U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO________
COMMISSION FILE NUMBER 0-25380
ULTRADATA SYSTEMS, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9375 Dielman Industrial Drive, St. Louis, MO 63132
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (314) 997-2250
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding as of July 19, 2001
Common, $.01 par value 3,249,533
Transitional Small Business Disclosure Format Yes [ ] No [X]
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
March 31, 2001
INDEX File No. 0-25380
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Financial Statements
Balance Sheets at
March 31, 2001 and December 31, 2000 3.
Statements of Operations
for the three months ended March 31, 2001 and 2000 4.
Statements of Cash Flows
for the three months ended March 31, 2001 and 2000 5.
Notes to Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7.
PART II - OTHER INFORMATION 11.
Signatures 11.
ULTRADATA SYSTEMS, INCORPORATED
Balance Sheets
As of March 31, 2001 and December 31, 2000
March 31, December 31,
2001 2000
(Unaudited)
---------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 1,334,397 $ 1,842,983
Restricted cash 767,813 767,724
Trade accounts receivable, net of allowance
for doubtful accounts of $117,556 189,570 673,475
Inventories 2,081,299 1,780,255
Prepaid expenses and other current assets 241,693 229,637
--------- ---------
Total current assets 4,614,772 5,294,074
--------- ---------
Property and equipment, net 602,733 617,794
--------- ---------
Total property and equipment 602,733 617,794
--------- ---------
Deferred compensation trust investments,
available for sale 68,842 84,605
Investment in Talon Research and
Development, Ltd. 796,520 825,757
Advances to affiliates 150,000 150,000
Advertising credits 62,421 62,421
Other assets 9,444 8,594
--------- ---------
Total assets $ 6,304,732 $ 7,043,245
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 116,041 164,319
Accrued expenses and other liabilities 151,480 218,996
--------- ---------
Total current liabilities 267,521 383,315
--------- ---------
Deferred rent 4,354 6,220
Deferred compensation liability 71,656 87,329
--------- ---------
Total liabilities 343,531 476,864
--------- ---------
Stockholders' equity (Notes 3 and 7):
Preferred Stock, $0.01 par value,
4,996,680 shares authorized, none
outstanding - -
Series A convertible preferred stock,
3,320 shares authorized, 1,606 shares
outstanding with a stated value of $1,000 1,606,000 1,616,000
Common stock, $.01 par value; 10,000,000
shares authorized; 3,535,646 shares
issued and outstanding March 31,2001;
3,519,586 shares issued and outstanding
December 31, 2000 35,356 35,196
Additional paid-in capital 9,874,354 9,861,970
Accumulated deficit (4,250,794) (3,737,190)
Treasury stock (326,171 shares at cost) (942,311) (942,311)
Notes receivable issued for purchase of
common stock (208,157) (205,819)
Accumulated other comprehensive (loss)
income, net (153,247) (61,465)
--------- ---------
Total stockholders' equity 5,961,201 6,566,381
--------- ---------
Total liabilities and stockholders' equity $ 6,304,732 $ 7,043,245
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Operations
Three months ended March 31,
2001 2000
-----------------------------
(Unaudited)
Net sales $ 185,842 $ 281,405
Cost of sales 146,190 169,089
-------- --------
Gross profit 39,652 112,316
-------- --------
Selling expense 51,010 70,677
General and administrative expenses 454,067 449,818
Research and development expense 128,794 96,233
-------- --------
633,871 616,728
-------- --------
Operating loss (594,219) (504,412)
Other income:
Interest and dividend income 33,702 37,775
Equity in earnings (losses) of affiliates 46,767 (65,316)
Other, net 146 12,018
-------- --------
Total other income (loss) 80,615 (15,522)
-------- --------
Loss before income tax expense (513,604) (519,935)
Income tax expense - -
-------- --------
Net loss $ (513,604) $ (519,935)
Less preferred stock dividends (45,450) -
-------- --------
Net loss available to common shareholders $ (559,054) $ (519,935)
======== ========
Loss per share:
Basic and diluted $ (0.18) $ (0.17)
======== ========
Weighted Average Shares Outstanding:
Basic and diluted 3,193,772 3,105,235
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Cash Flows
Three months ended
March 31,
2001 2000
(Unaudited)
----------------------
Cash flows from operating activities:
Net loss $ (513,604) $ (519,935)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 49,979 58,980
Inventory reserve for obsolescence - 30,000
Equity in (earnings) losses of
unconsolidated affiliates (46,767) 65,315
Realized loss (gain) on investments - (10,602)
