As filed with the Securities and Exchange Commission on September 18, 2001
Registration Number 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
Ultradata Systems, Incorporated
____________________________________________________________________________
(Name of Small Business Issuer in its Charter)
Delaware 3679 43-1401158
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S.
Incorporation or Organization) Classification Code Number) Employer
Identification
No.)
MONTE ROSS, CHAIRMAN
Ultradata Systems, Incorporated
9375 Dielman Industrial Drive
St. Louis, MO 63132
(314) 997-2250
(Address and telephone number of Registrant's principal executive offices,
principal place of business, and agent for service of process.)
______________________________
Copy to
ROBERT BRANTL, ESQ.
322 Fourth Street
Brooklyn, NY 11215
Attorney for Issuer
(718) 768-6045
_________________________________
Approximate Date of Commencement of Public Sale: As soon as practicable
after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Maximum Maximum Aggregate Amount of
Securities To Amount to Offering Price Offering Registration
Be Registered be Registered (1) per Share (2) Price (2) Fee
--------------------------------------------------------------------------
Common Stock,
$.01 par value 5,428,000 $ .30 $1,628,400 $0 (3)
(1) The amount to be registered is the sum of (a) 300,000 shares
issuable upon exercise of the options held by Influence Incubator
L.L.C., and (b) 5,000,000 shares issuable upon (i) the conversion
of the 11.25% Senior Subordinated Convertible Promissory Notes and
(ii) the exercise of Common Stock Purchase Warrants held by BH
Capital Investments, L.P. and Excalibur Limited Partnership, and
(c) 128,000 shares issuable on exercise of the option granted to
Thornhill Group, Inc.
(2) The proposed offering price is estimated solely for the purpose of
calculating the registration fee. Pursuant to Rule 457(c), the
registration fee is based on $.30, the average of the high bid and
low asked prices of the Common Stock reported on the OTC Bulletin
Board on September 10, 2001.
(3) Pursuant to Rule 457(p), $407.10 is being offset against the total
filing fee due for this registration statement, which is $407.10.
That amount represents a portion of the filing fee paid by
Ultradata Systems, Incorporated upon filing, on June 16, 2000, of
a Registration Statement on Form SB-2 (File No. 333-39434). Of
the 2,699,502 shares registered in that filing, 2,633,814 remained
unsold when the offering was terminated. Accordingly, $2,107.87
of the $2,160.45 paid with that filing remains available to be
offset against the filing fee due for this registration statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
ULTRADATA SYSTEMS, INCORPORATED
Common Stock
5,428,000 Shares
Four shareholders of Ultradata Systems, Incorporated are offering
shares of Ultradata common stock to the public by means of this prospectus.
Ultradata's common stock is quoted on the OTC Bulletin Board under the
trading symbol "ULTR."
The four shareholders intend to sell the shares into the public market
from time to time. The shareholders will negotiate with the market makers
for Ultradata common stock to determine the prices for each sale. They
expect each sale price to be near to the market price at the time of the sale.
Purchase of Ultradata common stock involves risk. Please see "Risk
Factors," which begins on page 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any representation
to the contrary is a criminal offense.
The date of this prospectus is September , 2001
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . .-3-
Summary Financial Information . . . . . . . . . . . . . . .-3-
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . .-5-
YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS. . . . . . .-8-
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . .-8-
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . .-9-
Market for the Common Stock . . . . . . . . . . . . . . . -10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS. . . . . . . . -11-
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . -19-
Handheld Travel Computers . . . . . . . . . . . . . . . . -20-
GPS Products. . . . . . . . . . . . . . . . . . . . . . . -24-
Internet-Based Navigation . . . . . . . . . . . . . . . . -26-
Employees . . . . . . . . . . . . . . . . . . . . . . . . -29-
Description of Our Property . . . . . . . . . . . . . . . -30-
Legal Proceedings . . . . . . . . . . . . . . . . . . . . -30-
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . -30-
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . -35-
DESCRIPTION OF OUR SECURITIES. . . . . . . . . . . . . . . . -37-
Common Stock. . . . . . . . . . . . . . . . . . . . . . . -37-
Convertible Promissory Notes. . . . . . . . . . . . . . . -37-
Series A Convertible Preferred Stock. . . . . . . . . . . -39-
SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . -39-
Plan of Distribution. . . . . . . . . . . . . . . . . . . -42-
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . -43-
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . -44-
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . -45-
PROSPECTUS SUMMARY
Ultradata Systems, Incorporated
Ultradata supplies directions to travelers through portable units. Our
products are based on our patented data compression technology. For several
years, Ultradata has manufactured and marketed hand-held computers which
provide travel information (directions, services, amenities, etc.), edited for
particular markets. Early this year we began the introduction into the market
of our automotive GPS-based (i.e. "global positioning satellite") directional
systems with the Travel*Star 24. Travel*Star 24 is a low-cost, portable
navigation unit for the automotive after-market. The Travel*Star 24 is
capable of calculating a route, following the route, providing audible turn-
by-turn prompts, and locating over 300,000 services and amenities across the
U.S.A. At a suggested retail price under $400, the Travel* Star 24 should
compete favorably with existing products with similar capabilities, which
generally sell for $600 and up, as well as with the original equipment systems
that are priced in the thousands of dollars.
Ultradata has only one office, which is located at 9375 Dielman
Industrial Drive, St. Louis, Missouri 63132. Our telephone number is 314-997-
2250.
The Selling Shareholders
Four shareholders are using this prospectus to sell shares of Ultradata
common stock to the public. Three of them acquired the shares as a result of
a private financing of Ultradata in May, 2000. The fourth was a partner with
Ultradata in a joint venture called "Influence Data L.L.C.," which operated
the DriveThere.com Website until the end of 2000. We gave our partner an
option to purchase Ultradata shares to encourage its dedication to the joint
venture.
Outstanding Shares
Ultradata has issued two classes of stock: common stock and Series A
Convertible Preferred Stock. On the date of this prospectus there were
3,249,533 shares of common stock outstanding, and 16 shares of Series A
Convertible Preferred Stock. In addition, there are warrants and options
outstanding that could lead to additional shares of common stock being issued,
as well as convertible promissory notes in the principal amount of $1,622,323.
We cannot determine at this time the number of additional shares that could be
issued, because conversion of the notes is based on the future market price of
our common stock.
Summary Financial Information
The information for 2000 and 1999 and the six months ended June 30, 2001
and 2000 is derived from the financial statements included at the end of this
prospectus. The information for the six months ended June 30, 2001 and 2000
has not been audited, but, in our opinion, we have made all adjustments
necessary for a fair presentation of the financial results for those quarters.
Results for the six months ended June 30, 2001 are not indicative of the
results that can be expected for the year.
Statement of Operations
Year Ended Six Months Ended
-------------------- ----------------------
12/31/00 12/31/99 6/30/01 6/30/00
(Unaudited) (Unaudited)
Net Sales $ 6,301,236 $ 5,425,762 $ 696,454 $ 1,063,107
Cost of Sales 4,516,970 3,151,046 414,650 722,544
----------------------------------------------------------------------------
Gross Profit 1,784,266 2,274,716 281,804 340,563
Research & Development 371,554 358,357 225,360 172,090
Selling, General &
Administrative 2,892,867 3,734,675 1,346,802 1,202,438
----------------------------------------------------------------------------
Operating Loss (1,480,155) (1,818,316) (1,290,358) (1,033,965)
Other Income/(Expense) (232,348) 191,302 29,508 (123,002)
Income Tax Expense - (370,236) - -
----------------------------------------------------------------------------
Net Loss $(1,712,503) $(1,997,250) $(1,260,850) $(1,156,967)
============================================================================
Net Loss Available to
Common Shareholders (3,169,128) (1,997,250) (1,352,519) (2,216,714)
============================================================================
Net Loss Per Share $ (1.00) $ (0.64) $ (0.42) $ (0.71)
============================================================================
Weighted Avg. Number
of Shares Outstanding 3,168,186 3,122,138 3,214,209 3,144,051
============================================================================
Balance Sheet Data 12/31/00 12/31/99 6/30/01
(Unaudited)
-----------------------------------------------------------------------
Working Capital $ 4,910,759 $ 4,455,812 $ 3,576,084
Total Assets 7,043,245 7,308,792 5,409,978
Long-term Liabilities 93,549 130,406 2,488
Total Liabilities 476,864 549,084 258,530
Shareholders' Equity 6,566,381 6,759,708 5,151,448
RISK FACTORS
You should carefully consider the risks described below before buying
our common stock. If any of the risks described below actually occurs, that
event could cause the trading price of our common stock to decline, and you
could lose all or part of your investment.
We may not become profitable.
During 1998, 1999 and 2000 combined, we lost over $6.0 million. Our
working capital was reduced from $10 million to $4 million. In the first half
of this year, we lost an additional $1,260,850. Unless our sales increase
significantly, we will continue to sustain losses.
If the products that we are introducing in 2001 are not successful, the
future viability of our business will be in doubt.
In the past three years, our sales have fallen sharply, we have
significantly reduced our working capital, and the price of our common stock
is less than ten percent of its price three years ago. Many people, both
inside our company and in the investment community, consider our entry into
the GPS market and the Internet market (through Travel*Star 24 and Rand
McNally Triplink, respectively) as the test of our ability to develop and grow
as a company. If we fail to capitalize on those opportunities in 2001,
whether due to poor planning or factors beyond our control, we will end the
year with our working capital seriously depleted, and our failures will likely
prevent us from obtaining additional capital.
Our sales are highly seasonal, which limits our growth.
Retailers continue to categorize our Road Whiz products in the "gifts"
niche. As a result, we realize the majority of our sales in the fourth
quarter, attributable to holiday shopping. During 2000, we realized over 41%
of our sales in the fourth quarter. We expect similar seasonality during
2001. The seasonality of our sales will be alleviated only if we can convince
retailers to market our Road Whiz products throughout the year or if our new
products develop significant year-round sales. This seasonality limits our
growth. It also makes our company unattractive to investors, due to the fact
that we can show positive financial results for only one quarter each year.
Our borrowing capacity is limited, which makes it difficult for us to
finance our orders.
Our ability to finance the manufacturing needed to fill purchase orders
depends on our ability to borrow money, secured by our working capital. In
July 2001, our primary lender did not renew our $1 million credit line. We
have replaced that line with a $500,000 accounts receivable factoring
arrangement, to fund the orders we are receiving for the holiday season. If
we are unable to obtain credit in the future, it could prevent us from filling
orders, which would have a serious negative effect on our marketing
relationships.
Our primary marketing strategy is to sell our products to mass market
retailers. This makes us dependent on a small group of large customers for
most of our sales.
Our decision in 1998 to focus our marketing efforts on mass market
retailers has increased the percentage of our revenues attributable to large
customers. In 1999 four customers each accounted for over 10% of our
revenues. In 2000 two new customers accounted for 72.4% of our sales and four
customers (including only one of the four largest in 1999) accounted for
almost 90% of our sales. We expect a similar pattern in 2001 and thereafter.
This situation creates a risk that a significant customer may use its
importance to force us to lower prices. In addition, our dependence on major
customers means that the loss of business from one or more major customers
could adversely affect our financial results.
Several large marketing enterprises have become involved in the GPS
market. We will attempt to compete in this market with relatively meager
resources, and could be defeated by the efforts of one or more of our
competitors.
A product that performs substantially all of the functions of
Travel*Star 24 could appear on the market tomorrow, at the price we intend to
charge for Travel*Star 24 . Indeed, the success of Travel*Star 24, should it
occur, is likely to propel the introduction of competitive products into the
market. If the introduction of a comparable product were financed
aggressively, Ultradata could find itself unable to market Travel*Star 24
profitably.
We may require additional funds to complete development of our
GPS/Internet products.
We are only now initiating development of our GPS/Internet products. As
with any engineering development projects, we cannot predict with assurance
the cash that will be necessary to complete the development of these products.
If the funds necessary to complete the GPS/Internet project exceed our cash
resources, we will have to seek additional financing. If the funds are raised
by issuing equity securities, you may experience a dilution of the value of
your shares. If the funds are raised by issuing debt, we may be subject to a
heightened risk of insolvency. The worst result would be if the necessary
funds could not be obtained. In that event, we could be forced to curtail or
terminate our development efforts.
We will require additional financing if Travel*Star 24 is successful,
in order to fund new orders.
If the introduction of Travel*Star 24 leads to a large demand for that
product, we may need additional funds to pay the costs of manufacturing
inventory. We will then have to either sell additional equity or finance the
orders by some other means. If we are unable to secure the necessary
financing, our efforts to establish Travel*Star 24 in the GPS market could be
severely hampered.
We have limited experience in the automotive after-market. Our lack of
experience may cause us to underestimate the challenges facing us in those
markets.
Our plan is to improve our financial performance by expanding our
operations into new markets. This strategy carries the risk of the unknown.
Many of our present customers could become customers for Travel*Star 24.
However, we expect to also distribute Travel*Star 24 through marketing
channels, such as auto parts dealers, with which we have limited experience.
We may not anticipate circumstances involving competition, marketing strategy,
regulation, or technology that prove harmful to our program for growth.
Competition for qualified personnel in the GPS, wireless, and Internet
industries is intense. If we are not able to hire and retain skilled
personnel, our plans for growth could be thwarted.
Competition for highly skilled engineering and marketing personnel is
intense because there are a limited number of persons available with the
necessary technical skills and understanding of our products and markets. In
particular, we are always actively seeking engineers with experience in GPS
and wireless applications, and they are in short supply. Our plans for
development will not be realized unless we are able to hire and retain the
necessary personnel.
Our future could be adversely affected, if we lost the services of our
Chief Executive Officer.
Monte Ross has been the primary architect of our business strategy and
marketing program. If his services were not available to us, Ultradata would
likely be adversely affected until a replacement could be found. We have an
employment agreement with Mr. Ross, the term of which expires on October 1,
2003. The agreement provides that Mr. Ross may not compete with Ultradata for
one year after termination of his employment.
There is no market maker providing strong support for our common stock.
As a result, the common stock is low-priced, thinly traded, and subject to
relatively wide swings in price.
For most of the past three years, with the decline in the Ultradata's
business results, interest in our common stock within the investment community
has waned. This situation was exacerbated in 2001, when our common stock was
removed from Nasdaq to the OTC Bulletin Board. Many brokerage firms will not
recommend a security that is quoted only on the OTC Bulletin Board, which
further limits interest in our common stock. Unless interest in the common
stock is sustained and a thriving market for the common stock reemerges, you
may find it impossible to sell Ultradata shares at a profit, and may find it
difficult to sell them at all.
The Convertible Notes may be converted into large numbers of shares of
common stock, which would dilute the value of your shares.
Ultradata has issued Convertible Promissory Notes with a face value of
$1,622,323. Until Ultradata pays down the Notes in full, the principal and
interest on the Notes may be converted into common stock. The conversion
price is either 70% or 75% of the average closing bid price for the five days
preceding the conversion. If the average were $.28 (as it was on September 5,
2001), the principal amount of the Notes would be convertible into 8,277,158
shares of common stock, which would represent 72% of the outstanding shares.
This conversion cannot happen all at once, as the Notes cannot be converted
during any 90 day period into more than 20% of the trading volume for the
common stock during the preceding 66 trading days. But, over time, conversion
of the Notes could theoretically convert into 99% of the outstanding common
shares, which would render your shares virtually worthless.
YOU SHOULD NOT RELY ON
FORWARD LOOKING STATEMENTS
This prospectus contains a number of forward-looking statements
regarding our future prospects. Among the forward-looking statements are
descriptions of our plans to develop the market for the Road Whiz line of
products, to introduce 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, including factors discussed in "Risk Factors"
as well as factors we have not foreseen. In addition, changing circumstances
may cause us to determine that a change in plans will be in the best interests
of Ultradata.
DIVIDEND POLICY
Ultradata has never paid or declared any cash dividends on its common
stock and does not foresee doing so in the foreseeable future. The financing
received from the sale of preferred stock in May of 2000 resulted in the
computation of imputed dividends provided in the form of warrants, options,
and stock deemed to be inducements to purchase the preferred stock. These
dividends do not affect our earnings from operations, but are included in the
earnings-per-share available to common shareholders computation on our
Statement of Operations. We intend to retain any future earnings for the
operation and expansion of our business. Any decision as to future payment of
dividends will depend on the available earnings, our capital requirements, our
general financial condition, and other factors deemed pertinent by the Board
of Directors.
CAPITALIZATION
Outstanding Derivative Securities
On the date of this prospectus, there were 3,249,533 shares of common
stock outstanding. However, there were also options, warrants, convertible
preferred shares and convertible notes outstanding that could lead to the
issuance of additional common stock. The following table identifies these
outstanding derivative securities. The number of shares into which the Series
A Preferred Stock and the Convertible Notes are convertible depends on the
market price of the common stock at the time of conversion. In addition,
because Ultradata is required to make monthly payments to the holders of the
Convertible Notes, only a portion of the Notes, if any, will be converted into
common stock - and that portion cannot be predicted. In this table, we are
presenting the number of common shares that would be issued if the Preferred
Stock were converted at a conversion price of $.196, which was the conversion
price applicable on September 5, 2001. As to the Convertible Notes, we are
providing the range of possible conversions, from no conversions to the
maximum number into which the Convertible Notes could convert over time if the
present conversion price remained unchanged.
Number of Common
Derivative Security Shares Issuable
---------------------------------------------------------------------
Incentive Stock Options, exercisable at
$1.50 to $7.39 334,025
Options/Warrants, exercisable at $1.50 to
$5.00 906,506
Series A Preferred Stock 81,963
Option to purchase 160 shares of Series
A Preferred Stock, exercisable at
$1,000 per preferred share 819,636
Convertible Promissory Notes 0 to 8,277,158
-----------------------
Total 2,189,451 to 10,466,609 (40% to 76%)
Common Shares Currently
Outstanding 3,249,533 (60% to 24%)
-----------------------
5,438,984 to 13,716,142 (100%)
Exchange Agreement
On May 16, 2000, we sold 1600 shares of Series A Preferred Stock to two
Toronto-based investment funds: BH Capital Investments, L.P. and Excalibur
Limited Partnership. At the same time, we sold them warrants to purchase
478,506 shares of common stock for $5.00 per share. The total purchase price
for the securities was $1,600,000.
In August, 2001, we exchanged Convertible Promissory Notes in the
principal amount of $1,748,120 for 1408 shares of the Series A Preferred
Stock held by the two funds. (We had previously redeemed 164 shares of the
Series A Preferred Stock, and the stockholders had previously converted 28
preferred shares into common stock.) Since that time we have reduced the
principal amount of the Notes to $1,622,323. At the time of the exchange, we
also exchanged warrants exercisable at $1.50 per share for the $5.00 warrants
issued in 2000.
