U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________TO_______________
COMMISSION FILE NUMBER 0-25380
ULTRADATA SYSTEMS, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9375 Dielman Industrial Drive, St. Louis, MO 63132
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (314) 997-2250
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past
90 days.
Yes X No_____
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding as of November 3, 1997
Common, $.01 par value 3,396,493
Transitional Small Business Disclosure Format Yes_____ No X
<PAGE>
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
September 30, 1997
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1997 and December 31, 1996 3.
Consolidated Statements of Income
for the quarters and nine months
ended September 30, 1997 and 1996 4.
Consolidated Statements of Cash Flows
for the nine months ended September 30,
1997 and 1996 5.
Notes to Consolidated Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7.
PART 11 - OTHER INFORMATION 11.
Signatures 12.
<PAGE>
Item 1. Financial Statements
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
September 30, December 31,
1997 1996
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,151,825 $ 3,960,577
Trade accounts receivable, net of allowance for
doubtful accounts of $19,493 and $16,644 at
September 30, 1997 and December 31, 1996,
respectively 2,771,308 4,608,285
Costs and estimated earnings on long-
term contracts 556,216 438,670
Inventories 4,050,658 3,289,453
Deferred tax assets 62,600 62,600
Prepaid expenses and other current assets 886,851 641,376
Total current assets 12,479,458 13,000,961
Property and equipment, net 786,206 642,245
Deferred compensation trust 91,689 91,689
Capitalized software development 215,877 -
Other assets 56,030 43,968
Total assets $13,629,260 $13,778,863
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 699,937 $ 1,374,346
Accrued expenses and other liabilities 1,025,888 865,263
Total current liabilities 1,725,825 2,239,609
Deferred rent, less current portion 14,306 8,708
Deferred compensation liability 91,689 91,689
Deferred tax liabilities 23,330 23,330
Total liabilities $ 1,855,150 $ 2,363,336
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 3,403,493 shares issued and 3,396,493
outstanding at September 30, 1997
and 3,403,493 issued and outstanding at
December 31, 1996, respectively. $ 34,035 $ 34,035
Additional paid-in capital 9,763,001 9,763,001
Treasury stock, 7,000 shares (38,062) -
Retained earnings 2,425,636 2,028,991
Notes receivable issued for purchase of common
stock (410,500) (410,500)
Total stockholders' equity 11,774,110 11,415,527
Total liabilities and stockholders'
equity $13,629,260 $13,778,863
See accompanying notes to consolidated financial statements.
<PAGE>
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
(Unaudited) (Unaudited)
Net sales
Consumer products $3,071,478 $1,328,977 $9,545,059 $3,332,905
Contract revenues 148,324 122,181 425,047 723,979
Total net sales 3,219,802 1,451,158 9,970,106 4,056,884
Cost of sales
Consumer products 1,225,808 594,571 3,834,899 1,543,904
Contracts 84,823 72,221 218,408 312,643
Total cost of sales 1,310,631 666,792 4,053,307 1,856,547
Gross profit 1,909,171 784,366 5,916,799 2,200,337
Selling, general &
administrative expenses 1,583,365 784,831 4,745,266 2,402,553
Research & development
expenses 230,894 273,350 739,710 762,170
Operating income (loss) 94,912 (273,815) 431,823 (964,386)
Other income (expense)
Interest expense (695) (844) (800) (3,307)
Interest income 54,438 29,040 165,188 71,803
Other, net (368) 16 (631) (3,517)
Total other income 53,375 28,212 163,757 64,979
Income (loss) before
income tax expense
(benefit) 148,287 (245,603) 595,580 (899,407)
Income tax expense
(benefit) 42,481 (127,759) 198,935 (414,358)
Net income (loss) $ 105,806 $ (117,844) $ 396,645 $ (485,049)
Earnings (loss) per common
and common equivalent share:
primary $0.03 ($0.04) $0.12 ($0.19)
fully Diluted $0.03 ($0.04) $0.12 ($0.19)
Weighted average common and
common equivalent shares
outstanding 3,414,465 2,726,554(1) 3,415,774 2,489,285(1)
(1) For the quarter and nine months ended September 30, 1996, the inclusion of
the common share options and warrants were antidilutive and were excluded from
the computation.
