.
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 Notes
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 4,583 $ 5,500
TOTAL 107,523 $129,250
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, 1997, 1996, and 1995, the Company paid royalties
to Mr. Missler of $116,480, $55,540, and $66,477, 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 1997, 1996 and 1995, Mr. Akre was paid $44,557, $20,219
and $21,453, 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:
Independent Auditors.Report
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 1997.
Consolidated Statements of Stockholders' Equuity for each of the years in
the three-year period ended December 31, 1997.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1997.
Notes to Consolidated Financial Statements for the years ended December 31,
1997 and 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 (3)
10-o Extended employment agreement as of September 30, 1997 between the
Company and Monte Ross (2)
10-p Extended employment agreement as of September 30, 1997 between the
Company and Mark L. Peterson (2)
10-q Extended employment agreement as of September 30, 1997 between the
Company and Ernest Clarke (2)
10-r Employment Agreement as of October 13, 1997 between the Company and
David Biernbaum (2)
11. Computation of per share earnings.(2)
12. Subsidiaries - POIS, Inc.
27. Article 27 Financial Data Schedule
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
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, 1997
and 1996 and the related statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997. 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
or material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 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, 1997 and
1996 and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1997 in conformity
with generally accepted accounting principles.
March 16, 1998
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
Current assets:
Cash and cash equivalents $ 5,075,968 3,960,577
Trade accounts receivable, net of allowance for doubtful
accounts of $34,190 and $16,644 at December 31,1997
and 1996, respectively 1,672,041 4,608,285
Costs and estimated earnings on long-term contracts 528,620 438,670
Inventories 3,504,835 3,289,453
Deferred tax assets 63,815 62,600
Prepaid expenses and other current assets 700,900 641,376
Total current assets 11,546,181 13,000,961
Property and equipment, net 784,906 642,245
Deferred compensation trust 126,740 91,689
Other assets 340,867 43,968
Total assets $ 12,798,694 13,778,863
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 509,338 1,374,346
Accrued expenses and other liabilities 429,263 865,263
Total current liabilities 938,601 2,239,609
Deferred rent 16,172 8,708
Deferred compensation liability 126,740 91,689
Deferred tax liabilities 57,612 23,330
Total liabilities 1,139,125 2,363,336
Commitments and contingencies - -
Minority interest - -
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized;
3,410,000 and 3,403,500 shares issued and
outstanding at December 31, 1997 and 1996, respectively 34,100 34,035
Additional paid-in capital 9,799,936 9,763,001
Retained earnings 2,366,095 2,028,991
Treasury stock (130,062) -
Notes receivable issued for purchase of common stock (410,500) (410,500)
Total stockholders' equity 11,659,569 11,415,527
Total liabilities and stockholders' equity $12,798,694 13,778,863
See accompanying notes to consolidated financial statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
Net sales:
Consumer products $ 13,253,980 8,282,436 9,437,239
Contract 563,251 810,484 675,465
Total net sales 13,817,231 9,092,920 10,112,70
Cost of sales:
Consumer products 5,365,307 3,496,215 4,659,406
Contract 292,218 380,207 316,572
Total cost of sales 5,657,525 3,876,422 4,975,978
Gross profit 8,159,706 5,216,498 5,136,726
Selling expense 4,540,359 2,297,307 1,348,780
General and administrative expense 2,327,498 1,725,720 1,131,796
Research and development expense 1,022,095 1,001,646 556,213
Operating profit 269,754 191,825 2,099,937
Other income (expense):
Interest expense (1,155) (3,428) (13,743)
Interest income 225,566 120,693 142,359
Royalty income 570 503 114
Other, net 594 (4,448) (10,019)
Total other income, net 225,575 113,320 118,711
Income before income tax expense 495,329 305,145 2,218,648
Income tax expense 158,225 97,008 836,746
Net income $ 337,104 208,137 1,381,902
Earnings per share:
Basic $ 0.10 0.08 0.60
Diluted $ 0.10 0.08 0.54
See accompanying notes to consolidated financial statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996 and 1995
Notes
receivable
Unrealized issued
Additional loss on for purch Total
Common paid-in marketable Retained Treasury of commons stockholders
stock capital securities earnings stock stock equity
Balance at December 31, 1994
$19,591 2,124,879 (104) 438,952 (413,250) 2,170,068
Purchase and retirement 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
10,520 6,160,099 6,170,619
Exercise of stock options for 300 shares
3 1,872 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
Exercise of stock options for 6,500 shares
65 36,935 37,000
Purchase of 23,000 shares of treasury stock
(130,062) (130,062)
Net income
337,104 337,104
Balance at December 31, 1997
$34,100 9,799,936 2,366,095 (130,062) (410,500)11,659,569
See accompanying notes to consolidated financial statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating activities
Net income $ 337,104 208,137 1,381,902
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization
209,301 101,060 62,841
Deferred income tax provision
33,067 (12,815) 14,545
Discount accretion
(52,960)
Increase (decrease) in cash due to changes in operating assets
and liabilities:
Trade accounts receivable, net
2,936,244 (1,814,031)(1,741,044)
Costs and estimated earnings on long-term contracts
(89,950) 173,647 (612,317)
Inventories (215,382) (1,334,869) (514,411)
Prepaid expenses and other current assets
(59,526) (518,524) (91,843)
Other assets (296,899) (26,430) 10,740
Accounts payable (865,008) 701,130 (156,631)
Accrued expenses and other liabilities
(436,000) 276,531 32,829
Deferred rent 7,464 7,464 (6,137)
Net cash provided by (used in) operating activities
1,560,415 (2,238,700) (1,672,486)
Cash flows from investing activities:
Purchase of marketable securities
- - (2,498,189)
Sale of marketable securities
- 800,000 1,852,917
Capital expenditures (351,962) (340,282) (274,809)
Net cash (used in) provided by investing activities
(351,962) 459,718 (920,081)
Cash flows from financing activities:
Proceeds from line of credit
- - 765,500
Repayments of bridge loan financing
- - (135,000)
Principal payments on line of credit
- (448,000) (317,500)
Proceeds from sale of stock 37,000 6,172,494 -
Repurchase of stock (130,062) - (12,500)
Net proceeds from initial public offering
- - 1,492,572
Deferred offering costs - - 183,208
Proceeds from repayment of notes
receivable to purchase common stock 2,750
Increase in deferred compensation trust (35,051) (8,525) (28,997)
Increase in deferred compensation liability 35,051 8,525 21,049
Net cash (used in) provided by financing activities
(93,062) 5,724,494 1,971,082
Net increase (decrease) in cash and cash equivalents
1,115,391 3,945,512 (621,485)
Cash and cash equivalents at beginning of year
3,960,577 15,065 636,550
Cash and cash equivalents at end of year
$ 5,075,968 3,960,577 15,065
Supplemental disclosure of cash flow information:
Cash paid during the year for interest
$ 1,184 5,440 15,761
Cash paid during the year for taxes 275,569 341,389 635,998
See accompanying notes to consolidated financial statements.