A number of penalties have been built into the Exchange Agreement to
compensate the funds if we fail to satisfy our covenants. The most
significant of the penalties are:
(1) If the SEC has not declared effective the registration
statement containing this prospectus before October26, 2001,
we must pay the funds an amount for each day of delay equal
to .0005 times the closing ask price times the number of
shares which the funds could acquire on conversion and
exercise of the securities they purchased at the first
closing.
(2) If the funds are unable to convert any portion of the
Convertible Promissory Notes into freely-tradeable common
stock, because this prospectus is not available or for any
other reason, the funds can force us to redeem the amount of
interest and principal that could not be converted. The
redemption price would be equal to the number of shares of
common stock that the funds would have received on conversion
multiplied by the five day average closing ask price.
Market for the Common Stock
Our common stock is listed for quotation on the OTC Bulletin Board under
the trading symbol "ULTR." Until June 27, 2001 the common stock was listed on
the Nasdaq SmallCap Market. Between June 27, 2001 and August 28, 2001, it was
quoted only on the Pink Sheets. The following table sets forth the bid prices
for our common stock as quoted on Nasdaq or the Pink Sheets for the eight
quarters starting January 1, 1999 and ending December 31, 2000 and the first
two quarters of this year. The prices stated represent prices between
dealers, and do not include retail mark-up, mark-downs, or commissions, and
may not necessarily represent actual transactions.
Bid
High Low
-------------------------------------------------
Quarter Ending
March 31, 1999 $ 2.75 $ 1.44
June 30, 1999 $ 2.00 $ .94
September 30, 1999 $ 2.00 $ 1.38
December 31, 1999 $ 2.06 $ 1.13
March 31, 2000 $ 16.13 $ 1.00
June 30, 2000 $ 6.94 $ 2.12
September 30, 2000 $ 1.75 $ 1.75
December 31, 2000 $ 1.38 $ 1.06
March 31, 2001 $ 1.63 $ .81
June 30, 2001 $ 1.13 $ .30
Our shareholders list contains the names of 103 registered shareholders
of record. Based upon information from nominee holders, we believe the number
of owners of our common stock exceeds 3,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
Financial Statements and the notes to the Financial Statements, which appear
at the end of this prospectus. A summary of the Financial Statements appears
in the Prospectus Summary at the beginning of this prospectus.
Overview
One factor has been dominant in causing our poor financial results over
the past two years: our inability to sustain the high level of sales of the
hand-held products at upscale retail prices that we realized in 1996 and 1997.
Beginning in 1998, we have been transforming our marketing efforts away from a
primary focus on the "upscale" market. Initially we devoted a large portion
of our effort to direct marketing through magazines, mailers and bill inserts,
as well as by televised appearances on the QVC Shopping Network. This
strategy generally proved to be a mistake, as the cost of the marketing effort
often exceeded the revenue we obtained from it. The one exception was our on-
going relationship with QVC, which was the source of over 20% of our revenue
in 1999 but no revenue in 2000. We expect QVC to again be a significant
source of revenue in 2001.
In 1999, therefore, we again shifted our focus, this time to mass market
retailing, of the sort you associate with Kmart, Kohl's, and Target Stores, to
name three of our new mass market customers. The reduction of our prices to
mass market levels required major adjustments to our cost structure. So,
during the second half of 1999 and into 2000 we made the cuts and streamlined.
The change in marketing strategy toward mass market retailers and private
brands made efficiencies possible that were unavailable when we were focused
on an upscale market involving direct sales and specialty retailers. The
three primary changes facilitated by this conversion were:
* a significant reduction in overhead expenses as a result of the
relative efficiency of marketing through mass market retailers. The
reduction included a 20% reduction in our labor force, reductions
in executive compensation, and a more efficient use of our facility
that, combined, brought our overall personnel cost down by 27%
* significant reductions in advertising and marketing expense; and
* development of new supplier relationships facilitated by the higher
unit volumes involved in mass market retailing. These new
relationships have resulted in dramatic decreases in product cost
through the application of "chip-on-board" manufacturing processes,
and have reduced assembly labor costs. At year-end 1999 raw product
costs had been reduced by as much as 40% for some products.
The positive benefits of these adjustments to our cost structure began
to be realized in the 4th quarter of 1999, when we achieved income from
operations on a quarterly basis for the first time in two years. However,
the worldwide shortage in read-only memory (ROM) chips that lasted through
most of 2000 frustrated our movement toward profitability. For Ultradata, the
result of the chip shortage was a $767,400 increase in our payments for chips.
Nevertheless, our overall results for 2000 indicate that we are heading in the
right direction, as we significantly reduced operating loss despite the
increased chip expense. Our plan, therefore, is to continue to pursue mass
market outlets for our handheld travel computers, with the expectation that
the reorientation of our marketing focus and the ancillary restructuring of
our cost structure will eventually stabilize our handheld travel computers as
a profitable line of business. Once we have re-established the handheld units
as a stable foundation for our business, we can then devote our financial
resources to our development projects without fear of being left without
adequate resources to sustain operations.
Results of Operations
Six Months Ended June 30, 2001 Compared to 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. The first
half is, therefore, generally a period of minimal sales, having represented
less than 17% of annual sales during 2000. Based on the orders received and
anticipated for the 2001 holiday season, we expect that the meager sales
reported for the first half of 2001 will represent an even smaller percentage
of year 2001 sales. 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 first six months of 2001, net sales totaled $696,454,
34% less than the $1,063,107 in sales recorded in the first half of 2000.
Because our products have been niched as "gifts," however, sales volume in the
first half of the year is heavily influenced by orders for specialty items.
Historically, therefore, there is no correlation between sales recorded in the
first half and sales recorded for the year. In addition, our introduction of
the Rand McNally Triplink and the Travel*Star 24 late in the first half had
minimal impact on first half sales. We anticipate some impact on second half
sales from both of these new products.
Gross Profit. Gross profit margin for the first half of 2001 was 40% of
sales compared to 33% for the first half of 2000 and 28% of sales for the
entirety of 2000. Gross profit in 2000 was low primarily due to higher cost
of microchips resulting from the chip shortage in 2000. Early in 2001, we
continued to experience higher microchip prices, which caused our gross margin
to fall short of the benchmark of 44% that we established in 1999 and 1998.
For the remainder of 2001 we expect microchip prices to continue to decrease.
So we expect our gross margins to gradually increase towards that benchmark.
S,G&A Expense. Selling expenses increased somewhat from the first half
of 2000 ($167,448) to the first half of 2001 ($205,982). The increase was
primarily attributable to the initial royalties paid to Rand McNally on
Triplink sales and to the commissions being paid to IdeaVillage on sales to
Wal-Mart, which became a customer in the second quarter of this year. General
and administrative expenses were virtually unchanged from half to half.
R&D Expense. Research and development expense in the first half of 2001
increased by 31.8% over the first half of 2000. The increase was attributable
to the amortization of the Travel*Star 24 software placed into service
during 2001.
Ultradata posted a net loss from operations of ($1,290,358) for the six
months ended June 30, 2001 compared to a net loss from operations of
($1,033,965) for the six months ended June 30, 2000.
Other Income. Other income for the first half of 2001 totaled $29,508
compared with an expense of $123,002 for the same period in 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 earnings of affiliates" for
the first half of 2001 represents only our interest in Talon Research and
Development Ltd. Talon's contribution was $5,568 for the first six months of
2001, compared with $144,508 for the first six months of 2000. The reduction
in Talon earnings is primarily attributable to a four-fold increase in
research and development. The increased R&D activity by Talon is intended to
support Talon's entry into the U.S. market with its Navman line of marine
products, as well as a general modernization of its product line.
As a result of the foregoing, Ultradata 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. In contrast, for the
first six months of 2000 we posted to a net loss available to common
shareholders of ($2,216,714), or ($0.71) per basic and diluted common share.
As a result of the sale of Series A Preferred Stock in May 2000, Ultradata was
required to record an imputed dividend of $1,059,747 during the first half of
2000, and an imputed dividend of $91,669 during the first half of 2001. The
exchange of 99% of the Series A Preferred Stock for Convertible Promissory
Notes in August, 2001 will, for all future reporting periods, eliminate 99% of
the imputed dividends. However, until the Convertible Promissory Notes are
converted or paid, we will be required to record as an expense both the 11.25%
annual interest on the Notes and a monthly accrual of approximately $9,900 by
reason of the 10% premium that will be added to principal outstanding on June
1, 2002.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Sales. Sales for 2000 increased by $875,475, or 16.1%, to $6,301,236
from $5,425,761 in 1999. Over 92% of 2000 sales were attributable to mass-
market retailers, compared with 54% in 1999. Our plan is to pursue additional
mass-market outlets, and to continue the growth of sales in this fashion. To
this end, in April 2001 we added one more major retailer to our customer list,
bringing to 5,000 the number of stores carrying the Ultradata products. Sales
in 2001 should also be aided by our Triplink joint venture with Rand McNally,
although the full market program will not commence until September. On the
other hand, the fact that a small number of customers accounts for nearly all
of our sales puts us at the risk that loss of a customer could reduce or
reverse sales growth
Gross Profit. We have made considerable improvements in the efficiency
of manufacturing operations during the past two years. Nevertheless, our
gross margin in 2000 fell to 28.3% of sales, compared to 41.9% of sales in
1999, resulting in a $490,450 reduction in gross profit. The reasons for the
reduction were:
* The worldwide shortage of read-only memory (ROM) chips caused us to
pay $767,400 more for chips in 2000 than we would have paid at 1999
prices. Indeed, if the price of chips had remained stable, our gross
margin for 2000 would have been 40.5%, an insignificant reduction
from 1999.
* The fact that 72% of our sales were attributable to high-volume
syndicators, who market at relatively low margins.
* The write-off of $150,000 in excess obsolete inventory in the last
quarter over and above our allocation of $11,000 per month.
We expect sales during 2001 to be spread among a wider number of
customers than in 2000. Moreover, chip prices for 2001 are expected to
approach 1999 levels. Therefore, we expect a gross margin over 44% to be
achievable.
Inventory. One problem that has plagued us for several years has been
the obsolescence of inventory that occurs as our markets change. At the end
of 2000 we incurred a substantial write-off when we discontinued the
Ultrafinder product, rendering parts inventory specific to that product
obsolete. For the year we recorded $264,717 in reserves against obsolescence,
including $238,303 due to the discontinuance of product lines (Ultrafinder,
Sears Pathfinder, Road Mate, Road Whiz Companion, etc.). By comparison, in
1999 we recorded $202,705 in reserves against obsolescence, including $135,568
due to the discontinuance of product lines (POIS, Greensfinder, etc.).. In
earlier years, particularly at the end of 1998, inventory obsolescence
resulted in sizeable write-offs which resulted in a decrease in our net worth.
Inventory write-offs are a particular problem as they tend to skew the year-
to-year comparisons of our financial results.
Late in 1999, we implemented a program that could significantly reduce
the problem of obsolete inventory. We contracted to barter our slow-moving
inventory. Under this arrangement, we transferred the inventory at fair value
in exchange for print advertising credits. The arrangement requires us to
purchase $2.50 in advertising for every $1.00 of credit, which means we make a
commitment of $1.50 in cash. So, while this arrangement has committed us to
purchase $620,640 in print advertising, our cash commitment is only $372,384.
Our plan is to use the barter credits in connection with the
introduction of new products. During 2000, however, we had no new product
introductions. So none of the barter credits were used during 2000. As a
result, we were unable to use the barter arrangement at the end of 2000 to
alleviate the effects of our discontinuance of Ultrafinder, since it would not
have been appropriate to increase our advertising commitment beyond its
existing level. In 2001 we have begun to use the barter credits in connection
with the promotion of the Rand McNally Triplink , and expect to use more of
the credits later in the year as we expand the introduction of Travel*Star
24.
S,G&A Expense. As discussed in the "Overview" above, our reorientation
to lower-priced mass market sales enabled us to initiate cost-cutting measures
during 1999. For the most part, these measures became effective only in the
second half of 1999, and our financial results for that year suffered from the
inefficiencies that are customary in a transition period. During 2000, the
benefits of the restructuring became more evident. Important among our
efforts to restructure expenses were:
* We reduced our workforce, so that by the end of 1999 our personnel
expense had been reduced by 27%;
* We reduced our facilities expenses, since mass market retailing does
not require the personnel or the space that is necessarily devoted to
customer service in a direct marketing business;
* We reduced our selling expense from $2,931,150 in 1998 to $612,428 in
2000, although sales in 2000 were only 10% less than in 1998. The
reduction was achieved primarily by moving from our expensive direct
mail and advertising programs to a strategy of employing joint
advertising strategies with our mass-market customers.
During 2000, we altered our method of accounting for advertising
allowances and slotting fees, as required by EITF issue number 00-25. The
effect of the change was to reduce revenues by the amount of these allowances
and fees, where we had previously accounted for them as selling expenses. The
resulting change affected revenues and gross margins but had no effect on net
earnings. For 2000, $184,166 was subtracted from revenue, gross margin, and
selling expenses, as compared to $140,865 for 1999. Our Statement of
Operations for both 2000 and 1999 reflect this change, in order to present
valid comparisons of results.
Our general and administrative expense increased 10.5% from 1999 to
2000, less than the 16.1% increase in sales. General and administrative
expenses were increased in 2000, however, by a write-off of $112,556 in bad
debt owed by a single customer. Early in 2001 the customer advised us that it
had experienced a severe financial setback in the 4th quarter of 2000, and
that its ability to pay its debt to Ultradata was in doubt. Prior to that
correspondence, we had considered the customer to be fully capable of paying
the receivable.
At the end of 1999, on the other hand, general and administrative
expenses had been increased by adjustments totaling $58,234 (consisting of a
$46,614 write-off of a prepaid commission, an accrual of $45,077 in vacation
expense due to a change in our employee vacation policy, and an adjustment of
$6,543 to equity-based compensation, which were offset in part by a credit of
$40,000 due to the cancellation of a consulting contract and reversal of the
related expense accrual). If these one-time adjustments in 1999 and the
$112,556 debt write-off in 2000 were eliminated , the increase in general and
administrative expense from 1999 to 2000 would have been 8.1%.
Research and Development Expense. Our research and development expense
in 2000 was not significantly different than in 1999. Our R&D efforts were
increased, however, in the second half of the year, utilizing for this purpose
the proceeds of our sale of preferred stock in May 2000. The increased
activity is reflected in our capitalization of $143,689 of costs in 2000 for
the internally developed software tools necessary for Travel*Star 24. This
brought the total capitalization balance to $274,604, to be amortized over 5
years starting in 2001.
Other Income (Expense). During 2000, Talon Research and Development
Company, Ltd. ("Talon") achieved a 55% increase in sales and a 40% increase in
earnings compared to 1999. At the same time, however, Talon adopted an
Employee Stock Ownership Plan (ESOP) during 2000. The issuance of shares to
the ESOP resulted in a reduction of our share of Talon's equity to 22.6% from
24.9%. Therefore, our share of Talon's earnings for the year was offset, in
part, by the amortization of goodwill that followed from the reduction in our
equity in Talon. Talon, therefore, contributed $46,273 toward reducing our
"Equity in losses of unconsolidated affiliates" in 2000. In 1999 we reported
a loss of $9,585 from our ownership of Talon. The loss in 1999 had been the
result, in part, of offsetting our share of Talon's earnings by an
amortization expense of $71,081.
The financial results that Talon reports cannot be directly reflected in
our financial statements, but must be adjusted to comply with U.S. accounting
rules. The most significant adjustment arises from the fact that research and
development expenses of the type incurred by Talon may be capitalized under
New Zealand GAAP, but must be expensed under U.S. GAAP. Among the adjustments
recorded to reflect our equity in Talon's results for 1999 was an adjustment
to reflect differences in U.S. and New Zealand accounting principles, most of
which was recorded in the fourth quarter in the amount of $186,620. This
adjustment offset Talon's earnings and resulted in the loss recorded in 1999
from our interest in Talon.
Near the end of 2000, our joint venture partner in Influence Data, LLC,
declared that it was unable to support the operations of DriveThere.com, as
the partner's overall business had been seriously impaired by the collapse of
the "dot com" market. We are reviewing with the partner possible avenues for
realizing value from the Website. In the meantime, however, we have written
the book value of our equity in Influence Data, LLC, down to zero. The net
effect of our interest in the joint venture, therefore, was an expense during
2000 of $286,610 included in "Equity in losses of unconsolidated affiliates"
and a one-time write-off of $225,039 shown as "Impairment of investment".
During 1999, by comparison, the fourth quarter adjustments that we recorded as
a result of our interest in Influence Data, LLC included $60,386 representing
our share of Influence Data's loss for 1999 and $11,147 representing
amortization of our investment.
Total other expense amounted to $232,348 for 2000, as compared to other
income of $191,301 for the year ended December 31, 1999. Besides the effect
of our loss in equity in Influence Data, LLC, the year-to-year comparison was
affected by $127,473 in royalty income realized in 1999 from a promotion by
Idea Village in connection with Radio Shack, which was not repeated in 2000.
Net Loss. In 1999 we had a loss before taxes of $1,627,014. However,
because of our continuing losses, we decided that it would be appropriate to
take a reserve against the value of our deferred tax asset. This tax asset
had been built up in previous years, representing the value that our tax loss
carryforwards will have in future years. The reserve we took in 1999, which
increased our loss by $370,236, reflected the fact that the carryforwards will
never be of value unless we become profitable. Although we believe that we
will become profitable, we considered the reserve appropriate in light of our
historical losses . As a result, our net loss in 1999 was $1,997,250, or
$0.64 per basic and diluted share.
Our net loss for 2000 was $1,712,503, or $0.54 per basic and diluted
share. However, in 2000, we were required to record an imputed dividend of
$1,456,625 as a result of our sale of Series A Preferred Stock in May 2000.
For that reason, we have recorded a "net loss available to common
shareholders" of $3,169,128, or $1.00 per basic and diluted common share.
Liquidity and Capital Resources
Our working capital has atrophied substantially over the past three
years due primarily to our operating losses. At June 30, 2001 we still had
over $3.5 million in working capital, which we believe to be substantially
greater than most companies of our size. Our available cash on that date,
however, had dwindled to $231,859, due to the fact that our operations
consumed $1,463,413 in cash during the first six months of this year. In
addition, our $1 million credit facility with Southwest Bank of Missouri
expired on July 1, 2001 and was not renewed.
Since that date, however, we have taken steps to provide Ultradata with
the cash resources we will need to fund operations until revenues from holiday
season sales are received. On July 3, 2001 we entered into a financing
arrangement with KBK Financial which will provide us up to $500,000 based on
the sale of certain accounts receivable to KBK Financial. Then in August,
2001 we arranged for the release of the restrictions of $765,000 that we had
pledged to support Talon's credit. Those two situations should provide us the
cash necessary to fund operations until holiday season revenues are received,
beginning in November.
