-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EfbTpIN1rQKgIoWpkkcKTONMU5Y43/XIokmCoUu1sPOduV7IOmhMmd3Hi9fX494P c4HPA2dbewkWm32inifpIQ== 0001047469-98-035025.txt : 19980922 0001047469-98-035025.hdr.sgml : 19980922 ACCESSION NUMBER: 0001047469-98-035025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980921 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN SYSTEMS INC CENTRAL INDEX KEY: 0000911876 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 954021568 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22698 FILM NUMBER: 98712276 BUSINESS ADDRESS: STREET 1: 2125-C MADERA RD CITY: SIMI VALLEY STATE: CA ZIP: 93065 BUSINESS PHONE: 8055824400 10-Q 1 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997 OR / / 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 0-22698 - -------------------------------------------------------------------------------- GOLDEN SYSTEMS, INC. (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- CALIFORNIA 95-4021568 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2125-C MADERA ROAD SIMI VALLEY, CA 93065 (Address of principal executive offices) (805) 582-4400 (Registrant's telephone number, including area code) --------------------------------------------------- INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 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 NO X ----- ----- AS OF JULY 31, 1998, THERE WERE 5,299,998 SHARES OF NO PAR VALUE COMMON STOCK OUTSTANDING. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INDEX LISTING - --------------------------------------------------------------------------------
Page Number ------ PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Consolidated Balance Sheets as of December 31, 1997 (unaudited) and March 31, 1997. 1 Consolidated Statements of Operations (unaudited) for the three months and nine months ended December 31, 1997 and December 31, 1996. 2 Consolidated Statements of Cash Flows (unaudited) for the nine months ended December 31, 1997 and December 31, 1996. 3 Notes To Consolidated Financial Statements (Unaudited). 4-6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 7-10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. 10 PART II OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES. 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 11 SIGNATURES SIGNATURES 12
i PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS GOLDEN SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands)
Dec. 31, 1997 March 31, 1997 ------------- -------------- (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $137 $1,363 Restricted cash balances 11 29 Accounts receivable, net of allowances 1,255 233 Inventories 555 1,272 Prepaid expenses and other current assets 163 338 ------------- -------------- Total current assets 2,121 3,235 ------------- -------------- PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation 335 920 ------------- -------------- $2,456 $4,155 ------------- -------------- ------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings $8,220 $7,835 Accounts payable 3,698 3,407 Note payable under Recapitalization Plan 1,873 1,873 Net due to related parties 1,659 92 Notes payable 790 914 Accrued liabilities 1,855 1,603 ------------- -------------- Total current liabilities 18,095 15,724 ------------- -------------- COMMITMENTS AND CONTINGENCIES (Note 4) MINORITY INTEREST 2,599 2,599 SHAREHOLDERS' EQUITY Common Stock 16,405 16,405 Retained earnings (deficit) (34,824) (30,370) Cumulative translation adjustments 181 (203) ------------- -------------- Total shareholders' equity (deficit) (18,238) (14,168) ------------- -------------- $2,456 $4,155 ------------- -------------- ------------- --------------
1 GOLDEN SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited)
Three Months Ended Nine Months Ended ---------------------------- ---------------------------- Dec. 31, 1997 Dec. 31, 1996 Dec. 31, 1997 Dec. 31, 1996 ------------- ------------- ------------- ------------- NET SALES $1,937 $1,188 $3,078 $2,262 COST OF GOODS SOLD 1,713 551 3,397 2,180 ------------- ------------- ------------- ------------- Gross Profit (Loss) 224 637 (319) 82 ------------- ------------- ------------- ------------- OPERATING EXPENSES: Selling, general and administration 455 886 1,575 2,321 Research and development 147 253 872 504 ------------- ------------- ------------- ------------- 602 1,139 2,447 2,825 ------------- ------------- ------------- ------------- Operating Loss (378) (502) (2,766) (2,743) ------------- ------------- ------------- ------------- OTHER INCOME (EXPENSE): Interest expense (503) (318) (1,385) (1,088) Foreign currency transaction losses (299) (10) (307) (203) Litigation settlement --- --- --- 479 Other income 22 1 5 91 ------------- ------------- ------------- ------------- (780) (327) (1,687) (721) ------------- ------------- ------------- ------------- Loss before provision for income taxes (1,158) (829) (4,453) (3,464) PROVISION FOR INCOME TAXES --- --- 1 --- ------------- ------------- ------------- ------------- NET LOSS $(1,158) $(829) $(4,454) $(3,464) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- NET LOSS PER SHARE $(0.22) $(0.19) $(0.84) $(0.78) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES 5,300 4,450 5,300 4,450 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
