U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 August 18, 2000
Common, $.01 par value 3,193,415
Transitional Small Business Disclosure Format Yes [ X ] No [ ]
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
June 30, 2000
INDEX
PART 1 - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Balance Sheets at June 30, 2000 and December 31, 1999 3.
Statements of Operations for the three month and six
month periods ended June 30, 2000 and 1999 4.
Statement of Stockholders' Equity for the six months
ended June 30, 2000 5.
Statements of Cash Flows for the six months ended
June 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 11 - OTHER INFORMATION 15.
Signatures 15.
ULTRADATA SYSTEMS, INCORPORATED
Balance Sheets
June 30, December 31,
2000 1999
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,526,360 $ 1,220,134
Restricted cash 402,528 410,888
Trade accounts receivable, net of
allowance for doubtful accounts of
$5,000 and $16,475, respectively 976,925 1,482,268
Inventories (Note 4) 1,395,591 1,655,422
Prepaid expenses (Note 5) 49,369 105,778
--------- ---------
Total current assets 5,350,773 4,874,490
--------- ---------
Property and equipment, net 662,440 683,936
--------- ---------
Total property and equipment 662,440 683,936
--------- ---------
Deferred compensation trust investments,
available for sale 117,670 105,834
Investment in Talon Research and
Development, Ltd. 972,411 827,903
Investment in Influence Data, LLC (Note 8) 242,053 255,667
Advances to affiliates 150,000 272,683
Advertising credits 249,685 249,685
Other assets 8,594 38,594
--------- ---------
Total assets $ 7,753,626 $ 7,308,792
========= =========
Liabilities, Redeemable Preferred Stock,
and Stockholders' Equity
Current liabilities:
Accounts payable $ 204,200 $ 156,214
Accrued expenses and other
liabilities (Note 6) 214,738 262,464
--------- ---------
Total current liabilities 418,938 418,678
--------- ---------
Deferred rent 9,952 13,684
Deferred compensation liability 120,198 116,722
--------- ---------
Total long-term liabilities 130,150 130,406
--------- ---------
Series A redeemable convertible preferred
stock (Note 7) 3,320 shares authorized,
1,616 shares outstanding 1,616,000 -
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 4,996,680
shares authorized, none outstanding - -
Common stock, $.01 par value;
10,000,000 shares authorized; 3,514,086
shares issued and outstanding June 30,
2000; 3,410,000 shares issued and
outstanding December 31, 1999 35,141 34,100
Additional paid-in capital 9,848,141 9,851,894
Accumulated deficit (3,181,654) (2,024,687)
Treasury stock (326,171 shares at cost) (942,311) (942,311)
Notes receivable issued for purchase
of common stock (201,143) (197,117)
Accumulated other comprehensive income, net 30,364 37,829
--------- ---------
Total stockholders' equity 5,588,538 6,759,708
--------- ---------
Total liabilities, redeemable preferred
stock, and stockholders' equity $ 7,753,626 $ 7,308,792
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Operations
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
(unaudited) (unaudited)
Net sales: $ 818,895 $ 1,170,931 $ 1,108,582 $ 2,254,722
Cost of sales: 547,428 701,736 722,544 1,238,490
-----------------------------------------------
Gross profit 271,467 469,195 386,038 1,016,232
-----------------------------------------------
Selling expense 133,964 457,504 212,923 1,176,014
General and administrative
expenses 591,198 497,377 1,034,990 1,032,868
Research and development
expense 75,857 121,487 172,090 220,713
-----------------------------------------------
Operating loss (529,552) (607,173) (1,033,965) (1,413,363)
-----------------------------------------------
Other (expense) income:
Interest income 12,407 17,325 31,340 35,233
Equity (losses)/earnings of
unconsolidated affiliates (59,773) 43,019 (125,088) 97,103
Other, net (60,114) 467 (29,254) 35,843
-----------------------------------------------
Total other (expense) income,
net (107,480) 60,811 (123,002) 168,179
-----------------------------------------------
Loss before income taxes (637,032) (546,362) (1,156,967) (1,245,184)
Income tax benefit - - - -
-----------------------------------------------
Net loss $(637,032) $(546,362) $(1,156,967) $(1,245,184)
Less deemed dividends on
preferred shares (1,059,747) - (1,059,747) -