Operations during the first six months of this year used $1.46 million
in cash. Operations in the first six months of 2000 produced $46,941 in cash.
The use of cash this year, however, in part reflected optimism about the
direction Ultradata is taking. During the first six months of this year we
increased our inventories by $433,859 in anticipation of fourth quarter sales.
During the first six months of 2000 we reduced inventories by $199,831. In
addition, we used cash this year to reduce our liabilities by $131,004,
compared to an increase of $56,409 during the first half of 2000.
Our liabilities were equivalent to nine percent of our current assets at
year-end and less than seven percent of our current assets at June 30, 2001.
Since we rely on outside vendors for all of our manufacturing, our operations
do not require substantial capital expenditures other than for the periodic
purchase of tooling, test equipment, and fixtures. During 2000, our capital
expenditures were limited to the $168,638 we invested in development of
software tools for Travel*Star 24 and our contributions to Influence Data
(which terminated operations at year-end). At June 30, 2001 we had no
material capital spending commitments outstanding
Our cash position was aided in 2000 by the sale of 1600 shares 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. Ultradata paid $140,000 towards the
notes in September, which reduced the principal amount to $1,622,323. We will
satisfy the remaining interest and principal on the notes with payments of
$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 cumulative conversions are limited to 20% of the trading
volume for the 66 trading days preceding conversion. Ultradata made this
arrangement in order to reduce the threat of massive dilution that the Series
A Preferred Stock posed to potential investors in our common stock. We do not
believe that the payments will adversely affect our ability to fund our
operations.
We do have sufficient working capital to sustain our operations,
provided that we can stop the atrophy in our handheld business through our new
strategy of developing mass market customers and opening new distribution
channels.
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" (FAS 133). 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. The adoption of this pronouncement did not have any
effect on our financial position or results of operations.
The Financial Accounting Standards Board has recently issued several new
accounting pronouncements. Statement No. 141, "Accounting for Business
Combinations," establishes accounting and reporting standards for business
combinations. This statement is effective for all fiscal quarters of fiscal
years beginning after June 30, 2001. We believe that Ultradata's adoption of
Statement No. 141 will not have a material effect on our financial position or
results of operations.
The Financial Accounting Standards Board has also issued Statement No.
142, "Accounting for Goodwill and other Intangible Assets," which establishes
accounting and reporting standards for goodwill and other intangible asset
amortization. This statement is effective for all fiscal quarters of fiscal
years beginning after June 30, 2001. We have not yet determined that effect,
if any, this Statement will have on our financial position or our results of
operations.
BUSINESS
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 18.9% interest in Talon Research &
Development, Ltd., which manufactured GPS ("global positioning
satellite") antennas that can be combined with our database to create
a variety of travel products. In 1999, we increased our interest in
Talon, which currently stands at 22.6%.
* In 1999 we helped to form a joint venture called Influence Data,
L.L.C., which provided travel services, including directions, over
the Internet. Influence Data is currently dormant, as our joint
venture partner became financially unable to continue the project.
* Early in 2001 we introduced, in joint venture with Rand McNally, the
Rand McNally Triplink , 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 , 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.
Our research & development expenses were $371,554 and $358,357 for the
years ended December 31, 2000 and 1999, respectively.
Handheld Travel Computers
The Road Whiz Line of Products
Our core business is a line (currently 7 products) of hand-held
computers that utilize our proprietary data compression technology to provide
a library of information in a pocket-size box. Most of the products contain
travel information, customized to specific markets, and so the flagship
products have carried variations of the trademark "Road Whiz ." Within the
chip that powers a Road Whiz can be found information regarding over 100,000
services and amenities along the U.S. Interstate Highway System and directions
on how to reach the service or amenity of choice. Some versions of the Road
Whiz also contain information about services and attractions within the
cities linked by the Interstate Highway System. The service information
provided by a Road Whiz product includes directions and mileage to gas
stations, hotels, motels, hospitals, and 24-hour restaurants, as well as
highway patrol emergency numbers. We sell our handheld 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.
Among the hand-held products we currently offer are the following:
Road Whiz Plus and Auto Pilot provide complete routing information for
over 90 cities, giving driving distances, driving time and detailed
directions. Both products are designed to be marketed by mass merchandise
retailers, such as Kmart and Kohl's. Ultra Road Whiz has similar
capabilities, but is designed primarily for sale on the QVC television network
and to Wal-Mart. In addition, we provide the Target Stores chain with a
private-labeled unit named Car & Driver that contains the Road Whiz database.
The Road Whiz RV Special adds to the standard Road Whiz features
useful for an RV owner, such as the location of dump stations and the
availability of parking for recreational vehicles at restaurants.
AAA TripWizard is the product of a joint effort between Ultradata and
the American Automobile Association (AAA). During 1998, we entered into an
agreement with AAA to develop an expanded database to include AAA's diamond-
rated restaurants and lodging facilities, AAA-approved auto repair, camp
grounds and attractions, as well as the AAA ratings, where available, for the
facilities in our proprietary Interstate database. This expanded database has
been incorporated into a hand-held travel computer called the TripWizard .
TripWizard is being marketed to AAA's affiliates, consisting of 93 clubs,
1,100 offices and over 41 million members in the United States, as well as to
specialty retailers and Target Stores.
The hand-held products generally retail between $19.95 and $49.95. We
recommend that consumers update their units every one or two years, and sell
the updates for $19.95 to $29.95 plus $4.95 shipping and handling.
Our New Marketing Strategy
After our initial public offering of securities in 1995, we were able to
commence widespread marketing of the handheld products. We priced them to the
upper range gift market ($49 to $129) and focused our marketing efforts on
direct sales through television and print ads, as well as through a sales
representative network. That strategy was successful in expanding our sales
for three years, while the products were new to the market. The expansion of
sales, however, did not bring with it a proportionate expansion of profits.
Too many of our marketing techniques were only marginally profitable, and as
our products lost some of their newness, marketing techniques such as direct
mailing produced diminishing returns. For that reason, beginning late in 1998
we revised our marketing strategy. The products now generally retail for
$19.95, and marketing is focused on mass market retailers and custom-branded
private label units. At this price point, we hope to gain sufficient volume
to achieve economies of scale with new low cost manufacturing methods,
permitting us to operate profitably at a lower level of annual sales.
Distribution through mass merchandise channels produced accounted for
over 92% of our revenue in 2000. We expect that a small group of mass-market
channels will continue to dominate the market for our handheld computer
products. In April 2001 a new major retailer placed its initial orders for
our products, informing us that it planned to carry our Road Whiz Plus in its
stores on a plan-o-gram basis, which involves everyday sales and reorders of
the product. This brings to 5,000 the number of stores carrying the Road
Whiz products. The following table identifies the customers to whom over 10%
of our sales were made in either of the past two years as well as other mass
market retailers that carry our products.
Channel of Distribution 2000 Sales % of Sales 1999 Sales % of Sales
------------------------------------------------------------------------------
Media Syndication Global $ 2,449,300 38.9% $ - -%
Preferred Customer's Guild $ 2,111,625 33.5% $ - -%
Kmart $ 454,270 7.2% $ 672,927 12.4%
Target $ 602,420 9.6% $ 267,388 4.9%
QVC $ - -% $1,102,246 20.3%
United Marketing Group $ - -% $ 582,260 10.7%
Kohl's $ - -% $ 575,184 10.6%
Central to the new marketing strategy is our effort to develop a variety
of distribution paths, so as to maximize our penetration of the potential
market for our products. To date, in addition to our sales to retailers, the
following types of distribution have been utilized:
* Private Branding. The leading example of the private label marketing
strategy was the introduction in 1998 of the AAA TripWizard as a
joint venture with the American Automobile Association.
* Direct Response Marketing. Our largest customers during 2000 were
Media Syndication Global and Preferred Customer's Guild. These
distributors specialize in multi-media direct response marketing and
have resources and expertise that can achieve high sales
effectiveness at relatively low promotional cost.
* Licensing. In 1999, a Radio Shack promotion was organized by
Ideavillage.com, which provided display advertising and point-of-
purchase materials, as well as print and television advertising
support. We developed a version of the Road Whiz labeled Auto
Pilot for distribution by Ideavillage.com, which purchased the
product directly from the assembler, except for key chips which are
purchased from us. Ideavillage.com then paid us a royalty on product
sales.
* Marketing Partnership. During 1999 the Road Whiz line was expanded
by the introduction of a unit we developed in cooperation with United
Marketing Group, the organization responsible for the ITC-50 hotel
discount booklet. That 50%-off hotel discount guide, which normally
retails for $20, was embedded in a Road Whiz unit that had a
suggested retail price of $39.95, but likely sells for $29.95 in mass
markets. The product was marketed through a retail store chain and
via a direct mail program organized by United Marketing Group.
To date, our new marketing strategy has led to a significant reduction
in selling and administrative expense, as the costs attendant to direct retail
marketing have been eliminated. Our ability to increase sales in this fashion
is, as yet, unproven, although the 16% increase in sales realized in 2000 is
promising. Even though the exponential growth rate that we achieved in 1996
and 1997 is unlikely to be replicated, stabilization of our core business at
even a modest level of profitability would provide a foundation on which we
could pursue dynamic growth through our entry into the GPS and Internet
markets.
Database Research
A broad and accurate database is essential to the success of our
products. For this reason, we have developed a systematic approach to updating
our Road Whiz database. At our corporate headquarters we employ three full-
time database research specialists, who survey and digest publicly available
geographic and demographic data provided, primarily, by travel services and
Chambers of Commerce across the country. In addition, a significant part of
the Road Whiz database is gathered and verified by our team of over 50 "Road
Helpers." Road Helpers are generally retirees and others that travel
extensively and report to us regarding the facilities they encounter. The
data provided by the Road Helpers is, in turn, reviewed and augmented by our
database specialists.
Manufacturing
We do not manufacture any of our products. We retain assemblers to
manufacture the products. We procure the microprocessors and memory chips and
other unique items, and supply them to the assembler.
To date, there are two manufacturers to whom we have contracted most of
our assembly work. Once each year, these manufacturers quote prices to us
based upon estimated annual quantities. Then we place individual purchase
orders for production. Our arrangements with these manufacturers - up to the
point of a purchase order - are terminable at will by either party. If
either or both of the manufacturers became unavailable to us, alternate
sources would be readily available. Nevertheless, the sudden loss of one of
the manufacturers or unanticipated interruptions or delays from present
manufacturers would likely result in a temporary interruption to our planned
operations.
Backlog
As of August 31, 2001 our total backlog was approximately $11,003,
compared to backlog of approximately $1.8 million on August 31, 2000. The
2000 backlog consisted primarily of an order that one customer placed in July
2000, which has not been repeated this year. All of the current backlog is
for delivery in 2001.
Patents
We own two patents that are utilized in our Road Whiz products. They
provide us a technological advantage which, to date, has prevented any similar
product from appearing. One patent covers our method of compressing data
relating to travel information. This compression technology permits our
travel products to store more data on smaller and less expensive memory
devices. The second patent covers the methodology that enables our travel
devices to account for changes that occur when the traveler crosses a state
border.
Competition
To date, we have not faced significant competition in selling our
handheld computer products. The primary reasons for the lack of competition
are:
* Our patented data compression technology permits the storage of
unusually large volumes of information in low-cost devices.
* Our database is unique, and it would be time-consuming to replicate
it.
* We have fourteen years of experience in developing this line of
products, which gives us insight into the needs and desires of the
traveling consumer.
* We have a simple, low-cost design for our products, which employs a
minimum of parts.
* We have developed low-cost, but high quality manufacturing sources.
* The devices that perform functions similar to those performed by our
handheld products are considerably more expensive, and often lack the
data quality of our products.
These several factors have, thus far, served as a barrier to any
effective competition with our handheld products.
GPS Products
Talon Research & Development, Ltd.
We own 22.6% of Talon Research & Development, Ltd., a privately-held
enterprise located in Auckland, New Zealand. Talon manufactures and markets
electronic components and marine instruments that incorporate Global
Positioning Satellite ("GPS") receiver units. Among Talon's products are the
GPS receiver and antenna used in our Travel*Star 24 . Talon sells these
antennas to Ultradata at the lowest price it offers to any customer.
Talon's sales in 2000 grew by 49% compared with 1999 sales. The
prospects for continued growth at Talon appear promising. In February of
2000, Talon was chosen to replace Magellan as the GPS hardware supplier for
certain models of the Palm Pilot, which opened a major sales channel as well
as marking a significant shift in market power toward Talon. Meanwhile, Talon
has been expanding the international distribution of its marine electronics
products beyond its European base to South America, South Africa, and China,
and is projecting significant growth in its marine electronics business as
well as its OEM GPS receiver business. Currently, Talon is investing
significantly in research and development, partially in anticipation of an
entry into the U.S. market for marine navigation equipment.
Travel*Star 24 GPS Auto Navigational System
Taking advantage of our access to the Talon GPS receiver/antenna, we
have developed a low cost, portable navigation unit for the automotive after-
market, which we will market as the "Travel*Star 24." The Travel*Star 24
utilizes the Talon GPS receiver and antenna to pinpoint the longitude and
latitude of the moving vehicle. The unit is capable of calculating a route,
displaying visual directions and distance as well as audible turn-by-turn
prompts and warnings when the driver strays from the route. The Travel*Star
24 also includes an expanded version of the proprietary and unique Road Whiz
database, providing the driver directions to over 200,000 services across the
U.S.A. As the driver travels, the GPS signals are referenced to the service
database, so that the driver can instantly find businesses, hotels, service
stations, rest stops, restaurants, hospitals, tourist attractions, airports,
etc. in more than 250 metropolitan areas, as well as directions to over 12,000
smaller cities and towns.
While there are a wealth of potential users for a GPS-based navigation
system, we intend to target the Travel*Star 24 to the 12-volt automotive
after-market, which currently consists of over 150 million vehicles and grows
by 15 million vehicles annually.
Currently, between 600,000 and 1,000,000 GPS-based navigation systems
are sold annually. These include installed original equipment such as
"Neverlost"and "Visteon," which are generally priced in the $2,000 range; low-
end hand-held units of very limited capability (generally approximately $200);
and middle market units priced in the $600 to $1,000 range. Examples across
this middle range can be found in the lines of Magellan, Garmin and Lowrance.
Travel*Star 24 will compete in this range, as we expect it to have an initial
retail price under $400. But the Travel*Star 24 should have several
competitive advantages over the middle market competitors:
* Travel*Star 24 provides audible prompts, whereas the competitors
use a "moving map" that requires the driver to take his eyes off the
road;
* No other product in the middle price range can compute routes - the
routes must be entered by the user;
* Travel*Star 24 can plan a route to 12,000 towns and cities;
* Travel*Star 24 can be equipped with a low cost ($49.95) regional
cartridge that is expected to provide block-to-block navigation;
* Door-to-door, turn-by-turn directions from one address to another
can be downloaded from a website through a PC to the Travel*Star
24; and
* Travel*Star 24 incorporates Ultradata's proprietary data
compression technology to provide directions to over 200,000
services, a functionality for which the competition offers nothing
comparable.
The Travel*Star 24 can easily fit into a briefcase or purse; so it is
portable to any rental vehicle. Beta testing has been ongoing since December
2000, and we shipped the first production units in the first quarter of 2001.
A date for full market launch has not yet been set.
Patents
We hold two additional patents that have potential utility in the GPS
market. Patent 5,943,653 was awarded in August, 1999 and covers the delivery
of electronic coupons in a handheld computer for discounts of services. The
technology can be combined with the GPS locational function to cause time and
site-specific coupons to be delivered to the driver offering, for example, a
discount at the upcoming hotel. We would, of course, receive a fee for each
customer that the hotel gained in this fashion.
The other related patent, which was awarded in May of 1999, covers a
method of integrating a GPS receiver into a radar detection device. By use of
this patented technology, it becomes practical to eliminate many false radar
detection alarms, as well as to provide audible warnings of speed zones.
Internet-Based Navigation
The Rand McNally Triplink
In June of this year we began marketing, in joint venture with Rand
McNally, an Internet appliance that provides textual driving directions
downloaded from the Rand McNally Website. Door-to-door driving directions to
and from a multitude of locations can be downloaded and stored in the handheld
unit, and later displayed by the unit one segment at a time, as needed. New
data can displace old data any time the unit is reconnected to the computer.
Thus, prior to each trip, the user can update his unit.
The premium unit in our Triplink product line, the Rand McNally
TriplinkTM, includes the Road Whiztm Interstate services database in pre-
programmed memory as well as the download capability. The other unit in this
line, the Rand McNally Pocket Triplinktm, is smaller and simpler, as it
contains only the driving directions. This product family provides a low-cost,
easy-to-use Internet appliance for Internet-connected computer users who
travel.
www.DriveThere.com
In May of 1999 we formed a joint venture with Influence Incubator, LLC
to create a vertical interest portal on the Web for travelers. The joint
venture, of which we own 33%, launched its Website, www.DriveThere.com, in
October, 1999. By creating affiliations with a large number of major content
providers, the joint venture was able to load the Website with a wealth of
travel-usable content, including driving directions, travel suggestions,
weather reports, information on products and services for travelers (e.g.
insurance, tires), a forum for auto sales, and contacts for emergency roadside
assistance. In addition, the shopping function on the Website was a virtual
department store for travelers, offering products ranging from educational
toys to amuse traveling children to the Road Whiz to enlighten traveling
parents.
In 2000, Influence Incubator withdraw operational support from Influence
Data, LLC, as a result of difficulties in sustaining its commitments to a
number of operations in the dot.com sector. We have, therefore, written off
the balance of our equity in the joint venture on our balance sheet.
GPS/Internet Auto Navigation and Tracking System
For some time we have been planning an effort to exploit the synergy
between the communications capabilities of the Internet and the locational
capabilities of a GPS antenna. If and when the capital resources become
available, we expect to commence development of a GPS/Internet auto navigation
and tracking system. The utility of the product will be to create a rich link
between the driver and a stationary source of communications, be it a family
member on a home PC or a hotel chain soliciting the driver's business.
Examples of the benefits of a GPS/Internet communications system are:
* The ability of an authorized person to track the location of the
vehicle from their home computer (Do you know where your teenager
is?).
* The ability of the driver to send and receive brief, formatted e-mail
messages to/from the "home base." ("Call me" or "I'll be home by
9:00").
* The ability of the driver to receive useful location-specific
information, such as available hotel discounts along the route, on a
dynamic hour-by-hour basis. ("It's early evening, and the Holiday Inn
at Nashville has many vacancies. They are now willing to discount 60%
off the nominal rate").
