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, 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 July 31, 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
June 30, 1997
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996 3.
Consolidated Statements of Income
for the quarters and six months
ended June 30, 1997 and 1996 4.
Consolidated Statements of Cash Flows
for the six months ended June 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 11.
<PAGE>
Item 1. Financial Statements
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
Consolidated Balance Sheets
June 30, December 31,
1997 1996
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 5,984,994 $ 3,960,577
Trade accounts receivable, net of allowance for
doubtful accounts of $17,141 and $16,644 at
June 30, 1997 and December 31, 1996
respectively 1,846,097 4,608,285
Costs and estimated earnings on long-
term contracts 407,892 438,670
Inventories 3,037,585 3,289,453
Deferred tax assets 62,600 62,600
Prepaid expenses and other current assets 542,281 641,376
Total current assets 11,881,449 13,000,961
Property and equipment, net 743,294 642,245
Deferred compensation trust 91,689 91,689
Capitalized software development 133,100 -
Other assets 52,543 43,968
Total assets $12,902,075 $13,778,863
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 448,259 $ 1,374,346
Accrued expenses and other liabilities 619,991 865,263
Total current liabilities 1,068,250 2,239,609
Deferred rent, less current portion 12,440 8,708
Deferred compensation liability 91,689 91,689
Deferred tax liabilities 23,330 23,330
Total liabilities $ 1,195,709 $ 2,363,336
Stockholders' equity:
Common stock, $.01 par value; 10,000,000 shares
authorized; 3,403,493 shares issued and
outstanding at June 30, 1997
and December 31, 1996, respectively. $ 34,035 $ 34,035
Additional paid-in capital 9,763,001 9,763,001
Retained earnings 2,319,830 2,028,991
Notes receivable issued for purchase of common
stock (410,500) (410,500)
Total stockholders' equity 11,706,366 11,415,527
Total liabilities and stockholders'
equity $12,902,075 $13,778,863
See accompanying notes to consolidated financial statements.
<PAGE>
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter ended June 30 Six months ended June 30
1997 1996 1997 1996
(Unaudited) (Unaudited)
Net sales
Consumer products $3,626,742 $1,501,622 $6,473,581 $2,003,928
Contract revenues 194,352 245,442 276,723 601,798
Total net sales 3,821,094 1,747,064 6,750,304 2,605,726
Cost of sales
Consumer products 1,512,482 712,260 2,609,091 949,333
Contracts 86,204 88,380 133,585 240,422
Total cost of sales 1,598,686 800,640 2,742,676 1,189,755
Gross profit 2,222,408 946,424 4,007,628 1,415,971
Selling, general &
administrative expenses 1,621,225 856,151 3,161,901 1,617,722
Research & development
expenses 240,448 282,781 508,816 488,820
Operating income (loss) 360,735 (192,508) 336,911 (690,571)
Other income (expense)
Interest expense (51) (1,045) (104) (2,463)
Interest income 61,373 17,742 110,751 42,765
Other, net 219 (4,122) (265) (3,535)
Total other income 61,541 12,575 110,382 36,767
Income (loss) before
income tax expense
(benefit) 422,276 (179,933) 447,293 (653,804)
Income tax expense
(benefit) 156,454 (106,528) 156,454 (286,599)
Net income (loss) $ 265,822 $ (73,405) $ 290,839 $ (367,205)
Earnings (loss) per common
and common equivalent share
primary $0.08 ($0.03) $0.09 ($0.15)
fully Diluted $0.08 ($0.03) $0.09 ($0.15)
Weighted average common and
common equivalent shares
outstanding 3,403,493 2,380,229(1) 3,416,414 2,370,651(1)
(1) For the quarters ended June 30, 1996 and the six months ended June 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
Six Month Period ended June 30,
1997 1996
(unaudited)
Cash flows from operating activities.
