U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ____________TO_____________
COMMISSION FILE NUMBER 0-25380
ULTRADATA SYSTEMS, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9375 Dielman Industrial Drive, St. Louis, MO 63132
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (314) 997-2250
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding as of August 6, 2001
Common, $.01 par value 3,249,533
Transitional Small Business Disclosure Format Yes [ ] No [X]
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
June 30, 2001
INDEX
PART I - UNAUDITED FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets at June 30, 2001 and December 31, 2000 3.
Statements of Operations for the three month and six
month periods ended June 30, 2001 and 2000 4.
Statements of Cash Flows for the six months ended
June 30, 2001 and 2000 5.
Notes to Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10.
PART II - OTHER INFORMATION 16.
Signatures 18.
ULTRADATA SYSTEMS, INCORPORATED
Balance Sheets
As of June 30, 2001 and December 31, 2000
------------------------------------------------------------------------
June 30, December 31,
2001 2000
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 231,859 $ 1,842,983
Restricted cash 765,000 767,724
Trade accounts receivable, net of
allowance for doubtful accounts of
$117,556 436,511 673,475
Inventories 2,154,115 1,780,255
Prepaid expenses and other current assets 244,641 229,637
--------- ---------
Total current assets 3,832,126 5,294,074
--------- ---------
Property and equipment, net 544,659 617,794
--------- ---------
Total property and equipment 544,659 617,794
Deferred compensation trust investments,
available for sale - 84,605
Investment in Talon Research and
Development, Ltd. 786,328 825,757
Advances to affiliates 150,000 150,000
Advertising credits 62,421 62,421
Other assets 34,444 8,594
--------- ---------
Total assets $ 5,409,978 $ 7,043,245
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 48,002 164,319
Accrued expenses and other liabilities 208,040 218,996
--------- ---------
Total current liabilities 256,042 383,315
Deferred rent 2,488 6,220
Deferred compensation liability - 87,329
--------- ---------
Total liabilities 258,530 476,864
Stockholders' equity:
Preferred Stock, $0.01 par value,
4,996,680 shares authorized, none
outstanding - -
Series A convertible preferred stock,
3,320 shares authorized, 1,482 shares
outstanding with a stated value of
$1,000 1,482,000 1,616,000
Common stock, $.01 par value; 10,000,000
shares authorized; 3,575,704 shares
issued and outstanding June 30,2001;
3,519,586 shares issued and outstanding
December 31, 2000 35,757 35,196
Additional paid-in capital 9,877,953 9,861,970
Accumulated deficit (4,998,040) (3,737,190)
Treasury stock (326,171 shares at cost) (942,311) (942,311)
Notes receivable issued for purchase of
common stock (210,495) (205,819)
Accumulated other comprehensive (loss)
income, net (93,416) (61,465)
--------- ---------
Total stockholders' equity 5,151,448 6,566,381
--------- ---------
Total liabilities and stockholders'
equity $ 5,409,978 $ 7,043,245
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Operations
Three months ended Six months ended
June 30, June 30,
2001 2000 2001 2000
(unaudited) (unaudited)
------------------------------------------------------------------------------
Net sales: $ 510,612 $ 781,702 $ 696,454 $ 1,063,107
Cost of sales: 268,460 553,455 414,650 722,544
----------------------------------------------
Gross profit 242,152 228,247 281,804 340,563
Selling expense 154,972 96,771 205,982 167,448
General and administrative
expenses 686,753 585,172 1,140,820 1,034,990
Research and development
expense 96,566 75,857 225,360 172,090
----------------------------------------------
Operating loss (696,139) (529,552) (1,290,358) (1,033,965)
Other (expense) income:
Interest and dividend
income, net 12,341 46,580 46,043 84,355
Equity in (losses) earnings of
affiliates (41,199) (59,773) 5,568 (125,089)
Other, net (22,249) (94,287) (22,103) (82,269)
----------------------------------------------
Total other income, net (51,107) (107,450) 29,508 (123,002)
Loss before income taxes (747,246) (637,032) (1,260,850) (1,156,967)
Income tax benefit - - - -
----------------------------------------------
Net loss (747,246) (637,032) (1,260,850) (1,156,967)
Less deemed dividends on
preferred shares (46,219) (1,059,747) (91,669) (1,059,747)
----------------------------------------------
Net loss available to common
shareholders $(793,465)$(1,696,779) $(1,352,519) $(2,216,714)
