China Huaren Organic Products, Inc. – ‘10KSB’ for 12/31/98

As of:  Thursday, 4/15/99   ·   For:  12/31/98   ·   Accession #:  950124-99-2611   ·   File #:  0-25380

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report -- Small Business                       54±   250K 
 2: EX-27       Financial Data Schedule                                1      6K 

10KSB   —   Annual Report — Small Business
Document Table of Contents

10KSB
1st “Page” of 35
TOC
↑Top
Previous
Next
↓Bottom
Just 1st
 

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, 1998

        ( )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: 0-25380

 ULTRADATA SYSTEMS, INCORPORATED
(Name of small business issuer in its charter)

 Delaware                                                             43-1401158
--------------------------------------------------------------------------------
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)                                              

9375 Dielman Industrial Drive, St. Louis, MO.      63132                        
--------------------------------------------------------                        
(Address of principal executive office)        (Zip code)                       

Issuer's telephone number, including area code: (314) 997-2250                  
Securities registered pursuant to Section 12(b) of the Act: None                
Securities registered pursuant to Section 12(g) of the Act:   

COMMON STOCK, $.01 PAR VALUE
(Title of Class)

         Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for    
such shorter period that the Registrant was required to file such reports) and  
(2) has been subject to such filing requirements for the past 90 days.          

Yes   X                                         No            
------                                         ------   
     Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be    
contained, to the best of registrant's knowledge, in definitive proxy or        
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to the Form 10-KSB._____                                       

    STATE THE ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR:    $7,234,075

       The aggregate market value at March 31, 1999 of the voting stock held
by non-affiliates, based on the closing price as reported by NASDAQ National    
Market System (NMS), was approximately $3,938,065. The aggregate market value   
has been computed by reference to a share price of $1.6875 (The price at which  
stock was sold, or the average bid or asked price of such stock on March 31,    
1999. 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 31, 1999, was 3,154,793.                                                  

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT:       Yes          NO   X        
                                                   -----       -----

          DOCUMENTS INCORPORATED BY REFERENCE:          None

10KSB
2nd “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 2nd
FORWARD-LOOKING STATEMENTS: NO ASSURANCES INTENDED                              

         This Item (1) 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. A major risk inherent in the implementation of the Company's revised
business plan, referred to herein is executing the plan within the constraint of
financial resources available to the Company at this time. Factors that may     
affect such forward-looking results, including statements about backlog, the    
Company's ability to successfully develop new products for new markets; customer
acceptance of new products; the possibility of the Company losing a large       
customer or key personnel; the Company's ability to manage growth and to        
successfully integrate recent strategic marketing and product development       
alliances; the impact of competition on the Company's revenues; delays in the   
Company's introduction of new products; the possibility of the Company failing  
to keep pace with emerging technologies, and the preparation by the Bank and    
acceptance by the Company of complete documentation, including, among other     
items, loan covenants.                                                          

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.                 

PART I                                                                          
Item 1. BUSINESS                                              

GENERAL DEVELOPMENT OF BUSINESS                                                 
   Ultradata Systems, Incorporated ("The Company") is engaged in the
manufacture and marketing of hand-held data retrieval devices that employ       
proprietary data compression technology developed by the Company. The Company   
was formed, as a corporation in 1986, named Laser Data Technologies, Inc. The   
name was changed, in November 1994, to Ultradata Systems, Inc., to better       
reflect the Company's business orientation.                                     

The Company's primary focus is in 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 access useful information
stored in a convenient manner. The Company's products generally sell at retail  
prices between $19.95 and $99.95 per unit. Travel*Star GPS, introduced in early 
1998 using global positioning satellite data, sold at retail prices ranging from
$299.95 to $399.95.                                                             

CONSUMER PRODUCTS                                                               

         The Company's Consumer Products Division primarily develops and markets
hand-held travel computers, the majority of which bear the ROAD WHIZ(TM)        
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. During 1998, the Company entered into an agreement   
with the American Automobile Association (AAA) to develop an expanded data base 
which includes restaurants, lodging facilities, camping and service facilities  
approved by AAA. This database containing in excess of 100,000 facilities, and, 
where available, their AAA rating or AAA approved status, will be incorporated  
in a custom hand-held travel computer called the Trip Wizard(R). This unit is   
expected to be available in April 1999.                                         

        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 containing in excess of 100,000 services, is proprietary to the        
Company's travel computers. The Company sells its products through independent  
sales representatives, mass merchandise retailers, catalog companies, department
stores, office supply stores, direct mail promotions, luggage stores and        
selected television shopping channels. A major factor in the sales decline      
experienced in 1998 was the inability to secure new private label volume to     
replace a 1997 private label premium program. This program accounted for $6.9   
million, representing 52.1% of 1997 consumer sales. The private label market is 
viewed as an important strategic growth opportunity for the Company. The        
Company's agreement with the American Automobile Association (AAA) represents an
important commitment to private label products. Trip Wizard(R) will be marketed 
to AAA's affiliates, consisting of 93 clubs, 1,100 offices and over 41 million  
members in the United                                                           

2 

10KSB
3rd “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 3rd

States, as well as to specialty retailers.                                      

MAJOR PRODUCT OFFERINGS                                                         

ROAD WHIZ(TM) FAMILY                                                            
         The ROAD WHIZ(TM) hand-held travel computer was introduced during 1990.
Since 1990, the Company has developed enhanced travel computer versions, based  
on the of the ROAD WHIZ(TM), including ROAD WHIZ(TM) PLUS, ROAD WHIZ(TM) ULTRA  
or ROAD WHIZ(TM) COMPANION, ROAD & CITY, TOWN & COUNTRY, and UltraFinder(TM) .  
The strategy for the Road Whiz(TM) family of products is to expand its line of  
travel computers to include additional features and functions at generally lower
retail prices.                                                                  

AUTO PILOT                                                                      
 This product is a ROAD WHIZ(TM) type unit similar to the Town &
Country, described below, and utilizes the Company's proprietary technology and 
designs. Completion of the agreement is dependent upon satisfactory test        
marketing of the product, which is ongoing, and at the sole discretion of       
Telebrands. Auto Pilot will be manufactured and marketed by Telebrands, upon    
completion of a signed agreement with Telebrands. Telebrands will employ a broad
range of television advertising, including spot ads and an infomercial to       
generate product awareness and mail order sales, before presenting the product  
in mass merchandise retail, drug and other retail outlets. Telebrands "As Seen  
On TV" logo has reserved space commitments for its products in a broad range of 
retail outlets. The proposed agreement calls for a minimum of 1 million units in
1999. For each unit sold the Company receives a royalty. During 1998, Telebrands
purchased, at their expense, long lead-time tooling and prototype parts for     
production. Telebrands plans to complete infomercials and spot advertisements,  
during the first quarter of 1999.                                               

ROAD WHIZ(TM) PLUS                                                              
       ROAD WHIZ(TM) PLUS was introduced in 1991, and has been enhanced each
year. It provides complete routing information for over 90 cities giving driving
distances, driving time and detailed directions to major cities. ROAD WHIZ(TM)  
ULTRA contains over 60,000 services and has double the memory capacity of first 
generation travel computers. This unit is marketed in mass merchandise          
retailers, which included a fourth quarter promotion in 3,000 Kmart stores, and 
will be marketed through Kmart in 1999.                                         

ULTRAFINDER                                                                     
    ULTRAFINDER(TM) was introduced in 1995. It is a 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(TM) features a two-line display and an updatable plug-in memory     
module. It was initially priced to sell at $99.95 at retail, although the       
company has offered promotions of this product at $49.95. During fiscal 1997,   
the Company sold a private label version of this product, realizing revenue in  
excess of $6.9 million. Reductions in both purchased and manufacturing costs    
have made ULTRAFINDER(TM) a marketable item in 1998 at a $49.95 retail          
price point.                                                                    

SUPER ROAD WHIZ(TM)                                                             
         The SUPER ROAD WHIZ(TM) 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. During 1998, SUPER 
ROAD WHIZ(TM) was featured on the QVC television network selling over 90,000    
units in a single day, and through credit card insert mailings.                 

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. The Company sells this       
product through upscale retail locations, such as Brookstone and Rand McNally.  

The ROAD WHIZ(TM) RV SPECIAL                                                    
  The ROAD WHIZ(TM) 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(TM)                                                              
  The KIDS ROAD WHIZ(TM), 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. Sales of this item, to date, have been minimal and are not expected to   
make a significant contribution to consumer product sales in the future.        

3 

10KSB
4th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 4th

GOLF FINDER & GOLF GUIDE                                                        
         GOLF FINDER(TM) and GOLF GUIDE represent the Company's two entries into
the sports leisure and travel market. Introduced in 1994, GOLF FINDER(TM) is a  
hand-held data retrieval device which contains information on over 13,000 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. GOLF GUIDE(TM) also contains a four-player    
scorekeeper with player name entry and records individual players' scores, in   
addition to the golf course information in GOLF FINDER(TM). The Company acquired
the golf course 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.                                             

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  
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.      

TRAVEL*STAR(TM) GPS                                                             
  TRAVEL*STAR GPS introduced in January 1998 combines the database
information of ROAD WHIZ ULTRA(TM) with global positioning satellite technology,
to determine a vehicle's exact longitude and latitude. The Company offers       
optional road service and detail direction subscription in conjunction with     
another service provider, Protection One, Inc., through a cellular phone. With  
additional plug-in memory modules, the unit is able to provide detailed         
directions for most major cities. The unit, which is portable, retails for $299 
to $399. Factory installed systems range from approximately $1,000 to over      
$3,000. TRAVEL*STAR is marketed through SkyMall in-flight magazine and by       
Radio Shack, in its catalog and Radio Shack Unlimited, in store catalog         
programs.                                                                       

       In January 1999, the Company demonstrated a prototype of an advanced,
fully portable, in-car GPS navigation system, called TRAVEL*STAR 24. This       
unit includes directions and information for more than 200,000 highway and city 
services, turn by turn directions to hundreds of major intersections, sites of  
interest in each of more than 250 metropolitan areas and directions to over     
12,000 smaller cities and towns. The unit continually displays heading and      
distance to the desired destination. Voice output identifies turns and alerts   
the driver to deviations from the calculated route. This item is expected to be 
available in August, 1999.                                                      

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. Required capital    
equipment is, usually, 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.               

    In 1995, the Company received a $1.7 million government production
contract from the Yuma Proving Ground to manufacture their Laser Pointing and   
Tracking System PATS design. For the two years ended December 31, 1998 and 1997,
the Company realized revenues of $250,451 and $563,251, respectively, from this 
contract. The Company has completed nearly all of the outstanding work orders   
related to this program and does not anticipate this segment to use significant 
resources in future years. The Company is focused on its consumer products      
business and has neither invested in this market, nor will there be any         
significant costs associated with cessation of this function, upon completion of
existing contracts.                                                             

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. 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 future manufacturing                                 

4 

10KSB
5th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 5th

requirements.                                                                   

       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 antenna for the GPS product, which is supplied by
Talon Research & Development Ppty., Ltd., ("Talon"), in which the Company owns  
18.9% of Talon, as of December 31, 1998. The inability to obtain timely or      
sufficient deliveries of this sole-source component and certain custom parts    
would materially disrupt production until an alternative vendor could be located
and qualified, and production could resume.                                     