-----------------------------------------------
Net loss available to
common shareholders $(1,696,779) $(546,362) $(2,216,714) $(1,245,184)
=================================================
Loss per share-basic and
diluted $ (0.53) $ (0.17) $ (0.71) $ (0.39)
=================================================
Weighted Average Shares
Outstanding:
Basic and diluted 3,182,867 3,167,577 3,144,051 3,161,130
================================================
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
<TABLE>
Statement of Stockholders' Equity
For the six months ended June 30, 2000
(unaudited)
<CAPTION> Notes
receivable Accumulated
Additional for purchase Accumulated Total
Common paid-in Accumulated Treasury of common comprehensive Stockholders'
Stock capital deficit stock stock income, net 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 employee
stock options
(Note 3) 945 313,680 314,625
Accrued interest on
notes receivable
issued for purchase
of common stock (4,026) (4,026)
Issuance of stock
options to non-
employee for
services performed 2,306 2,306
Issuance of
replacement stock
options for
Investment in
Influence Data,
LLC (Note 8) 55,982 55,982
Issuance of common
stock in connection
with redeemable
preferred stock
offering (Note 7) 96 (96) -
Costs related to
issuance of
redeemable preferred
stock (Note 7) (375,625) (375,625)
Issuance of common
stock options and
common stock
warrants in
connection with
the redeemable
preferred stock
offering (Note 7) 531,715 531,715
Intrinsic value of the
beneficial conversion
feature associated with
the redeemable convertible
preferred stock (Note 7) 527,936 527,936
Dividends on redeemable
preferred stock (Note 7) (1,059,651) (1,059,651)
Comprehensive income:
Net loss (1,156,967) (1,156,967)
Other comprehensive
loss:
Net unrealized loss on
deferred compensation
trust available for sale
securities (7,465) (7,465)
Total comprehensive loss (1,164,432)
Balance at
June 30, 2000 $35,141 $9,848,141 $(3,181,654) $(942,311) $(201,143) $30,364 $ 5,588,538
====================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
ULTRADATA SYSTEMS, INCORPORATED
Statements of Cash Flows
For the six months ended June 30, 2000 and 1999
2000 1999
(unaudited)
Cash flows from operating activities:
Net loss $(1,156,967) $(1,245,184)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 116,872 134,785
Inventory reserve 60,000 49,977
Equity in losses (earnings) of
unconsolidated affiliates 125,088 (97,103)
Realized gain on investments (10,602) -
Non-cash compensation expense 2,306 -
Bad debt expense on advances to
affiliates 122,683 15,500
Increase (decrease) assets and
liabilities:
Trade accounts receivable 505,343 2,060,308
Costs and estimated earnings on
long-term contracts - 85,773
Inventories 199,831 453,552
Prepaid expenses and other
current assets 56,409 616,227
Accounts payable 47,986 (725,101)
Accrued expenses and other
liabilities (47,726) (1,298,890)
Deferred rent (3,732) (3,732)
Deferred compensation trust liability 3,476 -
Other assets 25,974 5,505
------- ---------
Net cash provided by operating
activities 46,941 51,617
------- ---------
Cash flows from investing activities:
Investment in affiliated company (200,000) (13,386)
Deferred compensation trust investments (8,699) -
Capital expenditures (95,376) (640)
Net cash used in investing activities (304,075) (14,026)
Cash flows from financing activities:
Repurchase of common stock at cost - (2,125)
Proceeds from issuance of redeemable
convertible preferred stock and common
stock warrants 1,616,000 -
Costs related to issuance of
redeemable convertible preferred stock
and common stock warrants (375,625) -
Exercise of employee stock options 314,625 -
Restricted cash 8,360 -
--------- ---------
Net cash provided by (used in)
financing activities 1,563,360 (2,125)
--------- ---------
Net increase in cash and cash
equivalents 1,306,226 35,466
Cash and cash equivalents at
beginning of period 1,220,134 1,254,091
--------- ---------
Cash and cash equivalents at end
of period $2,526,360 $1,289,557
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
ULTRADATA SYSTEMS, INCORPORATED
June 30, 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. 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
and six month periods ended June 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.
