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 SEPTEMBER 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________TO ____________
COMMISSION FILE NUMBER 0-25380
ULTRADATA SYSTEMS, INCORPORATED
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(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1240 Dielman Industrial Court, St. Louis, MO 63132
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(Address of principal executive offices) (Zip Code)
9375 Dielman Industrial Drive, St. Louis, MO 63132
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(Former 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 November 8, 2001
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Common, $.01 par value 3,249,533
Transitional Small Business Disclosure Format Yes [ ] No [X]
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
September 30, 2001
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets at September 30, 2001 (unaudited) and
December 31, 2000 3.
Statements of Operations for the three month and
nine month periods ended September 30, 2001
and 2000 (unaudited) 4.
Statements of Cash Flows for the nine months ended
September 30, 2001 and 2000 (unaudited) 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
September 30, December 31,
2001 2000
(unaudited)
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Assets
Current assets:
Cash and cash equivalents $ 426,091 $ 1,842,983
Restricted cash - 767,724
Trade accounts receivable, net of
allowance for doubtful accounts of
$117,556 166,102 673,475
Inventories 1,735,933 1,780,255
Prepaid expenses 211,148 229,637
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Total current assets 2,539,274 5,294,074
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Property and equipment, net 464,408 617,794
Deferred compensation trust investments,
available for sale - 84,605
Investment in Talon Research and
Development, Ltd. 797,251 825,757
Advances to affiliates 150,000 150,000
Advertising credits 62,421 62,421
Other assets 9,444 8,594
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Total assets $ 4,022,798 $ 7,043,245
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 155,686 $ 164,319
Accrued expenses and other liabilities 72,593 218,996
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Total current liabilities 228,279 383,315
Deferred rent 622 6,220
Deferred compensation liability - -
Note payable 1,633,591 87,329
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Total liabilities 1,862,492 476,864
Stockholders' equity:
Preferred Stock, $0.01 par value,
4,996,680 shares authorized, none
outstanding - -
Series A convertible preferred stock,
3,320 shares authorized, 16 shares
outstanding with a stated value
of $1,000 16,000 1,616,000
Common stock, $.01 par value;
10,000,000 shares authorized; 3,575,704
shares issued and outstanding September
30,2001; 3,519,586 shares issued and
outstanding December 31, 2000 35,757 35,196
Additional paid-in capital 9,526,093 9,861,970
Accumulated deficit (6,167,549) (3,737,190)
Treasury stock (326,171 shares at cost) (942,311) (942,311)
Notes receivable issued for purchase of
common stock (212,833) (205,819)
Accumulated other comprehensive (loss)
income, net (94,851) (61,465)
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Total stockholders' equity 2,160,306 6,566,381
--------- ---------
Total liabilities, preferred stock, and
stockholders' equity $4,022,798 $7,043,245
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
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2001 2000 2001 2000
(unaudited) (unaudited)
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Net sales: $ 139,503 $ 2,556,091 $ 835,957 $ 3,619,198
Cost of sales: 570,422 1,801,524 985,072 2,524,068
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Gross profit (430,919) 754,567 (149,115) 1,095,130
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Selling expense 96,804 178,900 302,786 346,348
General and administrative
expenses 538,056 626,506 1,678,876 1,661,496
Research and development
expense 81,347 114,448 306,707 286,538
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Operating loss (1,147,126) (165,287) (2,437,484) (1,199,252)
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Other (expense) income:
Interest expense (18,300) - (31,199) -
Interest and dividend income 215 47,215 59,157 131,570
Equity in earnings (losses)
of affiliates 12,359 (3,998) 17,927 (129,086)
Other, net (16,657) 151,031 (38,760) 68,762
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Total other income, net (22,383) 194,248 7,125 71,246
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Earnings (loss) before income
taxes (1,169,509) 28,961 (2,430,359) (1,128,006)
Income tax - - - -
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Net earnings (loss) (1,169,509) 28,961 (2,430,359) (1,128,006)
=================================================
Less preferred stock
dividends (160,610) (68,680) (252,279) (1,128,427)
Net earnings (loss) available
to common shareholders $(1,330,119) $ (39,719) $(2,682,638) $ (2,256,433)