BACKLOG                                                                         
        As of December 31, 1998, the Company's total backlog was approximately
$15,300, versus a backlog of approximately $280,000 on December 31, 1997.       
Backlog is generally very low at December 31, due to minimal post holiday demand
and normally short retailer lead times for standard products, which can be      
shipped from inventory. The Company has occasionally experienced cancellations  
or postponements in its delivery of orders.                                     

SALES AND MARKETING                                                             
     The Company's sales and marketing strategy is to remain the leading
supplier of low-cost, portable travel computers. To support this strategy, the  
Company believes it must offer a growing line standard and custom travel        
computers and GPS based travel computers. Such new devices are principally aimed
at providing portability, increased consumer safety and security, more features 
and functionality, at affordable prices when compared to travel information     
devices available from others sources.                                          

        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, travel oriented journals and   
periodically distributes promotional materials to increase market awareness of  
its products. Since going public in 1995, the Company has focused its primary   
marketing efforts on establishing customer relationships with local and regional
retailers and upscale retail outlets. During 1998 and 1997, the Company has     
pursued programs to develop new markets by developing custom versions of travel 
computers, and expand distribution to nationally recognized electronics and mass
merchandise retailers (e.g. Radio Shack and Kmart).                             

      In December 1998, the Company entered into an agreement with a major
consumer products promotion company called Telebrands, Inc., to test direct     
marketing of a custom Road Whiz product, to be called Auto Pilot(R). If         
telemarketing tests, which commenced in December 1998, prove successful, this   
item will be manufactured and marketed by Telebrands. The market test includes  
analysis of the results of two different television commercials, in selected    
markets, and will include an info-mercial, which will be aired in April 1999.   

    The Company's products are also marketed through independent sales
representatives, mail order                                                     

5 

10KSB
6th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 6th
catalogs and office supply stores. In fiscal 1998, the Company incurred         
$2,442,366 in advertising, promotion, and marketing program expenses, as        
compared to $2,066,472 in 1997. The Company incurred $224,104 in 1998 compared  
to $221,705 during 1997 to advertise in the SkyMall(TM) magazine, the popular,  
airline, buying guide. A direct mail program similar to one completed in 1997   
was undertaken again in 1998 with Roy Thomas, a direct mail merchandiser. It    
included approximately 31 million advertising inserts distributed beginning with
October 1998 oil and bank credit card statements. Additionally, the Company     
incurred $145,900 advertising expenses for a Road Whiz promotion at over 3,000  
Kmart stores.                                                                   

The Company formed a joint product and marketing alliance with
SmartTime(TM) Network, in 1997, to develop and market e-mail and data retrieval 
appliances on the Internet. Both parties agreed to share certain costs in the   
project. During 1998, Intellidata Technologies Corp., the parent of SmartTime   
Network, advised the Company that it was discontinuing the Smart Time operation.
Intellidata, agreed to transfer to the Company all software, documentation and  
the hardware developed during the alliance, to the Company. In July, 1998,      
Sci-Com, Inc., a privately held company based in Virginia, agreed to acquire the
existing business of SmartTime Network, and retain the SmartTime trade name for 
its new operation. The Company entered into a new agreement with Sci-Com. Under 
terms of the agreement, all software and documentation, including that acquired 
from Intellidata was transferred to Sci-Com in exchange for a $400,000          
promissory note due to the Company; to lease at nominal rental, network server  
hardware acquired from Intellidata, and to fund expansions of the network. The  
Company has fully reserved for the collectibility of the $400,000 note          
receivable and accrued interest thereon. While the Company has no evidence that 
Sci-Com is not financially viable, Sci-Com has not provided financial statements
as of December 31, 1998. The lack of financial statements does not permit the   
Company adequate assurance of borrower's ability to repay the note. During 1998,
the Company loaned an additional $250,000 to Sci-Com. The loans are backed by   
specific collateral, to facilitate network expansion of the Smart Time Network, 
which will be undertaken during 1999.                                           

DEPENDENCE ON CUSTOMERS                                                         
  Roy Thomas, Inc., a direct mail customer, accounted for 21.6% or
$1,508,634 of 1998 consumer sales, compared to 14.5% or $1,918,987 of total     
consumer sales, during 1997. The Company initiated sales to Kmart Corporation (a
large mass merchandise retailer), in a fourth quarter promotion, which totaled  
$626,082 or 9.1% of total 1998 consumer sales.                                  

During 1997, a major catalog promotion resulted in sales of   
approximately $6.9 million or 52.1% of total sales to a single customer. The    
promotion was completed in the fourth quarter of 1997 and there were no sales   
related to this program in 1998.                                                

     For the two years ended December 31, 1998 and 1997, the QVC Network
sales totaled $1,379,148 and $349,223, respectively, representing approximately 
19.7% and 2.6% of consumer sales for those years.                               

COMPETITION                                                                     
  Competition in the consumer 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. The Company   
regards $19.95 as an important retail consumer price for the Company's products 
to be successful in the mass market. The Company introduced ROAD WHIZ(TM), and  
through market driven price reductions in components and increased use of low   
cost contract manufacturing, is now priced to sell at retail for $19.95, as a   
mass market item. The Company was able to introduce the product, on a           
promotional basis in a major mass merchandise retailer, during 1998. The Company
intends to explore other long-term relationships with mass merchandise          
retailers.                                                                      

         The segment of the electronics industry in which the Company is engaged
is populated by competitors with substantially greater financial resources than 
the Company, and 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. There are other GPS products at substantially higher prices,         
including factory installed in-car units. 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 with visual mapping displays. To protect the Company's dominant market 
position in affordable travel computers, the Company invested $672,090 or       
approximately 9.3% of its 1998 revenues, in research and product development,   
compared to $1,022,095 or 7.7% in 1997. There can be no assurance, however, that
the Company will be able to develop or acquire new products or increase market  
channels at a rate sufficient to keep the Company competitive. The Company also 
cannot guarantee that new or updated product updates will ultimately achieve    
market acceptance.                                                              

RELATED PARTIES                                                                 

POIS, INC.                                                                      
    The Company ended operations of its Detroit based Personal Onboard
Information Systems, Inc. subsidiary, effective December 31, 1997. There were no
material effects on 1998 results from termination of POIS, Inc. operations.     

6 

10KSB
7th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 7th
TALON RESEARCH & DEVELOPMENT PPTY., LTD.                                        
    In March 1998, the Company acquired an 18.9% ownership interest in
Talon Research & Development Ppty., Ltd. (Talon) of Auckland, New Zealand for   
$282,150 in cash. Talon develops, manufactures and markets electronic components
and marine instruments including Global Positioning Satellite (GPS) receiver    
units, including the antennas used in the Company's Travel*Star GPS product     
line. Financial results of Talon, for the period April through December, 1998,  
are included in the Company financial statements on the equity method. On August
12, 1998, the Company paid $314,162 for an option to acquire an aggregate       
interest of up to 50.1% of the outstanding common stock of Talon for            
approximately $820,000. The option is exercisable through April 2, 1999.        

   As a result of the Company's reduced cash positions caused by the
unanticipated poor fourth quarter results, the Board of Directors approved an   
alternative plan to conserve cash and less aggressively increase its investment 
in Talon. The revised plan further addresses long standing obligations to help  
Talon meet its financial obligations. Under the original plan, the Company spent
$314,162 to purchase an option to acquire additional shares in Talon to raise   
its stake to 50.1%. The Company was obligated to make an additional payment of  
approximately $820,000 upon exercise of this option. Under the revised plan the 
$314,162 would be applied to purchase an additional 6.0% interest in Talon,     
which would increase the Company's ownership in Talon to approximately 25%. The 
terms of this agreement are currently under review by Talon, which the Company  
believes conforms to earlier negotiations. Upon acceptance by Talon and the     
timely completion of the pending bank credit facility, the Company would provide
a twelve month, standby letter of credit to Talon's bank in amount of $400,000, 
to secure a new financing arrangement for Talon.                                

 For the year ended December 31, 1998 Talon earned approximately
$687,000, compared to a nine month period ended December 31, 1997 which resulted
in a loss of approximately $370,000. Talon changed its reporting period during  
1998. The Company realized other income of $118,733, representing its 18.9%     
stake in Talon during the year. Talon management indicates that its forward     
orders (backlog) as of December 31, 1998 totaled approximately $3.7 million.    

SCIENTIFIC COMMUNICATION & CONTROLS CORP.                                       

         The Company formed a joint development and marketing agreement, in July
1998, with Scientific Communication & Controls Corp. (Sci-Com) of McLean,       
Virginia. Sci-Com acquired the operating rights to the SmartTime Network from   
Intellidata Technologies, Corp. Sci-Com will complete the implementation of     
network software, to support the Company's E@syMail and internet personal data  
assistant products. To facilitate this development and testing of the Company's 
products, which commenced in the fourth quarter of 1997, the Company            
transferred all software and documentation of the service software acquired     
from Intellidata, in exchange for a promissory note of $400,000, bearing        
interest at prime rate of 7.75% as of December 31, 1998. In addition, the       
Company leased computer equipment acquired from Intellidata to Sci-Com at rates 
below market value. The Company advanced Sci-Com $50,000 in a promissory note,  
due June 30, 2000 with interest at 6.36% to expand equipment capabilities to    
support the proposed network. The agreement also includes a provision for the   
Company to advance to Sci-Com up to an additional $400,000 in additional funds  
to complete network development, of which $200,000 was advanced as of December  
31, 1998. These advances were incorporated in a promissory note due January 1,  
2002, which provides for the Company to be entitled to one-half, (50%) of the   
operating revenue of SmartTime Networks (excluding only non-reoccurring         
engineering services provided by Sci-Com). The agreement also provides for the  
optional conversion of the loan into a 10% equity interest in Sci-Com, at the   
Company's sole discretion.                                                      

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. The Company periodically
engages outside computer system design consultants to expedite the completion of
the development and test stages.                                                

    In 1998, the Company incurred $672,090 in research and development
costs compared to $1,022,095 in 1997. Research activities for 1998 were         
primarily focused on continued development of Travel*Star GPS, Travel*Star 24,  
introduced at the January 1999 consumer electronics show, E@syMail personal data
assistant product and the development of a new database to incorporate American 
Automobile Association (AAA) facility and rating data to support the TRIP       
WIZARD(TM) product introduced at he Consumer Electronics Show in January 1999.  
These three major projects accounted for 83.0% of all research and development  
expenses in 1998.                                                               

    The Company incurred $158,558 during 1998, compared to $321,007 in
1997, for research and development of it portable Global Positioning Satellite  
(GPS) based travel computer, called Travel*Star. This product has a GPS         
satellite receiver with the ROAD WHIZ(TM) data base and is believed to be the   
first affordable and portable GPS Driver Information System on the market. In   
addition, $166,657 was incurred on research and development of Travel*Star      
24 was exhibited at the Consumer Electronics Show in Las Vegas. Travel*Star     
24 incorporates the best features of Travel*Star, in a unit with an             
integral GPS antenna, expanded information display capabilities and increased   
functionality, including turn by turn directions in most major cities.          
Travel*Star and Travel*Star 24 will continue to be marketed through             
Radio Shack in its catalog program and Radio Shack Unlimited (RSU) program,     
through Sky-Mall in-flight catalogs, and other specialty retail outlets.        
E@syMail and personal data assistant units with Internet connect capabilities   
incurred spending on research and development totaling $232,825 during 1998.    

