SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT
to Section 13 or 15(d) of
the Securities Exchange Act of 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from_____ to_____
Commission File Number: 0-25380
ULTRADATA SYSTEMS, INCORPORATED
(Name of small business issuer in its charter)
Delaware 43-1401158
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1240 Dielman Industrial Court, St. Louis, MO. 63132
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(Address of principal executive office) (Zip code)
Issuer's telephone number, including area code: (314) 997-2250
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to the Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $1,741,557
The aggregate market value at March 11, 2003 of the voting stock held by
non-affiliates, based on the closing price as reported by the National
Quotations Bureau, was approximately $646,477. The aggregate market value
has been computed by reference to a share price of $0.14 (the price at which
stock was sold, or the average bid or asked price of such stock on March 11,
2003). All directors, officers, and stockholders owning more than five percent
of the outstanding common stock of the Registrant have been deemed
"affiliates" for the purpose of calculating such aggregate market value.
The number of shares outstanding of the issuer's common stock, as of March
11, 2003, was 4,617,693 Transitional Small Business Disclosure Format:
Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE: None
YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS
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This annual report contains a number of forward-looking statements
regarding our future prospects. Among the forward-looking statements are
descriptions of our plans to introduce new products to the market, to expand
our customer base, to develop products based on a GPS/Internet technology,
and to return our company to profitability. 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 against Ultradata in its efforts to
develop and market its products. Among these factors are:
* The fact that our financial resources are minimal and will not sustain
us past this year unless our new products are successful;
* The fact that our lack of capital severely limits our ability to market
our products. As a result, the loss of a significant customer could
imperil the marketing of an entire product line;
* The difficulty of attracting mass-market retailers to a seasonal
product like the Talking Road Whiz(tm); and
* The breadth and depth of competition in the GPS market, which will make
introduction of our product with a limited marketing budget difficult.
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, as there is a significant risk that we will not be
able to fulfill our expectations for Ultradata.
PART I
ITEM 1. 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. The following
paragraphs outline the scope of our operations:
* The Company has sold over 3 million of its low-cost handheld travel
computers, demonstrating that there is a market for travel information
products. To re-awaken that market with an improved product that
speaks, the Company has developed a Talking Road Whiz. Deliveries of
this product began in March of 2003 and, the Company expects to receive
significant revenue in 2003 from sales of this new addition to its
product line. It has purchase orders in hand from two major customers
for delivery in March 2003. It has a contract with a major distributor
providing exclusivity in certain channels if 360,000 units are purchased
and delivered in calendar 2003.
* In 2002 we shipped the reprogrammed beta-test 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. Improved performance was obtained, but
the tests revealed several software problems that have to date
prevented marketing of the product. The software issue is still being
addressed, and the Company plans to test the market in the second half
of 2003.
* The Company continues to sell its line of both branded and private-
labelled, low-cost travel computers.
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 have been in retail mass-market chains plus many other locations.
The new TRAVEL*STAR 24 is expected to be offered at retail for under $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.
Handheld Travel Computers
The Road Whiz(tm) 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(tm)." Within the chip
that powers a Road Whiz(tm) 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(tm) also contain information about services and attractions within the
cities linked by the Interstate Highway System. The service information
provided by a Road Whiz(tm) 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.
We have achieved a significant advance in the technology in our product
with the introduction of the Talking Road WhizTM. The unit speaks in a clear,
loud, real voice appropriate prompts for the user's next action as well as the
information presented on the display. This technological improvement makes
the unit easier to use and more attractive to buy, and paves the way for other
applications of this new technology.
Among the other hand-held products we currently offer are the following:
Road Whiz(tm) Plus provides complete routing information for over 90
cities, giving driving distances, driving time and detailed directions. A
similar product made by Ultradata is sold by one of our major distributors
under the name Auto PilotTM. Our products are designed to be marketed by
mass merchandise retailers.
The Road Whiz(tm) RV Special adds to the standard Road Whiz(tm) features
useful for an RV owner, such as the location of dump stations and the
availability of parking for recreational vehicles at restaurants, and is sold
through RV magazines and Camping World stores. AAA TripWizard(r) 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(r). TripWizard(r) 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 through other
channels, including QVC.
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. Products without the voice feature
now generally retail for $19.95 to $29.95. At this price point, we expected
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. While we have reduced the cost of marketing as well as
other operating costs, we need to increase the volume of sales in 2003 to be
profitable. With the new Talking Road Whiz, we expect to achieve the volume
necessary for profitability.
Distribution through mass merchandise channels accounted for over 74% of
our revenue in 2002. We expect that a small group of mass-market channels
will continue to dominate the market for our handheld computer 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. In 2002, sales emphasis shifted from mass-
market retailers to other channels of mass distribution that require far less
marketing costs. We expect the same array of customers in 2003.
Channel of Distribution 2002 Sales % of Sales 2001 Sales % of Sales
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Media Solutions Services $ 634,339 56.2% $ 19,152 1.1%
QVC $ 177,552 15.7% $ 74,921 4.4%
AAA Clubs $ 35,442 2.0% $ 50,458 3.0%
Wal-Mart $ 30,857 1.8% $ 466,855 27.4%
Target $ - -% $ 380,532 22.3%
Kmart $ - -% $ 335,921 19.7%
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 put in place:
* Private Branding. The leading example of the private label marketing
strategy was the introduction in 1998 of the AAA TripWizard(r) as a
joint venture with the American Automobile Association.
* Direct Response Marketing. Our largest customer during 2002 was Media
Solutions Services. This distributor specializes in multi-media
direct-response marketing and has resources and expertise that can
achieve high sales effectiveness at relatively low promotional cost.
We have received first-quarter 2003 orders from Media Solutions Services
amounting to $221,200 and expect significant additional sales from this
customer in 2003.
The objective of this new marketing strategy is an increase in sales
revenue with a significant reduction in selling and administrative expense,
as the costs attendant to direct retail marketing are reduced. 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.
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.
At present, there is one manufacturer to whom we contracted most of our
assembly work in 2002. Once each year, the manufacturer quotes prices to us
based upon estimated annual quantities. Then we place individual purchase
orders for production. Our arrangements with this manufacturer - up to the
point of a purchase order - are terminable at will by either party. If the
manufacturer becomes unavailable to us, alternate sources would be readily
available. Nevertheless, the sudden loss of our manufacturer or unanticipated
interruptions or delays from our present manufacturer would likely result in
a temporary interruption to our planned operations.
Backlog
As of December 31, 2002 our total backlog was approximately $164,864,
compared to backlog of $360,600 on December 31, 2001. As of March 11, 2003,
the total backlog was $454,130.
Patents
We own two patents that are utilized in our Road Whiz(tm) 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.
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(tm) database. A significant part of the ROAD WHIZ(tm) database
is gathered and verified by "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 at our corporate headquarters along with use of
publicly available information from chains and states on businesses and
facilities.
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
Travel*Star 24(tm) GPS Auto Navigational System
We have developed a low cost, portable navigation unit for the automotive
after-market, which we will market as the "Travel*Star 24(tm)." The Travel*
Star 24(tm) 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
providing audible turn-by-turn prompts and warnings when the driver strays
from the route. The Travel*Star 24(tm) also includes an expanded version of
the proprietary and unique Road Whiz(tm) 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(tm) to the 12-volt automotive
after-market, which currently consists of over 150 million vehicles and grows
by 15 million vehicles annually.
Currently, perhaps 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 $400 to $1000 range. Examples across this middle
range can be found in the lines of Magellan, Garmin and Lowrance. Travel*Star
24(tm) will compete in this range, as we expect it to have an initial retail
price under $400. But the Travel*Star 24(tm) should have several competitive
advantages over the middle market competitors:
* Travel*Star 24(tm) is easier to use than other GPS products for cars;
* Travel*Star 24(tm) 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(tm) can plan a route to 12,000 towns and cities;
* Under development is a low-cost ($49.95) regional cartridge that can
be added to Travel*Star 24(tm) to provide block-to-block navigation;
* Travel*Star 24(tm) incorporates Ultradata's proprietary data
compression technology to provide directions to over 200,000 services,
a functionality for which the competition offers nothing comparable;
and
* 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(tm) as
an added capability designed into the unit.
The Travel*Star 24(tm) can easily fit into a briefcase or purse; so it is
portable to any rental vehicle. Testing has been ongoing and has uncovered
several software issues, some of which have been resolved. Additional
development and testing is required. So market introduction is planned for
the latter part of 2003.
Travel*Star 24(tm) has taken much longer to complete than originally
planned because the tasks and approach were much more difficult than
anticipated. Nonetheless, Management feels that the result is a product that
outstrips the competition in performance for the price. This assessment is
derived from discussions with contacts in the retail markets at trade shows
and elsewhere. We are, therefore, anticipating a positive reception when the
product finally reaches the market.
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.
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.
We plan to modify the Travel*Star 24(tm) to incorporate a cellular
transceiver into the existing housing. Information in the vehicle would
originate in and be displayed on the Travel*Star 24(tm), which has a four-
line text display and a menu-driven "soft key" user interface. The Travel*
Star24(tm) 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 can be sent
from the vehicle to the Internet site, where the messages are available to
friends and family.
The GPS/Internet System is in the planning stage only. There are a
number of technical tasks required to make the system operational, and we have
no certainty that we can accomplish these tasks. We will also require
additional capital resources or partners before we can undertake this project
in earnest.
Research and Development
Ultradata performs ongoing research and development, seeking to improve
existing products and to develop new products. These activities are primarily
conducted at our corporate headquarters, although we periodically engage
outside computer system design consultants to expedite the completion of the
development and test stages.