Non-cash compensation expense 2,544 -
Increase (decrease) in cash due to
changes in operating assets and
liabilities:
Trade accounts receivable, net 483,905 1,044,240
Inventories (301,044) (106,736)
Prepaid expenses and other current
assets (15,242) (38,905)
Accounts payable (48,278) 40,940
Accrued expenses and other liabilities (67,516) (153,494)
Deferred rent (1,866) (1,866)
Deferred compensation trust liability (15,673) 11,858
-------- --------
Net cash (used in) provided by operating
activities (473,562) 419,795
-------- --------
Cash flows from investing activities:
Deferred compensation trust investments (16) (8,634)
Advances to affiliated company - (4,669)
Capital expenditures (34,919) (46,644)
-------- --------
Net cash used in investing activities (34,935) (59,947)
-------- --------
Cash flows from financing activities:
Exercise of employee stock options - 314,625
Restricted cash (89) 8,396
-------- --------
Net cash provided by (used in) financing
activities (89) 323,021
-------- --------
Net increase (decrease) in cash and cash
equivalents (508,586) 682,869
Cash and cash equivalents at beginning
of period 1,842,983 1,220,134
--------- ---------
Cash and cash equivalents at end of
period $1,334,397 $1,903,003
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
March 31, 2001
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim financial statements included herein have been
prepared by Ultradata Systems, Incorporated (the "Company"), without audit
in accordance with generally accepted accounting principles and pursuant to
the rules and regulations of the Securities and Exchange Commission for
interim financial information. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures made are adequate to make the information presented not
misleading. The Company's investment in Talon Research and Development, Ppty.,
Auckland, NZ Ltd. of 22.6% is accounted for using the equity method.
In the opinion of management, the information furnished for the three-month
periods ended March 31, 2001 and 2000, respectively, includes all adjustments,
consisting solely of normal recurring accruals necessary for a fair
presentation of the financial results for the respective interim periods and
is not necessarily indicative of the results of operations to be expected for
the entire fiscal year ending December 31, 2001. It is suggested that the
interim financial statements be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2000, as
filed with the Securities and Exchange Commission on Form 10-KSB (Commission
File Number 0-25380).
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and adjustments by management, with consideration given to
materiality. Actual results could vary from those estimates.
Reclassifications
Certain 2000 balances have been reclassified to conform to the 2001
presentation. In the fourth quarter 2000, the Company changed the way it
accounts for certain sales incentives, in accordance with EITF Issue
No. 00-25. Accordingly, the Company has restated the financial statements
for the first quarter 2000 to reflect this change. The Company reduced sales
and selling expense by $8,282.
Note 1. Nature of Operations
The principal business activity of Ultradata Systems, Incorporated (the
Company), located in St. Louis, Missouri, is the design, manufacture, and
sale of hand-held electronic information products.
Note 2. Inventories
Inventories consist of the following:
March 31, December 31,
2001 2000
--------------------------------------------------------------
Raw Materials $1,409,010 $1,262,820
Work in Process 57,393 57,393
Finished Goods 1,174,622 1,020,803
--------- ---------
2,641,025 2,341,016
Reserve for obsolescence (559,726) (560,761)
--------- ---------
$2,081,299 $1,780,255
========= =========
Note 3. Prepaid Expenses
Prepaid expenses consist of the following:
March 31, December 31,
2001 2000
----------------------------------------------------------------
Prepaid advertising $ 189,344 $ 201,225
Prepaid insurance 23,806 5,461
Other prepaid expenses 28,543 22,951
------- -------
$ 241,693 $ 229,637
======= =======
Note 4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
March 31, December 31,
2001 2000
----------------------------------------------------------------
Accrued vacation $ 75,625 $ 82,990
Accrued sales commissions
and royalties - 14,758
Payroll and payroll-related
liabilities 20,208 42,294
Accrued advertising 20,659 1,563
Other 34,988 77,391
------- -------
$ 151,480 $ 218,996
Note 5. Preferred Stock Conversion
During March 2001, preferred shareholders have converted 10 shares of
preferred stock into 16,060 shares of common stock.
