U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ______________TO_______________
COMMISSION FILE NUMBER 0-25380
ULTRADATA SYSTEMS, INCORPORATED
(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9375 Dielman Industrial Drive, St. Louis, MO 63132
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (314) 997-2250
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding as of November 7, 2000
Common, $.01 par value 3,193,415
Transitional Small Business Disclosure Format Yes [ ] No [X]
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
September 30, 2000
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets at September 30, 2000 and December 31,
1999 3.
Statements of Operations for the three month and nine
month periods ended September 30, 2000 and 1999 4.
Statement of Stockholders' Equity for the nine months
ended September 30, 2000 5.
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 6.
Notes to Financial Statements 7.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10.
PART II - OTHER INFORMATION 16.
Signatures 18.
ULTRADATA SYSTEMS, INCORPORATED
Balance Sheets
September 30, December 31,
2000 1999
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 1,873,288 $ 1,220,134
Restricted cash 767,619 410,888
Trade accounts receivable, net of
allowance for doubtful accounts of
$5,000 and $16,475, respectively 1,371,956 1,482,268
Inventories (Note 4) 1,785,100 1,655,422
Prepaid expenses (Note 5) 275,046 105,778
--------- ---------
Total current assets 6,073,009 4,874,490
--------- ---------
Property and equipment, net 639,007 683,936
--------- ---------
Total property and equipment 639,007 683,936
--------- ---------
Deferred compensation trust investments,
available for sale 112,920 105,834
Investment in Talon Technology Ltd. (Note 9) 922,214 827,903
Investment in Influence Data, LLC (Note 8) 245,618 255,667
Advances to affiliates 150,000 272,683
Advertising credits 249,685 249,685
Other assets 8,594 38,594
---------- ----------
Total assets $8,401,047 $7,308,792
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 937,658 $ 156,214
Accrued expenses and other liabilities
(Note 6) 144,348 262,464
--------- ---------
Total current liabilities 1,082,006 418,678
--------- ---------
Deferred rent 8,086 13,684
Deferred compensation liability 115,539 116,722
--------- ---------
Total liabilities 1,205,631 549,084
Stockholders' equity (Notes 3 and 7):
Preferred Stock, $0.01 par value, 4,996,680
shares authorized, none outstanding - -
Series A convertible preferred stock,
3,320 shares authorized, 1,616 shares
outstanding with a stated value of $1,000 1,616,000 -
Common stock, $.01 par value; 10,000,000
shares authorized; 3,519,586 shares issued
and outstanding September 30,2000;
3,410,000 shares issued and outstanding
December 31, 1999 35,196 34,100
Additional paid-in capital 9,859,773 9,851,894
Accumulated deficit (3,152,693) (2,024,687)
Treasury stock (326,171 shares at cost) (942,311) (942,311)
Notes receivable issued for purchase of
common stock (203,481) (197,117)
Accumulated other comprehensive (loss)
income, net (17,068) 37,829
--------- ---------
Total stockholders' equity 7,195,416 6,759,708
--------- ---------
Total liabilities and stockholders' equity $8,401,047 $7,308,792
========== ==========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
2000 1999 2000 1999
(unaudited) (unaudited)
Net sales $ 2,556,091 $ 591,987 $ 3,664,673 $2,846,709
Cost of sales 1,806,963 466,685 2,529,507 1,705,175
--------- -------- --------- ---------
Gross profit 749,128 125,302 1,135,166 1,141,534
--------- -------- --------- ---------
Selling expense 178,900 170,202 391,823 1,346,216
General and administrative
expenses 489,013 547,961 1,524,003 1,580,829
Research and development
expense 114,448 104,458 286,538 325,171
--------- -------- --------- ---------
Operating loss (33,233) (697,319) (1,067,198) (2,110,682)
--------- -------- --------- ---------
Other (expense) income:
Interest income 11,438 21,488 42,778 56,721
Equity in (losses)/earnings
of Unconsolidated affiliates (3,999) 55,234 (129,087) 152,337
Other, net 54,755 (497) 25,501 35,346
-------- -------- --------- ----------
Total other income (expense),
net 62,194 76,225 (60,808) 244,404
-------- -------- --------- ----------
Earnings (loss) before income
taxes 28,961 (621,094) (1,128,006) (1,866,278)
Income tax - - - -
------- ------- --------- ---------
Net earnings (loss) 28,961 (621,094) (1,128,006) (1,866,278)
------- ------- --------- ---------
Less preferred stock
dividends (68,680) - (1,128,427) -
Net loss available to
Common shareholders $ (39,719) $ (621,094) $(2,256,433) $(1,866,278)
====== ======= ========= =========
Loss per share-basic and
diluted $ (0.01) $ (0.20) $ (0.71) $ (0.60)
====== ======= ========= =========
Weighted Average Shares Outstanding:
Basic and diluted 3,197,361 3,083,322 3,160,484 3,134,960
========= ========= ========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statement of Stockholders' Equity
<TABLE>
For the nine months ended