In 2002, the Company incurred $251,609 in research and development costs
compared to $360,686 in 2001. Research activities for 2002 were primarily
focused on continued development of Travel*Star 24(tm) and the Talking Road
Whiz(tm) products.
Employees
The Company currently has 8 full-time employees, including four officers,
all of whom are located at the Company's headquarters in St. Louis, Missouri.
The Company employs three people in sales, customer service and shipping,
three people in executive management and administration, one person in
product development, and one person in inventory management. None of the
Company's employees belong to a collective bargaining union. In addition, a
number of part-time consultants are retained for database research, website
development and maintenance, and software development. The Company has not
experienced a work stoppage and believes that its employee relations are good.
Item 2. PROPERTIES
Our headquarters, principal administrative offices, and research and
development facilities are located in approximately 5,000 square feet of
leased office space in an industrial building located at 1240 Dielman
Industrial Court, St. Louis, Missouri. The Company reduced the space occupied
when its previous lease expired October 31, 2001 from 12,500 square feet to
the 5,000 square feet identified above. The Company pays a monthly rent plus
31% of all building expenses under a new lease that expires October 31, 2003.
The Company maintains no manufacturing operations on site and employs outside
contractors to perform all of its manufacturing requirements.
Aggregate rental expense totaled $58,829 for 2002, compared to $107,502
in 2001. The Company believes that its facilities are adequate for the
Company's present and foreseeable requirements.
Item 3. LEGAL PROCEEDINGS
During the 4th Quarter of 2002 the Company's action against SmartTime
(now known as E-tegral) resulted in a judgment awarding $861,000 to the
Company. Efforts to collect the judgment are underway, but it is unknown to
what extent, if any, we will be successful in collecting the judgment.
During the 4th Quarter of 2002 the Company sold its claim in the Kmart
bankruptcy. The claim of $246,623 was sold at a 74% discount.
The Company is party to a fee arbitration with BDO Seidman LLP, in which
the Company alleges that several hundred thousand dollars in fees the Company
paid for accounting services performed by BDO Seidman were excessive.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The following table sets forth the prices for the Company's Common Stock
(OTC Bulletin Board: ULTR) for the eight quarters starting January 1, 2001
and ending December 31, 2002. Until June 27, 2001, the Company's stock was
listed on the NASDAQ SmallCap Market. From that date until August 28, 2001,
the stock was quoted on the Pink Sheets. Since August 29, 2001 the Common
Stock has been quoted on the OTC Bulletin Board.
Bid
-----------------
High Low
Quarter Ending
March 31, 2001 1.687 0.75
June 30, 2001 1.25 0.50
September 30, 2001 0.51 0.19
December 31, 2001 0.46 0.13
March 31, 2002 0.24 0.20
June 30, 2002 0.20 0.11
September 30, 2002 0.15 0.08
December 31, 2002 0.27 0.20
(b) Shareholders
At March 11, 2003, there were 123 registered stockholders of record of
the Company's Common Stock. Based upon information from nominee holders,
the Company believes the number of owners of its Common Stock exceeds 3,000.
(c) Dividends
The Company has never paid or declared any cash dividends on its Common
Stock and does not foresee doing so in the foreseeable future. The Company
intends to retain any future earnings for the operation and expansion of the
business. Any decision as to future payment of dividends will depend on the
available earnings, the capital requirements of the Company, its general
financial condition, and other factors deemed pertinent by the Board of
Directors.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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.
In 1999, therefore, we again shifted our focus, this time to mass market
retailing, of the sort you associate with Kmart, Wal-Mart, and Target Stores,
to name three 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 performed the
streamlining. That effort, however, was frustrated, in part, by the worldwide
shortage in read-only memory (ROM) chips during 2000, the result of which was
a $767,400 increase in our payments for chips. Nevertheless, our overall
results for 2000 indicated that we were heading in the right direction, as
we significantly reduced operating loss despite the increased chip expense.
Our plan, therefore, was to continue to pursue mass market outlets for our
handheld travel computers, with the expectation 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.
In 2001 and 2002, however, sales in the poor economy became difficult.
Our major customer in 2000 had excess inventory that was not eliminated until
the end of 2001. Other customers were nervous about the holiday seasons and
acquired less product inventory than they would have otherwise. The failure
to achieve another successful product line besides the Road Whiz line also
constrained sales. Specifically, the delay of Travel*Star 24(tm) has been a
serious issue for the Company, as the development effort places demands on
our financial and managerial resources while not producing revenues.
Completion of Travel*Star 24(tm) and resultant sales along with Talking Road
Whiz(tm) product sales should elevate sales in 2003 over 2002 levels. We
believe the Talking Road Whiz(tm) will rejuvenate the niche market we are in
of handheld travel computers and lead the Company back to positive operating
earnings, given our reduction in overhead and other costs.
Results of Operations
Sales. Sales for 2002 increased slightly (2.2%) to $1,741,557 from
$1,704,013 in 2001. The lack of sales from any new product line, due to the
delay in Travel*Star 24(tm) development, led to flat sales volume for the
two-year period. Our plan is to continue to pursue mass-market outlets for
both our traditional products as well as new products just reaching market
in 2003, and so grow sales in this fashion. In addition, we have engaged
the services of new representative organizations in an effort to reach new
sales channels with which they have significant contact.
Gross Profit. Because of the delays in bringing Travel*Star 24 for
market, we determined at year-end that our inventory of Travel*Star 24 items
should be written-off, as our ability to use them productively remains in
doubt. That decision was the primary reason for a year-end inventory write-
down totaling $813,094. But for the December inventory write-downs, our
gross margin would have been $466,242, or 26.8%. As a result of the write-
downs, however, our gross margin was negative on the year. Our gross margin
in 2002 fell to ($146,212), or (8.4%) of sales, compared to $113,833, or 6.7%
of sales in 2001.
Selling Expenses. During 2002, we incurred $219,259, or 12.6% of sales,
in advertising, promotion, and marketing program expenses, as compared to
$534,593, or 31.4% of sales, in 2001. The result was an overall reduction of
over $300,000 in selling expense and 18.8% as a percentage of sales. Our
2003 plan is geared to achieve similar selling costs of 10%-13% through cost
control and increased base.
Research and Development Expenses. Our research and development expenses
in 2002 were $251,609, reduced from $360,686 in 2001, a decrease of 30.2%.
The primary reason for the reduction was our lack of capital resources. We
will continue to perform research & development on a bare-bones basis until
we improve our financial condition.
General and Administrative Expenses. Our G&A expenses in 2002 were
$1,159,158 in 2002 as compared to $2,346,428 in 2001, representing a reduction
of 50.6%. The full measure of cost cutting in late 2001 resulting from
personnel layoffs and smaller premises for operations is reflected in this
decrease for 2002. We do not believe that an increase in sales, should it
occur in 2003, will require a significant increase in G&A expense.
Other Expense. During 2002, other expense was ($261,495) compared to
($184,138), an increase of $77,357, or 42.0%. The primary difference between
the two periods was the fact that 2001 figures had a significant gain of the
Talon sale offset by additional impairments over and above those in 2002.
In 2002, the only impairment taken was the remaining unamortized capitalization
of the expense for the software tools for Travel*Star 24(tm), which we wrote
off completely due to the failure to get the product to market in 2002.
Net Loss. Our net loss available to common stockholders for 2002 was
($2,041,333), or ($0.59) per basic and diluted share when $3,600 of preferred
stock imputed dividends are taken into account, compared with ($3,573,337),
or (1.10) per basic and diluted share in 2001, including $261,325 of imputed
dividends.
Liquidity and Capital Resources
Our operating losses over the past four years have eliminated our working
capital. In January and February we completed a private offering of debt and
equity, and obtained $165,000 in proceeds. These funds are held in escrow
pending receipt of purchase orders from certain of the Company's customers.
Up to 70% of the value of these purchase orders is available for use by the
Company, and funds must be placed back in escrow upon receipt by the Company
in payment for the orders. Management expects these funds to be sufficient
to support operations until sales of the Talking Road Whiz begin producing
significant cash flow in the latter half of the year. Notes are due and
payable July 31, 2003.
Because the Company has reduced its costs of doing business and has
excellent prospects for increased sales in 2003, Management expects the
financial picture to improve greatly over the course of 2003. However, if
the anticipated sales fail to materialize, we will not have sufficient
financial resources to carry the Company into 2004.
Impact of Accounting Pronouncements
There were no recent accounting pronouncements that have had or are
likely to have a material effect on the Company's financial position or
results of operations.
Item 7. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Item 8. FINANCIAL STATEMENTS
The financial statements of Ultradata Systems, Incorporated, together
with notes and the Report of Independent Certified Public Accountants, are
set forth immediately following Item 14 of this Form 10-KSB.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table lists certain information regarding the officers and
directors of the Company as of March 28, 2002:
NAME AGE POSITION
---------------------------------------------------------------------------
Monte Ross 70 Chief Executive Officer, Director
Ernest Clarke 63 President & Chief Financial Officer,
Director
Mark L. Peterson 46 Vice President-Engineering,
Secretary, Director
Duane Crofts 65 Vice President-Sales & Advanced
Products
Donald Rattner 69 Director
H. Krollfeifer, Jr. 62 Director
Matthew Klapman 33 Director
Directors hold office until the annual meeting of the Company's
stockholders and the election and qualification of their successors.
Officers hold office, subject to removal at any time by the Board, until the
meeting of directors immediately following the annual meeting of stockholders
and until their successors are appointed and qualified.
Background of Directors and Executive Officers:
Monte Ross founded the Company 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 the Company, Mr. Ross
was employed by McDonnell Douglas Corporation (now Boeing) 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 space laser 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, the Company's Vice President-Engineering.