Note 6. Subsequent Events
(A) Conversion of preferred stock
After March 31, 2001, preferred shareholders converted 18 additional
preferred shared into 40,058 common shares.
(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.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS
This quarterly report contains a number of forward-looking statements
regarding our future prospects. Among the forward-looking statements are
descriptions of our plans to restructure the marketing program for the Road
Whiz(tm) line of products, to introduce Triplink(tm) and GPS products to the
market, and to develop products based on a GPS/Internet technology. These
forward-looking statements are a true statement of our present intentions,
but are neither predictions of the future nor assurances that any of our
intentions will be fulfilled. Many factors beyond our control could act to
thwart Ultradata in its efforts to develop and market its products. Among
these factors are:
* The difficulty of attracting mass-market retailers to a seasonal
product like the Road Whiz(tm);
* The breadth and depth of competition in the GPS market, which will
make introduction of our product with a limited marketing budget
difficult;
* The difficulty of attracting qualified engineering and marketing
personnel to our company.
There may also be factors that we have not foreseen which could interfere with
our plans. In addition, changing circumstances may cause us to determine that
a change in plans will be in the best interests of Ultradata. For this reason,
you should not place undue reliance on any of the forward-looking statements
in this report.
Readers are urged to carefully review and consider the various disclosures
made by the Company in this report and in the Company's report Form 10-KSB
filed with the Securities and Exchange Commission.
The analysis of the Company's financial condition, capital resources and
operating results should be viewed in conjunction with the accompanying
financial statements, including the notes thereto.
OVERVIEW
Since 1987 we have been engaged in the business of manufacturing and marketing
handheld computers that provide travel information. The products are based
upon a data compression technology that we developed, portions of which we
have patented. Recent developments in communications technology have opened
up new opportunities for us to use our technology. Therefore, we still sell
our handheld computers, but over the past three years we have been expanding
the scope of our operations:
* In 1998 we acquired an interest in Talon Research & Development, Ltd.,
which manufactures GPS (global positioning satellite) antennas that
can be combined with our database to create a variety of travel
products. We currently own 22.6% of Talon.
* Early in 2001 we introduced, in joint venture with Rand McNally, the
Rand McNally Triplink(tm), a handheld computer that enables the user
to download travel information from the Rand McNally Website.
* During the first quarter of 2001 we shipped the first production units
of our Travel*Star 24(tm), which combines our travel information with
a GPS antenna to enable a driver to obtain his location and directions
to his destination while he drives.
* We have begun development of an enhanced version of our GPS product
that will include a cellular transceiver to permit the driver to use
the product to access the Internet while traveling.
Each of our consumer products is designed to allow the consumer to access
useful information stored in a convenient manner. Our handheld computers
generally sell at retail prices between $19.95 and $49.95 per unit. The
products are in the three largest retail mass-market chains in the country
plus many other locations. The new TRAVEL*STAR 24 is offered at retail for
about $400, which should make it very competitive in the auto aftermarket.
Its portability and the fact that it requires no elaborate installation offer
advantages over the more expensive in-car systems.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000
Operating results for the first quarter of 2001 were not significantly
different from the first quarter of 2000. Handheld travel computers, which
were our only product offerings until this summer, continue to be promoted
primarily as gift items. Sales are, therefore, heaviest in the 4th quarter
holiday season, with some surges during the summer travel months and around
Mother's Day and Father's Day. The first quarter is, therefore, generally a
period of minimal sales, usually less than 5% of annual sales. 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 three months of 2001, net sales totaled $185,842,
34% less than the $281,405 in sales recorded in the first quarter of 2000.
Gross Profit. Gross profit margin for the current quarter was only 14.1%
of sales compared to 39.9% for the first quarter of 2000. Gross profit in
early 2001 was low primarily due to higher cost of microchips remaining in
inventory from the chip shortage in 2000. This problem will be reduced as
we exhaust the higher-priced inventory because of the reduced price currently
paid for microchips in 2001.
S,G&A Expense. Selling expenses dropped somewhat on a quarter-to-quarter
basis, reflecting the relative efficiency of our focus on mass-market
distribution channels. General and administrative expenses were virtually
unchanged with respect to the first quarter of 2000.