* The ability to forward highly-targeted traffic information to the
vehicle based on knowledge of its location and direction of travel.
* The ability to send an emergency message which includes your specific
location, anywhere in the country.
The system is conceptually simple. We plan to modify the Travel*Star
24 to incorporate a cellular transceiver into the existing housing.
Information in the vehicle would originate in and be displayed on the
Travel*Star 24, which has a four-line text display and a menu-driven
"soft key" user interface. The Travel*Star 24 also has a built-in GPS
receiver, and can generate the necessary geo-coordinates to identify
the vehicle's location. The vehicle's identity, its geo-coordinates,
and any outgoing messages would be passed to the cellular transceiver
for broadcast to the local phone cell, then transferred via the
Internet to the "Home Base" PC.
At the "Home Base," mapping software would be installed, which can
translate the geo-coordinates into a position display on a map. The
person at home could thus track the location and progress of the
vehicle, using the connectivity provided by the Internet. The same
"Windows"-based software can receive and display incoming messages,
and generate pre-formatted outbound messages and position queries.
Similarly, pre-formatted messages could be sent from the vehicle to
the Internet site, where the messages are available to friends and family.
There would be a number of elements comprising the system:
* Vehicle hardware, consisting of the Travel*Star 24 with an
integrated cellular transceiver and a power cable;
* A cellular system with broad national coverage;
* Software for the "Home Base" (i.e. custom CD-ROM or download from the
Website);
* A "gateway" for handling message traffic between the Internet and the
cellular system (i.e. the Website); and
* A server at the Website for validating users, and handling time and
location-related responses to queries and/or "push" information.
We plan to work with a number of competent organizations to develop,
launch and operate the GPS/Internet System. Essentially, we would focus on
developing the Travel*Star 24 hardware and supervising program integration.
We would contract out the responsibility for providing transceiver hardware,
and would work with other organizations that would provide the cellular
network interface and billing, gateway software and advertising relationships.
The GPS/Internet System is in the planning stage only. There are a
number of technical tasks required to make the system operational, including
the hardware and software modifications described in the following paragraphs:
* Modification of Travel*Star 24. The existing Travel*Star 24 design
must be modified to incorporate the cellular transceiver, and its
software would need to be expanded to enable the new functions made
possible by the cellular link.
* Develop a Website to serve as "Gateway." The site would be
developed to communicate with "Home Base" computers via the
Internet. It would be linked to the cellular hub via a dedicated
line. Software must be developed to enable appropriate interfaces
with the system to provide the additional features. The server
which hosts this web site would be connected to a source of real-
time hotel discounts, and other valuable "push" or query-based
services. Based on the geo-coordinates of the inquiring Travel*Star
24, it must be able to correlate the consumer's location with
available discounts.
* Integration with Cellular Network. Connectivity to specific vehicles
would be through a 'National Call Center.' National coverage would
be provided by the cellular network. The messaging menu would
contain short messages options generated by the Travel*Star 24 and
the "Home Base" software. Connect time will be short, since the
messages are pre-formatted.
* Modification of Mapping Software to present the user with a screen
to initiate communications with the target vehicle and to
automatically display the location of the vehicle (when its
coordinates have been received), at some intermediate scale, which
can then be further adjusted by the user to identify the specific
street where the unit is located.
The GPS/Internet product could be positioned as a service adjunct to the
Travel*Star 24, whose added benefits would include safety and security,
ability to access vehicle location, location-specific hotel and restaurant
discounts, and other potential features made possible by the combination of
cellular communications and GPS technologies.
The appeal of the product would vary over demographic segments and
related advertising and distribution channels. For example, the more mature
audience which is typical of the TV shopping channels might be more interested
in the added safety and security inherent in knowing exactly where you are,
and being able to communicate that information to others, in order to receive
assistance. A "Road Warrior," by contrast, might be more interested in
finding heavily-discounted lodging along his route, as hotel vacancies persist
later into the day. Traveling families may be attracted to both the safety
and economy-travel features. Families with teen-age children may want to know
exactly where the car is late at night, and whether the children are where
they're supposed to be.
Employees
We have 10 full-time employees, including our four officers. All of our
employees are located at our headquarters in St. Louis, Missouri. In
addition, a number of part-time consultants are retained for database
research, website development and maintenance, and software development. None
of our employees belongs to a collective bargaining union. We have never
experienced a work stoppage, and we believe that our relations with our
employees are good.
Description of Our Property
Our 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. We. pay a monthly rent plus 31% of all building expenses under an
operating lease which expires on October 31, 2001. Our total payments during
2000 pursuant to the lease were $109,678. We have made arrangements with the
landlord to reduce the space we occupy by approximately 66% when the lease
expires.
We maintain no manufacturing operations at this location, because we
employ outside contractors to manufacture our products. We believe that this
facility, currently and after the planned reduction in size, will be adequate
for our needs for the foreseeable future.
Legal Proceedings
On January 25, 2001, Ultradata commenced an action in the Circuit Court
for the County of St. Louis against E-Tegral, which was formerly known as
"SmartTime, A.G." We are demanding payment of $600,000 plus interest, by
reason of loans made by Ultradata to SmartTime, which have not been repaid.
We are carrying $150,000 on our balance sheet as our estimate of the minimum
we expect to recover in this action.
There are no material legal proceedings against Ultradata.
MANAGEMENT
This table identifies our directors and executive officers. Directors
serve until the next annual meeting of shareholders and until their successors
are elected and qualify. Officers serve at the pleasure of the Board of
Directors.
Director
Name Age Position Since
---------------------------------------------------------------------------
Monte Ross 69 Chief Executive Officer, Director 1986
Ernest Clarke 61 President, Chief Financial Officer,
Director 1990
Mark L. Peterson 44 Vice President - Engineering,
Secretary, Director 1986
Duane Crofts 64 Vice President - Advanced Products --
Donald Rattner(1) 68 Director 1999
Howard Krollfeifer,
Jr(1) 61 Director 2000
__________________________
(1)Member of the Audit Committee
Monte Ross founded Ultradata in 1986 and has served as its Chief
Executive Officer and Chairman since inception. He also served as President
until April 2001. For over 20 years prior to founding Ultradata, 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, our Vice President-
Engineering.
Ernest Clarke has served as our President since April 2001. From June
1999 until April 2001 Mr. Clarke had served as our Vice President and
Controller. From August 1990 to June 1999 he was Vice President - Government
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.
Mark L. Peterson has served as our Vice President of Engineering since
1988. He is responsible for the design of Ultradata's hand-held products.
During the four years prior to joining Ultradata, 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.
Duane Crofts joined Ultradata as Vice President - Advanced Products in
1994. Prior to joining Ultradata, 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.
Donald Rattner is a member/partner in BrookWeiner, LLC, a Chicago-based
accounting firm, and a member of the American Institute of Certified Public
Accountants and the Illinois CPA Society. He has served on the boards of
several corporations.
H. Krollfeifer, Jr. is retired after 35 years in the equipment leasing
and financing industry. Since 1986, Mr. Krollfeifer has worked closely with
The American Association of Equipment Lessors (AAEL), an industry trade group
for which he served as a speaker, lecturer, and teacher in various educational
programs. That organization evolved into The Equipment Leasing Association of
America (ELA), and Mr. Krollfeifer has served on its training faculty on a
part-time basis since January 2000.
Compensation of Directors
Our Directors who are not also officers receive $500 per meeting and are
reimbursed for out-of-pocket expenses incurred on our behalf.
Employment Agreements
Messrs. Ross, Clarke and Peterson have had individual employment
agreements with Ultradata since September 1, 1994. Except as noted herein,
the terms of the employment agreements are substantially identical. The
agreements terminate on October 31, 2003. 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. Clarke and Mr. Peterson and 5% for Mr.
Ross. The employment agreements restrict each officer from competing with
Ultradata 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 considered confidential by Ultradata.
Executive Compensation
Annual Compensation Long-Term Compensation
Year Salary Other(2) Options
-----------------------------------------------------------------------------
Monte Ross, CEO(1) 2000 $156,278 $ 6,000 7,000
1999 $142,588 $ 6,000 10,000
1998 $154,999 $ 6,000 6,000
_________________________________
(1) Mr. Ross is the only officer of Ultradata whose total salary and bonus
for 2000 exceeded $100,000.
(2) Represents the premium paid for an insurance policy on Mr. Ross's
life, the beneficiary of which is Mr. Ross's estate.
Option Grants in the Last Fiscal Year
Potential
Realizable Value
at Assumed
Percent of Total Rates of
Options Granted Appreciation
Nmber of shares to Employees for
Underlying in Exercise Expiration Option Term
Name Options Granted Fiscal Year Price Date Price 5% 10%
-------------------------------------------------------------------------
Monte Ross 7,000 22% $1.50 12/31/05 $ 5,526 $12,210
Aggregated Fiscal Year-End Option Values
Number of Shares Value of Unexercised
Name Underlying Unexercised In-the-Money Options
Options at December 31, 2000 at December 31, 2000
---------------------------------------------------------------------------
Monte Ross 80,500 exercisable Not Applicable
Stock Option Plans
We have two stock option plans: the 1994 Incentive Stock Option Plan and
the 1996 Incentive Stock Option Plan. The material terms of the Plans are
identical. Our shareholders have approved the issuance of options for 500,000
shares under the Plans. So far, options for 471,348 shares have been issued
under the Plans, not including options that were issued and then terminated
when the employees left Ultradata. Of the 471,348, options have been
exercised to purchase 94,523 shares of common stock. Options to purchase
334,025 remain outstanding.
The Plans give the Board of Directors the authority to grant stock
options. All of our employees, as well as our Directors and consultants who
perform services for us are eligible to receive options. Some of these options
may qualify under Section 422 of the Internal Revenue Code, which gives tax
advantages to options that meet the qualifications. Stock options designed to
qualify under Section 422 are referred to as "incentive stock options." All
other stock options are referred to as "non-qualified stock options." The
most important provisions of the Plans are the following:
* The Board of Directors will determine the number of shares that an
employee may purchase and all other terms and conditions of each
option.
* No option will have a term of more than 10 years.
* Every incentive stock option granted to a shareholder who owns 10% or
more of the voting power in Ultradata, will expire not later than
five years after the grant.
* The employee who holds an option may not transfer it, except by will
or through the laws of inheritance.
* The Plan limits the Board's authority to grant incentive stock
options to a single individual by requiring that the aggregate
exercise price of all stock options, incentive and otherwise, vesting
in one employee in any single calendar year may not exceed $100,000.
* There is no limit on vesting of non-qualified stock options.
* The exercise price for non-qualified stock options may not be less
than eighty-five percent (85%) of the fair market value of the shares
on the date of grant.
* The exercise price of an incentive stock option must be at least 100%
of the market price of a common share on the date the stock option is
granted.
* The exercise price of an incentive stock option granted to an
employee who owns 10% or more of the voting power in Ultradata may
not be less than 110% of the market price of a common share on the
date the stock option is granted.
* The Board may permit an employee to exercise an option and make
payment by giving a personal note.
The following officers have received a cumulative total number of
options shown below since the inception of the plans at the weighted-average
exercise price given:
Average
Exercise
Name Number of Shares Price
-------------------------------------------------
Monte Ross 80,500 $ 3.46
Mark L. Peterson 62,000 $ 3.13
Ernest Clarke 38,500 $ 3.32
Duane Crofts $ 3.28
Transactions Between Ultradata and its Management
In 1994 five of our officers and four employees purchased shares of our
common stock and gave us promissory notes in payment. On June 11, 1999 three
of the officers surrendered a portion of the shares they had purchased, and we
forgave a portion of their notes in exchange for the shares. The Board of
Directors agreed with the officers that they would value the surrendered
shares at the weighted average market price for the 30 trading days preceding
June 11, 1999. The table below shows data concerning the 1994 purchase and
1999 surrender of shares.
Shares Purchased Shares Surrendered
Total Price Average Total Price Average
----------------------------------------------------------------------------
Monte Ross 155,734 $254,500 $1.63 100,000 $215,000 $2.145
Mark Peterson 38,725 $ 63,375 $1.64 37,423 $ 80,456 $2.145
Leonard Missler 17,676 $ 21,250 $1.20 12,548 $ 26,978 $2.145
We have a written agreement with Leonard Missler, who was our Vice
President - Software Development until this year. The agreement provides
that, until September 13, 2009, we will pay Mr. Missler a 1% royalty on all
net sales of Road Whiz products and 1/2% on net sales of other products
incorporating the Road Whiz database. Because of this agreement, we paid
$60,645 in royalties to Mr. Missler in 2000 and $39,820 in 1999.
Steven H. Akre, Esquire, who was a member of our Board of Directors
until April 2001, performed legal services as general counsel for Ultradata
since it was founded. During 2000 we paid Mr. Akre $42,907 for legal
services, and during 1999 we paid the law firm with which Mr. Akre was then
associated $108,411 for legal services.
Limitation of Liability and Indemnification
Our certificate of incorporation provides that our directors will not be
personally liable to us for monetary damages for breaches of their fiduciary
duty as directors, unless they violated their duty of loyalty to us or our
stockholders, acted in bad faith, knowingly or intentionally violated the law,
authorized illegal dividends or redemptions or derived an improper personal
benefit from their action as directors.
In addition, our certificate of incorporation provides that our
directors shall be indemnified by us to the extent authorized by Delaware law.
This indemnification would cover all expenses and liabilities reasonably
incurred in connection with their services as directors. Insofar as
indemnification for liabilities under the Securities Act of 1933 may be
permitted to our directors, officers or controlling persons pursuant to the
foregoing provision or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable.
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to us with respect to
the beneficial ownership of our common stock as of the date of this prospectus
by the following:
* each shareholder known by us to own beneficially more than 5% of our
common stock;
* Monte Ross;
* each of our directors; and
* all directors and executive officers as a group.
There are 3,249,533 shares of our common stock outstanding on the date
of this prospectus. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below have sole voting power and
investment power with respect to their shares, subject to community property
laws where applicable. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percent ownership of that
person, we include:
* shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable
within 60 days, and
* shares of common stock that would be issued today if the Convertible
Promissory Notes held by that person were exercised today.
We do not, however, include these "issuable" shares in the outstanding shares
when we compute the percent ownership of any other person.
Name and Amount and
Address of Nature of Percentage
Beneficial Beneficial of Outstanding
Owner (1) Ownership Shares
-----------------------------------------------------------------------------
Monte Ross 434,500(2) 13.18%
Ernest Clarke 169,352(3) 5.20%
Mark L. Peterson 162,282(4) 4.95%
Donald Rattner 29,000 0.90%
H. Krollfeifer, Jr. 10,000 0.31%
All officers and directors as a
group (6 persons) 843,373(5) 24.37%
BH Capital Investments, L.P. 259,470(6) 7.39%
175 Bloor St. East, 7th Floor
Toronto, Ontario
Canada M4W3R8
Excalibur Limited Partnership 259,470(6) 7.39%
33 Prince Arthur Avenue
Toronto, Ontario
Canada M5R1B2
Influence Incubator, L.L.C. 300,000(7) 8.59%
9666 Olive Street Road
St. Louis, Missouri 63132
(1) Except as otherwise noted, the address of each of these
shareholders is c/o Ultradata Systems, Incorporated, 9375 Dielman
Industrial Drive, St. Louis, Missouri 63132.
(2) Includes 224,000 shares owned by Monte Ross, 100,000 shares owned
by Harriet Ross, and 30,000 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. Also includes options to purchase 80,500
shares.
(3) Includes options to purchase 38,500 shares.
(4) Includes 91,964 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 either of them. Also
includes options to purchase 62,000 shares.
(5) Includes options to purchase 211,000 shares.
(6) Represents for each shareholder: (a) the number of shares of
common stock into which the Convertible Promissory Note held by
that shareholder could have been converted on September 5, 2001,
which is one-half of 20% of the trading volume for the preceding
66 trading days, plus (b) warrants to purchase 239,253 shares of
Common Stock. The note holders will be able to convert the
Convertible Promissory Notes into a greater or lesser number of
shares as the trading volume increases and decreases, but subject
to a limit that on conversion of Notes and exercise of warrants
each note holder may not acquire more than 9.99% of the
outstanding common stock. The limit may be waived by the note
holder on 75 days notice to Ultradata.
(7) Represents options to purchase 300,000 shares.
DESCRIPTION OF OUR SECURITIES
Our authorized capital stock consists of 10,000,000 shares of common
stock and 5,000,000 shares of preferred stock. There are 3,249,533 shares of
our common stock outstanding and 16 shares of Series A Preferred Stock
outstanding. There are also Convertible Promissory Notes in the principal
amount of $1,622,323 held by two of the Selling Shareholders.
Common Stock
As a holder of our common stock, you will be entitled to one vote for
each share in the election of directors and in all other matters to be voted
on by the shareholders. There is no cumulative voting in the election of
directors. Our by-laws require that only a majority of the issued and
outstanding shares of common stock must be represented to constitute a quorum
and to transact business at a shareholders meeting.
You will be entitled to receive dividends if the Board of Directors
declares dividends. In the event that Ultradata is liquidated or dissolved,
you will receive a distribution, on a per share basis, of any assets remaining
after payment of all liabilities and any preferential payments that must be
made to preferred shareholders. You will have no preemptive or conversion
rights and you will not be subject to any calls or assessments. There are no
redemption or sinking fund provisions applicable to the common stock. The
common stock was validly issued, fully paid and nonassessable.
Convertible Promissory Notes
On August 13, 2001 we issued 11.25% Senior Subordinated Convertible
Promissory Notes to two of the selling shareholders. Each of the Notes was in
the principal amount of $874,060, for a total outstanding of $1,748,120. We
have subsequently made payments that have reduced the total principal amount
to $1,622,323. The principal terms of the Convertible Promissory Notes are:
* The Notes will bear interest at 11.25% per annum. In addition, there
will be a one-time 10% interest accrual on any unpaid amount of the
Notes on June 1, 2002. That accrual, if unpaid, will be added to the
principal amount of the Notes on that date.
* Ultradata will pay $70,000 in October, 2001, and $90,000 monthly
thereafter. Payments will be applied first to accrued interest, then
to principal.
* Ultradata's obligations under the Notes are secured by a lien on
Ultradata's assets. The lien is subordinate to "Senior Debt," which
is defined as any borrowing from a commercial lender in which the
amount of the borrowing is determined by reference to accounts
receivable and inventory.
* The principal and accrued interest on the Notes may be converted into
common stock at any time at the option of the holders. The
conversion rate will be the lower of $3.50 or 75% of the 5-day
average closing bid price, subject to certain anti-dilution rights.
The total number of shares into which the Notes may be converted
during any 90 day period cannot exceed 20% of the cumulative trading
volume for the 66 trading days preceding the date of conversion.
