<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 - FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ______________TO_______________
COMMISSION FILE NUMBER 0-25380
ULTRADATA SYSTEMS, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9375 Dielman Industrial Drive, St. Louis, MO 63132
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (314) 997-2250
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities 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
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class Outstanding as of November 2, 1998
Common, $.01 par value 3,260,193
Transitional Small Business Disclosure Format Yes No X
-----
<PAGE> 2
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
September 30, 1998
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997 3.
Consolidated Statements of Income
for the three months ended September 30, 1998 and
1997 nine months ended September 30, 1998 and 1997 4.
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997 5.
Notes to Consolidated Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a vote of security 15.
Holders
Item 6. Exhibits and Reports on Form 8-K 15.
Signatures 15.
<PAGE> 3
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
ASSETS 1998 1997
(unaudited)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,148,773 5,075,968
Trade accounts receivable, net of allowance for doubtful accounts of
$15,879 and $34,190 at September 30, 1998 and December 31, 1997,
respectively 1,500,165 1,672,041
Costs and estimated earnings on long-term contracts 419,228 528,620
Inventories 4,073,240 3,504,835
Deferred tax assets 63,815 63,815
Prepaid expenses and other current assets 1,173,254 700,902
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 9,378,475 11,546,181
- --------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 795,393 784,906
Deferred compensation trust 126,740 126,740
Investment in affiliate 328,105 -
Option to purchase shares in affiliate 314,147
Other assets 617,189 340,867
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 11,560,049 12,798,694
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Notes Payable
Accounts payable 878,615 509,338
Accrued expenses and other liabilities 227,608 429,263
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,106,223 938,601
Deferred rent 21,770 16,172
Deferred compensation liability 126,740 126,740
Deferred tax liabilities 57,612 57,612
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,312,345 1,139,125
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized;
and 3,410,000 shares issued and outstanding
at June 30, 1998 and December 31, 1997, respectively 34,100 34,100
Additional paid-in capital 9,799,934 9,799,936
Retained earnings 1,456,926 2,366,095
Treasury stock at cost 149,800 shares and 23,000 shares
at September 30, 1998 and December 31, 1997, respectively (637,756) (130,062)
Notes receivable issued for purchase of common stock (405,500) (410,500)
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 10,247,704 11,659,569
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,560,049 12,798,694
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations
For the three month and nine month periods ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Three Months ended September 30, Nine Months ended September 30,
1998 1997 1998 1997
(unaudited) (unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
Net sales:
<S> <C> <C> <C> <C>
Consumer products $ 1,335,782 3,071,478 3,583,164 9,545,059
Contract 6,986 148,324 240,271 425,047
- ----------------------------------------------------------------------------------------------------------------------------
Total net sales 1,342,768 3,219,802 3,823,435 9,970,106
- ----------------------------------------------------------------------------------------------------------------------------
Cost of sales:
Consumer products 709,953 1,225,808 1,693,725 3,834,899
Contract 68,579 84,823 199,273 218,408
- ----------------------------------------------------------------------------------------------------------------------------
Total cost of sales 778,532 1,310,631 1,892,998 4,053,307
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 564,236 1,909,171 1,930,437 5,916,799
Selling expense 362,281 1,056,631 1,395,595 3,193,678
General and administrative expenses 588,580 526,734 1,725,718 1,551,588
Research and development expense 196,143 230,894 447,168 739,710
- ----------------------------------------------------------------------------------------------------------------------------
Income/(loss) from operations (582,768) 94,912 (1,638,043) 431,823
- ----------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (599) (695) (633) (800)
Interest income 35,624 54,435 139,596 165,188
Equity in income of affiliated company 28,201 - 45,605 -
Other, net (3,975) (368) (4,248) (631)
- ----------------------------------------------------------------------------------------------------------------------------
Total other income, net 59,251 53,373 180,320 163,757
- ----------------------------------------------------------------------------------------------------------------------------
Income/(loss) before income tax expense (523,517) 148,285 (1,457,723) 595,580
Income tax expense/(benefit) (198,933) 42,481 (548,551) 198,935
