As filed with the Securities and Exchange Commission on August 3, 2000
Registration Number 333-39434
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2/A
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
(Amendment No.1)
Ultradata Systems, Incorporated
_____________________________________________________________________
(Name of Small Business Issuer in its Charter)
Delaware 3679 43-1401158
------------------------------------------------------------------------
(State or other Jurisdiction of (Primary Standard (I.R.S.
Incorporation or Organization) Industrial Employer
Classification Code Number Identification No.)
MONTE ROSS, PRESIDENT
Ultradata Systems, Incorporated
9375 Dielman Industrial Drive
St. Louis, MO 63132
(314) 997-2250
(Address and telephone number of Registrant's principal executive offices,
principal place of business, and agent for service of process.)
_________________________________
Copy to
ROBERT BRANTL, ESQ.
322 Fourth Street
Brooklyn, NY 11215
Attorney for Issuer
_________________________________
Approximate Date of Commencement of Public Sale: As soon as practicable
after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [__]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [__]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [__]
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [__]
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Proposed Maximum Maximum Amount of
Securities To Amount to be Offering Price Aggregate Registration
Be Registered Registered (1) Per Share (2) Offering Price (2) Fee
-----------------------------------------------------------------------------
Common Stock,
$.01 par
value 2,699,502 $ 3.0315 $ 8,183,540 $2,160.45
(1) The amount to be registered is the sum of (a) 300,000 shares issuable upon
exercise of the options held by Influence Incubator L.L.C., and (b) 200%
of (i) 652,460 which would be issued if all 1,616 outstanding shares of
Series A Convertible Preferred Stock were converted on June 14, 2000 and
(ii) 478,506 shares issuable upon exercise of Common Stock Purchase
Warrants held by BH Capital Investments, L.P. and Excalibur Limited
Partnership, and (c) 128,000 shares issuable on exercise of the option
granted to Thornhill Group, Inc., and (d) 9,570 shares issued to
Victoria Davis-Lee.
(2) The proposed offering price is estimated solely for the purpose of
calculating the registration fee. Pursuant to Rule 457(c), the
registration fee is based on $3.0315, the average of the high and
low prices of the Common Stock reported on NASDAQ on June 13, 2000.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
ULTRADATA SYSTEMS, INCORPORATED
Common Stock
1,746,801 Shares
Six shareholders of Ultradata Systems, Incorporated are offering
shares of Ultradata common stock to the public by means of this prospectus.
Ultradata's common stock is listed for trading on the NASDAQ SmallCap
Market under the trading symbol "ULTR."
The six shareholders intend to sell the shares into the public market
from time to time. The shareholders will negotiate with the market makers
for Ultradata common stock to determine the prices for each sale. They
expect each sale price to be near to the market price at the time of the sale.
Purchase of Ultradata common stock involves risk. Please see "Risk
Factors," which begins on page 5.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any representation
to the contrary is a criminal offense.
The date of this prospectus is August , 2000
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . .-4-
Summary Financial Information . . . . . . . . . . . . . . .-4-
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . .-6-
YOU SHOULD NOT RELY ON
FORWARD LOOKING STATEMENTS. . . . . . . . . . . . . . . . .-9-
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . .-9-
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . .-9-
Market for the Common Stock . . . . . . . . . . . . . . . -12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . -12-
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
Handheld Travel Computers . . . . . . . . . . . . . . . . -20-
GPS Products. . . . . . . . . . . . . . . . . . . . . . . -25-
Internet-Based Navigation . . . . . . . . . . . . . . . . -27-
Employees . . . . . . . . . . . . . . . . . . . . . . . . -30-
Description of Our Property . . . . . . . . . . . . . . . -31-
Legal Proceedings . . . . . . . . . . . . . . . . . . . . -31-
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . -31-
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . -36-
DESCRIPTION OF OUR SECURITIES. . . . . . . . . . . . . . . . -38-
Common Stock. . . . . . . . . . . . . . . . . . . . . . . -38-
Series A Convertible Preferred Stock. . . . . . . . . . . -39-
SELLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . -40-
Plan of Distribution. . . . . . . . . . . . . . . . . . . -43-
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . -44-
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . -44-
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . -46-
PROSPECTUS SUMMARY
Ultradata Systems, Incorporated
Ultradata supplies directions to travelers through portable units. In
addition, we own a one-third interest in the DriveThere.com Website, which
provides our directions via the Internet. Our products and services are based
on our patented data compression technology. For several years, Ultradata has
manufactured and marketed hand-held computers which provide travel information
(directions, services, amenities, etc.), edited for particular markets. In
the next few months, we expect to enter the market for automotive GPS-based
(i.e. "global positioning satellite") directional systems with the Travel Star
24. Travel Star 24 is a low-cost, portable navigation unit for the
automotive after-market. The Travel Star 24 is capable of calculating
routes, following the route, providing audible turn-by-turn prompts, and
locating over 300,000 services and amenities across the U.S.A. At a suggested
retail price under $400, the Travel Star 24 should compete favorably with
existing products with similar capabilities, which generally sell for $600 and
up, as well as with the original equipment systems that are priced in the
thousands of dollars.
Ultradata has only one office, which is located at 9375 Dielman
Industrial Drive, St. Louis, Missouri 63132. Our telephone number is
314-997-2250.
The Selling Shareholders
Six shareholders are using this prospectus to sell shares of Ultradata
common stock to the public. Five of them acquired the shares as a result of a
private financing of Ultradata in May, 2000. The sixth is partner with
Ultradata in the joint venture called "Influence Data L.L.C.," which operates
the DriveThere.com Website. We gave our partner an option to purchase
Ultradata shares to encourage its dedication to the joint venture.
Outstanding Shares
Ultradata has issued two classes of stock: common stock and Series A
Convertible Preferred Stock. On the date of this prospectus there were
3,193,415 shares of common stock outstanding. In addition, there
are warrants, options and contract rights outstanding that could lead to
additional shares of common stock being issued. We cannot determine at this
time the number of additional shares that could be issued, because some of the
contract rights are based on the future market price of our common stock.
Summary Financial Information
The information for 1999 and 1998 and the 1st quarters of 2000
and 1999 is derived from the financial statements included at the end of this
prospectus. The information for 1997 is derived from the financial statements
included in our Annual Report on Form 10-KSB for the year ended December 31,
1997. The information for the 1st quarters of 2000 and 1999 has not been
audited, but, in our opinion, we have made all adjustments necessary for a
fair presentation of the financial results for those quarters. Results for
the 1st quarter of 2000 are not indicative of the results that can be
expected for the year.
1st Qtr. 1st Qtr.
Statement of Year Ended Year Ended Year Ended 2000 1999
Operations 12/31/99 12/31/98 12/31/97 (unaudited) (unaudited)
-----------------------------------------------------------------------------
Net Sales $ 5,566,626 $ 7,234,075 $13,817,231 $ 289,687 $1,083,791
Cost of Sales 3,151,046 4,172,201 5,657,525 175,116 536,754
--------- --------- --------- ------- ---------
Gross Profit 2,415,580 3,061,874 8,159,706 114,571 547,037
Research &
Development 358,357 672,090 1,022,095 96,233 99,226
Selling, General
& Administrative 3,875,539 5,749,351 6,867,857 522,751 1,254,001
--------- --------- --------- -------- ---------
Operating
Profit/(Loss) (1,818,316) (3,359,567) 269,754 (504,413) (806,190)
Other Income/(Expense)191,302 303,750 225,575 (15,522) 107,368
Income Tax
Benefit/(Expense) (370,236) 725,024 (158,225) - -
--------- --------- -------- -------- --------
Net Income/(Loss) $(1,997,250) $(2,330,793) $ 337,104 $(519,935) $(698,822)
========== ========== ======== ======== ========
NetIncome/(Loss)
Per Share $ (0.64) $ (0.71) $ 0.10 $ (0.17) $ (0.22)
========== ========== ======== ======== ========
Weighted Average
Number of Shares
Outstanding 3,122,138 3,299,636 3,425,130 3,105,235 3,154,682
Balance Sheet 3/31/00
Data 12/31/99 12/31/98 12/31/97 (Unaudited)
-----------------------------------------------------------------
Working Capital $4,455,812 $ 6,038,519 $10,607,580 $4,342,552
Total Assets 7,308,792 11,220,648 12,798,694 7,000,250
Long-term Liabilities 130,406 171,850 200,524 140,398
Total Liabilities 549,084 2,733,403 1,139,125 446,522
Shareholders'
Equity 6,759,708 8,487,245 11,659,569 6,553,728
RISK FACTORS
You should carefully consider the risks described below before buying
our common stock. If any of the risks described below actually occurs, that
event could cause the trading price of our common stock to decline, and you
could lose all or part of your investment.
We may not become profitable.
During 1998 and 1999 combined, we lost over $4.3 million. Our working
capital was reduced from $10 million to $4 million. In the first quarter of
this year, we lost an additional $519,935. Unless our sales increase
significantly, we will continue to sustain losses.
If the products that we are introducing in 2000 are not successful, the
future viability of our business will be in doubt.
In the past two years, our sales have fallen sharply, we have used up a
large portion of our working capital, and the price of our Common Stock is
only about one-third of its price two years ago. Many people, both inside our
company and in the investment community, consider our entry into the GPS
market and the world of e-commerce as the test of our ability to develop and
grow as a company. If we fail to capitalize on those opportunities in 2000,
whether due to poor planning or factors beyond our control, we will end the
year with our working capital seriously depleted, and our failures will likely
prevent us from obtaining additional capital.
We have recently changed the way we sell our handheld computer products,
in an effort to reverse the decline in sales. We will not know until late
this year whether the new strategy is effective.
From 1995 until 1998, we sold our products to retailers and directly to
consumers. We solicited direct sales primarily through catalogs, magazine
ads, and by mail. This strategy led to steady sales growth, but only marginal
profits, as our direct sales efforts were generally unprofitable. In 1998,
therefore, we began to reduce our direct sales efforts, and to focus our
marketing on mass market retailers such as Kmart, Kohl's and Target Stores.
As a result, 1999 we recorded much less in sales, but also recorded much
smaller losses. We hope that the new strategy will lead to profitable
operations during 2000; but we will not be know if we have been successful in
reorienting our marketing efforts until later this year. If our efforts to
sell hand-held products continue to be unprofitable, the drain on resources
could significantly hinder our efforts to expand into the GPS and Internet
markets.
Our new strategy is to sell our products primarily to mass market
retailers. This will make us dependent on a small group of large customers
for most of our sales.
Our decision to focus our marketing efforts on mass market retailers is
likely to increase the percentage of our revenues attributable to large
customers. In 1999 four customers each accounted for over 10% of our
revenues. We expect the number of large customers to increase in 2000 and
thereafter. This situation creates a risk that a significant customer may use
its importance to force us to lower prices. In addition, our dependence on
major customers means that the loss of business from one or more major
customers could adversely affect our financial results.
Several large marketing enterprises have become involved in the GPS
market. We will attempt to compete in this market with relatively meager
resources, and could be defeated by the efforts of one or more of our
competitors.
A product that performs substantially all of the functions of
Travel Star 24 could appear on the market tomorrow, at the price we intend to
charge for Travel Star 24. Indeed, the success of Travel Star 24, should it
occur, is likely to propel the introduction of competitive products into the
market. If the introduction of a comparable product were financed
aggressively, Ultradata could find itself unable to market Travel Star 24
profitably.
We may require additional funds to complete development of our
GPS/Internet products.
We are only now initiating development of our GPS/Internet products. As
with any engineering development project, we cannot predict with assurance the
cash that will be necessary to complete the development of these products. If
the funds necessary to complete the GPS/Internet project exceed our cash
resources, we will seek financing. If the funds are raised by issuing equity
securities, you may experience a dilution of the value of your shares. If the
funds are raised by issuing debt, we may be subject to a heightened risk of
insolvency. But the worst result would be if the necessary funds could not be
obtained. In that event, we could be forced to curtail or terminate our
development efforts.
We will require additional financing if Travel Star 24 is successful,
in order to fund new orders.
If the introduction of Travel Star 24 leads to a large demand for that
product, we may need additional funds to pay the costs of manufacturing
inventory. We will then have to either sell additional equity or finance the
orders by some other means. If we are unable to secure the necessary
financing, our efforts to establish Travel Star 24 in the GPS market could be
severely hampered.
We have limited experience in the automotive after-market or on the
Internet. Our lack of experience may cause us to underestimate the challenges
facing us in those markets.
Our plan is to improve our financial performance by expanding our
operations into new markets. This strategy carries the risk of the unknown.
Many of our present customers could become customers for Travel Star 24.
However, we expect to also distribute Travel Star 24 through marketing
channels, such as auto parts dealers, with which we have limited experience.
We may not anticipate circumstances involving competition, marketing strategy,
regulation, or technology that prove harmful to our program for growth.
Competition for qualified personnel in the GPS, wireless, and Internet
industries is intense. If we are not able to hire and retain skilled
personnel, our plans for growth could be stymied.
Competition for highly skilled engineering and marketing personnel is
intense because there are a limited number of persons available with the
necessary technical skills and understanding of our products and markets. In
particular, we are always actively seeking for engineers with experience in
GPS and wireless applications, and they are in short supply. Our plans for
development will not be realized unless we are able to hire and retain the
necessary personnel.
Our future could be adversely affected, if we lost the services of our
Chief Executive Officer.
Monte Ross has been the primary architect of our business strategy and
marketing program. If his services were not available to us, Ultradata would
likely be adversely affected until a replacement could be found. At present,
we maintain a $1 million key man life insurance policy on Mr. Ross. The
policy expires on November 24, 2000. In addition, we have an employment
agreement with Mr. Ross, the term of which expires on October 1, 2000. The
agreement provides that Mr. Ross may not compete with Ultradata for one year
after termination of his employment.
There is no market maker providing strong support for our common stock.
As a result, the common stock is low-priced, thinly traded, and subject to
relatively wide swings in price.
For most of the past two years, with the decline in the Ultradata's
business results, interest in our common stock within the investment community
has waned. During the first half of 2000, there have been large gyrations in
the stock price; but a strong sustainable market for the common stock has not
developed. Unless interest in the common stock is sustained and a thriving
market for the common stock reemerges, you may find it impossible to sell
Ultradata shares at a profit, and may find it difficult to sell them at all.
The Series A Preferred Stock will be converted into large numbers of
shares of common stock, which will dilute the value of your shares.
Ultradata has issued Series A Preferred Stock with a face value of
$1,616,000. If we satisfy certain conditions regarding the market price
and value of our common stock, we will issue an additional $1,404,000 of
Series A Preferred Stock later this year. The Preferred Stock (plus an
11.25% annual accrual) will be converted into common stock at a rate which
is tied to the market price of the common stock. If all $3,020,000 in
Preferred Stock is issued, it will convert into at least 880,171 shares of
common stock, which would be 21.6% of the shares outstanding today. Until
May 16, 2001, the $3,020,000 in Preferred Stock could convert into as many
as 1,653,497 common shares (34.2%). From May 17 until November 16, 2001, the
$3,020,000 in Preferred Stock could convert into as many as 2,317,281 common
shares (42.1%), if the bid price for the common stock is less than $2.66 for
twenty trading days. And after November 16, 2001, there is no lower limit on
the conversion rate. So after November 16, 2001 the $3,020,000 in Preferred
Stock could theoretically convert into 99% of the outstanding common shares,
which would render your shares virtually worthless.
YOU SHOULD NOT RELY ON
FORWARD LOOKING STATEMENTS
This prospectus contains a number of forward-looking statements
regarding our future prospects. Among the forward-looking statements are
descriptions of our plans to restructure the marketing program for the Road
Whiz line of products, to introduce GPS products to the market, and to
develop products based on a GPS/Internet technology. 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 to thwart Ultradata in
its efforts to develop and market its products, including factors discussed in
"Risk Factors" as well as factors we have not foreseen. In addition,
changing circumstances may cause us to determine that a change in plans will
be in the best interests of Ultradata.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock.
We expect to retain future earnings, if any, for use in the operation and
expansion of our business, and do not anticipate paying any cash dividends in
the foreseeable future.
CAPITALIZATION
Outstanding Derivative Securities
On the date of this prospectus, there were 3,193,415 shares of
common stock outstanding. However, there were also options, warrants and
convertible preferred shares outstanding that could lead to the issuance
of additional common stock. The following table identifies these out-
standing derivative securities. The number of shares into which the
Series A Preferred Stock is convertible depends on the market price of the
common stock at the time of conversion. In this table, we are presenting
the number of common shares that would be issued if the Preferred Stock
were converted at the "Floor" price of $2.00, which is the
conversion price applicable on the date of this prospectus.
Number of Common
Derivative Security Shares Issuable
Incentive Stock Options, exercisable at
$2.00 to $7.39 322,065
Other Options, exercisable at $2.50 to $5.00 906,506
Series A Preferred Stock 830,725
Option to purchase 160 shares of Series
A Preferred Stock, exercisable at
$1,000 per preferred share 80,000
---------
Total 2,139,296 ( 40%)
Common Shares Currently Outstanding 3,193,415 ( 60%)
---------
5,332,711 (100%)
=========
Securities Purchase Agreement
On May 10, we signed a Securities Purchase Agreement with two Toronto-
based investment funds: BH Capital Investments, L.P. and Excalibur Limited
Partnership. The agreement provides that we will sell to the funds Series A
Convertible Preferred Stock and Common Stock Purchase Warrants to purchase
common stock for $5.00 per share.