=================================================
Earnings (loss) per share-
basic and diluted $ (0.41) $ (0.01) $ (0.83) $ (0.71)
=================================================
Weighted Average Shares
Outstanding:
Basic and diluted 3,249,533 3,197,361 3,226,113 3,160,484
=================================================
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Cash Flows
Nine months ended September 30, 2001 and 2000
2001 2000
(unaudited)
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Cash flows from operating activities:
Net loss $(2,430,359) $(1,128,006)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Deferred income tax provision - -
Depreciation and amortization 146,871 169,430
Provision for inventory obsolescence 613,672 -
Equity in losses (earnings) of
unconsolidated affiliates (17,927) 129,087
Realized (gain) loss on investments 13,046 (10,602)
Gain on disposal of fixed asset 18,534 -
Non-cash compensation expense 2,544 13,993
Bad debt expense on advances to affiliates - 122,683
Increase (decrease) in assets and liabilities:
Trade accounts receivable 507,373 110,312
Inventories (569,350) (129,678)
Prepaid expenses and other current assets 10,625 (169,268)
Accounts payable (8,634) 781,444
Accrued expenses and other liabilities (146,403) (118,116)
Deferred rent (5,598) (5,598)
Deferred compensation trust liability - (1,183)
Other assets - 23,636
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Net cash used in operating activities (1,865,606) (211,866)
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Cash flows from investing activities:
Investment in affiliated company - (200,000)
Deferred compensation trust investments - (8,748)
Capital expenditures (12,017) (124,501)
Restricted cash 765,000 (356,731)
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Net cash provided by (used in) investing
activities 752,983 (689,980)
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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)
Repayment of notes payable (126,269) -
Repurchase of preferred shares (178,000) -
Exercise of employee stock options - 314,625
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Net cash provided by (used in)
financing activities (304,269) 1,555,000
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Net increase (decrease) in cash and cash
equivalents (1,416,892) 653,154
Cash and cash equivalents at beginning
of period 1,842,983 1,220,134
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Cash and cash equivalents at end of period $ 426,091 $ 1,873,288
========= =========
Non-cash investing and financing
Redemption of Rabbi Trust $ 87,329 $ -
========= =========
Conversion of preferred stock to
common stock $ 28,000 $ -
========= =========
Conversion of preferred stock to
notes payable $ 1,759,860 $ -
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
September 30, 2001
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim financial statements included herein have been
prepared by Ultradata Systems, Incorporated (the "Company"), without audit in
accordance with generally accepted accounting principles and pursuant to the
rules and regulations of the Securities and Exchange Commission for interim
financial information. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations, although the Company believes that the disclosures
made are adequate to make the information presented not misleading. The
Company's investment in Talon Research and Development, Ppty., Ltd., Auckland,
NZ of 22.6% is accounted for using the equity method.
In the opinion of management, the information furnished for the three-
month and nine-month periods ended September 30, 2001 and 2000, includes all
adjustments, consisting solely of normal recurring accruals necessary for a
fair presentation of the financial results for the respective interim periods
and is not necessarily indicative of the results of operations to be expected
for the entire fiscal year ending December 31, 2001. It is suggested that the
interim financial statements be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 2000, as
filed with the Securities and Exchange Commission on Form 10-KSB (Commission
File Number 0-25380).
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and adjustments by management, with consideration given to
materiality. Actual results could vary from those estimates.
Reclassifications
Certain 2000 balances have been reclassified to conform to the 2001
presentation. In the fourth quarter 2000, the Company changed the way it
accounts for certain sales incentives, in accordance with EITF Issue
No. 00-25. Accordingly, the Company has restated the financial statements
for the first and second quarters of 2000 to reflect this change. The
Company reduced sales and selling expense by $8,282 in the first quarter and
$37,193 in the second quarter. There was no such transaction in the third
quarter.
Note 1. Nature of Operations
The principal business activity of Ultradata Systems, Incorporated (the
Company), located in St. Louis, Missouri, is the design, manufacture, and
sale of hand-held electronic information products.