(Unaudited) (Unaudited)
For the three months ended For the six months ended
June 30 June 30
2000 (a) 1999 (b) 2000 (a) 1999 (b)
-----------------------------------------------------------------------------
Numerator:
Net Loss $ (637,032) $ (546,362) $(1,156,967) $(1,245,184)
Preferred Stock
Dividend (c) (1,059,747) - (1,059,747) -
Numerator for basic
and diluted loss per
share $(1,696,779) $ (546,362) $(2,216,714) $(1,245,184)
========== ======== ========== ==========
Denominator:
Denominator for basic
and diluted loss
per share - 3,182,867 3,167,577 3,144,051 3,161,130
weighted average
shares
Basic and Diluted
Loss Per Share $ (0.53) $ (0.17) $ (0.71) $ (0.39)
(a) Options to purchase 750,065 shares of common stock at prices between
$2.00 and $7.39 per share were outstanding at June 30,2000, but were not
included in the computation of diluted loss per share because they would be
anti-dilutive.
(b) Options to purchase 310,192 shares of common stock at prices between
$3.00 and $7.39 per share were outstanding at June 30,1999, but were not
included in the computation of diluted loss per share because they would be
anti-dilutive.
(c) See Note 7.
Note 3. Incentive Stock Option Plan
As of June 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 shareholders.
During the six month period ended June 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:
June 30, December 31,
2000 1999
(unaudited)
Raw Materials $1,227,530 $ 815,337
Work in Process 62,360 62,360
Finished Goods 702,048 1,314,072
--------- ---------
1,991,938 2,191,769
Reserve for
obsolescence (596,347) (536,347)
--------- ---------
$1,395,591 $1,655,422
========= =========
Note 5. Prepaid Expenses
Prepaid expenses consist of the following:
June 30, December 31,
2000 1999
(unaudited)
Prepaid advertising $ 6,480 $ 24,781
Prepaid tooling and manufacturing
costs - 56,365
Prepaid insurance 21,459 9,940
Other prepaid expenses 21,430 14,692
------ -------
$ 49,369 $ 105,778
====== =======
Note 6. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
June 30, December 31,
2000 1999
(unaudited)
Accrued sales commissions and
royalties $ - $ 39,948
Payroll and payroll-related
liabilities 113,456 83,978
Accrued advertising 22,791 58,250
Financing expenses 50,000 -
Other 28,491 80,288
------- -------
$ 214,738 $ 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 six-month period ended June 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. Redeemable Convertible Preferred Stock
On May 16, 2000, the Company received from two investors gross
proceeds of $1,600,000 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. 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
Stock is presented as mezzanine financing in the accompanying balance sheet.