The Securities Purchase Agreement provides for two closings, at each of
which Ultradata will sell Preferred Shares and Warrants to the funds, each of
which will purchase 50% of the securities. The first closing occurred on May
16, 2000, at which time the funds paid a total of $1,600,000 for 1,600 shares
of Series A Preferred Stock and warrants to purchase 478,506 shares of common
stock. A second closing, at which the funds will purchase Preferred
Shares and Warrants for a total of $1,400,000, may occur. If the second
closing occurs, the funds will purchase 1,400 shares of Series A Preferred
Stock and warrants. The terms of the warrants issued at the second closing
would be identical to those issued at the first closing, except that the
warrants then issued will allow the funds together to purchase a number of
shares equal to $1,400,000 divided by the 5-day average closing price of the
common stock preceding the second closing.
The second closing will occur only if the following conditions are
satisfied or are waived by the funds:
* The registration statement containing this prospectus must have been
declared effective by the SEC, and have been effective for a period
of 40 trading days.
* The average daily trading volume of the common stock for the 30
trading days preceding the second closing must have been no less than
75,000 shares.
* The average of the closing bid prices for the common stock for the 30
trading days preceding the closing must be no less than $4.50.
We made a number of covenants to the funds in the Securities Purchase
Agreement, which included the following:
* Until November 16, 2000, we will not issue any securities for the
purpose of financing without the approval of the funds.
* The funds will have a right of first refusal on any sale of
securities by us during the next twelve months.
A number of penalties have been built into the Securities Purchase
Agreement to compensate the funds if we fail to satisfy our covenants. The
most significant of the penalties are:
* If the SEC has not declared effective the registration statement
containing this prospectus before August 15, 2000, we must pay the
funds an amount for each day of delay equal to .0005 times the
closing ask price times the number of shares which the funds could
acquire on conversion and exercise of the securities they purchased
at the first closing.
* If the funds are unable to convert any of the Preferred Stock into
freely-tradeable common stock, because this prospectus is not
available or for any other reason, the funds can force us to redeem
the Preferred Stock that could not be converted. The redemption
price would be the greater of (a) 130% of the purchase price plus
11.25% of the face value from the date of issuance or (b) the number
of shares of common stock that the funds would have received on
conversion multiplied by the five day average closing ask price.
Because there are conditions that are outside of our control which could
force us to redeem the Preferred Stock, we will be treating the sale of the
Preferred Stock and Warrants as mezzanine equity on our balance sheet. This
means that the carrying value of the Preferred Stock will be reflected on the
balance sheet but not as a component of Stockholders' Equity.
Market for the Common Stock
Our common stock is listed for quotation on the NASDAQ SmallCap Market
under the trading symbol "ULTR." The following table sets forth the bid prices
for our common stock as quoted on NASDAQ for the eight quarters starting
January 1, 1998 and ending December 31, 1999 and the first two quarters
of this year.
Bid
Quarter Ending High Low
--------------------------------------
March 31, 1998 $ 6.50 $ 3.75
June 30, 1998 $ 4.50 $ 3.25
September 30, 1998 $ 4.63 $ 2.25
December 31, 1998 $ 3.13 $ 2.00
March 31, 1999 $ 2.75 $ 1.44
June 30, 1999 $ 2.00 $ .94
September 30, 1999 $ 2.00 $ 1.38
December 31, 1999 $ 2.06 $ 1.13
March 31, 2000 $16.126 $ 1.00
June 30, 2000 $ 6.94 $ 2.12
Our shareholders list contains the names of 139 registered shareholders
of record. Based upon information from nominee holders, we believe the number
of owners of our common stock exceeds 3,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our
Financial Statements and the notes to the Financial Statements, which appear
at the end of this prospectus. A summary of the Financial Statements appears
in the Prospectus Summary at the beginning of this prospectus.
Overview
One factor has been dominant in causing our poor financial results over
the past two years: our inability to sustain the high level of sales of the
hand-held products at upscale retail prices that we realized in 1996 and 1997.
Beginning in 1998, we have been transforming our marketing efforts away from a
primary focus on the "upscale" market. Initially we devoted a large portion
of our effort to direct marketing through magazines, mailers and bill inserts,
as well as by televised appearances on the QVC Shopping Network. This
strategy generally proved to be a mistake, as the cost of the marketing effort
often exceeded the revenue we obtained from it. The one exception was our on-
going relationship with QVC, which has been the source of over 19% of our
revenue in each of the past two years. We expect QVC to again be a
significant source of revenue in 2000.
In 1999, therefore, we again shifted our focus, this time to mass market
retailing, of the sort you associate with Kmart, Kohl's, and Target Stores, to
name three of our new mass market customers. The reduction of our prices to
mass market levels required major adjustments to our cost structure - in other
words, if you are selling the same product this year for $19.95 that you sold
for $49.95 last year, you had better be cutting your costs and eliminating any
part of your business that isn't immediately profitable. During the second
half of 1999 we made the cuts and performed the streamlining. That made 1999
a transition year, with reduced sales and not-yet-efficient operations leading
again to losses, albeit losses substantially reduced from 1998.
In the second half of 1999, we did make a major overhaul of our cost
structure in an effort to position our handheld business for future profits.
The change in marketing strategy toward mass market retailers and private
brands made possible efficiencies that were unavailable when we were focused
on an upscale market involving direct sales and specialty retailers. The
three primary changes facilitated by this conversion were:
- a significant reduction in overhead expenses as a result of the
relative efficiency of marketing through mass market retailers. The
reduction included a 20% reduction in our labor force, reductions
in executive compensation, and a more efficient use of our facility
that, combined, brought our overall personnel cost down by 27%
- significant reductions in advertising and marketing expense; and
- development of new supplier relationships facilitated by the higher
unit volumes involved in mass market retailing. These new
relationships have resulted in dramatic decreases in product cost
through the application of "chip-on-board" manufacturing processes,
and have reduced assembly labor costs. At year-end 1999 raw product
costs had been reduced by as much as 40% for some products.
The positive benefits of these adjustments to our cost structure began
to be realized in the 4th quarter of 1999, when we achieved income from
operations on a quarterly basis for the first time in two years. This
occurred even though the full benefit of our recent reduction in product costs
was not realized in that quarter, since we determine the cost of our products
on a FIFO ("first-in, first-out") basis. We will not know with assurance
until after 2000 whether the reorientation of our marketing focus and the
ancillary restructuring of our cost structure will stabilize our handheld
travel computers as a profitable line of business. We need to re-establish
the handheld units as a stable foundation for our business, so that we can
devote our financial resources to our development projects without fear of
being left without adequate resources to sustain operations.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months
Ended March 31, 1999
Sales. During the first three months of this year, our sales virtually
disappeared. Net sales were $289,687, compared to $1,083,791 for the first
quarter of 1999. There were several reasons for the dramatic fall-off in
sales, some of which were actually positive for us:
- We have been eliminating sales efforts that have been unprofitable.
For example, in the first quarter of 1999 we had revenues of
$452,759 (41.8% of total revenue for the quarter) from a direct-mail
insert program. That kind of marketing proved to be very
unprofitable for us, however. For example, the expense of the direct
mail program that produced those 1999 revenues was almost $500,000.
That meant we had lost money on the sales, even before we paid any of
our other expenses or costs. For this reason, we have eliminated
almost all of our direct marketing efforts. As a result, our selling
expense during the first quarter of 2000 was $78,959, compared to
$718,510 in the first quarter of 1999.
- During 1999 all of our relationships with mass market retailers were
on a special order basis. In other words, the retailers placed
orders with us for a quantity of our products, put them on their
store shelves, and measured how quickly they sold. Since gift-buying
is a major impetus behind the sales of our handheld computers, these
buying programs were scheduled for the holiday season, without
follow-on to this year. However, we do not expect this riches-or-
rags scenario to continue. Our two largest mass market customers,
Kmart and Target Stores, have introduced our products into plan-o-
gram, which means they will keep their shelves stocked with our
products. We are working intensively to establish our products in
the plan-o-gram programs of other mass market retailers.
Gross Profit. Our gross profit margin for the first quarter of 2000 was
only 39.5%, compared to 50.5% in the first quarter of 1999. For the past two
years our gross profit margin has averaged 44%; so both quarters were
relatively aberrant. The explanation for the aberration is that orders for
delivery in the first quarter tend to be specialty items that do not reflect
the general trends of our sales. Over the next year, we expect our gross
profit margin to gradually increase from the 44% benchmark established in 1999
and 1998.
G&A Expense. General and administrative expenses, for the first quarter
of 2000 totaled $443,792, compared to $535,491 for the first quarter of
1999. This decrease of $91,699, or 17.1% reflects executive salary reductions
and other cost-cutting measures made in the second half of 1999.
R&D Expense. Research and development expense decreased $2,993 or 3.0%,
to $96,233 during the first quarter of, 2000 compared to the first quarter in
1999. We kept our research and development expense at this relatively low
rate because we were concerned that our cash resources would not be sufficient
to both sustain operations and fund an aggressive research and development
program. In May, 2000, however, we received net proceeds of $1,265,000 from
the sale of Series A Preferred Stock and Common Stock Purchase Warrants to two
investment funds. We expect to devote virtually all of those funds to
completing the development of our Travel Star 24 and initiating development
of our GPS/Internet technology. Our contract with the investment funds
provides that we will sell them a second tranche of securities in the Fall of
this year if certain conditions relating to the market price and volume of
our common stock is met. At the present time, we have not met those
conditions. If nevertheless, the sale of the second tranche occurs, we will
devote those proceeds to research and development as well, which will allow us
to pursue our engineering goals in an aggressive manner.
Other Income. We incurred a loss of $15,522 from "other income/expenses
in the first quarter of 2000, compared to non-operating income of $107,368
for the first quarter of 1999. The principal cause of the difference was a
loss of $120,000 that we recorded as a result of our one-third interest in
the operations of Influence Data, L.L.C. We did not own that interest in the
first quarter of 1999. We hope that as the Website, DriveThere.com, acquires
a larger coterie of regular users, Influence Data will become a source of
profits, but we cannot predict when that will occur. We also look forward to
growth in our other equity investment, Talon Research & Development, Ltd.,
which would increase our "other income."
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Sales. The full impact of our revised marketing strategy for the
handheld products was felt in 1999 sales. After the first quarter, we
eliminated almost all direct market selling activity, since we had proven
unable to sell our products profitably through direct channels. Instead, we
set out to develop a group of large retailers as the core customers for our
handheld products: some specialty retailers such as The Sharper Image, with
whom we had established relationships, but more towards mass market retailers
such as Kmart and Kohl's. As a result of the changes we were undergoing
during 1999, product sales for 1999 decreased by $1,417,178 (20.3%) to
$5,566,626, compared to 1998. In addition, during 1998 we had recognized
$250,271 in revenue from our government contract business that was suspended
at the end of 1998.
Gross Profit. Our gross profit margin was not significantly changed
from 1998 to 1999, averaging 44% in both years. The efficiencies that we put
in place in 1999 would have increased our gross profit margin, but for three
factors that counterbalanced the efficiencies:
- Our movement to lower-priced retail sales involves the elimination of
some of the gross profit in each sale, although we hope to compensate
by increasing the volume of sales.
- Since we account for inventory on a FIFO basis, the cost advantages
of our new manufacturing arrangements were not reflected in sales
until near the end of 1999.
- Gross profit was reduced in 1999 by residual expenses attributable to
our government contracts business that was suspended in 1998.
Inventory. One problem that has plagued us for several years has been
the obsolescence of inventory that occurs as our markets change. Particularly
at the end of 1998, this has resulted in sizeable write-offs which result in
an unfortunate wasting of our net worth. Inventory write-offs are a
particular problem as they tend to skew the year-to-year comparisons of our
financial results - i.e. a problem which is essentially accretive over time
becomes an expense only in the period when we reach the conclusion that
inventory has become unmarketable, causing us to take the write-off.
Late in 1999, we implemented a program that should greatly reduce the
problem of inventory write-offs. We contracted to barter our slow-moving
inventory. Under this new arrangement, we transfer the inventory at fair
value in exchange for print advertising credits. The arrangement requires us
to purchase $2.50 in advertising for every $1.00 of credit, which means we
make a commitment of $1.50 in cash. So, while this arrangement has committed
us to purchase $620,640 in print advertising over the next two years, our cash
commitment is only $372,384.
S,G&A Expense. As discussed in the "Overview" above, our reorientation
to lower-priced mass market sales enabled us to initiate cost-cutting measures
during 1999. For the most part, these measures became effective only in the
second half of the year, and our financial results suffered from the
inefficiencies that are customary in a transition period. Important among our
efforts to restructure expenses were:
- We reduced our workforce, so that by year-end our personnel expense
had been reduced by 27%;
- We reduced our facilities expenses, since mass market retailing does
not require the personnel or the space that is necessarily devoted to
customer service in a direct marketing business;
- We reduced our manufacturing costs by almost 40% by working with a
new offshore manufacturer with chip-on-board capability;
- We reduced our selling expense from $2,931,150 to $1,812,524,
primarily by reducing advertising and marketing by $970,661.
R&D Expense. In 1999, we reduced research and development costs by
$313,733, or 46.7%, to $358,357 compared to $672,090 in 1998. In addition,
we capitalized $110,214 of costs for the internally developed software tools
necessary for Travel Star 24 , which will be amortized over five years
beginning when the Travel Star 24 first goes on sale. The reduction in R&D
expense was part of our efforts to control our costs as we reorganized our
marketing effort. With the proceeds of the recent private placement, we
expect to increase our research and development activities aggressively.
Other Income. Our non-operating income was reduced to $191,302 in 1999
from $303,750 in 1998. The significant parts of this "other income" were:
- Our interest income, net of expenses, fell by $63,974, primarily as
a result of the significant operating losses realized in 1998 and
1999, which reduced our cash balances.
- During 1999, we increased our interest in Talon Research and
Development Company, Ltd. by 6.0% to 24.9%. Talon has been growing
rapidly, and its management expects a continuation of this trend.
Our share of Talon's net earnings during 1999 was $61,496. However,
we are required to amortize over nine years the difference between
the price we paid for our stake in Talon and 24.9% of Talon's net
assets. That amortization cost of $71,081 led us to report a loss
from our investment in Talon of $9,585.
- During 1999 we established a strategic presence in e-commerce by
participating in a joint venture called Influence Data, L.L.C. The
joint venture launched its road travel portal Website, www.
DriveThere.com, on October 29, 1999. The portal offers a complete
bundle of road travel products, including services, insurance, and
license and vehicle information. Our share of the start-up losses
of the joint venture during 1999 was $60,386. In addition, we are
required to amortize the difference between our initial contribution
to the capital of the joint venture and our share of its net assets.
That amortization cost of $11,147 led us to report a loss from our
investment in Influence Data, L.L.C. of $71,533.
- We realized royalty income of $127,473 during 1999 from IdeaVillage.
This income is the result of an arrangement in which IdeaVillage
licenses from us a unique version of the Road Whiz , funds the
manufacturing process directly, distributes the product through the
Radio Shack stores, and pays us a royalty on the sale.
Net Loss. We had a loss before taxes of $1,627,014 for 1999, compared
to $3,055,817 in 1998. However, because of our continuing losses, we decided
that it would be appropriate to take a reserve against the value of our
deferred tax asset. This tax asset had been built up in previous years,
representing the value that our tax loss carryforwards will have in future
years. The reserve we took in 1999, which increased our loss by $370,236,
reflected the fact that the carryforwards will never be of value unless we
become profitable. Although we believe that we will become profitable, we
considered the reserve appropriate in light of our historical losses . As a
result, our net loss in 1999 was $1,997,250, compared to a net loss of
$2,330,793 in 1998, which had been alleviated by an "income tax benefit" of
$725,024.
Liquidity and Capital Resources
Although our working capital has atrophied substantially over the past
two years due primarily to our operating losses, at March 31, 2000 we still
had over $4.3 million in working capital, which we believe to be substantially
greater than most companies of our size. On May 16, 2000 we added
$1.265 million by selling securities to two investment funds. So we
do have sufficient working capital to sustain our operations and introduce
our new products, provided that we can stop the atrophy in our handheld
business through our new strategy of developing mass market customers and
opening new distribution channels.
Although working capital was reduced by $1.5 million during 1999, our
cash position remained stable. This compared favorably with 1998, when our
operations consumed $1,674,874 in cash, due to our unprofitable sales
strategy. Stabilization in 1999 occurred because we achieved positive cash
flow from operations of $518,664, as a result of the conversion of accounts
receivable and inventory to cash. The cash flow from operations in 1999 was
counterbalanced by $550,496 in cash flow used in investing activities,
primarily $400,000 that we restricted to guarantee a letter of credit for
Talon and $110,214 that we spent to develop software tools for compressing
roadmap topology into a format suitable for Travel Star 24 . This latter
amount was capitalized, and will be amortized over the five years after we
first sell Travel Star 24 . During 1998, by comparison, our investing
activities used $1,381,784 in cash, the greater portion of which was used to
invest in Talon. In addition, during 1998 we used $770,219 to repurchase our
common stock, a practice that used only $2,125 in 1999.