DATABASE RESEARCH                                                               

        The Company believes that a broad and accurate proprietary database is
one of the most important                                                       
7 

10KSB
8th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 8th

factors for the competitive success of the consumer product line. 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(TM) database, including publicly available geographic and demographic 
data. A significant part of the ROAD WHIZ(TM) database is compiled by "Road     
Helpers." Road Helpers are generally retirees and others that travel            
extensively. Generally, the Road Helpers are nominally compensated by the       
Company.                                                                        

       The Company maintains an on-site 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.                                 

     During the fourth quarter of 1998, the Company reached an agreement
with AAA to develop a product which combined the Company's expertise in hand    
held travel computers with the extensive database of travel, food and lodging   
information compiled by AAA for the benefit of their members. The Company has   
combined its travel database with that of AAA to provide a new information base 
for the AAA ROAD WIZARD(TM). This new product will initially be marketed by the 
91 auto clubs affiliated with AAA to the 41,000,000 AAA members in North        
America, and through AAA's 1100 local offices throughout the United States and  
Canada.                                                                         
     The Company's Research and Development Group includes two full-time
software engineers and two hardware design engineers. During 1998, 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 four patents. The     
patents cover 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 has received a third patent, which relates to use of
electronic coupons for services, such as food or lodging, from handheld units,  
and could apply to navigation information products such as Travel*Star 24.      

      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.       

EMPLOYEES                                                                       
 The Company currently has 26 full-time employees, including six
officers, all of whom are located at the Company's headquarters in St. Louis,   
Mo. The Company employs six people in sales, customer service and shipping,     
eight 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 12,500 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 $119,236 for 1998, compared to
$120,088 in 1997. The Company believes that its facilities are adequate for the 
Company's present and foreseeable requirements.                                 

8 

10KSB
9th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 9th

ITEM 3. LEGAL PROCEEDINGS                                                       
Not applicable.                                                 

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, 1997 and ending December 31, 1998.                          

                                                                [Download Table]

                          Bid                Asked         
                          ---                -----         
Quarter Ending      High       Low      High        Low    

                                                           
March 31, 1997        $ 7.88    $ 5.88    $ 8.80     $ 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     $ 5.55

March 31, 1998        $ 6.50    $ 3.75    $ 6.75     $ 3.88
June 30, 1998         $ 4.50    $ 3.25    $ 4.88     $ 3.50
September 30, 1998    $ 4.63    $ 2.25    $ 4.75     $ 2.38
December 31, 1998     $ 3.13    $ 2.00    $ 3.50     $ 2.13

(b)      Shareholders                                                           

At March 3, 1999, there were 152 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 foresee doing so in the foreseeable future. The Company      
intends to retain any future earnings for the 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 groups 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 two years ended December 31, 1998. The table should be read in 
conjunction with the audited financial statements for the periods indicated and 
the related notes incorporated herein.                                          

                                                                [Download Table]


                                                      Net Sales                
                                        For the Two Years Ended December 31,   
                                                   (in Thousands)              
                                      1998        %           1997         %   
                                                                               
Consumer Products                       $6,984    96.5          $13,254    95.9


9 

10KSB
10th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 10th

                                                                [Download Table]


                                                                          
Laser System Contracts           250     3.5              563     4.1     
                        --------------------------------------------------

                              $7,234   100.0          $13,817   100.0     
                        ==================================================

Year Ended December 31, 1998 vs. Year Ended December 31, 1997                   
    Consumer product sales for 1998 decreased by $6,270,176 (47.3%) to
$6,983,804. The decrease was entirely due to a $6.9 million order for private   
label Ultrafinders designed and sold to a single customer in 1997, with no      
corresponding program in 1998.                                                  

       The Company was successful in making an initial penetration into mass
merchandise retailing with Kmart Corporation orders for over 40,000 units       
totaling approximately $626,082 in sales, during the fourth quarter of 1998.    
Kmart has indicated that it will continue to offer the Road Whiz product in     
1999, and orders for second quarter 1999 delivery were received during March of 
1999. Unit volume for standard hand-held travel computers, excluding the large  
private label promotion in 1997, increased slightly (1.1%). The sales in 1998   
compared to 1997 reflect reduction in the mass market retail price to $19.95.   
The Travel*Star product was introduced through Sky-Mall in-flight catalog and by
Radio Shack, a large national electronics retailer in its consumer catalog and  
Radio Shack Unlimited, an in-store catalog. Although unit volume was            
disappointing to the Company, Radio Shack is committed to continuing the catalog
programs and evaluating further in-store sales opportunities.                   

       Market channels which have traditionally been a part of the Company's
strategic plan, such as television shopping networks, continued in 1998 to      
provide strong customer response, including a fourth quarter promotion totaling 
over 90,000 Road Whiz units on the QVC home shopping channel. Credit card       
mailing programs also continued to be an important component of 1998 sales.     
Fourth quarter results, despite lower mass market price point, achieved much    
higher sales than the fourth quarter of 1997, but the overall volume remains    
substantially below expectations. These programs are being thoroughly revised to
improve the overall contribution on sales and to shift the financial risks      
related to high advertising costs to the company bringing the program to the    
customer.                                                                       

         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. The      
Company has entered into an agreement with Telebrands, a privately held mass    
marketer, which uses direct television advertising, and has access to a broad   
range of retail outlets to expand mass market potential for the Company's hand  
held travel products. Final test marketing of Auto Pilot is being conducted by  
Telebrands and is expected to be completed by April 1999. Travel*Star 24 was    
well received during the Consumer Electronics Show (CES) in Las Vegas, during   
January 1999. Management and sales personnel are actively pursuing additional   
marketing channels for this item, and expect to launch this unit in the second  
half of 1999. Formal marketing arrangements and alliances like Telebrands, AAA, 
and the acquisition of other marketing partners are critical for the future     
growth and success of the Company.                                              

       Contract sales from laser systems totaled $250,271 for 1998, compared
to $563,251 for 1997. 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 
was originally valued at $1.7 million. The contract contained an override       
clause, which resulted in additional orders of $450,363 during the year 1997.   
There were no additional orders in 1998. At December 31, 1998, there was        
approximately $9,300 in contract revenue remaining. Costs for contract sales, in
1998, exceeded revenues by $20,021 or 8.0% of sales compared to a $271,034, or  
48.1% gross margin on sales for 1997. The 1998 loss is due primarily to travel  
for additional on-site work to complete and test installations and costs        
incurred for contract programming services to replace the services of a key     
person who had been involved during the entire project who left the Company     
prior to completion of the project. Costs for final adjustments and fixes to    
software components for deliverable systems, exceeded estimates for 1998, but   
will be completed in 1999 and are not expected to have a material impact on     
future financial results. Further government contract activity is not part of   
the Company's plans for the future, and resources are planned to be re-deployed 
to consumer product activities.                                                 

    Gross profit for the consumer product group totaled $3,081,895, or
44.1% of sales, for the year ended December 31, 1998, compared to $7,888,673, or
59.5% of sales, for 1997. Gross profit was adversely impacted by the absence of 
relatively high margins on the $6.9 million private label promotional order in  
1997 and by continued pricing pressure in retail, home shopping networks and    
credit card insert channels to meet a $19.95 selling price for a basic hand held
travel computer. In addition, the Company recorded a provision totaling $469,210
for obsolescence of inventories. The obsolescence provision encompasses excess  
or out of date products and components, net of planned usage in 1999. The       
Company has identified specific market outlets for overstocks, and the          
development of marketing and production partnerships, similar to Telebrands,    
will minimize obsolescence risks for the Company in the future.                 

        Although, promotional volumes, such as the 90,000 unit QVC order, over
40,000 units for the Kmart promotional order and over 100,000 units for the     
fourth quarter credit card insert program,                                      

10

10KSB
11th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 11th

allowed for a reduction in unit costs, it contributed to a decrease in average  
gross margins of approximately 15%. The Company is actively pursuing lower cost 
sources of components and assemblies to help offset the reduced $19.95 average  
retail price for mass market business.                                          

      Selling expenses for 1998 decreased to $2,931,151 from $4,540,359 in
1997. The decrease of $1,609,208 or 35.4%, primarily resulted from a decrease in
sales commissions of $2,057,415, due to lower sales in 1998. Advertising expense
increased by $350,414 (17.0%) from $2,066,472 in 1997. The increase in          
advertising reflects an increase from approximately 23 million mailing inserts  
in 1997 to approximately 31 million inserts in 1998. Poor response experienced  
with the credit card insert programs in 1998, have caused management to change  
its strategy for the risks associated with these programs in 1999. By the second
half of 1999, the credit card program companies to be employed by the Company,  
will assume the advertising costs and the Company will provide product to the   
marketer on a standard wholesale basis. Due to commitments made for 1999 spring 
programs made in 1998, the effects of this change will take effect in the second
half of 1999.                                                                   

      General and administrative expenses increased by $435,639 (18.7%) in
1998 to $2,763,137 from $2,327,498 in 1997. The increase relates primarily to   
the establishment of a reserve of $400,000 against a note receivable due from an
affiliate Sci-Com, Inc., which is considered uncollectible.  The Company has    
also advanced $250,000 to Sci-Com to support completion of the network, on which
E@syMail, a portable e-mail unit will be used.  These notes are secured by      
specified assets and proceeds of Sci-Com.  The notes may be repaid either       
through a 50% share of network revenues generated by Sci-Com, not limited to    
revenues generated by E@syMail users, or may at the Company's discretion be     
converted into a 10% equity interest in Sci-Com.  The Company has, in light of  
the 1998 revenue reductions, taken other first quarter initiatives to reduce    
expenses through staffing reductions, reducing senior management salaries by 10%
and by reductions in professional and outside marketing services, to bring      
expenses down to improve profitability.                                         

  The Company reduced expenditures for research and development to
$672,090 from $1,022,095 during 1997. The reduction was primarily due to the    
closure of POIS and a tight focus, in 1998, on significant projects including:  
the completion of the development of Travel*Star; development of Travel*Star 24;
development and testing of E@sy Mail and related personal assistant products;   
and development and verification of the database for the AAA Trip Wizard.       
Travel*Star 24 is anticipated to begin shipments during the second half of 1999.

