U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 -
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 April 30, 1997
Common, $.01 par value 3,403,493
Transitional Small Business Disclosure Format Yes_____ No X
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
March 31, 1997
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 1997 and December 31, 1996 3.
Consolidated Statements of Operations
for the three months ended March 31, 1997 and 1996 4.
Consolidated Statements of Cash Flows
for the three months ended March 31, 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 10.
Signatures 10.
Item 1. Financial Statements
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
March 31, December 31,
1997 199
(unaudited)
Assets
Current assets:
Cash and cash equivalents $4,808,375 $ 3,960,577
Trade accounts receivable, net
of allowance for doubtful accounts
of $8,892 and $16,644 at March 31,
1997 and December 31, 1996, respectively 3,344,189 4,608,285
Costs and estimated earnings on
long-term contracts 213,540 438,670
Inventories 3,194,394 3,289,453
Deferred tax assets 62,600 62,600
Prepaid expenses and other current assets 541,091 641,376
Total current assets 12,164,189 13,000,961
Property and equipment, net 658,093 642,245
Deferred compensation trust 91,689 91,689
Capitalized software development cost 48,368 -
Other assets 55,543 43,968
Total assets $ 13,017,882 $ 13,778,863
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 668,154 $ 1,374,346
Accrued expenses and other liabilities 794,165 865,263
Total current liabilities 1,462,319 2,239,609
Deferred rent, less current portion - 8,708
Deferred compensation liability 91,689 91,689
Deferred tax liabilities 23,330 23,330
Total liabilities 1,577,338 2,363,336
Stockholders' equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 3,403,493 shares
issued and outstanding at March 31,
1997 and December 31, 1996 34,035 34,035
Additional paid-in capital 9,763,001 9,763,001
Retained earnings 2,054,008 2,028,991
Notes receivable issued for purchase
of common stock (410,500) (410,500)
Total stockholders' equity 11,440,544 11,415,527
Total liabilities and stockholders'
equity $ 13,017,882 $ 13,778,863
See accompanying notes to consolidated financial statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
1997 1996
(unaudited)
Net sales
Consumer products $ 2,846,839 $ 502,306
Contract 82,371 356,356
Total net sales 2,929,210 858,662
Cost of sales
Consumer products 1,096,608 237,073
Contracts 47,381 152,042
Total cost of sales 1,143,989 389,115
Gross profit 1,785,221 469,547
Selling, general & administrative
expenses 1,540,576 761,570
Research & development
expenses 268,368 206,040
Operating loss (23,723) (498,063)
Other income (expense)
Interest expense (53) (1,418)
Interest income 49,376 25,023
Other, net (583) 587
Total other income 48,740 24,192
Income (loss) before income
tax benefit 25,017 (473,871)
Income tax benefit - (180,071)
Net income (loss) $ 25,017 $ (293,800)
Earnings (loss) per common and
common equivalent share $0.01 $(0.09)
Weighted average common and
common equivalent shares
outstanding 3,428,340 2,377,706
See Accompanying Notes to Consolidated Financial Statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months ended March 31,
1997 1996
(unaudited)
Cash flows from operating activities.
Net (loss) income $ 25,017 $ (293,800)
Adjustments to reconcile net income
(loss) to net cash provided by
operations:
Depreciation 33,747 16,250
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Trade accounts receivable, net 1,264,096 2,564,418
Costs and estimated earnings on
long term contracts 225,130 (356,356)
Inventories 95,059 (319,814)
Deferred offering costs - (31,897)
Prepaid expenses and other current assets 100,285 4,683
Accounts payable (706,192) (144,956)
Accrued expenses and other liabilities (71,098) (523,394)
Deferred rent (8,708) 1,866
Net cash provided by operating activities 957,336 917,000
Cash flows from investing activities:
Capital expenditures (49,595) (48,796)
Sale of marketable securities - 800,000
Decrease in other assets (11,575) 3,954
Capitalization of software
development cost (48,368) -
Net cash (used in) provided by
investing activities (109,538) 755,158
Cash flows from financing activities:
Repayment on line of credit - (448,000)
Proceeds from sale of stock - 149,250
Net cash used in financing activities - (298,750)
Net increase in cash and cash equivalents $ 847,798 $ 1,373,408
Cash and cash equivalents at beginning
of period $ 3,960,577 $ 15,065
Cash and cash equivalents at end
of period $ 4,808,375 $ 1,388,473
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 97 $ 3,499
Cash paid during the period for taxes $ 31,509 $ 325,000
See Accompanying Notes to Consolidated Financial Statements.
