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, 2004
( ) 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1240 Dielman Industrial Court, St. Louis, MO 63132
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(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 3, 2004
------------------------------------------------------------------------
Common, $.01 par value 6,410,187
Transitional Small Business Disclosure Format Yes [ ] No [X]
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
September 30, 2004
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2004
(unaudited) and December 31, 2003 3.
Condensed Statements of Operations for the three
month and nine month periods ended September 30,
2004 and 2003 (unaudited) 4.
Condensed Statements of Cash Flows for the nine months
ended September 30, 2004 and 2003 (unaudited) 5.
Notes to Condensed Financial Statements 6.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9.
PART II - OTHER INFORMATION 11.
Signatures 13.
Certification 13.
ULTRADATA SYSTEMS, INCORPORATED
Condensed Balance Sheets
As of September 30, 2004 and December 31, 2003
September 30, December 31,
2004 2003
Assets (Unaudited)
------------------------------------------------------------------------------
Current assets:
Cash $ 394,952 $ 2,926
Trade accounts receivable, net of
allowance for doubtful accounts of
$100 and $14,703, respectively 231,547 627,490
Inventories, net 101,887 55,594
Prepaid expenses 25,804 5,166
---------- ----------
Total current assets 754,190 691,176
---------- ----------
Property and equipment, net 23,384 25,958
Other assets 5,444 5,444
---------- ----------
Total assets $ 783,018 $ 722,578
========== ==========
Liabilities and Stockholders' Equity (Deficiency)
-----------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 33,259 $ 460,701
Accrued liabilities 62,168 90,792
Notes payable - current - 173,802
---------- ----------
Total current liabilities 95,427 725,295
---------- ----------
Stockholders' equity (deficiency)
Preferred Stock, $0.01 par value,
4,996,680 shares authorized, none
outstanding - -
Series A convertible preferred stock,
3,320 shares authorized with a stated
value of $1,000, none and 16 shares
outstanding - -
Common stock, $.01 par value; 10,000,000
shares authorized; 6,410,187 shares
issued and outstanding September 30,2004;
5,783,840 shares issued and outstanding
December 31, 2003 64,102 57,838
Additional paid-in capital 9,121,022 8,916,685
Accumulated deficit (8,338,088) (8,977,240)
Less: deferred consulting services (159,445) -
---------- ----------
Total stockholders' equity (deficiency) 687,591 (2,717)
---------- ----------
Total liabilities and stockholders' equity
(deficiency) $ 783,018 $ 722,578
========== ==========
See accompanying summary of accounting policies and notes to financial
statements.
-3-
ULTRADATA SYSTEMS, INCORPORATED
Condensed Statements of Operations
For the three and nine months ended September 30, 2004 and 2003 (unaudited)
Three months Nine months
ended ended
September 30, September 30,
2004 2003 2004 2003
--------------------------------------------------------------------------------
Net sales $ 101,205 $ 314,763 $3,309,260 $1,112,576
Cost of sales 51,588 193,499 1,703,108 576,705
--------------------- --------------------
Gross profit 49,617 121,264 1,606,152 535,871
Selling expense 26,318 48,557 183,183 100,584
General and administrative
expenses 210,283 186,235 687,672 665,784
Research and development expense 35,957 6,561 90,941 42,066
--------------------- --------------------
Total operating expenses 272,558 241,353 961,796 808,434
--------------------- --------------------
Operating (loss) profit (222,941) (120,089) 644,356 (272,563)
Other income (expense):
Interest and dividend income 852 39 1,190 6,390
Interest expense (697) (28,048) (6,408) (138,085)
Loss on early retirement of note
receivable - - - (57,813)
Settlement of legal dispute - 127,012 - 127,012
Other, net (168) 25 16 6,382
--------------------- --------------------
Total other (expense) income, net (13) 99,028 (5,202) (56,114)
--------------------- --------------------
(Loss) income before income taxes (222,954) (21,061) 639,154 (328,677)
Income tax - - - -
--------------------- --------------------
Net (loss) income (222,954) (21,061) 639,154 (328,677)
Less preferred stock dividends - (8,790) - (8,790)
--------------------- --------------------
Net (loss) income available to
common shareholders $ (222,954) $ (29,851) $ 639,154 $ (337,467)
===================== ====================
(Loss) income per share - basic $ (0.04) $ (0.01) $ 0.10 $ (0.07)
===================== ====================
(Loss) income per share - fully
diluted $ (0.04) $ (0.01) $ 0.10 $ (0.07)
===================== ====================
Weighted Average Shares
Outstanding -
Basic 6,257,480 4,865,974 6,152,552 4,665,004
===================== ====================
Weighted Average Shares
Outstanding -
Fully diluted 6,257,480 4,865,974 6,416,115 4,665,004
===================== ====================
See accompanying summary of accounting policies and notes to financial
statements.