At March 31, 2000, we had $1,903,003 in cash and cash equivalents,
compared to $1,220,134 at December 31, 1999. Our operating activities during
the first quarter of this year provided cash totaling $419,795, primarily
due to the collection of $1,044,240 in accounts receivable. Those collections
were partially offset by a net loss of $519,935 for the quarter, an
increase in inventory of $106,736, and a reduction of accrued expenses and other
liabilities of $153,494. By comparison, our operations consumed $227,160 in
cash during the first quarter of 1999, as the cash from receivables collected
during that quarter was exceeded by the increases in our accrued payables and
expenses. During neither the first quarter of 2000 nor the first quarter of
1999 were material amounts of cash provided by or used in investing and
financing activities, with the exception that during the first quarter of 2000
we added to cash $314,625 when employees exercised stock options.
During 1999, we negotiated a lending agreement with Southwest Bank of
Missouri that provides a credit facility of $1 million, which includes a
$400,000 letter of credit facility for Talon. The credit is secured by our
accounts receivable, inventories and equipment, with an interest rate of 1%
over Prime Rate. The credit facility expires on July 1, 2001.
Our liabilities were greatly reduced during 1999, and were equivalent to
less than twelve percent of our current assets at year-end and less than ten
percent of our current assets at March 31, 2000. Since we rely on outside
vendors for all of our manufacturing, our operations do not require
substantial capital expenditures other than for the periodic purchase of
tooling, test equipment, and fixtures. During 1999, our capital expenditures
were limited to the $115,468 we invested in development of software tools for
Travel Star 24 and our contributions to Talon and Influence Data. At March
31, 2000 we had no material capital spending commitments outstanding.
In June 2000, however, we amended our purchase price and paid an additional
$200,000 to Influence Data, L.L.C.
Because we have gotten the cash requirements of our handheld business
stabilized, our working capital and cash reserves appear to be sufficient to
sustain over the coming year the level of business that we experienced during
1999. That leaves us with one near-term liquidity issue: the cash we will need
for development of new products. We hope to obtain the cash for new product
development by a second closing with the investment funds that are purchasing
our Series A Preferred Stock. If that closing occurs, the funds will purchase
$1.4 million in additional securities, which should be sufficient for our
development requirements. It is a condition to that second closing, however,
that our stock be trading for thirty days at a bid price of $4.50 with average
daily volume of 75,000 shares. At the present time, the bid price of our
common stock is less than half of $4.50, and its trading volume is far less
than a 75,000 share average. So unless the market for our common stock
improves dramatically or the funds waive the conditions, the second closing
will not occur. If the closing does not occur, we will have to seek equity
financing elsewhere or delay our development activities.
Impact of Accounting Pronouncements
In June 1998 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (FAS 133). FAS 133 requires derivatives to be
recognized as assets or liabilities on the balance sheet and measured at fair
value. Changes in the fair value of derivatives should be recognized in either
net income or other comprehensive income, depending on the designated purpose
of the derivative. We will be required to implement this policy on January 1,
2001. We have not yet determined what effect this policy will have on our
financial position or results of operations.
Accountants
BDO Seidman, LLP audited our financial statements for 1999 and 1998.
Previously, KPMG LLP audited our financial statements for 1997 and 1996.
On July 24, 1998, our Board of Directors dismissed KPMG LLP from its
engagement to audit our 1998 financial statements. The report of KPMG LLP
on our 1997 and 1996 financial statements did not contain an adverse opinion
or a disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles. We did not have, in
connection with the audit of our 1997 or 1996 financial statements or any
subsequent period, any disagreement with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement, if not resolved to KPMG LLP's satisfaction,
would have caused KPMG LLP to make reference in connection with its reports
to the subject matter of the disagreement.
BUSINESS
Overview
Since 1987 we have been engaged in the business of selling 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. Therefore, we still sell our
handheld computers, but over the past three years we have been expanding the
scope of our operations:
- In 1998 we acquired an 18.9% interest in Talon Research &
Development, Ltd., which manufactured GPS ("global positioning
satellite") antennas that can be combined with our database to create
a variety of travel products. We increased our interest in Talon to
24.9% in 1999.
- In 1999 we helped to form a joint venture called Influence Data,
L.L.C., which provides travel services, including directions, over
the Internet.
- In the Fall of 2000 we expect to begin selling our Travel Star 24 ,
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.
- We have begun development of an enhanced version of our GPS product
that will include a cellular transceiver to permit the driver to use
the product to access the Internet while traveling.
Our research & development expenses were $358,357 and $672,090 for the
years ended December 31, 1999 and 1998, respectively.
Handheld Travel Computers
The Road Whiz Line of Products
Our core business is a line (currently 16 products) of hand-held
computers that utilize our proprietary data compression technology to provide
a library of information in a pocket-size box. Most of the products contain
travel information, customized to specific markets, and so the flagship
products have carried variations of the trademark "Road Whiz." Within the
chip that powers a Road Whiz can be found information compiled by our army of
"Road Helpers" regarding over 100,000 services and amenities along the U.S.
Interstate Highway System and directions on how to reach the service or
amenity of choice. Some versions of the Road Whiz also contain information
about services and attractions within the cities linked by the Interstate
Highway System. The service information provided by a Road Whiz product
includes directions and mileage to gas stations, hotels, motels, hospitals,
and 24-hour restaurants, as well as highway patrol emergency numbers. We sell
our handheld products through independent sales representatives, mass
merchandise retailers, catalog companies, department stores, office supply
stores, direct mail promotions, luggage stores and selected television
shopping channels.
Among the hand-held products we currently offer are the following:
Road Whiz Plus and Super Road Whiz provide complete routing
information for over 90 cities, giving driving distances, driving time and
detailed directions. Both products are designed to be marketed by mass
merchandise retailers, such as Kmart and Kohl's. Road Whiz Ultra has similar
capabilities, but is designed primarily for sale on the QVC television
network. In addition, we sell a unit containing the Road Whiz database but
named Car & Driver as a private label of the Target Stores chain.
Ultrafinder is a more powerful travel unit, which features a two-line
display and an updatable plug-in memory module, while providing specific city
information to supplement the Road Whiz database of highway information.
Ultrafinder is intended primarily for direct marketing, such as
advertisements in Sky Mall magazine.
Town & Country provides a list of 60,000 services along the nation's
highways and directions to over 7,000 towns connected by the Interstate
Highway System. We sell this product through upscale retail locations, such
as Brookstone and Rand McNally. The Road Whiz RV Special adds to the
standard Road Whiz features useful for an RV owner, such as the location of
dump stations and the availability of parking for recreational vehicles at
restaurants.
AAA TripWizard is the product of a joint effort between Ultradata and
the American Automobile Association. The product combines AAA's database and
ratings with Ultradata's Road Whiz database to provide turn-by-turn
directions to AAA-rated facilities across the country. AAA TripWizard is
sold through AAA travel stores as well as upscale retailers such as Brookstone
and Sharper Image.
The hand-held products generally retail between $19.95 and $49.95. We
recommend that consumers update their units every one or two years, and sells
the updates for $19.95 or $29.95 plus $4.95 shipping and handling.
Our New Marketing Strategy
After our initial public offering of securities in 1995, we were able to
commence widespread marketing of the handheld products. We priced them to the
upper range gift market ($49 to $129) and focused our marketing efforts on
direct sales through television and print ads, as well as through a sales
representative network. That strategy was successful in expanding our sales
for three years, while the products were new to the market. The expansion of
sales, however, did not bring with it a proportionate expansion of profits.
Too many of our marketing techniques were only marginally profitable, and as
our products lost some of their newness, marketing techniques such as direct
mailing produced diminishing returns. For that reason, beginning late in 1998
we revised our marketing strategy. The products (except for the high
performance units, such as Ultrafinder) now generally retail for $19.95, and
marketing is focused on mass market retailers and custom-branded private label
units. At this price point, we hope to achieve sufficient volume that
economies of scale, combined with new low cost manufacturing methods initiated
in the 4th quarter of 1999, will permit us to operate profitably, even at a
lower level of annual sales.
Retail distribution through mass merchandise channels accounted for over
50% of our revenue in 1999, as revenue from sales to Kmart, Target Stores.
United Marketing Group, and The QVC Television Network each accounted for over
10% of 1999 revenue. End of year results from this program look promising, as
Kmart completed a successful holiday season promotion, and has introduced the
Road Whiz product into plan-o-gram, which involves everyday sales and
reorders of the product. Target Stores, likewise, has introduced a product
into plan-o-gram, in Target's case a private-labeled version of the Road Whiz
line named "Car & Driver."
Four customers accounted for 10% or more of our sales in 1999, and, in
the aggregate, accounted for 55% of sales. The loss of our largest customer
would have resulted in a loss of sales of approximately 20%. The customers to
whom over 10% of sales were made in either of the past two years are
identified in the following table.
Customer 1999 % of Sales 1998 % of Sales
QVC $1,102,246 19.8% $1,379,148 19.7%
Kmart 813,792 14.6% - -
United Marketing
Group 582,260 10.5% - -
Kohl's 575,184 10.3% - -
Roy Thomas, Inc. - - 1,508,634 21.6%
--------------------------------------------
Total $3,073,482 55.2% $2,887,782 41.3%
============================================
The percentage of revenue attributable to mass merchandise channels is
expected to grow in 2000, although the relative contribution of any individual
chain or channel should decrease over time as we expand our distribution
network to include other merchandising giants. Road Whiz products are
currently sold in stores representing less than 5% of the ACV (all commodities
volume) in U.S. retail. So we intend to aggressively seek expansion to other
store chains. For example, in December Radio Shack completed an intense
holiday promotion with sales of 90,000 units.
Central to the new marketing strategy is our effort to develop a variety
of distribution paths, so as to maximize our penetration of the potential
market for our products. To date, in addition to our sales to retailers, the
following types of distribution have been put in place:
- Private Branding. The leading example of the private label marketing
strategy was the introduction in 1999 of the AAA TripWizard as a
joint venture with the American Automobile Association. The database
for this product was customized to include both our core database of
over 100,000 services and amenities as well as turn-by-turn
directions to restaurants, lodging facilities, camping and service
facilities approved by AAA, along with their AAA diamond-rating or
AAA approved status. Initially, the product retailed at $49.95
through the upscale retailers The Sharper Image and Brookstone's.,
and results were disappointing. AAA has agreed to a substantial
reduction in the retail price of the AAA TripWizard , which will
facilitate marketing to AAA's network of affiliates, which consists of
93 clubs, 1,100 offices and over 41 million members in the United
States.
- Licensing. The Radio Shack promotion was organized by
Ideavillage.com, which provided display advertising and point-of-
purchase materials, as well as print and television advertising
support. We developed a version of the Road Whiz labelled Auto
Pilot for distribution by Ideavillage.com, which purchases the
product directly from the assembler, except for key chips which are
purchased from us. Ideavillage.com then pays us a royalty on product
sales.
- Direct Response Marketing. At the end of May we received orders for
over $2 million (with an additional $1 million of add-on orders
indicated) from Media Syndication Global. Media Syndication Global
specializes in multi-media direct response marketing. Although we
failed in our efforts at direct marketing of the handheld products,
Media Syndication Global has resources and expertise in this area
that we lacked, and its initial test marketing of our products was
sufficiently successful to lead it to order $2 million of handheld
products for delivery in 2000.
- Marketing Partnership. During 2000 the Road Whiz line will be
expanded by the introduction of a unit we developed in cooperation
with United Marketing Group, the organization responsible for the
ITC-50 hotel discount booklet. That 50%-off hotel discount guide,
which normally retails for $20, will be embedded in a new Road Whiz
unit that will have a suggested retail price of $39.95, but likely
sell for $29.95 in mass markets. The product will be test-marketed
through a retail store chain and via a direct mail program organized
by United Marketing Group.
If our new marketing strategy is successful, the result will be an
increase in sales revenue with a significant reduction in selling and
administrative expense, as the costs attendant to direct retail marketing are
reduced. Even though the exponential growth rate that we achieved in 1996 and
1997 is unlikely to be replicated, stabilization of our core business at even
a modest level of profitability would provide a foundation on which we could
pursue dynamic growth through our entry into the GPS and Internet markets.
Manufacturing
We do not manufacture any of our products. We retain assemblers to
manufacture the products. We procure the microprocessors and memory chips and
other unique items, and supply them to the assembler.
To date, there are two manufacturers to whom we have contracted most of
our assembly work. Once each year, these manufacturers quote prices to us
based upon estimated annual quantities. Then we place individual purchase
orders for production. Our arrangements with these manufacturers - up to the
point of a purchase order - are terminable at will by either party. If
either or both of the manufacturers became unavailable to us, alternate
sources would be readily available. Nevertheless, the sudden loss of one of
the manufacturers or unanticipated interruptions or delays from present
manufacturers would likely result in a temporary interruption to our planned
operations.
Backlog
As of July 27, 2000 our total backlog was approximately $5,600,000
compared to backlog of approximately $1,900,000 on July 27, 1999. All of the
current backlog is for delivery in 2000.
Patents
We own two patents that are utilized in our Road Whiz products. They
provide us a technological advantage which, to date, has prevented any similar
product from appearing. One patent covers our method of compressing data
relating to travel information. This compression technology permits our
travel products to store more data on smaller and less expensive memory
devices. The second patent covers the methodology which enables our travel
devices to account for changes which occur when the traveler crosses a state
border.
Competition
To date, we have not faced significant competition in selling our
handheld computer products. The primary reasons for the lack of competition
are:
- Our patented data compression technology permits the storage of
unusually large volumes of information in low-cost devices.
- Our database is unique, and it would be time-consuming to replicate
it.
- We have thirteen years of experience in developing this line of
products, which gives us insight into the needs and desires of the
traveling consumer.
- We have a simple, low-cost design for our products, which employs a
minimum of parts.
- We have developed low-cost, but high quality manufacturing sources.
- The devices that perform functions to those performed by our handheld
products are considerably more expensive, and often lack the data
quality of our products.
These several factors have, thus far, served as a barrier to any
effective competition with our handheld products.
GPS Products
Talon Research & Development, Ltd.
We own 24.9% of Talon Research & Development, Ltd., a privately-held
enterprise located in Auckland, New Zealand. Talon manufactures and markets
electronic components and marine instruments that incorporate Global
Positioning Satellite ("GPS") receiver units. Among Talon's products are the
GPS receiver and antenna used in our Travel Star 24. Talon sells these
antennas to Ultradata at the lowest price it offers to any customer.
The prospects for significant growth at Talon appear promising. In
February of this year, Talon was chosen to replace Magellan as the GPS
hardware supplier for the Palm Pilot, which opens a major sales channel as
well as marking a significant shift in market power toward Talon. Talon also
this year received an order from Rand McNally for antennas for 30,000 GPS Palm
Pilots. Finally, Talon has been expanding the international distribution of
its marine electronics products beyond its European base to South America,
South Africa, and China, and is projecting significant growth in its marine
electronics business as well as its OEM GPS receiver business.
Travel Star 24 GPS Auto Navigational System
Taking advantage of our access to the Talon GPS receiver/antenna, we
have developed a low cost, portable navigation unit for the automotive after-
market, which we will market as the "Travel Star 24." The Travel Star 24
utilizes the Talon GPS receiver and antenna to pinpoint the longitude and
latitude of the moving vehicle. On-the-fly, the unit is capable of
calculating a route, displaying visual directions and distance as well as
audible turn-by-turn prompts and warnings when the driver strays from the
route. The Travel Star 24 also includes an expanded version of the
proprietary and unique Road Whiz database, providing the driver directions to
over 300,000 services across the U.S.A. As the driver travels, the GPS
signals are referenced to the service database, so that the driver can
instantly find businesses, hotels, service stations, rest stops, restaurants,
hospitals, tourist attractions, airports, etc. in more than 250 metropolitan
areas, as well as directions to over 12,000 smaller cities and towns.
While there are a wealth of potential users for a GPS-based navigation
system, we intend to target the Travel Star 24 to the automotive after-market,
which currently consists of over 150 million vehicles and grows by 15 million
vehicles annually. In addition, we are engaged in discussions with several
companies that sell GPS-based theft recovery systems. These companies are
considering Travel Star 24 (without the Talon GPS system) as a low-cost
addition to their theft recovery systems.
Currently, between 600,000 and 1,000,000 GPS-based navigation systems
are sold annually. These include installed original equipment such as
"Neverlost", which is generally priced in the $2,000 range; low-end hand-held
units of very limited capability (generally approximately $200); and middle
market units priced in the $500 to $600 range. Examples across this middle
range can be found in the lines of Magellan, Garmin and Lowrance.