September 30, 2000 (unaudited)
<CAPTION>
Notes
Series A receivable Accumulated
Convertible Additional for purchase comprehensive Total
Common Preferred Preferred paid-in Accumulated Treasury of common income, Stockholders'
stock stock stock capital deficit stock stock net Equity
=============================================================================================================================
<S> <C> <C> <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
employee stock
options (Note 3) 945 313,680 314,625
Accrued interest on
notes receivable
issued for purchase
of common stock (6,364) (6,364)
Issuance of stock
options to non-
employee for
services performed 2,306 2,306
Issuance of common stock
to non-employee for
services performed 55 11,632 11,687
Issuance of replacement
stock options for
investment in
Influence Data, LLC
(Note 6) 55,982 55,982
Issuance of common stock
in connection with
redeemable convertible
preferred stock
offering (Note 7) 96 (96) -
Costs related to
issuance of redeemable
convertible preferred
stock (Note 7) (375,625) (375,625)
Issuance of common
stock options and
common stock warrants
in connection with
the redeemable
convertible preferred
stock offering
(Note 7) 531,715 531,715
Issuance of redeemable
convertible preferred
stock (Note 7) 1,616,000 1,616,000
Intrinsic value of the
beneficial conversion
feature associated
with the redeemable
convertible preferred
stock (Note 7) 527,936 527,936
Dividends paid on
redeemable convertible
preferred stock (Note 7) (1,059,651) (1,059,651)
Comprehensive income:
Net loss (1,128,006) (1,128,006)
Other comprehensive loss:
Net unrealized gain on
deferred compensation
trust available for
sale securities (12,264) (12,264)
Foreign currency
translation adjustment (42,633) (42,633)
Total comprehensive loss (1,182,903)
-----------------------------------------------------------------------------------------------------------------------
Balance at September
30, 2000 $ 35,196 - 1,616,000 $9,859,773 $(3,152,693) $(942,311) $(203,481) $ (17,068) $ 7,195,416
=======================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
2000 1999
(unaudited)
Cash flows from operating activities:
Net loss $(1,128,006) $(1,866,278)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Deferred income tax provision - 106,579
Depreciation and amortization 169,430 207,793
Inventory reserve - 66,331
Equity in losses (earnings) of
unconsolidated affiliates 129,087 (152,337)
Realized gain on investments (10,602) -
Non-cash compensation expense 13,993 -
Bad debt expense on advances to affiliates 122,683 23,250
Increase (decrease) in assets and liabilities:
Trade accounts receivable 110,312 2,677,137
Costs and estimated earnings on long-term
contracts - 55,276
Inventories (129,678) 175,332
Prepaid expenses and other current assets (169,268) 676,891
Accounts payable 781,444 (602,172)
Accrued expenses and other liabilities (118,116) (1,310,758)
Deferred rent (5,598) (5,598)
Deferred compensation trust liability (1,183) -
Other assets 23,636 (42,962)
-------- ---------
Net cash (used in) provided by operating
activities (211,866) 8,484
-------- ---------
Cash flows from investing activities:
Investment in affiliated company (200,000) (17,134)
Deferred compensation trust investments (8,748) -
Capital expenditures (124,501) (4,255)
------- ---------
Net cash used in investing activities (333,249) (21,389)
------- ---------
Cash flows from financing activities:
Repurchase of common stock at cost - (2,125)
Proceeds from issuance of redeemable
preferred stock and common stock warrants 1,616,000 -
Costs related to issuance of redeemable
preferred stock and common stock warrants (375,625) -
Exercise of employee stock options 314,625 -
Restricted cash (356,731) (400,000)
--------- ---------
Net cash provided by (used in) financing
activities 1,198,269 (402,125)
--------- ---------
Net increase (decrease) in cash and cash
equivalents 653,154 (415,030)
Cash and cash equivalents at beginning of
period 1,220,134 1,254,091
--------- ---------
Cash and cash equivalents at end of period $ 1,873,288 $ 839,061
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
September 30, 2000
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim financial statements 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. The Company's investment in Talon Technology,
Ltd., Auckland, NZ of 22.6% 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
and nine-month periods ended September 30, 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. It is
suggested that the interim financial statements be read in conjunction with
the audited consolidated financial statements for the year ended December 31,
1999, as filed with the Securities and Exchange Commission on Form 10-KSB
(Commission File Number 0-25380).
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. Earnings Per Share
A reconciliation of the numerator and denominator of the earnings per share
calculations is provided below for each period presented.