-4-
ULTRADATA SYSTEMS, INCORPORATED
Condensed Statements of Cash Flows
Nine months ended September 30, 2004 and 2003 (unaudited)
2004 2003
(unaudited)
----------------------------------------------------------------------
Cash flows from operating activities:
Net earnings (loss) $ 639,152 $ (328,677)
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities
Depreciation and amortization 10,780 25,272
Provision for doubtful accounts 283 225
Inventory reserved for obsolescence - 17,018
Stock issued for services 14,495 4,500
Loss on early settlement of notes receivable - 57,813
Non-cash accrued interest receivable - (12,397)
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Trade accounts receivable 395,660 9,452
Inventories (46,292) (74,135)
Prepaid expenses and other current assets (20,638) (8,945)
Accounts payable (427,443) (57,621)
Accrued expenses (28,624) (39,472)
--------- ---------
Net cash provided by (used in) operating
activities 537,373 (406,967)
--------- ---------
Cash flows from investing activities:
Proceeds from early settlement of notes
receivable - 202,517
Capital expenditures (8,206) (10,150)
--------- ---------
Net cash (used in) provided by investing
activities (8,206) 192,367
--------- ---------
Cash flows from financing activities:
Proceeds from stock issued for cash and
options exercised 9,061 91,910
Proceeds from notes payable issued 165,000 91,600
Preferred dividends paid - (8,790)
Subscription payments - 83,810
Principal payments on notes payable (311,202) (58,477)
--------- ---------
Net cash (used in) provided by financing
activities (137,141) 200,053
--------- ---------
Net increase (decrease) in cash 392,026 (14,547)
Cash at beginning of period 2,926 37,842
--------- ---------
Cash at end of period $ 394,952 $ 23,295
========= =========
Non-Cash Activities:
During the nine months ended September 30, 2004, the Company issued
223,000 shares of common stock valued at $173,940 to satisfy terms
of a management consulting contract.
During the nine months ended September 30, 2003, the Company issued
683,076 shares of common stock to satisfy convertible debt
aggregating to $90,000.
During the nine months ended September 30, 2004, the Company issued
273,906 shares of common stock for a note payable of $27,600.
See accompanying summary of accounting policies and notes to condensed
financial statements.
-5-
ULTRADATA SYSTEMS, INCORPORATED
Notes to Condensed Financial Statements
September 30, 2004 (Unaudited)
Basis of Presentation
The accompanying interim condensed financial statements included herein
have been prepared by Ultradata Systems, Incorporated (the "Company"), without
audit in accordance with generally accepted accounting principles and pursuant
to the rules and regulations of the Securities and Exchange Commission for
interim financial information. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures made are adequate to make the information presented not
misleading.
In the opinion of management, the information furnished for the three-
month and nine-month periods ended September 30, 2004 and 2003, 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, 2004. It is
suggested that the interim financial statements be read in conjunction with
the audited financial statements for the year ended December 31, 2003, as
filed with the Securities and Exchange Commission on Form 10-KSB (Commission
File Number 0-25380), from which these statements were derived.
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. Inventories
September 30, December 31,
2004 2003
--------------------------------
Raw Materials, net of
obsolete $ 50,193 $ 3,738
Finished Goods, net of
obsolete 51,694 51,856
-------- --------
Total $ 101,887 $ 55,594
Obsolete inventory on hand $ 749,866 $ 816,150
Note 2. Prepaid Expenses
Prepaid expenses consist of the following:
September 30, December 31,
2004 2003
--------------------------------
Prepaid insurance $ 12,529 $ 5,166
Prepaid advertising 13,275 -
------- -------
$ 25,804 $ 5,166
======= =======
Note 3. Convertible Notes Payable
At December 31, 2003 the Company had outstanding convertible debt in the
principal amount of $173,802. A portion of the notes payable in the amount of
$27,600 was converted to 273,906 shares of common stock during the first week
of January 2004. Subsequently, during the quarter ending March 31, 2004, the
convertible debt was retired by payment in full of the outstanding balance of
$146,202 plus all accrued interest.