- ----------------------------------------------------------------------------------------------------------------------------
Net income/(loss) $ (324,584) 105,804 (909,172) 396,645
============================================================================================================================
Earnings per share:
Basic $ (0.10) 0.03 (0.27) 0.12
Weighted average common shares outstanding 3,316,010 3,398,126 3,329,056 3,401,704
============================================================================================================================
Earnings per share:
Fully Diluted $ (0.10) 0.03 (0.27) 0.11
Weighted average common shares outstanding 3,316,010 3,448,406 3,329,056 3,451,894
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Month Period ended September 30,
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1998 1997
(unaudited) (unaudited)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income/(loss) $ (909,172) 396,645
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 186,840 135,316
Increase (decrease) in cash due to changes in operating assets and liabilities:
Trade accounts receivable, net 171,877 1,836,977
Costs and estimated earnings on long-term contracts 109,392 (117,546)
Inventories (568,405) (761,205)
Prepaid expenses and other current assets (472,352) (245,475)
Accounts payable 369,277 (674,409)
Accrued expenses and other liabilities (201,656) 160,625
Deferred rent 5,598 5,598
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (1,308,600) 736,526
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in and earnings of Talon Research & Development Ppty. Ltd. (328,105) -
Option to purchase up to 51% interest in Talon Research & Development Ppty. Ltd. (314,147)
Other assets (276,322) (227,939)
Capital expenditures (197,327) (279,277)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,115,901) (507,216)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Acquisition of treasury stock (507,694) (38,062)
Proceeds from repayment of notes receivable to
purchase common stock 5,000 -
- ------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (502,694) (38,062)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (2,927,196) 191,248
Cash and cash equivalents at beginning of period 5,075,968 3,960,577
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,148,773 4,151,825
==================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 599 869
Cash paid during the period for taxes - 275,569
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
NOTE 1 - Basis of Presentation
The accompanying consolidated interim financial statements included herein have
been prepared by Ultradata Systems, Incorporated (the "Company"), without audit,
except for the consolidated balance sheet at December 31,1997, in accordance
with generally accepted accounting principles for interim financial information
and pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. The consolidated
financial statements include the accounts of Ultradata Systems, Incorporated and
its majority-owned subsidiary, POIS, Inc. (POIS) for 1997. POIS operations were
terminated as of December 31, 1998 and consolidated with Ultradata operations at
its St. Louis location. All significant intercompany balances and transactions
have been eliminated in consolidation. The Company's investment in Talon
Research and Development, Ppty., Auckland, NZ Ltd. of 18.9% is accounted for
using the equity method, with financial data included on a one-month lag.
In the opinion of management, the information furnished for the three months and
nine month periods ended September 30, 1998 and 1997, respectively, includes all
adjustments, consisting solely of normal recurring accruals necessary for a fair
presentation of the financial results for the respective interim periods and is
not necessarily indicative of the results of operations to be expected for the
entire fiscal year ending December 31, 1998. It is suggested that the interim
financial statements be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1997, as filed with the
Securities and Exchange Commission on Form 10KSB (Commission File Number
0-25380).
NOTE 2 - EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1998 1997 1998 1997
Numerator:
<S> <C> <C> <C> <C>
Net Income $ (324,584) 105,804 (909,172) 396,645
Numerator for
basic earnings
per share - income
available to common
shareholders $ (324,584) 105,804 (909,172) 396,645
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Denominator:
<S> <C> <C> <C> <C>
Denominator for basic
earnings per share -
weighted average
shares 3,316,010 3,398,126 3,329,056 3,413,704
Basic Earnings
Per Share ($ 0.10) $ 0.03 ($ 0.27) $ 0.12
Effect of dilutive
securities: Employee
stock options -- 50,280 -- 50,280
Denominator for diluted
earnings per share per
share-adjusted weighted
average shares and assumed
conversions 3,316,010 3,448,406 3,329,056 3,451,894
Fully Diluted Earnings
Per Share ($ 0.10) $ 0.03 ($ 0.27) $ 0.11
</TABLE>
Options to purchase 274,100 shares of common stock at prices between $4.00 and
$7.00 per share were outstanding as of September 30, 1998, but were not included
in diluted earnings per share because the options' exercise price was greater
than the market price of the common shares.
