<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 MARCH 31, 1999
( ) 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 May 3, 1999
Common, $.01 par value 3,153,793
Transitional Small Business Disclosure Format Yes No X
--- ---
<PAGE> 2
File Number 0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
September 30, 1998
INDEX
<TABLE>
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets at
<S> <C>
March 31, 1999 and December 31, 1998 3.
Consolidated Statements of Income
for the three months ended March 31, 1999 and 1998 4.
Consolidated Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 5.
Notes to Consolidated Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10.
PART 11 - OTHER INFORMATION 15.
Signatures 15.
</TABLE>
2
<PAGE> 3
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Balance Sheets
As of March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
1999 1998
ASSETS (unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 998,520 1,254,091
Trade accounts receivable, net of allowance for doubtful accounts of
$9,520 and $9,520 at March 31, 1999 and December 31, 1998, respectively 1,136,366 3,103,965
Receivable due from affiliated company 351,004
Costs and estimated earnings on long-term contracts 9,761 95,534
Inventories 2,910,539 3,121,003
Tax Benefit Receivable 231,227 231,227
Prepaid expenses and other current assets 304,142 794,252
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 5,941,559 8,600,072
==========================================================================================================================
Property and equipment, net 768,125 835,307
Deferred tax assets 500,000 500,000
Deferred compensation trust 150,702 150,702
Investment in affiliated company 883,616 820,355
Advances to affiliates 258,673 250,000
Other assets 59,556 64,212
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 8,562,231 11,220,648
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable 409,577 940,222
Accrued expenses and other liabilities 200,796 1,621,331
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 610,373 2,561,553
Deferred rent 19,282 21,148
Deferred compensation liability 150,702 150,702
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 780,357 2,733,403
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares authorized;
3,410,000 shares ssued and outstanding at March 31, 1999
and December 31, 1998 respectively 34,100 34,100
Additional paid-in capital 9,799,936 9,799,936
Retained earnings (639,782) 59,039
Treasury stock (256,200 and 255,200 shares at cost as of
March 31, 1999 and December 31, 1998, respectively) (902,406) (900,281)
Notes receivable issued for purchase of common stock (509,974) (505,549)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 7,781,874 8,487,245
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 8,562,231 11,220,648
===========================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
3
<PAGE> 4
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Statements of Operations
Three months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales:
Consumer products $ 1,083,791 934,157
Contract - 167,252
- --------------------------------------------------------------------------------------------------------------------------
Total net sales 1,083,791 1,101,409
- --------------------------------------------------------------------------------------------------------------------------
Cost of sales:
Consumer products 536,754 388,175
Contract - 76,390
- --------------------------------------------------------------------------------------------------------------------------
Total cost of sales 536,754 464,565
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 547,037 636,844
Selling expense 718,510 289,060
General and administrative expenses 535,491 536,919
Research and development expense 99,226 131,443
- --------------------------------------------------------------------------------------------------------------------------
Operating (loss) (806,190) (320,578)
- --------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense - -
Interest income 17,908 56,633
Equity in affiliated company 54,084 -
Other, net 35,376 (769)
- --------------------------------------------------------------------------------------------------------------------------
Total other income, net 107,368 55,864
- --------------------------------------------------------------------------------------------------------------------------
(Loss) before income tax expense (698,822) (264,714)
Income tax benefit (expense) - 101,814
- --------------------------------------------------------------------------------------------------------------------------
Net (loss) $ (698,822) (162,900)
===========================================================================================================================
(Loss) per share:
Basic $ (0.22) (0.05)
===========================================================================================================================
Diluted $ (0.22) (0.05)
===========================================================================================================================
Weighted Average Shares Outstanding:
Basic 3,154,682 3,359,834