* Ultradata may prepay any amount of the principal and interest on the
Notes, subject, with certain exceptions, to a 10% prepayment penalty.
The two funds have agreed that they will not engage in short-selling of
the common stock except during the ten days preceding conversion, and each of
them will limit its short sales during those periods to ten percent of the
daily trading volume.
Preferred Stock
Our Board of Directors is authorized to issue preferred stock, without
action by the shareholders of the Company. The preferred stock may be issued
from time to time in one or more series. The Board will determined the
consideration that must be given for the preferred stock, as well as the
rights, privileges and preferences that holders of the preferred stock may
exercise. Among the provisions that the Board may determine when it creates a
series of preferred stock are:
* the dividend rate,
* voting rights,
* redemption rate,
* sinking fund,
* liquidation preferences, and
* conversion rights.
The only preferred shares presently outstanding are the Series A
Convertible Preferred Stock. We have no plans at this time to issue any other
shares of preferred stock.
Series A Convertible Preferred Stock
There remain 16 shares of Series A Preferred Stock issued and
outstanding, all of which are held by one individual. We have also given
Thornhill Group, Inc. an option to purchase 160 shares of Series A Preferred
Stock. Each share of Series A Preferred Stock has a face value of $1,000.
The Series A Convertible Preferred Stock has no voting rights, except as
to matters which directly affect the rights of the holders of the Preferred
Shares. The holders of Preferred Shares are not entitled to any dividends.
Among the rights that are attendant to the Preferred Shares are:
* The Preferred Shares have a liquidation preference equal to their
face value plus an accrual amount equal to 11.25% from the date of
issuance (22.5% from the date the the common stock was delisted by
NASDAQ). The holders will be entitled to payment of the liquidation
preference upon the liquidation of Ultradata or its bankruptcy or
certain other events.
* The Preferred Shares may be converted into common stock at any time
at the option of the holders. If not previously converted, the
Preferred Shares will automatically convert into common stock on May
16, 2003. The amount to be converted will equal the face value of
the Preferred Shares plus the accrual amount of 11.25% from the date
of issuance and 22.5% from the date of delisting. For accounting
purposes, the accrual amount may be deemed to be a dividend. The
conversion rate will be the lower of $3.50 or 75% of the 5-day
average closing bid price, subject to certain anti-dilution rights..
Registrar and Transfer Agent
The Registrar and Transfer Agent for the common stock is:
American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, NY 10005
212-936-5100
SELLING SHAREHOLDERS
The table below lists the selling shareholders and other information
regarding the beneficial ownership of our common stock by each of the selling
shareholders. None of the selling shareholders owns any of our shares other
than the shares they are offering by means of this prospectus, except that the
holders of the Convertible Promissory Notes may, over time, convert the Notes
into a greater number of shares of common stock than are offered in this
prospectus. The column labeled "Derivative Security" lists the option,
warrant or convertible promissory note that the selling shareholder has or
will convert into the common stock offered. The column labeled "Date of
Issuance" identifies the date on which the selling shareholder acquired the
derivative security. The column labeled "Common Shares Offered" does not give
effect to the restrictions set forth in the Convertible Promissory Notes on
the number of shares the holders of those Notes may own at one time.
The number of shares into which the Convertible Promissory Notes will be
converted cannot be determined at this time. The reasons for this uncertainty
are: (1) the number of shares issuable on conversion depends on the market
price of our common stock at the time of conversion, (2) conversion of the
Notes is limited, on a cumulative basis, to 20% of the trading volume for our
common stock during the 66 trading days preceding conversion, and (3)
Ultradata will be making monthly payments that will reduce the principal and
interest on the Notes and so limit conversions. The number of shares being
offering in this prospectus which are derivative from the Convertible
Promissory Notes is an estimate of the maximum number that can reasonably be
expected to be offered. As each selling shareholder resells shares of common
stock, we will file prospectus supplements as necessary to update the number
of shares of common stock that each selling shareholder intends to sell,
reflecting prior resales and changes in the premises on which our estimate of
likely conversions is based.
Common Shares Offered
---------------------------
Derivative Date of Per Derivative
Name Security Issuance Security Total
------------------------------------------------------------------------------
BH Capital Investments, L.P. Warrants(1) 5/16/00 239,253
Notes(2) 8/13/01 2,260,747 2,500,000
Excalibur Limited
Partnership Warrants(1) 5/16/00 239,253
Notes(2) 8/13/01 2,260,747 2,500,000
Thornhill Group, Inc. Options(3) 5/16/00 128,000 128,000
Influence Incubator, L.L.C. Options(4) 5/30/00 300,000 300,000
---------
Total 5,428,000
---------------------------------------
Note 1: BH Capital Investments, L.P. and Excalibur Limited Partnership
each own warrants to purchase 239,253 shares at $1.50 per share.
Note 2: BH Capital Investments, L.P. and Excalibur Limited Partnership
each owns Convertible Promissory Notes in the principal amount of
$874,060. The Notes are convertible into common stock at a
conversion price equal to 70% of the average of the closing bid
prices for the common stock for the five days preceding
conversion, subject to a limit on conversion equal to 20% of the
trading volume for the 66 days preceding conversion.
Note 3: Thornhill Group, Inc. owns an option to purchase 128,000 shares of
common stock at $2.50 per share.
Note 4: Influence Incubator, L.L.C. owns an option to purchase 150,000
shares of common stock at $4.00 per share and 150,000 shares of
common stock at $5.00 per share.
We are registering the shares for resale by the selling shareholders in
accordance with registration rights granted to the selling shareholders in our
contracts with them. We will pay the registration and filing fees, printing
expenses, listing fees, blue sky fees, if any, and fees and disbursements of
our counsel in connection with this offering. The selling shareholders will
pay the fees and disbursements of their own counsel, as well as any
underwriting discounts, selling commissions, and similar expenses relating to
the sale of the shares. We have agreed to indemnify some of the selling
shareholders (BH Capital Investments, L.P., Excalibur Limited Partnership, and
Influence Incubator, L.L.C.), underwriters whom they may select, and some of
their affiliates against certain liabilities, including liabilities under the
Securities Act, in connection with this offering. Those three selling
shareholders have agreed to indemnify us and our directors and officers, as
well as any person who controls us, against certain liabilities, including
liabilities under the Securities Act. Insofar as indemnification for
liabilities under the Securities Act may be permitted to our directors and
officers, or persons that control us, we have been informed that in the
opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Relationships with Ultradata
BH Capital Investments, L.P. and Excalibur Limited Partnership purchased
Series A Preferred Stock and Common Stock Purchase Warrants from us on May 16,
2000, for a price of $1,600,000. On August 6, 2001, they entered into an
Exchange Agreement with us. The terms of that agreement are described in
"Capitalization: Exchange Agreement" elsewhere in this prospectus. As part of
that transaction, we agreed to include in this prospectus the common shares
which these two funds can acquire.
Thornhill Group, Inc. is a member of the NASD. Thornhill served as the
placement agent for our private offering, which resulted in the sale of Series
A Preferred Stock and Common Stock Purchase Warrants to BH Capital
Investments, L.P and Excalibur Limited Partnership. As compensation for those
services, we gave to Thornhill $192,000 plus an option to purchase 128,000
shares of common stock at $2.50 per share and an option to purchase 160 shares
of Series A Preferred Stock at $1,000 per share. We also gave Thornhill the
right to designate a nominee to the Board of Directors. Upon Thornhill's
designation, the Board of Directors nominated Mr. Howard Krollfeifer, Jr., who
was elected to the Board at the annual meeting of shareholders on July 27,
2000.
Influence Incubator, L.L.C. is the Manager and -owner of Influence
Data, L.L.C. We own the other third of Influence Data, L.L.C., having
organized it with Influence Incubator, L.L.C in May of 1999, When we formed
the joint venture, we gave Influence Incubator an option to purchase 160,000
shares of our common stock at a blended price of $3.00 per share. In March
2000, we had a dispute with Influence Incubator regarding the meaning of that
option. Late in May, we settled the dispute by increasing the purchase price
for our interest in Influence Data by $200,000, cancelling the existing
option, issuing a replacement option to purchase 300,000 shares at a blended
price of $4.50, and agreeing to include those shares in this prospectus.
Plan of Distribution
The selling shareholders may sell shares from time to time in public
transactions or in private transactions, at prevailing market prices or at
privately negotiated prices, including, but not limited to, one or more of the
following types of transactions:
* ordinary brokers' transactions;
* transactions involving cross or block trades or otherwise;
* purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this
prospectus;
* "at the market" to or through market makers or into an existing
market for our common stock;
* in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
* through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise);
* in privately negotiated transactions; or
* to cover short sales.
In effecting sales, brokers or dealers engaged by the selling
shareholders may arrange for other brokers or dealers to participate in the
resales. The selling shareholders may enter into hedging transactions with
broker-dealers, and in connection with those transactions, broker-dealers may
engage in short sales of the shares. The selling shareholders may also sell
shares short and deliver the shares to close out the short position. The
selling shareholders may also enter into option or other transactions with
broker-dealers that require the delivery to the broker-dealers of the shares,
which the broker-dealer may resell using this prospectus. The selling
shareholders may also pledge the shares to a broker-dealer and, upon a
default, the broker or dealer may effect sales of the pledged shares using
this prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts, or concessions from selling shareholders in amounts to
be negotiated in connection with the sale. The selling shareholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any such
commission, discount or concession may be deemed to be underwriting
compensation.
Information as to whether underwriters whom the selling shareholders may
select, or any broker-dealer, is acting as principal or agent for the selling
shareholders, the compensation to be received by underwriters that the selling
shareholders may select or by any broker or dealer acting as principal or
agent for the selling shareholders, and the compensation to be paid to other
broker-dealers, in the event the compensation of such other broker-dealers is
in excess of usual and customary commissions, will, to the extent required, be
set forth in a supplement to this prospectus. Any dealer or broker
participating in any distribution of the shares may be required to deliver a
copy of this prospectus, including a prospectus supplement, if any, to any
person who purchases any of the shares from or through such broker or dealer.
We have advised the selling shareholders that, during any time when they
are engaged in a distribution of the shares, they are required to comply with
Regulation M promulgated under the Securities Exchange Act. With certain
exceptions, Regulation M precludes any selling shareholder, any affiliated
purchasers and any broker-dealer or other person who participates in a
distribution from bidding for or purchasing or attempting to induce any person
to bid for or purchase any security that is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any
bids or purchases made in order to stabilize the price of a security in
connection with the distribution of that security. All of the foregoing may
affect the marketability of our common stock.
We will not receive any of the proceeds from the selling shareholders'
sale of their common stock.
LEGAL MATTERS
The validity of the common stock which the four shareholders are selling
by means of this prospectus has been passed upon by our counsel, Robert
Brantl, Esq., 322 Fourth Street, Brooklyn, New York 11215. Mr. Brantl owns
5,500 shares of our common stock.
EXPERTS
The financial statements as of December 31, 2000 and for the year then-
ended included in this prospectus and in the registration statement have been
audited by Weinberg & Company, P.A., independent certified public accountants,
to the extent and for the periods set forth in their report appearing
elsewhere in this prospectus and in the registration statement, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
The financial statements for the year ended December 31, 1999 included
in this prospectus and in the registration statement have been audited by BDO
Seidman, LLP, independent certified public accountants, to the extent set
forth in their report appearing elsewhere in this prospectus and in the
registration statement, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, including exhibits and schedules, under the Securities
Act with respect to the shares to be sold in the offering. This prospectus
does not contain all the information set forth in the registration statement.
In particular, the statements in this prospectus regarding the contents of
contracts, agreements or other documents are not necessarily complete. You
can find further information about us in the registration statement and the
exhibits and schedules attached to the registration statement. In addition,
we file annual, quarterly and current reports, proxy statements and other
information with the Commission, which may assist you in understanding our
company.
You may read and copy the registration statement or any reports,
statements or other information that we file at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by
writing to the Commission. Please call the Commission at 1-800-SEC-0330 for
further information on the operation of the Public Reference Room. Our
Commission
filings, including the registration statement, are also available to you on
the Commission's Web site at http://WWW.SEC.GOV.
INDEX TO FINANCIAL STATEMENTS
I. Audited Financial Statements for the Years
Ended December 31, 2000 and 1999
Pages
Independent Auditors' Report F-1
Report of Independent Certified Public Accountants F-2
Balance Sheet F-3
Statements of Operations F-5
Statements of Stockholders' Equity F-6
Statements of Cash Flows F-8
Notes to Financial Statements F-10
II. Unaudited Financial Statements for the
Six Months Ended June 30, 2001 and 2000
Balance Sheet F-29
Statements of Operations F-31
Statements of Cash Flows F-32
Notes to Financial Statements F-34
Independent Auditors' Report
To the Board of Directors and Shareholders of:
Ultradata Systems Incorporated
We have audited the accompanying balance sheet of Ultradata Systems Incorporated
as of December 31, 2000 and the related statements 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. The
financial statements of Ultradata Systems Incorporated as of December 31,
1999 were audited by other auditors whose report dated March 2, 2000 expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Ultradata Systems
Incorporated as of December 31, 2000 and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1(X) to the
financial statements, the Company has had recurring losses and a loss from
current operations of $1,712,503 and a negative cash flow from operations of
$188,281. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
June 5, 2001 (Except for Note 21(B) as to
which the date is July 3, 2001, and Note
21(C) as to which the date is August 15, 2001)
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Ultradata Systems, Incorporated
We have audited the accompanying statements of operations, stockholders'
equity and cash flows of Ultradata Systems, Incorporated, for the year ended
December 31, 1999. 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 auditing standards generally
accepted in the United States of America. 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 present fairly, in
all material respects, the results of operations and the cash flows of
Ultradata Systems, Incorporated for the year ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States
of America.
/s/ BDO Seidman, LLP
St. Louis, Missouri
March 2, 2000
ULTRADATA SYSTEMS, INCORPORATED
BALANCE SHEET
DECEMBER 31, 2000
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,842,983
Restricted cash 767,724
Trade accounts receivable, net of allowance
for doubtful accounts of $117,556 and
return reserve of $94,357 673,475
Inventories 1,780,255
Prepaid expenses and other current assets 229,637
---------
Total Current Assets 5,294,074
---------
PROPERTY AND EQUIPMENT - NET 617,794
---------
OTHER ASSETS
Deferred compensation trust investments,
available for sale 84,605
Investment in Talon Research and
Development, Ltd. 825,757
Advances to affiliates 150,000
Advertising credits 62,421
Other assets 8,594
---------
Total Other Assets 1,131,377
---------
TOTAL ASSETS $ 7,043,245
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 164,319
Accrued expenses and other liabilities 218,996
---------
Total Current Liabilities 383,315
---------
LONG TERM LIABILITIES
Deferred rent 6,220
Deferred compensation liability 87,329
--------- ---------
Total Long Term Liabilities 93,549
---------
TOTAL LIABILITIES 476,864
---------
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value,
4,996,680 shares authorized, none
issued and outstanding -
Series A convertible preferred stock,
3,320 shares authorized, 1,616 shares
outstanding with a stated value of $1,000 1,616,000
Common stock, $0.01 par value,
10,000,000 shares authorized, 3,519,586
issued and outstanding 35,196
Additional paid-in capital 9,861,970
Accumulated deficit (3,737,190)
Treasury stock (326,171 shares at cost) (942,311)
Notes receivable issued for purchase of
common stock (205,819)
Accumulated other comprehensive loss, net (61,465)
---------
TOTAL STOCKHOLDERS' EQUITY 6,566,381
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,043,245
=========
See accompanying notes to financial statements.
ULTRADATA SYSTEMS INCORPORATED
STATEMENTS OF OPERATIONS
AS OF DECEMBER 31, 2000 AND 1999
2000 1999
-------------------------------
NET SALES $ 6,301,236 $ 5,425,762
COST OF SALES 4,516,970 3,151,046
--------- ---------
GROSS PROFIT 1,784,266 2,274,716
--------- ---------
OPERATING EXPENSES
Selling expense 612,428 1,671,659
General and administrative expenses 2,280,439 2,063,016
Research and development expense 371,554 358,357
--------- ---------
Total Operating Expenses 3,264,421 4,093,032
--------- ---------
OPERATING LOSS (1,480,155) (1,818,316)
--------- ---------
OTHER INCOME (EXPENSE)
Interest and dividend income 179,941 93,848
Equity in losses of unconsolidated
affiliates (240,337) (81,118)
Impairment of investment (225,039) -
Royalty income - 127,473
Loss on disposal of fixed assets (8,695) (6,969)
Realized gain on sale of securities 10,601 22,602
Other, net 51,181 35,466
-------- --------
Total Other Income (Expense) (232,348) 191,302
-------- --------
LOSS BEFORE INCOME TAX EXPENSE (1,712,503) (1,627,014)
Income tax expense - 370,236
--------- ---------
NET LOSS $(1,712,503) $(1,997,250)
========= =========
LOSS PER SHARE
Net loss $(1,712,503) $(1,997,250)
Preferred stock dividends (1,456,625) -
--------- ---------
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $(3,169,128) $(1,997,250)
========= =========
Loss per share - basic and diluted $ (1.00) $ (0.64)
========= =========
Weighted average shares outstanding
- basic and diluted 3,168,186 3,122,138
========= =========
See accompanying notes to financial statements.