(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 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 previously majority-owned subsidiary, POIS, Inc. (POIS).
During the fourth quarter of 1997, the Company acquired the remaining 19%
of POIS, Inc. As a result of operating losses incurred by POIS, the
consolidated financial statements include 100% of the POIS accounts,
as the minority interest did not 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) 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.
(f) Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(g) 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.
(h) 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.
(i) 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. 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.
(j) 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.
(k) Other Assets
Included in other assets are $290,635 of capitalized software development
costs. Software development costs are expensed as incurred until
technological feasibility is achieved, after which they are capitalized
on a product-by-product basis. Amortization of capitalized software
development costs will begin when the product is available for general
release to customers. For the period ended December 31, 1997, no
amortization was recognized, as the product has not yet been released.
(l) Royalty Expense
Royalty expense is recognized on a pro rata basis as units are sold.
(m) 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 rate is recognized in the period that
includes the enactment date.
(n) Earnings Per Share
Effective December 31, 1997, the company adopted Statement of Financial
Accounting Standards (SFAS) No.128, "Earnings per Share." SFAS No. 128
requires the presentation of basic and diluted earnings per share for 1997
interim and annual periods, and restatement of all prior periods presented.
Restated earnings per share information for 1997 and 1996 interim periods
are contained in note 19, "Unaudited Quarterly Financial Information".
(o) 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 convesys to that second entity the rieght to
receive cash or another financial instrument from the first entity.
(p) Stock-Based Compensation
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 (APB) No. 25, "Accounting
for Stock Issued to Employees."
(q) Reclassifications
Certain 1996 and 1995 balances have been reclassified to conform with the
1997 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, 1997 and 1996, $ 191,814 and $510,521 of advertising costs
were reported as an asset. Included in the 1997 assets is $103,187 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 four-month
period following the mailings. Advertising expense totaled $2,066,472,
$1,773,454 and $942,402 for fiscal years 1997, 1996, and 1995, respectively.
(3) Inventories
Inventories at December 31, 1997 and 1996 consist of the following:
1997 1996
Raw materials $ 1,474,792 $1,783,741
Work in process 170,369 130,876
Finished goods 1,859,674 1,374,836
$ 3,504,835 $ 3,289,453
(4) Property and Equipment
Property and equipment at December 31, 1997 and 1996 consist of the following:
1997 1996
Research and development equipment $ 147,881 $ 127,144
Production equipment 44,501 44,501
Tooling and test equipment 689,124 398,389
Office furniture and equipment 275,973 212,344
Sales displays 69,011 59,548
Tooling in process - 57,569
Leasehold improvements 109,908 84,941
1,336,398 984,436
Less accumulated depreciation
and amortization 551,492 342,191
$ 784,906 $ 642,245
Depreciation and amortization expense for the years ended December 31, 1997,
1996, and 1995 totaled $209,301, $101,060, and $62,841, 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 $120,100, $117,300, and $49,300 for the years ended
December 31, 1997, 1996, and 1995, 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:
1998 $ 94,544 99,520
1999 106,984 99,520
2000 106,984 99,520
2001 89,153 82,933
$ 397,665 381,493
(6) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 1997 and 1996 consist
of the following:
1997 1996
Accrued sales commissions and royalties $ 90,003 $ 95,119
Accrued advertising 51,850 433,811
Income taxes payable 27,278 173,637
Other 260,132 162,696
$ 429,263 $865,263
(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
(8.5 %, and 8.25% at December 31, 1997 and 1996, respectively) on
outstanding borrowings. The line of credit totaled $2,000,000 at December
31, 1997 and 1996. There were no outstanding borrowings at December 31, 1997
or 1996. The line of credit is unsecured and expires May 1, 1998.
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 $6.00 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) Earnings Per Share
A reconciliation of the numerator and denominator of the earnings per share
calculations is provided for all periods presented. The numerator for basic
and diluted earnings per share is net income for all periods presented. The
denominator for basic and diluted earnings per share for 1997, 1996 and 1995
follows:
1997 1996 1995
Weighted average shares used for basic earnings per share
3,400,967 2,717,837 2,308,945
Effect of dilutive securities:
Warrants - - 214,725
Stock Options 24,646 55,402 22,022
Weighted average shares used for diluted earnings per share
3,425,613 2,773,239 2,545,692
Options to purchase 102,000 shares of common stock at prices ranging from
$6.75 to $7.39 per share were outstanding during 1997 but were not included
in the computation of diluted earnings per share because the options'
exercise price was greater than average market price of the common shares.