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:
Common Shares Issued 31,868
Warrants Issued 284,089
Options Issued 215,854
Beneficial feature of
preferred stock 527,936
---------
Total $1,059,747
=========
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 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 additional capital contributions 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 fair value
of the common stock options are estimated on the date of 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 for the six months
ending June 30, 2000 were as follows:
Sales $ 3,507
Cost of sales 3,823
--------
Gross profit (316)
Operating expenses 613,641
--------
Net loss from operations (613,957)
Other expenses 6,886
--------
Net loss $(620,843)
========
Note 9. Supplemental Disclosures of Cash Flow Information
Supplemental non-cash investing and financing activities were as follows:
SIX MONTHS ENDED JUNE 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. It has invested as a one-third owner
in Influence Data, LLC, with the objective that its web portal, DriveThere.com,
become a new kind of motor club for the new economy. DriveThere.com, in
conjunction with Lucent Technologies, has developed a system for automatically
obtaining directions on the highway with an ordinary cell phone through the
use of Lucent Technologies' PhoneBrowserTM voice recognition capability. With
special software developed by DriveThere.com and Ultradata, the system offers
a convenient and effective means to get directions without any additional
hardware required by the user. DriveThere.com and Lucent Technologies are
developing a customer base and sources of additional funding in order to
greatly expand the business. This system can be implemented in a short time
and provide a service for the many millions of cell phones presently in use.
The Company also is completing development of an advanced portable auto
navigation product, a version of TRAVEL*STAR 24TM, 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 - and will be delivering production
units to an American company involved in supporting truck fleets.
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 currently in the process
of fabricating production units modeled after the handheld unit.
The Company is also planning to introduce other new products and to address
internet-related travel features in 2000, including:
(a) 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;
(b) the portable TravelStar 24TM auto after-market navigation system. The
TravelStar 24TM 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
Travel*Star 24TM that include wireless capability are expected in 2001.
RESULTS OF OPERATIONS
Net sales for the three-month and six-month periods ended June 30, 2000 were
$818,895 and $1,108,582, respectively, compared to $1,170,931 and $2,254,722
for the three-month and six-month periods ended June 30, 1999, respectively.
These reductions amounted to $352,036, or 30.1%, for the three-month period
ended June 30 and $1,146,140, or 50.8%, for the six-month period ended June
30. The sales decreases for the three month period ended June 30, 2000,
compared to the comparable three-month period in 1999 resulted from the
Spring promotions at Kmart and the introduction of the new AAA TripWizard
during 1999 producing higher sales levels during that time period. Similar
programs are planned for 2000 but will occur in the second half of the year.
As a result, the order backlog for delivery in 2000 as of June 30, 2000 is
$4.1 million compared to $1.9 million at June 30, 1999. For the six-month
period ended June 30, 2000, sales reductions due to the elimination in 2000
of the credit-card and direct-mail insert programs utilized in 1999 added to
the above reductions. Delivery of the record backlog, mostly in the fourth
quarter of this year, should enable profitable operations in the second half
of the year.
Gross profit for the three-month period ended June 30, 2000 totaled
$271,467, or 33.2% of sales, as compared to $469,195, or 40.1% of sales, for
the three-month period ended June 30, 1999. For the six-month period ended
June 30, 2000, gross profit totaled $386,038, or 34.8% of sales, as compared
to $1,016,232, or 45.1% of sales, for the six-month period ended June 30,
1999. The reduction in gross profit is primarily due to successful efforts
to reduce finished goods inventories by selling selected finished goods at
lower sales prices. The finished goods inventory was reduced from $1,314,072
as of December 31, 1999 to $702,048 as of June 30, 2000, or a 46.6%
reduction.
Selling expenses for the three-month and six-month periods ended June 30,
2000, totaled $133,964 and $212,923, respectively, compared to $457,504 and
$1,176,014, respectively for the comparable periods ended June 30, 1999.
For the three-month period ended June 30, 2000, selling expenses decreased
$323,540, or 70.7%, compared to the three-month period ended June 30, 1999.
For the six-month period ended June 30, 2000, selling expenses decreased
$963,091, or 81.9%, compared to the six-month period ended June 30, 1999.
These trends are 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 six-month periods
ended June 30, 2000, were $591,198 and $1,034,990, respectively, compared to
$497,377 and $1,032,868, respectively, for the comparable periods in 1999.