===============================================
Loss per share-basic and
diluted $ (0.25) $ (0.53) $ (0.42) $ (0.71)
===============================================
Weighted Average Shares
Outstanding:
Basic and diluted 3,234,422 3,182,867 3,214,209 3,144,051
===============================================
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Cash Flows
Six months ended June 30, 2001 and 2000
------------------------------------------------------------------------------
2001 2000
(unaudited)
Cash flows from operating activities:
Net loss $(1,260,850) $(1,156,967)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 99,130 116,872
Inventory reserve for obsolescence 60,000 60,000
Equity in (earnings) losses of
unconsolidated affiliates (5,568) 125,088
Realized loss (gain) on investments 13,045 (10,602)
Gain on disposal of fixed asset 1,715 -
Non-cash compensation expense 2,544 2,306
Bad debt expense on advances to affiliates - 122,683
Increase (decrease) in assets and liabilities:
Trade accounts receivable 236,963 505,343
Inventories (433,859) 199,831
Prepaid expenses and other current assets (45,529) 56,409
Accounts payable (116,316) 47,986
Accrued expenses and other liabilities (10,956) (47,726)
Deferred rent (3,732) (3,732)
Deferred compensation trust liability - 3,476
Other assets - 25,974
--------- --------
Net cash (used in) provided by operating
activities (1,463,413) 46,941
--------- --------
Cash flows from investing activities:
Investment in affiliated company - (200,000)
Deferred compensation trust investments - (8,699)
Capital expenditures (27,711) (95,376)
--------- -------
Net cash used in investing activities (27,711) (304,075)
--------- -------
Cash flows from financing activities:
Proceeds from issuance of redeemable
preferred stock and common stock warrants - 1,616,000
Costs related to issuance of redeemable
preferred stock and common stock warrants - (375,625)
Repurchase of preferred shares (120,000) -
Exercise of employee stock options - 314,625
Restricted cash - 8,360
------- ---------
Net cash (used in) provided by financing
activities (120,000) 1,563,360
-------- ---------
Net (decrease) increase in cash and cash
equivalents (1,611,124) 1,306,226
Cash and cash equivalents at beginning of period 1,842,983 1,220,134
--------- ---------
Cash and cash equivalents at end of period $ 231,859 $ 2,526,360
========= =========
Non-cash investing and financing
Redemption of Rabbi Trust $ 87,329 $ -
========= =========
Conversion of preferred stock $ 28,000 $ -
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
June 30, 2001
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim financial statements included herein have been
prepared by Ultradata Systems, Incorporated (the "Company"), without audit
in accordance with generally accepted accounting principles and pursuant to
the rules and regulations of the Securities and Exchange Commission for
interim financial information. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures made are adequate to make the information presented not
misleading. The Company's investment in Talon Research and Development,
Ppty., Auckland, NZ Ltd. of 22.6% is accounted for using the equity method.
In the opinion of management, the information furnished for the three-month
and six-month periods ended June 30, 2001 and 2000, includes all adjustments,
consisting solely of normal recurring accruals necessary for a fair
presentation of the financial results for the respective interim periods
and is not necessarily indicative of the results of operations to be expected
for the entire fiscal year ending December 31, 2001. It is suggested that
the interim financial statements be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2000, as
filed with the Securities and Exchange Commission on Form 10-KSB (Commission
File Number 0-25380).
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on
informed estimates and adjustments by management, with consideration given
to materiality. Actual results could vary from those estimates.
Reclassifications
Certain 2000 balances have been reclassified to conform to the 2001
presentation. In the fourth quarter 2000, the Company changed the way it
accounts for certain sales incentives, in accordance with EITF Issue
No. 00-25. Accordingly, the Company has restated the financial statements
for the first and second quarters of 2000 to reflect this change. The Company
reduced sales and selling expense by $8,282 in the first quarter and $37,193
in the second quarter.
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.