(12) Income Taxes
Income tax expense (benefit) for the years ended December 31, 1997, 1996,
and 1995 consists of:
1997
Current Deferred Total
Federal $100,446 29,922 130,368
State $ 24,712 3,145 27,857
$125,158 33,067 158,225
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
Income tax expense for the years ended December 31, 1997, 1996, and 1995
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:
1997 1996 1995
Expected income tax expense $ 168,412 103,749 754,340
Increase (decrease) in income taxes
resulting from:
State income taxes,net of Federal Benefit:
18,386 11,675 44,966
Nondeductible expenses for federal income tax purpose
13,995 15,100 65,195
Research and experimental credits
(25,589) (33,147)(27,755)
Other, net (16,979) (369) -
$ 158,225 97,008 836,746
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997 and
1996:
1997 1996
Deferred tax assets:
Capital loss carryforwards $ 6,664 6,664
Accounts receivable, principally due to
accrual for financial reporting purposes 12,992 16,450
Inventories, principally due to additional
costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 32,936 31,316
Other 11,223 8,170
Total deferred tax assets $ 63,815 62,600
Deferred tax liabilities:
Prepaid advertising $ (39,211) -
Property, plant and equipment, principally
due to differences in depreciation basis (18,401) (23,330)
Total deferred tax liabilities $ (57,612) (23,330)
Net deferred tax assets $ 6,203 39,270
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, 1997 or 1996.
(13) 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 $33,030, $27,546 and $17,848, during the years ended
December 31, 1997, 1996, and 1995, respectively.
(b) Incentive Stock Option Plans
At December 31, 1997, 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:
1997 1996 1995
Net income
As reported $ 337,104 $ 208,137 $ 1,381,902
Pro forma $ 115,127 $ 109,993 $ 1,179,853
Basic earnings As reported $ 0.10 $ 0.08 $ 0.60
per share Pro forma $ 0.03 $ 0.04 $ 0.51
Diluted As reported $ 0.10 $ 0.08 $ 0.54
earnings per share Pro forma $ 0.03 $ 0.04 $ 0.46
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 stock
on the date of grant, and 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 1997, 1996 and 1995, respectively: dividend
yield of zero for all years; expected volatility of 52.3%, 58.6% and 47.3%;
risk-free interest rates of 5.70%, 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, 1997, 1996, and 1995 and changes during the years then ended is
presented below:
The following table summarizes information about fixed stock options
outstanding at December 31, 1997
1997 1996 1995
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
Outstanding at beginning of year
215,692 $ 6.26 164,492 $ 5.91 - -
Granted 210,100 $ 5.82 51,500 $ 7.39 164,992 $ 5.91
Exercised (6,500) $ 5.69 (300) $ 6.25 - -
Forfeited (118,100) $ 6.26 - - (500) $ 5.75
Outstanding at end of year
300,792 $ 5.85 215,692 $ 6.26 164,492 $ 5.91
Weighted average fair value
of options granted to
employees during the year $ 3.02 $ 3.88 $2.91
Options outstanding and exercisable
Number Weighted average
Range of outstanding at remaining Weighted average
exercise prices December 31, 1997 contractual life exercise price
$5.00 - $5.99 209,600 4.2 years $ 5.48
$6.00 - $6.99 78,192 3.8 years $ 6.61
$7.00 - $7.99 13,000 4.0 years $ 7.30
300,792 4.1 years $ 5.85
(14) 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, 1997, 1996, and 1995, royalty expense
totaled $116,480, $55,540 and $66,477, respectively.
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 6,000 units sold, not to exceed five years. During the
years ended December 31, 1997, 1996, and 1995, royalty expense totaling
$9,665, $9,317, and $16,352, respectively were recognized.
(15) Related-party Transactions
On May 23, 1994, the POIS joint venture agreement was modified, resulting in
an 81% ownership for the Company. 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 $25,583 and $14,073 were
paid to Mr. Kenig during 1997 and 1996 respectively. No commissions were
paid to Mr. Kenig during 1995. As of December 31, 1997 the Company acquired
the remaining 19% of POIS, Inc.
(16) Significant Customer
For the year ended December 31, 1997, the company relied on one customer for
approximately 52.1% of consumer product sales. Accounts receivable from that
customer totaled $335,198 at December 31, 1997.
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 one customer for
approximately 47% of consumer product sales. Accounts receivable from that
customer totaled $2,007,388 at December 31, 1995.
(17) 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.
(18) Subsequent Event
On March 23, 1997 the Company acquired an 18.9% share in the ownership of
Talon Research Development, Ltd. of New Zealand (Talon) and 70% of a new
U.S. based company dedicated to the marketing of GPS (Global Positioning
Satellite) applications.
Talon is an international electronics company and manufacturer of GPS
receivers, including those used in the Travel(Star product recently
introduced by the Company.
The Company paid approximately $300,000 (US) for the 18.9% stake in Talon,
and has options through mid-1999 to acquire up to 100% of Talon.
(19) Quarterly Financial Information (Unaudited)
First Second Third Fourth
quarter quarter quarter quarter
(Dollars in thousands, except per share amounts)
1997:
Net sales $2,929 3,821 3,220 3,847
Gross profit 1,785 2,222 1,909 2,244
Net income (loss) 25 265 106 (59)
Earnings (loss) per share -
basic and diluted $ .01 . 08 .03 (.02)
1996:
Net sales $ 859 1,747 1,451 5,036
Gross profit 47 946 784 3,016
Net income (loss) (294) (73) (118) 693
Earnings (loss) per share -
basic $ (.12) (.03) (.05) .28
diluted (.10) (.03) (.05) .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, 1998
/s/ Monte Ross ____________________________
Monte Ross
President,Chief Executive Officer
and Chairman of the Board
March 24, 1998
/s/ Mark L. Peterson ________________________________
Mark L. Peterson,
Vice President of Engineering,
Secretary and Director
March 24, 1998
/s/Ernest Clarke _______________________________
Ernest Clarke,
Vice President of Government Programs,
Director
March 24, 1998
/s/ Steven H. Akre ________________________________________
Steven H. Akre,
Director
March 24, 1998
/s/ Bruce L. Miller ________________________________________
Bruce L. Miller,
Director
March 24, 1998
/s/ John J. Clancy ________________________________________
John J. Clancy,
Director
_PAGE _16_
Exhibit 10-o Extended employment agreement, as of September 30, 1997 between
the Company and Monte Ross
SENIOR EXECUTIVE EMPOYMENT AGREEMENT EXTENSION
This Employment Agreement Extension made and entered as of September 30,
1997, by and between Ultradata Systems, Inc., a Delaware corporation
(hereinafter the "Corporation"), and Monte Ross (hereinafter the "Employee").