     Other income totaled $272,423 for 1998, compared to other income of
$225,575 for 1997.  The 18.9% investment in Talon Research & Development Ppty., 
Ltd. resulted in other income of $118,733.  There was no corresponding amount   
realized in 1997.  Interest income, decreased from $225,566 in 1997 to $161,387 
in 1998, due to lower invested cash and marketable security balances.           

         The Company's effective tax rate was 23.9% for 1998. This rate is based
on applying tax loss carry-backs of $231,227 limited to the previous two years, 
for which filings are being made to recover overpayments. The balance of        
$500,000 has been recorded as a deferred tax asset, reserved for tax loss carry 
forward application, which management expects to be applied against tax         
liabilities incurred in future years. Some of these carry forward benefits may  
be subject to limitations imposed by the Internal Revenue Service Code,         
resulting in the reserve. This compares to rates of 31.8% of profits for the    
year ended December 31, 1997.                                                   

  As a result of the foregoing, the Company recorded a net loss of
$(2,307,057) or $(0.70) per basic and diluted common share compared to net      
income of $337,104, or $0.10 per basic and diluted common share for the year    
ended December 31, 1997. Earnings per share is computed on a basic and diluted  
method in accordance with FAS 128. There were 3,299,636 and 3,400,967 basic     
common shares and 3,299,636 and 3,425,613 diluted shares, respectively, used    
in calculating earnings per share for the years ended December 31, 1998 and     
1997.                                                                           

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 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, 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 updates are made available,
under on-going technical support contracts with the software suppliers. 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.       
During 1998, the Company spent approximately $10,000 on upgrading software and  
related consulting and expects to spend a like amount in 1999.                  

         The Company has developed information by structured questionnaires sent
to key customers and vendors. The Company continues to receive responses        
from vendors and customers. Second requests will be made to non-responding      
customers or vendors in early 1999. 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.

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. Travel*Star is
a Global Positioning System (GPS) based product that began shipping during March
1998. The Company believes that Travel*Star 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.                             

 Contract sales from laser systems totaled $563,251 for 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 was originally valued at $1.7 million. The    
contract contained an override clause, which resulted in additional orders of   
$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 product group totaled $7,888,673, or
59.5% of sales for 1997, compared to $4,786,221, or 57.8% of sales, for 1996.   
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 the year 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.                

11

10KSB
12th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 12th

      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, an     
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(TM) and Ultrafinder(TM)
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  
Travel*Star(TM) ($321,007), E@sy Mail(TM) ($131,577), and Personal-On-Board     
Information System Products ($393,636) in addition to capitalized software      
development costs of $290,635. Travel*Star(TM) will began shipments during the  
first quarter of 1998. E@sy Mail(TM), 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.                                      

         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 2,774,633 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.                                                             

LIQUIDITY AND CAPITAL RESOURCES                                                 
         Total cash and cash equivalents decreased by $3,821,877 from $5,075,968
at December 31, 1997 to $1,254,091 at December 31, 1998. This decrease is       
primarily due to a net loss of ($2,307,057) during 1998, investments in Talon of
$701,622, repurchase of common stock for $770,219, and advances of $250,000 to  
Sci-Com.                                                                        

         At the end of 1998, 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       
expenditures other than for the periodic purchase of tooling, test equipment,   
and fixtures. During 1998, the Company spent $296,836 for capital expenditures, 
which included $84,000 for the purchase of computer equipment from Intellidata  
relating to the network services for E@syMail. Total capital expenditures are   
not expected to be significant based on the current business outlook.           

      As of December 31, 1998, the Company was in default, on its existing
credit facility, with regard to one covenant of its insecured lending agreement 
relating to a key financial ratio, interest coverage. The default has not been  
cured as of the filing of this report.  The Company has negotiated a lending    
agreement with another lending institution, which will provide a credit a       
facility of $1 million, secured by the Company's accounts receivable and        
inventories. This facility will, meet projected needs for a letter of credit not
to exceed $500,000 related to the increase in the ownership of Talon from 18.9% 
to approximately 25%, and will be part of the security for a $2 million lending 
facility negotiated by Talon, which is projected to meet Talon's working capital
requirements in 1999. The new credit facility is expected to meet the Company's 
needs through 1999, if it meets its revenue targets.                            

    At December 31, 1998, the Company had a working capital surplus of
$6,038,519 as compared to a working capital surplus of $10,607,580 at December  
31, 1997. Included in working capital at December 31, 1998 was $1,254,091 in    
cash and cash equivalents. Inventories decreased $383,883, inclusive of a       
reserve adjustment for excess and obsolete of $469,210. Accounts receivable     
increased by 85.6%, or $1,431,923 to $3,103,965. The increase in accounts       
receivable resulted from one customer receivable totaling $1,175,214, extended  
dating for another customer, and two past due government receivables totaling   
$205,308. Of these amounts that represented a total of $2,126,161, as of        
December 31, 1998, the Company has collected approximately $1,945,000 of this   
amount through the first quarter of fiscal 1999.                                

12

10KSB
13th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 13th

IMPACT OF ACCOUNTING PRONOUNCEMENTS                                             

        In June 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments 
and Hedging Activities" (FAS133).  FAS 133 requires derivatives to be recognized
as assets or liabilities on the balance sheet and measured at fair value.       
Changes in the fair value of derivatives should be recognized in either net     
income or other comprehensive income, depending on the designated purpose of the
derivative.  This statement is effective for the Company on January 1, 2000, and
the Company has not yet determined the effects this statement will have on its  
consolidated financial position or results of operations.                       

      Effective January 1, 1998, the Company adopted American Institute of
Certified Public Accountants' Statement of position 98-1, "Accounting for the   
Costs of Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1  
provides guidance when to capitalize costs for internal-use computer software.  
The Company's previous accounting policies were essentially in compliance with  
the provisions of this statement, therefore, adoption of SOP 98-1 did not have a
material effect on the Company's results of operations.                         

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS                     

The consolidated financial statements of Ultradata Systems,   
    Incorporated, together with notes and the Reports of Independent Certified
 Public Accountants, 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                                

13

10KSB
14th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 14th

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 1, 1999:                      

                                                                [Download Table]


    NAME                 AGE               POSITION                            
    ----                 ---               --------                            
                                                                               
Monte Ross                67    President & Chief Executive Officer, Director  
Mark L. Peterson          42    Vice President-Engineering, Secretary, Director
Ernest Clarke             59    Vice President-Government Projects, Director   
Leonard Missler           51    Vice President-Software Development            
Duane Crofts              61    Vice President-Advanced Products               
David Biernbaum           44    Vice President & Chief Operating Officer       
Daniel Muehlemann         34    Vice President-Sales                           
Steven H. Akre Esq.       46    Director                                       
Bruce L. Miller           56    Director                                       
John J. Clancy            62    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 and Chairman since inception. For over 20 years     
prior to founding the Company, Mr. Ross was employed by McDonnell Douglas       
Corporation in a variety of positions. When he left McDonnell Douglas, Mr. Ross 
was Director of Laser Systems, responsible for the group of approximately 400   
employees, which developed the first laser space communication system and first 
space laser radar. Mr. Ross is a Fellow of the Institute of Electrical and      
Electronic Engineers and the past President of the International Laser          
Communication Society. Mr. Ross was awarded a Master of Science degree in       
Electrical Engineering by Northwestern University in 1962. He is the            
father-in-law of Mark L. Peterson, the Company's Vice President-Engineering.    

  Mark L. Peterson has been a Director of the Company since it was
founded in 1986. He has served as the Company's Vice President of Engineering   
since 1988. He is responsible for the design of the Company's 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, and as a director since 1990. His primary responsibility   
has been the development of custom test systems for organizations involved in   
government laser systems programs. For over 20 years prior to joining Ultradata,
Mr. Clarke was employed by McDonnell Douglas Corporation in a variety of        
positions. When he left McDonnell Douglas, Mr. Clarke was its Laser Product     
Development Manager with responsibility to supervise over 40 engineers. Mr.     
Clarke was awarded a Master of Science degree in Electrical Engineering by      
Stanford University in 1966.                                                    

         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. This experience was in positions such as Senior Vice President,    
Marketing for Vi-Jon Laboratories, Inc. a manufacturer of private label health  
and beauty care products and as Regional Marketing for The Gillette Company,    
responsible for market launches of                                              

14

10KSB
15th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 15th

new personal care products. Mr. Biernbaum holds a Master's degree in Marketing  
from Southern Illinois University.                                              

 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 1998 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,    
1998, 1997, and 1996: (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, 1998 exceeded $100,000.                                      

                                                                [Download Table]

                             ANNUAL                         LONG-TERM               
                          COMPENSATION                    COMPENSATION              
                          ------------                    ------------              
Name & Position       Year         Salary       Bonus        Other (1)     Options  
---------------       ----         ------       -----        ---------     -------  
                                                                                    
Monte Ross,               1998       $ 154,999    $      -      $   6,000        (2)
President                 1997       $ 130,000    $      -      $   5,000        (3)
                          1996       $ 114,404    $ 14,000      $   3,000        (4)

David Biernbaum,          1998       $ 122,803    $      -      $       -        (5)
Vice President & COO      1997       $  23,077    $      -      $       -        (6)
                          1996       $       -    $      -      $       -           

(1)  Includes premium payments for a life insurance policy on Mr. Ross, with his
estate as beneficiary.                                                
(2)  During 1998 the Board's Stock Option Committee                             
   awarded Mr. Ross options to purchase an additional 6,000 shares of Common
Stock at an exercise price of $3.00.                                  
(3)  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.                                                             
(4)  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.                                                             
(5)  During 1998 the Board's Stock Option Committee awarded Mr. Biernbaum       
options to purchase an additional 5,000 shares of Common Stock at an  
exercise price of $3.00.                                              
(6)  During 1997, the Board's Stock Option Committee granted Mr. Biernbaum      
   options to purchase 17,500 shares of Common Stock at an exercise price of
    $7.00 upon joining the Company in October 1997, and options to purchase an
additional 10,000 shares at an exercise price of $5.75.               

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                                      

15

10KSB
16th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 16th

substantially identical. The agreements, were extended in 1997 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 salary adjustment, the salary will   
increase by 10% for Mr. Clark and 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. Mr. Biernbaum also has a       
separate employment agreement dated October 17, 1997, which provides for salary 
and conditions similar to the above officers.                                   