2 GOLDEN SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Nine Months Ended ---------------------------- Dec. 31, 1997 Dec. 31, 1996 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(4,454) $(3,464) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization expense 167 340 Provision for losses on accounts receivable 108 266 Provision for losses on inventories 45 45 Loss on disposition of property and equipment 1 --- Decrease (increase) in: Accounts receivable (1,130) 423 Inventories 672 1,283 Prepaid expenses and other current assets 175 375 Increase (decrease) in: Accounts payable 291 (78) Accrued liabilities 252 (134) ------------- ------------- Net cash used in operating activities (3,873) (944) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (19) --- Proceeds from sale of property, plant & equipment 272 25 Restricted cash 18 851 ------------- ------------- Net cash provided by investing activities 271 876 ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings, net of repayments 1,035 (965) Borrowings (repayments) under notes payable (124) 282 Net change in related party balances 1,567 237 ------------- ------------- Net cash provided by financing activities 2,478 (446) ------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (102) (17) ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,226) (531) CASH & CASH EQUIVALENTS, beginning of period 1,363 684 ------------- ------------- CASH & CASH EQUIVALENTS, end of period $137 $153 ------------- ------------- ------------- -------------
3 GOLDEN SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOTE 1. GENERAL In management's opinion, all adjustments, which are necessary for a fair presentation of financial condition and results of operations, are reflected in the accompanying interim consolidated financial statements. All such adjustments are of a normal recurring nature. All amounts are unaudited, except the March 31, 1997 balance sheet. This report should be read in conjunction with the audited consolidated financial statements, notes, and disclosures presented in the Company's 1997 Annual Report on Form 10-K. Footnotes and other disclosures which would substantially duplicate the disclosures in the Company's audited financial statements for fiscal year 1997 contained in the Company's 1997 Annual Report on Form 10-K, have been omitted. The interim financial information herein is not necessarily representative of operations for a full year. NOTE 2. RISKS AND BASIS OF PRESENTATION Results of operations for the quarter and nine months ended December 31, 1997 have been determined assuming that the Company will continue as a going concern. However, the Company is currently facing significant issues which raise substantial doubt that the Company has the ability to continue as a going concern. These issues are summarized as follows: - At December 31, 1997, the Company had outstanding amounts due to four separate Indian lenders in the amount of $8,611,000, all of which are currently in default. Of that amount, three banks have issued notices to the Company demanding immediate repayment of $7,821,000. At June 30, 1998, the amount due was approximately $7.6 million. The Company has insufficient funds available to repay the banks. Because the Indian debt is secured by the assets of Ultra Tek, alternatives available to the banks include closing the operations of Ultra Tek and forcing Ultra Tek into liquidation. - In fiscal 1995, Ultra Tek's importing of computer components into India came under investigation by the Indian customs authorities. In September 1997, the Indian customs authorities issued a separate "show cause" notice alleging that Ultra Tek has not provided valid explanations for shortages of imported raw material in its inventories. In fiscal 1997, Ultra Tek came under the investigation of the Indian Department of Revenue Intelligence concerning the import and export of certain components used in the manufacture of power supplies and customer returned product. Subsequently, a separate "show cause" notice was issued requesting explanation of why duties should not be assessed. The above governmental allegations and investigations could lead to additional duty and penalties being assessed against Ultra Tek in the amount of $8.4 million and penal action being initiated against Ultra Tek. Penalties relating to the DRI investigation, if any, have not yet been determined. The Company is contesting these allegations, but currently, the matters are unresolved and