Note 2. Inventories
Inventories consist of the following:
June 30, December 31,
2001 2000
Raw Materials $ 1,259,998 $1,262,820
Work in Process 25,275 57,393
Finished Goods 1,447,072 1,020,803
--------- ---------
2,732,345 2,341,016
Reserve for obsolescence (578,230) (560,761)
--------- ---------
$ 2,154,115 $1,780,255
========= =========
Note 3. Prepaid Expenses
Prepaid expenses consist of the following:
June 30 December 31,
2001 2000
Prepaid advertising $ 213,782 $ 201,225
Prepaid insurance 15,662 5,461
Other prepaid expenses 15,197 22,951
-------- --------
$ 244,641 $ 229,637
======== ========
Note 4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
June 30, December 31,
2001 2000
Accrued vacation $ 73,379 $ 82,990
Accrued sales commissions
and royalties - 14,758
Payroll and payroll-related
liabilities 40,456 42,294
Accrued advertising 28,718 1,563
Other 65,487 77,391
-------- --------
$ 208,040 $ 218,996
======== ========
Note 5. Preferred Stock Redemption
During the three months ended June 30, 2001, the Company repurchased
from preferred shareholders 106 shares of preferred stock for $120,000 cash.
During the three months ended June 30, 2001, the Company converted 18 shares
of preferred stock into 40,058 shares of common stock.
Note 6. Subsequent Events
(A) Redemption of preferred stock
After June 30, 2001, the Company repurchased from preferred
shareholders 58 additional preferred shared for $70,000 cash.
(B) Factoring Agreement
On July 3, 2001, the Company entered into an accounts receivable
factoring agreement for a maximum facility of $500,000. Under the
agreement, the factor advances 80% of the face value of the receivables
sold by the company. The company is charged a variable percentage fee
based upon the length of the collection period. All of the Company's
accounts receivable, contracts, inventories, and intangibles are
pledged as collateral under this agreement.
(C) Exchange of preferred stock for notes
In August 2001 we exchanged 11.25% convertible promissory notes with
a face value of $1,748,120 for the remaining 1408 preferred shares.
The Company will satisfy the interest and principal on the notes with
payments of $140,000 in September, $70,000 in October, and $90,000
per month thereafter. The notes are convertible into common stock on
the same terms as the Series A Preferred Stock, except that the
cumulative conversions are limited to 20% of the trading volume for
the 66 trading days preceding the conversion.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS
This quarterly report contains a number of forward-looking statements
regarding our future prospects. Among the forward-looking statements are
descriptions of our plans to restructure the marketing program for the Road
Whiz(tm) line of products, to introduce Triplink(tm) and GPS products to the
market, and to develop products based on a GPS/Internet technology. These
forward-looking statements are a true statement of our present intentions,
but are neither predictions of the future nor assurances that any of our
intentions will be fulfilled. Many factors beyond our control could act to
thwart Ultradata in its efforts to develop and market its products. Among
these factors are:
* The difficulty of attracting mass-market retailers to a seasonal product
like the Road Whiz(tm);
* The breadth and depth of competition in the GPS market, which will make
introduction of our product with a limited marketing budget difficult;
* The difficulty of attracting qualified engineering and marketing
personnel to our company.
There may also be factors that we have not foreseen which could interfere
with our plans. In addition, changing circumstances may cause us to determine
that a change in plans will be in the best interests of Ultradata. For this
reason, you should not place undue reliance on any of the forward-looking
statements in this report.
Readers are urged to carefully review and consider the various disclosures
made by the Company in this report and in the Company's report Form 10-KSB
filed with the Securities and Exchange Commission.
The analysis of the Company's financial condition, capital resources and
operating results should be viewed in conjunction with the accompanying
financial statements, including the notes thereto.
OVERVIEW
Since 1987 we have been engaged in the business of manufacturing and marketing
handheld computers that provide travel information. The products are based
upon a data compression technology that we developed, portions of which we
have patented. Recent developments in communications technology have opened
up new opportunities for us to use our technology. Therefore, we still sell
our handheld computers, but over the past three years we have been expanding
the scope of our operations:
* In 1998 we acquired an interest in Talon Research & Development, Ltd.,
which manufactures GPS (global positioning satellite) antennas that can
be combined with our database to create a variety of travel products.
We currently own 22.6% of Talon.