R&D Expense. Research and development expense in the first quarter of 2001
increased 33.8% from the first quarter of 2000 due primarily to the fact that
the capitalization of the TRAVEL*STAR 24(tm) software tools developed over
the last 18 month has ended and the amortization of those costs has begun.
The Company posted a net loss from operations of ($594,219) for the quarter
ended March 31, 2001 compared to a net loss from operations of ($504,412) for
the quarter ended March 31, 2000.
Other Income. Other income for the first quarter of 2001 totaled $80,615
compared with a loss of ($15,222) for the same period in 2000. During the
first quarter of 2000, we recorded a loss of $120,128 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 quarter of 2001 represents only our interest in Talon Research and
Development Ltd. Talon's contribution was $46,767, 14.7% less than for the
first quarter of 2000.
As a result of the foregoing, the Company posted a net loss available to
common shareholders of ($559,054), or ($0.18) per basic and diluted common
share, for the three-month period ended March 31, 2001, compared to a net
loss available to common shareholders of ($519,935), or ($0.17) per basic and
diluted common share, for the three-month period ended March 31, 2000. The
Company was required to record an imputed dividend of $45,450 during the
three-month period ended March 31, 2001 as a result of its sale of Series A
redeemable convertible preferred stock in May of 2000.
FINANCIAL CONDITION AND LIQUIDITY
At March 31, 2001, the Company had $1,334,397 in cash and cash equivalents,
compared to $1,842,983 at December 31, 2000. The Company's operating
activities used cash totaling $457,784, primarily due to its losses for the
quarter. Accounts receivable decreased by $483,905 due to collections on
sales in the last quarter of 2000. Inventories increased by $301,044 due to
manufacturing for the spring deliveries, substantially offsetting the cash
collected on accounts receivable. Smaller cash-flow items roughly balanced
so that the losses for the quarter approximated the cash used in operations.
Net cash used by investing activities for the quarter ended March 31, 2001
totaled $34,935 and was 41.7% below the $59,947 used in the first quarter of
2000.
Net cash used in financing activities for the quarter ended March 31, 2001
was negligible compared to $323,021 provided by these activities in 2000 when
$314,625 arose from the exercise of employee stock options.
Our operating losses over the past three years have had an adverse effect on
our working capital. Nevertheless, at March 31, 2001 we still had over $4.3
million in working capital, which we believe to be substantially greater than
most companies of our size. So we do have sufficient working capital to
sustain our operations and introduce our new products, provided that we can
realize our sales projections in our handheld business through our strategy
of developing mass-market customers and opening new distribution channels.
Our cash position was aided in 2000 by the sale of Series A Preferred Stock
in May 2000 to two investment funds. The Company recently reached an agreement
in principle with the holders of the Series A Preferred Stock, and is
presently preparing the definitive agreements. The agreements will provide
that the Series A shares will be converted into Series B shares with a face
value equal to the current conversion value of the Series A shares (i.e., face
value plus 11.25% accrual since date of issue) plus 10% of the face value.
The Company will redeem a portion of the Series B shares each month by paying
$70,000 per month through October 2001 and $90,000 thereafter until the shares
are fully redeemed. The shareholders will retain the right to convert their
shares prior to redemption, except that the number of shares they may acquire
on conversion will be limited to 20% of the trading volume for the quarter
preceding conversion. The Company has made this arrangement in order to
relieve the threat of massive dilution that the Preferred Stock presently
poses to potential investors in the Company's common stock. Management does
not expect that the payments will significantly affect the Company's ability
to finance its ongoing business during 2001. Management expects that, with
the new products, the fourth quarter of 2001 will generate sufficient revenue
and cash to permit operations beyond 2001.
Because the Company has stabilized the cash requirements of our handheld
business, its working capital and cash reserves appear to be sufficient to
sustain over the coming year the level of business during 2001. There remains
one near-term liquidity issue: the cash needed for development of new products.
The Company's $1 million credit facility with Southwest Bank expired on July
1, 2001. Management has obtained a $500,000 replacement facility with KBK
Financial, an asset-based lender, which it believes will be sufficient to
finance the purchase orders expected for the fourth quarter.
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
July 27, 2001 /s/ Monte Ross
Monte Ross, CEO
(Duly authorized officer and
principal financial officer)