the outcomes uncertain. - The Company has incurred significant losses from operations over the past three fiscal years and for the nine months ended December 31, 1997; has lost its two main historical customers, which has significantly impacted its revenues; and at December 4 31, 1997, had a shareholders' deficit of $18.2 million. During the first nine months of fiscal 1998, the Company continued to incur significant losses, and management has not successfully executed on its efforts to achieve profitable operations and positive cash flows. Outside of related party financing, the Company has identified no viable source of financing. Due to the significance of these factors in the Company's financial statements at December 31, 1997, all assets have been stated at their estimated realizable values. Costs of resolving the contingencies noted above or settling amounts due to Indian banks or Company creditors have not been recorded as management is currently unable to estimate these amounts. Accounts receivable and inventories were valued at their subsequently realized amounts (inventories at cost), and property, plant and equipment were valued based on estimates by management and in accordance with the guidelines of Statement of Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). The estimated realizable values and settlement amounts may be different from the proceeds ultimately received or payments made. NOTE 3. INVENTORIES Inventories are valued at the lower of cost (first in, first out) or market. Cost includes cost of material, freight and manufacturing overhead. Inventories consist of the following (in thousands):
December 31, 1997 March 31, 1997 ----------------- -------------- Raw materials $ 290 $1,237 Work-in-progress 191 30 Finished goods 74 5 ----------------- -------------- $ 555 $1,272 ----------------- -------------- ----------------- --------------
NOTE 4. COMMITMENTS AND CONTINGENCIES A) LEASES GSI leases its corporate headquarters from a related party under a three year operating lease which expires in January 2000. Ultra Tek leases certain factory premises from the Indian Government under operating leases, which expire at various dates through October 2000. Another Company subsidiary leases its factory premises near Colombo, Sri Lanka under an operating lease, which expires in March 1999. This subsidiary was sold in the fourth quarter of fiscal 1998 to a related party and accordingly, lease commitments for this company are presented for the period up to the date of sale. Future minimum payments under these and other various operating leases are as follows (in thousands):
Year ending March 31: --------------------- 1998 (three months) $ 56 1999 182 2000 105 2001 21 2002 1 ----- $ 365 ----- -----
5 B) LITIGATION The Company is subject to lawsuits in the normal course of business. In the opinion of management and legal counsel to the Company, pending litigation will not result in a material loss to the Company. C) CONTINGENCIES During fiscal year 1995, the Company's imports of computer components for final assembly and sale into the domestic tariff area (DTA) of India (outside the SEEPZ) came under investigation by the Indian customs authorities. As a result, Company inventories of $1,300,000 were seized by the authorities. On May 30, 1995, the authorities issued a notice to the Company alleging misdeclaration of purported imports of complete computer systems as imports of computer system components. The notice calls upon the Company to explain why the authorities should not (a) confiscate all the goods so imported, (b) levy additional duty of $1,175,000 (49,000,000 in Indian rupees) on the goods already sold into the DTA, and (c) take penal action against the Company under the law, which could result in a possible monetary penalty of $5,865,000 (245,000,000 in Indian Rupees). The Company paid an advance of $700,000 (20,000,000 in Indian rupees) against customs duty that may ultimately be levied by the authorities and recorded this amount in "cost of goods sold" in fiscal 1995. During fiscal 1996, the authorities released the seized goods. However, because of difficulties encountered in re-exporting the goods and technological obsolescence, the entire amount of the seized goods has been included in the inventory reserve amounts at December 31, 1997. No other penalties or expenses related to this government action have been incurred by the Company. In September 1997, the Indian customs authorities issued a "show cause" notice alleging that Ultra Tek has not provided valid explanations for shortages of raw material in its inventories. The notice called upon the Company to explain why the authorities should not (a) impose duty of $616,000 (25,725,000 in Indian rupees) leviable on imported components which were alleged not accounted for in the terms of bond executed, (b) why penal action should not be initiated against the