U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF
1934
FOR THE TRANSITION PERIOD FROM ______________TO_______________
COMMISSION FILE NUMBER 0-25380
ULTRADATA SYSTEMS, INCORPORATED
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(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1240 Dielman Industrial Court, St. Louis, MO 63132
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (314) 997-2250
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding as of August 8, 2003
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Common, $.01 par value 4,672,709
Transitional Small Business Disclosure Format Yes [ ] No [X]
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
June 30, 2003
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets at June 30, 2003 and
December 31, 2002 3.
Condensed Statements of Operations for the three
months and six months ended June 30, 2003 and 2002 4.
Condensed Statements of Cash Flows for the six months
ended June 30, 2003 and 2002 5.
Notes to Condensed Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9.
PART II - OTHER INFORMATION 13.
Signatures 13.
Certifications 13.
-2-
ULTRADATA SYSTEMS, INCORPORATED
Condensed Balance Sheets
As of June 30, 2003 and December 31, 2002
June 30, December 31,
2003 2002
--------- ------------
(Unaudited)
Assets
Current assets:
Cash $ 184,851 $ 37,842
Trade accounts receivable, net of
allowance for doubtful accounts
of $16,103 103,978 141,599
Inventories, net 108,124 102,486
Prepaid expenses 11,797 4,562
--------- ---------
Total current assets 408,750 286,489
Property and equipment, net 37,928 45,432
Notes receivable and accrued interest -
long term - 247,933
Other assets 5,444 5,444
--------- ---------
Total assets $ 452,122 $ 585,298
========= =========
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable $ 279,303 $ 277,828
Accrued liabilities 130,957 188,825
Notes payable - current 315,256 126,064
--------- ---------
Total current liabilities 725,516 592,717
Long term liabilities:
Notes payable - long term 291,857 434,202
--------- ---------
Total liabilities 1,017,373 1,026,919
Stockholders' deficiency:
Preferred Stock, $0.01 par value,
4,996,680 shares authorized, none
outstanding - -
Series A convertible preferred stock,
3,320 shares authorized with a stated value
of $1,000, none and 16 shares outstanding - 16,000
Common stock, $.01 par value; 10,000,000
shares authorized; 4,672,709 and 4,224,456
shares issued and outstanding 46,728 42,244
Additional paid-in capital 8,830,466 9,631,750
Accumulated deficit (9,394,551) (9,086,935)
Treasury stock (326,171 shares at cost) - (942,311)
Notes receivable issued for purchase of
common stock (47,894) (102,369)
--------- ---------
Total stockholders' deficiency (565,251) (441,621)
--------- ---------
Total liabilities and stockholders'
deficiency $ 452,122 $ 585,298
========= =========
See accompanying summary of accounting policies and notes to condensed
financial statements.
-3-
ULTRADATA SYSTEMS, INCORPORATED
Condensed Statements of Operations
For the three and six months ended June 30, 2003 and 2002 (unaudited)
Three months Six months
ended June 30 ended June 30
---------------------------------------------
2003 2002 2003 2002
(unaudited) (unaudited)
Net sales $ 445,857 $ 78,684 $ 797,813 $ 1,074,403
Cost of sales 186,661 68,563 383,206 783,285
--------------------------------------------
Gross profit 259,196 10,121 414,607 291,118
Operating Expenses:
Selling expense 26,991 21,351 52,027 60,236
General and administrative
expenses 235,514 312,829 479,549 609,793
Research and development expense 13,077 55,012 35,505 113,369
--------------------------------------------
Total Operating Expenses 275,582 389,192 567,081 783,398
Operating loss (16,386) (379,071) (152,474) (492,280)
Other income (expense):
Interest and dividend income 115 2,315 6,351 7,221
Interest expense (59,228) (19,003) (110,037) (38,818)
Loss on early retirement of
note receivable (57,813) - (57,813) -
Other, net (11,496) 54 6,357 144
--------------------------------------------
Total other expense, net (128,422) (16,634) (155,142) (31,453)
Loss before income taxes (144,808) (395,705) (307,616) (523,733)
Income tax expense - - - -
--------------------------------------------
Net loss $(144,808) $(395,705) $(307,616) $(523,733)
============================================
Loss per share -
basic and diluted $ (0.03) $ (0.12) $ (0.07) $ (0.15)
============================================
Weighted Average Shares
Outstanding:
Basic and diluted 4,637,850 3,415,224 4,562,854 3,398,093
==============================================
See accompanying summary of accounting policies and notes to condensed
financial statements.