WITNESSETH:
WHEREAS, the Corporation and Employee are parties to a certain Employment
Agreement dated as of September 1, 1994; and
WHEREAS, pursuant to paragraph 2 thereof, the Term of said Employment
Agreement is subject to any written extensions(s).
NOW THEREFORE, in consideration of the covenants and agreements herein
contained, the Corporation and Employee hereby mutually agree as follows:
1. September 1, 1994 Employment Agreement. The Corporation and
Employee agree to the terms and conditions of the September 1, 1994,
Employment Agreement and hereby incorporate by reference said
Agreement attached hereto.
2. Term. The Corporation and Employee agree to extend the Employment
Agreement to commence October 1, 1997, and run for a period of
three (3) years, subject to any extension(s) thereof agreed to in
writing by the parties, and shall terminate October 1, 2000, or
an earlier date as provided in said Employment Agreement.
IN WITNESS WHEREOF, Employee and the Corporation have executed this
Employment Agreement Extension as of the day and year above written.
Employee
______________________________________ Senior Executive Monte Ross
Employer ULTRADATA SYSTEMS, INC.
_______________________________________ By Monte Ross, President
Exhibit 10-p Extended employment agreement, as of September 30, 1997
between the Company and Mark L. Peterson
SENIOR EXECUTIVE EMPOYMENT AGREEMENT EXTENSION
This Employment Agreement Extension made and entered as of September 30,
1997, by and between Ultradata Systems, Inc., a Delaware corporation
(hereinafter the "Corporation"), and Mark L. Peterson (hereinafter the
"Employee").
WITNESSETH:
WHEREAS, the Corporation and Employee are parties to a certain Employment
Agreement dated as of September 1, 1994; and
WHEREAS, pursuant to paragraph 2 thereof, the Term of said Employment
Agreement is subject to any written extensions(s).
NOW THEREFORE, in consideration of the covenants and agreements herein
contained, the Corporation and Employee hereby mutually agree as follows:
1. September 1, 1994 Employment Agreement. The Corporation and
Employee agree to the terms and conditions of the September 1, 1994,
Employment Agreement and hereby incorporate by reference said
Agreement attached hereto.
2. Term. The Corporation and Employee agree to extend the Employment
Agreement to commence October 1, 1997, and run for a period of
three (3) years, subject to any extension(s) thereof agreed to in
writing by the parties, and shall terminate October 1, 2000, or an
earlier date as provided in said Employment Agreement.
IN WITNESS WHEREOF, Employee and the Corporation have executed this
Employment Agreement Extension as of the day and year above written.
Employee
______________________________________ Senior Executive Mark L. Peterson
Employer ULTRADATA SYSTEMS, INC.
_______________________________________ By Monte Ross, President
Exhibit 10-q Extended employment agreement, as of September 30, 1997 between
the Company and Ernest Clarke
SENIOR EXECUTIVE EMPOYMENT AGREEMENT EXTENSION
This Employment Agreement Extension made and entered as of September 30,
1997, by and between Ultradata Systems, Inc., a Delaware corporation
(hereinafter the "Corporation"), and Ernest Clarke (hereinafter the
"Employee").
WITNESSETH:
WHEREAS, the Corporation and Employee are parties to a certain Employment
Agreement dated as of September 1, 1994; and
WHEREAS, pursuant to paragraph 2 thereof, the Term of said Employment
Agreement is subject to any written extensions(s).
NOW THEREFORE, in consideration of the covenants and agreements herein
contained, the Corporation and Employee hereby mutually agree as follows:
1. September 1, 1994 Employment Agreement. The Corporation and
Employee agree to the terms and conditions of the September 1, 1994,
Employment Agreement and hereby incorporate by reference said Agreement
attached hereto.
2. Term. The Corporation and Employee agree to extend the Employment
Agreement to commence October 1, 1997, and run for a period of three (3)
years, subject to any extension(s) thereof agreed to in writing by the
parties, and shall terminate October 1, 2000, or an earlier date as
provided in said Employment Agreement.
IN WITNESS WHEREOF, Employee and the Corporation have executed this
Employment Agreement Extension as of the day and year above written.
Employee
______________________________________ Senior Executive Ernest Clarke
Employer ULTRADATA SYSTEMS, INC.
_______________________________________ By Monte Ross, President
Exhibit 10-r Employment agreement, as of October 13, 1997 between the
Company and David Biernbaum
AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and is effective as of
this 13th day of October, 1997, between ULTRADATA SYSTEMS, INCORPORATED, a
Delaware corporation (the "Company"), and DAVID BIERNBAUM, an individual
residing in St. Louis County, Missouri (the "Employee").
RECITALS
Company is engaged in the development, marketing and commercialization of
hand-held informational devices, and Company is engaged in the research,
development, experimentation, distribution and production of various
electronic devices, including personal interactive communication devices.
Company desires to employ Employee as its Senior Vice President and Chief
Operating Officer, and Employee desires to be so employed by Company, upon
all of the terms and conditions set forth herein.
AGREEMENT
In consideration of the foregoing, the mutual covenants herein contained and
other good and valuable consideration (the receipt, adequacy and sufficiency
of which are hereby acknowledged by the parties by their execution hereof),
the Company and the Employee agree as follows:
Employment. Company shall employ Employee as its Senior Vice President and
Chief Operating Officer, or any such other position, and Employee agrees to
be employed as such during the term of this Agreement, upon the terms and
conditions hereinafter set forth.