For the three months ended For the nine months ended
September 30 September 30
(unaudited) (unaudited)
2000 (a) 1999 (b) 2000 (a) 1999 (b)
------------------------------------------------------------------------------
Numerator:
Net Earnings (Loss) $ 28,961 $ (621,094) $(1,128,006) $(1,866,278)
Preferred Stock
Dividend (c) (68,680) - (1,128,427) -
Numerator for basic and
diluted loss per share $ (39,719) $ (621,094) $(2,256,433) $(1,866,278)
Denominator:
Denominator for basic and
diluted loss per share
- weighted-average 3,197,361 3,083,322 3,160,484 3,134,960
shares (d)
Basic and diluted loss
per share (0.01) (0.20) (0.71) (0.60)
(a) Options to purchase 750,065 shares of common stock at prices between
$2.00 and $7.39 per share were outstanding at September 30, 2000, but
were not included in the computation of diluted loss per share because
they are anti-dilutive
(b) Options to purchase 310,192 shares of common stock at prices between
$5.00 and $7.39 per share were outstanding at September 30, 1999, but
were not included in the computation of diluted loss per share because
they were anti-dilutive
(c) See Note 7
(d) Conversion of the preferred stock was not included in the weighted-average
shares computation of diluted loss per share because the effect of the
preferred stock dividend was anti-dilutive
Note 3. Incentive Stock Option Plan
As of September 30, 2000, the Company's outstanding employee stock options
totaled 317,442 shares. These options have been issued to key employees,
officers, directors and consultants of the Company. The Company is authorized
to issue 450,000 shares of incentive stock options or non-qualified stock
options. These options are in addition to the 300,000 options issued per the
Option Agreement with Influence Incubator, LLC, for the joint venture,
Influence Data, LLC (see Note 8). In addition, there are 128,000 stock
options issued per an agreement with Thornhill Group, Inc., associated with
the new funding from the redeemable preferred stock (see Note 7), and 4,623
options issued to a non-employee for services performed. At the annual
meeting on July 27, 2000, the last 100,000 options of the 450,000 options for
the employee plan were approved by the stockholders.
During the nine month period ended September 30, 2000, 94,516 employee stock
options were exercised at $3.33 per common share, or $314,625.
Note 4. Inventories
Inventories consist of the following:
September 30, December 31,
2000 1999
(unaudited)
Raw Materials $ 1,570,599 $ 815,337
Work in Process 25,275 62,360
Finished Goods 672,034 1,314,072
--------- ---------
2,267,908 2,191,769
Reserve for obsolescence (482,808) (536,347)
--------- ---------
$ 1,785,100 $1,655,422
========= =========
Note 5. Prepaid Expenses
Prepaid expenses consist of the following:
September 30, December 31,
2000 1999
(unaudited)
Prepaid advertising $ 44,850 $ 24,781
Prepaid tooling, manufacturing,
and material costs 193,500 56,365
Prepaid insurance 14,277 9,940
Other prepaid expenses 22,419 14,692
------- -------
$ 275,046 $ 105,778
======= =======
Note 6. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
September 30, December 31,
2000 1999
(unaudited)
Accrued sales commissions
and royalties $ 41,290 $ 39,948
Payroll and payroll-related
liabilities 61,828 83,978
Accrued advertising 1,563 58,250
Other 39,667 80,288
------- -------
$ 144,348 $ 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
net loss for the nine-month period ended September 30, 2000. A valuation
allowance has been provided for net operating losses carried forward and
temporary differences in view of the Company's continuing losses for 2000.
Note 7. Convertible Preferred Stock
On May 16, 2000, the Company received from two investors gross proceeds of
$1,616,000 for Series A Convertible Preferred Shares (the "Preferred Shares")
and Common Stock Purchase Warrants ("Warrants"). The Preferred Shares have
no voting rights, except as to matters which directly affect the rights of
holders of Preferred Shares. The holders of Preferred Shares are not entitled
to any cash dividends. However, they accrue an additional 11.25% per annum
(or 22.5% if the Common Stock is delisted by NASDAQ) for purposes of
conversion, redemption, and liquidation ($68,680 at September 30, 2000).
Among the rights attendant to the Preferred Shares are:
1. The Preferred Shares have a liquidation preference, upon the liquidation
of Ultradata or its bankruptcy or certain other events, equal to their
face value plus an accrued amount equal to 11.25% from the date of their
issuance (22.5% if the Common Stock is delisted by NASDAQ).
2. The Preferred Shares, combined with the additional 11.25% per annum, 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 15, 2003. 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" was initially
$2.50 and has since adjusted to $2.00. It applies only during the first 18
months after issuance of the Preferred Shares. 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 intrinsic value of this beneficial conversion feature has
resulted in deemed dividends of $527,936.