Ernest Clarke has been a Director of the Company since it was founded in
1986. From August 1990 to June 1999 he served as Vice President - Government
Programs. He then served as Company's Vice President - Controller from June
of 1999 until April 2001. He was elevated to President in April 2001. For
over 20 years prior to joining Ultradata, Mr. Clarke was employed by
McDonnell Douglas Corporation (now Boeing) 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 been a Director of the Company since it was founded
in 1986. He has served as the Company's Vice President of Engineering since
1988. He is responsible for the design of the Company's hand-held products.
During the four years prior to joining the Company, 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 the Company as Vice President - Advanced Products in
1994. Prior to joining the Company, 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 joined the Company in 1999 to serve as a member of the
Board of Directors. Mr. 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. joined the Company in 2000 to serve as a member of
the Board of Directors. Mr. Krollfeifer is retired after 35 years in the
equipment leasing and financing industry. He 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 for various
educational programs starting in 1986. That organization evolved into The
Equipment Leasing Association of America (ELA), and Mr. Krollfeifer was added
to their training faculty in January 2000 where he continues to serve on a
part-time basis.
Matthew Klapman joined the Company in 2002 to serve as a member of the
Board of Directors. Mr. Klapman is the CEO of Future Vision Technologies,
Inc., which he co-founded 1990. He has maintained a strong career in
technological innovation, business strategy, negotiation, and team management.
He has invented and developed a myriad of products in the video, 3-D graphics,
and communication fields. As a Director at Motorola, he developed the
computer graphics and marketing strategy for its corporate strategy office
and broadband wireless communications sector. In addition, as Director of
Research and Development for Motorola's Personal Communications Sector, he
spearheaded the creation of the new user interface platform that is the basis
for all of Motorola's cellular phones. He has developed products and designs
that have earned several industry awards. He received a B.S. in Computer
Engineering and a J.D. from the University of Illinois at Urbana. He holds
4 issued and 7 pending patents.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
None of the directors, officers, or beneficial owners of more than 10%
of Ultradata's common stock failed to file on a timely basis reports required
during 2002 by Section 16(a) of the Exchange Act.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid by Ultradata to executives for services rendered in all capacities
to Ultradata during each of the last three fiscal years. There was no other
executive officer whose total salary and bonus for the fiscal year ended
December 31, 2002 exceeded $100,000.
Annual Long-term
Compensation Compensation
------------------ -------------------------
Name & Position Year Salary Bonus Other (1) Options
Monte Ross, 2002 $ 152,938 $ - $ - (2)
Chief Executive Officer 2001 $ 156,278 $ - $ -
2000 $ 156,578 $ - $ 6,000 (3)
Ernest Clarke 2002 $ 103,783 $ - $ - (4)
President 2001 $ 107,691
2000 $ 102,275
(1) Included premium payments for a life insurance policy on Mr. Ross, with
his estate as beneficiary, discontinued in 2001.
(2) During 2002 the Board's Stock Option Committee awarded Mr. Ross options
to purchase 80,500 shares of Common Stock at an exercise price of $.07.
(3) During 2000 the Board's Stock Option Committee awarded Mr. Ross options
to purchase an additional 7,000 shares of Common Stock at an exercise
price of $1.50.
(4) During 2002 the Board's Stock Option Committee awarded Mr. Clarke options
to purchase 38,500 shares of Common Stock at an exercise price of $.07.
Employment Agreements
Messrs. Ross, Peterson, and Clarke have individual employment agreements
with Ultradata beginning September 1, 1994. Except as noted herein, the
terms of the employment agreements are substantially identical. The agreements
were extended in 1997 by action of the Board of Directors to October 31, 2000,
and again in 2000 to October 31, 2003. The agreements provide for base
salaries, which are adjusted annually by the Board of Directors. If the
majority of the Board cannot agree as to a level of salary adjustment, the
salary will increase by 10% for Mr. Clarke and Mr. Peterson and 5% for Mr.
Ross. The employment agreements restrict each officer from competing with
Ultradata for one year after the termination of his employment unless that
employee establishes that his employment by a competitor will not involve the
use of any information considered confidential by Ultradata.
Stock Option Awards
The following table sets forth information regarding the stock options
granted to the Company's two highest paid executives during 2002 and the stock
options held by them on December 31, 2002. No executive officer exercised an
option during 2002.
OPTION GRANTS IN FISCAL YEAR 2002
Percent
of total
options
Number of Granted
Securities to
Underlying Employees Exercise
Option in fiscal Price Expiration
Name Granted Year ($/share) Date
------------------------------------------------------------------------
Monte Ross 80,500 19.9% $.07 11/18/07
Ernest Clarke 38,500 9.5% $.07 11/18/07
AGGREGATED FISCAL YEAR OPTION VALUES
Number of securities Value of unexercised
underlying Unexercised in-the-money options
options at fiscal Year-end at fiscal year end
(#) (All exercisable> (all exercisable)
-----------------------------------------------------------------------------
Monte Ross 80,500 $10,465
Ernest Clarke 38,500 $ 5,005
Remuneration of Directors
Outside Directors receive $500 per meeting and are reimbursed for out-
of-pocket expenses incurred on the Company's behalf. During the November
meeting of the Board of Directors, the Board voted to grant 1,000 shares of
common stock and 1,000 options at market price to each outside director for
each meeting attended in 2002.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock by the following:
* each shareholder known by us to own beneficially more than 5% of our
common stock;
* Monte Ross and Ernest Clarke;
* each of our other directors; and
* all directors and executive officers as a group.
There are 4,617,693 shares of our common stock outstanding. 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 Senior
Subordinated Convertible Notes were converted 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 (12)
-------------------------------------------------------------------------
Monte Ross 434,500(2) 9.2%
Ernest Clarke 189,352(3) 4.1%
Mark Peterson 173,964(4) 3.7%
Donald Rattner 52,186(5) 1.1%
H. Krollfeifer, Jr. 32,000(6) 0.7%
Matthew Klapman 16,000(7) 0.3%
All officers and
directors as a
group (7 persons) 972,241(8) 20.0%
Harley Brixey 610,000(9) 13.2%
3 Friendship Court
Troy, MO 63379
BH Capital Investments,
L.P. 251,113(10) 5.2%
175 Bloor St. East,
7th Floor
Toronto, Ontario
Canada M4W3R8
Excalibur Limited
Partnership 251,113(10) 5.2%
33 Prince Arthur Avenue
Toronto, Ontario
Canada M5R1B2
Influence Incubator,
LLC 300,000(11) 6.1%
9666 Olive Street Road
St. Louis, Missouri 63132
(1) Unless otherwise indicated, the address of each of these shareholders is
c/o Ultradata Systems, Incorporated, 1240 Dielman Industrial Court, St.
Louis, Missouri 63132
(2) Includes 100,000 shares owned by the Harriet Ross Revocable Trust, and
214,000 shares owned by the Monte Ross Revocable Trust. Also includes
options to purchase 80,500 shares.
(3) All shares are owned jointly with Mr. Clarke's spouse. Also includes
options for 38,500 shares.
(4) Includes options for 62,000 shares.
(5) Includes options for 15,186 shares.
(6) Includes 24,000 shares owned by D&H Enterprises, Inc., of which Mr.
Krollfeifer is a principal. Also includes options for 4,000 shares.
(7) Includes options for 3,000 shares.
(8) Includes options for 233,186 shares.
(9) As reflected on a Form 144 filed on January 29, 2003.
(10)Represents for each shareholder: (a) 11,860 shares of Common Stock which
could have been acquired on March 21, 2003 on conversion of Senior
Subordinated Convertible Notes (conversion being limited to 28% of the
trading volume for the 66 trading days preceding conversion, net of prior
conversions), plus (b) warrants to purchase 239,253 shares.
(11)Represents options to purchase 300,000 shares.
(12)In determining the percentage of outstanding shares, all presently
exercisable options owned by the shareholder or the group are treated as
having been exercised.
Stock Option Plans
The information set forth in the table below regarding equity
compensation plans (which includes individual compensation arrangements) was
determined as of December 31, 2002.
Equity Compensation Plan Information
Number of
Number of securities Weighted securities
to be issued upon average remaining
exercise of exercise price available for
outstanding options, of outstanding future issuance
warrants and options, warrants under equity
rights and rights compensation plans
--------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders 405,477 $.18 0
Equity compensation
plans not approved
by security holders 22,186* $.07 -
------- ----- ---
Total 427,663 $.17 0
======= ===== ===
* Represents non-qualified stock options given to the Company's outside
directors. The options expire on November 18, 2007.
We have two stock option plans: the 1994 Incentive Stock Option Plan and
the 1996 Incentive Stock Option Plan, both of which were approved by our
shareholders. The material terms of the Plans are identical. In aggregate,
the Plan authorize the issuance of options for 500,000 shares, all of which
have been issued. Of those, options have been exercised to purchase 94,523
shares of common stock.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Item 13. EXHIBITS, LIST, AND REPORTS
(a) Financial Statements
List of Financial Statements Under Item 7 of this Report:
Independent Auditors' Report
Balance Sheet as of December 31, 2002.
Statements of Operations for each year in the two-year period ended
December 31, 2002.
Statements of Stockholders' Equity for each year in the two-year period
ended December 31, 2002.
Statements of Cash Flows for each year in the two-year period ended
December 31, 2002.
Notes to Financial Statements for each year in the two-year period ended
December 31, 2002.
(b) Exhibits Index
Exhibit Number
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 (2)
3-b. By-laws. (1)
4-a. Specimen of Common Stock Certificate. (1)
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-a(2) Lease Addendum dated October 5, 2001, for premises at 1240-1244
Dielman Industrial Court, St. Louis, Missouri - filed as an
exhibit to the Company's Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2002 and incorporated herein by reference.