Company, and (c) why a penalty equal to the duty held to be leviable, $616,000 (25,725,000 in Indian rupees), in respect of unaccounted goods should not be imposed. In fiscal 1997, the Company came under investigation by the Indian Department of Revenue Intelligence (DRI) in connection with the import and export of certain components and goods used in the manufacture of power supplies and customer returns. The investigation focused on the alleged discrepancy noted between the physical stock records and books, in respect of the work-in-process inventory at March 31, 1996 and 1997 and customer returned product at March 31, 1992 through March 31, 1997. In May 1998, the DRI issued a "show cause" notice requesting that the Company explain why the DRI should not impose duties of approximately $615,000 (25,720,000 in Indian rupees). Penalties relating to the investigation, if any, have not yet been determined. The aggregate of threatened duties and penalties to the Company is approximately $8,400,000, exclusive of any penalties arising from the DRI investigation, using the Indian rupee translation rate at June 2, 1998. Although the Company is contesting the allegations of the authorities, the outcome of these matters is uncertain at this time. Accordingly, no additional provisions for any losses that may ultimately result have been made in these financial statements. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Any forward looking statements made in this Form 10-Q report involve risks and uncertainties. The Company's future financial results could differ materially from those anticipated due to the Company's dependence on conditions in the electronics industry, level of consumer demand for products containing the Company's power supply components, competitive pricing pressures, technology and product development risks and uncertainties, product performance, increasing consolidation of customers and suppliers in the electronics industry, and other factors beyond the Company's control. RESULTS OF OPERATIONS OVERVIEW As has been previously reported, the Company's operations and cash flow were significantly impacted by the product rejection that took place during the third quarter of fiscal 1995. Those returns cost the Company $4.2 million of lost accounts receivable directly related to the sales of the rejected units and $2.2 million relating to other direct costs, as well as additional costs for transportation, unutilized capacity, business interruption, reorganization, inventory carrying costs, and interest on short-term borrowings. The Company implemented a program to overcome its cash difficulties by reducing inventory, cost reductions, organizational restructuring, price increases, volume growth and more favorable payment terms from the Company's existing customers. While a number of elements of that program have been successfully implemented, the Company has not been able to generate anticipated amounts of cash from inventory reduction and, to date, has had only limited success in its efforts to resell any significant number of units of the reworked rejected product. In addition, the Company has not been successful, to date, in building its sales volumes to its existing customers or to new customers. While the Company has implemented a plan to transition its business focus to power supplies for products that are less price sensitive and therefore provide a greater opportunity to develop positive profit margins, there can be no assurance that the Company will have the resources to carry out its plan and, even if the resources are available, that the Company will be able to successfully develop the necessary customer relationships and obtain the product contracts to continue to operate its business. In light of these facts, and the operating results discussed below, the Company is presently looking at the opportunities to obtain additional capital from sources outside the Company or to engage in a transaction that would change the Company's fundamental structure. Absent success in generating cash from inventory or a dramatic change in the Company's operating outlook, the consummation of such a financing transaction will be necessary for the Company to continue its operations beyond the next several months. In summary, the Company suffered a considerable decline in cash flow during the three fiscal years ended March 31, 1997 and during the nine months ended December 31, 1997. At December 31, 1997, the Company had negative working capital of $15,974,000 7 and a retained deficit of $34,824,000. Subsequent to December 31, 1997, the Company continues to experience negative cash flow as a result of continuing losses and working capital required to ramp-up production in India. While current action is being taken to develop a viable operating plan to increase sales and renegotiate the terms of certain short-term obligations with certain Indian banks, there