Duties. During the term of this Agreement, Employee shall devote his time
and best efforts in carrying out his duties as Senior Vice President and
Chief Operating Officer of Company, which duties include: (i) special
projects and ventures, coordination of product introduction and
commercialization and management of business affairs; (ii) such other duties
as are appropriate for an employee holding the position of Senior Vice
President and Chief Operating Officer in Company's business; and (iii) such
other duties as may reasonably be assigned to Employee by Company. Employee
covenants and agrees to diligently and faithfully serve company in the capacity
set forth above and to devote as much of his professional energies, attention,
time, care and best efforts as is necessary to the performance of services and
the fulfillment of duties normally associated with the above capacities.
Term of Employment.
Initial Term. The term of this Agreement shall be for four (4) years,
commencing on the date set forth above (the "Initial Term").
Option. Company may extend this Agreement for an additional one (1) year
term on the same terms and conditions contained herein or as modified, upon
written notice to Employee no later than one hundred eighty (180) days prior
to the end of each anniversary date of this Agreement.
Place of Performance. In connection with Employee's employment under this
Agreement, Employee shall be based at the Company's principal executive
offices, except for required travel on Company business. Company shall
furnish Employee with office space, secretarial assistance and such other
facilities and services as are suitable to Employee's position in Company's
business and as are adequate for the performance of his duties hereunder.
Compensation. As full consideration for all services that Employee renders
to Company, Company shall compensate Employee as follows:
Annual Salary. Company shall pay Employee an initial annual base salary of
One Hundred Twenty Thousand Dollars ($120,000) (the "Salary"), payable in
equal monthly installments or in such other intervals as may be agreed upon
by Company and Employee. Company may increase Employee's Salary from time
to time in accordance with Company's normal business practices.
Bonus. Company may pay Employee a bonus for each year in an amount to be
determined by Company (the "Bonus"). The Bonus, if any, shall be paid to
Employee at such time as bonuses are paid to all employees. Employee shall
be given consideration for bonuses based on performance of acquisition
company and for product acquisition in which Employee has been involved
with such acquisition. Employee shall receive a bonus for growth of an
acquisition company or product in the event that sales and earnings increase
by 15 percent (15%) in any one year or a cumulative rate of 15 percent (15%)
over four years. The bonus shall be 10,000 shares for a small company
acquisition defined as 25 percent (25%) of the Comapny's sales at the end of
the preceding fiscal year, 17,500 shares for a medium company acquistion
defined as 33 percent (33%) of the Company's sales at the end of the
preceeding year and 25,000 shares for a large company acquistion, defined as
50 percent (50%) of the company's sales at the end of the preceding fiscal
year. The required 15 percent (15%) growth for eligibility of such bonus will
be net of any loss of such acquisition, calculated pusuant to generally
accepted accounting principles.
Stock Options. Company may grant Employee stock options each year, pursuant
to the Company's Incentive Stock Option Plan, in an amount to be determined
by Company, and at a price in accordance with said Plan.
Stock Option Bonus. In the event that Company's net sales, without regard
to any contribution or loss of an acquisition company, exceed Twenty-Five
Million Dollars ($25,000,000) for each fiscal year that this Agreement is in
effect (the "Sales Goal") and Company's earnings per share exceed One Dollar
($1.00) per share for each fiscal year that this Agreement is in effect
(the "EPS Goal"), Company shall grant Employee Twenty- Five Thousand
(25,000) stock options, pursuant to the Company's Incentive Stock Option Plan,
at anytime mutually agreed to by Company and Employee.
Other Benefits. During the term of this Agreement, Employee is entitled to:
participate in any and all incentive bonus plans of Company, if any, now or
hereafter in effect;
participate in any and all employee welfare plans, employee benefit plans,
stock purchase plans and similar plans of Company, if any, now or hereafter
in effect and open to participation by qualifying employees of Company
generally, including accidental death insurance, group life insurance,
group disability insurance, medical and health plans, sick pay, dental
plans, retirement plans, savings plans, cafeteria plans, supplemental
retirement plans, employee stock purchase plans and employee stock ownership
plans; and enjoy cetain personal benefits provided by the Company including:
(a) reimbursement in full of all business, travel and entertainment
expenses reasonably incurred by Employee in performing his
duties hereunder;
(b) paid vacation during each calendar year at a time or times
reasonably selected by Employee for periods of time
consistent with Employee's position; and
(c) those holidays designated by Company during which Company's
normal business operations are closed.
Termination. Company may terminate Employee's employment under this
Agreement as follows:
Cause. Company may terminate Employee's employment for Cause (as defined in
Paragraph 6(a) of this Agreement). For purposes of this Agreement, Cause
means:
(i) any willful misconduct by Employee amounting to fraud or
dishonesty or which is materially injurious to Company
(monetarily or otherwise);
(ii) a violation of any material provision of this Agreement by
Employee; or
(iii)any willful failure (other than a failure resulting from
Disability (as defined herein) or death) by Employee to
substantially perform any reasonable directions of Company's
board of directors (the "Board") within 60 days (or such
longer period if more than 60 days are required to
substantially perform such directions with reasonable
diligence and Employee has commenced performance within such
60 days) after written demand for substantial compliance by
the Board, which written demand is to specifically identify the
manner in which the Board that the Employee has not
substantially performed. Notwithstanding the foregoing, Company
may not terminate the Employee's employment under this
Agreement for Cause unles and until: a) Employee is given
reasonable notice setting forth the reasons the Company
intends to terminate Employee's employment; (b) Employee is
provided an opportunity to be heard before the Board; and (c)
after such hearing or opportunity to be heard, Company
delivers to Employee written notice of final termination of
employment for Cause setting forth the specific reasons
therefor and the effective date fo such termination. In
addition, termination for Cause requires the affirmative
votes of at least a majority of the entire Board.