-4-
ULTRADATA SYSTEMS, INCORPORATED
Condensed Statements of Cash Flows
Six months ended June 30, 2003 and 2002 (unaudited)
2003 2002
----------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (307,616) $ (523,733)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 17,654 90,142
Provision for doubtful accounts 106 -
Inventory reserved for obsolescence 15,193 65,077
Stock issued for services 4,500 -
Loss on early settlement of notes receivable 57,813 -
Non-cash preferred stock dividends and
interest payable 65,175 -
Non-cash accrued interest receivable (12,397) -
Increase (decrease) in cash due to changes in
operating assets and liabilities:
Trade accounts receivable 37,515 348,503
Inventories (20,831) 400,774
Prepaid expenses and other current assets (7,235) (2,189)
Accounts payable 1,476 (52,724)
Accrued expenses (51,339) (109,018)
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Net cash provided by (used in) operating activities (199,986) 216,832
-------- --------
Cash flows from investing activities:
Proceeds from early settlement of notes receivable 202,517 -
Capital expenditures (10,150) (4,854)
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Net cash provided by (used in) investing activities 192,367 (4,854)
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Cash flows from financing activities:
Proceeds from stock issued for cash and options
exercised 76,910 -
Proceeds from notes payable issued 91,600 -
Subscription payments 54,475 29,826
Principal payments on notes payable (68,357) (55,498)
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Net cash provided by (used in) financing activities 154,628 (25,672)
-------- --------
Net increase (decrease) in cash and cash
equivalents 147,009 186,306
Cash and cash equivalents at beginning of period 37,842 164,682
-------- --------
Cash and cash equivalents at end of period $ 184,851 $ 350,988
======== ========
Non-Cash Investing and Financing Activities:
In May 2003, the Company issued a note payable to the then sole preferred
stockholder in the amount of $24,790, which represented the face value of the
preferred shares of $16,000 plus accumulated dividends of $8,790.
During the six months ended June 30, 2003, the Company issued 411,421
shares of common stock to satisfy convertible debt aggregating $64,100.
See accompanying summary of accounting policies and notes to condensed
financial statements.
-5-
ULTRADATA SYSTEMS, INCORPORATED
Notes to Condensed Financial Statements
June 30, 2003 (Unaudited)
Note 1 Basis of Presentation and Significant Accounting Policies
(A) Basis of Presentation
The accompanying unaudited condensed financial statements of
Ultradata Systems, Incorporated (the "Company") have been prepared pursuant
to the rules of the Securities and Exchange Commission (the "SEC") for
quarterly reports on Form 10-QSB and do not include all of the information
and note disclosures required by generally accepted accounting principles.
These condensed financial statements and notes herein are unaudited, but in
the opinion of management, include all the adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the Company's
financial position, results of operations, and cash flows for the periods
presented. These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 2002 as filed with the
SEC on March 28, 2003. Interim operating results are not necessarily
indicative of operating results for any future interim period or for the full
year.
(B) Nature of Operations
The principal business activity of the Company, located in St. Louis,
is the design, manufacture, and sale of hand-held electronic information
products.
(C) Revenue Recognition
During 2003, the Company began performing consulting services for
another company that operates in a different field. The consulting services
are being performed by a few of the Company's personnel in order to generate
additional revenue and amounted to approximately $52,000 for the six months
ended June 30, 2003. Segment information has not been provided because it is
not practical at this early stage and the consulting revenue is less that that
required for segment reporting.
(D) New Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". SFAS No. 149 amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
The changes in SFAS No. 149 improve financial reporting by requiring that
contracts with comparable characteristics be accounted for similarly. This
statement is effective for contracts entered into or modified after June
30, 2003 and all of its provisions should be applied prospectively.
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting For
Certain Financial Instruments with Characteristics of both Liabilities and
Equity". SFAS No. 150 changes the accounting for certain financial instruments
with characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting
guidance contained in SFAS No. 150 requires that those instruments be
classified as liabilities in the balance sheet.
SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatorily redeemable shares,
which the issuing company is obligated to buy back in exchange for cash or
other assets. A second type includes put options and forward purchase
contracts, which involves instruments that do or may require the issuer to buy
back some of its shares in exchange for cash or other assets. The third type
of instruments that are liabilities under this Statement is obligations that
can be settled with shares, the monetary value of which is fixed, tied
solely or predominantly to a variable such as a market index, or varies
inversely with the value of the issuers' shares. SFAS No. 150 does not apply
to features embedded in a financial instrument that is not a derivative in its
entirety.