3. At the time the shares were issued, Ultradata undertook to obtain shareholder
approval of the conversion of the new securities and to register the
underlying common stock for public resale. If Ultradata had not satisfied
those conditions, the Investors had a right to require Ultradata to
repurchase any Preferred Shares that could not be converted into free-
trading common stock due to that limitation. The redemption price would
have been the greater of (a) 130% of face value plus 11.25% of face value
from date of issuance or (b) the difference between the conversion price
of the unconvertible share and the 5-day average closing asked price. The
conditions were not satisfied until after June 30, 2000. Accordingly, the
Preferred Shares were presented as mezzanine financing in the June 30, 2000
balance sheet. The conditions were satisfied in July 2000 and August 2000,
respectively, and the Preferred Shares are no longer redeemable. Therefore,
on the September 30, 2000 balance sheet, the $1,616,000 face value of the
Preferred Shares are included in stockholders' equity rather than presented
as a mezzanine financing.
The Warrants will permit the Investors to each purchase up to 239,253 shares
of Common Stock (a total of 478,506 shares) for a price of $5.00 per share
until May 15, 2003. The Company has recorded the estimated value of the
Warrants, $284,089, as additional paid-in capital.
The placement was arranged by Thornhill Group, Inc., a member of the NASD
("Thornhill"). In compensation for its services, Ultradata paid $192,000 to
Thornhill, 12% of the gross proceeds of the placement, and issued to Thornhill
(a) an option to purchase, on the same terms as the Investors, 160 Preferred
Shares, equal to ten percent of those sold to Investors, and (b) an option to
purchase 128,000 common shares. The value of the options was credited to
additional paid-in capital. Ultradata also paid a finder in connection with
the placement a fee of 9,570 shares of Ultradata Common Stock (estimated value
$31,868).
The fair value of the Warrants and Common Stock options is estimated on the
day of the grant using the Black-Scholes option model with the following
weighted-average assumptions: dividend yield of zero, expected volatility of
40.0%, risk-free interest rate of 5.4%, and expected lives of between 2.5 and
3.0 years.
Ultradata made a number of covenants to the Investors in the Agreement, which
included the following:
1. Until November 16, 2000, Ultradata will not issue any securities for the
purpose of financing itself without the approval of the Investors.
2. The Investors will have a right of first refusal on any sale of securities
by Ultradata until May 10, 2001.
The two Investors have committed to purchase additional preferred stock and
warrants in certain circumstances.
Preferred stock dividends are comprised of the following:
Value of common shares issued $ 31,868
Value of warrants issued 284,089
Value of options issued 215,854
Beneficial conversion feature
of preferred stock 527,936
Cumulative preferred stock
dividend 68,680
---------
Total $1,128,427
=========
Note 8. Investment in Influence Data, LLC
On May 30, 2000 the Company entered into an agreement with Influence
Incubator, LLC, to cancel the option agreement dated May 4, 1999, which
issued options for 160,000 common shares, and issue new options for 300,000
common shares of the Company. In addition, the Company was required to pay
$200,000 as additional capital contributions in connection with this
agreement. The additional capital contribution contained the following
provisions: the capital contribution shall not increase the Ultradata capital
account in Influence Data, LLC, nor be included for purposes of maintenance
of the capital account. Furthermore, such capital contribution shall not
serve to relieve or reduce the capital contribution obligations, if any, of
Ultradata under the terms of the Influence Data, LLC, Operating Agreement.
The Company has recorded an additional amount of $255,982 in goodwill in
addition to the original $327,000 investment value recorded by the Company
during the year ended December 31, 1999. The $255,982 is comprised of the
$200,000 in cash paid by the Company and $55,982 additional cost value of the
options issued as a result of the May 30, 2000 agreement. The fair value of
the common stock options are estimated on the date of the grant using the
Black Scholes option model with the following weighted average assumptions:
dividend yield of zero, expected volatility of 40.0%, risk-free interest rate
of 5.74%, and an expected life of five years.
The unaudited financial results for Influence Data, LLC, as provided to the
Company by Influence's management, were as follows:
Three months ended Nine months ended
September 30, 2000 September 30, 2000
Sales $ 1,810 $ 5,317
Cost of Sales 1,851 5,674
------ -------
Gross Profit (41) (357)
Operating expenses 30,737 644,378
------ -------
Net loss from operations (30,778) (644,735)
Other expenses 58 6,944
------ -------
Net loss $(30,836) $(651,679)
====== =======
Note 9. Investment in Talon Technology, Ltd.
The Company's 22.6% 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 Company's interest decreased
from 24.9% based on a 10% increase in Talon's outstanding shares due to incor-
poration of an employee stock option plan for Talon employees in 2000. 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.