ULTRADATA SYSTEMS, INCORPORATED
STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
Notes
Receivable
Additional For Other
Common Stock Preferred Stock Paid-in Common Treasury Stock Comprehensive Accumulated
Shares Amount Shares Amount Capital Stock Shares Amount Income Deficit Total
---------------------------------------------------------------------------------------------------------------------------------
Balance,
January 1, 1999 3,410,000 $34,100 - $ - $9,799,936 $(505,549) 255,200 $(900,281) $ 86,476 $ (27,437) $ 8,487,245
Purchase of 1,000
shares of
treasury stock
at cost - - - - - - 1,000 (2,125) - - (2,125)
Issuance of 80,000
shares of
treasury stock
for investment
in Influence
Data, LLC - - - - 45,418 - (80,000) 281,782 - - 327,200
Redemption of
149,971 shares
of common stock
to reduce notes
receivable - - - - - 321,687 149,971 (321,687) - - -
Accrued interest on
notes receivable
issued for purchase
of common stock - - - - - (13,255) - - - - (13,255)
Issuance of stock
options to non-
employee for
services performed - - - - 6,540 - - - - - 6,540
Other comprehensive
loss on available
for sale trust
securities - - - - - - - - (48,647) - (48,647)
Net loss, 1999 - - - - - - - - - (1,997,250) (1,997,250)
---------
Total Comprehensive
Loss - - - - - - - - - - (2,045,897)
---------
----------------------------------------------------------------------------------------------------------------------------------
Balance, December
31, 1999 3,410,000 34,100 - - 9,851,894 (197,117) 326,171 (942,311) 37,829 (2,024,687) 6,759,708
Exercise of
94,523 employee
stock options 94,523 945 - - 313,680 - - - - - 314,625
Issuance of
common stock
for services 5,500 55 - - 11,633 - - - - - 11,688
Issuance of stock
options for
Investment in
Influence Data,
LLC - - - - 55,981 - - - - - 55,981
Accrued interest on
notes receivable
issued for purchase
of common stock - - - - - (8,702) - - - - (8,702)
Issuance of
preferred stock
net of direct
offering costs - - 1,600 1,600,000 (359,625) - - - - - 1,240,375
Issuance of stock
options to non-
employee for
services performed - - - - 4,503 - - - - - 4,503
Issuance of common
stock in connection
with preferred
stock offering 9,563 96 - - (96) - - - - - -
Issuance of
preferred stock
in connection
with preferred
stock offering - - 16 16,000 (16,000) - - - - - -
Other comprehensive
loss - - - - - - - - (99,294) - (99,294)
Net loss, 2000 - - - - - - - - - (1,712,503) (1,712,503)
Total Comprehensive ---------
Income - - - - - - - - - - (1,811,797)
---------
-------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER
31, 2000 3,519,586 $35,196 1,616 $1,616,000 $9,861,970 $(205,819) 326,171 $(942,311) $(61,465) $(3,737,190) $ 6,566,381
===============================================================================================================================
See accompanying notes to financial statements.
ULTRADATA SYSTEMS, INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
2000 1999
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,712,503) $ (1,997,250)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Deferred income tax provision - 476,149
Depreciation and amortization 226,083 259,870
Provision for inventory obsolescence 264,717 202,705
Equity in losses of unconsolidated
affiliates 240,337 81,118
Realized gain on investments (10,601) (22,602)
Non-cash compensation expense 16,191 6,540
Bad debt expense on advances to affiliates 122,683 31,000
Loss on disposal of property and equipment 8,695 6,969
Provision for doubtful accounts 121,001 -
Loss on investment impairment 225,039 -
Increase (decrease) in assets and liabilities:
Trade accounts receivable, net 687,791 1,621,698
Costs and estimated earnings on long-term
contracts - 95,534
Inventories (389,549) 1,013,191
Prepaid expenses and other current assets 84,053 696,834
Accounts payable 8,106 (784,008)
Accrued expenses and other liabilities (43,467) (1,358,867)
Tax benefit receivable - 231,227
Deferred rent (7,464) (7,464)
Deferred compensation trust liability (29,393) (33,980)
-------- ---------
Net Cash (Used In) Provided By
Operating Activities (188,281) 518,664
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliated company (200,000) (66,813)
Deferred compensation trust investments (19,045) 30,158
Capital expenditures (168,835) (115,468)
Restricted cash (356,836) (398,373)
-------- --------
Net Cash Used In Investing Activities (744,519) (550,496)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock at cost - (2,125)
Proceeds from issuance of redeemable
preferred stock and common stock warrants 1,240,375 -
Exercise of employee stock options 315,274 -
--------- ---------
Net Cash (Used In) Provided By
Financing Activities 1,555,649 (2,125)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 622,849 (33,957)
CASH AND CASH EQUIVALENTS-BEGINNING OF YEAR 1,220,134 1,254,091
--------- ---------
CASH AND CASH EQUIVALENTS-END OF YEAR $ 1,842,983 $ 1,220,134
========= =========
See accompanying notes to financial statements.
ULTRADATA SYSTEMS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2000 AND 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Basis of Presentation
The financial statements include the equity in earnings of unconsolidated
affiliates Talon Research & Development Co., Ltd. (Talon) of Auckland New
Zealand, and Influence Data, LLC. The investments in Talon and Influence
Data, LLC are accounted for using the equity method. The Company has a 22.6%
interest in Talon and a 33.3% interest in Influence Data, LLC (See Note 16).
(B) 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.
(C) 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.
(D) Restricted Cash
Restricted cash includes a deposit maintained in conjunction with the
Company's agreement to guarantee Talon credit with the Bank of New Zealand
($765,000) and money-market funds related to the deferred compensation trust.
The cash amounts are restricted from use in operational activities of the
Company. The Talon guarantee expires on August 31, 2001 and the restriction
will be released.
(E) Revenue Recognition
Net sales are 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.
Royalties are earned based on sale of products.
(F) 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.
(G) 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. The Company capitalizes certain software development
costs in accordance with the American Institute of Certified Public Accountants
Statement of Position No. 98-1, "Accounting for the Costs of Software
Developed or Obtained for Internal Use." Costs incurred for the Company's
own personnel who are directly associated with software development are
capitalized. Capitalized software costs will be amortized over an estimated
useful life of five years. 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.
(H) Long-Lived Assets
In accordance with SFAS 121, long-lived assets and certain identifiable
intangible 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
Company reviews long-lived assets to determine that carrying values are not
impaired. The Company recognized an impairment loss of $225,039 on its
investment in Influence Data, LLC during 2000 (See Note 16).
(I) 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 balance sheet (See Note 7).
(J) 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. The
Company accounts for barter transactions under APB 29 "Accounting for
Nonmonetary Transactions". During 1999, the Company exchanged slow moving
inventory having a fair value of $249,685 after a write-down for obsolescence,
for advertising credits. The credits have no expiration date and can only be
used by the Company or an affiliate. The Company did not use any of these
advertising credits and as such has not recorded any advertising expenses
related to these credits during the year ended December 31, 2000. At December
31, 2000, the Company has included in prepaid expenses and other non current
assets the unused advertising credits of $249,685.
Advertising expense totaled $202,705 and $1,446,225 for fiscal years ended
December 31, 2000 and 1999, respectively.
(K) Goodwill
The excess of the purchase price of net assets acquired in equity investments
over their fair value is being amortized on a straight-line basis not to
exceed 10 years.
(L) 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, accounts payable, and accrued
liabilities are reflected in the financial statements at fair value because
of the short-term maturity of the instruments.
(M) Research and Development Costs
Research and development costs consist primarily of expenditures incurred
bringing a new product to market or significantly enhancing existing products.
The Company expenses all research and development costs as they are incurred
unless they are associated with the development of tools or processes for
production used in-house rather than for product delivered to a customer.
(N) Deferred Compensation Trust Investments
Investments are stated at the estimated fair value in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", and consist of investments in U.S.
government agency securities or corporate stocks. The deferred compensation
trust represents contributions made by the Company to a Rabbi trust. The
amounts are restricted from use for operational purposes, and investment
decisions are made by the trust beneficiary.
Available-for-sale securities, which include any security for which the
beneficiary has no immediate plan to sell but which may be sold in the future,
are valued at fair value. Realized gains and losses, based on the amortized
cost of the specific security, are included in other income as investment
gains (losses). Unrealized gains and losses are recorded, net of related
income tax effects, as a separate component of equity.
(O) Royalty Expense
Royalty expense is recognized on a pro rata basis as units are sold.
(P) 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.
(Q) Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing net income (loss)
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.
(R) Stock-based Compensation
The Company grants stock options for a fixed number of shares to employees
with an 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.
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 SFAS No. 123,
are discussed with Note 13.
(S) Reclassifications
Certain 1999 balances have been reclassified to conform to the 2000
presentation. During 2000, the Company changed the way they account for
certain sales incentives, in accordance with EITF Issue No. 00-25
Accordingly, the Company has restated the 1999 financial statements to reflect
this change. The Company reduced sales and selling expense by $140,865.
(T) Impact of Recent 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" (FAS No. 133). FAS No. 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, as amended by FAS No. 137 and 138,
is effective on January 1, 2001, and will not have a material effect on the
Company's financial position or results of operations.
(U) Significant Customers
For the year ended December 31, 2000, the company relied on four customers for
approximately 39%, 34%, 10%, and 7% of consumer product sales. Accounts
receivable from those customers totaled $0, $0, $257,860, and $138,258,
respectively, at December 31, 2000.
For the year ended December 31, 1999, the customer relied on four customers
for approximately 20.3%, 12.4%, 10.7% and 10.6% of consumer product sales,
respectively.
(V) Concentrations of Credit Risk from Deposits in Excess of Insured Limits
The Company maintains its cash balances at one financial institution in
Missouri. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At December 31, 2000 the Company's uninsured
cash balances were approximately $2,719,200.
(W) Business Segments
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information". The
Company operates in one segment and therefore segment information is not
presented.
(X) Going Concern
As shown in the accompanying financial statements, the Company incurred a net
loss of $1,712,503 for the year ended December 31, 2000 and a negative cash
flow from operations of $188,281. These factors raise substantial doubt about
the company's ability to continue as a going concern.
The Company has continued its product design and development efforts to
introduce new products during 2001. The Company also continues to expand into
mass market retailers. In addition, the Company is pursuing asset based
financing to finance its expansion plans. Management believes that actions
presently taken to obtain additional funding provide the opportunity for the
Company to continue as a going concern.
NOTE 2 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. The Company sells the products
in the United States through direct marketing and through independent sales
representatives, mail order catalogs and mass market retailers.
NOTE 3 INVENTORIES
Inventories (net) at December 31, 2000 consist of the following:
Raw materials $ 746,572
Work in process 57,393
Finished goods 976,290
--------
$1,780,255
=========
At December 31, 2000, the Company has reserved $560,761 for obsolete inventory.
NOTE 4 PREPAID EXPENSES
Prepaid expenses at December 31, 2000 consist of the following:
Prepaid advertising $ 201,225
Other prepaid expenses 28,412
-------
$ 229,637
=======
NOTE 5 PROPERTY AND EQUIPMENT
Property, plant and equipment, as of December 31, 2000 consisted of:
Research and development
equipment $ 160,890
Production equipment 45,051
Tooling and test equipment 779,616
Office furniture and equipment 400,341
Sales displays 52,101
Leasehold improvements 141,671
Construction in progress-software 274,604
----------
1,854,274
Less accumulated depreciation
and amortization 1,236,480
---------
$ 617,794
=========
Depreciation and amortization expense for the years ended December 31, 2000
and 1999 totaled $226,083 and $259,870, respectively. Estimated costs to
complete construction in progress for TRAVEL*STAR 24( software development
tools at December 31, 2000 was $30,000. The Company plans to begin
amortization of these costs in June 2001 as production activities and
shipments to customers begin in earnest. The Company also plans to
capitalize similar software tools for future versions of the TRAVEL*STAR
product starting in 2001 and spend approximately $75,000 for this effort
during the year.
NOTE 6 COMPREHENSIVE INCOME (LOSS)
The Company follows SFAS No. 130, "Reporting Comprehensive Income". This
statement establishes standards for reporting and display of comprehensive
income and its components.
The components of other comprehensive income (loss), net, are as follows:
2000 1999
---------------------------
Unrealized loss on deferred compensation
investments:
Unrealized losses arising during the
period, net $ (50,874) $ (62,661)
Reclassification adjustment for gains
realized in net loss - 14,014
Foreign currency translation loss (48,420) -
-------- -------
Other comprehensive loss $ (99,294) $ (48,647)
======= ========
NOTE 7 LEASES
The Company amended 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 $109,678 and $114,247 for the years ended
December 31, 2000 and 1999, respectively.
Future minimum lease payments and the related totals to be expensed for
financial reporting under the operating lease consist of the following:
Cash Payments Expense To Be Recognized
-------------------------------------------------------------------------
Year Ending December 31, 2001 $ 89,153 $ 82,933
=========== ===============
NOTE 8 ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31, 2000 consist of the
following:
Accrued sales commissions and royalties $ 14,758
Accrued payroll 42,294
Accrued vacation 82,990
Accrued advertising 1,563
Other 77,391
--------
$ 218,996
=======
NOTE 9 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 CEO 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 CEO. A distribution to the beneficiary of
$36,850 was made during 1999. The amortized cost and unrealized gain on the
investments were $74,465 and $10,140, respectively, at December 31, 2000.
NOTE 10 LINE OF CREDIT
In April 1999, the Company negotiated a lending agreement with Southwest Bank
of St. Louis that provided a credit facility of $1 million, secured by the
Company's accounts receivable and inventories, which expires on July 1, 2001.
The Bank reserved against this line of credit a Standby Letter of Credit
related to the guarantee of Talon's line of credit discussed below (See Note
16). There were no borrowings at December 31, 2000. As of May 1, 2001, the
Company was in default of certain covenants and agreed not to take any draws
on the line of credit.
The Company has renewed and increased its agreement to be guarantor on a line
of credit in the original amount of $400,000 issued to Talon GPS, LLC, by a
commercial bank in Hong Kong. The new amount that will be guaranteed is
$765,000, in accordance with an agreement whereby the Company is a guarantor
of Talon's line of credit in proportion to the Company's ownership share in
Talon. In connection with the Company's guarantee agreement with Talon, the
Company is contingently liable for an irrevocable letter of credit in favor
of a Hong Kong bank for an aggregate amount not to exceed $765,000. This
letter of credit is due to expire on August 31, 2001 (See Note 1 (D)). The
agreement also states that should the Company elect not to renew the Standby
Letter of Credit, Talon will have the right to repurchase its shares or any
portion thereof from the Company at the fair market value determined by an
appropriate expert.
NOTE 11 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. During 2000, the notes earned $9,352
in interest.
NOTE 12 EARNINGS (LOSS) PER SHARE
A reconciliation of the numerator and denominator of the loss per share
calculations is provided for all periods presented. The numerator for basic
and diluted loss per share is net loss for all periods presented. The
denominator for basic and diluted loss per share for 2000 and 1999, as
follows:
For The Twelve Months Ended December 31,
2000 (a) 1999 (b)
----------------------------------------
Numerator:
Net earnings (loss) $ (1,712,503) $ (1,997,250)
Preferred Stock Dividend (c) (1,456,625) -
---------- ----------
Numerator for basic and diluted
loss per share - weighted average
shares (d) $ (3,169,128) $ (1,997,250)
========== ==========
Denominator:
Denominator for basic and diluted
loss per share - weighted average
shares (d) 3,168,186 3,122,138
========= =========
Basic and diluted loss per share (1.00) (0.64)
(a) Options to purchase 759,450 shares of common stock at prices between
$1.50 and $7.39 per share were outstanding at December 31, 2000, but
were not included in the computation of diluted loss per share because
they are anti-dilutive.
(b) Options to purchase 412,430 shares of common stock at prices between
$1.44 and $7.39 per share were outstanding at December 31, 1999, but were
not included in the computation of diluted loss per share because they
were anti-dilutive.
(c) See Note 20.
(d) Conversion of the preferred stock was not included in the weighted-average
shares and computation of diluted loss per share because the effect of the
preferred stock dividend was anti-dilutive.
NOTE 13 INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2000 and 1999
consist of:
2000
Current Deferred Total
------------------------------------------------------------------
Federal $ - $ - $ -
State - - -
------------------------------------------------------------------
$ - $ - $ -
==================================================================
1999
Current Deferred Total
-------------------------------------------------------------------
Federal $(105,913) $ 426,028 $ 320,115
State - 50,121 50,121
-------------------------------------------------------------------
$(105,913) $ 476,149 $ 370,236
===================================================================
Income tax expense for the years ended December 31, 2000 and 1999 differed
from amounts computed by applying the statutory U. S. federal corporate
income tax rate of 34% to income before income tax benefit as a result of the
following:
2000 1999
----------------------------------------------------------------------------
Expected income tax (benefit) expense $ (581,908) $ (553,185)
Increase (decrease) in income taxes
resulting from:
Valuation allowance increase 311,772 962,937
State income taxes, net of federal
expense (benefit) (16,884) 33,080
Nondeductible expenses for federal
income tax purposes 1,204 2,458
Foreign operations 106,813 3,642
Other, net 179,003 (78,696)
---------- --------
Income tax expense (benefit) $ - $ 370,236
========== ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2000
include the following:
2000
------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforward $ 1,895,332
Note receivable reserved for financial
reporting purposes 202,283
Notes and accounts receivable reserves 72,050
Inventory reserves, principally due to
accruals for financial reporting purposes
and basis differences 190,658
Other 24,925
---------
Total deferred tax assets $ 2,385,248
---------
Deferred tax liabilities
Prepaid advertising (4,747)
Property, plant and equipment, principally
due to differences in depreciation basis (34,133)
Unrealized gain on deferred compensation
trust investments (3,448)
---------
Total deferred tax liabilities (42,328)
---------
Gross deferred tax asset 2,342,920
Valuation allowance (2,342,920)
---------
Net deferred tax asset $ -
=========
During 1999, the Company received tax refunds for carryback of net operating
losses of $337,140. A valuation allowance has been provided for those net
operating loss carryforwards and temporary differences in view of the
Company's continuing losses in 2000. The net operating loss carryforward of
approximately $5,500,000 will expire through 2021.
NOTE 14 EMPLOYEE BENEFIT PLANS
(a) 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 $40,586 and $43,015 during
the years ended December 31, 2000 and 1999, respectively.
(b) Incentive Stock Option Plans
At December 31, 2000, 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 loss and loss per share
would have been increased to the pro forma amounts indicated below:
2000 1999
---------------------------------
Net loss available to common shareholders
As Reported $ (3,169,128) $ (1,997,250)
Pro Forma $ (3,192,372) $ (2,163,741)
Basic and diluted loss per share
As Reported $ (1.00) $ (0.64)
Pro Forma $ (1.01) $ (0.69)
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 1999, the Company cancelled incentive stock options to purchase
17,300 shares of common stock at exercise prices ranging from $3.00 to
$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 2000 and 1999, respectively:
dividend yield of zero for all years; expected volatility of 77.25% and
68%; risk-free interest rates of 5.79% and 6.30%; 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, 2000 and 1999, and the changes during the years then ended
is presented below:
2000 1999
----------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
-----------------------------------------------------------------------------
Outstanding at beginning
of year 412,430 $ 3.70 326,192 $ 4.25
Granted (including
repriced options) 36,403 $ 3.73 103,538 $ 1.98
Forfeit (23,860) $ 3.39 (17,300) $ 3.73
Exercised (94,523) $ 3.33 - $ -
-----------------------------------------------------------------------------
Outstanding at end of year 330,450 $ 3.69 412,430 $ 3.70
=============================================================================
Option exercisable at year
end 330,450 412,430
Weighted average fair
value of options granted
to employees during the
year $1.00 $0.65
Options Outstanding Options Exercisable
--------------------------------------- -------------------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise December 31, Contractual Exercise December 31, Exercise
Price 2000 Life Price 2000 Price
------------------------------------------------------------------------------
$1.00 - 1.99 34,385 4.9 $ 1.51 34,385 $ 1.51
2.00 - 2.99 56,965 3.9 2.00 56,965 2.00
3.00 - 3.99 32,550 2.9 3.00 32,550 3.00
4.00 - 4.99 194,892 3.5 4.00 194,892 4.00
5.00 - 5.99 1,658 4.5 5.01 1,658 5.01
7.00 - 7.39 10,000 0.7 7.39 10,000 7.39
------- -------
330,450 330,450
======= =======
NOTE 15 COMMITMENTS AND CONTINGENCIES
On September 14, 1989, the Company entered into a royalty agreement relating
to its ROAD WHIZ product. After 20,000 ROAD WHIZ units are sold, the
agreement provides for a 1% royalty payment on net sales of the ROAD WHIZ
product and 0.5% on the Company's other products, which incorporate the ROAD
WHIZ database. Royalty payments are made quarterly until September 13, 2009.