===========================================================================================================================
Diluted 3,154,682 3,359,834
===========================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
4
<PAGE> 5
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1999 1998
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net(loss) income $ (698,822) (162,900)
Adjustments to reconcile net (loss)income to net cash provided by (used in)
operating activities:
Depreciation and amortization 67,823 62,280
Deferred income tax provision - -
Inventory reserve 27,500 -
Equity in earnings of unconsolidated affiliate (54,038) -
Note Receivable Reserve 7,750 -
Increase (decrease) in cash due to changes in operating
assets and liabilities:
Trade accounts receivable, net 1,967,599 997,523
Receivable due from affiliate company (351,004) -
Costs and estimated earnings on long-term contracts 85,773 (167,252)
Inventories 182,964 (13,603)
Prepaid expenses and other current assets 490,109 (52,850)
Accounts payable (530,645) (287,216)
Accrued expenses and other liabilities (1,420,534) (411,522)
Tax benefit receivable - 101,814
Deferred rent (1,866) 1,866
Other assets 231 (54,548)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities (227,160) 13,592
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Investment in affiliated company (9,223) (282,500)
Investment in software development - -
Advances to affiliated company (16,423) -
Capital expenditures (640) (44,469)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (26,286) (326,969)
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of stock - -
Repurchase of common stock at cost (2,125) (339,125)
Proceeds from repayment of notes receivable to
purchase common stock - 5,000
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,125) (334,125)
- ----------------------------------------------------------------------------------------------------------------------------
Net(decrease) increase in cash and cash equivalents (255,571) (647,502)
Cash and cash equivalents at beginning of year 1,254,091 5,075,968
- ----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 998,520 4,428,466
- ----------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ - -
Cash paid during the period for taxes - -
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
5
<PAGE> 6
ULTRADATA SYSTEMS, INCORPORATED
March 31, 1999
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying interim financial statements included herein have been
prepared by Ultradata Systems, Incorporated (the "Company"), without audit,
except for the balance sheet at December 31, 1998, 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 Company's investment in Talon Research and
Development, Ppty., Auckland, NZ Ltd. of 18.9% is accounted for using the equity
method.
In the opinion of management, the information furnished for the three
month periods ended March 31, 1999 and 1998, 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, 1999. It is suggested that the interim
financial statements be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1998, as filed with the
Securities and Exchange Commission on Form 10KSB (Commission File Number
0-25380).
USE OF ESTIMATES
The financial statements have been prepared in conformity with
generally accepted accounting principles and, as such, include amounts based on
informed estimates and adjustments by management, with consideration given to
materiality. Actual results could vary from those estimates.
NOTE 1. NATURE OF OPERATIONS
The principal business activity of Ultradata Systems, Incorporated (the
Company), located in St. Louis, Missouri, 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.
NOTE 2. 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 (loss) income for all periods presented. The
denominator for basic and diluted earnings per share for 1999 and 1998, as
follows:
<TABLE>
<CAPTION>
For the three months ended March 31,
1999 (a) 1998 (b)
Numerator:
<S> <C> <C>
Net Income (Loss) $(698,822) $(162,900)
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C> <C>
Numerator for basic and diluted earnings (loss)
per share - income available to common shareholders $ (698,822) $ (162,900)
=========== ===========
Denominator:
Denominator for basic earnings
per share - weighted average shares 3,154,682 3,359,834
Basic Earnings (Loss) Per Share $ (0.22) $ (0.05)
Effect of dilutive securities: Employee stock options -- --
Denominator for diluted earnings (loss) per share -
adjusted weighted average shares and assumed conversions 3,154,682 3,359,834
Diluted Earnings(Loss) per Share $ (0.22) $ (0.05)
</TABLE>
(a) Options to purchase 326,792 shares of common stock at prices between
$3.00 and $7.39 per share were outstanding at March 31,1999, but were
not included in the computation of diluted earnings (loss) per share
because the options' exercise price was greater than the average market
price of common shares.
(b) Options to purchase 272,592 shares of common stock at prices between
$5.00 and $7.39 per share were outstanding at March 31, 1998, but were
not included in the computation of diluted earnings (loss) per share
because the options' exercise price was greater than the average market
price of common shares.