The unaudited financial results for Talon Technology, Ltd., as provided to the
Company by Talon's management were as follows:
Three months ended Nine months ended
September 30, 2000 September 30, 2000
Sales $1,782,603 $8,827,112
Cost of Sales 1,219,013 5,963,339
--------- ---------
Gross Profit 563,590 2,863,773
Operating expenses 481,065 1,677,137
--------- ---------
Net income from
operations 81,985 1,186,636
Other expenses 48,925 446,345
--------- ---------
Net income $ 33,060 $ 740,291
========= =========
Note 10. Supplemental Disclosures of Cash Flow Information
Supplemental non-cash investing and financing activities were as follows:
NINE MONTHS ENDED SEPTEMBER 30, 2000
The Company issued options valued at $55,982 for an additional investment in
Influence Data, LLC. (See Note 8)
The Company issued 128,000 common stock options valued at $215,854 and
478,506 common stock warrants valued at $284,089 in connection with its
issuance of the redeemable convertible preferred stock. In addition, the
Company issued to a finder 9,570 shares of common stock with a market value
on the date of issuance of $31,868. (See Note 7)
The intrinsic value of the beneficial conversion feature associated with the
redeemable convertible preferred stock resulted in deemed dividends of
$527,936. (See Note 7)
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements: No Assurances Intended
Item 2 contains certain forward-looking statements regarding the Company.
Its business, prospects and results of operations are subject to certain
risks and uncertainties posed by many factors and events that could cause the
Company's actual business, prospects and results of operations to differ
materially from those that may be anticipated by such forward-looking
statements. Factors that may affect such forward-looking results include:
the Company's ability to successfully develop new products for new markets
such as Travel*Star 24; customer acceptance of new products; the possibility
of the Company losing a large customer or key personnel; one-time custom-
product promotions; the Company's ability to manage growth and to successfully
integrate recent strategic marketing and product development alliances; the
impact of competition on the Company's revenues; delays in the Company's
introduction of new products; and the possibility of the Company failing to
keep pace with emerging technologies.
Accordingly, no assurances can be given that events or results mentioned in
any such forward-looking statements will in fact occur. When used in this
discussion, words such as "believes" and phrases such as "are expected" and
similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this report. The Company
undertakes no obligation to revise any forward-looking statements in order
to reflect events or circumstances that may subsequently arise. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's report Form 10-KSB filed with the
Securities and Exchange Commission.
The analysis of the Company's financial condition, capital resources and
operating results should be viewed in conjunction with the accompanying
financial statements, including the notes thereto.
OVERVIEW
Ultradata Systems, Incorporated ("The Company") is engaged in the manufacture
and marketing of hand-held data retrieval devices that employ proprietary
data compression technology developed by the Company. The Company was formed
as a corporation in 1986, named Laser Data Technologies, Inc. The name was
changed, in November 1994, to Ultradata Systems, Inc., to better reflect the
Company's business orientation.
The Company's primary focus has been in research, development, and marketing
of electronic consumer travel products which utilize the Company's proprietary
database and patented data compression technology for storing large quantities
of information on, and retrieving it rapidly from, a microprocessor memory
chip.
Each of the Company's consumer products is designed to allow the consumer to
access useful information stored in a convenient manner. The Company's
products generally sell at retail prices between $19.95 and $49.95 per unit.
The Company is in the process of expanding into the wireless/Internet
e-commerce market through its new products and new strategic partners. The
Company believes it has significant intellectual property in databases,
software, and patents that can be applied in innovative systems involving the
Internet and wireless applications.
The Company also is completing development of an advanced portable auto
navigation product, a version of TRAVEL*STAR 24(, that can connect through
wireless channels to the Internet to offer unique services. The Company also
benefits from Talon's rapid growth in supplying GPS (Global Positioning
Satellite) receivers in Original Equipment Manufacture (OEM) applications to
the domestic and international markets. Talon is also growing internationally
in the marine electronics market using its GPS expertise. It has also
expanded into mobile data terminals - another growth area connected to the
wireless expansion.
The Company entered into a joint marketing agreement in February 2000 with
United Marketing Group (UMG), owners of the travel club ITC-50. In
conjunction with the agreement, the Company has developed a handheld unit
that combines the Company's interstate travel computer with the database of
UMG's 50%-off discount club hotels.
The Company is also planning to introduce other new products and to address
internet-related travel features in 2001. One such product is a handheld
travel computer that combines the interstate travel data with a cable link to
the serial port of a personal computer, whereby turn-by-turn directions from
any address to any other can be downloaded from an internet site. Prototypes
of this product, Internet Triplink, have been demonstrated to potential
customers. The Company has formed a partnership on this product with Object
FX, an internet company specializing in mapping and having many corporate
customers. The Object FX software interfaces with the embedded software in
our handheld unit which connects to the PC. Users would download directions
from their PC into the unit prior to a trip and then be able to call up the
specific turn-by-turn detailed directions on the unit while on the trip. The
product is designed to offer a low wholesale cost combined with high perceived
value. The product is first being marketed through the Internet Service
Providers (ISPs) in order to realize its value as an incentive to members to
return to the ISP site to access directions for each trip.