During the years ended December 31, 2000 and 1999, royalty expense totaled
$60,645 and $39,820, respectively.
On December 29, 1998, the Company entered into a three-year royalty agreement
with a consultant with regard to the AAA TripWizard for 1% of sales to
customers other than their own, for which they earn their normal independent
sales representative commissions. During the years ended December 31, 2000
and 1999, expense totaled $10,958 and $950, respectively.
On September 15, 1998, the Company entered into a three-year royalty agreement
with AAA related to the AAA TripWizard. The terms are automatically renewable
for one year and amount to 10% of the wholesale price on sales other than
through AAA stores and $1.00 per unit on AAA sales. This agreement recognizes
the benefit of the AAA logo and data and their promotion of the product through
their travel stores. During the year ending December 31, 2000 royalty expenses
totaled $55,320 compared to $33,250 for 1999.
NOTE 16 INVESTMENT IN AFFILIATES
In May 1999, the Company formed a joint venture with Influence Content, LLC,
a website developer, to form Influence Data, LLC. The Company issued 80,000
shares of common stock (at quoted market price) from the treasury and options
(valued at market upon the Black-Scholes method) to purchase 160,000 shares of
common stock for a one-third interest in Influence Data, LLC. The original
value of the investment, based on the consideration given to form the joint
venture was $327,200.
On May 30, 2000 the Company entered into a new agreement with Influence
Content, LLC, to cancel the option agreement dated May 4, 1999, which issued
options for 160,000 common shares, and issue new options for 300,000 common
shares of the Company. In addition, the Company was required to pay $200,000
as additional capital contributions in connection with this agreement. The
additional capital contribution contained the following provisions: the
capital contribution shall not increase the Company capital account in
Influence Data, LLC, nor be included for purposes of maintenance of the
capital account. Furthermore, such capital contribution shall not serve to
relieve or reduce the capital contribution obligations, if any, of the Company
under the terms of the Influence Data, LLC, Operating Agreement. The Company
has recorded an additional amount of $255,982 in goodwill in addition to the
original $327,000 investment value recorded by the Company during the year
ended December 31, 1999. The $255,982 is comprised of the $200,000 in cash
paid by the Company and $55,982 additional cost value of the options issued
as a result of the May 30, 2000 agreement. The fair value of the common stock
options are estimated on the date of the grant using the Black Scholes option
model with the following weighted average assumptions: dividend yield of zero,
expected volatility of 40.0%, risk-free interest rate of 5.74%, and an expected
life of five years.
The Company's 33% interest in Influence Data, LLC is accounted for using the
equity method of accounting and is stated at amortized cost plus equity in
undistributed earnings since acquisition. The equity in earnings of Influence
Data, LLC is adjusted for the annual amortization of the difference between
the acquisition cost and the Company's proportionate share of Influence Data,
LLC's members' equity net assets. Amortization is computed on a straight-line
basis over ten years. The unamortized difference between the investment cost
and the Company's proportionate share of Influence Data, LLC is $156,053 at
December 31, 1999. The Company's share of the losses for 1999 totaled
$60,386. As discussed above, the losses were increased by $11,147 to bring
the equity in loss of affiliate to $71,533 for 1999. During 2000, the
Company's proportionate share of losses through September 30, 2000 was
$227,226. During the fourth quarter of 2000, the Company was notified that
Influence Data, LLC was having funding problems and ceasing operations. The
Company also recognized an impairment loss on its investment of $225,039.
On March 23, 1998, the Company acquired an 18.9% interest in Talon for
$282,500. In August 1998, the Company acquired an option to purchase
additional shares in Talon for $312,147. During 1999, the option to purchase
additional shares was amended, and the above amount was utilized to purchase
an additional 6% interest in Talon. Legal and consulting costs associated
with the acquisition and option to purchase additional shares are capitalized
as part of the cost of the investment, and totaled $124,108 during December
31, 1999.
The Company's 22.6% interest in Talon is accounted for using the equity method
of accounting and is stated at amortized cost plus equity in undistributed
earnings since acquisition. The Company's interest decreased from 24.9% based
on a 10% increase in Talon's outstanding shares due to incorporation of an
employee stock option plan for Talon employees in 2000. The equity in earnings
of Talon is adjusted for the annual amortization of the difference between
acquisition cost and the Company's proportionate share of Talons' net assets.
Amortization is computed on a straight-line basis over nine years. The
unamortized difference between the investment cost and the Company's
proportionate share of talon is $487,458 and $568,655 at December 31, 2000
and 1999, respectively. The Company's share of the earnings for 2000 and
1999 were $173,383 and $61,496, respectively after accounting for the
differences between New Zealand GAAP and US GAAP. As discussed above, the
earnings were further reduced by amortization of $90,488 and $71,081 and a
write-down of goodwill of $32,794 associated with the change in ownership
during 2000, bringing the equity in (loss) gain of affiliate to $46,273 and
$(9,585) for the years 2000 and 1999, respectively. The Company's equity in
earnings of affiliate from inception was $165,008 as of December 31, 2000
(See Note 10).
In addition to the above transactions, the Company has purchased certain
electronic components, including parts for TRAVEL*STAR 24, which have been
sold to Talon at cost. These sales totaled $0 and $3,530 for the years ended
December 31, 2000 and 1999, respectively. A net balance of $70,144 was a
receivable from Talon by the Company at December 31, 2000 and is included in
trade accounts receivable.
NOTE 17 ADVANCES TO AFFILIATES
On July 1, 1998, the Company entered into a joint development and marketing
agreement with a privately held company based in McLean, Virginia. The
Company transferred certain software and documentation of its' service software
in exchange for a promissory note in the principal amount of $400,000, bearing
interest at prime rate. In addition, the Company leased computer equipment to
the affiliate at favorable rates. The Company advanced $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 the affiliate up to $400,000 in
additional funds to complete network development, of which $200,000 was
advanced as of December 31, 2000. These advances wereincorporated 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 the
affiliate). The agreement also provides for the optional conversion of the
loan into a 10% equity interest in the privately held company, at the Company's
sole discretion. The Company has reserved $594,950 at December 31, 2000. The
remaining receivable balance is $150,000 at December 31, 2000.
NOTE 18 SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 2000, the Company recorded adjustments that increased
net loss by approximately $466,500. These adjustments included $225,000
related to the write-off of Influence Data, LLC, $138,500 for an increase in
the inventory reserve for obsolescence and write-off of a bad debt from a
customer, and $103,000 of other various expenses related to overseas
manufacture and import. These adjustments compare to $450,000 of adjustments
in the fourth quarter of 1999.
In the fourth quarter of 1999, the Company recorded adjustments that
increased net loss by approximately $450,000. These adjustments included
$330,000 related to the investments in Influence Data, LLC and Talon,
$40,000 for an increase in the inventory reserve for obsolescence, and
$80,000 of various other expenses.
NOTE 19 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental non-cash investing and financing activities were as follows:
Year ended December 31, 2000
-----------------------------
The Company issued 300,000 common stock options to Influence data, LLC with
an aggregate fair value of $55,982.
Year ended December 31, 1999
-----------------------------
The Company issued 80,000 shares of treasury stock and options to purchase
160,000 shares of its common stock, with an aggregate fair value of $327,200,
for a one-third ownership interest in Influence Data, LLC.
The Company redeemed 149,971 shares of common stock in exchange for related
notes receivable of $321,688.
The Company exchanged slow-moving inventory for advertising credits from a
third party valued at $249,685.
NOTE 20 CONVERTIBLE PREFERRED STOCK
On May 16, 2000, the Company received from two investors gross proceeds of
$1,600,000 for Series A Convertible Preferred Shares (the "Preferred Shares")
and Common Stock Purchase Warrants ("Warrants"). The Preferred Shares have
no voting rights, except as to matters which directly affect the rights of
holders of Preferred Shares. The holders of Preferred Shares are not entitled
to any cash dividends. However, they accrue an additional 11.25% per annum
(or 22.5% if the Common Stock is delisted by NASDAQ) for purposes of
conversion, redemption, and liquidation ($113,625 at December 31, 2000).
Among the rights attendant to the Preferred Shares are:
1. The Preferred Shares have a liquidation preference, upon the liquidation
of Ultradata or its bankruptcy or certain other events, equal to their
face value plus an accrued amount equal to 11.25% from the date of their
issuance (22.5% if the Common Stock is delisted by NASDAQ).
2. The Preferred Shares, combined with the additional 11.25% per annum,
may be converted into Common Stock at any time at the option of the
holders. If not previously converted, the Preferred Shares will
automatically convert into Common Stock on May 15, 2003. The conversion
rate will be the lower of $3.50 or 75% of the 5-day average closing bid
price, subject to certain anti-dilution rights and to the Floor. The
"Floor" was initially $2.50 and has since adjusted to $2.00. It applies
only during the first 18 months after issuance of the Preferred Shares.
Moreover, if the conversion price for any 20 trading days during months
13 through 18 after issuance less than $2.00 for the Floor, the Floor
will reduce to $1.50. The intrinsic value of this beneficial conversion
feature has resulted in deemed dividends of $811,189.
3. At the time the shares were issued, Ultradata undertook to obtain
shareholder approval of the conversion of the new securities and to
register the underlying common stock for public resale. If Ultradata
had not satisfied those conditions, the Investors had a right to
require Ultradata to repurchase any Preferred Shares that could not be
converted into free-trading common stock due to that limitation. The
redemption price would have been the greater of (a) 130% of face value
plus 11.25% of face value from date of issuance or (b) the difference
between the conversion price of the unconvertible share and the 5-day
average closing asked price. The conditions were satisfied in July
2000 and August 2000, respectively, and the Preferred Shares are no
longer redeemable.
The Warrants will permit the Investors to each purchase up to 239,253
shares of Common Stock (a total of 478,506 shares) for a price of
$5.00 per share until May 15, 2003. The Company has recorded the
estimated fair value of the Warrants, $284,089, as additional paid-in
capital and included as a dividend to preferred stockholders.
The placement was arranged by a consultant. In compensation for their
services, The Company paid $202,000 to the consultant, 12% of the gross
proceeds of the placement, and issued to the consultant (a) an option
to purchase, on the same terms as the Investors, 160 Preferred Shares,
equal to ten percent of those sold to Investors, and (b) an option to
purchase 128,000 common shares. The value of the options was credited
to additional paid-in capital. The Company also paid another consultant
in connection with the placement a fee of 9,570 shares of the Company's
common stock with an estimated fair value of $31,868 and included as a
dividend to preferred stockholders.
The fair value of the warrants and common stock options is estimated on
the day of the grant using the Black-Scholes option model with the
following weighted-average assumptions: dividend yield of zero, expected
volatility of 40.0%, risk-free interest rate of 5.4%, and expected lives
of between 2.5 and 3.0 years.
The Company made a number of covenants to the Investors in the Agreement,
which included the following:
1. Until November 16, 2000, Ultradata will not issue any securities for
the purpose of financing itself without the approval of the Investors.
2. The Investors will have a right of first refusal on any sale of
securities by Ultradata until May 10, 2001.
The two Investors have committed to purchase additional preferred stock
and warrants in certain circumstances as of the date of this report,
both covenants have expired.
Preferred stock dividends are comprised of the following:
Value of common shares issued $ 31,868
Value of warrants issued 284,089
Value of options issued 215,854
Beneficial conversion feature of
preferred stock 811,189
Cumulative preferred stock dividend 113,625
---------
Total $ 1,456,625
=========
See Note 21 regarding the exchange of 1408 shares of Series A
Preferred Stock for Convertible Promissory Notes.
NOTE 21 SUBSEQUENT EVENTS
(A) Conversion of Preferred Stock
During March 2001, preferred shareholders converted 28 shares of preferred
stock into 56,118 shares of common stock.
(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 1408 preferred shares. The Company will satisfy
the interest and principal on the notes with payments of $140,000 in Septemer,
$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 preceeding the conversion.
16 shares of Series A preferred stock remain outstanding. The terms are
unchanged, except that the Company has agreed to remove the "Floor" for
purposes of conversion.
ULTRADATA SYSTEMS, INCORPORATED
Balance Sheets
June 30, December 31,
2001 2000
(Unaudited)
Assets
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
--------- ---------
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
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
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
Six months
ended
--------------------
June 30, June 30,
2001 2000
(unaudited)
Net sales $ 696,454 $ 1,063,107
Cost of sales 414,650 722,544
-------- ---------
Gross profit 281,804 340,563
-------- ---------
Selling expense 205,982 167,448
General and administrative expenses 1,140,820 1,034,990
Research and development expense 225,360 172,090
--------- ---------
Operating loss (1,290,358) (1,033,965)
Other (expense) income
Interest and dividend income, net 46,043 31,340
Equity in (losses) earnings of
affiliates 5,568 (125,088)
Other, net (22,103) (29,254)
--------- ----------
Total other income, net 29,508 (123,002)
--------- ----------
Loss before income taxes (1,260,850) (1,156,967)
--------- ---------
Income tax benefit - -
Net loss $(1,260,850) $(1,156,967)
========= =========
Less deemed dividends on
preferred shares (91,669) (1,059,747)
--------- ---------
Net loss available to common
shareholders (1,352,519) (2,216,714)
========= =========
Loss per share-basic and diluted
$ (0.42) $ (0.71)
Weighted Average Shares Outstanding: ========= =========
Basic and diluted 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 2000
Cash flows from operating activities:
Net loss $ 696,454 $ (1,156,967)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 99,130 116,872
Provision for inventory 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 $ 87,239 $ -
Conversion of preferred stock $ 28,000 $ -
See accompanying summary of accounting policies and notes to financial
statements.
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.
In the opinion of management, the information furnished for the 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.
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. 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 2. 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 3. 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 4. 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 5. Subsequent Events
(A) Redemption of preferred stock
After June 30, 2001, the Company repurchased from preferred shareholders 58
additional preferred shares 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 the Company exchanged 11.25% convertible promissory notes
with a face value of $1,748,120 for 1,408 preferred shares. The Company will
satisfy the interest and principal on the notes with payments of $140,000 in
September 2001, $70,000 in October 2001, 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 days preceding the conversion.
Part II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation to provide indemnification to a director, officer,
employee or agent of the corporation, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him
in connection with such action, suit or proceeding, if such party acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful as determined in accordance with the statute, and except that with
respect to any action which results in a judgment against the person and in
favor of the corporation the corporation may not indemnify unless a court
determines that the person is fairly and reasonably entitled to the
indemnification. Section 145 further provides that indemnification shall be
provided if the party in question is successful on the merits.
Our certificate of incorporation provides that our directors shall
be indemnified by us to the extent authorized by Delaware law. This
indemnification would cover all expenses and liabilities reasonably incurred
in connection with their services as directors.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of Ultradata pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment
by Ultradata of expenses incurred or paid by a Director, officer or
controlling person of Ultradata in the successful defense of any action, suit
or proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, Ultradata will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Our certificate of incorporation also provides that our directors
will not be personally liable to us for monetary damages for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to us
or our stockholders, acted in bad faith, knowingly or intentionally violated
the law, authorized illegal dividends or redemptions or derived an improper
personal benefit from their action as directors.
Item 25. Other Expenses of Issuance and Distributions
The following are the expenses that Ultradata expects to incur in
connection with the registration and distribution of the shares being
registered. All of these expenses (other than the filing fee and the
insurance premium) are estimated, and will not be certain until after the
registration statement is declared effective. Ultradata will pay all of these
expenses; the selling shareholders will pay none of them.
Filing Fee....................... $ 407
Accounting fees.................. 10,000
Transfer Agent .................. 1,000
Legal fees....................... 20,000
Printing expenses................ 200
Insurance premium................ 25,300
TOTAL.................. $ 56,907
Item 26. Recent Sales of Unregistered Securities.
On May 16, 2000 Ultradata sold 800 shares of Series A Convertible
Preferred Stock and Common Stock Purchase Warrants to each of BH Capital
Investments, L.P. and Excalibur Limited Partnership. The securities were sold
for a total of $1,600,000, from which Ultradata paid $335,000 as commissions
to individuals and entities involved in the placement. The sale was exempt
pursuant to Section 4(2) of the Act since the sale was not made in a public
offering and was made to individuals who had access to detailed information
about the Company and were buying for their own account. There were no
underwriters.
On May 16, 2000 Ultradata issued 16 shares of Series A Convertible
Preferred Stock and 9,570 shares of common stock to two individuals as
compensation for services in connection with the sale of Preferred Stock
referenced above. The sale was exempt pursuant to Section 4(2) of the Act
since the sale was not made in a public offering and was made to individuals
who had access to detailed information about the Company and were buying for
their own account. There were no underwriters.
On July 5, 2000 Ultradata sold 5,500 shares of common stock to Robert
Brantl for $15,000. The sale was exempt pursuant to Section 4(2) of the Act
since the sale was not made in a public offering and was made to an individual
who had access to detailed information about the Company and was buying for
his own account. There were no underwriters.
Item 27. Exhibits and Financial Statement Schedules
Exhibits
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-a.(3) Amendment to Articles of Incorporation dated July 26, 1996 (4)
3-a.(4) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock (4)
3-b. Amended and Restated By-laws. - filed herewith
4-a. Specimen of Common Stock Certificate. (1)
5 Opinion of Robert Brantl, Esq. - filed herewith
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. 1996 Stock Option Plan, as amended - filed as an exhibit to the
Company's Registration Statement on Form S-8 (File No. 333-32098) and
incorporated herein by reference.