Disability. Company may terminate Employee's employment under this Agreement
for Disability (as defined in this Paragraph 6(b) of this Agreement), if
such Disability continues for a period of three (3) months, upon providing
Employee with thirty (30) days' written notice setting forth the prospective
effective date of such termination. For purposes of this Agreement,
Disability and Disabled means the inability of Employee to perform his
duties under the Agreement due to illness or injury as determined by under the
agreement due to illness or injury as determined by a physician selected by the
Company. Termination for disability requires the affirmative of at least a
majority of the entire Board (excluding Employee, if Employee is a Director).
Death. Employee's employment under this Agreement shall terminate upon
Employee's death.
Payments to Employee Upon Termination. In the event that Company terminates
Employee's employment under this Agreement, Employee shall be entitled to
receive the following amounts:
Cause. In the event that Employee is terminated for Cause, Employee shall
be entitled to receive only those amounts due and owing to him under this
Agreement up to and including the effective date of termination his for
Cause.
Not for Cause. In the event that Employee is terminated for any reason
other than Cause, Employee shall be entitled to the following amounts,
subject to adjustment as described in Paragraph 7(c) of this Agreement:
Employee shall be entitled to his Salary for the six (6) month period
following the effective date of his termination;
Employee shall be entitled to fifty percent (50%) of his Salary for the
period of time commencing six (6) months following the effective date of his
termination and ending one (1) year following the effective date of his
termination;
Employee shall be entitled to thirty-three percent (33%) of his Salary for
the period of time commencing one (1) year following the effective date of
his termination and ending eighteen (18) months following the effective
date of his termination;
Employee shall be entitled to COBRA insurance for the one (1) year period
following the effective date of his termination;
Employee shall be eligible to receive his Bonus, if any, in the fiscal year
of his termination and the next following fiscal year; provided, however,
that such amounts are payable to Employee only in the event that Company's
sales and earning for the twelve (12) months prior to the effective date of
Employee's termination are greater than Company's sales and earnings for
the same twelve (12) month period for the previous year. In the event that
the Company's sales and earnings for the twelve (12) months prior to the
effective date of termination are less than Company's sales and earnings for
the same twelve month period for the previous year, Employee shall be solely
entitled to (i) his salarly for the six (6) month period following the
effective date of his termination; and (ii) COBRA insurance for the six (6)
month period following the effective date of his termination.
Adjustment to Amounts Payable for Not for Cause Termination. Notwithstanding
anything to the contrary contained in Paragraph 7(b) of this Agreement, the
amounts that Employee shall be entitled to pursuant to Paragraph 7(b) shall
be subject to the following exceptions and conditions:
in the event that Company's sales and earnings for twelve months prior to the
effective date of Employee's termination (the "YTD") are ten percent (10%)
to twenty five percent (25%) lower than Company's sales and earnings for the
twelve months prior to the YTD, Employee shall be entitled to: (a) his
Salary for the six (6) month period following the effective date of his
termination; (b) fifty percent (50%) of his Salary for the period of time
commencing six (6) months following the effective date of his termination; and
(c) COBRA insurance for the one (1) year period following the effective date
of his termination;
in the event that Company's sales and earnings for the YTD are twenty five
percent (25%) to thirty three percent (33%) lower than Company's sales and
earnings for the twelve months prior to the YTD, Employee shall be entitled
to: (a) his Salary for the six (6) month period following the effective date
of his termination; (b) fifty percent (50%) of his Salary for the period of
time commencing six (6) months following the effective date of his
termination and ending nine (9) months following the effective termination; and
(c) COBRA insurance for the nine (9) month period following the effective
date of his termination;
in the event that Company's sales and earnings for the YTD are more than
thirty three percent (33%) lower than Company's sales and earnings for the
twelve months prior to the YTD, Employee shall be entitled to (a) his Salary
for the six (6) month period following the effective date of his termination
and (b) COBRA insurance for the six (6) month period following the effective
date of his termination.
Disability. In the event of Employee's Disability, Company shall continue to
make any and all payments due to him under this Agreement for a period of
three (3) months.
Death. In the event of Employee's death during the term of this Agreement,
Company shall pay to Employee's estate, no later than thirty (30) days
following the date of Employee's death, any amounts payable to Employee
under this Agreement. Such payments are in addition to payments received
from, and does not preclude Employee from participating in, Company's
accidental death, life insurance and similar plans, if any.
Resignation. Employee may resign from employment under this agreement at any
time (a "Voluntary Resignation"). In the event of a Voluntary Resignation,
Employee shall not be entitled to any additional amounts under this
Agreement. In the event that the employment relation changes between
Company and Employee whereby Employee does not report directly to the Chief
Operating Officer of the Company, the option to terminate this Agreement
shall be in accordance with Section 7 of this Agreement.
Breach by Company. In the event Company breaches any material provision of
this Agreement and such breach is not cured within ten (10) days after
delivery of written notice thereof to Company by Employee, identifying the
breach with reasonable particularity, Employee may at his sole option, in
addition to any other remedy available to him, cease to perform his duties
hereunder and terminate this Agreement and his employment with Company. In
such event, any and all amounts payable to Employee hereunder become
immediately due and Employee is not required to mitigate his damages.
Change in Control. In the event of a Change in Control (as defined in
Paragraph 10 of this Agreement), Employee shall be entitled to receive, at
his option, $100,000 or 10,000 shares of the Company's common stock.