can be no assurance that any of these actions will be successfully completed. THIRD QUARTER OF FISCAL YEAR 1998 Sales for the three months ended December 31, 1997 were $1,937,000 compared to $1,188,000 for the same quarter in the prior year. This increase in sales of 63% is due principally to the receipt of orders from two new customers for power supplies and adapters. Gross profit on third quarter sales was $224,000 compared to a gross profit of $637,000 for the third quarter in fiscal year 1997. While the current quarter gross profit is 65% less than that of the comparable quarter in fiscal 1997, the fiscal 1997 third quarter included $670,000 of net settlement proceeds related to an order cancellation by a former customer. Gross margins in the current fiscal 1998 quarter also improved over the prior quarter as a result of a reduction in cost of goods sold as the Company resolved certain production start-up issues. The Company continues to incur significant unabsorbed direct manufacturing overhead because of under-utilization of manufacturing capacity; however, as the Company begins to ramp-up production this cost will be reduced. Selling, general and administrative expenses for the third quarter of fiscal year 1998 were $455,000 compared to $886,000 or a decline of 49%. This decrease is due to the Company's continuing efforts to reduce costs and the adoption in fiscal year 1997 of Statement of Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). As a result of implementing SFAS 121 at the end of fiscal year 1997, property, plant and equipment was recorded at estimated realizable value, which has reduced the amount of depreciation in selling, general and administrative expense in the quarter ended December 31, 1997. Research and development expenses for the current quarter were $147,000 as compared to $253,000 for the third quarter of fiscal year 1997 or a 42% decrease. This decrease resulted from the Company's decision to shut down its product research and development facility in Scotland, which occurred early in the quarter. The Company expected new business development would support a research and development center, however since this did not occur, the shut down was a further consolidation effort to reduce expenses. Interest expense for the third quarter of fiscal year 1998 was $503,000 as compared to $318,000 for the same quarter in the prior fiscal year. This increase of 58% is due principally to interest on the note payable under the Recapitalization Plan, which closed on March 31, 1997, and interest on the factoring of accounts receivable and increased loans from the Tandon family used to fund continuing losses and a ramp-up of production in India. The Company has factored certain accounts receivable with a United States bank at monthly financing fees ranging from 2.25% to 1.75% and an 8 administration fee applied to the total of factored accounts ranging from 1% to .75%. Through December 31, 1997, the Company factored $713,000 of its accounts receivable and had an outstanding balance due the bank of $428,000. Foreign currency transaction losses of $299,000 increased substantially over the comparable quarter in fiscal 1997 because of the significant devaluation of the Indian rupee in relation to the U. S. dollar during the current fiscal 1998 quarter. Net loss for the third quarter ended December 31, 1997 was $1,158,000 compared to a net loss of $829,000 for the same period in the prior year. The significant reasons for the loss increase are set forth in the foregoing discussion. NINE MONTHS OF FISCAL YEAR 1998 For the nine months ended December 31, 1997, net sales were $3,078,000 compared to $2,262,000, representing an increase of 36%. This increase is due principally to the previously mentioned receipt of orders from two new customers for power supplies and adapters. Shipments to these customers commenced during the second quarter of fiscal 1998. The gross loss of $319,000 for the first nine months of fiscal 1998 compared with a gross profit of $82,000 for the same period in fiscal 1997. This loss on increased sales is due primarily to production start-up costs incurred during the second quarter in fiscal 1998 and unabsorbed overhead resulting from underutilized manufacturing capacity. Selling, general and administrative expenses for the first nine months of fiscal 1998 were $1,575,000 compared to $2,321,000 for the same period in fiscal 1997, a decline of 32%. As previously stated, this change is the result of continuing efforts to reduce costs and the adoption of SFAS 121. Research and development expenses for the first nine months of fiscal 1998 were $872,000 compared to $504,000, an increase of 73%. This increase resulted from the Company's decision to consolidate and build-up a product research and development facility in Scotland, offset in part by a subsequent decision during the third quarter of fiscal 1998 to