For the three-month period ended June 30, 2000, administrative expense
increased by $93,821, or 18.9%, compared to the three-month period ended
June 30, 1999. For the six-month period ended June 30, 2000, administrative
expenses increased by $2,122, or .2%, compared to the six-month period ended
June 30, 1999. The increase for the three-month period ended June 30, 2000,
resulted in part from increased legal and auditing expenses in connection with
the Influence Incubator, LLC, agreement entered into on May 30, 2000. In
addition, twice a sprinkler-system valve failed and caused water damage at the
Company's facility. These situations have been satisfactorily resolved at this
time and should not cause further unanticipated expenses. The Company
anticipates filing an insurance claim to attempt to recover some of the costs
expended as a result of the water damage. For the six-month period ended
June 30, 2000, general and administrative expenses were flat compared to 1999,
indicating that reductions in the first quarter through efficiencies
introduced in 1999 and discussed in previous reports offset the higher
expenses for the three month period ended June 30, 2000 mentioned above.
Research and development expense for the three-month and six-month periods
ended June 30, 2000, were $75,857 and $172,090, respectively, compared to
$121,487 and $220,713, respectively, for the comparable periods in 1999.
Research and development expense decreased $46,630, or 37.6%, during the
three-month period ended June 30, 2000, compared to the same three-month
period in 1999. For the six-month period ended June 30, 2000, research and
development expenses decreased by $48,623, or 22.0%, compared to the six-
month period ended June 30, 1999. The primary reason for the decrease is
that the Company is nearing completion of the development of the TravelStar
24TM. This has resulted in higher capital expenditures during the six-month
period ended June 30, 2000, as compared to the same period in 1999. The
Company's research and development efforts continue to be tightly focused on
Travel*Star 24TM. The Company anticipates spending approximately $50,000 on
research and development during each of the remaining quarters of fiscal
2000 in order to complete the engineering of the TravelStar 24TM and to
develop advanced versions.
Other (expense) income for the three-month and six-month periods ended June
30, 2000, totaled ($107,480) and ($123,002), respectively, compared to
$60,811 and $168,179 for the comparable periods ended June 30, 1999. The
decrease for the three-month period ended June 30, 2000 is primarily due to
the Company's equity interest (33.3%) in the losses of Influence Data, LLC.
Losses attributed to Influence Data, LLC, amounted to ($149,469) and
($269,596) for the three-month and six-month periods ended June 30, 2000.
No comparable data exists for 1999 since the entity was initiated in May 1999
and operations began late in June 1999. The Company's investment in Talon
Research and Development, Ltd. continues on its growth path, contributing
income of $89,696 and $144,508 for the three-month and six-months periods
ending June 30, 2000, respectively, compared to a loss of ($9,585) for the
entire year of 1999, when United States generally accepted accounting
principles are applied. 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. The Company also reserved $122,683 of advances to affiliate
during the three-month period ended June 30, 2000. The Company intends to
pursue all avenues of collection, including, but not limited to, litigation
to collect the entire balance of the receivable.
As a result of the foregoing, the Company posted a net loss of ($637,032)
for the three-month period ended June 30, 2000, compared to a net loss of
($546,362) for the three-month period ended June 30, 1999. The Company's net
loss during the second quarter of 2000 represented ($0.20) per common share.
However, the Company was required to record an imputed dividend of $1,059,747
during the quarter as a result of its sale of Series A redeemable convertible
preferred stock in May (See Note 7). Therefore, the Company posted a net
loss of ($0.53) per share for the quarter, compared to ($0.17) per share for
the three months ended June 30, 1999. The Company lost ($1,156,967), or ($0.37)
per basic and diluted common share, for the six-month period ended June 30,
2000, as compared to a loss of ($1,245,184), or ($0.39) per basic and diluted
share, for the six-month period ended June 30, 1999. As discussed above, once
the imputed dividend is recorded, the net loss per share increases to ($0.71).