NOTE 3. INCENTIVE STOCK OPTION PLAN
As of March 31, 1999, the Company's outstanding stock options totaled 326,792
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
Prepaid expenses at March 31, 1999 and December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Prepaid advertising $ 175,657 $ 554,784
Other prepaid expenses 128,485 239,468
------------------ -----------------
$ 304,142 $ 794,252
================== =================
</TABLE>
NOTE 5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at March 31, 1999 and December 31, 1998
and consist of the following:
7
<PAGE> 8
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
<S> <C> <C>
Accrued sales commissions
and royalties $ 24,477 $ 80,143
Accrued advertising 28,417 1,361,085
Other 172,379 180,103
----------------- -----------------
$ 200,796 $ 1,621,331
================= =================
</TABLE>
NOTE 6. ADVANCES TO AFFILIATES
The Company has purchased certain electronic components used in
Travel*Star and other GPS applications and sold those components to Talon at
cost. At March 31, 1999 a receivable from Talon of $351,004 resulted from those
transactions. Talon will repay all amounts due during 1999. As of April 1, 1999,
Talon has negotiated with the vendor of the components to purchase further
requirements directly.
NOTE 6. SUBSEQUENT EVENTS
On March 26, 1999, the Company received a letter of intent from a bank
to establish a $1,000,000 operating line of credit. Completion of the agreement
is dependent upon the preparation by the bank and acceptance by the Company of
the complete documentation, including among other items, loan covenants.
On March 23, 1999, the Board of Director's met and approved, an
alternative plan, by which, the option acquired in August 1998, would be
exercised for the amount paid ($314,162), and would increase the Company's
ownership of Talon to 24.9%. Under the terms of this agreement, any future
acquisition of shares in Talon would be subject to terms and valuations to be
renegotiated, and all other terms of the previous option would be nullified.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
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 (AAA) Trip Wizard, E@sy-Mail and Travel*Star
24; customer acceptance of new products; the possibility of the Company losing a
large customer, 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 (AAA) Trip
Wizard 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.
8
<PAGE> 9
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 report Form 10-KSB 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
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 $49.95 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
retails at $249 to $349 depending on the features of the specific unit. The
Company introduced Travel*Star 24 at the Consumer Electronics Show in January
1999. Travels*Star 24 is an improved unit with integral GPS antenna,
significantly increased database capacity and turn by turn instructions to
services and sites to assist the traveler. Management expects to bring the
product to market during the fourth quarter of 1999.
The Company has also entered into an agreement with the American
Automobile Association, (AAA) to incorporate AAA restaurant, lodging and service
facilities into a proprietary database that will also indicate the AAA rating
for each establishment. The unit will be called the AAA Trip Wizard. The strong
identity of AAA, and distribution through AAA member clubs, will establish much
stronger product identity in the marketplace. Initial shipments of the AAA Trip
Wizard were made in April 1999 to AAA affiliated clubs, and orders have been
received from specialty retailers for the unit.
The Company is working under an agreement, for a Road Whiz type product
called Auto Pilot, with Telebrands, Inc. Telebrands is a full service marketing
and operations organization which utilizes heavy television advertising to
achieve both direct distribution and retail placement, at a significant
reduction in product cost. Telebrands has produced and solely paid for, both
infomercials and spot television advertisements, which are currently being
tested in selective markets. Full marketing of Auto Pilot is dependent on
successful completion of test marketing of the infomercials which is expected to
be completed during May 1999.
Kmart Corporation marketed the Road Whiz Plus product in a promotion,
which sold over 40,000 units, during November and December 1998. Kmart has
decided to offer the Road Whiz in 1999, using a combination of promotions, and
planned shelf stocking. Initial shipments, valued at approximately $114,000, for
an April/May 1999 promotion were shipped in March 1999 with the balance of the
order approximating $151,000 to ship in April. The Kmart promotion of the Road
Whiz has also resulted in inquiries regarding the product from other large
retail chains, which are being pursued at this time.