10-b. 1994 Stock Option Plan.(1)
10-c Amended and Restated 1996 Stock Option Plan - filed as an
Exhibit to the Company's Registration Statement on Form S-8
(333-32098) and incorporated herein by reference.
10-d. Employment Agreement with Monte Ross.(1)
10-d(1) Extended Employment Agreement between the Company and Monte Ross
(2)
10-e. Employment Agreement with Mark L. Peterson.(1)
10-e(1) Extended Employment Agreement between the Company and Mark L.
Peterson (2)
10-f. Employment Agreement with Ernest Clarke.(1)
10-f(1) Extended Employment Agreement 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 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-i Exchange Agreement dated August 6, 2001 relating to the exchange
of Preferred Stock for Convertible Notes - filed as an exhibit
to the Company's Current Report on Form 8-K dated August 13,
2001 and incorporated herein by reference.
21. Subsidiaries - None.
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2 (33-85218 C) and incorporated herein by
reference.
(2) Previously filed as an Exhibit to Form 10-KSB for the year
ended December 31, 1997, and incorporated herein by reference.
99. Section 906 Certification
(1) Previously filed as an exhibit to the Company's Registration
Statement on Form SB-2 (33-85218 C) and incorporated herein by
reference.
(2) Previously filed as an Exhibit to Form 10-KSB for the year ended
December 31, 1997, and incorporated herein by reference.
Reports on Form 8-K: None
Item 14. Controls and Procedures
Monte Ross, our Chief Executive Officer, and Ernest Clarke, our Chief
Financial Officer, performed an evaluation of the Company's disclosure
controls and procedures within 90 days prior to the filing date of this
report. Based on their evaluation, they concluded that the controls and
procedures in place are sufficient to assure that material information
concerning the Company which could affect the disclosures in the Company's
quarterly and annual reports is made known to them by the other officers and
employees of the Company, and that the communications occur with promptness
sufficient to assure the inclusion of the information in the then-current
report.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect those controls subsequent
to the date on which Messrs. Ross and Clarke performed their evaluation.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of:
Ultradata Systems, Incorporated
We have audited the accompanying balance sheet of Ultradata Systems,
Incorporated as of December 31, 2002 and the related statements of operations
and comprehensive loss, stockholders' equity (deficiency) and cash flows for
the years ended December 31, 2002 and 2001. 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 audits.
We conducted our audits 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 audits provide 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, 2002 and the results of its operations and
its cash flows for the years ended December 31, 2002 and 2001 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 19 to the
financial statements, the Company has a net loss of $2,037,733, a negative
cash flow from operations of $101,745, a working capital deficiency of
$306,228 and a stockholders' deficiency of $441,621. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 19.
The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 7, 2003 (Except for Note 20, as to which the date is March 5, 2003)
Ultradata Systems, Incorporated
Balance Sheet
December 31, 2002
ASSETS
------
CURRENT ASSETS
Cash $ 37,842
Trade accounts receivable, net of allowance
for doubtful accounts of $16,103 141,599
Inventories, net 102,486
Prepaid expenses 4,562
---------
Total Current Assets 286,489
---------
PROPERTY AND EQUIPMENT - NET 45,432
---------
OTHER ASSETS
Notes receivable and accrued interest-long term 247,933
Other assets 5,444
---------
Total Other Assets 253,377
---------
TOTAL ASSETS $ 585,298
=========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 277,828
Accrued liabilities 188,825
Notes payable-current 126,064
---------
Total Current Liabilities 592,717
---------
LONG TERM LIABILITIES
Notes payable-long term 434,202
---------
TOTAL LIABILITIES 1,026,919
---------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.01 par value,
4,996,680 shares authorized, none
issued and outstanding -
Series A convertible preferred stock,
3,320 shares authorized, 16 shares
outstanding with a stated value of $1,000 16,000
Common stock, $0.01 par value, 10,000,000
shares authorized, 4,224,456 issued,
3,898,285 outstanding 42,244
Additional paid-in capital 9,631,750
Accumulated deficit (9,086,935)
Treasury stock (326,171 shares at cost) (942,311)
Notes receivable issued for purchase of
common stock (102,369)
---------
TOTAL STOCKHOLDERS' DEFICIENCY (441,621)
---------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 585,298
=========
See accompanying notes to financial statements.
FS-2
Ultradata Systems, Incorporated
Statements of Operations and Comprehensive Loss
As of December 31, 2002 and 2001
2002 2001
----------- -----------
NET SALES $ 1,741,557 $ 1,704,013
COST OF SALES 1,887,769 1,590,180
--------- ---------
GROSS (LOSS) PROFIT (146,212) 113,833
--------- ---------
OPERATING EXPENSES
Selling 219,259 534,593
General and administrative 1,159,158 2,346,428
Research and development 251,609 360,686
--------- ---------
Total Operating Expenses 1,630,026 3,241,707
--------- ---------
OPERATING LOSS (1,776,238) (3,127,874)
--------- ---------
OTHER INCOME (EXPENSE)
Interest and dividend income 30,698 63,928
Interest expense (76,216) (104,699)
Gain on sale of investment - 281,871
Impairment of development tools (198,764) -
Impairment of advance to affiliate - (135,480)
Impairment of advertising credits - (249,685)
Loss on disposal of fixed assets (17,440) (18,754)
Realized loss on sale of securities - (20,668)
Other, net 227 (651)
--------- ---------
Total Other Income (Expense) (261,495) (184,138)
--------- ---------
LOSS BEFORE INCOME TAX EXPENSE (2,037,733) (3,312,012)
Income tax expense - -
--------- ---------
NET LOSS (2,037,733) (3,312,012)
--------- ---------
OTHER COMPREHENSIVE INCOME
Foreign currency translation gain - 48,420
Unrealized gain on deferred compensation
investments - 13,045
--------- ---------
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX - 61,465
--------- ---------
COMPREHENSIVE LOSS $(2,037,733) $(3,250,547)
========= =========
LOSS PER SHARE
Net loss $(2,037,733) $(3,312,012)
Preferred stock dividends (3,600) (261,325)
--------- ---------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $(2,041,333) $(3,573,337)
========= =========
Loss per share - basic and diluted $ (0.59) $ (1.10)
========= =========
Weighted average shares outstanding -
basic and diluted 3,444,312 3,248,125
========= =========
See accompanying notes to financial statements.
FS-3
Ultradata Systems, Incorporated
Statements of Stockholders' Equity (Deficiency)
For the years ended December 31, 2002 and 2001
Notes
Receivable Other
Additional for Comprehensive
Preferred Stock Common Stock Paid-in Common Treasury Stock Income Accumulated
Shares Amount Shares Amount Capital Stock Shares Amount (Loss) Deficit Total
-----------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2000 1,616 $ 1,616,000 3,519,586 $35,196 $9,861,970 $(205,819) 326,171 $(942,311) $(61,465) $(3,737,190) $6,566,381
Conversion of
preferred stock
to common stock (28) (28,000) 56,118 561 27,439 - - - - - -
Redemption of
preferred stock (164) (164,000) - - (30,950) - - - - - (194,950)
Conversion of
preferred stock
to notes payable (1,408) (1,408,000) - - (340,120) - - - - - (1,748,120)
Conversion of
notes payable
to common stock - - 122,646 1,226 14,869 - - - - - 16,095
Issuance of stock
options to non-
employee for
services performed - - - - 2,544 - - - - - 2,544
Repricing of
warrants - - - - 37,529 - - - - - 37,529
Change in notes
receivable issued
to purchase common
stock, net of
(interest) and
cash payments - - - - - 19,151 - - - - 19,151
Other comprehensive
gain - - - - - - - - 61,465 - 61,465
Net loss, 2001 - - - - - - - - - (3,312,012) (3,312,012)
----------------------------------------------------------------------------------------------------------------
Balance,
December 31, 2001 16 16,000 3,698,350 36,983 9,573,281 (186,668) 326,171 (942,311) - (7,049,202) 1,448,083
Conversion of notes
payable to common
stock - - 515,106 5,151 57,809 - - - - - 62,960
Issuance of stock
to directors for
services performed - - 11,000 110 660 - - - - - 770
Payments on notes
receivable to
purchase common
stock - - - - - 84,299 - - - - 84,299
Net loss, 2002 - - - - - - - - - (2,037,733) (2,037,733)
---------------------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 2002 16 $16,000 4,224,456 $42,244 $9,631,750 $(102,369) 326,171 $(942,311) $ - $(9,086,935) $ (441,621)
===============================================================================================================
See accompanying notes to financial statements.
FS-4
Ultradata Systems, Incorporated
Statements of Cash Flows
For the years ended December 31, 2002 and 2001
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,037,733) $(3,312,012)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 157,256 235,890
Write-down of inventory 813,094 734,385
Equity in losses of unconsolidated affiliates - 651
Realized gain on investments - (271,547)
Stock issued for services 770 -
Loss on impairment of advertising credits - 249,685
Loss on impairment of loan to affiliate - 135,480
Loss on disposal of property and equipment 17,440 18,754
Provision for doubtful accounts (64,086) 271,500
Loss on asset impairment 198,764 -
Non-cash accrued interest receivable (22,539) -
Repricing of warrants - 37,530
Changes in assets and liabilities:
Trade accounts receivable, net 298,916 25,546
Inventories 430,912 (300,622)
Prepaid expenses and other assets 7,087 33,874
Accounts payable 181,695 (53,669)
Accrued liabilities (83,321) 53,150
Deferred rent - (6,220)
-------- ---------
Net Cash Used In Operating Activities (101,745) (2,147,625)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliated company - 930,000
Capital expenditures (5,622) (47,574)
Restricted cash - 767,724
-------- ---------
Net Cash (Used In) Provided By Investing
Activities (5,622) 1,650,150
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to preferred stockholders - (164,000)
Payments on notes payable (103,772) (1,005,027)
Dividends paid to preferred stockholders - (30,950)
Payments received on subscriptions, net 84,299 19,151
-------- ---------
Net Cash Used In Financing Activities (19,473) (1,180,826)
-------- ---------
NET DECREASE IN CASH (126,840) (1,678,301)
CASH - BEGINNING OF YEAR 164,682 1,842,983
-------- ---------
CASH - END OF YEAR $ 37,842 $ 164,682
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION
Interest paid during the year $ 74,290 $ 65,492
======== =========
See accompanying notes to financial statements.