Net income (loss) $ 290,839 $ (367,205)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation 89,823 32,500
Decrease in accounts receivable, net 2,762,188 2,017,521
Decrease (increase) in inventories 251,868 (177,744)
Increase in deferred offering costs - (39,621)
Decrease (increase) in prepaid expenses
and other current assets 99,095 (115,352)
Decrease (increase) in costs and estimated
earnings on long-term contracts 30,778 (388,681)
Decrease in accounts payable (926,088) (232,812)
Decrease in accrued expenses
and other liabilities (245,272) (628,877)
Increase in deferred rent 3,732 3,732
(Increase) decrease in other assets (8,575) 6,679
Net cash provided by
operating activities 2,348,388 110,140
Cash flows from investing activities:
Capital expenditures (190,870) (148,126)
Sale of marketable securities - 800,000
Capitalized software development (133,101) -
Net cash (used in) provided by investing
activities (323,971) 651,874
Cash flows from financing activities:
Repayment borrowing on line of credit - (448,000)
Proceeds from sale of stock - 253,245
Net cash (used in) financing
activities - (194,755)
Net increase in cash and cash equivalents $ 2,024,417 $ 567,259
Cash and cash equivalents at beginning of
period $ 3,960,577 $ 15,065
Cash and cash equivalents at end of period $ 5,984,994 $ 582,324
Supplemental disclosurs of cash flow information:
Cash paid during the period for interest $ 171 $ 4,230
Cash paid during the period for taxes 275,569 359,000
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
ULTRADATA SYSTEMS, INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six
month periods ended June 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 six months ended June 30, 1997, the earnings per common
share is based on the weighted average number of common shares outstanding.
For the quarter and six months ended June 30, 1996, loss 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 and warrants by using the Treasury Stock Method. For the
quarter and six months ended ended June 30, 1997, the earnings per common
share is computed using 3,403,493 and 3,416,414 common shares outstanding,
respectively. For the quarter and six months ended June 30, 1996, the loss per
common and common equivalent share are computed using 2,380,229 and 2,370,651
common and common equivalent shares outstanding, respectively.
NOTE 3 - INCENTIVE STOCK OPTION PLAN
As of June 30, 1997, the company's outstanding stock options totaled 214,192
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.
<PAGE>
NOTE 4 - ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at June 30, 1997 include the following:
June 30, December 31,
1997 1996
Income tax payable $ 54,522 $173,637
Sales tax payable 710 32,138
Commissions payable 328,405 74,022
Royalties payable 25,473 21,097
Other expenses payable 210,881 564,369
Total $619,991 $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 the standard,
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.
NOTE 6 - SUBSEQUENT EVENT
On July 21, 1997 the Company signed a joint product development and marketing
agreement with Intelidata Technologies Corp. Under the terms of the agreement,
the companies mutually agree to share equally in third party expenses incurred
in the development of a new product. In addition, future product manufacturing
and marketing arrangements were specified as part of the agreement.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements: No Assuarnces Intended
This Item 2 contains cetain 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
possibilty 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 "potential mass market
opportunities", "should expand" 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 Exchange 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 six month period ended June 30, 1997 were
$3,821,094 and $6,750,304, respectively, compared to $1,747,064 and
$2,605,726 for the quarter and six months ended June 30, 1996,
representing a 119% increase for the quarter and a 159% increase for the six
months, respectively. The following shows a quarterly and six months breakdown
and comparison of these revenues:
Three months ended Increase Six months ended Increase
June 30, (Decrease) June 30, (Decrease)
REVENUES 1997 1996 1997 1996
Consumer products $3,626,742 $1,501,622 142% $6,473,581 $2,003,928 223%
Contract revenues 194,352 245,442 (21%) 276,723 601,798 (54%)
Total $3,821,094 $1,747,064 119% $6,750,304 $2,605,726 159%
Consumer Products revenue for the quarter ended June 30, 1997 increased by 142%
or $2,125,120 from the prior year's quarter ending June 30, 1996. The increase
in revenue is attributed to increased shipments for custom travel computers,
including a follow-on order for approximately $768,000. For the six months,
consumer products revenue increased by 223% from $2,003,928 to $6,473,581.