shut down this facility. Interest expense of $1,385,000 for the first nine months of fiscal 1998 is approximately 27% higher than for the same period in the prior fiscal year, primarily because of the reasons set forth in explaining the third quarter of fiscal 1998. Foreign currency transaction losses increased significantly during the nine months ended December 31, 1997, because of the increased decline in the value of the Indian rupee in relation to the U. S. dollar over the same period in the prior year. All but $8,000 of the $307,000 loss occurred in the third quarter of fiscal 1998, because of the sharp currency devaluation in that period. These losses result primarily from obligations of Ultra Tek which are payable in U. S. dollars. The litigation settlement income in the nine month period ended December 31, 1996, resulted from a contract settlement in that period with no similar event occurring in 9 fiscal 1998. Other income in the first nine months of fiscal 1998 was $5,000 compared to $91,000 for the same period in fiscal 1997, because of the decline in cash balances which caused interest income to decline, a gain on the sale of equipment in fiscal 1997, which did not recur in fiscal 1998, and nonrecurring miscellaneous scrap sales and product development fees realized in fiscal 1997. LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES During the nine months ended December 31, 1997 the Company used $3,873,000 in cash in operating activities. The major uses of this cash were to fund the net loss from operations and the increase in accounts receivable, offset in part by a decrease in inventories resulting from a ramp-up of production in India. INVESTING ACTIVITIES Cash provided by investing activities during the first nine months of fiscal year 1998 was $271,000 due primarily to the disposition of certain equipment. FINANCING ACTIVITIES Cash provided in the first nine months of fiscal year 1998 from financing activities aggregated $2,478,000. The primary factors contributing to this amount relate to an increase in Tandon family loans to the Company aggregating $1,440,000 at December 31, 1997, which loans are payable on demand with interest at 12% per annum, and an increase in short-term borrowings totaling $1,035,000, resulting primarily from the accrual of interest on outstanding debt in India. For the nine months ended December 31, 1997, the Company used $1,226,000 in cash, reducing the $1,363,000 cash balance at the beginning of the period to $137,000 at December 31, 1997. At July 31, 1998 the Company had a cash balance of $189,000. Outside of related party financing, the Company has identified no viable source of financing. While current actions are being taken to implement a viable operating plan to increase sales, renegotiate the terms of certain short-term obligations with three Indian banks and raise additional capital, there can be no assurance that any of these actions will be successfully completed. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Inapplicable 10 PART II -- OTHER INFORMATION ITEM 3. DEFAULTS UPON SENIOR SECURITIES. At December 31, 1997, the Company had outstanding amounts due to four separate Indian lenders in the amount of $8,611,000, all of which are currently in default because of non-payment of principal. Of that amount, three banks have issued notices to the Company demanding immediate repayment of $7,821,000. At June 30, 1998, the amount due was approximately $7.6 million. The Company has insufficient funds available to repay the banks. Because the Indian debt is secured by the assets of Ultra Tek, alternatives available to the banks include closing the operations of Ultra Tek and forcing Ultra Tek into liquidation. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS Exhibit 27. Financial Data Sheet (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the three month period ended December 31, 1997. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOLDEN SYSTEMS, INC. By: /s/ Jawahar L. Tandon ------------------------------------ Jawahar L. Tandon CHIEF EXECUTIVE OFFICER (DULY AUTHORIZED OFFICER OF THE REGISTRANT) By: /s/ Harvey A. Marsh ------------------------------------ Harvey A. Marsh VICE PRESIDENT, CHIEF FINANCIAL OFFICER (DULY AUTHORIZED OFFICER OF THE REGISTRANT) Date: September 21, 1998 ------------------------------------ 12 EX-27 2 EXHIBIT 27
5 This schedule contains summary financial information extracted from the consolidated balance sheet at December 31, 1997 and the consolidated statement of operations for the nine months ended December 31, 1997 and is qualified in its entirety by reference to such financials statements. 1,000 9-MOS MAR-31-1998 APR-01-1997 DEC-31-1997 137 0 1,255 0 555 2,121 335 0 2,456 18,095 0 0 0 16,405 (34,643) 2,456 3,078 3,078 3,397 3,397 2,447 0 1,385 (4,453) 1 (4,454) 0 0 0 (4,454) (.84) (.84)
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