* Early in 2001 we introduced, in joint venture with Rand McNally, the
Rand McNally Triplink(tm), a handheld computer that enables the user to
download travel information from the Rand McNally Website.
* During the first quarter of 2001 we shipped the first production units
of our Travel*Star 24(tm), which combines our travel information with a
GPS antenna to enable a driver to obtain his location and directions to
his destination while he drives.
* We have begun development of an enhanced version of our GPS product that
will include a cellular transceiver to permit the driver to use the
product to access the Internet while traveling.
Each of our consumer products is designed to allow the consumer to access
useful information stored in a convenient manner. Our handheld computers
generally sell at retail prices between $19.95 and $49.95 per unit. The
products are in the three largest retail mass-market chains in the country
plus many other locations. The new TRAVEL*STAR 24 is offered at retail for
about $400, which should make it very competitive in the auto aftermarket.
Its portability and the fact that it requires no elaborate installation offer
advantages over the more expensive in-car systems.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2001 Compared to Three and Six Months
Ended June 30, 2000
Operating results for the first half of 2001 were not significantly different
from the first half of 2000. Handheld travel computers, which were our only
product offerings until this summer, continue to be promoted primarily as
gift items. Sales are, therefore, heaviest in the 4th quarter holiday season,
with some surges during the summer travel months and around Mother's Day and
Father's Day. The first half is, therefore, generally a period of minimal
sales, having represented less than 17% of annual sales during 2000. On the
other hand, we expect the seasonality of our sales to level out to some extent
during the coming years due to expansion of our product line into GPS
navigation systems and Internet appliances.
Sales. During the three and six months ended June 30,2001, net sales totaled
$510,612 and $696,454, respectively, compared with $781,702 and $1,063,107,
respectively for the same periods in 2000. These figures represent decreases
of 34.7% and 34.5% for the three- and six-month periods, respectively,
representing slowing demand for our traditional products in the present
softening U.S. economy and reflecting the fact that new products had not
yet been shipped by June 30, 2001.
Gross Profit. Gross profit margin for the three- and six-month periods
ending June 30, 2001 were 47.4% and 40.5%, respectively, representing an
improvement from the corresponding periods of 2000 of 30.0% and 32.6%,
respectively. Gross profit in 2000 and early 2001 was low primarily due to
higher cost of microchips.
S,G&A Expense. Selling expenses for the three- and six-month periods ended
June 30, 2001 were $154,972 and $205, 982, respectively, compared with
$96,771 and $167,448, respectively for the corresponding periods in 2000.
These figures represent an increase of 60.1% and 23.0%, respectively, for the
three- and six-month periods in 2001 versus 2000. The primary reasons for the
increase is the initial royalties to Rand McNally for the TripLinkTM product
and commissions to IdeaVillage for Wal-Mart sales in the second quarter of
2001. General and administrative expenses were slightly lower in the periods
of 2001 than in those of 2000.
R&D Expense. Research and development expense in the three- and six-month
periods ended June 30,2001 increased 27.3% and 31.8%, respectively, from the
corresponding periods of 2000. These increases are due primarily to the fact
that the capitalization of the TRAVEL*STAR 24( software tools developed over
the last 18 month ended and the amortization of those costs began in the
first quarter of 2001.
The Company posted a net loss from operations of ($696,140) and ($1,290,359)
for the three- and six-month periods ended June 30, 2001, respectively,
compared to a net loss from operations of ($661,606) and ($1,166,018) for the
corresponding periods in 2000.
Other Income. Other income (expense) for the three- and six-month periods
ended June 30, 2001 totaled ($51,107) and $29,508, respectively, compared
with $24,573 and $9,050, respectively, for the corresponding periods of 2000.
During the first half of 2000, we recorded a loss of $269,596 attributable to
our investment in Influence Data, LLC. At the end of 2000, we wrote off all
of the investment, since our joint-venture partner terminated its operational
support of the venture. As a result, "Equity in (losses) earnings of
affiliates" represents only our interest in Talon Research and Development
Ltd. in the year 2001. Talon's contribution was $5,568 for the six-month
period ended June 30, 2001 as compared with $144,508 for the same period in
2000. The large difference between 2000 and 2001 is attributed to the 4-fold
increase in R&D for 2001 over 2000. US Generally Accepted Accounting
Principles differ from those in New Zealand in that most research and
development costs must be expensed in the US but may be capitalized in New
Zealand. The R&D activity supports Talon's new-product development and
general modernization of their product line.