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Month Period ended September 30,
1997 1996
(unaudited)
Cash flows from operating activities.
Net income (loss) $ 396,645 $ (485,049)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation 135,316 48,750
Decrease in accounts receivable, net 1,836,977 1,613,344
Increase in inventories (761,205) (1,282,572)
Decrease in deferred offering cost - 21,500
Increase in prepaid expenses
and other current assets (245,475) (178,117)
Increase in costs and estimated
earnings on long-term contracts (117,546) (208,875)
Increase in other assets (12,062) (1,462)
(Decrease) increase in accounts payable (674,409) 561,020
Increase (decrease) in accrued expenses
and other liabilities 160,625 (806,468)
Increase in deferred rent 5,598 5,598
Net cash provided by (used in)
operating activities 724,464 (712,331)
Cash flows from investing activities:
Capital expenditures (279,277) (237,477)
Sale of marketable securities - 800,000
Capitalized software development cost (215,877) -
Net cash (used in) provided by investing
activities (495,154) 562,523
Cash flows from financing activities:
Repayment on line of credit - (448,000)
Proceeds from sale of stock - 6,181,391
Purchase of reasury stock (38,062) -
Net cash (used in) financing
activities (38,062) 5,733,391
Net increase in cash and cash equivalents $ 191,248 $ 5,583,583
Cash and cash equivalents at beginning of
period $ 3,960,577 $ 15,065
Cash and cash equivalents at end of period $ 4,151,825 $ 5,598,648
Supplemental disclosurs of cash flow information:
Cash paid during the period for interest $ 869 $ 5,388
Cash paid during the period for taxes 275,569 377,850
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The accompanying consolidated interim financial statements included herein
have been prepared by Ultradata Systems, Incorporated (the "Company"),
without audit, except for the consolidated balance sheet at December 31,
1996, in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures made are adequate to make the information presented not
misleading.
The consolidated financial statements include the accounts of Ultradata Systems,
Incorporated and its majority-owned subsidiary, POIS, Inc. (POIS). As a result
of operating losses incurred by POIS, the consolidated financial statements
include 100% of the POIS accounts since the minority interest does not currently
have the ability to absorb these losses. All significant intercompany balances
and transactions have been eliminated in consolidation.
In the opinion of management, the information furnished for the quarters and
nine month periods ended September 30, 1997 and 1996, respectively, includes all
adjustments, consisting solely of normal recurring accruals necessary for a
fair presentation of the financial results for the respective interim periods
and is not necessarily indicative of the results of operations to be expected
for the entire fiscal year ending December 31, 1997. It is suggested that the
interim financial statements be read in conjunction with the audited
consolidated financial statements for the year ended December 31, 1996, as filed
with the Securities and Exchange Commission on Form 10-KSB (Commission File
Number 0-25380).
NOTE 2 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For the quarter and nine months ended September 30, 1997, the earnings per
common share is based on the weighted average number of common and common
equivalent shares outstanding. For the quarter and nine months ended September
30, 1996, the loss per common and common equivalent share are based on the
weighted average number of common and common equivqlent shares outstanding.
For the quarter and nine months ended ended September 30, 1997, the earnings
per common share is computed using 3,414,465 and 3,415,774 common shares
outstanding. For the quarter and nine months ended September 30, 1996, the loss
per common and common equivalent share are computed using 2,726,554 and
2,489,285 common and common equivalent shares outstanding, respectively.