       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(TM)       
products and 1/2% of net sales of other products incorporating the ROAD WHIZ(TM)
database. During the two years ended December 31, 1998 and 1997, royalty expense
totaling $53,752 and $116,480, 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 and Chief Operating Officer   
during the year ended December 31, 1998 and those options held by them on       
December 31, 1998:                                                              

                                                        [Enlarge/Download Table]


OPTION GRANTS IN CURRENT FISCAL YEAR                                                                                   

                                         Percent                                                                       
                                         of total                                                                      
                                         options                                         Potential realizable          
                        Number of        granted                                         value at assumed              
                        securities       to                                              annual rates of               
                        underlying       employees       Exercise                        appreciation                  
                        option           in fiscal       price          Expiration       for option term               
Name                    granted          year            ($/share)      Date                   5%             10%      
-----------------------------------------------------------------------------------------------------------------------
                                                                                                                       
Monte Ross                      6,000              2%           $3.00         11/30/05         $  4,973       $  10,989
Monte Ross                     57,500             21%           $4.00          3/31/05         $ 63,545       $ 140,417
David Biernbaum                 5,000              2%           $3.00         11/30/05           $4,144       $   9,158
David Biernbaum                27,500             10%           $4.00          3/31/05         $ 30,391       $  67,156

AGGREGATED FISCAL YEAR OPTION VALUES                                                                                   



                         Number of securities underlying                                                               
                        unexercised options at fiscal                   Value of unexercised in-the-money              
Name                    year-end (#)                                    options at fiscal year-end                     
-----------------------------------------------------------------------------------------------------------------------
                                                                                                                       
Monte Ross                                    63,500                                                               $  -
David Biernbaum                               32,500                                                               $  -


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,                                                                 

16

10KSB
17th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 17th

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 can 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 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.                                       

   In December 1998, the Board of Directors approved a resolution to
increase the number of shares authorized under the 1996 option plan by 100,000  
shares to provide continued incentive for key personnel. As of March 1999, none 
of these shares have been granted.  This matter will be subject to approval by  
stockholders at the 1999 annual meeting.                                        

       During 1998, the Company canceled incentive stock options to purchase
235,892 shares of Common Stock at exercise prices ranging from $5.00 to $7.00.  
The same number of new options was issued at a price of $4.00.                  

      During 1998 the Company issued additional incentive stock options to
purchase 40,900 shares of Common Stock at an exercise price of $3.00. The       
following officers were recipients of options, (including a total of 183,500    
options cancelled and reissued during the year):                                

                                                                [Download Table]

            NAME               Number of         Average       
            ----               Shares            Exercise Price
                               ------            --------------
                                                               
Monte Ross                      63,500            $    3.91    
Mark L. Peterson                38,000            $    3.89    
Ernest Clarke                   28,500            $    3.86    
Leonard Missler                 20,500            $    3.80    
Duane Crofts                    22,000            $    3.82    


17

10KSB
18th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 18th

        David Biernbaum                         32,500            $ 3.85
        Daniel Muehlemann                        9,500            $ 3.58

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 $500 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 3, 1999 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:             

                                                                [Download Table]

                               Amount and                           
                               Nature of          Percentage        
Name and Address of            Beneficial         of Outstanding    
Beneficial Owner (1)           Owner              Shares (6)        
----------------------------   ----------------   ------------------
                                                                    
           NAME                                                     
Monte Ross (2)                         606,500               19.22% 
                               shares of                            
                               record                               

Mark L. Peterson (3)                   180,705                5.73% 
                               shares of                            
                               record                               

Ernest Clarke (4)                      159,552                5.06% 
                               shares of                            
                               record                               

Steven H. Akre Esq.(5)                   3,496                0.11% 
                               shares of                            
                               record                               

Bruce L. Miller                          2,872                0.09% 
                               shares of                            
                               record                               

John J. Clancy                           3,692                0.12% 
                               shares of                            
                               record                               

                               ---------------          ------------
All officers and directors                                          
as a group (6 persons)                 956,817               30.33% 
                               ================         ============

(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   

18

10KSB
19th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 19th

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 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:                                                  

                                                                [Download Table]

                           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, 2001.                                                                

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:

                                                                [Download Table]


Employee               Shares                       Notes        
----------             ------                      ------        
                                                                 
Monte Ross                  55,734                      $  67,000
Mark Peterson               13,725                      $  16,500
Ernest Clarke               13,725                      $  16,500
Leonard Missler             17,676                      $  21,250
Duane Crofts                 2,080                      $   2,500
Other Employees                416                      $     500
                      ------------                      ---------
TOTAL                      103,340                      $ 124,250


       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(TM) products and 1/2% on net 
sales of other products incorporating the ROAD WHIZ(TM) database. During the    
years ended December 31, 1998 and 1997, the Company paid royalties to Mr.       
Missler of $53,752 and $116,480, 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 1998 and 1997, Mr. Akre's firm was paid $103,984 and $44,557, 
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:                                                       

Reports of Independent Certified Public Accountants.          

Consolidated Balance Sheet as of December 31, 1998.           

    Consolidated Statements of Operations for each of the years in the
two-year period ended December 31, 1998.                      

       Consolidated Statements of Stockholders' Equity for each of the years
in the two-year period ended December 31, 1998.               

    Consolidated Statements of Cash Flows for each of the years in the
two-year period ended December 31, 1998.                      

         Notes to Consolidated Financial Statements for the years ended December
31, 1998 and 1997.                                            

(B)      EXHIBITS INDEX AND REPORTS ON FORM 8-K                                 
Regulation S-B                                                

19

10KSB
20th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 20th

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)                              

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.    Modification Agreement dated November 4, 1995, to Royalty Agreement    
        dated September 14, 1989, between the Company and Leonard Missler. (1)

10-o     Extended employment agreement as of September 30, 1997 between the     
Company and Monte Ross (3)                                    

10-p     Extended employment agreement as of September 30, 1997 between the     
Company and Mark L. Peterson (3)                              

10-q     Extended employment agreement as of September 30, 1997 between the     
Company and Ernest Clarke (3)                                 

10-r     Employment Agreement as of October 13, 1997 between the Company and    
David Biernbaum (3)                                           

21.      Subsidiaries - None.                                                   

27.      Article 27 Financial Data Schedule (2)                                 

   (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)  Filed herewith.                                                    

    (3)  Previously filed on Form 10-KSB for the period ended December 31, 1997.

(C)      REPORTS ON FORM 8-K                                                    
None during the fourth quarter                                

20

10KSB
21st “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 21st

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                              
THE BOARD OF DIRECTORS AND STOCKHOLDERS                                         
Ultradata Systems, Incorporated:                                                

We have audited the accompanying consolidated balance sheet of Ultradata        
Systems, Incorporated, as of December 31, 1998 and the related consolidated     
statement of operations, stockholders' equity and cash flows for the year then  
ended.  These financial statements are the responsibility of the Company's      
management.  Our responsibility is to express an opinion on these financial     
statements based on our audit.                                                  

We conducted our audit in accordance with generally accepted auditing           
standards.  Those standards require that we plan and perform the audit to       
obtain reasonable assurances about whether the financial statements are free    
from 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 audit provides a reasonable basis  
for our opinion.                                                                

In our opinion, the financial statements referred to above represent fairly, in 
all material respects, the consolidated financial position of Ultradata         
Systems, Incorporated at December 31, 1998, and the consolidated results of     
operations and its cash flows for the year then ended in conformity with        
generally accepted accounting principles.                                       

March 4, 1999                          (signed) BDO Seidman LLP                 
(Except for Note 17, which                                                      
is dated March 26, 1999)                                                      
St. Louis, Missouri                                                             

21

10KSB
22nd “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 22nd

Independent Auditors' Report

The Board of Directors and Stockholders                                         
Ultradata Systems, Incorporated:                                                

         We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Ultradata Systems, Incorporated and     
subsidiary as of 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 audit.       

       We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting 
the amounts and disclosures in the financial statements. An audit also includes 
assessing the accounting principles used and significant estimates made by      
management, as well as evaluating the overall financial statement presentation. 
We believe that our audit provides a reasonable basis for our opinion.          

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the changes in stockholders' equity of
Ultradata Systems, Incorporated and subsidiary as of December 31, 1997 and the  
results of their operations and their cash flows for the year then ended in     
conformity with generally accepted accounting principles.                       

                                 (signed) KPMG LLP

March 16, 1998                                                                  
St. Louis, Missouri                                                             

22

10KSB
23rd “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 23rd

                                                        [Enlarge/Download Table]


ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY                                                              

Consolidated Balance Sheet                                                                                  

December 31, 1998                                                                                           

------------------------------------------------------------------------------------------------------------
                                   ASSETS                                                         1998      
------------------------------------------------------------------------------------------------------------
                                                                                                            
Current assets:                                                                                             
    Cash and cash equivalents                                                              $       1,254,091
    Trade accounts receivable, net of allowance for doubtful accounts of                                    
       $9,520 at December 31, 1998                                                                 3,103,965
    Costs and estimated earnings on long-term contracts                                               95,534
    Inventories                                                                                    3,121,003
    Tax benefit receivable                                                                           231,227
    Prepaid expenses and other current assets                                                        794,252
------------------------------------------------------------------------------------------------------------

Total current assets                                                                               8,600,072
------------------------------------------------------------------------------------------------------------

Property and equipment, net                                                                          835,307
Deferred tax asset                                                                                   500,000
Deferred compensation trust                                                                          150,702
Investment in affiliated company                                                                     820,355
Advances to affiliates                                                                               250,000
Other assets                                                                                          64,212
------------------------------------------------------------------------------------------------------------

Total assets                                                                               $      11,220,648
------------------------------------------------------------------------------------------------------------

                    LIABILITIES AND STOCKHOLDERS' EQUITY                                                    
------------------------------------------------------------------------------------------------------------

Current liabilities:                                                                                        
    Accounts payable                                                                                 940,222
    Accrued expenses and other liabilities                                                         1,621,331
------------------------------------------------------------------------------------------------------------

Total current liabilities                                                                          2,561,553

Deferred rent                                                                                         21,148
Deferred compensation liability                                                                      150,702

------------------------------------------------------------------------------------------------------------

Total liabilities                                                                                  2,733,403
------------------------------------------------------------------------------------------------------------

Stockholders' equity:                                                                                       
    Common stock, $.01 par value; 10,000,000 shares authorized;                                             
       3,410,000 shares issued and outstanding at December 31, 1998                                   34,100
    Additional paid-in capital                                                                     9,799,936
    Retained earnings                                                                                 59,039
    Treasury stock (255,200 shares at cost as of December 31, 1998)                                (900,281)
    Notes receivable issued for purchase of common stock                                           (505,549)
------------------------------------------------------------------------------------------------------------

Total stockholders' equity                                                                         8,487,245
------------------------------------------------------------------------------------------------------------

Total liabilities and stockholders' equity                                                 $      11,220,648
------------------------------------------------------------------------------------------------------------

See accompanying summary of accounting policies and notes to consolidated       
financial statements.                                                   

23

10KSB
24th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 24th

ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY                                  

Consolidated Statements of Operations                                           

Years ended December 31, 1998 and 1997                                          

                                                        [Enlarge/Download Table]

----------------------------------------------------------------------------------------------------------

                                                                             1998              1997       
----------------------------------------------------------------------------------------------------------
                                                                                                          
Net sales:                                                                                                
    Consumer products                                                 $       6,983,804        13,253,980 
    Contract                                                                    250,271           563,251 
----------------------------------------------------------------------------------------------------------