As a result of the foregoing, the Company posted a net loss available to
common shareholders of ($793,465), or ($0.25) per basic and diluted common
share, for the three-month period ended June 30, 2001, compared to a net loss
available to common shareholders of ($1,696,779), or ($0.53) per basic and
diluted common share, for the three-month period ended June 30, 2000. The
Company posted a net loss available to common shareholders of ($1,352,519),
or ($0.42) per basic and diluted common share, for the six-month period ended
June 30, 2001, compared to a net loss available to common shareholders of
($2,216,714), or ($0.71) per basic and diluted common share, for the six-month
period ended June 30, 2000. The Company was required to record an imputed
dividend as a result of its sale of Series A redeemable convertible preferred
stock in May of 2000 of $46,219 and $91,669 during the three- and six-month
periods ended June 30, 2001, respectively, as compared with $1,059,747 for
both the corresponding periods in 2000.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 2001`, the Company had $231,859 in cash and cash equivalents,
compared to $1,842,983 at December 31, 2000. This figure for 2001 is over
and above the restricted cash of $765,000, which is expected to be available
on September 1, 2001 upon expiration of the letter of credit to fund the
Talon line of credit, in accordance with an agreement with Talon. The
Company's operating activities in the six months ended June 30, 2001, used
cash totaling $1,463,413, primarily due to its losses for the first half of
the year. Accounts receivable decreased by $236,963 due to collections on
sales in the first quarter of 2001. Inventories increased by $433,859 due
to manufacturing for the deliveries in the third quarter, and accounts payable
decreased by $116,316, more than offsetting the cash collected on accounts
receivable.
Net cash used in investing activities for the six-month period ended June 30,
2001 totaled ($27,711) compared to ($304,075) for the same period in 2000.
The deferred compensation trust was drawn down and eliminated in the second
quarter of 2001,producing loss without cash flow, whereas the additional
investment in Influence-Data took place in the second quarter of 2000,
producing cash flow without loss at that time.
Net cash used in financing activities for the quarter ended June 30, 2001 was
($120,000), primarily due to the repurchase of 106 shares of Series A Preferred
Stock outlined below. In the comparable period of 2000, the preferred shares
were subscribed, providing the bulk of the $1,563,360 provided by financing
activities.
Our cash position was aided in 2000 by the sale of Series A Preferred Stock
and common stock warrants to two investment funds for $1,600,000. During
2001, we have repurchased 164 of the shares and an additional 28 have been
converted into common stock. In August 2001 we exchanged 11.25% convertible
promissory notes with a face value of 1,748,120 for the remaining 1408
preferred shares. The Company will satisfy the interest and principal on the
notes with payments of $140,000 in September, $70,000 in October, and $90,000
per month thereafter. The notes are convertible into common stock on the
same terms as the Series A Preferred Stock, except that the cumulative
conversions are limited to 20% of the trading volume for the 66 trading days
preceding the conversion. The Company made this arrangement in order to
relieve the threat of massive dilution that the Series A Preferred Stock
posed to investors in its common stock.
Our operating losses over the past three years have had an adverse effect on
our working capital. Nevertheless, at June 30, 2001, we still had $3.58
million in working capital, which we believe to be substantially greater than
most companies our size. There remains, however, one near-term liquidity
issue: the cash needed for development of new products. The Company's $1
million credit facility with Southwest Bank expired on July 1, 2001.
Management has obtained a $500,000 replacement facility with KBK Financial,
an asset-based lender, which it believes will be sufficient to finance the
purchase orders expected for the fourth quarter. We expect, therefore, given
achievement of our fourth quarter forecast, to have sufficient capital
resources to fund our operations for the next year and the foreseeable future.
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
Exhibits:
None
Reports on Form 8-K:
April 6, 2001 - Report on change of certifying accountant.
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.
August 14, 2001 /s/ Monte Ross
Monte Ross, CEO
(Duly authorized officer and
principal financial officer)