FS-5
Ultradata Systems, Incorporated
Statements of Cash Flows
For the years ended December 31, 2002 and 2001
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
----------------------------------------------------------------------
During 2002, a portion of the notes payable in the amount of $62,960 was
converted to 515,106 shares of common stock.
During 2001, the Company issued to a consultant options with a fair value of
$2,544 to purchase up to 2,575 shares of common stock.
During 2001, the Company received $300,000 of long-term notes receivable,
having a net present value of $225,394, as part of the sale of the Company's
investment in Talon.
During 2001, 28 shares of preferred stock, having a stated value of $28,000,
were converted to 56,118 shares of common stock.
During 2001, 1,408 shares of preferred stock, having a stated value of
$1,408,000, were converted to notes payable. Additionally, for the preferred
stock converted to notes payable, an aggregate amount of $340,120 of accrued
dividends from 2001 and 2000 were converted to notes payable.
During 2001, a portion of the notes payable in the amount of $16,095 was
converted to 122,646 shares of common stock.
During 2001, the Rabbi trust that maintained deferred compensation investment
funds was liquidated and the proceeds of $76,982 were distributed directly
to the beneficiary.
During 2001, accounts payable was reduced by $14,520 with a corresponding
reduction in advances to affiliates.
See accompanying notes to financial statements.
FS-6
Ultradata Systems, Incorporated
Notes to Financial Statements
As of December 31, 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Operations
Ultradata Systems, Incorporated (the "Company") was incorporated in the
State of Missouri in March 1986 under the name of Laser Data Technology, Inc.
The Company subsequently merged into its wholly owned subsidiary, Ultradata
Systems, Incorporated, incorporated in the State of Delaware, and Laser Data
was dissolved. The principal business activity of the Company, located in
St. Louis, is the design, manufacture, and sale of hand-held electronic
information products. The Company sells the products in the United States
through direct marketing, independent sales representatives, mail order
catalogs, and mass market retailers.
(B) Basis of Presentation
The financial statements for 2002 include Ultradata Systems, Incorporated
only. The financial statements for 2001 include Ultradata Systems Incorporated
and the equity in earnings of unconsolidated affiliate Talon Research &
Development Co., Ltd. (Talon) of Auckland, New Zealand. The investment in
Talon was accounted for using the equity method. The Company had a 22.6%
interest in Talon (See Note 6).
(C) Use of Estimates
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America and, as such,
include amounts based on informed estimates and assumptions by management,
with consideration given to materiality. Actual results could vary from those
estimates.
(D) Cash
Cash includes deposits at financial institutions.
(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.
(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 less accumulated depreciation.
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 using 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 their
useful life. Expenditures for maintenance and repairs are charged to expense
as incurred. The Company continually reviews property and equipment to
determine that the carrying values are not impaired.
(H) Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of", 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. During 2
002, the Company recognized an impairment on capitalized software costs (See
Notes 3 and 18). During 2001, the Company recognized an impairment on
advertising credits (See (J) below).
(I) Operating Lease
Lease expense on the corporate facilities is recognized on a straight-
line basis over the primary term of the lease. The current lease does not
provide for accelerating rent over the lease term. Accordingly, no deferred
rent has been recorded in the Company's balance sheet.
(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 Accounting Principles Board
No. 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 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, 2001. During 2001, the entity that offered the advertising credits filed
for bankruptcy. Thus, the Company recognized an impairment loss on the
unused advertising credits which had been included in prepaid expenses
($187,264) and other non-current assets ($62,421) for an aggregate loss of
$249,685.
Advertising expense totaled $109,189 and $173,383 for the year ended
December 31, 2002 and 2001, respectively.
(K) Reclassification
Certain amounts from prior periods have been reclassified to conform to
the current year presentation.
(L) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure About
Fair Value of Financial Instruments," requires certain disclosures regarding
the fair value of financial instruments. Trade 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. Long-
term notes receivable that do not bear interest are discounted by an interest
rate commensurate to the Company's estimated incremental borrowing rate.
The long-term notes payable are valued by discounting the future stream
of payments using the incremental borrowing rate of the Company. The fair
value estimates presented herein are based on pertinent information available
to management as of December 31, 2002. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date, and current estimates of fair value
may differ significantly from the amounts presented herein.
The estimated fair value of long-term notes payable at December 31, 2002
is $553,146 and the carrying amount is $560,266 (See Note 8).
(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) Royalty Expense
Royalty expense is recognized on a pro rata basis as units are sold
during the same period in which the related unit sales were recognized.
(O) Income Taxes
The Company accounts for income taxes under the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", ("SFAS 109").
Under SFAS 109, 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. Under SFAS 109, 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.
(P) Loss Per Share
Basic and diluted loss per share is calculated by dividing net loss for
the period ( plus preferred stock dividends) by the weighted average number
of shares of common stock outstanding during the period. The assumed exercise
of stock options and warrants is only included in the calculation of diluted
earnings per share, if dilutive.
(Q) Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123
(SFAS No. 123), the Company has elected to account for stock options issued
to employees under Accounting Principles Board Opinion No. 25 ("APB Opinion
No. 25") and related interpretations. The Company accounts for stock options
issued to consultants and for other services in accordance with SFAS No. 123.
(R) New Accounting Pronouncements
SFAS No. 143 "Accounting for Asset Retirement Obligations" establishes
standards for the initial measurement and subsequent accounting for
obligations associated with the sale, abandonment, or other type of disposal
of long-lived tangible assets arising from the acquisition, construction, or
development and/or normal operation of such assets. SFAS No. 143 is effective
for fiscal years beginning after June 15, 2002, with earlier application
encouraged.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets
and supercedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The provisions
of the statement are effective for financial statements issued for the fiscal
years beginning after December 15, 2001.
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gains and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding
transition to the Motor Carrier Act of 1980 and amends the provisions of
SFAS No. 13 to require that certain lease modifications be treated as sale
leaseback transactions. The provisions of SFAS 145 related to classification
of debt extinguishments are effective for fiscal years beginning after May
15, 2002. Earlier application is encouraged. The Company does not believe
the adoption of this standard will have a material impact the financial
statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Restructuring
Costs." SFAS 146 applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. Those activities can
include eliminating or reducing product lines, terminating employees and
contracts and relocating plant facilities or personnel. Under SFAS 146, the
Company will record a liability for a cost associated with an exit or
disposal activity when that liability is incurred and can be measured at
fair value. SFAS 146 will require the Company to disclose information about
its exit and disposal activities, the related costs, and changes in those
costs in the notes to the interim and annual financial statements that
include the period in which an exit activity is initiated and in any
subsequent period until the activity is completed. SFAS 146 is effective
prospectively for exit or disposal activities initiated after December 31,
2002, with earlier adoption encouraged. Under SFAS 146, a company cannot
restate its previously issued financial statements and the new statement
grandfathers the accounting for liabilities that a company had previously
recorded under Emerging Issues Task Force Issue 94-3.
In December 2002, the Financial Accounting Standards Board issued
Statement No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure - an amendment of FASB Statement No. 123," ("SFAS 148"). SFAS
148 amends FASB Statement No. 123, "Accounting for Stock Based Compensation"
("SFAS 123") and provides alternative methods for accounting for a change by
registrants to the fair value method of accounting for stock-based
compensation. Additionally, SFAS 148 amends the disclosure requirements of
SFAS 123 to require disclosure in the significant accounting policy footnote
of both annual and interim financial statements of the method of accounting
for stock based-compensation and the related pro forma disclosures when the
intrinsic value method continues to be used. The statement is effective for
fiscal years beginning after December 15, 2002, and disclosures are effective
for the first fiscal quarter beginning after December 15, 2002.
The adoption of these pronouncements will not have a material effect on
the Company's financial position or results of operations.
(S) 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.
(T) Interest On Impaired Loans
The Company does not accrue additional interest on loans once the loans
have been deemed impaired.
NOTE 2 INVENTORIES
Inventories (net) at December 31, 2002 consist of the following:
Raw materials $ 46,015
Work in process -
Finished goods 56,471
-------
$ 102,486
=======
At December 31, 2002, the Company has reserved $1,110,684 for obsolete
inventory.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2002 consist of the following:
Research and development equipment $ 39,997
Tooling and test equipment 458,027
Office furniture and equipment 234,119
Sales displays 52,101
Leasehold improvements 29,989
-------
814,233
Less accumulated depreciation and
amortization (768,801)
-------
$ 45,432
=======
Depreciation and amortization expense for the years ended December 31,
2002 and 2001 totaled $157,256 and $235,890, respectively.
During 2001, the Company began amortizing the capitalized costs of the
TRAVEL*STAR 24(tm) when shipments to customers commenced. Sales of the
TRAVEL*STAR 24(tm) were suspended later in the year when it was discovered
that the units contained errors that required additional work to correct.
The costs incurred to correct the errors are being expensed as incurred.