-6-
Note 4. Income (Loss) Per Share
For the three months For the nine months
ended September 30, ended September 30,
2004 2003 2004 2003
------------------------ -----------------------
Basic
Numerator:
Net income (loss) $ (222,954) $ (29,851) $ 639,154 $(337,467)
--------------------- -------------------
Numerator for basic
income (loss) per share $ (222,954) $ (29,851) $ 639,154 $(337,467)
===================== ==================
Denominator:
Weighted average common
shares 6,257,480 4,865,974 6,152,552 4,665,004
Denominator for basic
income (loss) per share 6,257,480 4,865,974 6,152,552 4,665,004
Basic income (loss) per
share $ (0.04) $ (0.01) $ 0.10 $ (0.07)
Fully Diluted
Numerator:
Net income (loss) $ (222,954) $ (29,851) $ 639,154 $(337,467)
-------------------- ------------------
Numerator for fully
diluted income (loss)
per share $ (222,954) $ (29,851) $ 639,154 $(337,467)
===================== ===================
Denominator:
Weighted average common
shares 6,257,480 4,865,974 6,152,552 4,665,004
Common stock equivalents - - 263,563 -
--------------------- --------------------
Denominator for fully
diluted income (loss)
per share 6,524,172 4,865,974 6,416,115 4,665,004
Fully diluted income
(loss) per share $ (0.04) $ (0.01) $ 0.10 $ (0.07)
Note 5. Notes Payable
During 2004, the Company sold a nine-month note payable in the amount of
$150,000 to a shareholder of the Company. The note earned interest at 12%
APR and was unsecured. The unpaid balance at March 31, 2004, was $100,000.
During April 2004, the Company paid off the remainder of the note payable.
Note 6. Loans Payable - Related Parties
During 2004, the Company received a loan of $15,000 from its Chief
Executive Officer to fund operations. The outstanding balance of the loan
was paid in full as of March 31, 2004.
-7-
Note 7. Common Stock
A. Employee Stock Options
During the nine-month period ended September 30, 2004, employees exercised
stock options to purchase 100,441 shares of common stock for $7,031.
B. Director Stock Options
During the nine-month period ended September 30, 2004, directors exercised
stock options to purchase 29,000 shares of common stock for $2,030.
C. Stock Granted For Consulting Services
During the nine months ended September 30, 2004, the Company issued 223,000
shares of common stock valued at $173,940 to satisfy terms of a management-
consulting contract. The contract is for a period of twelve months.
Therefore, in the quarter ended September 30, 2004, the Company recorded an
expense of $14,495. The remaining value of the shares is recorded as an offset
to stockholders' equity, which will be amortized over the life of the contract.
-8-
Note 8. AAA Agreements
In January 2004, the Company reached an agreement with AAA National to
terminate the existing agreement for private branding of the AAA Talking Road
NavigatorTM as of March 27, 2004. This termination occurred at the request of
AAA National for internal business reasons and not for cause or non-
performance by the Company, in accordance with the terms for cancellation of
the agreement by either party.
In May 2004, AAA notified the Company that it does not intend to renew
the marketing agreement on the AAA TripWizard. The Company, per terms of the
agreement, can continue to market the product and divest itself of its
inventory well into 2005.
Note 9. Sales Concentrations
For the nine-month period ended September 30, 2004, the Company had a
concentration of sales with two customers of 68.2% and 17.5%, respectively.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS
This quarterly report contains a number of forward-looking statements
regarding our future prospects. Among the forward-looking statements are
descriptions of our plans to introduce new products to the market, to expand
our customer base, to develop products based on a GPS/Internet technology,
and to continue the Company's profitability. These forward-looking statements
are a true statement of our present intentions, but are neither predictions of
the future nor assurances that any of our intentions will be fulfilled. Many
factors beyond our control could act against Ultradata in its efforts to
develop andmarket its products. Among these factors are:
* The fact that our financial resources are limited and will likely not
sustain us for more than one year without continued success of the Road
WhizTM product line;
* The fact that our lack of capital severely limits our ability to
market our products. As a result, the loss of a significant customer could
imperil the marketing of an entire product line;
* The difficulty of attracting mass-market retailers to a seasonal
product like the Talking Road Whiz(tm).
There may also be factors that we have not foreseen which could interfere
with our plans. In addition, changing circumstances may cause us to determine
that a change in plans will be in the best interests of Ultradata. For the
reasons given, there is a significant risk that we will not be able to
fulfill our expectations for Ultradata.