9
<PAGE> 10
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1999 were $1,083,791,
compared to $1,101,409 for the three months ended March 31, 1998,representing a
2% decrease for the quarter. The following shows a breakdown and comparison of
net sales:
<TABLE>
<CAPTION>
Net Sales
For the Three Months Ended March 31,
1999 1998 Increase
(Decrease)
<S> <C> <C> <C>
Consumer Products $ 1,083,791 $ 934,157 16%
Laser System Contracts -- 167,252 (100%)
-----------------------------------------------------------
$ 1,083,791 $ 1,101,409 (2%)
===========================================================
</TABLE>
Consumer Products revenue for the three ended months March 31, 1999
increased by $149,634 (16.0%)from the comparable period ended March 31, 1998.
The increase in consumer product sales is primarily due to $114,000 in shipments
to Kmart for an April/May promotion of Road Whiz Plus. Total unit sales for the
three months increased by 69.1%. The lower rate of increase in dollar sales
which reflects a combination lower average mass market retail prices, and the
impact of sales of Travel*Star in 1998 through Sky-Mall, the in-flight catalog,
at $349 per unit, compared to 1999 sales, which were entirely at wholesale.
There were no contract revenues for the three months ended March 31,
1999, compared to $167,252 during the comparable period in 1998. This reflects
the near completion of the contract. One installed site remains to be completed,
and is awaiting contractor approval of an installation date.
Gross profit for the current quarter for the consumer product group
totaled $547,037 or 50.5% of consumer product sales as compared to $545,985 or
58.4% for the quarter ended March 31, 1998. The reduction in margins is
primarily due to lower prices for hand held units, reflecting lower selling
prices for mass merchandise retail units and credit card insert units, and the
sales of Travel*Star units at retail in 1998 compared to wholesale prices for
those units in 1999.
Selling expenses for the three months ended March 31, 1999 totaled
$718,510 as compared to $289,060 for the quarter ended March 31, 1998, or an
increase of 148.5%. The increase is due primarily to advertising costs, which
increased to $634,047 in 1999 compared to $211,889 for the three months ended
March 31, 1998. The increase reflects the late mailing of certain fourth quarter
1998 programs, the cost of which heavily impacted expenses in January and
February 1999. The sales, related to the later than planned mailings, continued
to be below expectations, based on comparable prior programs. The costs of the
credit card mailing programs are amortized over a four month period to match the
expense with the sales derived from the programs. Advance payment for
advertising related to credit card programs has been terminated as March 31,
1999.
General and administrative expenses, for the three months ended March
31, 1999, were $535,491, $1,428 lower than the comparable period in 1998. The
decrease reflects only personnel and senior management pay reductions, made in
March 1999. These decreases, and decreases in outside services, for public
relations and consulting were offset by legal services related primarily to
marketing contract issues.
Research and development expense decreased $32,217 or 24.5%, to $99,226
during the quarter ended March 31, 1999 compared to the same period in 1998. The
Company's research and development efforts continue to be tightly focused on AAA
Trip Wizard, Travel*Star 24 and E@sy-Mail, which accounted for approximately 85%
of research and development spending for the three months ended March 31, 1999.
10
<PAGE> 11
Other income for the quarter ended March 31, 1999 totaled $107,368,
compared to $55,864 for the quarter ended March 31, 1998. The increase is
primarily due to the Company's share (18.9%) in the earnings of Talon $54,084
for the quarter. No amounts were recorded in 1998, as the acquisition was made
in late March 1998. Other income for the period ended March 31, 1999 also
include, $35,000 received in settlement of an agreement by the Company to forego
certain tradenames related to portable information devices. Smaller investable
balances were available during the first quarter of 1999, resulting in a
decrease in interest income of $38,725, compared to the three months ended March
31, 1998.