-6-
Most of the provisions of Statement 150 are consistent with the
existing definition of liabilities in FASB Concepts Statement No. 6, "Elements
of Financial Statements". The remaining provisions of this Statement are
consistent with the FASB's proposal to revise that definition to encompass
certain obligations that a reporting entity can or must settle by issuing its
own shares. This Statement shall be effective for financial instruments
entered into or modified after May 31, 2003 and otherwise shall be effective
at the beginning of the first interim period beginning after June 15, 2003,
except for mandatorily redeemable financial instruments of a non-public entity,
as to which the effective date is for fiscal periods beginning after December
15, 2003.
Note 2. Inventories
Inventories consist of the following:
June 30, December 31,
2003 2002
Raw Materials, net of obsolete inventory $ 69,850 $ 46,015
Finished Goods, net of obsolete inventory 38,274 56,471
-------- ---------
Total inventory $ 108,124 $ 102,486
======= =========
Obsolete inventory on hand $ 953,566 $1,110,684
Note 3. Notes Receivable
In June 2003, the Company settled the $300,000 in outstanding notes
receivable due in 2006 for the sale of its interest in Talon Research and
Development, Ltd., (now Navman, Ltd.) in 2001. The Company received cash of
$202,517 and recorded a loss of $57,813 on the discounted value of the notes
on June 30, 2003.
Note 4. Notes Payable
In January 2003, the Company authorized a private debt offering of
secured 12% promissory notes limited to $200,000 with a due date of July 31,
2003. 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. During
the six months ended June 30, 2002, the Company issued an aggregate of
$165,000 of promissory notes and received $3,300 from the sale of 330,000
common shares for aggregate proceeds of $168,300. The shares were treated
as a discount to the private offering, and the shares were valued at $76,700
based on the market price on the dates the funds were received (See Note 5 (B)).
Accordingly, $91,600 is deemed to have been received for the promissory notes.
The $73,400 discount from the face value of the promissory notes is being
amortized over the life of the promissory notes as additional interest expense.
During the six months ended June 30, 2003, the Company recognized interest
expense of $62,914. The funds received from the debt offering are for a
limited purpose described below. The balance of the promissory notes as of
June 30, 2003 is $154,514 and is included in Notes payable - current.
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 purchase-order 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.
Note 5. Stockholder's Deficiency
(A) Preferred Stock
The preferred shares, including accumulated dividends, were eligible
for conversion into common shares on or before May 13, 2003 at 75% of the 5-
day average closing bid price. As of that date, the preferred shares had
accumulated dividends of $8,790. Per an agreement with the sole preferred
stockholder, the conversion right was exchanged for a note payable in the
amount of $24,790, of which $5,000 has been paid and $19,790 has been included
in Notes payable - current.
-7-
(B) Common Stock
During the six months ended June 30, 2003, the Company issued 30,000
shares of common stock for services having a fair market value of $4,500.
During the six months ended June 30, 2003, convertible debt holders
converted $64,100 of convertible notes payable into 411,424 shares of common
stock.
During the six months ended June 30, 2003, options were exercised to
purchase 3,000 shares of common stock for gross proceeds of $210.
During the six months ended June 30, 2003, the Company issued 330,000
shares of common stock having a fair market value of $76,700 based on the
closing market price on the date the shares were issued. The shares were
issued as part of a private debt offering (See Note 4).
(C) Subscriptions Receivable
During the six months ended June 30, 2003, the Company received
$54,475 towards subscription receivables due from employees of the Company.
(D) Treasury Stock
During the six months ended June 30, 2003, the Company retired all
326,171 shares of its treasury stock having a cost of $942,311. Accordingly,
the amount has been reclassified to Additional paid-in capital.
Note 6. 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 100,000 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.
The Company accounts for the aforementioned plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted
under those plans had an exercise price equal to or greater than the market
value of the underlying common stock on the date of grant. The following
table illustrates the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of SFAS 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
June 30, June 30,
2003 2002
----------------------------
(Unaudited) (Unaudited)
Net loss, as reported $ (307,616) $ (523,733)
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of tax effects - -
-------- --------
Pro forma net loss $ (307,616) $ (523,733)
======== ========
Earnings per share:
Basic and diluted loss per share, as
reported $ (0.07) $ (0.15)
======== ========
Basic and diluted loss per share,
pro forma $ (0.07) $ (0.15)
======== ========
-8-
(B) 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
were 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 June 30, 2003, all of the warrants expired unexercised.
Note 7. Going Concern
As shown in the accompanying condensed financial statements, the
Company has a net loss of $307,616, a negative cash flow from operations of
$199,986, a working capital deficiency of $316,766 and a stockholders'
deficiency of $565,251 as of and for the six months ended June 30, 2003.