Contract revenues for the quarter were down by 21% or $51,090 from the quarter
ended June 30, 1996. For the six months, contract revenues were down by 54% or
$325,075 over the comparable six months ended June 30, 1996. The higher contract
revenues for the prior year were associated with a long term production contract
for 12 laser pointing and tracking systems (PATS) installations. This contract
was largely completed in the prior year. The revenues for this period reflect
continuing completion against the contract. Revenues for this contract are
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
$2,114,260 or 58.3% of consumer product sales as compared to $789,362 or 52.6%
for the second quarter of 1996. For the six month period, gross profit totaled
$3,864,490 or 59.7% of consumer product sales compared to $1,054,595 or 52.6%
of sales for the six months ended June 30, 1996. Selling, general and
administrative (SG&A) expenses for the current quarter totaled $1,621,225 as
compared to $856,151 for the same quarter last year, representing a 89.4%
increase. For the current six months, SG&A totaled $3,161,901 versus $1,617,722,
representing a 95.5% increase. Advertising and marketing expenditures for the
quarter were increased by $103,784 to $464,437; for the six months advertising
and marketing expenses increased $273,291 to $885,296. Higher advertising and
marketing expenses, including new product literature and brochures, were
incurred to expand the retail channels for the consumer products division. This
reflects the company's strategy to increase its name recognition and to develop
new distribution channels. Staffing has increased in a number of key areas,
including data research, finance, and marketing.
Research and development expense decreased $42,333, or 15%, to $240,448
during the quarter ended June 30, 1997 as compared to the same period last
year. For the six month period, research and development increased by $19,996
to $508,816 as compared to $488,820 for the six months ended June 30, 1996.
During the quarter and six months ended June 30, 1997, respectively, the
Company capitalized $84,732 and $133,100 in software development cost. (See
NOTE 5). This software development is related to a new proprietary product
being developed in conjunction with a telecommunications company for issue in
1998. Research and development activity is expected to continue at the present
or slightly greater levels as a result of new products under development.
The Company's strategic plan is to introduce more advanced products, using
Global Positioning Satellite (GPS) based navigation and more sophisticated
handheld information devices.
The Company's research and development efforts have resulted in four new
products being 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. In addition,
the ROAD WHIZ EXPRESS (a custom unit for The QVC Network) shipped in June.
With completion of these four products, the Company's standard product line
expanded from seven (7) to eleven (11) products. Further, research and
development activity continued towards completion of additional products for
release this year and early next year, including several advanced products.
Products ready for release in the third quarter include POIS 197, a handheld
travel computer to be marketed to automotive Original Equipment Manufacturers
(O.E.M.) and aftermarket, and two low-cost golf products, GOLF GUIDE and
GOLFFINDER. The golf units will be produced in time for the '97 holiday season.
Research and development is being completed for (1) TRIPLINK, the PC-download
to handheld system, (2) SAFESTAR, a travel computer incorporating GPS and (3)
a new product development in conjunction with a telecommunications company.
All three of these projects are complex and have required significant R&D
expenditures but represent potential mass market opportunities at higher
average sales prices. This new generation of advanced higher end products
should expand future revenues and market opportunities for the coming
years. TRIPLINK and SAFESTAR are expected to be completed in the next few
months. This first GPS-based product is expected to retail at approximately
$400 which is less than existing Auto Navigation Systems and with more
capability and user-friendly attributes.
At the present time, two 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 Company's database of
interstate services with their trip planning software in a handheld unit that
has download capabilities from personal computers. This latter product
addresses the growing PC consumer market.
Interest income for the quarter ended June 30, 1997 totaled $61,373, as
compared to $17,742 for the quarter ended June 30, 1996 and $110,751 for the six
months ended verses $42,765 for the six months ended June 30, 1996. As a result
of the exercise of the public warrants completed in the fourth quarter ended
December 31, 1996, the Company's cash balances have grown and account for the
substantial increases in interest income for the quarter and six month periods
compared to last 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.