NOTE 3 - INCENTIVE STOCK OPTION PLAN
As of September 30, 1997, the company's outstanding stock options totaled
227,792 shares. These options have been issued to key employees, officers,
directors and consultants of the Company. The Company is authorized to issue
350,000 shares of incentive stock options or non-qualified stock options. On
August 2, 1997 the Board of Directors authorized the cancellation of 118,100
previously issued Incentive Stock Options ranging in exercise price of $5.75 to
$7.39 in exchange for 118,100 new Incentive Stock Options with an exercise
price of $5.50 per option. This action was taken to provide additional
incentives to employees of the Company to improve operating performance.
NOTE 4 - ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at September 30, 1997 include the
following:
September 30, December 31,
1997 1996
Income tax payable $ 97,003 $173,637
Sales tax payable 447 32,138
Commissions payable 648,427 74,022
Royalties payable 20,632 21,097
Other expenses payable 259,379 564,369
Total $1,025,888 $865,263
NOTE 5 - CAPITALIZED SOFTWARE DEVELOPMENT COST
Software development costs have been accounted for in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed". Under Standards No. 86,
capitalization of software development costs begins upon the establishment of
technological feasibility, subject to net realizable value considerations.
Capitalized costs consist of those costs associated with the development of the
initial product. This product is in the coding and testing stage; therefore
there there is no amortization to date.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements: No Assurances Intended
This Item 2 contains certain forward-looking statements regarding the Company,
its business, prospects and results of operations that are subject to certain
risks and uncertainties posed by many factors and events that could cause the
Company's actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that may affect such forward-looking results, including
statements about backlog, the Company's ability to successfully develop new
products for new markets; customer acceptance of new products; the possibility
of the Company losing a large customer or key personnel; the Company's ability
to manage growth and to successfully integrate recent strategic marketing and
product development alliances; the impact of competition on the Company's
revenues; delays in the Company's introduction of new products; and the
possibility of the Company failing to keep pace with emerging technologies.
Accordingly, no assurances can be given that events or results mentioned in any
such forward-looking statements will in fact occur. When used in this
discussion, words such as "believes" and phrases such as "are expected" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying forward-looking statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. The Company undertakes no obligation
to revise any forward-looking statements in order to reflect events or
circumstances that may subsequently arise. Readers are urged to carefully
review and consider the various disclosures made by the Company in this report
and in the Company's reports filed with the Securities and Exchage Commission.
The analysis of the Company's financial condition, capital resources and
operating results should be viewed in conjunction with the accompanying
consolidated financial statements, including the notes thereto.
RESULTS OF OPERATIONS
Net sales for the quarter and nine month period ended September 30, 1997 were
$3,219,802 and $9,970,106, respectively, compared to $1,451,158 and
$4,056,884 for the quarter and nine months ended September 30, 1996,
representing a 122% increase for the quarter and a 146% increase for the nine
months, respectively. The following shows a quarterly and nine months breakdown
and comparison of these revenues:
Three months ended Nine months ended Increase
September 30, Increase September 30, (Decrease)
REVENUES 1997 1996 1997 1996
Consumer products $3,071,478 $1,328,977 131% $9,545,059 $3,332,905 186%
Contract revenues 148,324 122,181 21% 425,047 723,979 (41%)
Total $3,219,802 $1,451,158 122% $9,970,106 $4,056,884 146%
Consumer Products revenue for the quarter ended September 30, 1997 increased by
$1,742,501 which represents a 131% increase from the quarter ended September 30,
1996. The increase in revenue is attributed to increased shipments for custom
travel computers, including a follow-on order for approximately $2.64 million.
Contract revenues for the quarter increased to $148,324 or by $26,143 from the
quarter ended September 30, 1996. For the nine months, contract revenues were
down by $298,932 over the comparable nine months ended September 30, 1996.
The higher contract revenues for the prior year were associated with the
continuing completion of a long term production contract for 12 laser pointing
and tracking systems (PATS) installations. Revenues for this contract were
recorded on a percentage of completion method pursuant to the terms of the
contract.