Travel Star 24 will compete in this range, as we expect it to have an initial
retail price under $400. But the Travel Star 24 should have several
competitive advantages over the middle market competitors:
- Travel Star 24 provides audible prompts, whereas the competitors use
a "moving map" that requires the driver to take his eyes off the
road;
- No other product in the middle price range can compute routes - the
routes must be entered by the user;
- Travel Star 24 can plan a route to 12,000 towns and cities;
- Travel Star 24 can be equipped with a low cost ($49.95) regional
cartridge that will provide block-to-block navigation; and
- Travel Star 24 incorporates Ultradata's proprietary data compression
technology to provide directions to over 300,000 services, a
functionality for which the competition offers nothing comparable.
The Travel Star 24 can easily fit into a briefcase or purse; so it is
portable to any rental vehicle. We expect to begin selling it during the
Fall of 2000, as the remaining development consists of completion and beta-
testing of the software and finalization of the data set. Problems with
either project, however, could delay production.
Patents
We hold two additional patents which have potential utility in the GPS
market. Patent 5,943,653 was awarded in August, 1999 and covers the delivery
of electronic coupons in a handheld computer for discounts of services. The
technology can be combined with the GPS locational function to cause time and
site-specific coupons to be delivered to the driver offering, for example, a
discount at the upcoming hotel. We would, of course, receive a fee for each
customer that the hotel gained in this fashion. We are currently in
discussions with a participant in the cellular telephony industry aimed at a
cross-license of our patent for the telephony technology as a platform for
delivery of the electronic coupons.
The other related patent, which was awarded in May of 1999, covers a
method of integrating a GPS receiver into a radar detection device. By use of
this patented technology, it becomes practical to eliminate many false radar
detection alarms, as well as to provide audible warnings of speed zones. We
are in discussions with a major distributor of radar detection devices
regarding a license of this technology.
Internet-Based Navigation
www.DriveThere.com
In May of 1999 we formed a joint venture with Influence Incubator, LLC
to create a vertical interest portal on the Web for travelers. The joint
venture, of which we own 33%, launched its Website, www.DriveThere.com, in
October, 1999. By creating affiliations with a large number of major content
providers, the joint venture has been able to load the Website with a wealth
of travel-usable content, including driving directions, travel suggestions,
weather reports, information on products and services for travelers (e.g.
insurance, tires), a forum for auto sales, and contacts for emergency roadside
assistance. In addition, the shopping function on the Website is a virtual
department store for travelers, offering products ranging from educational
toys to amuse traveling children to the Road Whiz to enlighten traveling
parents.
The joint venture plans that, in mid-2000, the Website will sponsor a
Preferred Members Program, which will provide a panoply of services for
travelers (e.g. a facility to pay traffic tickets online) for a minimal annual
fee. Even if 1% of U.S. drivers join and pay a fee of $5 per month, revenue
from the Program will reach $24MM annually, not including the several
ancillary benefits of driving traffic to the Website, such as advertising
revenue and enhanced e-commerce opportunities.
In March, 2000 Lucent Technologies announced that it would be conducting
an initial customer trial with DriveThere.com for "PhoneBrowser," a Lucent
product that would allow consumers to access the Internet with an ordinary
telephone, using natural language speech commands and receiving content via
recorded audio or synthesized text-to-speech. In the customer trial, drivers
will be able to use their mobile phones to access the DriveThere.com Website
and obtain the directions and other information available there. The driver
will be asked a series of questions when she reaches the site, similar to the
organization of the Road Whiz . Her replies will determine the information
that is collected from the database, and the Lucent technology will enable
that information to be converted into speech and relayed over the phone. If
the trial and subsequent market tests are successful, a joint venture
arrangement between Lucent and DriveThere.com would be negotiated. At this
time, there is no commitment with Lucent other than to conduct the initial
trial together.
The Internet TripLink
We currently have under development a product that would permit users to
download a detailed travel itinerary through a modem-equipped PC into a
handheld unit. The user could in this manner be given real-time access to
volatile information such as traffic, discounts, and increased detail as to
routing and services. We expect to initiate marketing of the product late in
2000. We anticipate that we will market the Internet TripLink in joint
venture with one or more Internet service providers who have expressed
interest in using the Internet TripLink to sustain subscriber loyalty.
GPS/Internet Auto Navigation and Tracking System
The most exciting project on our development schedule is an effort to
exploit the synergy between the communications capabilities of the Internet
and the locational capabilities of a GPS antenna. The product line is
presently only in the planning stage. But later this year, if our resources
permit, we expect to commence development of a GPS/Internet auto navigation
and tracking system. The utility of the product will be to create a rich link
between the driver and a stationary source of communications, be it a family
member on a home PC or a hotel chain soliciting the driver's business.
Examples of the benefits of a GPS/Internet communications system are:
- The ability of an authorized person to track the location of the
vehicle from their home computer (Do you know where your teenager
is?).
- The ability of the driver to send and receive brief, formatted e-mail
messages to/from the "home base". ("Call me" or "I'll be home by
9:00").
- The ability of the driver to receive useful location-specific
information, such as available hotel discounts along the route, on a
dynamic hour-by-hour basis. ("It's early evening, and the Holiday Inn
at Nashville has many vacancies. They are now willing to discount 60%
off the nominal rate").
- The ability to forward highly-targeted traffic information to the
vehicle based on knowledge of its location and direction of travel.
- The ability to send an emergency message which includes your specific
location, anywhere in the country.
The system is conceptually simple. We plan to modify the Travel Star 24
to incorporate a cellular transceiver into the existing housing. Information
in the vehicle will originate in and be displayed on the Travel Star 24, which
has a four-line text display and a menu-driven "soft key" user interface. The
Travel Star 24 also has a built-in GPS receiver, and can generate the
necessary geo-coordinates to identify the vehicle's location. The vehicle's
identity, its geo-coordinates, and any outgoing messages will be passed to the
cellular transceiver for broadcast to the local phone cell, then transferred
via the Internet to the "Home Base" PC.
At the "Home Base", mapping software will be installed, which can
translate the geo-coordinates into a position display on a map. The person at
home can thus track the location and progress of the vehicle, using the
connectivity provided by the Internet. The same "Windows"-based software can
receive and display incoming messages, and generate pre-formatted outbound
messages and position queries. Similarly, pre-formatted messages can be sent
from the vehicle to the Internet site, where the messages are available to
friends and family.
There will be a number of elements comprising the system:
- Vehicle hardware, consisting of the Travel Star 24 with an integrated
cellular transceiver and a power cable;
- A cellular system with broad national coverage;
- Software for the "Home Base" (i.e. custom CD-ROM or download from the
Website);
- A "gateway" for handling message traffic between the Internet and the
cellular system (i.e. the Website); and
- A server at the Website for validating users, and handling time and
location-related responses to queries and/or "push" information.
We plan to work with a number of competent organizations to develop,
launch and operate the GPS/Internet System. Essentially, we will focus on
developing the Travel Star 24 hardware and supervising program integration.
We will contract out the responsibility for providing transceiver hardware,
and will work with other organizations that would provide the cellular network
interface and billing, gateway software and advertising relationships. To
date, the only relationship we have formed in this regard is a letter of
intent with a start-up communications company, which has offered to fund
integration of a cellular link into Travel Star 24 and then undertake
marketing the product to OEMs.
The GPS/Internet System is in the planning stage only. There are a
number of technical tasks required to make the system operational, including
the hardware and software modifications described in the following paragraphs:
- Modification of Travel Star 24. The existing Travel Star 24 design
must be modified to incorporate the cellular transceiver, and its
software needs to be expanded to enable the new functions made
possible by the cellular link.
- Develop a Website to serve as "Gateway." The site would be developed
to communicate with "Home Base" computers via the Internet. It would
be linked to the cellular hub via a dedicated line. Software must be
developed to enable appropriate interfaces with the system to provide
the additional features. The server which hosts this web site would
be connected to a source of real-time hotel discounts, and other
valuable "push" or query-based services. Based on the geo-coordinates
of the inquiring Travel Star 24, it must be able to correlate the
consumer's location with available discounts.
- Integration with Cellular Network. Connectivity to specific vehicles
would be through a 'National Call Center.' National coverage would be
provided by the cellular network. The messaging menu would contain
short messages options generated by the Travel Star 24 and the "Home
Base" software. Connect time will be short, since the messages are
pre-formatted.
- Modification of Mapping Software to present the user with a screen to
initiate communications with the target vehicle and to automatically
display the location of the vehicle (when its coordinates have been
received), at some intermediate scale, which can then be further
adjusted by the user to identify the specific street where the unit
is located.
The GPS/Internet product can be positioned as a service adjunct to the
Travel Star 24, whose added benefits would include safety and security,
ability to access vehicle location, location-specific hotel and restaurant
discounts, and other potential features made possible by the combination of
cellular communications and GPS technologies.
The appeal of the product will vary over demographic segments and
related advertising and distribution channels. For example, the more mature
audience which is typical of the TV shopping channels might be more interested
in the added safety and security inherent in knowing exactly where you are,
and being able to communicate that information to others, in order to receive
assistance. A "Road Warrior", by contrast, might be more interested in
finding heavily-discounted lodging along his route, as hotel vacancies persist
later into the day. Traveling families may be attracted to both the safety
and economy-travel features. Families with teen-age children may want to know
exactly where the car is late at night, and whether the children are where
they're supposed to be.
Employees
We have 19 full-time employees, including our six officers. All of our
employees are located at our headquarters in St. Louis, Missouri. We employ
six people in sales, customer service and shipping, three people in database
research, four people in executive management and administration, four people
in product development, one person in inventory management, and a president
and chief executive officer. In addition, a number of part-time consultants
are retained for database research and software development. None of our
employees belongs to a collective bargaining union. We have never experienced
a work stoppage, and we believe that our relations with our employees are
good.
Description of Our Property
Our administrative offices and research and development facilities are
located in approximately 12,500 square feet of leased office space in an
industrial building located at 9375 Dielman Industrial Drive, St. Louis,
Missouri. We pay a monthly rent plus 31% of all building expenses under an
operating lease which expires on October 31, 2001. In 1999 the rent and
expenses we paid totalled $114,247.
We maintain no manufacturing operations on this site, because we employ
outside contractors to manufacture our products. We believe that this
facility is adequate for our need for the foreseeable future.
Legal Proceedings
We are not involved in any significant legal proceedings at this time.
MANAGEMENT
This table identifies our directors and executive officers. Directors
serve until the next annual meeting of shareholders and until their successors
are elected and qualify. Officers serve at the pleasure of the Board of
Directors.
Director
Name Age Position Since
Monte Ross 67 President and Chief
Executive Officer, Director 1986
Mark L. Peterson 43 Vice President - Engineering,
Secretary, Director 1986
Ernest Clarke 60 Vice President,
Chief Financial Officer,
Director 1990
Leonard Missler 54 Vice President - Software
Development --
Duane Crofts 63 Vice President -
Advanced Products --
David Biernbaum 45 Vice President --
Steven H. Akre,
Esq.(1) 47 Director 1986
John J. Clancy(1)63 Director 1995
Donald Rattner(1)67 Director 1999
Howard
Krollfeifer, Jr.60 Director 2000
------------------------------------------
(1)Member of the Audit Committee
Monte Ross founded Ultradata in 1986, and has served as our President
and Chief Executive Officer since the founding. In addition to his management
responsibilities, Mr. Ross is responsible for new product development and for
supervision of sales and marketing. Mr. Ross is a Fellow of the Institute of
Electrical and Electronic Engineers, and the past President of the
International Laser Communication Society. Mr. Ross was awarded a Master of
Science degree in Electrical Engineering by Northwestern University in 1962.
Mr. Ross is the father-in-law of Mark L. Peterson, our Vice President -
Engineering.
Mark L. Peterson has served as our Vice President of Engineering since
1988. He is responsible for the design of our hand-held products. Mr.
Peterson was awarded a Master of Science degree in Electrical Engineering by
Washington University in 1980. Mr. Peterson is the son-in-law of Monte Ross,
our President.
Ernest Clarke was employed from 1990 until 1999 as our Vice President -
Government Programs. In 1999 Mr. Clarke became our Chief Financial Officer.
Mr. Clarke was awarded a Master of Science degree in Electrical Engineering by
Stanford University in 1966.
Leonard Missler has served as Vice President - Software Development for
the Company since 1990. His primary responsibility has been the development
of software for the Company's hand-held products. Mr. Missler was awarded a
Master of Science degree in Electrical Engineering by Washington University in
1970.
Duane Crofts joined the Company as Vice President - Advanced Products in
1994. Mr. Crofts has been integral to the development of Travel Star 24 and
our entire GPS program. Mr. Crofts was awarded a Bachelor of Science degree in
Mechanical Engineering by the University of Missouri at Rolla.
David Biernbaum joined the Company in 1997 as Vice President. Prior to
joining the Company, Mr. Biernbaum was employed as Senior Vice President,
Marketing for Vi-Jon Laboratories, Inc. a manufacturer of private label health
and beauty care products. Mr. Biernbaum holds a Master's degree in Marketing
from Southern Illinois University.
Steven H. Akre, Esq. has served as our corporate counsel since Ultradata
was founded in 1986. Mr. Akre is an attorney at law, whose specialization is
in taxation and corporate mergers and acquisitions. He is currently a sole
practitioner. Prior to December, 1999, Mr. Akre was a member of Lewis Rice &
Fingersh, L.L.C.
John J. Clancy has been retired for the past five years. Mr Clancy
currently serves on the Board of Directors of Cimplex Corporation, Inc. in San
Jose, and Engineering Software Research & Development, Inc. in St. Louis.
Previously, Mr. Clancy was employed by McDonnell Douglas in a variety of
positions progressing from Programmer to Divisional President. Mr. Clancy was
awarded a Master of Science degree in Chemical Engineering by The Johns
Hopkins University and a Master of Business Administration degree by
Washington University, St. Louis.
Donald Rattner has for over 25 years been a member/partner in
BrookWeiner, LLC, a Chicago-based accounting firm, and its predecessors. He
is a member of the American Institute of Certified Public Accountants and the
Illinois CPA Society.
Howard Krollfeifer, Jr. has been employed since 1993 as Senior Vice
President and General Manager of the Manufacturing Technology Division and
the Financial Intermediary Group at Copelco Capital Inc. Mr. Krollfeifer was
awarded an LLB by Blackstone School of Law in 1969.
Compensation of Directors
Our Directors who are not also officers receive $500 per meeting and are
reimbursed for out-of-pocket expenses incurred on our behalf.
Employment Agreements
Messrs. Ross, Peterson, and Clarke have individual employment agreements
with us which are substantially identical, except as noted below. The
agreements terminate on October 31, 2000. Each agreement provides for a base
salary, which the Board of Directors must adjust annually. If the majority of
the Board cannot agree as to a level of salary adjustment, the salary
increases by 10% for Mr. Clarke and Mr. Peterson and by 5% for Mr. Ross. The
employment agreements restrict each officer from competing with us for one
year after the termination of his employment unless he establishes that his
employment by a competitor will not involve the use of any information which
we consider confidential.
Executive Compensation
Annual Compensation Long-Term Compensation
Year Salary Other(2) Options (#)
----------------------------------------------------------------------------
Monte Ross, President(1) 1999 $ 142,588 $ 6,000 10,000
1998 $ 154,999 $ 6,000 6,000
1997 $ 130,000 $ 5,000 12,500
(1) Mr. Ross is the only officer of Ultradata whose total salary and bonus
for 1999 exceeded $100,000.
(2) Represents the premium paid for an insurance policy on Mr. Ross's life,
the beneficiary of which is Mr. Ross's estate.
Option Grants in the Last Fiscal Year
Percent of Total
Number of Shares Options Granted
Underlying to Employees in Exercise Expiration
Name Options Granted Fiscal Year Price Date
------------------------------------------------------------------------
Monte Ross 10,000 9.7% $2.00 12/31/04
Aggregated Fiscal Year-End Option Values
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Name Options at December 31, 1999 at December 31, 1999
-------------------------------------------------------------------------
Monte Ross 73,500 exercisable Not Applicable
Stock Option Plans
We have two stock option plans: the 1994 Incentive Stock Option Plan and
the 1996 Incentive Stock Option Plan. The material terms of the Plans are
identical. Our shareholders have approved the issuance of options for
500,000 shares under the Plans. So far, options for 414,088
shares have been issued under the Plans, not including options that were
issued and then terminated when the employees left Ultradata. Of the
414,088, options have been exercised to purchase 92,023 shares of common stock.
Options to purchase 322,065 remain outstanding.
The Plans give the Board of Directors the authority to grant stock
options. All of our employees, as well as our Directors and consultants who
perform services for us are eligible to receive options. Some of these options
may qualify under Section 422 of the Internal Revenue Code, which gives tax
advantages to options that meet the qualifications. Stock options designed to
qualify under Section 422 are referred to as "incentive stock options." All
other stock options are referred to as "non-qualified stock options." The most
important provisions of the Plans are the following:
* The Board of Directors will determine the number of shares that an
employee may purchase and all other terms and conditions of each
option.
* No option will have a term of more than 10 years.
