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, 2005
[ ] 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
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(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 August 2, 2005
---------------------- ---------------------------------
Common, $.01 par value 6,416,187
Transitional Small Business Disclosure Format Yes [ ] No [X]
File Number 0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
June 30, 2005
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets at
June 30, 2005 and December 31, 2004 3.
Condensed Statements of Operations
for the three months and six months ended
June 30, 2005 and 2004 4.
Condensed Statements of Cash Flows
for the six months ended June 30, 2005 and 2004 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 13.
Signatures 13.
Exhibits 13.
-2-
ULTRADATA SYSTEMS, INCORPORATED
Condensed Balance Sheets
As of June 30, 2005 and December 31, 2004
June 30, December 31,
2005 2004
----------- --------------
Assets (Unaudited)
Current assets:
Cash $ 45,955 $ 385,966
Trade accounts receivable, net of
allowance for doubtful accounts of
$100 and $176,575, respectively 7,280 38,459
Inventories, net 96,880 89,890
Prepaid expenses 104,737 41,515
--------- ---------
Total current assets 254,852 555,830
Property and equipment, net 23,035 30,458
Other assets 5,444 5,444
Total assets $ 283,331 $ 591,732
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 17,711 $ 126,019
Accrued liabilities 145,019 55,967
--------- ---------
Total current liabilities 162,730 181,986
Note payable - long term 18,630 -
--------- ---------
Total liabilities 181,360 181,986
Stockholders' equity
Preferred Stock, $0.01 par value,
4,996,680 shares authorized, none outstanding - -
Common stock, $.01 par value; 10,000,000
shares authorized; 6,416,187 shares issued
and outstanding June 30, 2005 and
December 31, 2004 64,162 64,102
Additional paid-in capital 9,222,432 9,121,022
Accumulated deficit (9,155,633) (8,659,418)
Deferred stock compensation (28,990) (115,960)
--------- ---------
Total stockholders' equity 101,971 409,746
--------- ---------
Total liabilities and stockholders' equity $ 283,331 $ 591,732
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
-3-
ULTRADATA SYSTEMS, INCORPORATED
Condensed Statements of Operations
For the three and six months ended June 30, 2005 and 2004
(unaudited)
Three months ended Six months ended
June 30, June 30,
2005 2004 2005 2004
------------------------ ------------------------
(unaudited) (unaudited)
Net sales $ 111,344 $ 1,454,556 $ 195,169 $ 3,208,055
Cost of sales 44,601 755,912 88,503 1,651,520
--------- --------- --------- ---------
Gross profit 66,743 698,644 106,666 1,556,535
Selling expense 125,620 108,272 148,030 156,865
General and administrative
expenses 262,283 217,181 361,867 477,389
Research and development
expense 90,793 35,315 125,994 54,984
--------- --------- --------- ---------
Total Operating Expenses 478,696 360,768 635,891 689,238
--------- --------- --------- ---------
Operating (loss) profit (411,953) 337,876 (529,225) 867,297
Other income (expense):
Interest and dividend income 136 338 515 338
Interest expense (14,655) (454) (21,413) (5,711)
Royalty income 40,000 - 40,000 -
Other, net 13,858 51 13,908 182
--------- --------- --------- ---------
Total other income
(expense), net 39,339 (65) 33,010 (5,191)
--------- --------- --------- ---------
(Loss) income before income
taxes (372,614) 337,811 (496,215) 862,106
Income tax expense - - - -
--------- --------- --------- ---------
Net (loss) income $ (372,614) $ 337,811 $ (496,215) $ 862,106
========= ========= ========= =========
(Loss) income per share:
Basic $ (0.06) $ 0.05 $ (0.08) $ 0.14
========= ========= ========= =========
(Loss) income per share:
Fully diluted $ (0.06) $ 0.05 $ (0.08) $ 0.14
========= ========= ========= =========
Weighted Average Shares
Outstanding:
Basic 6,410,780 6,172,209 6,410,485 6,114,567
========= ========= ========= =========
Weighted Average Shares
Outstanding:
Fully diluted 6,410,780 6,438,901 6,410,485 6,381,259
========= ========= ========= =========
See accompanying summary of accounting policies and notes to condensed financial
statements.
-4-
ULTRADATA SYSTEMS, INCORPORATED
Condensed Statements of Cash Flows
Six months ended June 30, 2005 and 2004
(unaudited)
2005 2004
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net (loss) income $ (496,215) $ 862,106
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 8,788 6,916
Provision for doubtful accounts (176,252) 143
Reserve for inventory impairment 6,489 -
Stock issued for services 88,440 -
Non-cash amortization of note payable
discount 18,630 -
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Trade accounts receivable 207,432 (4,496)
Inventories (13,479) (49,188)
Prepaid expenses and other current assets (63,222) (7,515)
Accounts payable (108,308) (91,140)
Accrued expenses 39,052 (21,582)
-------- --------
Net cash provided by (used in) operating
activities (488,645) 695,244
-------- --------
Cash flows from investing activities:
Capital expenditures (1,366) (8,206)
-------- --------
Net cash (used in) provided by investing
activities (1,366) (8,206)
-------- --------
Cash flows from financing activities:
Proceeds from stock issued for cash and
options exercised - 9,061
Proceeds from sale of convertible debentures 100,000 -
Advance on future debenture conversion 50,000 -
Note payable - Short term - 165,000
Principal payments on notes payable - (311,202)
-------- --------
Net cash provided by (used in) financing
activities 150,000 (137,141)
-------- --------
Net increase in cash and cash equivalents (340,011) 549,897
Cash and cash equivalents at beginning of period 385,966 2,926
-------- --------
Cash and cash equivalents at end of period $ 45,955 $ 552,823
======== ========
During the six months ended June 30, 2004, the Company issued 273,906 shares of
common stock to satisfy convertible debt aggregating to $27,600.