Gross profit for the current quarter for the consumer product group totaled
$1,845,670 or 60.1% of consumer product sales as compared to $734,406 or 55.3%
for the third quarter of 1996. For the nine month period, gross profit totaled
$5,710,160 or 59.8% of consumer product sales compared to $1,789,001 or 53.7%
of sales for the nine months ended September 30, 1996. Selling, general and
administrative (SG&A) expenses for the current quarter totaled $1,583,365 as
compared to $784,831 for the same quarter last year, representing a 101.7%
increase. For the current nine months, SG&A totaled $4,745,266 versus
$2,402,553, representing a 97.5% increase.
Sales commissions for the nine months increased to $1,948,030 from $172,568,
reflecting higher sales and multi-level marketing efforts in conjunction with
custom orders; advertising and marketing costs increased to $1,028,707 from
$888,608, reflecting major mailings of credit card inserts, new product
literature and brochures and the introduction of new products to the market
place; and personnel costs increased to $862,405 from $488,725, reflecting
staff additions in data research, finance, and marketing. This reflects the
Company's continuing strategy to increase its name recognition and to support
new product offerings.
Research and development expense decreased $42,456, or 16%, to $230,894
during the quarter ended September 30, 1997 as compared to the same quarter
last year. For the nine month period, research and development decreased by
$22,460 or 3% to $739,710 as compared to $762,170 for the nine months ended
September 30, 1996. Research and development expenses for the period do not
take into consideration "capitalized software development" cost incurred this
year which relates to a new product under development. These costs will be
amortized in future periods. For the year, a total of $215,877 has been
capitalized relating to software development costs incurred by the company.
There were no comparable capitalized software development cost during the same
period last year.
The Company's research and development efforts have resulted in three new
products being released during the third quarter. With the completion of these
products, the Company's standard product line has expanded to fourteen
individual products. Further, research and development activity continued
towards completion of additional products for release early next year, including
several new products. The Company released its first POIS product, the POIS
197, a travel computer to be marketed to the automobile aftermarket along with
two low-cost golf products, GOLF GUIDE and GOLFFINDER. Research and development
activities are currently focused on three new products: (1) TRIPLINK, the
PC-download to handheld system, (2) TRAVEL STAR, a driver information system,
incorporating GPS (Global Positioning Satellite) and (3) a handheld Internet
appliance capable of sending and receiving E-mail. These units contain many
additional parts and require a greater engineering effort and will be more
costly to manufacture when compared to the Company's current line of low-cost
travel computers. These entries are expected to sell for more than the $100
highest priced point items in the Company's standard line of travel computers.
They are expected to be available early in 1998. TRAVEL STAR GPS is expected to
retail at approximately $400, substantially less than existing Auto Navigation
Systems which retail for $1,000 to $3,000. Further, management believes TRAVEL
STAR GPS will have additional functions and user-freindly attributes not
present in the more expensive GPS units. TRAVEL STAR GPS is scheduled to be
introduced at the Consumer Electronics Show in January, 1998 in Las Vegas, with
first production units planned for delivery in the first quarter of 1998.
At the present time, three joint product development agreements are in effect
for travel related products: (1) the TRIPLINK configuration will be employed in
a joint development effort with American Clearing House, a privately owned
company engaged in database marketing and home delivery systems, to market a
handheld unit to facilitate more efficient home delivery services such as fast-
food and floral deliveries, and (2) an agreement with Travroute Software, a
leading developer of trip planning software, to incorporate the ROAD WHIZ
database of interstate services with their trip planning software in a handheld
unit that has download capabilities from personal computers to address the
growing PC consumer market, and (3) an agreement with a telecommunications
company on development of an Internet appliance that would be low cost with the
ability to send and receive E-mail. This Internet appliance is expected to be
available sometime in the second quarter of 1998.
Interest income for the quarter ended September 30, 1997 totaled $54,438, as
compared to $29,040 for the quarter ended September 30, 1996. For the nine
months ended September 30, 1997 interest income totaled $165,188 as compared
to $71,803 for the same period ended September 30, 1996. Larger investable
balances were available during all of the third quarter of this year.