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 quarter ended
March 31, 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 ended March 31, 1997, the earnings per common share and common
equivalent share are based on the weighted average number of common shares
outstanding plus shares issuable upon the assumed exercise of dilutive common
share options by using the treasury stock method. For the quarter ended March
31, 1996, the modified treasury stock method was used in the calculation of
earnings per common and common equivalent share. For the quarter ended March
31, 1997, the earnings per common share is computed using 3,428,340 common
shares outstanding. For the quarter ended March 31, 1996, the loss per common
and common equivalent share was computed using 2,377,706 common and common
equivalent shares outstanding.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128), "Earnings
Per Share" (EPS). SFAS No. 128 establishes standards for computing and
presenting EPS. It also requires dual presentation of basic and diluted EPS on
the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS calculation to the numerator and denominator of fully diluted EPS
computations. SFAS No. 128 is effective for the financial statements for both
interim and annual periods after December 15, 1997 and early application is not
permitted. The Company believes the adoption of this accounting standard will
not have a material impact on EPS.
NOTE 3 - INCENTIVE STOCK OPTION PLAN
As of March 31, 1997, the company's outstanding stock options totaled 213,692
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.
NOTE 4 - ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities include the following:
March 31, December 31,
1997 1996
Income tax payable $ 82,068 $173,637
Sales tax payable 655 32,138
Commissions payable 491,596 74,022
Royalties payable 55,850 21,097
Other expenses payable 163,996 564,369
Total $794,165 $865,263
NOTE 5 - CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software development costs have been accounted for in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to be Sold, Leased or Otherwise Marketed". Under the standard,
capitalization of software development costs begins upon 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 is no amortization to date.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 ended March 31, 1997 were $2,929,210, compared to
$858,662 for the quarter ended March 31, 1996, representing a 241% increase
from quarter to quarter. The following shows a breakdown of these sales.
Three Months Ended INCREASE
March 31, (DECREASE)
Sales 1997 1996
Consumer products $ 2,846,839 $ 502,306 467%
Contract 82,371 356,356 ( 77%)
TOTAL: $ 2,929,210 $ 858,662 241%
Consumer Products revenue for the quarter ended March 31, 1997 increased by
$2,344,533 which represents a 467% increase from the quarter ended March 31,
1996. The increase in revenue is largely attributed to shipments of custom
unit orders totaling approximately $1.8 million that shipped from December 31,
1996 backlog. At March 31, 1997 the backlog totaled approximately $6.4 million
and includes orders from The QVC Network, Sears Department Stores, and two
orders for customized products.
Contract revenues for the quarter were down $273,985 from the quarter ended
March 31, 1996. The lower contract revenues for the quarter reflect the near
completion of the original contract which represented a $1.7 million production
contract for laser pointing and tracking systems (PATS). Revenues for this
contract are recorded on a percentage of completion method pursuant to the terms
of the contract. During the first quarter, the Company's single contract
customer exercised an override clause in the original contract by ordering two
additional delivery orders valued at $337,888. There were no revenue or costs
recognized during the quarter for these additional orders.
Gross profit for the current quarter for the consumer product group totaled
$1,750,231 or 61% of consumer product sales as compared to $265,233 or 53%
for the quarter ended March 31, 1996. The increased margins and gross profit
percentages are primarily due to the larger sales volume and higher average
prices realized for custom products. The increased margins on custom products
were somewhat offset by additional sales commissions paid to sales agents and
other marketers utilized by the Company. Continuing initiatives to reduce
manufacturing cost via offshore contract manufacturing and the higher margins
of custom products have also contributed to improved margins between the two
quarters.
Selling, general and administrative (SG&A) expenses for the quarter totaled
$1,540,576 as compared to $761,570 for the same quarter last year, representing
a 102% increase. SG&A expenses were increased for the quarter as a result of
continuing expansion initiatives taken by management. Increased advertising and
marketing expenses were incurred to expand the distribution channels.
Advertising and marketing expenditures increased by $169,637 over the prior
year's quarter and totaled $420,859 for the quarter ended March 31, 1997.
The increase in advertising expense resulted from an aggressive program
undertaken by the Company during the second half of the fiscal year 1996, which
continued into fiscal 1997. The Company developed this program in conjunction
with Roy Thomas, Inc., a marketing and promotion firm with a national
distribution network. Roy Thomas, Inc. accounted for approximately $1.7 million
in sales last year, and became the Company's largest customer during fiscal
1996. Commission expenses totaled $502,950 for the quarter ended March 31, 1997
as compared to $41,699 one year ago. As previously mentioned, the commission
rate on the custom orders represent both a higher rate and a multilevel sales
effort. Additional staffing has also increased SG&A expenses in a number of key
areas, including data research, finance, and marketing.