Total net sales                                                               7,234,075        13,817,231 
----------------------------------------------------------------------------------------------------------

Cost of sales:                                                                                            
    Consumer products                                                         3,901,909         5,365,307 
    Contract                                                                    270,292           292,218 
----------------------------------------------------------------------------------------------------------

Total cost of sales                                                           4,172,201         5,657,525 
----------------------------------------------------------------------------------------------------------

Gross profit                                                                  3,061,874         8,159,706 

Selling expense                                                               2,931,151         4,540,359 

General and administrative expenses                                           2,763,137         2,327,498 

Research and development expense                                                672,090         1,022,095 
----------------------------------------------------------------------------------------------------------

Operating (loss) profit                                                      (3,304,504)          269,754 
----------------------------------------------------------------------------------------------------------

Other income (expense):                                                                                   
    Interest expense                                                             (3,790)          (1,155) 
    Interest income                                                             161,387           225,566 
    Equity in affiliated company                                                118,733             -     
    Other, net                                                                   (3,907)            1,164 
----------------------------------------------------------------------------------------------------------

Total other income, net                                                         272,423            225,575
----------------------------------------------------------------------------------------------------------

(Loss) income before income tax expense                                      (3,032,081)          495,329 

Income tax benefit (expense)                                                    725,024         (158,225) 
----------------------------------------------------------------------------------------------------------

Net (loss) income                                                     $      (2,307,057)          337,104 
----------------------------------------------------------------------------------------------------------

Earnings per share:                                                                                       
    Basic                                                             $           (0.70)             0.10 
----------------------------------------------------------------------------------------------------------

    Diluted                                                           $           (0.70)             0.10 
----------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding:                                                                      

    Basic                                                                     3,299,636         3,400,967 
----------------------------------------------------------------------------------------------------------

    Diluted                                                                   3,299,636         3,425,613 
----------------------------------------------------------------------------------------------------------

See accompanying summary of accounting policies and notes to consolidated       
financial statements.                                                   

24

10KSB
25th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 25th

ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY                                  

Consolidated Statements of Stockholders' Equity                                 

Years ended December 31, 1998, 1997                                             

                                                        [Enlarge/Download Table]


------------------------------------------------------------------------------------------------------------ 

                                                                                      Notes                  
                                                                                          receivable         
                                                  Additional                       for purchase    Total     
                                  Common    paid-in      Retained      Treasury     of common   stockholders'
                                   stock    capital      earnings        stock        stock        equity    
------------------------------------------------------------------------------------------------------------ 
                                                                                                             
Balance at December 31, 1996    $  34,035   9,763,001      2,028,992                 (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 at cost                                               (130,062)                  (130,062) 
Net income                                                   337,104                                 337,104 
------------------------------------------------------------------------------------------------------------ 

Balance at December 31, 1997    $  34,100   9,799,936      2,366,096    (130,062)    (410,500)    11,659,569 
Purchase of 232,200 shares of                                                                                
   treasury stock at cost                                               (770,219)                   (770,219)
Reclassification of accrued                                                                                  
   interest on notes receivable                                                                              
   issued for purchase of                                                                                    
   common stock                                                                       (81,591)       (81,591)
Repayment of notes receivable                                                                                
   issued for purchase of                                                                                    
   common stock                                                                         5,000          5,000 
Accrued interest on notes                                                                                    
   receivable issued for                                                                                     
   purchase of common stock                                                           (18,458)       (18,458)
Net (loss) income                                         (2,307,057)                             (2,307,057)
------------------------------------------------------------------------------------------------------------ 

Balance at December 31, 1998    $  34,100   9,799,936         59,039    (900,281)    (505,549)     8,487,245 
------------------------------------------------------------------------------------------------------------ 

See accompanying summary of accounting policies and notes to consolidated       
financial statements.                                                     

25

10KSB
26th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 26th

ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY

Consolidated Statements of Cash Flows 

Years ended December 31, 1998 and 1997

                                                        [Enlarge/Download Table]


------------------------------------------------------------------------------------------------------------  
                                                                                       1998             1997  
------------------------------------------------------------------------------------------------------------  
                                                                                                              
Cash flows from operating activities:                                                                         
   Net (loss) income                                                       $     (2,307,057)          337,104 
   Adjustments to reconcile net (loss) income to net cash provided by                                         
     (used in) operating activities:                                                                          
       Depreciation and amortization                                                246,435           209,301 
       Deferred income tax provision                                               (493,797)           33,067 
       Inventory reserve                                                            469,210                   
       Equity in earnings of unconsolidated affiliate                              (118,733)                  
       Note receivable reserve                                                      416,428                   
       Increase (decrease) in cash due to changes in operating assets and                                     
         liabilities:                                                                                         
         Trade accounts receivable, net                                          (1,431,923)        2,936,244 
         Tax benefit receivable                                                    (231,227)                  
         Costs and estimated earnings on long-term contracts                        433,086           (89,950)
         Inventories                                                                (85,378)         (215,382)
         Prepaid expenses and other current assets                                 (193,399)          (59,526)
         Accounts payable                                                           430,885          (865,008)
         Accrued expenses and other liabilities                                   1,192,068          (436,000)
         Deferred rent                                                                4,976             7,464 
         Other assets                                                               (30,409)                  
------------------------------------------------------------------------------------------------------------  

   Net cash (used in) provided by operating activities                           (1,698,835)        1,857,314 
------------------------------------------------------------------------------------------------------------- 

Cash flows from investing activities:                                                                         
   Investment in affiliated company                                                (387,475)               -- 
   Option to acquire additional interest in affiliated company                     (314,147)                  
   Investment in software development                                              (109,365)         (296,899)
   Capital expenditures                                                            (296,836)         (351,962)
   Advances to affiliates                                                          (250,000)               -- 
------------------------------------------------------------------------------------------------------------- 

Net cash used in investing activities                                            (1,357,823)         (648,861)
------------------------------------------------------------------------------------------------------------- 

Cash flows from financing activities:                                                                         
   Proceeds from sale of common stock                                                                  37,000 
   Repurchase of common stock at cost                                              (770,219)         (130,062)
   Proceeds from repayment of notes receivable to                                                             
     purchase common stock                                                            5,000                   
------------------------------------------------------------------------------------------------------------- 

Net cash used in financing activities                                              (765,219)          (93,062)
------------------------------------------------------------------------------------------------------------- 

Net (decrease) increase in cash and cash equivalents                             (3,821,877)        1,115,391 

Cash and cash equivalents at beginning of year                                    5,075,968         3,960,577 
------------------------------------------------------------------------------------------------------------- 

Cash and cash equivalents at end of year                                   $      1,254,091         5,075,968 
------------------------------------------------------------------------------------------------------------- 

Supplemental disclosure of cash flow information:                                                             
   Cash paid during the year for interest                                  $          3,790             1,184 
   Cash paid during the year for taxes                                                   --           275,569 
------------------------------------------------------------------------------------------------------------- 
Noncash Investing activities:                                                                                 
   Sale of capitalized software development costs in exchange for note                                        
     receivable                                                            $        400,000                   

See accompanying summary of accounting policies and notes to consolidated       
financial statements.                                                     

26

10KSB
27th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 27th

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                      

BASIS OF PRESENTATION                                         

   The consolidated financial statements include the accounts of the
Company and for 1997, its 100% owned subsidiary, POIS, Inc. (POIS). Investments 
in affiliates consist principally of 18.9% of Talon Research & Development,     
Ppty., Ltd.(Talon) of Auckland, New Zealand. The investment in Talon is         
accounted for using the equity method, due to the ability of the Company to     
exercise significant influence on Talon and its operations.                     

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.                    

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.      

REVENUE RECOGNITION                                           

   Net sales are generally recognized when products are shipped. The
Company has established programs, which, under specified conditions, enable     
customers to return product. The Company establishes liabilities for estimated  
returns at time of shipment. In addition accruals for customer discounts and    
rebates are recorded when revenues are recognized.                              

     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.                                            

INVENTORIES                                                   

Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Provision for           
potentially obsolete or slow moving inventory is made based on management's     
analysis of inventory levels and future sales forecasts.                        

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. The Company continually reviews property and equipment to      
determine that the carrying values are not impaired.                            

LONG-LIVED ASSETS                                             

     In accordance with SFAS 121, long-lived assets held and used by the
company are reviewed for impairment whenever events or changes in circumstances 
indicate that the carrying amount of an asset may not be recoverable.  For      
purposes of evaluating the recoverability of long-lived assets, the             
recoverability test is performed using undiscounted net cash flows related to   
the long-lived assets. The adoption of SFAS 121 had no impact on the Company's  
financial position or on its results of operations.                             

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.                           

27

10KSB
28th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 28th

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, 1998 and 1997, $554,784 and $191,814 of advertising
costs were reported as an asset. Included in the 1998 assets is $516,706, 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 $2,416,886 and $2,066,472, for fiscal     
years 1998 and 1997, respectively.                                              

FAIR VALUE OF FINANCIAL INSTRUMENTS                           

 FAS 107 "Disclosure About Fair Value of Financial Instruments,"
requires certain disclosures regarding the fair value of financial              
instruments.  Cash and cash equivalents, accounts receivable and accured        
liabilities are reflected in the consolidated financial statements at fair      
value because of the short-term maturity of the instruments. The Company uses   
quoted market prices or discounted cash flows to calculate these fair values.   

RESEARCH AND DEVELOPMENT COSTS                                

         Research and development costs consist of expenditures, incurred during
the course of planned search and investigation aimed at discovery of new        
knowledge, which will be useful in developing new products or processes, or     
significantly enhancing existing products or production processes, and the      
implementation of such through design and testing of product alternatives or    
construction of prototypes. The Company expenses all research and development   
costs as they are incurred.                                                     

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.                               

ROYALTY EXPENSE                                               

Royalty expense is recognized on a pro rata basis as units are sold.  

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 carry-forwards. Deferred tax assets and 
liabilities are measured using enacted tax rates expected to apply to taxable   
income in the years in which those temporary differences are expected to be     
recovered or settled. The effect on deferred tax assets and liabilities of a    
change in tax rates is recognized in income in the period that includes the     
enactment date.                                                                 

EARNINGS PER SHARE                                            

       Basic earnings per share is calculated by dividing net income for the
period by the weighted average number of shares of common stock outstanding     
during the period. The assumed exercise of stock options and warrants is        
included in the calculation of diluted earnings per share, if dilutive.         