OVERVIEW
The Company mission is to aid the road traveler with useful information
with products easy to use and affordable in price. Since 1987 we have been
engaged in the business of manufacturing and marketing handheld computers t
hat provide travel information. The products are based upon a data
compression technology that we developed, portions of which we have patented.
Recent developments in communications and speech technology have opened up
new opportunities for us to integrate our technology and create new products
merging these technologies with our own. The Company is completing
development of several new products which are based on adding significant
features to the successful Talking Road Navigator such as a Spanish-speaking
unit and a voice-recognition unit which allows for hands-free operation.
These new products are consistent with our goal of improved ease of use by
the consumer. We completed development of the Spanish- speaking unit in the
third quarter, and it should be available for sale by the end of the year.
The voice-recognition unit should be available for sale in early 2005.
The voice recognition product is called the Road Genie Audio Navigation System
and represents a quantum jump in user convenience. We believe this product
will achieve significant success in 2005.
-9-
The Company has sold over 3 million of its low-cost handheld travel
computers, demonstrating that there is a market for travel information
products. To re-awaken that market with an improved product that speaks, the
Company has developed a Talking Road WhizTM. Significant deliveries of this
product began in September of 2003 and, the Company received significant
revenue in the last four months of 2003 from sales of this new addition to
its product line. Company earnings in the fourth quarter of 2003 were
sufficient to offset losses in the first three quarters of 2003. This
success continued in the first two quarters of 2004, which have traditionally
been weak quarters for Ultradata. At the present time, our backlog of orders
is not significantly greater than it was at the same time in 2003. However,
because we have already exceeded last year's sales, we expect results for all
of 2004 to be a significant improvement on 2003.
Each of our consumer products is designed to allow the consumer to access
useful information stored in a convenient manner. Our handheld computers
generally sell at retail prices between $19.95 and $49.95 per unit. The
products have been available in retail mass-market chains, catalogs, credit
card inserts and many other channels.
The goals of the Company's research and development investments are
targeted at attaining the right product at the right price. There are over
125 million drivers in the U. S., and there is a great demand for useful,
easy-to-access information for convenience and safety on the road. Low-cost
products that achieve these benefits have a significant niche in the market-
place. Thus far, Management feels the Company has barely penetrated
this huge, largely untapped market. The Company expects to continue to
exploit this niche over the next few years by bringing the results of merged
technologies to bear on the goals stated above with significant impact on
Company sales and profits. Ease of use and low cost are major considerations.
With the new voice-recognition unit, we believe we are close to tapping this
large market.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 2004 Compared to Three and
Nine Months Ended September 30, 2003
Cumulative operating results through the third quarter of 2004 were
significantly improved when compared to the same period of 2003. Operating
results for the third quarter of 2004 were significantly less when compared
to the third quarter of 2003 after three consecutive strong quarters. Much
of the reduction in sales for the quarter came about due to our major
distributor entering a period of uncertainty with new ownership. In addition,
their internal difficulties prevented aggressive marketing of our products and
they actually eliminated certain sales channels. It is taking time for the
Company to adequately replace this distributor; it has had serious effect on
the second half of 2004. Management sees this setback as temporary and feels
it should have little effect on 2005 results.
Sales. During the three and nine months ended September 30, 2004, net
sales totaled $101,205 and $3,309,260, respectively, compared with $314,763
and $1,112,576, respectively for the same periods in 2003. These figures
represent a decrease of 67.9% for the quarter and an increase of 197% for the
nine-month period.
Backlog. As of September 30,2003, the backlog for delivery in the fourth
quarter 2004 was $558,722, as compared with $692,730 as of September 30, 2003.
Gross Profit. Gross profit for the three- and nine-month periods ending
September 30, 2004 were 49.0% and 48.5%, respectively comparing favorably to
38.5% and 48.2%, respectively, for the corresponding periods in 2003.