The Company cannot thus far be certain all of these errors have been
discovered and corrected without further testing, which is ongoing.
Accordingly, the entire TRAVEL*STAR 24(tm) inventory and related capitalized
software costs were written off in 2002 (See Note 18). The Company is
planning to continue the development of the software and introduce the
TRAVEL*STAR 24(tm) when testing indicates the product is ready for market
introduction, whenever that occurs.
NOTE 4 ADVANCES TO AFFILIATES
On July 1, 1998, the Company entered into a joint development and marketing
agreement with Sci-Com (formerly SmartTime Networks) a privately held company
based in McLean, Virginia. The Company transferred certain software and
documentation of its service software in exchange for a $400,000 promissory
note bearing interest at the Federal 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 included 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
were incorporated in a promissory note due January 1, 2002, which provided
for the Company to be entitled to 50% of the operating revenue of Sci-Com
(excluding only non-reoccurring engineering services provided by the
affiliate). The agreement also provided for the optional conversion of the
loan into a 10% equity interest in the privately held company, at the
Company's sole discretion. The entire amount due from Sci-Com ($650,000
plus accrued interest) was fully reserved as of December 31, 2001 and no
additional interest has been accrued as of December 31, 2002. In 2001, the
reserve account was increased by $150,000, an impairment loss of $135,480
was recognized, and a reduction in the account payable due Sci-Com of
$14,500 was recorded. The Company has been awarded a judgement of $861,000
against the successor company to Sci-Com, known as E-tegral, Inc., but it is
not clear at this time what, if any, funds will be collectible from E-tegral
in its present financial condition.
NOTE 5 NOTES RECEIVABLE
As part of the sale of the investment in Talon, a $150,000 face value
unsecured promissory note was received from each of two principals of Talon
for aggregate notes receivable of $300,000. Since the notes do not bear
interest for the first three years, the notes were discounted by 10% per
year for three years to an aggregate net present value of $225,394. An
aggregate of $22,539 of interest income was accrued on the notes during 2002.
During years four and five, the notes bear 5% simple interest per year. The
notes are payable on the earlier of (1) December 11, 2006, at which date
$330,000 would be payable or (2) the date on which a signer sells 20% of his
Talon interest or (3) the date on which Talon is acquired by or merged into
another entity or (4) the date on which Talon sells equity to the public
(See Note 6(B)).
NOTE 6 INVESTMENT IN AFFILIATE
(A) Investment in Talon Research & Development Co., Ltd.
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 for the year
ended December 31, 1999. During 2000, the Company's interest decreased from
24.9% to 22.6% based on a 10% increase in Talon's outstanding shares due to
incorporation of an employee stock option plan for Talon employees.
The Company's interest in Talon was accounted for using the equity
method of accounting and was stated at amortized cost plus equity in
undistributed earnings since acquisition. The equity in earnings of Talon
was adjusted for the annual amortization of the difference between acquisition
cost and the Company's proportionate share of Talons' net assets.
Amortization was computed on a straight-line basis over nine years. The
unamortized difference between the investment cost and the Company's
proportionate share of Talon was $428,592 at November 30, 2001 (prior to the
Company's sale of its interest). The Company's share of the earnings for
2001 prior to the sale were $58,212 after accounting for the differences
between New Zealand GAAP and US GAAP. As discussed above, the earnings were
further reduced by amortization of $58,865 (through November 30, 2001).
(B) Gain on Sale of Investment in Talon
In December 2001, the Company sold its 22.6% interest in Talon. As of
November 30, 2001, the investment in Talon had a balance of $873,523, which
was comprised of the amortized cost plus equity in undistributed earnings
since acquisition. The proceeds received consisted of $930,000, which was
paid directly to the convertible promissory note holders (See Note 8),
$300,000 of notes receivable (having a net present value of $225,394) from
two of Talon's stockholders (See Note 5), for an aggregate amount of
$1,155,394. The resulting gain of $281,871 was recognized as other income
in the financial statements in 2001.
NOTE 7 ACCRUED LIABILITIES
Accrued liabilities at December 31, 2002 consist of the following:
Accrued sales commissions and royalties $ 50,494
Accrued payroll and related expenses 22,003
Accrued vacation 28,248
Other accrued liabilities 88,080
--------
$ 188,825
========
NOTE 8 NOTES PAYABLE
On August 13, 2001, the Company entered into an exchange agreement
whereby 1,408 of the remaining Preferred Shares (all but 16 of the Preferred
Shares) were exchanged for two identical (except for the holder) 11.25%
senior secured convertible promissory notes (See Note 11(B)(iii)) whose
principal amount equals the sum of (1) the stated value of the Preferred
Shares ($1,408,000), (2) cumulative dividends since issuance ($199,320), and
(3) a premium (deemed an additional dividend) equal to 10% of the stated
value of the Preferred Shares ($140,800) for an aggregate amount of
$1,748,120. Each of the two notes called for three monthly payments of
$35,000 followed by monthly payments of $45,000 thereafter until the notes
were satisfied. Under the payment terms, the Company made payments totaling
$140,000 in September, but suspended payments due to limited cash flow
pending a resolution of the negotiations regarding the sale of its investment
in Talon. The agreement also provided for a 10% interest accrual on any
principal outstanding on June 1, 2002. The conversion cap of the
Preferred Shares was also amended to limit the number of common shares into
which the Preferred Shares could be converted during 2001 to 20% of the
cumulative trading volume for the 66 trading days preceding conversion. In
the same transaction, the exercise price of the warrants was reduced from
$5.00 to $1.50 per share (See Note 12(C)).
On December 11, 2001, the Company amended its agreement with the note
holders. The amendment provided that the Company would instruct the buyer
of its investment in Talon (See Note 6(B)) to transfer the $930,000 proceeds
directly to the note holders in order to reduce the Company's liability
under the notes. The amendment also (1) reduced the aggregate monthly
obligation under the notes from $90,000 to $15,000 per month, (2) eliminated
the 10% interest accrual that had been scheduled for June 1, 2002,
(3) eliminated the Company's obligation to register with the SEC the shares
underlying the notes, and (4) raised the conversion cap of the notes to 28%
of the cumulative trading volume for the 66 trading days preceding conversion.
Finally, the exercise price of the warrants held by the note holders was
reduced from $1.50 to $.50 (See Note 12(C)).
Notes payable at December 31, 2002 consist of the following:
Notes payable in monthly installments of
$15,000, including interest at 11.25%,
secured by substantially all of the Company's
assets $ 560,266
Less: current portion (126,064)
---------
$ 434,202
=========
Required principal payments (including current maturities) on notes
payable at December 31, 2002 are as follows:
Year Amount
2003 $ 126,064
2004 137,388
2005 154,044
2006 142,770
-------
$ 560,266
=======
Interest expense for the years ended December 31, 2002 and 2001 was
$76,216 and $104,699, respectively. Of the interest recognized in 2001,
$37,529 relates to the repricing of warrants (See Note 12(C)).
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 former President 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. During 2001, the trust account was closed
after the investments were sold and a final distribution was made to the
beneficiary. Accordingly, a net loss of $10,324 was recognized during 2001.
NOTE 10 COMMITMENTS AND CONTINGENCIES
(A) Operating Lease
The Company renewed its operating lease whereby it reduced the size of
its corporate facilities as of November 1, 2001. The lease is an operating
lease, which expires October 31, 2003. The Company pays monthly rent of
$3,779, plus 22% of all building expenses. Until November 1, 2002, the
Company also occupied adjoining warehouse space on a month-to-month basis at
a rate of $1,275 per month.
Future minimum lease payments under the operating lease at December 31,
2002, consist of the following:
Year Amount
---- ------
2003 $37,790
======
Rent expense totaled $58,829 and $107,502 for the years ended December
31, 2002 and 2001, respectively.
(B) Royalty Agreements
On September 14, 1989, the Company entered into a twenty-year royalty
agreement relating to its ROAD WHIZ(tm) product. After 20,000 ROAD WHIZ(tm)
had been sold, the agreement thereafter provides for a 1% royalty payment on
net sales of the ROAD WHIZ(tm) product and 0.5% on the Company's other
products that incorporate the ROAD WHIZ(tm) database. Royalty payments are
made quarterly until September 13, 2009. During the years ended December 31,
2002 and 2001, royalty expense totaled $15,936 and $15,121, respectively.
On September 15, 1998, the Company entered into a three-year royalty
agreement with AAA related to the AAA TripWizard(tm). 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. On July 1, 2002, the agreement
was amended to provide a royalty of $1 per unit on all sales of the unit.
During the years ended December 31, 2002 and 2001, royalty expense totaled
$25,964 and $44,844, respectively. On September 15, 2002, this agreement
automatically renewed for an additional year.
On April 19, 2001, the Company entered into a three-year royalty agreement
with Rand McNally. The agreement renews automatically for one-year periods
up to a maximum of five additional years unless terminated earlier. The
agreement calls for the Company to pay a royalty of 10% of net sales of the
TripLink and Pocket TripLink devices that contain the Rand McNally logo or
$1.50 for each device sold, whichever is greater. For the first year of the
agreement, the Company guarantees a minimum payment of $150,000, and must
pay an additional $50,000 if 50,000 or more devices are sold. The guaranteed
annual minimum for each subsequent anniversary year increases to 115% of the
amount of the royalties due (inclusive of the guaranteed annual minimum) for
the previous year. In addition to the per unit royalty, the Company must
pay (1) a royalty of $.01 to $.02 for each route created by authorized users
of the services provided by the agreement, (2) a royalty of $0.48 to $0.62
for each Pocket Road Atlas ordered from Rand McNally, and (3) a $0.12 license
fee for each Pocket Road Atlas shipped to customers. During the years ended
December 31, 2002 and 2001, royalty expense totaled $4,892 and $145,421,
respectively. On February 21, 2002, the royalty agreement with Rand McNally
was amended as follows: (1) beginning December 16, 2002, either party may
terminate the agreement with sixty days written notice, (2) the Company may
begin using the Rand McNally logo on additional products, (3) beginning
March 1, 2002, the Company shall pay twelve monthly installments of $8,333
to the remaining balance of $100,000 owed to Rand McNally for the first year
minimum, and (4) the Company shall sell its TripLink device to Rand McNally
for $7.50 per unit below the normal selling price, and this discount shall
be used as a credit against the monthly payment in (3) above. The agreement
was modified again in February 2003 (See Note 20(A)).