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 introduced 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 4 of the accompanying condensed financial
statements). Management believes that actions presently taken to obtain
additional funding provide the opportunity for the Company to continue as a
going concern.
Note 8. Subsequent Events
A) Extension of short-term notes
During July 2003, the Company offered subscribers to the short-term
notes (see Note 4) the opportunity to extend them on the same terms until
October 31, 2003 in order to help fund retail orders expected during that
period. The list of qualified purchase orders was expanded to include several
large retail outlets in addition to those in the original agreement, and an
additional share for $.01 per dollar loaned was included as an incentive.
Subscribers in the amount of $150,000 have agreed to the extension.
B) Judgement in legal proceeding was settled in the Company's favor
On July 3, 2003, the Company received $127,000 from a legal
proceeding that was settled in the Company's favor regarding a dispute with
its former auditors that had been pending since last year.
C) Marketing agreement with AAA for Talking AutoPilotTM signed
In August 2003, an agreement with AAA on the branding and marketing
of the AAA Talking AutoPilotTM, a version of the Talking Road Whiz, was signed
by the Company and AAA.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS
This quarterly report contains a number of forward-looking statements
regarding our future prospects. Among the forward-looking statements are
descriptions of our plans to 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;
-9-
* The difficulty of attracting mass-market retailers to seasonal
products like the Road Whiz(tm) product line; 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.
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 a contract with a major
distributor providing exclusivity in certain channels if 300,000 units are
purchased and delivered in calendar 2003. Fulfillment of this agreement with
delivery of 300,000 units would ensure good profitability for the Company in
2003 and sufficient cash and earnings to solve our liquidity issues.
* 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 issues have been addressed, and the Company plans to test the
market acceptability of the product in the Fall of 2003.
* The Company continues to sell its line of both branded and private-
labeled, low-cost travel computers. In the second half of 2003, the Company
plans to launch its new AAA Talking AutoPilotTM that adds a voice to its
traditional unit for prompting the user and for providing the data. The
marketing agreement with AAA for this branded product was signed in August
2003 (see Note 8 to the accompanying condensed financial statements).
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.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2003 Compared to Three and Six
Months Ended June 30, 2002
Operating results for the six-month period ended June 30, 2003
differed primarily due to the fact that a large order was received in the
first quarter of 2002, while sales were more evenly split between the first
two quarters of 2003. Losses, however, have been substantially reduced in
2003 as compared with 2002.
-10-
Sales. During the three and six months ended June 30,2003, net sales
totaled $445,857 and $797,813, respectively, compared with $78,684 and
$1,074,403, respectively for the same periods in 2002. These figures
represent an increase of 466.6% for the three-month period and a decrease of
25.7% for the six-month period. The figures are somewhat distorted by the
fact that a significant order was shipped on the last day of the first quarter
of 2002. Had that order been booked in the second quarter, the second-
quarter sales in both years would have been comparable.
Backlog. As of June 30, 2003, the Company had a backlog of $469,801
for purchase orders to be fulfilled in 2003, as compared to $258,412 for June
30, 2002.
Gross Profit. Gross profit margin for the three- and six-month
periods ending June 30, 2003 were 58.1% and 51.9%, respectively, representing
a significant improvement over gross margin in corresponding periods of 2002
of 12.8% and 27.1%, respectively. Gross profit in 2002 was lower primarily
due to higher cost of microchips in inventory for these sales. In 2003, the
higher-priced chips are now out of inventory, resulting in improved margins.
In addition, the new Talking Road Whiz initially enjoys higher margins than
the traditional products and should favorably affect the results during the
second half of 2003.
S,G&A Expense. Selling expenses for the three- and six-month periods
ended June 30, 2003 were $26,991 and $52,027, respectively, compared with
$21,351 and $60,236, respectively, for the corresponding periods in 2002.
These figures mirror the sales levels of the respective periods and represent
comparable expenditures to 2002. General and administrative expenses for the
three- and six-month periods ended June 30, 2003 were $235,514 and $479,549,
respectively, compared with $312,829 and $609,793, respectively, for the
corresponding periods in 2002. These figures represent reductions of 24.7%
and 21.3%, respectively, for the three- and six-month periods in 2003 versus
2002. These reductions reflect continued success in our on-going effort to
reduce expenses.
R&D Expense. Research and development expense in the three- and
six-month periods ended June 30,2003 also decreased 76.2% and 68.7%,
respectively, from the corresponding periods of 2002.
The Company posted a loss from operations of ($16,386) and ($152,474)
for the three- and six-month periods ended June 30, 2003, respectively,
compared to a loss from operations of ($379,071) and ($492,280) for the
corresponding periods in 2002.