Another new product is the portable TravelStar 24 navigation system for the
auto after-market. The TravelStar 24 system development has been long and
difficult, but it represents a unique car navigation product for the auto
aftermarket. It will provide textual directions, voice turn-by-turn commands,
and work from the 12-volt car lighter outlet. The unit will retail for under
$400 as compared to present in-car systems for $1,000 and up. The proprietary
software involved should offer protection against competitors being able to
offer a similar product in the same price area. Advanced variants of
TravelStar 24 that include wireless capability are expected in 2001. The
initial units will be in Beta testing in the fourth quarter of 2000, with
first production units scheduled for early 2001 delivery.
The after-market for vehicle navigation systems has been estimated to be very
large. There are over 200 million private and commercial vehicles in the U.S.
Only a small fraction of new cars come with navigation systems. Growth rate
of this market will be dependent on price. The price of the TravelStar 24
will be well below the in-car system, and its ability to be used in any
vehicle is a feature not available to those with in-car systems. The addition
of wireless capability to the TravelStar 24 in 2001 enables participating
in the "Telematics" marketplace, which is estimated to grow from $40 million
in 1999 to $1.7 billion by 2004. The additional features potentially enabled
by wireless addition to the TravelStar 24 include tracking your vehicle
from home, sending short messages, receiving travel discounts, getting stock
quotes, and emergency response services.
RESULTS OF OPERATIONS
Net sales for the three-month and nine-month periods ended September 30, 2000
were $2,556,091 and $3,664,673, respectively, compared to $591,987 and
$2,846,709 for the three-month and nine-month periods ended September 30,
1999, respectively. These increases amounted to $1,964,104 or 331.8%, for
the three-month period ended September 30 and $817,964, or 28.7%, for the
nine-month period ended September 30. The sales increases for the three-
month period ended September 30, 2000, compared to the comparable three-month
period in 1999, resulted from the successful effort to improve the channels
of distribution of our existing products at some reduction in gross margin.
This process reduced results for the first half of the year compared to 1999
but has permitted the Company to overtake 1999 results in the third quarter
of 2000. The resulting order backlog for delivery in 2000 as of September
30, 2000 is $2.5 million compared to $1.9 million at September 30, 1999.
Delivery of the backlog in the fourth quarter of this year should enable
profitable operations for the second half of the year.
Gross profit for the three-month period ended September 30, 2000 totaled
$749,128, or 29.3% of sales, as compared to $125,302, or 21.2% of sales, for
the three-month period ended September 30, 1999. This increase resulted from
the sale of aging inventory in 1999 compared to the new programs in 2000
alluded to above. For the nine-month period ended September 30, 2000, gross
profit totaled $1,135,166, or 31.0% of sales, as compared to $1,141,534, or
40.1% of sales, for the nine-month period ended September 30, 1999. The
reduction in gross profit for the nine-month period ended September 30, 2000
compared to the prior year is due to margin reductions for existing products
in mass-market channels, as well as successful efforts to reduce finished
goods inventories at lower sales prices in the first half of 2000. The
finished goods inventory has been reduced from $1,314,072 as of December 31,
1999 to $672,034 as of September 30, 2000, or a 48.8% reduction.
Selling expenses for the three-month and nine-month periods ended September
30, 2000, totaled $178,900 and $391,823, respectively, compared to $170,202
and $1,346,216, respectively for the comparable periods ended September 30,
1999. For the three-month period ended September 30, 2000, selling expenses
increased $8,698, or 5.1%, compared to the three-month period ended September
30, 1999 based on increased sales activity for the quarter. For the nine-
month period ended September 30, 2000, selling expenses decreased $954,393,
or 70.9%, compared to the nine-month period ended September 30, 1999. The
increase for the quarter relates to a four-fold increase in sales in the
same period. For the nine-month period, the Company has achieved a
continuation of the efficiencies introduced in the second half of 1999
related to the conversion of credit-card insert programs to wholesale
accounts, with the syndicator paying for all advertising costs. As mentioned
in previous reports, the Company made a strategic shift from the use of
expensive direct-mail marketing and credit card programs to a higher
dependence on marketing alliances with mass-market channels.
General and administrative expenses for the three-month and nine-month periods
ended September 30, 2000, were $489,013 and $1,524,003, respectively, compared
to $547,961 and $1,580,829, respectively, for the comparable periods in 1999.