(C) Exclusive Distribution Agreement
In November 2002, the Company entered into an exclusive distribution
agreement with a major distributor for a branded version of its Talking Road
Whiz product. The initial term of the agreement is for the calendar year
2003 and is contingent upon a commitment for 150,000 units with a scheduled
delivery date not later than September 30, 2003. The agreement provides for
automatic renewal rights if 300,000 or more units are distributed during the
initial term.
NOTE 11 STOCKHOLDERS' DEFICIENCY
(A) Common Stock Issuances
During 2002, a portion of the notes payable in the amount of $62,960
was converted to 515,106 shares of common stock. No gain or loss was
recognized on this transaction.
During 2002, an aggregate of 11,000 shares of common stock having a fair
market value of $770 were issued to directors for services rendered during
the year. The shares were valued based on the prevailing market price on
the grant date.
During 2001, a portion of the notes payable in the amount of $16,095 was
converted to 122,646 shares of common stock. No gain or loss was recognized
on this transaction.
During 2001, 28 shares of preferred stock having a stated value of
$28,000 were converted to 56,118 shares of common stock. No gain or loss
was recognized on this transaction.
(B) Convertible Preferred Stock
(i) Original Terms
On May 16, 2000, the Company received from two investors gross
proceeds of $1,600,000 for 1,600 Series A Convertible Preferred
Shares (the "Preferred Shares") and 478,506 Common Stock Purchase
Warrants ("Warrants") (See Note 12(C)). An additional 16 Preferred
Shares were issued to a consultant as a commission. 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 de-listed by NASDAQ) for purposes of conversion, redemption,
and liquidation ($6,529 and $2,929 at December 31, 2002 and 2001,
respectively). The main points of the Preferred Shares were as
follows:
1. The Preferred Shares have a liquidation preference, upon the
liquidation of the Company or its bankruptcy or certain other events,
equal to their $1,000 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 originally $2.50 and applies only
during the first 18 months after issuance of the Preferred Shares.
Under the terms of the Preferred Shares, the floor price was
initially adjusted to $2.00, then to $1.50. In March 2001, the
floor was eliminated. The intrinsic value of this beneficial
conversion feature has resulted in deemed dividends of $811,189.
(ii) Preferred Stock Dividends
Preferred stock dividends during 2002 and 2001 were comprised of
the following:
2002 2001
-------- ---------
Value of common shares issued $ - $ 951
Cash payments - 19,214
Notes payable issued (a) - 239,360
Preferred stock dividend
accumulated during year 3,600 1,800
------ -------
Total $ 3,600 $261,325
====== =======
(a) See below regarding the exchange of 1,408 shares of series A
Preferred Stock for Convertible Promissory Notes.
(iii) Amendments to Preferred Stock
On March 9, 2001, the conversion cap of the Preferred Shares was
amended to limit the number of common shares into which the
Preferred Shares could be converted during 2001 to 10% of the
cumulative trading volume for the 22 trading days preceding
conversion. Further, that portion of the conversion cap not
utilized during any 30-day period shall not be carried forward to
any subsequent periods. In exchange for this concession by the
preferred stockholders, the Company agreed to waive the temporary
18-month floor on the conversion price. This amendment was scheduled
to expire December 31, 2001. From the date of this amendment through
May 11, 2001, the preferred stockholders converted 28 shares of
preferred stock into 56,118 shares of common stock. No gain or loss
was recognized for the conversions.
Shortly after the March 9, 2001 amendment, the Company commenced
negotiations to revise the terms of the Preferred Shares to reduce further
the threat of dilution after 2001 that the conversion feature posed to the
common stockholders. During negotiations, the Company redeemed (during the
period from May 2, 2001 through July 1, 2001) 164 shares of preferred stock
for $194,950 in cash consisting of $164,000 of face value, $11,736 of dividends
for 2000 and $19,214 of dividends for 2001. Of the shares redeemed, 114
shares included a 10% premium (deemed a dividend) that had been agreed to by
the parties.
On August 13, 2001, the Company entered into an exchange agreement
whereby 1,408 of the remaining Preferred Shares (all but 16 of the Preferred
Shares) were exchanged for 11.25% senior secured convertible promissory notes
(See Note 8).
NOTE 12 STOCK OPTIONS AND WARRANTS
(A) Stock Options Issued Under Qualified Stock Option Plans
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 July 2000, the Company's
shareholders approved an extension of the 1996 Incentive Stock Options plan
to provide for 150,000 additional shares to be made available for future
grant. Under both plans, the exercise price of each option equals or exceeds
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 the first quarter of 2002, the Company cancelled incentive stock
options to purchase 227,950 shares of common stock at exercise prices ranging
from $1.50 to $4.00 per share.
During November 2002, the Company granted 390,002 stock options to
certain employees during the year ended December 31, 2002. The Company
applies APB Opinion No. 25 and related interpretations in accounting for
stock options issued to employees. Accordingly, no compensation cost has
been recognized for options issued to employees. Had compensation cost been
determined based on the fair market value at the grant date, consistent with
SFAS 123, the Company's net loss would have changed to the pro-forma amounts
indicated below.
2002 2001
----------------------------
Net loss available to common shareholders
As Reported $(2,041,333) $(3,573,337)
Pro Forma $(2,066,456) $(3,573,337)
Basic and diluted loss per share
As Reported $ (0.59) $ (1.10)
Pro Forma $ (0.60) $ (1.10)
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 2002 and 2001, respectively: dividend
yield of zero for all years; expected volatility of 132% and 87%; risk-free
interest rates of 5.40% and 3.26%; 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, 2002 and 2001, and the changes during the years then ended is
presented below:
2002 2001
-------------------- ------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
-----------------------------------------------------------------------------
Outstanding at beginning of year 243,425 $ 3.29 330,450 $ 3.69
Cancelled (227,950) $ 3.31
Granted 390,002 $ 0.07 2,575 $ 1.50
Forfeited - $ - (79,600) $ 3.21
Expired - $ - (10,000) $ 7.39
Exercised - $ - - $ -
------- ------ ------- ------
Outstanding at end of year 405,477 $ 0.18 243,425 $ 3.29
======= ====== ======= ======
Options exercisable at year end 405,477 243,425
======= =======
Weighted average fair value of
options granted to employees
during the year $ 0.06 $ 1.50
======= =======
Options Outstanding Options Exercisable
----------------------------------------------- -------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at December Contractual Exercise at December Exercise
Price 31, 2002 Life Price 31, 2002 Price
----------------------------------------------------------------------------
$0.00 - 0.99 390,002 5.0 $0.07 390,002 $0.07
1.00 - 1.99 5,160 3.0 1.56 5,160 1.56
2.00 - 2.99 2,965 1.8 2.13 2,965 2.13
3.00 - 3.99 - - - - -
4.00 - 4.99 5,692 0.3 4.00 5,692 4.00
5.00 - 5.56 1,658 2.3 5.56 1,658 5.56
-----------------------------------------------------------
405,477 4.87 0.18 405,477 0.18
===========================================================
(B) Non-Qualified Stock Options Issued and Outstanding
2002 2001
-----------------------
Stock options issued to a consultant
that arranged the placement of preferred
stock. The term of the option is three
years expiring May 16, 2003. The options
are exercisable at $2.50 per share. 128,000 128,000
Stock options issued to a former affiliate.
The term of the option is five years
expiring May 9, 2005. The options are
exercisable at $4.00 and $5.00 per share. 300,000 300,000
Stock options issued to directors for
services rendered. The term of the options
is five years expiring November 18, 2007.
The options are exercisable at $0.07 per
share. 22,186 -
-------- --------
Total 450,186 428,000
======== ========
(C) Stock Warrants
In conjunction with the issuance of preferred stock on May 16, 2000,
the Company issued warrants to purchase an aggregate of 478,506 shares of the
Company's common stock at an exercise price of $5.00 per share. The warrants
are exercisable immediately until expiration on May 16, 2003. In an exchange
agreement effective August 13, 2001, the exercise price of the warrants was
reduced from $5.00 to $1.50 per share. In an amendment to the exchange
agreement effective December 11, 2001, the exercise price of the warrants
was further reduced from $1.50 to $0.50 per share. An additional $37,529 of
expense was recognized due to the re-pricing of the warrants during 2001.
As of December 31, 2002, none of the warrants had been exercised.
NOTE 13 NOTES RECEIVABLE ISSUED FOR PURCHASE OF COMMON STOCK
Notes receivable issued for the purchase of common stock represent
unsecured advances made by the Company to various employees for stock
acquired when the Company went public. 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 the underlying stock, whichever
comes first. During 2001, employees began retiring the notes. During 2002,
employees accelerated retirement of the notes. During 2002, the notes earned
$4,447 in interest, and $88,746 of payments were received, including $34,044
for accrued interest and $54,702 in principal, reducing the balance at
December 31, 2002 to $102,369.