Research and development (R&D)expense increased $62,328, or 30%, to $268,368
during the quarter ended March 31, 1997 as compared to the same quarter last
year. The Company's research and development efforts have resulted in five new
products to be released during the second quarter. Three of these products, the
SEARS PATHFINDER (a custom unit for SEARS) and two non-travel products (HOME &
GARDEN and the GARDEN GURU) were released during April, 1997. In addition, the
ROAD WHIZ EXPRESS (a custom unit for The QVC Network) is scheduled to be shipped
in June, 1997. POIS, Inc., will introduce a new handheld Model 197 in early
May. With completion of all five products, the Company's standard product line
will expand from seven (7) to to twelve (12) different travel computers and
non-travel products. Further, research and development activity continued
towards completion of (1) TRIPLINK, the PC-download to a handheld system, and
(2) the POIS/498 Power Navigation System with GPS. Both of these projects
are complex and have required significant R&D expenditures but represent
potential mass market opportunities at higher average sales prices per unit.
This new generation of advanced higher end products, once completed, should
significantly expand market opportunities for the coming years. TRIPLINK is
expected to be completed in the next few months and POIS/498 later this year.
The POIS/498 with GPS is expected to retail at approximately $600, below
existing Auto Navigation systems and with more capability and user freindly
attributes. The TRIPLINK configuration will also be employed in a joint product
development venture, announced on April 3, 1997 with American Clearing House,
a privately-owned leader in database marketing and home delivery systems. Under
the terms of the joint venture, both companies will develop and American
Clearinghouse will market a handheld unit to facilitate more efficient home
delivery services for markets such as fast-food and floral deliveries.
Interest income for the quarter ended March 31, 1997 totaled $49,376, as
compared to $25,023 for the quarter ended March 31, 1996. The increase in
interest income is attributable to larger investable balances of cash as
compared to the comparable period last year. The higher investable balances are
primarily the result of the sale of additional shares of common stock upon
exercise of the publicly-held warrants during the second half of the year,
which added approximately $6.2 million in additional cash.
As a result of the foregoing, the Company had net income of $25,017, or $0.01
per share for the quarter ended March 31, 1997 versus a net loss of $293,800,
or $0.09 per share for the quarter ended March 31, 1996.
FINANCIAL CONDITION AND LIQUIDITY
The Company has funded its recent operations primarily through the sale of
Common Stock in an initial public offering, and more recently, from the exercise
of warrants for common stock, and from cash generated by operations. At March
31, 1997, the Company had $4,808,375 in cash and cash equivalents compared to
$3,960,577 at March 31, 1996. The Company's operating activities provided
$957,336 for the quarter ended March 31, 1997 as compared to $917,000 provided
for the quarter ended March 31, 1996. Net cash used in investing activities
totaled $109,538. Capital expenditures totaled $49,595 which included primarily
purchases of office equipment, and additional production and tooling equipment.
Working capital decreased slightly from $10,761,352 at December 31, 1996 to
$10,701,870 at March 31, 1997. The Company's current ratio at March 31, 1997
was 8.3 to 1 as compared to 5.8 to 1 at December 31, 1996.
Inventories decreased slightly from $3,289,453 from the December 31, 1996 level
to $3,194,394 as of March 31, 1997. Inventories did not follow the traditional
seasonal pattern of large reductions following fulfillment of peak holiday
demands. This was the result of a major build program to fill a custom order
valued at $4.0 million. This order was received by the Company in October,
1996, at which time the Company began to order components and build in-process
inventory. Subsequently, shipments totaling $1.8 million were completed during
the current quarter, with remaining inventories of component parts and
assemblies on hand sufficient to complete second quarter requirements.
Accounts receivable decreased $1,264,096 from $4,600,285 at December 31, 1996
to $3,344,189 at March 31, 1997. Accounts receivable generally decrease as
higher fourth quarter product sales are collected during the first quarter of
the next year.
The Company has extended its unsecured line of credit with its lender at $2.0
million plus a $500,000 facility for letters of credit, bringing the total
credit facility to $2.5 million. The current line of credit will expire April
30, 1998. As of March 31, 1997 there were no borrowings outstanding.
The Company believes that the liquidity provided by its existing cash and cash
equivalents, available lines of credit, and the cash generated from operations
will be sufficient to meet the Company's operating and capital requirements for
the next twelve months. Additional capital expenditures are expected to occur
for tooling and production equipment in conjunction with new product development
for the next twelve months.
SAFE HARBOR STATEMENT
This management discussion contains forward-looking statements that involve risk
and uncertainties, including timely development, acceptance and pricing of new
products, the impact of competitive products and pricing, general economic
conditions as they affect the Company's customers, as well as other risks
detailed from time to time in the Company's SEC reports, including the annual
report on Form 10KSB for the year ended December 31, 1996.
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.
May 14, 1997 /s/ Monte Ross
Monte Ross, President and CEO
(Duly authorized officer and
principal financial officer)
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