* Every incentive stock option granted to a shareholder who owns 10% or
more of the voting power in Ultradata, will expire not later than
five years after the grant.
* The employee who holds an option may not transfer it, except by will
or through the laws of inheritance.
* The Plan limits the Board's authority to grant incentive stock
options to a single individual by requiring that the aggregate
exercise price of all stock options, incentive and otherwise, vesting
in one employee in any single calendar year may not exceed $100,000.
* There is no limit on vesting of non-qualified stock options.
* The exercise price for non-qualified stock options may not be less
than eighty-five percent (85%) of the fair market value of the shares
on the date of grant.
* The exercise price of an incentive stock option must be at least 100%
of the market price of a common share on the date the stock option is
granted.
* The exercise price of an incentive stock option granted to an
employee who owns 10% or more of the voting power in Ultradata may
not be less than 110% of the market price of a common share on the
date the stock option is granted.
* The Board may permit an employee to exercise an option and make
payment by giving a personal note.
Transactions Between Ultradata and its Management
In 1994 five of our officers and four employees purchased shares of our
common stock and gave us promissory notes in payment. On June 11, 1999 three
of the officers surrendered a portion of the shares they had purchased, and we
forgave a portion of their notes in exchange for the shares. The Board of
Directors agreed with the officers that they would value the surrendered
shares at the weighted average market price for the 30 trading days preceding
June 11, 1999. The table below shows data concerning the 1994 purchase and
1999 surrender of shares.
Shares Purchased Shares Surrendered
Total Price Average Total Price Average
----------------------------------------------------------------------------
Monte Ross 155,734 $254,500 $1.63 100,000 $215,000 $2.15
Mark Peterson 38,725 $ 63,375 $1.64 37,423 $ 80,456 $2.15
Leonard Missler 17,676 $ 21,250 $1.20 12,548 $ 26,978 $2.15
We have a written agreement with Leonard Missler, our Vice President -
Software Development. The agreement provides that, until September 13, 2009,
we will pay Mr. Missler a 1% royalty on all net sales of ROAD WHIZ products
and 1/2% on net sales of other products incorporating the ROAD WHIZ database.
Because of this agreement, we paid $39,820 in royalties to Mr. Missler in 1999
and $53,752 in 1998.
Steven H. Akre, Esquire, who is a member of our Board of Directors, has
performed legal services as general counsel for us since Ultradata was
founded. During 1999 and 1998, we paid the law firm with which Mr. Akre was
then associated $108,411 and $103,984, respectively, for legal services.
Limitation of Liability and Indemnification
Our certificate of incorporation provides that our directors will not be
personally liable to us for monetary damages for breaches of their fiduciary
duty as directors, unless they violated their duty of loyalty to us or our
stockholders, acted in bad faith, knowingly or intentionally violated the law,
authorized illegal dividends or redemptions or derived an improper personal
benefit from their action as directors.
In addition, our certificate of incorporation provides that our
directors shall be indemnified by us to the extent authorized by Delaware law.
This indemnification would cover all expenses and liabilities reasonably
incurred in connection with their services as directors.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to our directors, officers or controlling persons pursuant to
the foregoing provision or otherwise, we have been advised that in the opinion
of the SEC such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable.
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to us with respect to
the beneficial ownership of our common stock as of the date of this
prospectus by the following:
* each shareholder known by us to own beneficially more than 5% of our
common stock;
* Monte Ross;
* each of our directors; and
* all directors and executive officers as a group.
There are 3,193,415 shares of our common stock outstanding on the date
of this prospectus. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below have sole voting power and
investment power with respect to their shares, subject to community property
laws where applicable. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percent ownership of that
person, we include:
* shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable
within 60 days, and
* shares of common stock that would be issued today if the Series A
Preferred Stock held by that person were exercised today.
We do not, however, include these "issuable" shares in the outstanding shares
when we compute the percent ownership of any other person.
Name and Amount and
Address of Nature of Percentage
Beneficial Beneficial of Outstanding
Owner (1) Ownership Shares
--------------------------------------------------------
Monte Ross 452,500(2) 13.85%
Mark L. Peterson 162,382(3) 4.99%
Ernest Clarke 165,352(4) 5.12%
Steven H. Akre,
Esq. 4,496(5) 0.11%
Donald Rattner 14,000 0.44%
John J. Clancy 3,692(6) 0.12%
Howard Krollfeifer, Jr. 0 -
All officers and 896,565(7) 25.95%
directors as a
group (10 persons)
BH Capital Investments, L.P. 354,429(8) 9.99%
175 Bloor St. East, 7th Floor
Toronto, Ontario
Canada M4W3R8
Excalibur Limited Partnership 354,429(8) 9.99%
33 Prince Arthur Avenue
Toronto, Ontario
Canada M5R1B2
Influence Incubator, LLC 300,000(9) 8.59%
9666 Olive Street Road
St. Louis, Missouri 63132
(1) Except as otherwise noted, the address of each of these shareholders is c/o
Ultradata Systems, Incorporated, 9375 Dielman Industrial Drive, St. Louis,
Missouri 63132.
(2) Includes 236,000 shares owned by the Monte Ross and Harriet J. Ross Living
Trust. Mr. Ross and his wife share investment control over the trust; they
may revoke it or amend it at will; and they receive all income from the
trust during the life of either of them. Also includes options to purchase
73,500 shares.
(3) Includes 91,964 shares owned by the Mark L. Peterson and Ryia Peterson
Living Trust and 8,318 owned by Ryia Peterson. Mr. Peterson and his wife
share investment control over the trust; they may revoke it or amend it at
will; and they receive all income from the trust during the life of either
of them. Also includes options to purchase 58,000 shares.
(4) Includes options to purchase 34,500 shares.
(5) Includes 3,120 shares owned by the G. Akre Irrevocable Trust, over which
Mr. Akre's wife has investment control. Also included options to purchase
1,000 shares.
(6) Includes options to purchase 3,692 shares.
(7) Includes options to purchase 261,692 shares.
(8) Represents for each shareholder: (a) the number of shares of Common Stock
into which the Series A Convertible Preferred Shares could have been
converted on the date of this propsectus plus (b) warrants to purchase
239,253 shares of Common Stock, but subject to a limit that on conversion
and exercise each shareholder may not acquire more than 9.99% of the
outstanding common stock. The limit may be waived by the shareholder on 75
days notice to Ultradata, in which event the Preferred Shares and warrants
owned by each shareholder could have been converted into 650,503 shares of
Common Stock, or 16.92% of the shares, based on the number outstanding
today.
(9) Represents options to purchase 300,000 shares.
DESCRIPTION OF OUR SECURITIES
Our authorized capital stock consists of 10,000,000 shares of common
stock and 5,000,000 shares of preferred stock. There are 3,193,415 shares
of our common stock outstanding and 1,616 shares of Series A Preferred
Stock outstanding.
Common Stock
As a holder of our common stock, you will be entitled to one vote for
each share in the election of directors and in all other matters to be voted
on by the shareholders. There is no cumulative voting in the election of
directors. Our by-laws require that only a majority of the issued and
outstanding shares of common stock must be represented to constitute a quorum
and to transact business at a shareholders meeting.
You will be entitled to receive dividends if the Board of Directors
declares dividends. In the event that Ultradata is liquidated or dissolved,
you will receive a distribution, on a per share basis, of any assets remaining
after payment of all liabilities and any preferential payments that must be
made to preferred shareholders. You will have no preemptive or conversion
rights and you will not be subject to any calls or assessments. There are no
redemption or sinking fund provisions applicable to the common stock. The
common stock was validly issued, fully paid and nonassessable.
Preferred Stock
Our Board of Directors is authorized to issue preferred stock, without
action by the shareholders of the Company. The preferred stock may be issued
from time to time in one or more series. The Board will determined the
consideration that must be given for the preferred stock, as well as the
rights, privileges and preferences that holders of the preferred stock may
exercise. Among the provisions that the Board may determine when it creates a
series of preferred stock are:
- the dividend rate,
- voting rights,
- redemption rate,
- sinking fund,
- liquidation preferences, and
- conversion rights.
The only preferred shares presently outstanding are the Series A
Convertible Preferred Stock. We have no plans at this time to issue any other
shares of preferred stock.
Series A Convertible Preferred Stock
We have issued 1,600 shares of Series A Preferred Stock to two
investment funds, BH Capital Investments, L.P. and Excalibur Limited
Partnership and 16 shares to one individual. We have also given Thornhill
Group, Inc. an option to purchase 160 shares of Series A Preferred Stock.
If conditions relating to the market price and volume of our
common stock are met, we will sell an additional 1,400 shares to the
two funds, issue 4 more shares to the individual, and increase Thornhill's
option to 300 shares. Each share of Series A Preferred Stock has a face value
of $1,000.
The Series A Convertible Preferred Stock has no voting rights, except as
to matters which directly affect the rights of the holders of the Preferred
Shares. The holders of Preferred Shares are not entitled to any dividends.
Among the rights that are attendant to the Preferred Shares are:
* The Preferred Shares have a liquidation preference equal to their
face value plus an accrual amount equal to 11.25% from the date of
issuance (22.5% if the common stock is delisted by NASDAQ). The
holders will be entitled to payment of the liquidation preference
upon the liquidation of Ultradata or its bankruptcy or certain other
events.
* The Preferred Shares may be converted into common stock at any time
at the option of the holders. If not previously converted, the
Preferred Shares will automatically convert into common stock on May
16, 2003. The amount to be converted will equal the face value of
the Preferred Shares plus the accrual amount of 11.25% from the date
of issuance. For accounting purposes, the accrual amount may be
deemed to be a dividend. The conversion rate will be the lower of
$3.50 or 75% of the 5-day average closing bid price, subject to
certain anti-dilution rights and to the Floor. The "Floor", below
which conversion cannot occur, will be $2.00, but only during
the first 18 months after the issuance of the Preferred Shares. After
18 months there is no limit to how far the conversion price could fall.
Moreover, if the conversion price for any 20 trading days
during months 13 through 18 after issuance would have been less than
$2.00 but for the Floor, the Floor will reduce to $1.50.
The two funds have agreed that they will not engage in short-selling of
the common stock except during the ten days preceding conversion, and each of
them will limit its short sales during those periods to ten percent of the
daily trading volume.
Registrar and Transfer Agent
The Registrar and Transfer Agent for the common stock is:
American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, NY 10005
212-936-5100
SELLING SHAREHOLDERS
The table below lists the selling shareholders and other information
regarding the beneficial ownership of our common stock by each of the selling
shareholders. None of the selling shareholders owns any of our shares other
than the shares they are offering by means of this prospectus. The column
labeled "Derivative Security" lists the option, warrant or convertible
preferred stock that the selling shareholder has or will convert into the
common stock offered. The column labeled "Date of Issuance" identifies the
date on which the selling shareholder acquired the derivative security, if
any, or the common stock, in the case of Ms. Davis-Lee. The column
labeled "Common Shares Offered" includes the number of shares of common stock
that would have been issued on August 15, 2000 if the selling shareholder
converted or exercised the derivative securities on that date. The column
does not give effect to any restrictions, whether in a contract or in the
certificate of designations of the Series A Preferred Stock, on the number of
shares a selling shareholder may own at one time.
Our calculation of the number of shares into which the Series A
Preferred Stock could have been converted assumes a conversion price of
$2.00, which is the "Floor" price that would have been applicable on
August 15, 2000. The numbers listed in that column, to the extent they
reflect the conversion of Series A Preferred Stock, may fluctuate from time to
time based on changes in the closing bid price of our common stock. We have
registered 2,261,932 shares of common stock for resale by the selling
shareholders on conversion of our Series A Preferred Stock and exercise of the
warrants held by BH Capital Investments, L.P. and Excalibur Limited
Partnership. The 2,261,932 shares represent 200% of the shares that
would have been issued to the selling shareholders on June 14, 2000 on
conversion of all the outstanding Series A Preferred Stock and exercise of the
warrants. As each selling shareholder resells shares of common stock, we will
file prospectus supplements as necessary to update the number of shares of
common stock that each selling shareholder intends to sell, reflecting prior
resales and changes in the conversion price.
Common Shares Offered
--------------------
Per
Derivative Date of Derivative
Name Security Issuance Security Total
------------------------------------------------------------------------------
BH Capital Investments, L.P. Warrants(1) 5/16/00 239,253
Preferred Stock(2) 5/16/00 411,250 650,503
Excalibur Limited Partnership Warrants(1) 5/16/00 239,253
Preferred Stock(2) 5/16/00 411,250 650,503
Thornhill Group, Inc. Options (3) 5/16/00 128,000 128,000
Victoria Davis-Lee - 5/16/00 - 9,570
Jose Luis Castro Preferred Stock(1) 5/16/00 8,225 8,225
Influence Incubator, L.L.C. Options(5) 5/30/00 300,000 300,000
Total 1,746,801
Note 1: BH Capital Investments, L.P. and Excalibur Limited Partnership
each own warrants to purchase 239,253 shares at $5.00 per share.
Note 2: BH Capital Investments, L.P. and Excalibur Limited Partnership each
owns 800 shares of Series A Preferred Stock. Based on the closing
bid price for our common stock for the five days preceding the date
of this prospectus, 800 shares of Series A Preferred Stock is
convertible into 411,250 shares of common stock.
Note 3: Thornhill Group, Inc. owns an option to purchase 128,000 shares of
common stock at $2.50 per share.
Note 4: Jose Luis Castro owns 16 shares of Series A Preferred Stock.
Based on the closing bid price for our common stock for the five
days preceding the date of this prospectus, 16 shares of Series A
Preferred Stock is convertible into 8,225 shares of common stock.
Note 5: Influence Incubator, L.L.C. owns an option to purchase 150,000
shares of common stock at $4.00 per share and 150,000 shares of
common stock at $5.00 per share.
We are registering the shares for resale by the selling shareholders in
accordance with registration rights granted to the selling shareholders in our
several contracts with them. We will pay the registration and filing fees,
printing expenses, listing fees, blue sky fees, if any, and fees and
disbursements of our counsel in connection with this offering. The selling
shareholders will pay the fees and disbursements of their own counsel, as well
as any underwriting discounts, selling commissions, and similar expenses
relating to the sale of the shares. We have agreed to indemnify some of the
selling shareholders (BH Capital Investments, L.P., Excalibur Limited
Partnership, and Influence Incubator, L.L.C.), underwriters whom they may
select, and some of their affiliates against certain liabilities, including
liabilities under the Securities Act, in connection with this offering. Those
three selling shareholders have agreed to indemnify us and our directors and
officers, as well as any person who controls us, against certain liabilities,
including liabilities under the Securities Act. Insofar as indemnification
for liabilities under the Securities Act may be permitted to our directors and
officers, or persons that control us, we have been informed that in the
opinion of the SEC such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
Relationships with Ultradata
BH Capital Investments, L.P. and Excalibur Limited Partnership entered
into a Securities Purchase Agreement with us on May 10, 2000. The terms of
that agreement are described in "Capitalization: Securities Purchase Agreement"
elsewhere in this prospectus. As part of that transaction, we agreed to
include in this prospectus the common shares which these two funds can
acquire.
Thornhill Group, Inc. is a member of the NASD. Thornhill served as the
placement agent for our private offering, which resulted in the sale of Series
A Preferred Stock and Common Stock Purchase Warrants to BH Capital
Investments, L.P and Excalibur Limited Partnership. As compensation for those
services, we gave to Thornhill $192,000 plus an option to purchase 128,000
shares of common stock at $2.50 per share and an option to purchase 160 shares
of Series A Preferred Stock at $1,000 per share. We also gave Thornhill the
right to designate a nominee to the Board of Directors. Upon Thornhill's
designation, the Board of Directors nominated Mr. Howard Krollfeifer, Jr.,
who was elected to the Board at the annual meeting of shareholders
on July 27, 2000.
Victoria Davis-Lee was party to a Financial Consulting Agreement with
us, which we made in 1999. That agreement required that we compensate Ms.
Davis-Lee for introducing us to Thornhill Group, Inc. Ms. Davis-Lee shared
the compensation with Jose Luis Castro, with whom we have had no previous
relationship. As compensation, we paid to Ms. Davis-Lee $17,000 in cash and
issued 9,570 shares of common stock. We issued 16 shares of Series A
Preferred Stock to Mr. Castro.
Influence Incubator, L.L.C. is the Manager and owner of Influence
Data, L.L.C. We own the other third of Influence Data, L.L.C., having
organized it with Influence Incubator, L.L.C in May of 1999, When we formed
the joint venture, we gave Influence Incubator an option to purchase 160,000
shares of our common stock at a blended price of $3.00 per share. In March of
this year, we had a dispute with Influence Incubator regarding the meaning of
that option. Late in May, we settled the dispute by increasing
the purchase price for our interest in Influence Data by $200,000,
cancelling the existing option, issuing a replacement option to purchase
300,000 shares at a blended price of $4.50, and agreeing to include those
shares in this prospectus.