For the three-month period ended September 30, 2000, administrative expense
decreased by $58,948, or 10.8%, compared to the three-month period ended
September 30, 1999. For the nine-month period ended September 30, 2000,
administrative expenses decreased by $56,826, or 3.6%, compared to the nine-
month period ended September 30, 1999. The decrease for the three-month
period ended September 30, 2000, is the result of continued efficiency of
operation begun in the latter part of 1999. The reduction for the nine-month
period ended September 30, 2000, indicates that the Company is now back on the
more efficient path from which it paused briefly in the second quarter due to
increased legal and auditing expenses in connection with the Influence
Incubator, LLC, agreement entered into on May 30, 2000, and twice a sprinkler-
system valve failing and causing water damage at the Company's facility.
Research and development expense for the three-month and nine-month periods
ended September 30, 2000, were $114,448 and $286,538, respectively, compared
to $104,458 and $325,171, respectively, for the comparable periods in 1999.
Research and development expense increased $9,990, or 9.6%, during the three-
month period ended September 30, 2000, compared to the same three-month period
in 1999, showing comparable levels of effort for the two periods. For the
nine-month period ended September 30, 2000, research and development expenses
decreased by $38,633, or 11.9%, compared to the nine-month period ended
September 30, 1999. The primary reason for the decrease is that the Company
is nearing completion of the development of the Travel(Star 24TM. The
Company's research and development efforts continue to be tightly focused on
Travel(Star 24TM. The Company anticipates spending less than $100,000 on
research and development during the remaining quarter of fiscal 2000 completing
the engineering of the TravelStar 24 for eventual product roll-out in early
2001.
Other income (expense) for the three-month and nine-month periods ended
September 30, 2000, totaled $62,194 and ($60,808), respectively, compared to
$76,225 and $244,404 for the comparable periods ended September 30, 1999.
The amortization of the intangible asset associated with the investment in
Talon more than offset Talon profits measured by United States generally
accepted accounting principles. Certain research and development expenses
are capitalized and amortized in New Zealand, while United States generally
accepted accounting principles generally require those costs be expensed when
incurred. For the nine-month period in 2000, the Company recorded a gain
from Talon of $136,944 compared to $209,058 in the same period in 1999.
Losses attributed to Influence Data, LLC, amounted to ($266,031) for the nine-
month period ended September 30, 2000. There was no comparable item in 1999
because the Company began reporting the losses of Influence-Data, LLC, on the
equity basis during the fourth quarter of 1999.
The Company posted a net loss available to common shareholders of ($39,719),
or ($0.01) per basic and diluted common share, for the three-month period ended
September 30, 2000, compared to a net loss available to common shareholders of
($621,094), or ($0.20) per basic and diluted common share, for the three-month
period ended September 30, 1999. The Company posted a net loss available to
common shareholders of ($2,256,433), or ($0.71) per basic and diluted common
share, for the nine-month period ended September 30, 2000, as compared to a
net loss available to common shareholders of ($1,866,278), or ($0.60) per
basic and diluted share, for the nine-month period ended September 30, 1999.
The Company was required to record an imputed dividend of $1,059,747 during
the nine-month period ended September 30, 2000 as a result of its sale of
Series A redeemable convertible preferred stock in May (see Note 7).
Excluding the imputed dividend from the earnings-per-share calculation, the
Company posted net income of $28,961 and a net loss of ($1,128,006) for the
three-month and nine-month periods ended September 30, 2000, compared to net
losses of ($621,094) and ($1,866,278) for the three-month and nine-month
periods ended September 30, 1999. Deferred tax assets related to the three-
month and nine-month periods ended September 30, 2000 and 1999, are fully
reserved and have no impact on earnings for the applicable period.
FINANCIAL CONDITION AND LIQUIDITY
Historically the Company has funded its operations primarily through the sale
of capital stock, through periodic borrowings, and from cash generated by
operations. At September 30, 2000, the Company had $1,873,288 in cash and
cash equivalents, compared to $1,220,134 at December 31, 1999. The Company's
operating activities used cash totaling $211,866 primarily due to the net loss
of $1,128,006 for the nine-month period ended September 30, 2000, partially
offset by collections of $110,312 in accounts receivable, an increase in
accounts payable of $781,444, equity in losses of unconsolidated affiliates of
$129,087, $169,430 of depreciation and amortization, and a decrease of prepaid
expenses and other assets of $169,268. In the nine-month period ended
September 30, 1999, operating activities provided $8,484 of cash as a result of
the reduction in accounts payable and accrued expenses of $1,912,930, the net
loss in the nine-month period ended September 30, 1999, of $1,866,278, partially
offset by reductions in accounts receivable of $2,677,137 and prepaid expenses
of $676,891.
Net cash used by investing activities for the nine-month period ended September
30, 2000, totaled $333,249, which includes $124,501 for capital expenditures,
$8,748 for deferred compensation trust investments, and a $200,000 additional
investment in Influence Data, LLC. In the nine-month period ended September
30, 1999, investing cash used totaled $21,389 primarily associated with
investments in and advances to affiliates. The current nine-month period
increase is primarily due to expenditures in 2000 for capital asset development
for the software tools relating to the Travel(Star 24TM product and the
additional investment in Influence Data, LLC. Capital expenditures are
expected to aggregate $250,000 for the calendar year 2000.