Deferred tax assets related to the three-month and six-month periods ended June
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 Common Stock, through periodic borrowings, and from cash generated by
operations. At June 30, 2000, the Company had $2,526,360 in cash and cash
equivalents, compared to $1,220,134 at December 31, 1999. The Company's
operating activities provided cash totaling $46,941, primarily due to the
net loss of $1,156,967 for the six-month period ended June 30, 2000,
partially offset by collections of $505,343 in accounts receivable, a reserve
of $122,683 in advances to affiliate, a decrease in inventory of $259,831,
equity in losses of unconsolidated affiliates of $125,088, $116,872 of
depreciation and amortization, and a decrease of prepaid expenses and other
assets of $82,383.
In the six-month period ended June 30, 1999, operating activities provided
$51,617 of cash as a result of the reduction in accounts payable and accrued
expenses of $2,023,991, the net loss in the six-month period ended June 30,
1999, of $1,245,184, partially offset by reductions in accounts receivable
of $2,060,308.
Net cash used by investing activities for the six-month period ended June 30,
2000, totaled $304,075, which includes $95,376 for capital expenditures,
$8,699 for deferred compensation trust investments, and a $200,000 additional
investment in Influence Data, LLC. In the six-month period ended June 30,
1999, investing cash used totaled $14,026 primarily associated with investments
in and advances to affiliates. The current six-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 $200,000 for the calendar year 2000.
Net cash provided by financing activities for the six month period ended
June 30, 2000 of $1,563,360 included $314,625 from the proceeds of employee
stock options and $1,240,375 net from the issuance of redeemable preferred
stock. For the six-month period ended June 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 six month period ended
June 30, 2000 increased to $4,931,835 at June 30, 2000 from $4,455,812 at
December 31, 1999. The Company's current ratio at June 30, 2000 was 12.8
to 1, as compared to 11.6 to 1 at December 31, 1999.
On May 30, 2000 the Company entered into an agreement with Influence
Incubator, LLC, to cancel the option agreement dated May 4, 1999 and issue
new options for 300,000 common shares of the Company. In addition, the
Company agreed to pay $200,000 as additional capital contributions in
connection with this 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. Although the stock price was below the exercise price
of the options, the Black-Scholes option model provides an estimated value for
the options. Using this model, the fair value of the common stock options 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 5.74%, and an expected life of five years.
The Company received gross proceeds of $1,616,000 for the issuance of 1,616
shares of Series A redeemable convertible Preferred Stock. Under certain
conditions, the Company may be required to redeem the redeemable convertible
preferred stock and will be required to treat the proceeds received as financing
The preferred shares do not provide for dividends, however, 11.25% per annum
accrues until redemption or conversion. The $1,616,000 is being presented as
a mezzanine financing because the situations for which the Company would be
required to redeem the redeemable preferred stock were not satisfied until
after June 30, 2000. These conditions were: (1) approval by the shareholders
of the transaction, which was given at the stockholders' meeting on July 27,
2000, and (2) effective registration permitted the resale of the common stock
into which the preferred shares are convertible as well as the common stock
underlying the warrants. The registration statement was declared effective on
August 14, 2000.
Under the mezzanine financing treatment all costs and enticements related to
the transaction are considered to be a dividend to the preferred shareholders.
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.
The Company has a letter of commitment for a secured line of credit totaling
$1.0 million including a $400,000 facility for a stand by 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 expired July 1, 2000, and has been subsequently extended to 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
$2.5 million in cash as of June 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:
None
Item 5. Other Information:
None
Item 6. Exhibits and Reports on Form 8-K:
On May 18, 2000 Ultradata Systems, Inc. filed a Report on Form 8-K
related to Convertible Preferred Stock and Warrants Purchase
Agreements
On June 7, 2000 Ultradata Systems, Inc. filed a Report on Form 8-K
related to the new agreement with Influence Incubator, L.L.C.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 18, 2000 /s/ Monte Ross
Monte Ross, President and CEO
(Duly authorized officer and
principal financial officer)