Plan of Distribution
The selling shareholders may sell shares from time to time in public
transactions, on or off the NASDAQ SmallCap Market, or in private
transactions, at prevailing market prices or at privately negotiated prices,
including, but not limited to, one or more of the following types of
transactions:
- ordinary brokers' transactions;
- transactions involving cross or block trades or otherwise on the
- NASDAQ SmallCap Market;
- purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this
prospectus;
- "at the market" to or through market makers or into an existing market
for our common stock;
- in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
- through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise);
- in privately negotiated transactions; or
- to cover short sales.
In effecting sales, brokers or dealers engaged by the selling
shareholders may arrange for other brokers or dealers to participate in the
resales. The selling shareholders may enter into hedging transactions with
broker-dealers, and in connection with those transactions, broker-dealers may
engage in short sales of the shares. The selling shareholders may also sell
shares short and deliver the shares to close out the short position. The
selling shareholders may also enter into option or other transactions with
broker-dealers that require the delivery to the broker-dealers of the shares,
which the broker-dealer may resell using this prospectus. The selling
shareholders may also pledge the shares to a broker-dealer and, upon a
default, the broker or dealer may effect sales of the pledged shares using
this prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts, or concessions from selling shareholders in amounts to
be negotiated in connection with the sale. The selling shareholders and any
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any such
commission, discount or concession may be deemed to be underwriting
compensation.
Information as to whether underwriters whom the selling shareholders may
select, or any broker-dealer, is acting as principal or agent for the selling
shareholders, the compensation to be received by underwriters that the selling
shareholders may select or by any broker or dealer acting as principal or
agent for the selling shareholders, and the compensation to be paid to other
broker-dealers, in the event the compensation of such other broker-dealers is
in excess of usual and customary commissions, will, to the extent required, be
set forth in a supplement to this prospectus. Any dealer or broker
participating in any distribution of the shares may be required to deliver a
copy of this prospectus, including a prospectus supplement, if any, to any
person who purchases any of the shares from or through such broker or dealer.
We have advised the selling shareholders that, during any time when they
are engaged in a distribution of the shares, they are required to comply with
Regulation M promulgated under the Securities Exchange Act. With certain
exceptions, Regulation M precludes any selling shareholder, any affiliated
purchasers and any broker-dealer or other person who participates in a
distribution from bidding for or purchasing or attempting to induce any person
to bid for or purchase any security that is the subject of the distribution
until the entire distribution is complete. Regulation M also prohibits any
bids or purchases made in order to stabilize the price of a security in
connection with the distribution of that security. All of the foregoing may
affect the marketability of our common stock.
We will not receive any of the proceeds from the selling shareholders'
sale of their common stock.
LEGAL MATTERS
The validity of the common stock which the six shareholders are selling
by means of this prospectus has been passed upon by our counsel, Robert
Brantl, Esq., 322 Fourth Street, Brooklyn, New York 11215. Mr. Brantl
owns 5,500 shares of our common stock.
EXPERTS
The financial statements included in this prospectus and in the registration
statement have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their report
appearing elsewhere in this prospectus and in the registration statement, and
are included in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, including exhibits and schedules, under the Securities
Act with respect to the shares to be sold in the offering. This prospectus
does not contain all the information set forth in the registration statement.
In particular, the statements in this prospectus regarding the contents of
contracts, agreements or other documents are not necessarily complete. You
can find further information about us in the registration statement and the
exhibits and schedules attached to the registration statement. In addition,
we file annual, quarterly and current reports, proxy statements and other
information with the Commission, which may assist you in understanding our
company.
You may read and copy the registration statement or any reports,
statements or other information that we file at the Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by
writing to the Commission. Please call the Commission at 1-800-SEC-0330 for
further information on the operation of the Public Reference Room. Our
Commission
filings, including the registration statement, are also available to you on
the Commission's Web site at http://WWW.SEC.GOV.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
I. Audited Financial Statements for the Years
Ended December 31, 1999 and 1998
Pages
Report of Independent Certified Public Accountants F-1
Balance Sheet F-2
Statements of Operations F-3
Statements of Stockholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-7
II. Unaudited Financial Statements for the Three Months Ended
March 31, 2000 and 1999
Balance Sheet F-17
Statements of Operations F-18
Statements of Stockholders' Equity F-19
Statements of Cash Flows F-20
Notes to Financial Statements F-21
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Ultradata Systems, Incorporated:
We have audited the accompanying balance sheet of Ultradata Systems,
Incorporated, as of December 31, 1999 and the related statements of operations,
stockholders' equity and cash flows for the years ending December 31, 1999 and
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurances about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ultradata Systems,
Incorporated at December 31, 1999, and the results of operations and its cash
flows for the years ended December 31, 1999 and 1998 in conformity with
generally accepted accounting principles.
March 2, 2000
St. Louis, Missouri
(signed) BDO Seidman, LLP
ULTRADATA SYSTEMS, INCORPORATED
Balance Sheet
December 31, 1999
Assets
Current assets:
Cash and cash equivalents $ 1,220,134
Restricted cash 410,888
Trade accounts receivable, net of
allowance for doubtful accounts of
$16,475 1,482,267
Inventories 1,655,422
Prepaid expenses and other current
assets 105,778
---------
Total current assets 4,874,490
Property and equipment, net 683,936
---------
Total property and equipment 683,936
Investments, available for sale 105,834
Investment in Talon Research and
Development, Ltd. 827,903
Investment in Influence Data, LLC 255,667
Advances to affiliates 272,683
Advertising credits 249,685
Other assets 38,594
---------
Total assets $7,308,792
=========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 156,214
Accrued expenses and other liabilities 262,464
---------
Total current liabilities 418,678
Deferred rent 13,684
Deferred compensation liability 116,722
--------
Total liabilities 549,084
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value;
10,000,000 shares authorized;
3,410,000 shares issued and
outstanding at December 31, 1999 34,100
Additional paid-in capital 9,851,894
Accumulated Deficit (2,024,687)
Treasury stock (326,171 shares at
cost as of December 31, 1999) (942,311)
Notes receivable issued for purchase
of common stock (197,117)
Accumulated other comprehensive
income, net 37,829
---------
Total stockholders' equity 6,759,708
Total liabilities and stockholders'
equity $7,308,792
=========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Operations
Years ended December 31, 1999 and 1998
1999 1998
Net sales:
Consumer products $ 5,566,626 $ 6,983,804
Contract - 250,271
--------- ---------
Total net sales 5,566,626 7,234,075
Cost of sales:
Consumer products 3,120,941 3,901,909
Contract 30,105 270,292
--------- ---------
Total cost of sales 3,151,046 4,172,201
Gross profit 2,415,580 3,061,874
Selling expense 1,812,524 2,931,150
General and administrative expenses 2,063,015 2,818,201
Research and development expense 358,357 672,090
--------- ---------
Operating loss (1,818,316) (3,359,567)
--------- ---------
Other income (expense):
Interest expense - (3,790)
Interest income 93,848 161,612
Equity (loss) in earnings affiliated
companies (81,118) 118,733
Royalty income 127,473 -
Other, net 51,099 27,195
--------- ---------
Total other income (expense) 191,302 303,750
Loss before income tax expense (1,627,014) (3,055,817)
Income tax expense (benefit) 370,236 (725,024)
--------- ---------
Net loss $(1,997,250) $(2,330,793)
========= =========
Loss per share:
Basic and diluted $ (0.64) $ (0.71)
========= =========
Weighted Average Shares Outstanding:
Basic and diluted 3,122,138 3,299,636
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Stockholders' Equity
<TABLE>
Years ended December 31, 1998 and 1999 Notes
receivable
for
Additional Retained purchase Accumulated
paid earnings of comprehensive Total
Common in (deficit) Treasury Stock income stockholders'
Stock capital Stock net equity
=====================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1998 $34,100 $ 9,799,936 $ 2,303,356 $(130,062) $(410,500) $ 62,740 $ 11,659,570
Purchase of
232,200 shares
of treasury stock
at cost (770,219) (770,219)
Repayment of
notes receivable
issued for purchase
of common stock 5,000 5,000
Accrued interest
on notes receivable
issued for purchase
of common stock (100,049) (100,049)
Comprehensive income:
Net loss (2,330,793) (2,330,793)
Other comprehensive loss,
net of tax:
Net unrealized gain on
deferred compensation
trust available for sale
Securities 23,736 23,736
Total comprehensive loss (2,307,057)
=====================================================================================================
Balance at December
31, 1998 $34,100 $9,799,936 $ (27,437) $(900,281) $(505,549) $86,476 $ 8,487,245
Purchase of 1,000
shares of Treasury
stock at cost (2,125) (2,125)
Issuance of 80,000
shares of
treasury stock for
investment
in Influence Data,LLC 45,418 281,782 327,200
Redemption of 149,971
shares of
common stock to
reduce notes
receivable (321,687) 321,687 -
Accrued interest on
notes
receivable issued
for purchase of
common stock (13,257) (13,257)
Issuance of stock options
to non-employee for
services performed 6,540 6,540
Comprehensive income
Net loss (1,997,250) (1,997,250)
Other comprehensive loss:
Net unrealized loss on
deferred compensation
trust available for sale
Securities (48,647) (48,647)
Total comprehensive loss
(2,045,897)
---------------------------------------------------------------------------------------------------
Balance at December
31, 1999 $34,100 $9,851,894 $(2,024,687) $(942,311) $(197,117) $37,829 $ 6,759,708
==================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Cash Flows
Years ended December 31, 1999 and 1998
1999 1998
Cash flows from operating activities:
Net loss $(1,997,250) $(2,330,793)
Adjustments to reconcile net loss to net
cash provided by (used in)
Operating activities:
Depreciation and amortization 259,870 246,435
Loss on disposal of property and equipment 6,969 -
Deferred income tax provision 476,149 (493,797)
Non-cash compensation expense 6,540 -
Inventory reserve 67,137 469,210
Equity in losses (earnings) of
unconsolidated affiliates 81,118 (118,733)
Realized (gain) loss on investments (22,602) 23,736
Increase in allowance for uncollectible
notes receivable 31,000 416,428
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Trade accounts receivable, net 1,621,698 (1,431,923)
Costs and estimated earnings on
long-term contracts 95,534 433,086
Inventories 1,148,759 (85,378)
Prepaid expenses and other current
assets 675,216 (193,399)
Accounts payable (784,008) 430,885
Accrued expenses and other liabilities (1,358,867) 1,192,068
Tax benefit receivable 231,227 (231,227)
Deferred rent (7,464) 4,976
Deferred compensation trust liability (33,980) 23,961
Other assets 21,615 (30,409)
Net cash (used in) provided by operating --------- ---------
activities 518,664 (1,674,874)
--------- ---------
Cash flows from investing activities:
Investment and earnings of affiliated company (17,133) (387,475)
Option to acquire additional interest in
affiliated company - (314,147)
Deferred compensation trust investments 30,158 (23,736)
Investment in software development - (109,365)
Advances to affiliated company (49,680) (250,000)
Restricted cash increases (398,373) (225)
Capital expenditures (115,468) (296,836)
-------- ---------
Net cash used in investing activities (550,496) (1,381,784)
Cash flows from financing activities:
Repurchase of common stock at cost (2,125) (770,219)
Proceeds from repayment of notes receivable to
purchase common stock - 5,000
-------- ---------
Net cash provided by (used in) financing
activities (2,125) (765,219)
-------- ---------
Net increase (decrease) in cash and cash
equivalents (33,957) (3,821,877)
Cash and cash equivalents at beginning of
year 1,254,091 5,075,968
--------- ---------
Cash and cash equivalents at end of year $ 1,220,134 $ 1,254,091
========= =========
See accompanying summary of accounting policies and notes to consolidated
financial statements.
Summary of Significant Accounting Policies
Basis of Presentation
The financial statements include the equity in earnings of unconsolidated
affiliates Talon Research & Development Co., Ltd. (Talon) of Auckland New
Zealand, and Influence Data, LLC. The investments in Talon and Influence Data,
LLC are accounted for using the equity method. The Company has a 24.9%
interest in Talon and a 33.3% interest in Influence Data, LLC.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and adjustments by management, with consideration given to
materiality. Actual results could vary from those estimates.
Cash and Cash Equivalents
For financial statement presentation purposes, cash and cash equivalents
include deposits with initial maturities of less than three months, including
money market accounts with investments in marketable securities.
Restricted Cash
Restricted cash includes a deposit maintained in conjunction with the Company's
agreement to guarantee Talon credit with the Bank of New Zealand and money-
market funds related to the deferred compensation trust. The cash amounts are
restricted from use in operational activities of the Company.
Revenue Recognition
Net sales are recognized when products are shipped. The Company has established
programs, which, under specified conditions, enable customers to return
product. The Company establishes liabilities for estimated returns at time of
shipment. In addition accruals for customer discounts and rebates are recorded
when revenues are recognized.
Revenue under the Company's long-term contract is recognized on the percentage
of completion method based upon incurred costs compared to total estimated
costs under the contract. Revisions to assumptions and estimates, primarily
in contract value and estimated costs, used for recording sales and earnings
are reflected in the accounting period in which the facts become known.
Royalties are earned based on sale of products.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Provision for potentially
obsolete or slow moving inventory is made based on management's analysis of
inventory levels and future sales forecasts.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are
expensed as incurred. Major improvements, which materially extend useful
lives, are capitalized. The Company capitalizes certain software development
costs in accordance with the American Institute of Certified Public
Accountants Statement of Position No. 98-1, "Accounting for the Costs of
Software Developed or Obtained for Internal Use." Costs incurred for the
Company's own personnel who are directly associated with software development
are capitalized. Capitalized software costs will be amortized over an estimated
useful life of five years. Depreciation is provided on the straight-line basis
over the estimated useful lives of the assets, generally five years. Leasehold
improvements are amortized over the shorter of the term of the related lease
or its useful life. The Company continually reviews property and equipment to
determine that the carrying values are not impaired.
Long-Lived Assets
In accordance with SFAS 121, long-lived assets and certain identifiable
intangible assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. For purposes of evaluating the
recoverability of long-lived assets, the recoverability test is performed using
undiscounted net cash flows related to the long-lived assets. The Company
reviews long-lived assets to determine that carrying values are not impaired.
No assets are impaired at December 31, 1999.
Operating Lease
Lease expense on the corporate facilities is recognized on a straight-line
basis over the primary term of the lease. The lease provides for accelerating
rent over the lease term. Accordingly, deferred rent has been recorded in the
Company's balance sheet.
Advertising
The Company expenses the production costs of advertising the first time
advertising takes place, except for direct response advertising, which is
capitalized and amortized over its expected period of future benefits, and
advertising credits acquired by barter, which are amortized as the advertising
credits are utilized.
At December 31, 1999, $249,685 of advertising credits are reported as an
asset. These credits were exchanged for discontinued or slow-moving inventory
in a barter transaction, and will be utilized at seasonal sales periods
throughout 2000. The credits will convert to advertising expense at the time
the credits are used. Advertising expense totaled $1,446,225 and $2,416,886
for fiscal years ended December 31, 1999 and 1998.
Goodwill
The excess of the purchase price of net assets acquired in equity investments
over their fair value is being amortized on a straight-line basis not to exceed
10 years.
Fair Value of Financial Instruments
FAS 107 "Disclosure About Fair Value of Financial Instruments," requires
certain disclosures regarding the fair value of financial instruments. Cash and
cash equivalents, accounts receivable, accounts payable, and accrued
liabilities are reflected in the financial statements at fair value because of
the short-term maturity of the instruments.
Research and Development Costs
Research and development costs consist primarily of expenditures incurred
bringing a new product to market or significantly enhancing existing products.
The Company expenses all research and development costs as they are incurred
unless they are associated with the development of tools or processes for
production used in-house rather than for product delivered to a customer.
Deferred Compensation Trust Investments
Investments are stated at the estimated fair value in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", and consist of investments in U.S. government
agency securities or corporate stocks. The deferred compensation trust
represents contributions made by the Company to a Rabbi trust. The amounts are
restricted from use for operational purposes, and investment decisions are made
by the trust beneficiary.
Available-for-sale securities, which include any security for which the
beneficiary has no immediate plan to sell but which may be sold in the future,
are valued at fair value. Realized gains and losses, based on the amortized
cost of the specific security, are included in other income as investment gains
(losses). Unrealized gains and losses are recorded, net of related income tax
effects, as a separate component of equity.
Royalty Expense
Royalty expense is recognized on a pro rata basis as units are sold.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry-forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
Earnings Per Share
Basic earnings per share is calculated by dividing net income for the period
by the weighted average number of shares of common stock outstanding during the
period. The assumed exercise of stock options and warrants is included in the
calculation of diluted earnings per share, if dilutive.
Stock-based Compensation
The Company grants stock options for a fixed number of shares to employees with
an exercise price greater than or equal to the fair value of the shares at the
date of grant. The Company accounts for stock options in accordance with
Accounting Principles Board Opinion No. 25 (APB Opinion No. 25) "Accounting for
Stock Issued to Employees." The Opinion requires that compensation cost related
to fixed stock option plans be recognized only to the extent that the fair
value of the shares at the date of grant exceeds the exercise price.
Accordingly the Company recognizes no compensation expense for its stock
option grants.