STOCK-BASED COMPENSATION                                      

  The Company grants stock options for a fixed number of shares to
employees with any exercise price greater than or equal to the fair value of the
shares at the date of grant. The Company accounts for stock options in          
accordance with Accounting Principles Board Opinion No. 25 (APB Opinion No. 25) 
"Accounting for Stock Issued to Employees." The Opinion requires that           
compensation cost related to fixed stock option plans be recognized only to the 
extent that the fair value of the shares at the date of grant exceeds the       
exercise price. Accordingly the Company recognizes no compensation expense for  
its stock option grants.                                                        

28

10KSB
29th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 29th
         In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 allows    
companies to continue to account for their stock option plans in accordance with
APB No. 25, but encourages the adoption of a new accounting method based on the 
estimated fair value of employee stock options. Pro forma net income and income 
per share, determined as if the Company had applied the new method, are         
discussed with Note 10.                                                         

RECLASSIFICATIONS                                                     

Certain 1997 balances have been reclassified to conform with the 1998 
presentation.                                                                   

IMPACT OF ACCOUNTING PRONOUNCEMENTS                           

In June 1998 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 133 "Accounting for Derivative   
Instruments and Hedging Activities" (FAS133).  FAS 133 requires as derivatives  
to be recognized as assets or liabilities on the balance sheet and measured at  
fair value.  Changes in the fair value of derivatives should be recognized in   
either net income or other comprehensive income, depending on the designated    
purpose of the derivative.  This statement is effective for the Company on      
January 1, 2000, and the Company has not yet determined the effects this        
statement will have on its consolidated financial position or results of        
operations.                                                                     

      Effective January 1, 1998, the Company adopted American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the   
Costs of Software Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1  
provides guidance when to capitalize costs for internal-use computer software.  
The Company's previous accounting policies were essentially in compliance with  
the provisions of this statement, therefore, adoption of SOP 98-1 did not have a
material effect on the Company's results of operations.                         

SIGNIFICANT CUSTOMERS                                       

 For the year ended December 31, 1998, the company relied on two
customers for approximately 21.6% and 19.7%, respectively, of consumer product  
sales. Accounts receivable from those customers totaled $1,175,214 and $310,798,
respectively, at December 31, 1998.                                             

 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.                       

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. INVENTORIES                                                             

Inventories at December 31, 1998 consist of the following:    

                                                                [Download Table]


                                     1998        
                                     ----        
                                                 
Raw Materials                      $   1,179,328 
Work in Process                          507,979 
Finished Goods                         1,902,906 
                               ----------------- 
                                       3,590,243 
Reserve for Obsolescence                (469,210)
                               ----------------- 
                                   $   3,121,003 
                               ================= 

NOTE 3. PREPAID EXPENSES                                                        

 Prepaid expenses at December 31, 1998 consist of the following:
                                                    1998

29

10KSB
30th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 30th

                                                                [Download Table]
                                                               
Prepaid advertising                                  $ 554,784 
Other prepaid expenses                                 239,468 
                                              -----------------
                                                     $ 794,252 
                                              =================

NOTE 4. PROPERTY AND EQUIPMENT                                                  

    Property, plant and equipment, as of December 31, 1998 consisted of:

                                                                [Download Table]


                                                            1998  
                                                            ----  
                                                                  
Research & development equipment                     $    160,890 
Production equipment                                       65,747 
Tooling and test equipment                                790,811 
Office furniture and equipment                            405,351 
Sales displays                                             69,011 
Leasehold improvements                                    141,425 
                                                 -----------------
                                                        1,633,235 

Less: accumulated depreciation                                    
         and amortization                                 797,927 
                                                 -----------------
                                                     $    835,307 
                                                 =================

     Depreciation and amortization expense for the years ended December 31, 1998
and 1997 totaled $246,435 and $209,301, respectively.                 

NOTE 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 Company pays monthly rent plus 31% of all building expenses.
  Rental expense totaled approximately $119,236 and $120,100 for the years
ended December 31, 1998 and 1997, respectively.                       

     Future minimum lease payments and the related totals expensed for financial
reporting under the operating lease consist of the following:         

                                                                [Download Table]


  Rent                                                                   

                                     Cash              Expense to be     
                                   payment             recognized        
                                ---------------        ------------------
                                                                         
Year ending  December 31,                                                
             1999                    $ 127,753                  $ 118,621
             2000                      126,868                    118,621
             2001                      105,723                     98,850
                                ---------------        ------------------
                                     $ 360,344                  $ 336,092
                                ===============        ==================

30

10KSB
31st “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 31st

NOTE 6. ACCRUED EXPENSES AND OTHER LIABILITIES                                  

Accrued expenses and other liabilities at December 31, 1998 consist of the      
following:                                                                      
----------                                                                      

                                                                [Download Table]

                                                    1998    
                                                    ----    
                                                            
Accrued sales commissions                                   
      and royalties                              $    80,143
Accrued advertising                                1,361,085
Other                                                180,103
                                                 -----------
                                                 $ 1,621,331
                                                 ===========

NOTE 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.                           

NOTE 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 (7.75 % and 8.5% at December 31, 1998 and 1997, respectively)
    on outstanding borrowings. The available line of credit totaled $2,500,000
    at December 31, 1998 and 1997. As of December 31, 1998, the Company was in
  default, on its existing credit facility, with regard to one covenant of
its unsecured lending agreement, relating to a key financial ratio,   
    interest coverage. The default has not been cured as of the filing of this
    report. There were no outstanding borrowings at December 31, 1998 or 1997.
   The Company had an outstanding standby letter of credit for $429,000, for
advertising programs, which expired on February 28, 1999.             

     On May 1, 1998, the Company signed as guarantor on a line of credit
issued to Talon GPS, LLC, by a commercial bank.  The available line of
     credit totaled $100,000 and at December 31, 1998, there were no borrowings.

NOTE 9.  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.    

NOTE 10. EARNINGS PER SHARE                                                     

A reconciliation of the numerator and denominator of the earnings per share     
calculation is provided for all periods presented. The numerator for basic and  
diluted earnings per share is net income for all periods presented.  The        
denominators for basic and diluted earnings per share is net income (loss) for  
1998 and 1997, as follows:                                                      

                                                        [Enlarge/Download Table]

                                                For the twelve months ended December 31,                   

                                                                            1998 (a)            1997 (b)   
                                                                                                           
Numerator:                                                                                                 
                                                                           $(2,307,057)         $  337,104 
  Net Income (Loss)                                                                                        

  Numerator for basic and diluted earnings (loss)                                                          
  per share - income available                                                                             
  to common shareholders                                                   $(2,307,057)         $  337,104 

                                                                     ===================  =================
Denominator:                                                                                               

  Denominator for basic earnings (loss)                                                                    
  per share - weighted                                                                                     
  average shares                                                             3,299,636           3,400,967 

  Basic Earnings (Loss) Per Share                                          $     (0.70)         $     0.10 

  Effect of dilutive securities: Employee stock options                              -              24,646 

  Denominator for diluted earnings (loss) per share -                                                      
  adjusted weighted average shares and assumed conversions                   3,299,636           3,425,613 


31

10KSB
32nd “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 32nd

                                                                [Download Table]
                                                                     
Diluted Earnings (Loss) per Share    $     (0.70)          $     0.10


      (a) Options to purchase 326,792 shares of common stock at prices between
          $3.00 and $7.39 per share were outstanding at December 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.                    

      (b) Options to purchase 102,000 shares of common stock at prices between
          $6.75 and $7.39 per share were outstanding at December 31, 1997, 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 11. INCOME TAXES                                                           

Income tax (benefit) expense for the years ended December 31, 1998 and 1997     
consist of:                                                                     

                                                                [Download Table]

                                         1998                       
                    ------------------------------------------------
                    Current           Deferred          Total       
                                                                    
--------------------------------------------------------------------
Federal             $ (231,227)       $ (466,367)       $  (697,594)

State                       --           (27,430)           (27,430)
--------------------------------------------------------------------
                    $ (231,227)       $ (493,797)       $  (725,024)

                                                                [Download Table]

                                         1997                       
                    ------------------------------------------------
                    Current           Deferred          Total       
                                                                    
--------------------------------------------------------------------
Federal             $  100,446        $   29,922        $   130,368 

State                   24,712             3,145             27,857 
--------------------------------------------------------------------
                    $  125,158        $   33,067        $   158,225 


   Income tax expense for the years ended December 31, 1998 and 1997
differed from amounts computed by applying the statutory U.S. federal corporate 
income tax rate of 34% to income before income tax (benefit) expense as a       
result of the following:                                                        

                                                        [Enlarge/Download Table]

                                                                    1998                  1997       
                                                            -----------------------------------------
                                                                                                     
Expected income tax (benefit) expense                            $(1,042,139)         $  168,412     

Increase (decrease) in income taxes resulting from:                                                  
    Valuation allowance                                              648,422                   -     
    State income taxes net of federal benefit                        (80,919)             18,386     
    Nondeductible expenses for federal income tax purposes             5,993              13,995     
    Research and experimental credits                                (72,353)            (25,589)    
    Foreign Operations                                               (45,118)                  -     
    Other, net                                                      (138,910)            (16,979)    
                                                                 --------------------------------    
Income tax (benefit) expense                                     $  (725,024)         $  158,225     
                                                                 ================================    

The tax effects of temporary differences that give rise to significant portions 
of the deferred tax assets and liabilities at December 31, 1998 and 1997 include
the following:                                                                  

                                                        [Enlarge/Download Table]

                                                           1998            1997      
                                                       --------------  --------------
                                                                                     
Deferred tax assets:                                                                 
     Net operating loss carryforward                     $   796,870      $    6,664 
     Research and experimental credit carryforward            72,353               - 
     Note receivable reserved for financial                                          
          reporting purposes                                 158,243               - 
     Accounts receivable reserves, principally due to                                
          accruals for financial reporting purposes          109,642          12,992 
     Inventory reserves, principally due to accruals                                 
          for financial reporting purposes                                           
          and basis differences                              211,248          32,936 
     Other                                                    29,285          11,223 
                                                       --------------  --------------
Total deferred tax assets                                $ 1,377,641       $  63,815 

Deferred tax liabilities                                                             
     Prepaid advertising                                 $  (210,818)     $  (39,211)
     Property, plant and equipment, principally                                      
          due to differences in depreciation basis           (18,401)        (18,401)
                                                       --------------  --------------
Total deferred tax liabilities                              (229,219)        (57,612)
                                                       --------------  --------------
Gross deferred tax asset                                 $ 1,148,422      $    6,203 
     Valuation allowance                                    (648,422)              - 
                                                       --------------  --------------
Net deferred tax asset                                   $   500,000      $    6,203 
                                                       ==============  ==============

      A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences, which are estimated to expire before   
they are utilized. The net operating loss carryforward of approximately $2.1    
million will expire in 2013.                                                    

NOTE 12. EMPLOYEE BENEFIT PLANS                                                 

(a) Simplified Employee Pension Plan                                  

      The Company employed a simplified employee pension plan covering all
full-time employees through December 31,1997. 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 during the year ended December 31, 1997. This plan
was terminated as of December 31, 1997.                                         

(b)  Employee Saving and Retirement Plan (Section 401-k plan)           

       Effective January 1, 1998, the Board of Director's approved a savings
and retirement plan covering all full-time employees. Subject to approval by the
Board of Directors, the Company fully matches employee contributions up to 3% of
total compensation paid to participating employees and one-third of one percent 
is matched for each percentage of participating employee contributions between  
4% and 6% of total compensation. Expense attributable to Company contributions  
totaled $54,138 during the                                                      

32

10KSB
33rd “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 33rd

year ended December 31, 1998.                                                   

(c) Incentive Stock Option Plans                                      

At December 31, 1998, 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 (loss) and earnings (loss) per share would    
have been reduced to the pro forma amounts indicated below:                     

                                                                [Download Table]


                                                  1998                 1997   
                                                                              
Net income (loss)       As reported            $(2,307,057)           $337,104
                        Pro forma              $(2,665,679)           $115,127

Basic                   As reported            $     (0.70)           $   0.10
earnings (loss) per     Pro forma              $     (0.81)           $   0.03
share                                                                         

Diluted                 As reported            $     (0.70)           $   0.10
earnings (loss)         Pro forma              $     (0.81)           $   0.03
per share                                                                     

     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. In December 1998, the Board of Directors        
approved an extension of the 1996 Incentive Stock Options plan to provide for   
100,000 additional shares to be made available for future grant. Under both     
plans, the exercise price of each option equals the market price of the         
Company's stock on the date of grant, and the options' maximum term is five     
years. Options are granted at various times and are exercisable immediately.    