Net cash provided by financing activities for the nine-month period ended
September 30, 2000 of $1,198,269 included $314,625 from the proceeds of
employee stock options and $1,240,375 net from the issuance of redeemable
preferred stock. For the nine-month period ended September 30, 1999 the
Company expended $2,125 to purchase treasury stock.
Based upon the changes in current assets and current liabilities including
those discussed above, net working capital for the nine- month period ended
September 30, 2000 increased to $4,991,003 at September 30, 2000 from
$4,455,812 at December 31, 1999. The Company's current ratio at September 30,
2000 was 5.6 to 1, as compared to 11.6 to 1 at December 31, 1999.
The Company received gross proceeds of $1,616,000 for the issuance of 1,616
shares of Series A convertible preferred stock. The preferred shares do not
provide for dividends; however, 11.25% per annum accrues until conversion.
The $1,616,000 was originally presented as mezzanine financing because of
conditions for which the Company would be required to redeem the redeemable
preferred stock which were satisfied in the third quarter of 2000. Under the
mezzanine financing treatment all costs and enticements related to the
transaction are considered to be a dividend to the preferred shareholders.
Based upon the fact that the conditions were satisfied in the third quarter
2000, the $1,616,000 face value of the preferred stock is included in
stockholders' equity rather than presented as mezzanine financing.
The Company issued 9,570 shares of common stock as part of the redeemable
preferred stock transaction. The market value of these common shares on the
date of issuance was $31,868. The par value of $96 has been recorded to
common stock and APIC. The $31,772 difference between the market value and
the par value is also considered a preferred dividend.
The redeemable preferred stock transaction provides for 128,000 common stock
options valued at $215,854 and 478,506 common stock warrants valued at
$284,089. The $499,943 combined value of these items is considered a
preferred dividend. Although the exercise prices of the warrants and options
are well above the stock price, the Black-Scholes option model provides an
estimated value for these derivative securities. Using this model, the fair
value of the common stock options and warrants is estimated on the date of
grant with the following weighted average assumptions: dividend yield of zero,
expected volatility of 40.0%, risk-free interest rate of 5.4%, and expected
lives between 2.5 and 3.0 years.
In accordance with the Company's agreement with Talon Technology, Ltd.,
$765,000 of Talon's line of credit is secured by the Company. This amount was
increased from $400,000 in July when Talon obtained an expanded line of credit
to serve its business expansion.
The Company has a letter of commitment for a secured line of credit totaling
$1.0 million including $400,000 of a $765,000 facility for a standby letter
of credit, as part of a lending agreement between Talon and a New Zealand bank.
The credit facility is secured by the Company's accounts receivable,
inventories and equipment, with an interest rate of 1% over Prime Rate. The
credit facility expires on July 1, 2001.
The Company's projections of cash flow indicate that the liquidity provided by
existing cash and cash equivalents, the credit facility described above, and
the cash generated from operations will be sufficient to provide for the
inventory required to supply the Company's backlog. The Company has over
$1.8 million in cash and cash equivalents as of September 30, 2000.
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
On July 27, 2000 Ultradata Systems, Inc. submitted four matters to a
vote of security holders at an annual meeting.
* The following individuals were elected to serve as Ultradata's Board of
Directors:
Votes For Votes Withheld
-------------------------------------------------------
* Monte Ross 2,967,407 77,006
* Mark Peterson 2,967,407 77,006
* Ernest Clarke 2,967,407 77,006
* Steven Akre 2,967,407 77,006
* John Clancy 2,967,407 77,006
* Donald Rattner 2,967,407 77,006
* H. Krollfeifer, Jr. 2,967,407 77,006
A proposal to ratify the appointment of BDO Seidman, LLP as Ultradata's
independent certified public accountants for the fiscal year ending December
31, 2000 was approved by a vote of 3,024,385 shares for, 7,854 shares
against, and 12,174 shares abstained.
A proposal to approve an amendment to the Ultradata Systems, Incorporated
1996 Stock Option Plan increasing the number of shares authorized for
issuance from 175,000 to 325,000 was approved by a vote of 2,900,981 shares
for, 121,644 shares against, and 21,788 shares abstained.
A proposal to approve the issuance of more than 20% of Ultradata's Common
Stock upon conversion of Convertible Preferred Shares held by two investment
funds was approved by a vote of 1,526,961 shares for, 61,707 shares against,
and 25,352 shares abstained.
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 14, 2000 /s/ Monte Ross
Monte Ross, President and CEO
(Duly authorized officer and
principal financial officer)