Note 2. Inventories
Inventories consist of the following:
September 30, December 31,
2001 2000
(unaudited)
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Raw Materials $ 1,030,121 $ 1,262,820
Work in Process 32,119 57,393
Finished Goods 1,450,422 1,020,803
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2,512,662 2,341,016
Reserve for obsolescence (776,729) (560,761)
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$ 1,735,933 $ 1,780,255
==============================
Note 3. Prepaid Expenses
Prepaid expenses consist of the following:
September 30, December 31,
2001 2000
(unaudited)
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Prepaid advertising $ 194,764 $ 201,225
Prepaid insurance 8,005 5,461
Other prepaid expenses 8,379 22,951
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$ 211,148 $ 229,637
==============================
Note 4. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
September 30, December 31,
2001 2000
(unaudited)
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Accrued vacation $ 31,052 $ 82,990
Accrued sales commissions
and royalties - 14,758
Payroll and payroll-related
liabilities 12,693 42,294
Accrued advertising - 1,563
Other 28,848 77,391
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$ 72,593 $ 218,996
===========================
Note 5. Preferred Stock Redemption
During the three months ended September 30, 2001, the Company repurchased
from preferred shareholders 58 shares of preferred stock for $70,000 cash.
Note 6. Preferred Stock Conversion to Note Payable
On August 13, 2001, the holders of most of the Series A Convertible
Preferred Stock exchanged their shares for Senior Subordinated Secured
Convertible Promissory Notes with a value of $1,748,120 and interest at 11.25%
per annum. This amount includes all accrued dividends to that date on the
preferred stock plus a 10% premium on the face amount of the stock.
Note 7. Subsequent Events
On November 8, 2001, the holders of the 11.25% Senior Subordinated
Secured Convertible Promissory Notes converted $9,244.97 of interest accrued
under the Notes into 83,288 shares of Common Stock. On November 14, 2001,
they converted $4,660 of accrued interest into 27,508 shares of Common Stock.
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 fact that our cash resources are insufficient to fund significant
growth;
* 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. Beta tests revealed some software
bugs that have since been corrected, and an updated version should be
ready for delivery early in 2002.
* We started 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. We have temporarily
put further work on hold until the basic Travel*Star 24(tm) is in full
production.
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.
The Company is actively pursuing the sale of its 22.6% ownership in
Talon. Management is seeking substantially more than its investment, as it
believes the market value of Talon shares is significantly greater than the
present book value ($797,251).
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 2001 Compared to Three and Nine
Months Ended September 30, 2000
Operating results for the third quarter of 2001 were significantly
different from the third quarter of 2000. A large order in the third quarter
of 2000 had no counterpart in 2001. On the contrary, the continuing softness
in the economy, further depressed by the events of September 11, 2001, have
seriously affected sales and earnings.
Sales. During the three and nine months ended September 30,2001, net sales
totaled $139,503 and $835,957, respectively, compared with $2,556,091 and
$3,619,198, respectively for the same periods in 2000. These figures
represent decreases of 94.5% and 76.9% for the three- and nine-month periods,
respectively, representing significantly reduced demand for our traditional
products in the present softening US economy.
Gross Profit. Gross profit margin for the three- and nine-month periods
ending September 30, 2001 were negative due to a write-off of $516,234 in
obsolete inventory in September 2001. Most of this write-down consists of
GPS engines the Company hopes to be able to use in 2001, at which time a
portion of this loss item may be recovered. As a result, gross margins for
the three- and nine-month periods were (308.9%) and (17.8%), respectively.
Without the September write-down, gross margins would have been 61.2% and
43.9% for the three- and nine-month period, respectively.
SG&A Expense. Selling expenses for the three- and nine-month periods
ended September 30, 2001 were $96,804 and $302,786, respectively, compared
with $178,900 and $346,348, respectively, for the corresponding periods in
2000. These figures represent a decrease of 45.8% and 12.3%, respectively,
for the three- and nine-month periods in 2001 versus 2000. The primary
reasons for the decrease is the reduction in overall sales and the attendant
commissions that go with them. As a percent of sales the current costs are
much higher. General and administrative expenses were slightly lower for the
three months in 2001 due to cost cutting in the corporate office, but about
the same for the nine months in 2001 as compared with the same periods of
2000. Success in reducing these costs is important to the continuing survival
of the Company pending improved sales due to new products.
R&D Expense. Research and development expense in the three-month period
ended September 30,2001 decreased 28.9%. For the nine-month period they
increased 7.0%. The quarter reduction reflect the recent cutback in personnel,
whereas the nine-month slight increase reflects the fact that the
capitalization of the TRAVEL*STAR 24 software tools developed over the last
21 months ended and the amortization of those costs began in the first quarter
of 2001.