NOTE 3 - INCENTIVE STOCK OPTION PLAN
As of September 30, 1998, the company's outstanding stock options totaled
274,100 shares. These options have been issued to key employees, officers,
directors and consultants of the Company. The Company is authorized to issue
350,000 shares of incentive stock options or non-qualified stock options.
NOTE 4 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets at September 30, 1998 and December 31,
1997 include the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
Prepaid income taxes $ 515,518 $ -
Prepaid advertising expense 148,374 191,814
Accrued interest receivable 98,553 93,157
Other prepaid expenses 410,809 445,931
----------- ---------
Total $ 1,173,254 $ 700,902
</TABLE>
<PAGE> 8
NOTE 5 - ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at September 30, 1998 and December 31,
1997 include the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
Income tax payable $ - $ 27,278
Commissions & royalties payable 20,595 90,003
Accrued advertising 82,994 117,281
Other expenses payable 124,019 260,132
--------- --------
Total $ 227,608 $429,263
</TABLE>
NOTE 6 OTHER TRANSACTIONS WITH RELATED PARTIES
The Company owns an 18.9% interest in Talon Research and Development
Ppty. Ltd. Talon. As of September 30, 1998 the Company's investment in
Talon includes:
$282,500 for the cost of the 18.9% interest in Talon
$314,147 for an option to purchase additional Talon shares, through
December 31, 1999, for approximately $1,400,000. The cost
of the option would be applied against the purchase price.
If the option is not exercised, the amount paid for the
option would be expensed.
$ 45,605 for the equity in the income of Talon, valued at the
average translation rate between US$ and $NZ for the
year-to-date
--------
$642,252 Total investments in affiliate and option to purchase shares
in affiliate.
The Company has purchased certain electronic components, which have been
transferred to Talon at cost, these components are used in Travel*Star GPS
units and other products manufactured by Talon. The Travel*Star components
are purchased from Talon. For this year to date, The Company has transferred
$540,900 in such components to Talon and has purchased $488,507 in Travel*Star
components from Talon. This results in a net amount of $52,393 receivable
from Talon as of September 30, 1998.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
<PAGE> 9
Forward-Looking Statements: No Assurances Intended
Item 2 contains certain forward-looking statements regarding the Company, its
business, prospects and results of operations that are subject to certain risks
and uncertainties posed by many factors and events that could cause the
Company's actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that may affect such forward-looking results include: the
Company's ability to successfully develop new products for new markets such as
the American Automobile Association Road Whiz, E@sy-Mail and Travel*Star;
customer acceptance of new products; the possibility of the Company losing a
large customer, or a or key personnel, new or terminated custom product
promotions like the 1997 program which was not renewed, the Company's ability to
manage growth and to successfully integrate recent strategic marketing and
product development alliances, including the American Automobile Association
Road Whiz project, the impact of competition on the Company's revenues; delays
in the Company's introduction of new products, as with E@sy-Mail, where the
planned marketing partner had to be replaced, and the possibility of the Company
failing to keep pace with emerging technologies.
Accordingly, no assurances can be given that events or results mentioned in any
such forward-looking statements will in fact occur. When used in this
discussion, words such as "believes" and phrases such as "are expected" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may subsequently arise. Readers are urged
to carefully review and consider the various disclosures made by the Company in
this report and in the Company's reports filed with the Securities and Exchange
Commission.
The analysis of the Company's financial condition, capital resources and
operating results should be viewed in conjunction with the accompanying
consolidated financial statements, including the notes thereto.
OVERVIEW
Since 1987, the Company has engaged in the development, manufacturing and
marketing of easy to use, portable data retrieval devices that employ the
Company's proprietary data compression technology for storing large quantities
of information on and retrieving it rapidly from a microprocessor memory chip.
These portable devices known as Road Whiz and other tradenames, which retail for
average prices between $19.95 and $100.00 have been primarily been sold through
specialty retailers, television shopping networks, promotional marketers, and
premium sales organizations.
Beginning in 1998, the Company introduced Travel*Star GPS which incorporates
both proprietary data technology and utilizes global positioning satellite
technology to provide location for proximate services. This item will retail at
$349 to $399 depending on the features of the specific unit.