As a result of the foregoing, the Company posted a net loss of
$(698,822) or ($0.22) per diluted share for the quarter ended March 31,
1999 compared to a net loss ($162,900) or ($0.05) per diluted share for
the quarter ended March 31, 1998. The results for the three months ended March
31, 1998 are net of a provision for an income tax benefit receivable of
$101,814. Deferred taxes related to the three months ended March 31, 1999 are
fully reserved, and have no impact on earnings for the quarter.
Management believes that through improved marketing partnerships, such as AAA,
Telebrands, and Kmart, and new marketing relationships being pursued for
Travel*Star 24 and E@sy-Mail, that the Company is positioned to establish
stronger market presence. In addition, these relationships have created
opportunities to reduce product costs, which will improve gross margin
contribution. Management has also taken steps to reduce costs including staff
reductions, salary reductions for senior management and reductions in operating
and outside service costs. Most significantly, changes in credit card insert
programs to eliminate advertising costs and sell at wholesale to syndicators,
are expected to improve Company operating results. The low consumer response to
these credit card programs in the fourth quarter of 1998, carried forward into
1999, significantly contributed to the first quarter losses, noted above. The
advance payment of advertising for these programs has ended.
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 March 31, 1999, the Company had $998,520 in cash and
cash equivalents, compared to $1,254,091 at December 31, 1998. The Company's
operating activities used cash totaling $227,160, primarily reflecting the
operating loss for the quarter of $698,822, payment of $530,645 in accounts
payable, $1,420,534 in accrued liabilities, offset by $1,967,599 in collection
of accounts receivable, $182,964 in inventory reduction and a $490,109 decrease
in prepaid expenses, primarily related to advertising programs.
Net cash used by investing activities totaled $26,286, which includes:
investment in Talon Research & Development Ppty. Ltd., of $9,223 primarily,
legal and consulting services related to the planned increase in the Company's
investment in Talon from 18.9% to 24.9%, and $16,423 accrued interest on
advances to Sci-Com Inc., for which a reserve for collectibility has been
established. Net cash used by financing activities totaled $2,125, resulting
from a purchase of shares Common Stock as treasury stock. As a result of the
foregoing, net cash and cash equivalents decreased by $255,571.
Inventories decreased $182,964 from the December 31, 1998 level to
$2,910,539, net of reserves for obsolescence of $497,210 as of March 31, 1999.
The Company is committed to reducing inventory levels during 1999 to increase
available cash for operations. Trade accounts receivable decreased by $1,967,599
from $3,103,965 at December 31, 1998.
As a result, net working capital decreased from $6,038,519 at December
31, 1998 to $5,331,185 at March 31, 1999. The Company's current ratio at March
31, 1999 was 9.7 to 1, as compared to 3.2 to 1 at December 31, 1998. The
improvement in the current ratio is due primarily to the reduction in accrued
expenses and other current liabilities of $1,420,534, which is primarily related
to the reduction in accrued advertising costs for credit card programs from
December 31, 1998 levels.
The Company has a letter of commitment for a secured line of credit
totaling $1.0 million including a $400,000 facility for a stand by letter of
credit, as part of a lending agreement between Talon and a New Zealand bank. The
credit facility is secured by the Company's accounts receivable, inventories and
equipment, with an interest rate of 1% over Prime Rate. The Company
11
<PAGE> 12
believes that the liquidity provided by existing cash and cash equivalents, the
new 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 includes: 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 determination 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, electronic commerce and related systems are Year
2000 compliant and the software is certified as such by the vendors. The Company
has acquired and installed software updates, as such are made available, under
technical support contracts, with the software 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.
The Company has developed information by structured questionnaires sent
to key customers and vendors. The Company continues to receive responses from
vendors and customers. To date, nothing has come to the Company's attention that
Year 2000 problems will interrupt the Company's operations. However, the Company
is assessing the implications of respondents' readiness, to 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.
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, such as customers or
suppliers, 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.
12
<PAGE> 13
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:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
None
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.
May 14, 1997 /s/ Monte Ross
Monte Ross, President and CEO
(Duly authorized officer and
principal financial officer)
13
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