For purposes of this Agreement, a Change in Control is deemed to have
occurred if: (i) any individual, corporation (other than Company),
partnership, trust, association, pool, syndicate or any other entity, or any
group of the foregoing acting in concert, becomes the beneficial owner (as
that concept is defined in Rule 13d-3 promulgated under the Securities Exchange
Act of 1934) of securities of Company possessing at least 25% of the voting
power for the election of directors of Company as a result of any one or more
securities transactions, including gifts and stock redemptions, but excluding
transactions described in the cluse (ii) immediately following; (ii) the is
consummated any consolidation, merger or stock for stock exchange involving
Company or securities of Company in which the holders fo voting securities
of Company immediately prior to such consummation own, as a group, immediately
after such consummation voting securities of Company (or, ifCompany does not
survive such transaction, such voting securities of teh company surviving such
transaction) having less than 50% of the total voting power in an election of
directors of the Company (or such other surviving corporation), excluding
securities held by any memebers of such group which represent
disproportionate percentage increases in their sharehldings vis-a-vis other
members of such group; or (iii) there is consummated any sale, lease, exchange
or other transfer or disposition (in one transaction of a series of related
transactions), but excluding any transaction in the immediately preceding
clause (ii), of all or substantially all fo the assets fo Company to a party
which is not an Affiliate (as defined in Paragraph 10 of this Agreement) of
Company. For purposes of this Agreement, Affiliate means; (i) any person
which, diredctly or indirectly, is in control of, is controlled by or is
under common control with the party for whom an affiliate is being determined;
(ii) any person who is a director or officer of any person describe in
clause (i) above or of the party for whom an affiliate is being determined; or
(iii) any partner (general or limited), trustee, beneficiary, spouse, child,
including an adult child or sibling of any person described in clause (i)
above or of the party for whom an affiliate is being determined. For purposes
hereof, control of a person means the power, direct or indirect, to: (a) vote
25%or more of the securities having ordinary voting power for the election of
directors (or comparable positions) of such person; or (b) direct or cause the
direction of the management and policies fo such person, whether by contact or
otherwise and either alone or in conjunction with others.
Noncompete. In the event that Employee is terminated for Cause or Employee
terminates his own employment hereunder, during the period beginning on the
date of such termination of Employee's employment and continuing for three
(3) years after such date, Employee may not, without the prior written
approval of the Board (which approval may be granted or withheld in the
Board's sole discretion), either individually or with or through an
Affiliate of Employee, compete directly or indirectly with Company. Because
of the Salary and other potential compensation to be paid to Employee under
this Agreement, Employee agrees that the provisions of this Paragraph 11 are
reasonable.
Confidential Information. Employee shall use his best efforts and exercise
utmost diligence to protect and guard the confidential information of the
Company (the "Confidential Information"). Neither during his employment by
the Company nor thereafter shall Employee directly or indirectly, use for
himself or another, any Confidential Information (whether or not acquired,
learned, obtained, or developed by Employee alone or in conjunction with
others) of the Company, except as such disclosure or use may be required in
connection with his employment under this Agreement or may be consented to
in writing by the Company. Employee shall deliver promptly to the Company
at the termination of his employment, or at any other time the Company may
request, without retaining any copies, notes or excerpts thereof, manuals,
memoranda, diaries, plans, specifications, or other documents relating,
directly or indirectly, to any proprietary information concerning research,
development, inventions, prototypes, or any Confidential Information made or
compiled by or delivered or made avialable to, or otherwise obtained by
Employee. The provisions of this Paragraph 12 shall continue in full force
and effect after termination of Employee's employment, whether such
termination is in accordance with this Agreement or for any reason
whatsoever, with or without Cause or voluntary or involuntary.
Corporate Opportunity. Employee acknowledges that any opportunity in any way
related to the business of is an opportunity of Company. Employee agrees that
he will: (i) bring to the attention of the Board any Corporate Opportunity
of which he becomes aware during the term of this Agreement; and (ii) not
disclose to any third person such Corporate Opportunity, unless and until
the Board declines such Corporate Opportunity, in which case Employee may
disclose such Corporate Opportunity to a third party or avail himself
(or any of his Affiliates) of such Corporate Opportunity.
Dissemination of Information. During the term of his employment with Company
and for a period of five years thereafter, Employee will not disclose or
otherwise provide information or documents (other than in the ordinary
course of employment with Company) to any person regarding Company: (i)
without the prior written consent of Company (which consent may be granted
or withheld by Company in Company's sole discretion); (ii) except to
regulatory officials having jurisdiction over Employee; or (iii) except as
required by law or legal process or in connection with any legal proceeding
to which Employee is a party or is otherwise subject. In any event,
Employee will immediately notify the Board of any and all requests or
demands for such information or documents. This Paragraph 14 applies to all
information and documents regarding Company, whether or not the same is
confidential.
Inventions. Any and all inventions and discoveries, whether or not capable
of being patented, copyrighted, or trademarked, which Employee may conceive
or make, either alone or in conjunction with others, during the period of
his employment by the Company relating or in any way appertaining to or
connected with any of the matters which have been or may become the
Company's business, or in which the Company has been or may become
interested, shall be the sole and exclusive property of the Company.
Employee shall, whenever requested so to do by the Company and with
compensation or consideration agreed to by the Company, promptly assign all
of his right, title, and interest in and to such inventions and discoveries
and shall execute, acknowledge, and deliver to the Company any and all
applications, assignments, and other instruments which the Company shall
deem necessary in order to apply for and obtain letters patent and/or
trademarks of the United States and of foreign countries for said inventions an
and discoveries, and in order to assign and convey to the Company or the
Company's nominee, the sale and exclusive right, title, and interest in and
to said inventions, discoveries, or any applications or patents or
trademarks thereon.
Amendment and Modification. No amendment, modification, supplement,
termination, consent or waiver of any provision of this Agreement, nor
consent to any departure therefrom, will in any event be effective unless
the same is in writing and is signed by the party against whom enforcement
of the same is sought. Any waiver of any provision of this Agreement and
any consent to any departure from the terms of any provision of this
Agreement is to be effective only in the specific instance and for the
specific purpose of which is given.
Approvals and Consents. If any provision hereof requires the approval or
consent of any party to any act or omission, such approval or consent is not
to be unreasonably withheld or delayed except as set forth herein.
Assignments. No party may assign or transfer any of its rights or
obligations under this Agreement to any other person without the prior
written consent of the other party.