10-d. Employment Agreement with Monte Ross.(1)
10-d.(1) Extended employment agreement as of September 30, 1997 between the
Company and Monte Ross (2)
10-e. Employment Agreement with Mark L. Peterson.(1)
10-e.(1) Extended employment agreement as of September 30, 1997 between the
Company and Mark L. Peterson (2)
10-f. Employment Agreement with Ernest Clarke.(1)
10-f.(1) Extended employment agreement as of September 30, 1997 between the
Company and Ernest Clarke (2)
10-g. Royalty Agreement dated September 14, 1989, between the Company and
Leonard Missler.(1)
10-g.(1) Modification Agreement dated November 4, 1995, to Royalty
Agreement dated September 14, 1989, between the Company and
Leonard Missler. (1)
10-h. Exchange Agreement with holders of the Convertible Preferred Notes (5)
10-h.(1) Form of 11.25% Senior Subordinated Secured Convertible Promissory
Note (5)
10-h.(2) Form of Stock Purchase Warrant issued for 478,506 shares (5)
10-h.(3) Registration Rights Agreement with holders of the 11.25%
Convertible Notes and Stock Purchase Warrants (5)
10-h.(4) Security Agreement with holders of the 11.25% Convertible Notes
(5)
10-i. Option Agreement between the Company and Influence Incubator, L.L.C.
dated May 30, 2000 - filed as an exhibit to the Company's Current
Report on Form 8-K dated May 30, 2000 and incorporated herein by
reference.
10-j. Share Issue and Option Agreement dated March 23, 1998 among the
Company, Talon Research & Development Co., Limited, and certain
shareholders of Talon. (3)
10-k. Variation of Option Deed dated August 27, 1998 between Talon Research
& Development Co., Limited, certain shareholders of Talon, and the
Company. (3)
10-l. Deed made in 1999 relating to Variation of Option Deed between Talon
Research & Development Co., Limited, certain shareholders of Talon,
and the Company. (3)
16. Current Report on Form 8-K/A dated April 6, 2001
21. Subsidiaries - None.
23-a. Consent of Weinberg & Company, P.A. - filed herewith
23-b. Consent of BDO Seidman, LLP - filed herewith
23-c. Consent of Robert Brantl, Esq. is contained in his opinion.
_________________________________
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 33-85218 C) and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, and incorporated herein
by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the period ended March 31, 2000 and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-39434) and incorporated by reference
herein.
(5) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated August 13, 2001 and incorporated by reference herein.
Item 28. Undertakings
See Item 24 for the undertaking regarding the indemnification of
officers, directors and controlling persons.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendments to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or
high end of estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
Ultradata Systems, Incorporated certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form SB-2 and
authorized this registration statement to be signed on its behalf by the
undersigned in the City of St. Louis and the State of Missouri on the 17th
day of September, 2001.
ULTRADATA SYSTEMS, INCORPORATED
By:\s\Monte Ross
Monte Ross, Chairman
In accordance with to the requirements of the Securities Act of 1933,
this registration statement has been signed below by the following
persons in the capacities stated on September 17, 2001
Name Title
/s/Monte Ross Chief Executive Officer, Director
Monte Ross
/s/Ernest Clarke Chief Financial and Accounting
Ernest Clarke Officer, Director
/s/Mark L. Peterson Director
Mark L. Peterson
Director
Donald Rattner
Director
Howard Krollfeifer, Jr.
INDEX TO EXHIBITS
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-a.(3) Amendment to Articles of Incorporation dated July 26, 1996 (4)
3-a.(4) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock (4)
3-b. Amended and Restated By-laws. - filed herewith
4-a. Specimen of Common Stock Certificate. (1)
5 Opinion of Robert Brantl, Esq. - filed herewith
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. 1996 Stock Option Plan, as amended - filed as an exhibit to the
Company's Registration Statement on Form S-8 (File No. 333-32098) and
incorporated herein by reference.
10-d. Employment Agreement with Monte Ross.(1)
10-d.(1) Extended employment agreement as of September 30, 1997 between the
Company and Monte Ross (2)
10-e. Employment Agreement with Mark L. Peterson.(1)
10-e.(1) Extended employment agreement as of September 30, 1997 between the
Company and Mark L. Peterson (2)
10-f. Employment Agreement with Ernest Clarke.(1)
10-f.(1) Extended employment agreement as of September 30, 1997 between the
Company and Ernest Clarke (2)
10-g. Royalty Agreement dated September 14, 1989, between the Company and
Leonard Missler.(1)
10-g.(1) Modification Agreement dated November 4, 1995, to Royalty
Agreement dated September 14, 1989, between the Company and
Leonard Missler. (1)
10-h. Exchange Agreement with holders of the Convertible Preferred Notes (5)
10-h.(1) Form of 11.25% Senior Subordinated Secured Convertible Promissory
Note (5)
10-h.(2) Form of Stock Purchase Warrant issued for 478,506 shares (5)
10-h.(3) Registration Rights Agreement with holders of the 11.25%
Convertible Notes and Stock Purchase Warrants (5)
10-h.(4) Security Agreement with holders of the 11.25% Convertible Notes
(5)
10-i. Option Agreement between the Company and Influence Incubator, L.L.C.
dated May 30, 2000 - filed as an exhibit to the Company's Current
Report on Form 8-K dated May 30, 2000 and incorporated herein by
reference.
10-j. Share Issue and Option Agreement dated March 23, 1998 among the
Company, Talon Research & Development Co., Limited, and certain
shareholders of Talon. (3)
10-k. Variation of Option Deed dated August 27, 1998 between Talon Research
& Development Co., Limited, certain shareholders of Talon, and the
Company. (3)
10-l. Deed made in 1999 relating to Variation of Option Deed between Talon
Research & Development Co., Limited, certain shareholders of Talon,
and the Company. (3)
16. Current Report on Form 8-K/A dated April 6, 2001
21. Subsidiaries - None.
23-a. Consent of Weinberg & Company, P.A. - filed herewith
23-b. Consent of BDO Seidman, LLP - filed herewith
23-c. Consent of Robert Brantl, Esq. is contained in his opinion.
_________________________________
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 33-85218 C) and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, and incorporated herein
by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the period ended March 31, 2000 and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 333-39434) and incorporated by reference
herein.
(5) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated August 13, 2001 and incorporated by reference herein.
*******************************************************************
Exhibit 3-b
FIRST AMENDED AND RESTATED
BY-LAWS
OF
ULTRADATA SYSTEMS, INCORPORATED
(a Delaware corporation)
1. MEETING OF SHAREHOLDERS.
1.1 Annual Meeting. The annual meeting of shareholders shall be held on a
date fixed by the Board of Directors as soon as practicable after the comple
tion of the audit of the Company's financial statements for the previous year,
and shall be held at a place and time determined by the board of directors
(the "Board").
1.2 Special Meetings. Special meetings of the shareholders may be called
by resolution of the Board (or by the Chairman of the Board) or by the Presi
dent and shall be called by the President or Secretary upon the written re
quest (stating the purpose or purposes of the meeting) of a majority of the
Board, or upon written request of a majority of stockholders entitled to vote.
Only business related to the purposes set forth in the notice of the meeting
may be transacted at a special meeting.
1.3 Place of Meeting. Meetings of the shareholders may be held in or out
side Delaware.
1.4 Notice of Meetings; Waiver of Notice. Written notice of each meeting
of shareholders shall be given to each shareholder entitled to vote at the
meeting, except that (a) it shall not be necessary to give notice to any
shareholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given except when required
by law. Each notice of meeting shall be given, personally or by mail, not less
than 10 nor more than 60 days before the meeting and shall state the time and
place of the meeting, and unless it is the annual meeting, shall state at
whose direction the meeting is called and the purposes for which it is called.
If mailed, notice shall be considered given when mailed to a shareholder at
his address on the Corporation's records. The attendance of any shareholder
at a meeting, without protesting at the beginning of the meeting the lack of
notice of the meeting, shall constitute a waiver of notice by him.
1.5 Quorum. The presence in person or by proxy of the holders of a
majority of the shares entitled to vote shall constitute a quorum for the
transaction of any business. In the absence of a quorum a majority in voting
interest of those present or, in the absence of all the shareholders, any
officer entitled to preside at or to act as secretary of the meeting, may
adjourn the meeting until a quorum is present. At any adjourned meeting at
which a quorum is present any action may be taken which might have been taken
at the meeting as originally called. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
of record entitled to vote at the meeting.
1.6 Voting; Proxies. Each shareholder of record shall be entitled to one
vote for every share registered in his name and may attend meetings and vote
either in person or by proxy. Corporate action to be taken by shareholder
vote, including the election of directors, shall be authorized by a majority
of the votes cast at a meeting of shareholders, except as otherwise provided
by law or by section 1.7 of these by-laws. Directors shall be elected in the
manner provided in section 2.1 of these by-laws. Voting need not be by ballot
unless requested by a shareholder at the meeting or ordered by the chairman of
the meeting. Every proxy must be signed by the shareholder or his
attorney-in-fact. No proxy shall be valid after three years from its date
unless it provides otherwise.
1.7 Action by Shareholders Without a Meeting. Any shareholder action may
be taken without a meeting, without prior notice and without a vote, if
written consent, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
2.BOARD OF DIRECTORS.
2.1 Number, Qualification, Election and Term of Directors. The business of
the Corporation shall be managed by the Board, which shall consist of not less
than 1 director who shall be at least 21 years old. The number of directors
may be changed by resolution of a majority of the entire Board or by the
shareholders, but no decrease may shorten the term of any incumbent director.
Directors shall be elected at each annual meeting of shareholders by a
plurality of the votes cast and shall hold office until the next annual
meeting of shareholders and until the election of their respective successors.
2.2 Quorum and Manner of Acting. A majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting, except as
provided in Section 2.10 of these by-laws. Action of the Board shall be
authorized by the vote of a majority of the directors present at the time of
the vote if there is a quorum, except as otherwise provided by section 2.3 of
these by-laws. Where these by-laws specify a single director, a single
director shall constitute a quorum. In the absence of a quorum a majority of
the directors present may adjourn any meeting from time to time until a quorum
is present.
2.3 Action by Board without a Meeting. Any Board action (or action of any
committee thereof) may be taken without a meeting if all members of the Board
(or of the committee) consent in writing to the adoption of a resolution
authorizing the action, and the writing or writings are filed with the minutes
of the proceedings of the board (or committee).
2.4 Participation by Telephone. Any one or more members of the Board or
any committee thereof may participate in a meeting of the Board or such
committee by means of a conference telephone or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participating by such means shall constitute presence in
person at a meeting.
2.5 Place of Meetings. Meetings of the Board may be held in or outside
Delaware.
2.6 Annual and Regular Meetings. Annual meetings of the Board, for the
election of officers and consideration of other matters, shall be held either
(a) without notice immediately after the annual meeting of shareholders and at
the same place, or (b) as soon as practicable after the annual meeting of
shareholders, on notice as provided in section 2.8 of these by-laws. Regular
meetings of the Board may be held without notice at such times and places as
the Board determines. If the day fixed for a regular meeting is a legal
holiday, the meeting shall be held on the next business day.
2.7 Special Meetings. Special meetings of the Board may be called by the
President or by any one of the directors. Only business related to the
purposes set forth in the notice of meeting may be transacted at a special
meeting.
2.8 Notice of Meetings; Waiver of Notice. Notice of the time and place of
each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of shareholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting, or who attends the
meeting without protesting the lack of notice to him, either before the
meeting or when it begins. Notice of any adjourned meeting need not be given,
other than by announcement at the meeting at which the adjournment is taken.
2.9 Resignation and Removal of Directors. Any director may resign at any
time. Any or all of the directors may be removed at any time, either with or
without cause, by vote of a majority of the shareholders then entitled to vote
at an election of directors, and any of the directors may be removed for cause
by the Board.
2.10 Vacancies. Any vacancy in the Board, including one created by an
increase in the number of directors, may be filled for the unexpired term by a
majority vote of the remaining directors, though less than a quorum.
2.11 Compensation. Directors shall receive such compensation as the Board
determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director may also be paid
for serving the Corporation, its affiliates or subsidiaries in other
capacities.
3. COMMITTEES.
The Board, by resolution adopted by a majority of the entire Board, may
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation, to serve at the Board's pleasure, with such
powers and duties as the Board determines subject to the provisions of the
Delaware General Corporation Law.
4. OFFICERS.
4.1 Number; Security. The executive officers of the Corporation shall be
the Chairman, the Chief Executive Officer, the President, the Secretary, the
Treasurer, and such other officers as may from time to time be chosen by the
Board of Directors. All offices may be held by the same person.
4.2 Election; Term of Office. The executive officers of the Corporation
shall be elected annually by the Board, and each officer shall hold office
until the next annual meeting of the Board and until the election of his
successor.
4.3 Subordinate Officers. The Board may appoint subordinate officers
(including Assistant Secretaries and Assistant Treasurers), agents or
employees, each of whom shall hold office for such period and have such powers
and duties as the Board determines. The Board may delegate to any executive
officer or to any committee the power to appoint and define the powers and
duties of any subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer may resign at any
time. Any officer elected or appointed by the Board or appointed by an
executive officer or by a committee may be removed by the affirmative vote of
a majority of the Board either with or without cause.
4.5 Vacancies. A vacancy in any office may be filled for the unexpired
term in the manner prescribed in sections 4.2 and 4.3 of these by-laws for the
election or appointment to the office.
4.6 The Chairman of the Board. The Chairman of the Board shall preside at
all meetings of the stockholders and the Board of Directors.
4.7 The Chief Executive Officer. The Chief Executive Officer, subject to
the control of the Board of Directors, shall be responsible for formulating
the financial and operational policies of the Corporation, and supervising the
execution thereof.
4.8 The President. The President shall be the chief operating officer of
the Corporation. Subject to the control of the Board of Directors and the
Chief Executive Officer, the President shall be responsible for the general
day-to-day management of the business of the corporation and shall see that
all resolutions of the Board and directives of the Chief Executive Officer are
carried into effect. The Chief Executive Officer and the President shall each
have the power to execute in the corporate name all authorized deeds,
mortgages, bonds, contracts or other instruments requiring a seal, under the
seal of the corporation, except in cases in which the signing or execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
4.9 Vice President. Each Vice President shall have such powers and duties
as the Board or the President assigns to him.
4.10 The Treasurer. Unless otherwise determined by the Board of Directors,
the Treasurer shall be the chief financial officer of the Corporation and
shall be in charge of the Corporation's books and accounts. Subject to the
control of the Board, he shall have such other powers and duties as the Board
or the President assigns to him.
4.11 The Secretary. The Secretary shall be the secretary of, and keep the
minutes of, all meetings of the Board and of the shareholders, shall be
responsible for giving notice of all meetings of shareholders and of the
Board, shall keep the seal and, when authorized by the Board, shall apply it
to any instrument requiring it. Subject to the control of the Board, he shall
have such other powers and duties as the Board or the President assigns to
him. In the absence of the Secretary from any meeting, the minutes shall be
kept by the person appointed for that purpose by the presiding officer.
4.12 Salaries. The Board may fix the officers' salaries, if any, or it may
authorize the President to fix the salary of any officer.
5. SHARES.
5.1 Certificates. The shares of the Corporation shall be represented by
certificates in the form approved by the Board. Each certificate shall be
signed by the President or a Vice President and by the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer, and shall be
sealed with the Corporation's seal or a facsimile of the seal. Any or all of
the signatures on the certificates may be facsimile.
5.2 Transfers. Shares shall be transferable only on the Corporation's
books, upon surrender of the certificate for the shares, properly endorsed.
The Board may require an affidavit of the fact that a certificate has been
lost, stolen or destroyed by the person claiming such fact and a satisfactory
surety before issuing a new certificate to replace the certificate claimed to
have been lost, stolen or destroyed.
5.3 Determination of Shareholders of Record. The Board may fix, in
advance, a date as the record date for the determination of shareholders
entitled to notice of or to vote at any meeting of the shareholders, or to
express consent to or dissent from any proposal without a meeting, or to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action. The record date may not be more than 60 nor less
than 10 days before the date of the meeting, nor more than 60 days before any
other action.
6. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
6.1. Indemnification in Actions Other Than By Right of the Corporation.
The Corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2. Indemnification in Actions by Right of the Corporation. The
Corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or
in the right of the Corporation to procure a judgment in its favor by reason
of the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or other such other court shall deem proper. The foregoing
indemnification shall be in addition to any other rights to which those
indemnified may be entitled under any law, agreement, vote of stockholders, or
otherwise.
7. MISCELLANEOUS.
7.1 Seal. The Board may adopt a corporate seal, which shall be in the form
of a circle and shall bear the Corporation's name and the year and state in
which it was incorporated. The Corporation may transact any and all business
without the need for a corporate seal.
7.2 Fiscal Year. The Board may determine the Corporation's fiscal year.
Until changed by the Board, the Corporation's fiscal year shall end on
December 31.
7.3 Voting of Shares in Other Corporations. Shares in other corporations
which are held by the Corporation may be represented and voted by the
President or a Vice President of this Corporation or by proxy or proxies
appointed by one of them. The Board may, however, appoint some other person to
vote the shares.
7.4 Amendments. By-laws may be amended, repealed or adopted by the
shareholders or by a majority of the entire Board, but any by-law adopted by
the Board may be amended or repealed by the shareholders. If a by-law
regulating elections of directors is adopted, amended or repealed by the
Board, the notice of the next meeting of shareholders shall set forth the
by-law so amended, repealed or adopted, together with a concise statement of
the changes made.
*************************************************************
EXHIBIT 5
ROBERT BRANTL, ESQ.
322 Fourth Street
Brooklyn, NY 11215
718-768-6045
September 14, 2001
Ultradata Systems, Incorporated
9375 Dielman Industrial Drive
St. Louis, MO 63132
Gentlemen:
I am submitting this letter to be filed as an exhibit to the Registration
Statement on Form SB-2 which Ultradata Systems, Incorporated proposes to file
with the Securities and Exchange Commission registering a total of 5,428,000
shares of common stock for resale by four selling shareholders.
I am of the opinion that all corporate proceedings have been taken so that the
shares, if and when sold by the selling shareholders, will be legally issued,
fully paid, and non-assessable.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission in connection with the Registration Statement referred to
above.
Yours,
/s/ Robert Brantl
Robert Brantl
**************************************************************
Exhibit 23-a
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in the Form SB-2 Registration Statement dated
September, 2001 of our report dated June 5, 2001 (except for Note 21(B) for
which the date is July 3, 2001, and Note 21(C) for which the date is August
15, 2001), relating to the balance sheet of Ultradata Systems, Incorporated
as of December 31, 2000 and the related statements of operations, changes in
stockholders' deficiency, and cash flows for the year ended December 31,
2000. We also consent to the use of our name as "Experts" in the
Registration Statement.
WEINBERG & COMPANY, P.A.
Certified Public Accountants
Boca Raton, Florida
September 17, 2001
***********************************************************
Exhibit 23-b
Consent of Independent
Certified Public Accountants
Ultradata Systems, Incorporated
St. Louis, Missouri
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated March 2, 2000,
relating to the financial statements of Ultradata Systems, Incorporated for
the year ended December 31, 1999 which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
St. Louis, Missouri
September 17, 2001