Management believes the Company is poised for transition to stronger market
positions, through initial marketing of Travel*Star through a national
electronics chain, and initial promotion, during the fourth quarter of 1998,
of the Road Whiz product through a national mass merchandising retailer. The
Company has also entered into an agreement with the American Automobile
Association, (AAA) to incorporate AAA approved restaurant, lodging and service
facilities into a proprietary data base that will also indicate the AAA rating
for each establishment. This product will prominently carry the AAA brand logo
and will be marketed to AAA's 40,000,000 members and through catalog and
specialty retail stores.
RESULTS OF OPERATIONS
Net sales for the three month and nine month periods ended September 30, 1998
were $1,342,768 and $3,823,435, respectively, compared to $3,219,802 and
$9,970,106 for the three months and nine months ended September 30,
1997,representing a 58% decrease for the quarter and a 62%
<PAGE> 10
decrease for the nine months, respectively. The following shows a quarterly and
nine months breakdown and comparison of these revenues:
<TABLE>
<CAPTION>
Three months ended Increase Nine months ended Increase
September 30 (Decrease) September 30, (Decrease)
REVENUES 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Consumer products $1,335,782 $3,071,478 (57%) $3,583,164 $9,545,059 (62%)
Contract revenues 6,986 148,324 (95%) 240,271 425,047 (43%)
Total $1,342,768 $3,219,802 (58%) $3,823,435 $9,970,106 (62%)
</TABLE>
Consumer Products revenue for the three and nine months ended September 30, 1998
decreased by $1,735,696 and $5,961,895 respectively from the comparable periods
ended September 30,1997. The decrease in revenue is primarily attributed to
shipments under a contract, in 1997, for custom travel computers, totaling
approximately $1,518,000 and $6,100,000 respectively, the three months and nine
months ended September 30, 1997. The Company was not able to develop a
comparable program for 1998, which would have mitigated the effects of the above
contract. However, new markets are being developed including mass merchandise
retail, with orders totaling $672,000, received in October for November
delivery, retail test market for Travel*Star through Radio Shack during the
fourth quarter, and approximately 32,000,000 credit card inserts to be mailed
during the fourth quarter compared to approximately 21,000,000 mailed for
similar programs during the fourth quarter of 1997. These actions will mitigate,
but will not overcome, the impact on annual sales, of the completion of the
customer travel computer program discussed above, by the end of calendar year
1998.
Contract revenues for the three months ended September 30, 1998 were $6,986
compared to $148,324 in the comparable period in 1997. For the nine months,
contract revenues were down by $184,776 over the comparable nine months ended
September 30, 1997. The lower contract revenues compared to the prior year are a
result of the near completion of the orders for 12 laser pointing and tracking
systems (PATS) installations. Revenues for this contract were recorded on a
percentage of completion method pursuant to the terms of the contract. All work
and billings under the current contracts are expected to be completed by the end
of calendar year 1998.
Gross profit for the current quarter for the consumer product group totaled
$625,829 or 46.8% of consumer product sales as compared to $1,845,670 or 60.1%
for the third quarter of 1997. For the nine month period, gross profit totaled
$1,883,439 or 52.7% of consumer product sales compared to $5,710,160 or 59.8% of
sales for the nine months ended September 30, 1997. The decrease for the quarter
and year to date is primarily due to the sales of custom units in 1997 at high
margins, which were offset by significantly higher selling expenses.
Selling, expenses for the three months ended September 30, 1998 totaled $362,281
as compared to $1,056,631 for the same quarter last year, representing a 65.7%
decrease. For the current nine months, selling expenses totaled $1,395,595
versus $3,193,678 representing a 57.1% decrease. Sales commissions for the nine
months decreased to $98,643 from $1,948,030, reflecting higher sales and
marketing costs related to custom orders; advertising and marketing costs
increased to $1,063,994 from $1,028,707, reflecting higher mailings of credit
card inserts. This reflects the Company's continuing strategy to increase its
brand name recognition and to support product offerings.