As a result of the foregoing, the Company reported net income of $265,822 or
$0.08 per share for the quarter ended June 30, 1997 versus a net loss of
$73,405, or $0.03 per share for the quarter ended June 30, 1996. For the six
months ended June 30, 1997, the Company reported net income of $290,839 or $0.09
per share as compared to a net loss of $367,205 or $0.15 per share for the six
months ended June 30, 1996.
BACKLOG
The current backlog of consumer products was approximately $2.2 million at June
30, 1997. Backlog represents contracts which are cancelable by customers and
may not be indicative of revenue for future periods. The Company had never
sustained a significant backlog until the fourth quarter of 1996, when it
received two custom orders with extended shipping dates valued at $6.9 million.
The June 30, 1997 backlog consisted primarily of orders for custom travel
computers. During the quarter the Company received approximately $3.4 million
in incoming orders and cancelled $2.95 million from its backlog. This
cancellation was for one custom order received during the fourth quarter ended
December 31, 1996. The terms and conditions of that order required this new
customer to provide certain financial assurances as a condition of beginning
production. The customer did not comply with these terms, which caused
management to unilaterally cancel the order from its backlog during the second
quarter. Essentially all of the June 30, 1997 backlog is scheduled to be
shipped over the next four months to existing customers.
FINANCIAL CONDITION AND LIQUIDITY
The Company has funded its operations primarily through the sale of Common
Stock in an initial public offering, and historically through periodic
borrowings, and from cash generated by operations. During the quarter ended
September 30, 1996, the Company called its publicly held warrants for redemption
and the exercise of those warrants resulted in raising $6.2 million additional
capital. At June 30, 1997, the Company had $5,984,994 in cash and cash
equivalents. The Company's operating activities provided cash of $2,348,388
for the six months ended June 30, 1997. The primary source of cash provided from
operating activities resulted from a $2,762,188 reduction in accounts
receivable. Net cash used by investing activities totaled $323,971. As a
result of the foregoing, net cash increased by $2,024,417.
Working capital increased from $10,761,352 at December 31, 1996 to $10,813,199
at June 30, 1997. The Company's current ratio at June 30, 1997 was 11.1 to 1 as
compared to 5.8 to 1 at December 31, 1996. Inventories decreased $251,868 from
the December 31, 1996 level to $3,037,585 as of June 30, 1997. The Company's
business remains very seasonal in nature. In fiscal year 1996, 59.8% of total
consumer sales were recorded in the fourth quarter. Typically, inventory levels
decrease during the first six months and gradually build again during the
forthcoming quarter. Accounts receivable decreased by $2,762,188 from
$4,608,285 at December 31, 1996. This decrease is also a seasonal occurrence
as fourth quarter product sales were collected during the first quarter of
fiscal 1997. Capital expenditures for the six months ended June 30, 1997 totaled
$190,870. These expenditures included leasehold improvements, purchases of
office furniture, and the purchase of additional production equipment.
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 June 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.
<PAGE>
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.
August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 5,984,994
<SECURITIES> 0
<RECEIVABLES> 1,863,238
<ALLOWANCES> (17,141)
<INVENTORY> 3,037,585
<CURRENT-ASSETS> 11,881,449
<PP&E> 1,175,307
<DEPRECIATION> (432,013)
<TOTAL-ASSETS> 12,902,075
<CURRENT-LIABILITIES> 1,068,250
<BONDS> 0
0
0
<COMMON> 34,035
<OTHER-SE> 11,672,331
<TOTAL-LIABILITY-AND-EQUITY> 12,902,075
<SALES> 6,750,304
<TOTAL-REVENUES> 6,861,055
<CGS> 2,742,676
<TOTAL-COSTS> 3,670,717
<OTHER-EXPENSES> 265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 104
<INCOME-PRETAX> 447,293
<INCOME-TAX> 156,454
<INCOME-CONTINUING> 290,839
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 290,839
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