NOTE 14 LOSS PER SHARE
A reconciliation of the numerator and denominator of the loss per share
calculations is provided for all periods presented. The numerator and
denominator for basic and diluted loss per share for the years ended December
31, 2002 and 2001, is as follows:
2002 2001
Numerator: ---------- ----------
Net loss $(2,037,733) $(3,312,012)
Preferred Stock Dividends (a) (3,600) (261,325)
--------- ---------
Numerator for basic and diluted loss
per share $(2,041,333) $(3,573,337)
========= =========
Denominator:
Weighted average common shares 3,444,312 3,248,125
Common stock equivalents (b) - -
--------- ---------
Denominator for basic and diluted loss
per share 3,444,312 3,248,125
========= =========
Basic and diluted loss per share $ (0.59) $ (1.10)
========= =========
(a) See Note 11(B)(ii)
(b) Conversion of the preferred stock was not included in the denominator of
the diluted loss per share during 2002 and 2001 because the effect of
the preferred stock conversion was anti-dilutive. Options and warrants
to purchase 1,334,169 shares of common stock at prices between $0.07 and
$5.56 per share were outstanding at December 31, 2002, but were not
included in the computation of diluted loss per share because they are
anti-dilutive. Options and warrants to purchase 1,149,931 shares of
common stock at prices between $1.50 and $5.56 per share were outstanding
at December 31, 2001, but were not included in the computation of diluted
loss per share because they were anti-dilutive.
NOTE 15 INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2002 and
2001 consist of the following:
2002
Current Deferred Total
-------------------------------
Federal $ - $ - $ -
State - - -
------------------------------
$ - $ - $ -
==============================
2001
Current Deferred Total
-------------------------------
Federal $ - $ - $ -
State - - -
------------------------------
$ - $ - $ -
==============================
Income tax expense for the years ended December 31, 2002 and 2001
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:
2002 2001
----------- ------------
Expected income tax (benefit) expense $ (692,829) $ (1,126,084)
Increase (decrease) in income taxes
resulting from:
Valuation allowance increase 784,388 1,215,752
Nondeductible expenses for federal
income tax purposes (91,559) (89,668)
--------- ----------
Income tax expense (benefit) $ - $ -
========= ==========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2002 and
2001 include the following:
2002 2001
---------- ------------
Deferred tax assets:
Net operating loss carryforward $ 3,714,245 $ 3,021,416
Note receivable reserved for
financial reporting purposes 253,283 253,283
Notes and accounts receivable reserves 5,475 124,197
Inventory reserves, principally due to
accruals for financial reporting
purposes and basis differences 377,632 147,725
Other 9,604 15,438
---------- ----------
Total deferred tax assets 4,360,239 3,562,059
---------- ----------
Deferred tax liabilities
Property, plant and equipment,
principally due to differences
in depreciation basis (17,179) (3,387)
---------- ----------
Total deferred tax liabilities (17,179) (3,387)
---------- ----------
Gross deferred tax asset 4,343,060 3,558,672
Valuation allowance (4,343,060) (3,558,672)
---------- ----------
Net deferred tax asset $ - $ -
========== ==========
At December 31, 2002, the Company had net operating loss carryforwards
of $10,924,252 for income tax purposes, available to offset future taxable
income expiring on various dates through 2022. The valuation allowance at
December 31, 2001 was $3,558,672. The net change in the valuation allowance
during the year ended December 31, 2002 was an increase of $784,388.
NOTE 16 EMPLOYEE BENEFIT PLANS
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 $21,949 and $33,857 during the years ended
December 31, 2002 and 2001, respectively.
NOTE 17 CONCENTRATIONS OF CREDIT RISK
The Company relied on two customers for approximately 74% of sales for
the year ended December 31, 2002, and three customers for approximately 79%
of sales for the year ended December 31, 2001. At December 31, 2002,
accounts receivable from those customers totaled $127,629.
NOTE 18 SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 2002, the Company recorded significant
adjustments that increased the net loss by approximately $812,000. These
adjustments included $613,000 related to an increase in the inventory reserve
for obsolescence, and $199,000 related to the write-off of the remaining
capitalized expense for software tools relating to the TRAVEL*STAR 24(tm).
In the fourth quarter of 2001, the Company recorded significant adjustments
that increased the net loss by approximately $664,000. These adjustments
included $244,000 related to reserving accounts receivable from a customer,
$75,000 related to discounting long-term notes receivable to net present
value, $95,000 related to accrual of additional royalty expense and $250,000
related to the write-off of advertising credits.
NOTE 19 GOING CONCERN
As shown in the accompanying financial statements, the Company has a net
loss of $2,037,733, a negative cash flow from operations of $101,745, a
working capital deficiency of $306,228 and a stockholders' deficiency of
$441,621. 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 in 2003 and expects to introduce its Talking Road
Whiz in March 2003. The Company also continues its efforts to expand into
new markets. In addition, the Company has obtained short-term loans from
investors to fund operations during the launching of this new product until
revenues from its sales are received (See Note 20(B)). Management believes
that actions presently taken to obtain additional funding provide the
opportunity for the Company to continue as a going concern.
NOTE 20 SUBSEQUENT EVENTS
(A) Rand McNally Agreement Amendment
In February 2003, the agreement with Rand McNally was amended to provide
a new payment schedule and basis for the TripLink royalties. The Company
agreed to pay the remaining balance for the TripLink Program in accordance
with the following terms:
The beginning balance of $52,251 on January 1, 2003, shall bear
interest at the rate of 6% APR. The payment schedule shall consist of
$2,000 upon signing of the amendment and $2,000 on the 15th of each month
commencing March 15, 2003. On or before August 31, 2003, a final balloon
payment is required equal to the sum of the outstanding balance and any
accrued unpaid interest, less any credits resulting from TripLink sales in
the interim. The agreement was signed and the initial payment of $2,000 was
made in February 2003.
(B) Private Debt Offering
In December 2002, the Company put forth a private debt offering of
secured 12% Promissory Notes limited to $200,000. For each dollar loaned to
the Company, the lender was also entitled to purchase two shares of the
Company's common stock for $.01 per share. The funds received from the debt
offering are for a limited purpose described below. All of the proceeds
raised under the offering are to be maintained in an escrow account maintained
by the Company's attorney. Once the Company receives a purchase order from
either of two specified customers, the Company can "draw down" 70% of the
P.O. amount from the escrow account in order to purchase the product from a
vendor. Once the revenue from the sale is received, the "draw down" funds
are to be returned to the escrow account and the Company retains the balance
of the sales proceeds. No funds were received during 2002. As of March 1,
2003, the Company had received $370,130 in eligible purchase orders, and thus
70% (or $259,091) is eligible for "draw down". The actual "draw down" as of
March 1, 2003, was $160,000 - being all the funds raised as of that date.
The offering closes March 31, 2003, unless extended by the Company. The
notes are due and payable July 31, 2003.
As part of the offering, the Company also received an aggregate of
$3,200 from the sale of 320,000 common shares having an aggregate fair market
value of $75,200. The shares were valued based on the closing bid price on
the date the funds were received. The value allocated to the shares ($75,200)
less the proceeds received for the shares ($3,200) amounts to $72,000, which
shall be treated as a discount on the private debt offering and amortized
over the life of the notes payable as additional interest expense.
(C) Conversions of Notes Payable
As of March 1, 2003, a portion of the notes payable in the amount of
$60,100 was converted to 369,408 shares of common stock.
(D) Issuance of Stock to Consultant
In February, 30,000 shares were issued to a consultant for services
performed and are included in the current number of shares outstanding on
page 1 of this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Ultradata Systems, Incorporated
By:
/s/ Monte Ross
--------------------
Monte Ross, Chairman
In accordance with the Exchange Act, this report has been signed below
by the following persons, on behalf of the registrant and in the capacities
and on the dates indicated.
March 27, 2003
/s/ Monte Ross
---------------
Monte Ross
Chief Executive Officer and Chairman of the Board
March 27, 2003
/s/Ernest Clarke
----------------
Ernest Clarke,
Chief Financial and Accounting Officer, Director
March 27, 2003
/s/ Mark L. Peterson
--------------------
Mark L. Peterson,
Director
March 27, 2003
/s/ Donald Rattner
------------------
Donald Rattner
Director
March 27, 2003
/s/ H. Krollfeifer, Jr.
------------------------
H. Krollfeifer, Jr.,
Director
March 27, 2003
/s/ Matthew Klapman
-------------------
Matthew Klapman
Director
CERTIFICATIONS
I, Monte Ross, certify that:
1. I have reviewed this annual report on Form 10-KSB of Ultradata
Systems, Incorporated;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements and other
financial information included in this annual report fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated
in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 27, 2003 /s/ Monte Ross
-----------------------------------
Monte Ross, Chief Executive Officer
I, Ernest Clarke, certify that:
1. I have reviewed this annual report on Form 10-KSB of Ultradata
Systems, Incorporated;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements and other
financial information included in this annual report fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated
in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: March 27, 2003 /s/ Ernest S. Clarke
--------------------------------------
Ernest Clarke, Chief Financial Officer
EXHIBIT 99: SECTION 906 CERTIFICATION
The undersigned officers certify that this report fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934, and that
the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of Ultradata
Systems, Incorporated.
A signed original of this written statement required by Section 906 has been
provided Ultradata Systems, Incorporated and will be retained by Ultradata
Systems, Incorporated and furnished to the Securities and Exchange Commission
or its staff upon request.
Date: March 27, 2003 /s/ Monte Ross
-----------------------------------
Monte Ross, Chief Executive Officer
Date: March 27, 2003 /s/ Ernest S. Clarke
--------------------------------------
Ernest Clarke, Chief Financial Officer