<PAGE> 11
General and administrative expenses for the three months ended September
30, 1998 were $588,580, $61,846 (11.7%), higher than the comparable period in
1997. The increase was due to legal expenses, which increased $32,002 primarily
related to contract negotiation with American Automobile Association and Smart
Time AG related to development of expanded database and marketing appeal for
Road Whiz and to replace Intellidata as a source of internet services for the
E@sy-Mail product, salaries which increased $16,462 reflecting on-going
commitment to strengthening marketing and administration functions and
depreciation related to current and prior capital outlays. For the year-to-date
administrative and general expenses increased by $174,130 (11.2%) to $1,725,718.
The major factors in the increase are payroll costs up $117,471, reflecting full
year impacts of essential personnel additions in general management, finance and
marketing; and legal and auditing costs which increased $68,317 due to
growth-oriented activities, such as AAA and Smart Time and non-recurring costs
related to year-end 1997 audit costs due to a change in financial personnel.
Research and development expense decreased $37,751, or 16.3%, to $196,143 during
the quarter ended September 30, 1998 compared to the same period in 1997. For
the nine-month period, research and development decreased by $292,542 or 39.5%
to $447,168. The major factor in the reduction was the elimination of POIS Inc.
operations as of December 31, 1997. POIS research and development expenses for
the three and nine months ended September 30, 1997 were $60,585 and $311,494
respectively.
The Company's research and development efforts have been tightly focussed on
Travel*Star and E@sy-Mail and related projects and account for approximately 90%
of research and development spending for the year-to-date. Significant
improvements in the functionality of Travel*Star have been introduced and are
incorporated in models currently in the marketplace. Additional efforts for a
significant upgrade of the product including more resources and simplified
operation are projected for prototype testing in early 1999. E@sy-Mail will be
tested during the fourth quarter of 1998, and is expected to be deliverable
shortly thereafter. Research effort has been undertaken to combine information
from the AAA Auto Club with Ultradata proprietary data base information to
create a Road Whiz type product which also includes AAA lodging, dining and
service facilities and their diamond symbol ratings for such establishments. The
AAA/Road Whiz product will be available late in the first quarter of 1999.
The Company has entered into a joint development agreement with Smart Time AG a
privately held Virginia corporation, which has purchased certain assets and
rights to software from Intellidata. Under terms of the agreement, Ultradata has
transferred software and documentation, granted as part of the settlement with
Intellidata to Smart Time in exchange for a promissory note of $400,000. In
addition, Ultradata is providing Smart Time with access to computer equipment
purchased from Intellidata, and providing additional loans totaling $150,000 to
Smart Time to upgrade the systems to meet the network service needs of E@sy-Mail
and other customers currently using Smart Time as a network service provider.
Interest income for the quarter ended September 30, 1998 totaled $35,624, as
compared to $54,438 for the quarter ended September 30, 1996. For the nine
months ended September 30, 1998 interest income totaled $139,596 as compared to
$165,188 for the same period ended September 30, 1997. Smaller investable
balances were available during all of the third quarter of this year, due to
investments in affiliates and a seasonal inventory increase. Generally, the
Company invests its surplus funds in more liquid investment instruments in order
to avoid
<PAGE> 12
short term borrowing against the bank line of credit. These more liquid short
term investments carry a lower interest yield.
As a result of the foregoing, the Company posted a net loss of $(324,584)or
($0.10) per fully diluted share for the quarter ended September 30, 1998 versus
net income of $105,804, or $0.03 per fully diluted share for the quarter ended
September 30, 1997. For the nine months ended September 30, 1998, the Company
posted a net loss of $(909,172), or ($0.27) per fully diluted share as compared
to net income of $396,645 or $0.11 per fully diluted share) for the nine months
ended September 30, 1997.
BACKLOG
The current backlog of consumer products was approximately $926,000 compared to
$1,235,097 at September 30, 1997. This backlog consists primarily of orders for
non-custom travel computers associated with vendor orders for the holiday
season. Backlog represents contracts which are cancelable by customers and my
not be indicative of future periods. All of the September 30, 1998 backlog is
projected to be shipped by the end of calendar year 1998.
FINANCIAL CONDITION AND LIQUIDITY
The Company has funded its operations primarily through the sale of Common Stock
and historically through periodic borrowings, and from cash generated by
operations. At September 30, 1998, the Company had $2,148,773, in cash and cash
equivalents, compared to $4,151,825 at September 30, 1997. The Company's
operating activities used cash totaling $1,308,600 for the nine months ended
September 30, 1998. Cash used by operating activities resulted from an operating
loss of $909,172 and an increase in inventories of $568,405 for orders to be
shipped during the fourth quarter.