Generally, the Company invests its surplus funds in more liquid investment
instruments in order to avoid short term borrowing against the bank line of
credit. These more liquid short term investments carry a lower interest yield.
As a result of the foregoing, the Company posted net income of $105,806 (or
$0.03 per share) for the quarter ended September 30, 1997 versus a net loss of
$117,844 (or $0.04 per share) for the quarter ended September 30, 1996. For the
nine months ended September 30, 1997, the Company posted net income of $396,645
(or $0.12 per share) as compared to a net loss of $485,049 (or $0.19 per share)
for the nine months ended September 30, 1996.
BACKLOG
The current backlog of consumer products was approximately $1,235,097 at
September 30, 1997. This backlog consists primarily of orders for non-custom
travel computers associated with vendor orders for the holiday season. The
current backlog of orders is scheduled to ship within the next two months.
There were no comparable backlog records maintained at the quarter ended
September 30, 1996.
FINANCIAL CONDITION AND LIQUIDITY
The Company has funded its operations primarily through the sale of Common
Stock and historically through periodic borrowings, and from cash generated by
operations. At September 30, 1997, the Company had $4,151,825 in cash and cash
equivalents.
The Company's operating activities provided $724,465 for the nine months
ended September 30, 1997. The primary source of cash provided from
operating activities resulted from a $1,836,977 reduction in accounts
receivable, reflecting the payment of peak trade receivables generated during
the fourth quarter ended December 31, 1996. Net cash used by investing
activities totaled $495,154, which includes the purchase od capital equipment
of $279,277 and capitalized software development cost of $215,877. As a result
of the foregoing, net cash increased by $191,248.
Inventories increased $761,205 from the December 31, 1996 level to $4,050,658
as of September 30, 1997. This represents the seasonal building of inventory
for the forthcoming holiday season. Typically, inventory levels decrease during
the first six months and gradually build during the third and into the fourth
quarter. Accounts receivable decreased by $1,836,977 from $4,608,285 at
December 31, 1996. This decrease is another seasonal occurrence as fourth
quarter sales were substantially collected during the first quarter of fiscal
1997.
As a result working capital decreased slightly from $10,761,352 at December 31,
1996 to $10,753,633 at September 30, 1997. The Company's current ratio at
September 30, 1997 was 7.2 to 1 as compared to 5.8 to 1 at December 31, 1996.
The Company has an unsecured line of credit totaling $2.0 million plus a
$500,000 facility for letters of credit, bringing the total credit facility to
$2.5 million. As of September 30, 1997 the borrowing against this line of
credit was zero.
The Company believes that the liquidity provided by its existing cash and cash
equivalents, the borrowing arrangement described above, and the cash generated
from operations will be sufficient to meet the Company's operating and capital
requirements for the next twelve months.
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 13, 1997 /s/ Monte Ross
Monte Ross, President and CEO
(Duly authorized officer and principal
financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,151,825
<SECURITIES> 0
<RECEIVABLES> 2,751,815
<ALLOWANCES> (19,493)
<INVENTORY> 4,050,658
<CURRENT-ASSETS> 12,479,458
<PP&E> 1,263,713
<DEPRECIATION> (477,507)
<TOTAL-ASSETS> 13,629,260
<CURRENT-LIABILITIES> 1,725,825
<BONDS> 0
0
0
<COMMON> 34,035
<OTHER-SE> 11,740,075
<TOTAL-LIABILITY-AND-EQUITY> 13,629,260
<SALES> 9,970,106
<TOTAL-REVENUES> 10,135,294
<CGS> 4,053,307
<TOTAL-COSTS> 5,484,976
<OTHER-EXPENSES> 631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 800
<INCOME-PRETAX> 595,580
<INCOME-TAX> 198,935
<INCOME-CONTINUING> 396,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396,645
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