        During 1998, the Company cancelled incentive stock options to purchase
235,892 shares of common stock at exercise prices ranging from $5.00 to $7.00   
per share.  The same number of new options were issued at a price of $4.00 per  
share.                                                                          

       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 1998, and 1997 respectively: dividend yield of   
zero for all years; expected volatility of 54.4% and 52.3%; risk-free interest  
rates of 5.42% and 5.70%; expected lives of five years for both plans.          

         A summary of the status of Company's two fixed stock option plans as of
December 31, 1998 and 1997, and the changes during the years then ended is      
presented below:                                                                

                                                        [Enlarge/Download Table]

                                                                  1998                              1997                  
--------------------------------------------------------------------------------------------------------------------------
                                                                            Weighted                          Weighted    
                                                                            average                           average     
                                                                            exercise                          exercise    
         Fixed Options                                       Shares         price               Shares        price       
         -----------------------------------------------------------------------------------------------------------------
                                                                                                                          
         Outstanding at beginning of year                           300,792      $ 5.85               215,692      $ 6.26 
         Granted (including repriced options)                       276,792      $ 3.41               210,100      $ 5.82 
         Exercised                                                        -           -                (6,500)     $ 5.69 
         Forfeit                                                    (14,900)     $ 5.66              (118,500)     $ 6.55 
         Cancelled                                                 (235,892)     $ 5.66                     -           - 
                                                                  ---------                         ---------             
         Outstanding at end of year                                 326,792      $ 3.54               300,792      $ 5.85 
                                                                  =========                         =========             

         Options exercisable at year end                            326,792                           300,792             

         Weighted average fair value of                                                                                   
             options granted to employees                                                                                 
             during the year                                      $    2.39                          $   3.02             


                                                                [Download Table]

                 Options outstanding and exercisable                          
                 Number of shares           Weighted average                  
   Range of      outstanding at             remaining         Weighted average
exercise prices     December 31, 1998       contractual life  Exercise price  
---------------  --------------------       ----------------  --------------  
                                                                              
$3.00 - $3.99         40,900                   4.9 years          $3.00       
$4.00 - $4.99        235,892                   4.2 years          $4.00       
$5.00 - $5.99          5,000                   1.6 years          $5.75       
$6.00 - $6.99         35,000                   1.5 years          $6.39       
$7.00 - $7.39         10,000                   2.7 years          $7.39       
                     -------                                                  
                     326,792                                                  

33

10KSB
34th “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 34th

NOTE 13. COMMITMENTS AND CONTINGENCIES                                          

         On September 14, 1989, the Company entered a royalty agreement relating
to its ROAD WHIZ(TM) product. After 20,000 ROAD WHIZ(TM) units are sold, the    
agreement provides for a 1% royalty payment on net sales of the ROAD WHIZ(TM)   
product and 1/2% on the Company's other products, which incorporate the ROAD    
WHIZ(TM) database. Royalty payments are made quarterly until September 13, 2009.
During the years ended December 31, 1998 and 1997, royalty expense totaled      
$50,938 and $116,480, respectively.                                             

       On October 17, 1994, the Company entered into a royalty agreement for
the use of a database for its GREENSFINDER(TM) product. The agreement provides  
for an initial payment of $24,000, representing the royalty payment for the     
first 6,000 GREENSFINDER(TM) 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(TM) 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, 
1998 and 1997, royalty expense totaling $10,192 and $9,665 respectively, was    
recognized.                                                                     

NOTE 14. RELATED-PARTY TRANSACTIONS                                             

      As of December 31, 1997 the Company terminated all operations at the
former Detroit, Michigan office, and consolidated operations at the Company's   
St. Louis facility. The POIS, Inc. subsidiary had been consistently unable to   
gain entry to the automotive OEM or after-market segments, for its products, and
was unprofitable.                                                               

    On March 23, 1998, the Company acquired an 18.9% interest in Talon
Research & Development Ppty., Ltd. of Auckland, New Zealand, for $ 282,500. The 
Company acquired an option to purchase, in September 1998, for additional shares
in Talon for approximately a total of $1.4 million, which was exercisable within
30 days of receipt of audited financial statements for 1998 from Talon. The cost
of the option was $314,147. In addition, the Company has incurred $105,022 in   
legal and consulting costs related to the acquisition of shares, and are        
capitalized as a part of the cost of the shares. As the result of actions by the
Board of Directors on March 23, 1999, the above amount will be used to purchase 
additional shares of Talon stock, which will bring the Company's interest to    
approximately 25%. Other terms of the previous option are nullified and any     
subsequent purchase of Talon stock by the Company will be subject to further    
negotiation with Talon management. The Company's share in the earnings of Talon 
from the date of acquisition to December 31, 1998, is $118,733.                 

  In addition to the above transactions, the Company has purchased
certain electronic components, including parts for the Travel Star, which have  
been sold to Talon at cost. These sales totaled $477,570 for 1998. The Company  
purchased from Talon electronic components, which are integral to the Travel    
Star product, which totaled $638,627. A net balance of $62,411 was receivable by
the Company as of December 31, 1998.                                            

NOTE 15.  ADVANCES TO AFFILIATES                                                

   On July 1, 1998, the Company entered into a joint development and
marketing agreement with Scientific Communications & Controls, Inc. (Sci-Com), a
privately held company based in McLean, Virginia. The Company has sold software 
and documentation received from Intellidata Technologies, in exchange for a     
$400,000 promissory note with interest at the prime rate (7.75% as of December  
31, 1998); leased to Sci-Com, at a below market rate, $84,000 in computer       
equipment required to support internet communication to support E@syMail; loaned
$50,000 to Sci-Com for expansion of the network equipment, with interest at     
6.36%; and advanced $200,000 to Sci-Com to support testing for the product.     
These notes bears interest at the prime rate. The Note for $50,000 and the      
$200,000 advance are secured by specified assets and proceeds of Sci-Com may be 
repaid either through a 50% share of network revenues generated by Sci-Com, not 
limited to revenues generated by E@syMail users, or may at the Company's        
discretion be converted into a 10% equity interest in Sci-Com. During 1998, the 
Company also paid Sci-Com consulting fees totaling $67,560 for contract         
development and programming services related to the development and testing of  
E@syMail a portable e-mail unit. The Company has fully reserved for             
collectibility of the $400,000 note receivable and accrued interest of $16,428  
thereon.                                                                        

NOTE 16.  SIGNIFICANT FOURTH QUARTER ADJUSTMENTS                                

        In the fourth quarter of 1998, the Company recorded adjustments that
increased its net loss by approximately $765,000.  These adjustments included a 
$416,000 reserve for collectibility of the note from Sci-Com with accrued       
interest, $228,000 increase in reserve for inventory obsolescence, a $68,000    
decrease in inventories for book to physical count adjustments and $53,000 of   
other various non-recurring adjustments.                                        

NOTE 17.  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 preparation by the bank and acceptance by the Company of      
complete loan documentation, including loan covenants.                          

   On March 23, 1999, the Board of Director's met and approved, an
alternative plan, by which, the option acquired in August would be exercised for
the amount paid ($314,162), and would increase the Company's ownership of Talon 
to approximately 25%.  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.                  

34

10KSB
Last “Page” of 35
TOC
1st
Previous
Next
↓Bottom
Just 35th

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.                                                         

April 14, 1999                                                                  
     /s/ Monte Ross                     ________________________________________
Monte Ross                                                            
President, Chief Executive Officer                                    
and Chairman of the Board                                             

April 14, 1999                                                                  
     /s/ Mark L. Peterson               ________________________________________
Mark L. Peterson,                                                     
Vice President of Engineering,                                        
Secretary and Director                                                

April 14, 1999                                                                  
     /s/ Ernest Clarke                  ________________________________________
Ernest Clarke,                                                        
Vice President of Government Programs,                                
Director                                                              

April 14, 1999                                                                  
     /s/ Steven H. Akre                 ________________________________________
Steven H. Akre,                                                       
Director                                                              

April 14, 1998                                                                  
     /s/ Bruce L. Miller                ________________________________________
Bruce L. Miller,                                                      
Director                                                              

April 14, 1998                                                                  
     /s/ John J. Clancy                 ________________________________________
John J. Clancy,                                                       
Director                                                              

PAGE 16                                                               

35

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB’ Filing		Date		First		Last			Other Filings
		9/13/09		16		34
		1/1/02		7
		10/31/01		30
		7/1/01		19
		6/30/00		7					10QSB,  NT 10-Q
		1/1/00		13		29
		12/31/99		30					10KSB,  NT 10-K
		10/31/99		16
Filed on:		4/15/99
		4/14/99		35
		4/2/99		7
		3/31/99		1					10QSB
		3/26/99		21		34
		3/23/99		34
		3/4/99		21
		3/3/99		9		18
		3/1/99		14
		2/28/99		31
For Period End:		12/31/98		1		34			4,  5,  NT 10-K
		9/30/98		9					10QSB,  4
		8/12/98		7
		7/1/98		34
		6/30/98		9					10-Q
		5/1/98		31
		4/14/98		35
		3/31/98		9					10QSB
		3/23/98		34
		3/16/98		22
		1/1/98		13		32
		12/31/97		4		34			10KSB,  4
		10/17/97		16
		10/13/97		20
		9/30/97		9		20			10QSB,  4
		6/30/97		9					10QSB
		3/31/97		9					10QSB,  4,  5
		1/1/97		9
		12/31/96		11		25			10KSB
		12/31/95		31
		11/4/95		20
		11/1/95		30
		10/17/95		20
		11/18/94		20
		10/17/94		34
		9/28/94		16
		9/17/94		19
		9/1/94		15
		4/21/94		18
		3/22/94		20
		3/4/94		31
									List all Filings