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 allows
companies to continue to account for their stock option plans in accordance
with APB No. 25, but encourages acquire other companies,
increase holdings in existing affiliates, or merge with any entity if any loans
are outstanding without written concurrence from the Bank.
The Company has extended its agreement to be guarantor on a $400,000 line of
credit issued to Talon GPS, LLC, by a commercial bank in New Zealand.
Note 10. Notes Receivable Issued for Purchase of Common Stock
Notes receivable issued for purchase of common stock represent unsecured
advances made by the Company to various employees for stock options exercised.
The notes bear interest at 6% per annum and are due, together with accrued
interest, on demand on either the termination of employment or the sale of
underlying stock, whichever comes first. During 1999, the Company reduced the
notes receivable and accrued interest by $321,688 in exchange for its
repurchase of 149,971 shares of common stock.
Note 11. Earnings Per Share
A reconciliation of the numerator and denominator of the loss per share
calculations is provided for all periods presented. The numerator for basic
and diluted loss per share is net loss for all periods presented. The
denominator for basic and diluted loss per share for 1999 and 1998, as
follows:
For the twelve months ended December 31,
1999 (a) 1998 (b)
Numerator:
Net loss $(1,997,250) $(2,330,793)
Numerator for basic and diluted
loss per share - income available
to common shareholders $(1,997,250) $(2,330,793)
Denominator:
Denominator for basic and diluted
earnings per share - weighted
average shares 3,122,138 3,299,636
Basic and diluted loss Per Share $ (0.64) $ (0.71)
(a) Options to purchase 412,430 shares of common stock at prices between
$1.44 and $7.39 per share were outstanding at December 31,1999, but were
not included in the computation of diluted loss per share because the
options' exercise price was greater than the average market price of
common shares, with the exception of a few recent options whose dilutive
effect is negligibly small.
(b) Options to purchase 326,192 shares of common stock at prices between
$3.00 and $7.39 per share were outstanding at December 31,1998, but were
not included in the computation of Diluted loss per share because the
options' exercise price was greater than the average market price of
common shares.
Note 12. Income Taxes
Income tax expense (benefit) for the years ended December 31, 1999 and 1998
consist of:
1999
--------------------------------------------
Current Deferred Total
Federal $ (105,913) $ 426,028 $ 320,115
State - 50,121 50,121
-----------------------------------------
$ (105,913) $ 476,149 $ 370,236
=========================================
1998
--------------------------------------------
Current Deferred Total
Federal $ (231,227) $ (466,367) $ (697,594)
State - (27,430) (27,430)
-----------------------------------------
$ (231,227) $ (493,797) $ (725,024)
=========================================
Income tax expense for the years ended December 31, 1999 and 1998 differed
from amounts computed by applying the statutory U. S. federal corporate income
tax rate of 34% to income before income tax benefit as a result of the
following:
1999 1998
Expected income tax (benefit) expense $(553,185) $(1,042,139)
Increase (decrease) in income taxes
resulting from:
Valuation allowance increase 962,937 648,422
State income taxes, net of federal
expense (benefit) 33,080 (80,919)
Nondeductible expenses for federal
income tax purposes 2,458 5,993
Research and experimentation credits - (72,353)
Foreign Operations 3,642 (45,118)
Other, net (78,696) (138,910)
------- -------
Income tax expense (benefit) $ 370,236 $ (725,024)
======= ========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1999 and 1998
include the following:
1999 1998
Deferred tax assets:
Net operating loss carryforward $ 1,467,945 $ 1,216,659
Research and experimentation credit
carryforward - 72,353
Note receivable reserved for
financial reporting purposes 170,023 158,243
Notes and accounts receivable reserves 188,125 109,642
Inventory reserves, principally due
to accruals for financial reporting
purposes and basis differences 203,812 211,248
Other 35,092 29,285
--------- ---------
Total deferred tax assets $ 2,064,998 $ 1,797,430
Deferred tax liabilities:
Prepaid advertising $ (9,416) $ (210,818)
Property, plant and equipment,
principally due to differences in
depreciation basis (1,248) (18,401)
Unrealized gain on deferred compensation
trust investments (23,185) -
--------- --------
Total deferred tax liabilities (33,850) (229,219)
--------- --------
Gross deferred tax asset 2,031,148 1,568,211
Valuation allowance (2,031,148) (1,068,211)
--------- ---------
Net deferred tax asset $ - $ 500,000
========= =========
During 1999, the Company received tax refunds for carryback of net operating
losses of $337,140.
A valuation allowance has been provided for those net operating loss
carryforwards and temporary differences in view of the Company's continuing
losses in 1999.
The net operating loss carryforward of approximately $3.9 million will expire
in 2020.
Note 13. Employee Benefit Plans
(a) Employee Saving and Retirement Plan (Section 401-k plan)
Effective January 1, 1998, the Board of Director's approved a savings and
retirement plan covering all full-time employees. Subject to approval by
the Board of Directors, the Company fully matches employee contributions
up to 3% of total compensation paid to participating employees and one-
third of one percent is matched for each percentage of participating
employee contributions between 4% and 6% of total compensation. Expense
attributable to Company contributions totaled $43,015 and $54,138 during
the years ended December 31, 1999 and 1998, respectively.
(b) Incentive Stock Option Plans
At December 31, 1999, the Company has two fixed stock option plans, which
are described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, no compensation
cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's two fixed stock option plans been
determined consistent with SFAS No. 123, the Company's net loss and loss
per share would have been increased to the pro forma amounts indicated
below:
1999 1998
Net loss As reported $(1,997,250) $(2,330,793)
Pro forma $(2,163,741) $(2,689,415)
Basic and diluted As reported $ (0.64) $ (0.71)
loss per share Pro forma $ (0.69) $ (0.82)
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 December 1998, the Board of Directors
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 the market price of the
Company's stock on the date of grant, and the options' maximum term is five
years. Options are granted at various times and are exercisable immediately.
During 1998, the Company canceled incentive stock options to purchase 236,292
shares of Common Stock at exercise prices ranging from $5.00 to $7.00. The
same number of new options was issued at a price of $4.00. There were no
cancellations for the purpose of repricing during 1999.
During 1999, the Company cancelled incentive stock options to purchase 17,300
shares of common stock at exercise prices ranging from $3.00 to $4.00 per
share.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999 and 1998, respectively: dividend yield of
zero for all years; expected volatility of 68.0% and 59.1%; risk-free interest
rates of 6.30% and 5.42%; expected lives of five years for both plans.
A summary of the status of Company's two fixed stock option plans as of
December 31, 1999 and 1998, and the changes during the years then ended is
presented below:
1999 1998
Weighted Weighted
average average
exercise exercise
Fixed Options Shares price Shares price
------------------------------------------------------------------------------
Outstanding at beginning
of year 326,192 $ 4.25 285,792 $ 5.85
Granted (including repriced
options) 103,538 $ 1.98 276,692 $ 3.85
Forfeit (17,300) $ 3.73 (236,292) $ 5.72
Outstanding at end of year 412,430 $ 3.70 326,192 $ 4.25
Options exercisable at year end 412,430 326,192
Weighted average fair value of
options granted to employees
during the year $ 0.65 $ 1.77
Options outstanding and exercisable
Number of shares Weighted average
Range of Outstanding at remaining Weighted average
Exercise prices December 31, 1999 contractual life Exercise price
-----------------------------------------------------------------------------
$1.00 - $1.99 4,748 4.9 years $ 1.44
$2.00 - $2.99 98,790 4.9 years $ 2.00
$3.00 - $3.99 36,200 3.9 years $ 3.00
$4.00 - $4.99 222,692 3.2 years $ 4.00
$5.00 - $5.99 5,000 0.6 years $ 5.75
$6.00 - $6.99 35,000 0.5 years $ 6.39
$7.00 - $7.39 10,000 1.7 years $ 7.39
-------
412,430
Note 14. Commitments and Contingencies
On September 14, 1989, the Company entered into a royalty agreement relating to
its ROAD WHIZ product. After 20,000 ROAD WHIZ units are sold, the agreement
provides for a 1% royalty payment on net sales of the ROAD WHIZ product and
0.5% on the Company's other products, which incorporate the ROAD WHIZ
database. Royalty payments are made quarterly until September 13, 2009.
During the years ended December 31, 1999 and 1998, royalty expense totaled
$39,820 and $53,752, respectively.
On December 29, 1998, the Company entered into a three-year royalty agreement
with Feldstein and Associates of Finley, Ohio, with regard to the AAA
TripWizard for 1% of sales to customers other than their own, for which they
earn their normal independent sales representative commissions.
On September 15, 1998, the Company entered into a three-year royalty agreement
with AAA related to the AAA TripWizard. The terms are automatically renewable
for one year and amount to 10% of the wholesale price on sales other than
through AAA stores and $1.00 per unit on AAA sales. This agreement recognizes
the benefit of the AAA logo and data and their promotion of the product through
their travel stores. During the year ending December 31, 1999 royalty expenses
totaled $33,250. There was no royalty expense in 1998.
Note 15. Investments in Affiliated Companies
On March 23, 1998, the Company acquired an 18.9% interest in Talon for
$282,500. In August 1998, the Company acquired an option to purchase
additional shares in Talon for $312,147. During 1999, the option to purchase
additional shares was amended, and the above amount was utilized to purchase an
additional 6.0% interest in Talon. Legal and consulting costs associated with
the acquisition and option to purchase additional shares are capitalized as
part of the cost of the investment, and totaled $124,108 during December 31,
1999.
The Company's 24.9% interest in Talon is accounted for using the equity method
of accounting and is stated at amortized cost plus equity in undistributed
earnings since acquisition. The equity in earnings of Talon is adjusted for
the annual amortization of the difference between acquisition cost and the
Company's proportionate share of Talon's net assets. Amortization is computed
on a straight-line basis over nine years. The unamortized difference between
the investment cost and the Company's proportionate share of Talon is $568,655
at December 31, 1999. The Company's share of the earnings for 1999 was
$61,496 after accounting for the differences between New Zealand GAAP and US
GAAP. As discussed above, the earnings were further reduced by amortization
of $71,081, bringing the equity in loss of affiliate to $9,585. The Company's
equity in earnings of affiliate from inception was $118,733 as of December
31, 1998.
In addition to the above transactions, the Company has purchased certain
electronic components, including parts for TRAVEL*STAR 24( which have been
sold to Talon at cost. These sales totaled $3,530 and $477,580 for the years
ended December 31, 1999 and 1998, respectively. The Company purchased from
Talon, at cost, electronic components which are integral to the TRAVEL*STAR 24
which totaled $15,068 and $638,627 for the years ended December 31, 1999 and
1998, respectively. A net balance of $164,550 was receivable by the Company
at December 31, 1999 and is included in trade accounts receivable.
In May 1999, the Company formed a joint venture with Influence Content, LLC,
a website developer, to form Influence Data, LLC. The Company issued 80,000
shares of common stock (at quoted market price) from the treasury and options
(valued at market upon the Black Scholes method) to purchase 160,000 shares of
common stock for a one-third interest in Influence Data, LLC. The original
value of the investment, based upon the consideration given to form the joint
venture, was $327,200.
The Company's 33.3% interest in Influence Data, LLC is accounted for using the
equity method of accounting and is stated at amortized cost plus equity in
undistributed earnings since acquisition. The equity in earnings of Influence
Data, LLC is adjusted for the annual amortization of the difference between
acquisition cost and the Company's proportionate share of Influence Data,
LLC's members' equity net assets. Amortization is computed on a straight-
line basis over ten years. The unamortized difference between the investment
cost and the Company's proportionate share of Influence Data, LLC is $156,053
at December 31, 1999. The Company's share of the losses for 1999 totaled
$60,386. As discussed above, the losses were increased by $11,147 to bring
the equity in loss of affiliate to $71,533.
The Company has two investments in affiliates accounted for under the equity
method. The affiliates are Talon Research and Development, Ltd. (a New Zealand
company) (25%) and Influence Data, LLC (33%). The Company's share of earnings
of these affiliates is included in income as earned. Equity (Loss) Earnings
from Affiliates amounts to $(81,118) and $118,733 in 1999 and 1998,
respectively. The Company has advanced to Talon $272,683 at December 31, 1999.
Note 16. Advances to Affiliates
On July 1, 1998, the Company entered into a joint development and marketing
agreement with Scientific Communications & Controls, Inc. (Sci-Com), a
privately-held company based in McLean, Virginia. The Company transferred all
software and documentation of the service software acquired from Intellidata
in exchange for a promissory note bearing interest at prime rate of $400,000.
In addition, the Company leased computer equipment acquired from Intellidata
to Sci-Com at favorable rates. The Company advanced Sci-Com $50,000 in a
promissory note, due June 30, 2000 with interest at 6.36% to expand equipment
capabilities to support the proposed network. The agreement also includes a
provision for the Company to advance to Sci-Com up to an additional $400,000
in additional funds to complete network development, of which $200,000 was
advanced as of December 31, 1998. These advances were incorporated in a
promissory note due January 1, 2002, which provides for the Company to be
entitled to one-half, (50%), of the operating revenue of SmartTime Networks
(excluding only non-reoccurring engineering services provided by Sci-Com).
The agreement also provides for the optional conversion of the loan into a
10% equity interest in Sci-Com, at the Company's sole discretion. The
Company has reserved $447,428 at December 31, 1999. The remaining
receivables balance is $272,693 at December 31, 1999.
Note 17. Significant Fourth Quarter Adjustments
In the fourth quarter of 1999, the Company recorded adjustments that increased
net loss by approximately $450,000. These adjustments included $330,000
related to the investments in Influence Data, LLC, and Talon, $40,000 for an
increase in the inventory reserve for obsolescence, and $80,000 of other
various expenses.
Note 18. Prior Period Adjustment
The Company adopted FAS 115, "Accounting for Certain Investments in Debt and
Equity Securities" during 1999. As a result of this adoption, the Company has
made several balance sheet reclassifications from the deferred compensation
trust investment account to record the unrealized gain on investments of
$62,740 as a component of stockholders' equity and restricted cash of $12,290
as of January 1, 1998. In addition, an adjustment of $62,740 was recorded to
reduce previously reported retained earnings. In order to properly record the
1998 activity, adjustments for deferred compensation expense of $23,961 and
investment income of $225 were recorded in the 1998 income statement.
Note 19. Supplemental Disclosures of Cash Flow Information
Years ended December 31, 1999 1998
Interest - $3,790
Taxes - -
Supplemental non-cash investing and financing activities were as follows:
Year ended December 31, 1999
----------------------------
The Company issued 80,000 shares of treasury stock and options to purchase
160,000 shares of its common stock, with an aggregate fair value of $327,200,
for a one-third ownership interest in Influence Data, LLC.
The Company redeemed 149,971 shares of common stock in exchange for related
notes receivable of $321,688.
The Company exchanged slow-moving inventory for advertising credits from a
third party valued at $249,685.
Year ended December 31, 1998
----------------------------
The Company sold capitalized software development costs in exchange for a note
receivable of $400,000.