The Company posted a net loss from operations of ($1,147,126) and
($2,437,484) for the three- and nine-month periods ended September 30, 2001,
respectively, compared to a net loss from operations of ($165,287) and
($1,199,252) for the corresponding periods in 2000.
Other Income. Other income (expense) for the three- and nine-month
periods ended September 30, 2001 totaled ($22,383) and $7,125, respectively,
compared with $194,248 and $71,246, respectively, for the corresponding periods
of 2000. Talon's contribution was $17,927 for the nine-month period ended
September 30, 2001 as compared with $136,944 for the same period in 2000.
The large difference between 2000 and 2001 is attributed to the four-fold
increase in R&D for 2001 over 2000. US Generally Accepted Accounting
Principles differ from those in New Zealand in that most research and
development costs must be expensed in the US but may be capitalized in New
Zealand. The R&D activity supports Talon's new-product development and
general modernization of their product line.
As a result of the foregoing, the Company posted a net loss available to
common shareholders of ($1,330,119), or ($0.41) per basic and diluted common
share, for the three-month period ended September 30, 2001, compared to a net
loss available to common shareholders of ($39,719), or ($0.01) per basic and
diluted common share, for the three-month period ended September 30, 2000.
The Company posted a net loss available to common shareholders of ($2,682,638),
or ($0.83) per basic and diluted common share, for the nine-month period ended
September 30, 2001, compared to a net loss available to common shareholders
of ($2,256,433), or ($0.71) per basic and diluted common share, for the nine-
month period ended September 30, 2000. The Company was required to record an
imputed dividend as a result of its sale of Series A redeemable convertible
preferred stock in May of 2000 of $160,610 and $252,279 during the three- and
nine-month periods ended September 30, 2001, respectively, as compared with
$68,680 and $1,128,427, respectively, for the corresponding periods in 2000.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 2001`, the Company had $426,091 in cash and cash
equivalents, compared to $1,842,983 at December 31, 2000. The Company's
operating activities in the nine months ended September 30, 2001, used cash
totaling $1,865,606, primarily due to its losses for the first nine months of
the year. Accounts receivable decreased by $507,373 due to collections on
sales in the first half of 2001. Inventories increased by $569,350 due to
manufacturing for the deliveries in the fourth quarter, and accounts payable
decreased by $8,634.
Net cash provided by investing activities for the nine-month period ended
September 30, 2001 totaled $752,983 compared to ($689,980) used in investing
activities for the same period in 2000, which included additional investment
in Influence Data, LLC, and reduced cash outlay for capital expenditures. The
2001 total also includes the recovery of the restricted cash by the expiration
of the letter of credit in favor of Talon. Net cash used in financing
activities for the three-month period ended September 30, 2001 was ($304,269)
compared with $1,555,000 provided in the same period of 2000. The 2001 period
included cash used to repurchase 58 shares of Series A Preferred Stock. In
the comparable period of 2000, the preferred shares were subscribed, providing
the bulk of the cash provided by financing activities.
Our operating losses over the past three years have had an adverse effect
on our working capital. Nevertheless, at September 30, 2001, we still had
$2.31 million in working capital, which we believe to be substantially greater
than most companies our size. There remains, however, one near-term liquidity
issue: the cash needed for development of new products. The Company's $1
million credit facility with Southwest Bank expired on July 1, 2001.
Management has obtained a $500,000 replacement facility with KBK Financial,
an asset-based lender, which it believes will be sufficient, together with
our own funds, to finance the purchase orders expected for the fourth quarter.
We expect, therefore, given achievement of our fourth quarter forecast, to
have sufficient capital resources to fund our operations for the next year
and the foreseeable future.
We have reduced staff, office space, and consulting expenses to bring
our costs of doing business more in line with revenues. The Company is now
able to function on much lower sales per year and is in a position to be
profitable except for repayment of the outstanding debt.
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
Exhibits:
None
Reports on Form 8-K:
Report dated August 13, 2001, regarding the exchange of Series A
Preferred Stock for 11.25% Senior Subordinated Convertible Notes.
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.
November 19, 2001 /s/ Monte Ross
---------------
Monte Ross, CEO
(Duly authorized officer and
principal financial officer)