Net cash used by investing activities totaled $1,115,901, which includes: the
purchase of capital equipment of $197,327; investment in Talon Research &
Development Ppty. Ltd., of $596,647 including the initial purchase of 18.9% for
$282,500 and payment for an option to purchase, by December 31, 1999 of up to a
total of 51% of the stock in Talon for $314,147; and the transfer of software
related to E@sy-Mail to Smart Time AG in exchange for a promissory note of
$400,000 along with additional lending of $150,000 to support completion of
network facilities and programming to support E@sy-Mail and related projects
undertaken by Smart Time AG.
Investing activities used cash totaling $502,694 primarily through repurchase of
treasury shares at prices deemed by management to enhance shareholder value. As
a result of the foregoing, net cash decreased by $2,927,195.
Inventories increased $568,408 from the December 31, 1997 level to $4,073,240 as
of September 30, 1998. This represents the seasonal building of inventory for
the forthcoming holiday season. Typically, inventory levels decrease during the
first six months and gradually build during the third and into the fourth
quarter. Accounts receivable decreased by $171,877 from $1,672,042 at December
31, 1997.
As a result, net working capital decreased from $10,761,352 at December 31, 1997
to $8,263,231 at September 30, 1998. The Company's current ratio at September
30, 1998 was 8.5 to 1 as compared to 12.3 to 1 at December 31, 1998.
<PAGE> 13
The Company has an unsecured line of credit totaling $2.0 million plus a
$500,000 facility for letters of credit, bringing the total credit facility to
$2.5 million. As of September 30, 1998 the borrowing against this line of credit
was zero. As a result of operating losses, the Company is in violation of one of
the covenants of the borrowing agreement for the line of credit. The lender has
granted a waiver through the end of calendar year 1998.
The Company believes that the liquidity provided by its existing cash and
cash.equivalents, the borrowing arrangement described above, and the cash
generated from operations will be sufficient to meet the Company's operating and
capital requirements for the next twelve months.
YEAR 2000 ISSUES
The Company has implemented plans to address Year 2000 issues. The primary focus
include: Company information technology systems; other support systems; the
readiness of Company suppliers and customers. Although Company products include
computerized components, the data bases are not date sensitive, and the Company
believes that there are no additional contingencies or warranties related to its
product resulting from Year 2000 issues. Expenses related to determinations of
Year 2000 compliance have been expensed and incurred and have not been material
to the financial results of the Company
With respect to the Company's information technology systems, the Company's
primary accounting and related systems are Year 2000 compliant and the software
is certified as such by the vendors. Primary product support databases have been
tested and will recognize years from 2000 and higher in the correct century.
Non-information technology systems, including telecommunications have been
tested and appear to be Year 2000 compliant.
An interruption of the Company's ability to conduct its business due to a Year
2000 problem could have a material adverse effect on the Company. The Company is
not presently aware of any such significant exposure, however, there can be no
guarantee that the systems of third parties, on which the Company relies will be
converted in a timely manner, or that failure to convert would not have a
material adverse effect on the Company.
The Company is developing information by structured questionnaires sent to key
customers and vendors. The Company expects to obtain responses from all vendors
and customers by December 31, 1998. The Company will assess the implications of
respondents' readiness, develop a plan to monitor progress for any respondents
not, as yet indicating, Year 2000 compliance, and to develop appropriate
contingency plans for any situations found which may have a adverse impact.
<PAGE> 14
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
At the Company's Annual Meeting of Shareholders on July 9, 1998, the
shareholders elected Monte Ross, Mark L. Peterson, Steven H. Akre,
Esq., Bruce L. Miller and John J. Clancy to serve as directors until
the 1998 annual meeting.
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
On August 6, 1998 the Company filed a report on Form 8-K/A to report,
pursuant to Item 4 thereof, a change in principal accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 13, 1997 /s/ Monte Ross
Monte Ross, President and CEO
(Duly authorized officer and
principal financial officer)
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