Captions. Captions contained in this Agreement have been inserted herein
only as a matter of convenience and in no way define, limit, extend or
describe the scope of this Agreement or the intent of any provision hereof.
Counterparts. This Agreement may be executed by the parties on any number of
separate counterparts, and all such counterparts so executed constitute one
agreement binding on all the parties notwithstanding that all the parties
are not signatories to the same counterpart.
Entire Agreement. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter hereof and supersedes all prior
agreements, letters of intent, understandings, negotiations and discussions
of the parties, whether oral or written.
Failure or Delay. No failure on the part of any party to exercise, and no
delay in exercising, any right, power or privilege hereunder operates as a
waiver thereof; nor does any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof, or
the exercise of any other right, power or privilege. No notice to or demand
on any party in any case entitles such party to any other or further notice
or demand in similar or other circumstances.
Governing Law. This Agreement and the rights and obligations of the parties
hereunder are to be governed by and construed and interpreted in accordance
with the laws of the State of Missouri applicable to contracts made and to
be performed wholly within Missouri, without regard to choice or conflict of
laws rules.
No Joint Venture or Partnership. The parties agree that nothing contained
herein is to be construed as making the parties joint venturers or partners.
Notices. All notices, consents, requests, demands and other communications
hereunder are to be in writing, and are deemed to have been duly given or
made: (i) when delivered in person; (ii) three days after deposited in the
United States mail, first class postage prepaid; (iii) in the case of
telegraph or overnight courier services, one business day after delivery to
the telegraph company or overnight courier service with payment provided
for; or (iv) in the case of telex or telecopy or fax, when sent,
verification received; in each case addressed as follows:
if to Company:
Monte Ross, President
Ultradata Systems, Incorporated
9375 Dielman Industrial Drive
St. Louis, Missouri 63132
Fax #: (314) 997-1281
with a copy to:
Steven H. Akre, Esq.
Lewis, Rice & Fingersh, L.C.
500 North Broadway, Suite 2000
St. Louis, Missouri 63102
Fax #: (314) 444-7788
if to Employee:
David Biernbaum
256 Kinderhook Drive
Chesterfield, Missouri 63017
Fax #: (314) 434-6008
or to such other address as any party may designate by notice to the other
party in accordance with the terms of this Section.
Remedies Cumulative. Each and every right granted hereunder and the remedies
provided for under this Agreement are cumulative and are not exclusive of
any remedies or rights that may be available to any party at law, in equity
or otherwise.
Severability. Any provision of this Agreement which is prohibited,
unenforceable or not authorized in any jurisdiction is, as to such
jurisdiction, ineffective to the extent of any such prohibition,
unenforceability or nonauthorization without invalidating the remaining
provisions hereof, or affecting the validity, enforceability or legality of
such provision in any other jurisdiction, unless the ineffectiveness of such
provision would result in such a material change as to cause completion of
the transaction contemplated hereby to be unreasonable.
Specific Performance and Injunctive Relief. Each party recognizes that, if
it fails to perform, observe or discharge any of its obligations under this
Agreement, no remedy at law will provide adequate relief to the other
parties. Therefore, each party is hereby authorized to demand specific
performance of this Agreement, and is entitled to temporary and permanent
injunctive relief, in a court of competent jurisdiction at any time when any
other party fails to comply with any of the provisions of this Agreement, and
is entitled to temporary and permanent injunctive relief, in a court of
competent jurisdiction at any time when the other party fails to comply with
any of the provisions of this Agreement applicable to it. To the extent
permitted by applicable law, each party hereby irrevocably waives any
defense that it might have based on the adequacy of a remedy at law which
might be asserted as a bar to such remedy of specific performance or
injunctive relief.
Submission to Jurisdiction. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO MAY BE BROUGHT IN THE COURTS
OF THE STATE OF MISSOURI OR ANY COURT OF THE UNITED STATES OF AMERICA FOR
THE EASTERN DISTRICT OF MISSOURI AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF SUCH COURTS.
THE PARTIES IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY OBJECTION TO THE
LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH ANY
OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR
PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. EACH PARTY IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF SUCH COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO EACH OF THE OTHER PARTIES AT ITS ADDRESS PROVIDED
HEREIN, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING.
Waiver of Jury Trial. If for any reason any legal action or proceeding
is commenced with respect to this Agreement or with respect to any
relationship between the parties hereto, each party waives the right to a
trial by jury.
Successors and Assigns. All provisions of this Agreement are binding upon,
inure to the benefit of and are enforceable by or against the parties and
their respective heirs, executors, administrators or other legal
representatives and permitted successors and assigns.
Third-Party Beneficiary. This Agreement is solely for the benefit of the
parties and their respective successors and permitted assigns, and no other
person has any right, benefit, priority or interest under or because of the
existence of this Agreement.
Signatory Warranty. Each party executing this Agreement warrants that he is
authorized to do so on behalf of the party for whom he signs this Agreement.
Indemnification. Employee will not be liable for services rendered on behalf
of the company in good faith, except for willful, fraudulent acts, or a
breach of the confidentiality provisions contained herein.
ULTRADATA SYSTEMS, INCORPORATED
By:
Monte Ross, President
David Biernbaum
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,075,968
<SECURITIES> 0
<RECEIVABLES> 1,706,231
<ALLOWANCES> (34,190)
<INVENTORY> 3,605,835
<CURRENT-ASSETS> 11,546,181
<PP&E> 1,336,398
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<TOTAL-ASSETS> 12,798,694
<CURRENT-LIABILITIES> 1,139,125
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0
0
<COMMON> 34,100
<OTHER-SE> 11,625,594
<TOTAL-LIABILITY-AND-EQUITY> 12,798,694
<SALES> 13,253,890
<TOTAL-REVENUES> 13,817,231
<CGS> 5,657,525
<TOTAL-COSTS> 7,634,396
<OTHER-EXPENSES> (1,164)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,155
<INCOME-PRETAX> 495,239
<INCOME-TAX> 158,225
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