SG&A Expense. Selling expenses for the three- and nine-month periods
ended September 30, 2004 were $26,318 and $183,183, respectively, compared
with $48,557 and $100,584, respectively, for the corresponding periods in
2003. As a percent of sales, selling expenses for the periods in 2004 were
26.0% and 5.5%, respectively as compared to 15.4% and 9.0% for the same periods
in 2003. The primary reason for the increase in the quarter is the fact that
costs associated with producing advertisements for sale of products in the
fourth quarter and beyond were incurred in the third quarter 2004. General and
administrative expenses for the three- and nine-month periods ended September
30, 2004 were $210,283 and $687,672, respectively, compared with $186,235 and
$665,784, respectively, for the corresponding periods in 2003. These figures
represent increases of 12.9% and 3.3%, respectively, for the three- and nine-
month periods in 2004 versus 2003. The quarter-to-quarter increase is due to
a one-time accounting adjustment in 2003 because of outside contract work
performed by the Company in 2003. The small increase for the nine-month
period reflects our continuing efforts to keep these costs under control.
-10-
R&D Expense. Research and development expenses in the three-month period
ended September 30,2004 amounted to $35,957 as compared to $6,561 for the same
period in 2003. For the nine-month period, they were $90,941 as compared to
$42,066 in the same period in 2003. The quarter increase is the result of
adding to our R&D staff in May of 2004, coupled with the fact that during the
third quarter of 2003 our R&D personnel were fully engaged in a consulting
project that did not result in Company R&D expenses. The development of
Talking Road Navigator had been completed and submitted for production. The
increase for the nine-month period is the result of the same events and the
concentration of efforts in 2004 for the development of new products.
The Company posted a net loss from operations of ($222,941) for the three-
month period ended September 30, 2004, compared to a net loss from operations
of ($120,089) for the corresponding period in 2003. For the nine-month period,
the Company posted an operating profit of $644,356 compared to an operating
loss of ($272,563) for the same period in 2003. The loss for the quarter is
due to a lull of orders in the quarter, and the profit for the nine-month
period is due to the strong first half of the year and sales of the Talking
Road Navigator.
Other Income. Other income (expense) for the three- and nine-month periods
ended September 30, 2004 totaled ($13) and ($5,202), respectively, compared
with $99,028 and ($56,114), respectively, for the corresponding periods of
2003. In the third quarter of 2003, the Company received a one-time
settlement for a legal dispute that offset the interest expenses that
dominated this category in 2003.
As a result of the foregoing, the Company realized a net loss of
($222,954), or $0.04 per basic and diluted common share, for the three-month
period ended September 30, 2003, compared to a net loss to common shareholders
of ($29,851), or ($0.01) per basic and diluted common share, for the three-
month period ended June 30, 2003. The Company realized a net income of
$639,154, or $0.10 per basic and diluted common share, for the nine-month
period ended September 30, 2004, compared to a net loss to common shareholders
of ($337,467), or ($0.07) per basic and diluted common share, for the nine-
month period ended September 30, 2003.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 2004, the Company had $394,952 in cash, compared to
$2,926 at December 31, 2003. The Company's operating activities in the nine
months ended September 30, 2003, provided cash totaling $537,373. In addition
to earnings of $639,152, receipts of accounts receivable produced cash of
$395,660, offset by paying down $427,443 of accounts payable.
Net cash used in investing activities included $8,026 for capital
expenditures.
Net cash used in financing activities for the nine-month period ended
September 30, 2004, included $311,202 to pay down all outstanding debt,
including $165,000 borrowed in the first quarter of 2004, compared with
$200,053 provided in the same period of 2003.
The Company's current ratio at September 30, 2004 was 7.9:1 and its working
capital was $658,763. The Company has no material capital commitments at this
time. Therefore, if sales revenue is sufficient to offset our fixed operating
costs, our working capital will be adequate to support our operations for the
forseeable future.
Item 3. Controls and Procedures
Monte Ross, our Chief Executive Officer, and Ernest Clarke, our Chief
Financial Officer, performed an evaluation of the Company's disclosure
controls and procedures as of September 30, 2004. Based on their evaluation,
they concluded that the controls and procedures in place are sufficient to
assure that material information concerning the Company which could affect
the disclosures in the Company's quarterly and annual reports is made known
to them by the other officers and employees of the Company, and that the
communications occur with promptness sufficient to assure the inclusion of
the information in the then-current report.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect those controls
subsequent to the date on which Messrs. Ross and Clarke performed their
evaluation.
-11-
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities and Use of Proceeds:
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:
Exhibits:
31 Rule 13a-14(a) Certification
32 Rule 13a-14(b) Certification
Reports on Form 8-K:
None
-12-
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 12, 2004 /s/ Monte Ross
--------------------------
Monte Ross, CEO
(Chief executive officer)
/s/ Ernest S. Clarke
--------------------------
Ernest S. Clarke, President
(Principal financial and
accounting officer)