ULTRADATA SYSTEMS, INCORPORATED
Balance Sheet
As of March 31, 2000 and December 31, 1999
March 31, December 31,
2000 1999
Assets (Unaudited)
Current assets:
Cash and cash equivalents $1,903,003 $1,220,134
Restricted cash 402,492 410,888
Trade accounts receivable, net of allowance
for doubtful accounts of $5,000 and
$16,475, respectively 438,028 1,482,268
Inventories 1,732,158 1,655,422
Prepaid expenses and other current assets 172,995 105,778
--------- ---------
Total current assets 4,648,676 4,874,490
Property and equipment, net 671,600 683,936
--------- ---------
Total property and equipment 671,600 683,936
Deferred compensation trust investments,
available for sale 126,088 105,834
Investment in Talon Research and
Development, Ltd. 882,715 827,903
Investment in Influence Data, LLC 135,540 255,667
Advances to affiliates 277,352 272,683
Advertising credits 249,685 249,685
Other assets 8,594 38,594
--------- ---------
Total assets $7,000,250 $7,308,792
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $197,154 $156,214
Accrued expenses and other liabilities 108,970 262,464
-------- ---------
Total current liabilities 306,124 418,678
Deferred rent 11,818 13,684
Deferred compensation liability 128,580 116,722
-------- ---------
Total liabilities 446,522 549,084
Stockholders' equity:
Common stock, $.01 par value; 10,000,000
shares authorized; 3,504,516 and 3,410,000
shares issued, respectively 35,045 34,100
Additional paid-in capital 10,165,574 9,851,894
Accumulated deficit (2,544,622) (2,024,687)
Treasury stock (326,171 shares at cost) (942,311) (942,311)
Notes receivable issued for purchase of
common stock (198,805) (197,117)
Accumulated other comprehensive income, net 38,847 37,829
--------- ---------
Total stockholders' equity 6,553,728 6,759,708
Total liabilities and stockholders' equity $7,000,250 $7,308,792
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Operations
Three months ended March 31, 2000 and 1999
2000 1999
(Unaudited)
Net sales $ 289,687 $1,083,791
Cost of sales 175,116 536,754
-------- ---------
Gross profit 114,571 547,037
Selling expense 78,959 718,510
General and administrative expenses 443,792 535,491
Research and development expense 96,233 99,226
-------- --------
Operating loss (504,413) (806,190)
Other income (expense):
Interest income 18,933 17,908
Equity in (losses)/earnings of
unconsolidated affiliates (65,315) 54,084
Other, net 30,860 35,376
-------- --------
Total other income (15,522) 107,368
Loss before income tax expense (519,935) (698,822)
Income tax expense - -
-------- --------
Net loss $ (519,935) $ (698,822)
======== ========
Loss per share:
Basic and diluted $ (0.17) $ (0.22)
======== ========
Weighted Average Shares Outstanding:
Basic and diluted 3,105,235 3,154,682
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Stockholders' Equity
<TABLE>
Quarter ended March 31, 2000
Notes Accumulated Current Year
Additional Retained Receivable Comprehensive Classification
Common Paid-in Earnings Treasury for Purchase Income, Net Total
Stock Capital (Deficit) Stock of Common Stock S/H Equity
========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 2000 34,100 $ 9,851,894 $(2,024,687) $(942,311) $(197,117) $ 37,829 $6,759,708
Exercise of 94,516
stock options 945 313,680 314,625
Accrued interest on
notes receivable
issued for purchase
of common stock (1,688) (1,688)
Comprehensive income
Net loss (519,935) (519,935)
Other comprehensive
loss, net of tax:
Net unrealized
gain on deferred
Compensation trust
available for sale
Securities 1,018 1,018
Comprehensive loss (518,917)
=====================================================================================================
Balance at
March 31, 2000 35,045 $10,165,574 $(2,544,622) $(942,311) $(198,805) $ 38,847 $6,553,728
===================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Cash Flows
Three months ended March 31, 2000 and 1999
2000 1999
(Unaudited)
Cash flows from operating activities:
Net loss $ (519,935) $ (698,822)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 58,980 67,869
Inventory reserve 30,000 27,500
Equity in losses/(earnings) of
unconsolidated affiliates 65,315 (54,084)
Realized gain on investments (10,602) -
Bad debt expense on notes receivable 7,750 7,750
Increase (decrease) in cash due to
changes in operating assets and
liabilities:
Trade accounts receivable, net 1,044,240 1,616,595
Costs and estimated earnings on
long-term contracts - 85,773
Inventories (106,736) 182,964
Prepaid expenses and other current
assets (67,217) 490,109
Accounts payable 40,940 (530,645)
Accrued expenses and other liabilities (153,494) (1,420,534)
Deferred rent (1,866) (1,866)
Deferred compensation trust liability 11,858 -
Other assets 28,312 231
--------- ---------
Net cash provided by (used in) operating
activities 419,475 (227,160)
Cash flows from investing activities:
Investment in affiliated company - (9,223)
Deferred compensation trust investments (8,634) -
Advances to affiliated company (4,669) (16,423)
Capital expenditures (46,644) (640)
--------- ---------
Net cash used in investing activities (59,947) (26,286)
Cash flows from financing activities:
Repurchase of common stock at cost - (2,125)
Proceeds from exercise of employee
stock options 314,625 -
Restricted cash 8,396 -
--------- --------
Net cash provided by (used in) financing
activities 323,021 (2,125)
--------- --------
Net increase (decrease) in cash and cash
equivalents 682,869 (255,571)
Cash and cash equivalents at beginning of
period 1,220,134 1,254,091
--------- ---------
Cash and cash equivalents at end of the
period $ 1,903,003 $ 998,520
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
March 31, 2000
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim financial statements included herein have been
prepared by Ultradata Systems, Incorporated (the "Company"), without audit
in accordance with generally accepted accounting principles and pursuant to
the rules and regulations of the Securities and Exchange Commission for
interim financial information. 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 Company's
investment in Talon Research and Development, Ppty., Auckland, NZ Ltd. of
24.9% and in Influence Data, LLC, of 33.3% are accounted for using the equity
method.
In the opinion of management, the information furnished for the three-month
periods ended March 31, 2000 and 1999, 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, 2000.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles and, as such, include amounts based on informed
estimates and adjustments by management, with consideration given to
materiality. Actual results could vary from those estimates.
Note 1. Nature of Operations
The principal business activity of Ultradata Systems, Incorporated (the
Company), located in St. Louis, Missouri, is the design, manufacture, and
sale of hand-held electronic information products.
Note 2. Incentive Stock Option Plan
As of March 31, 2000, the Company's outstanding employee stock options
totaled 320,407 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. These options are in addition to the 160,000 options issued per the
Option Agreement with Influence Content, LLC, for the joint venture,
Influence Data, LLC. In addition, there are 100,000 incentive stock options
approved by the Board of Directors that are subject to shareholder approval
in a future proxy statement.
Note 3. Inventories
Inventories consist of the following:
March 31, December 31,
2000 1999
Raw Materials $1,132,164 $ 815,337
Work in Process 62,360 62,360
Finished Goods 1,103,981 1,314,072
--------- ---------
2,298,505 2,191,769
Reserve for obsolescence (566,347) (536,347)
--------- ---------
$1,732,158 $1,655,422
========= =========
Note 4. Prepaid Expenses
Prepaid expenses consist of the following:
March 31, December 31,
2000 1999
Prepaid advertising $ - $ 24,781
Prepaid insurance 34,754 9,940
Other prepaid expenses 138,241 71,057
------- --------
$172,995 $105,778
Note 5. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
March 31, December 31,
2000 1999
Accrued sales commissions and
royalties $ 3,506 $ 39,948
Payroll and payroll-related
liabilities 63,446 83,978
Other 42,018 138,538
$ 108,970 $ 262,464
====== ========
A provision for income taxes has not been recorded based upon the net
operating loss carryforward of approximately $3.9 million and the Company's
first quarter net loss. A valuation allowance has been provided for those
net operating loss carryforwards and temporary differences in view of the
Company's continuing losses for 2000.
Part II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation to provide indemnification to a director, officer,
employee or agent of the corporation, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him
in connection with such action, suit or proceeding, if such party acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful as determined in accordance with the statute, and except that with
respect to any action which results in a judgment against the person and in
favor of the corporation the corporation may not indemnify unless a court
determines that the person is fairly and reasonably entitled to the
indemnification. Section 145 further provides that indemnification shall be
provided if the party in question is successful on the merits.
Our certificate of incorporation provides that our directors shall be
indemnified by us to the extent authorized by Delaware law. This
indemnification would cover all expenses and liabilities reasonably incurred
in connection with their services as directors.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of Ultradata pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment
by Ultradata of expenses incurred or paid by a Director, officer or
controlling person of Ultradata in the successful defense of any action, suit
or proceeding) is asserted by such Director, officer or controlling person in
connection with the securities being registered, Ultradata will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Our certificate of incorporation also provides that our directors will
not be personally liable to us for monetary damages for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to us
or our stockholders, acted in bad faith, knowingly or intentionally violated
the law, authorized illegal dividends or redemptions or derived an improper
personal benefit from their action as directors.
Item 25. Other Expenses of Issuance and Distributions
The following are the expenses that Ultradata expects to incur in
connection with the registration and distribution of the shares being
registered. All of these expenses (other than the filing fee and the
insurance premium) are estimated, and will not be certain until after the
registration statement is declared effective. Ultradata will pay all of these
expenses; the selling shareholders will pay none of them.
Filing Fee......................$ 2,270
Accounting fees................. 10,000
Transfer Agent ................. 1,000
Legal fees...................... 20,000
Printing expenses............... 2,000
Insurance premium............... 25,300
TOTAL............$60,570
Item 26. Recent Sales of Unregistered Securities.
On May 16, 2000 Ultradata sold 800 shares of Series A Convertible
Preferred Stock and Common Stock Purchase Warrants to each of BH Capital
Investments, L.P. and Excalibur Limited Partnership. The securities were sold
for a total of $1,600,000, from which Ultradata paid $335,000 as
commissions to individuals and entities involved in the placement. The sale
was exempt pursuant to Section 4(2) of the Act since the sale was not made
in a public offering and was made to individuals who had access to detailed
information about the Company and were buying for their own account. There
were no underwriters.
On May 16, 2000 Ultradata issued 16 shares of Series A Convertible
Preferred Stock and 9,570 shares of common stock to two individuals as
compensation for services in connection with the sale of Preferred Stock
referenced above. The sale was exempt pursuant to Section 4(2) of the Act
since the sale was not made in a public offering and was made to individuals
who had access to detailed information about the Company and were buying for
their own account. There were no underwriters.
On July 5, 2000 Ultradata sold 5,500 shares of common stock to Robert
Brantl for $15,000. The sale was exempt pursuant to Section 4(2) of the Act
since the sale was not made in a public offering and was made to an individual
who had access to detailed information about the Company and was buying for
his own account. There were no underwriters.
Item 27. Exhibits and Financial Statement Schedules
Exhibits
3-a Articles of Incorporation, and 1989 amendment. (1)
3-a(1) Amendment to Articles of Incorporation dated March 4, 1991,
March 22, 1994, and November 18, 1994. (1)
3-a(2) Certification of Correction of Articles of Incorporation. (1)
3-a(3) Amendment to Articles of Incorporation dated July 26, 1996 (4)
3-a(4) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock (4)
3-b By-laws. (1)
4-a Specimen of Common Stock Certificate. (1)
5 Opinion of Robert Brantl, Esq. (4)
10-a Lease dated May 23, 1990, as amended on November 31, 1993, for
premises at 9375 Dielman Industrial Drive, St. Louis, Missouri.(1)
10-a(1) Lease Addendum dated October 17, 1995, for premises at 9375
Dielman Industrial Drive, St. Louis, Missouri.(1)
10-b 1994 Stock Option Plan.(1)
10-c 1996 Stock Option Plan, as amended - filed as an exhibit to the
Company's Registration Statement on Form S-8 (File No. 333-32098) and
incorporated herein by reference.
10-d Employment Agreement with Monte Ross.(1)
10-d(1) Extended employment agreement as of September 30, 1997 between the
Company and Monte Ross. (2)
10-e Employment Agreement with Mark L. Peterson.(1)
10-e(1) Extended employment agreement as of September 30, 1997 between the
Company and Mark L. Peterson. (2)
10-f Employment Agreement with Ernest Clarke.(1)
10-f(1) Extended employment agreement as of September 30, 1997 between the
Company and Ernest Clarke. (2)
10-g Royalty Agreement dated September 14, 1989, between the Company and
Leonard Missler. (1)
10-g(1) Modification Agreement dated November 4, 1995, to Royalty Agreement
dated September 14, 1989, between the Company and Leonard Missler.(1)
10-h Employment Agreement as of October 13, 1997 between the Company and
David Biernbaum (3)
10-i Convertible Preferred Stock and Warrants Purchase Agreement dated May
10, 2000 - filed as an exhibit to the Company's Current Report on
Form 8-K dated May 16, 2000 and incorporated herein by reference.
10-j Option Agreement between the Company and Influence Incubator, L.L.C.
dated May 30, 2000 - filed as an exhibit to the Company's Current
Report on Form 8-K dated May 30, 2000 and incorporated herein by
reference.
10-k Internet Marketing Agreement dated May 1, 1999 between the Company and
Influence Data, LLC. (3)
10-l Operating Agreement of Influence Data, LLC dated May 3, 1999. (3)
10-m Share Issue and Option Agreement dated March 23, 1998 among the
Company, Talon Research & Development Co., Limited, and certain
shareholders of Talon. (3)
10-n Variation of Option Deed dated August 27, 1998 between Talon Research
& Development Co., Limited, certain shareholders of Talon, and the
Company. (3)
10-o Deed made in 1999 relating to Variation of Option Deed between Talon
Research & Development Co., Limited, certain shareholders of Talon,
and the Company. (3)
21 Subsidiaries - None.
23-a Consent of BDO Seidman, LLP - filed herewith.
23-b Consent of Robert Brantl, Esq. is contained in his opinion.
27-a Financial Data Schedule as of March 31, 2000 - filed as an Exhibit to
the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 2000 and incorporated herein by reference.
27-b Financial Data Schedule as of December 31, 1999 - filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the period ended
December 31, 1999 and incorporated herein by reference.
==============================================
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 33-85218 C) and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the period ended March 31, 2000 and incorporated herein
by reference.
(4) Previously filed as an exhibit to this Registration Statement.
Item 28. Undertakings
See Item 24 for the undertaking regarding the indemnification of
officers, directors and controlling persons.
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendments to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
Ultradata Systems, Incorporated certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form SB-2 and
authorized this registration statement to be signed on its behalf by the
undersigned in the City of St. Louis and the State of Missouri on the
2nd day of August, 2000.
ULTRADATA SYSTEMS, INCORPORATED
By:\s\Monte Ross
Monte Ross, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities stated on August 2, 2000.
Name Title
/s/Monte Ross Chief Executive Officer, Director
Monte Ross
/s/Ernest Clarke Chief Financial and Accounting Officer, Director
Ernest Clarke
/s/Mark L. Peterson Director
Mark L. Peterson
/s/Steven H. Akre Director
Steven H. Akre
/s/John J. Clancy Director
John J. Clancy
Director
Donald Rattner
Director
Howard Krollfeifer, Jr.
<PAGE>
INDEX TO EXHIBITS
3-a Articles of Incorporation, and 1989 amendment. (1)
3-a(1) Amendment to Articles of Incorporation dated March 4, 1991,
March 22, 1994, and November 18, 1994. (1)
3-a(2) Certification of Correction of Articles of Incorporation. (1)
3-a(3) Amendment to Articles of Incorporation dated July 26, 1996 (4)
3-a(4) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock (4)
3-b By-laws. (1)
4-a Specimen of Common Stock Certificate. (1)
5 Opinion of Robert Brantl, Esq. (4)
10-a Lease dated May 23, 1990, as amended on November 31, 1993, for
premises at 9375 Dielman Industrial Drive, St. Louis, Missouri.(1)
10-a(1) Lease Addendum dated October 17, 1995, for premises at 9375
Dielman Industrial Drive, St. Louis, Missouri.(1)
10-b 1994 Stock Option Plan.(1)
10-c 1996 Stock Option Plan, as amended - filed as an exhibit to the
Company's Registration Statement on Form S-8 (File No. 333-32098) and
incorporated herein by reference.
10-d Employment Agreement with Monte Ross.(1)
10-d(1) Extended employment agreement as of September 30, 1997 between the
Company and Monte Ross (2)
10-e Employment Agreement with Mark L. Peterson.(1)
10-e(1) Extended employment agreement as of September 30, 1997 between the
Company and Mark L. Peterson (2)
10-f Employment Agreement with Ernest Clarke.(1)
10-f(1) Extended employment agreement as of September 30, 1997 between the
Company and Ernest Clarke. (2)
10-g Royalty Agreement dated September 14, 1989, between the Company and
Leonard Missler.(1)
10-g(1) Modification Agreement dated November 4, 1995, to Royalty
Agreement dated September 14, 1989, between the Company and
Leonard Missler. (1)
10-h Employment Agreement as of October 13, 1997 between the Company and
David Biernbaum. (3)
10-i Convertible Preferred Stock and Warrants Purchase Agreement dated May
10, 2000 - filed as an exhibit to the Company's Current Report on
Form 8-K dated May 16, 2000 and incorporated herein by reference.
10-j Option Agreement between the Company and Influence Incubator, L.L.C.
dated May 30, 2000 - filed as an exhibit to the Company's Current
Report on Form 8-K dated May 30, 2000 and incorporated herein by
reference.
10-k Internet Marketing Agreement dated May 1, 1999 between the Company and
Influence Data, LLC. (3)
10-l Operating Agreement of Influence Data, LLC dated May 3, 1999. (3)
10-m Share Issue and Option Agreement dated March 23, 1998 among the
Company, Talon Research & Development Co., Limited, and certain
shareholders of Talon. (3)
10-n Variation of Option Deed dated August 27, 1998 between Talon
Research & Development Co., Limited, certain shareholders of Talon,
and the Company. (3)
10-o Deed made in 1999 relating to Variation of Option Deed between Talon
Research & Development Co., Limited, certain shareholders of Talon,
and the Company. (3)
21 Subsidiaries - None.
23-a Consent of BDO Seidman, LLP - filed herewith.
23-b Consent of Robert Brantl, Esq. is contained in his opinion.
27-a Financial Data Schedule as of March 31, 2000 - filed as an Exhibit
to the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 2000 and incorporated herein by reference.
27-b Financial Data Schedule as of December 31, 1999 - filed as an Exhibit
to the Company's Annual Report on Form 10-KSB for the period ended
December 31, 1999 and incorporated herein by reference.
===============================================
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (File No. 33-85218 C) and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997, and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-QSB for the period ended March 31, 2000 and incorporated herein
by reference.
(4) Previously filed as an exhibit to this Registration Statement.
********************************************************************
Exhibit 23-a
Consent of Independent Certified Public Accountants
Ultradata Systems, Incorporated
St. Louis, Missouri
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated March 2, 2000,
relating to the financial statements of Ultradata Systems, Incorporated which
are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
St. Louis, Missouri
July 31, 2000