Other Expense. Other expense for the three- and six-month periods
ended June 30, 2003 totaled ($128,422) and ($155,142), respectively, compared
with ($16,634) and ($31,453), respectively, for the corresponding periods of
2002. The primary sources of these increases are (1) increased interest
expense for the short-term and long-term debt, and (2) a one-time loss of
($57,813) (see Note 3 of the accompanying condensed financial statements) on
notes receivable taken as part of the sale of the Company's interest in Talon
Research and Development, Ltd. of New Zealand in 2001. In order to improve
our cash position, we had offered a discount for pay-off of the notes
receivable three years prior to maturity, and it was accepted.
As a result of the foregoing, the Company posted a net loss of
($144,808), or ($0.03) per basic and diluted common share, for the three-
month period ended June 30, 2003, compared to a net loss of ($395,705), or
($0.12) per basic and diluted common share, for the three-month period ended
June 30, 2002. The Company posted a net loss of ($307,616), or ($0.07) per
basic and diluted common share, for the six-month period ended June 30, 2003,
compared to a net loss of ($523,733), or ($0.15) per basic and diluted
common share, for the six-month period ended June 30, 2002.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 2003, the Company had $184,851 in cash, compared to
$37,842 at December 31, 2002. The Company's operating activities in the six
months ended June 30, 2003, used cash totaling $199,986 to fund losses in the
first half of 2003.
Net cash provided by investing activities for the six-month period
ended June 30, 2003 totaled $192,367 due to the early pay-off of the notes
receivable acquired in the sale of the Company's interest in Talon, compared
to cash used of ($4,854) for the same period in 2002.
Net cash provided by financing activities for the six-month period
ended June 30, 2003 was $154,628 compared to cash used of ($25,672) in the
same period in 2002. The primary reason for the increase was the short-term
loans secured in the first quarter of 2003 (see Note 4 of the accompanying
condensed financial statements).
-11-
Our operating losses over the past four years have eliminated our
working capital. In the first quarter of 2003 we completed a private offering
of debt and equity, and obtained $168,300 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. The notes
were due and payable July 31, 2003. The Company has offered the note holders
the opportunity to extend their loans to October 31, 2003 with the same
interest terms and the right to purchase an additional share per dollar loaned
for $.01. Over 90% of the value of the notes has been extended.
Because the Company has reduced its costs of doing business and
expects significant sales in the third and fourth quarters, Management expects
the financial picture to continue to improve greatly over the course of 2003.
However, if the anticipated sales for the rest of 2003 fail to materialize,
we will not have sufficient financial resources to carry the Company into 2004.
As shown in the accompanying condensed financial statements, the
Company has a net loss of $307,616, a negative cash flow from operations of
$199,986, a working capital deficiency of $316,766 and a stockholders'
deficiency of $565,251. 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 introduced 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 4 of the accompanying condensed financial
statements). Management believes that actions presently taken to obtain
additional funding provide the opportunity for the Company to continue as
a going concern.
ITEM 3. 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.
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ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
In July 2003 the Company settled its arbitration claim against its
former auditors which began in 2002 and received payment of $127,000.
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
Exhibits:
31 Rule 13a-14(a) Certification.
32 Rule 13a-14(b) Certification.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 5, 2003 /s/ Monte Ross
--------------------------
Monte Ross, CEO
(Chief executive officer)
/s/ Ernest S. Clarke
--------------------------
Ernest S. Clarke, President
(Principal financial and accounting
officer)
-13-
EXHIBIT 31: Rule 13a-14(a) CERTIFICATION
I, Monte Ross, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Ultradata
Systems, Incorporated;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements and other
financial information included in this report fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this report;
4. The small business issuer'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 small business
issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our conclusion
about the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal controls over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal controls over financial reporting.
Date: August 5, 2003 /s/ Monte Ross
-----------------------------------
Monte Ross, Chief Executive Officer
-14-
I, Ernest Clarke, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Ultradata
Systems, Incorporated;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements and other
financial information included in this report fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this report;
4. The small business issuer'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 small business
issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our conclusion
about the effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report based on such evaluation; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal controls over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal controls over financial reporting.
Date: August 5, 2003 /s/ Ernest S. Clarke
---------------------------------------
Ernest Clarke, Chief Financial Officer
* * * * *
-14-
EXHIBIT 32: Rule 13a-14(b) 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.
August 9, 2003 /s/ Monte Ross
-----------------------------------
Monte Ross
(Chief executive officer)
/s/ Ernest S. Clarke
-----------------------------------
Ernest S. Clarke
(Chief financial officer)
-15-