See accompanying summary of accounting policies and notes to condensed financial
statements.
-5-
ULTRADATA SYSTEMS, INCORPORATED
Notes to Condensed Financial Statements
June 30, 2005
(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 six-month periods ended June 30, 2005 and 2004, 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, 2005. It is suggested that the interim
financial statements be read in conjunction with the audited financial
statements for the year ended December 31, 2004, 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. Inventories
-------------------
Inventories consist of the following:
June 30, December 31,
2005 2004
----------- ------------
(Unaudited)
Raw Materials, net of obsolete $ 20,259 $ 4,966
Finished Goods, net of obsolete 76,621 84,924
--------- ---------
Total $ 96,880 $ 89,890
========= =========
Obsolete inventory on hand $ 743,193 $ 738,826
Note 2. Prepaid Expenses
------------------------
Prepaid expenses consist of the following:
June 30, December 31,
2005 2004
----------- ------------
(Unaudited)
Prepaid insurance $ 19,085 $ 6,015
Prepaid expenses 85,652 35,500
-------- ---------
$ 104,737 $ 41,515
======== =========
-6-
Note 3. Income (Loss) Per Share
-------------------------------
For the three months For the six months
ended June 30, ended June 30,
2005 2004 2005 2004
---------------------- ----------------------
Basic
Numerator:
Net (loss) income $(372,614) $ 337,810 $(496,215) $ 862,105
Numerator for basic income
(loss) per share $(372,614) $ 337,810 $(496,215) $ 862,105
======== ======== ======== ========
Denominator:
Weighted average common shares 6,410,780 6,172,209 6,410,485 6,114,567
Denominator for basic income
(loss) per share 6,410,780 6,172,209 6,410,485 6,114,567
Basic income (loss) per share $ (0.06) $ 0.05 $ (0.08) $ 0.14
Fully Diluted
Numerator:
Net income (loss) $(372,614) $ 337,810 $(496,215) $ 862,105
Numerator for fully diluted
income (loss) per share $(372,614) $ 337,810 $(496,215) $ 862,105
======== ======== ======== ========
Denominator:
Weighted average common shares 6,410,780 6,172,209 6,410,485 6,114,567
Common stock equivalents - 266,692 - 266,692
--------- --------- --------- ---------
Denominator for fully diluted
income (loss) per share 6,410,780 6,438,901 6,410,485 6,381,259
========= ========= ========= =========
Fully diluted income (loss) per
share $ (0.06) $ 0.05 $ (0.08) $ 0.14
Note 4. Note Payable
--------------------
On February 17, 2005 Ultradata entered into a Securities Purchase Agreement
dated February 14, 2005 with Golden Gate Investors, Inc., which was modified by
an Addendum dated February 17, 2005. Ultradata sold to Golden Gate a 43/4%
Convertible Debenture and Warrants to Purchase Shares of Common Stock, all for
a purchase price of $300,000. The Company received proceeds of $100,000 of the
purchase price, except that $50,000 of that sum is being held in escrow for
payment of the costs of preparing and filing a registration statement that will
permit Golden Gate to make a public resale of the shares into which the
Debenture is convertible and for which the Warrant is exercisable (the
"Registration Statement"). As a result of the beneficial conversion of the
debenture, the Company has allocated $100,000 of the debenture proceeds to
additional paid-in capital and recorded a discount on the debenture of $100,000.
The remainder of the purchase price is payable when the Securities and Exchange
Commission declares the Registration Statement effective.
-7-
Interest that accrues on the Debenture, at 43/4% per annum, will be payable
monthly. The principal amount of the Debenture is payable in full on February
14, 2007. However, the holder of the Debenture has agreed that, in each month
after the Securities and Exchange Commission declares the Registration Statement
effective, the holder will convert at least 3% of the face amount of the
debenture into common stock. Similarly, the holder of the Warrant is required
to purchase at least 3% of the shares subject to the Warrant in each month
after the Securities and Exchange Commission declares the Registration Statement
effective.
The conversion provisions of the Debenture and the exercise provisions of
the Warrant are correlated so that the Debenture will be converted and the
Warrant exercised in like proportions. The result is that in any month in which
the holder converts the 3% minimum it will also exercise the 3% minimum under
the Warrant, which will result in it purchasing common stock for $99,000
($90,000 paid in cash and $9,000 of the Debenture principal converted). The
number of shares that will be purchased will equal the purchase price divided
by the lesser of (a) $1.25 or (b) 80% of the average of the three lowest volume
weighted average prices during the twenty trading days preceding conversion/
exercise. In total, the conversion of the Debenture and exercise of the Warrant
will result in Golden Gate purchasing Ultradata common stock for up to
$3,300,000 ($3,000,000 paid in cash and $300,000 of the Debenture principal
converted) during the period between the effective date of the Registration
Statement and February 14, 2007.
There are four conditions that may reduce the aggregate purchase price paid
by Golden Gate below $3,300,000:
1. If Golden Gate only converts the 3% minimum per month, the February 14,
2007 payment date for the Debenture will occur before full conversion and
exercise have occurred.
2. The conversion and exercise provisions of the securities provide that
at no time may Golden Gate acquire ownership of more that 9.9% of
Ultradata's outstanding common stock.
3. If at the time of a conversion/exercise, the conversion price would be
less than $.40, then either (a) Ultradata may opt to redeem the amount of
principal that the holder presents for conversion at 125% of face value, or
(b) if the conversion/exercise date is later than November 11, 2005, the
holder may elect to convert up to $100,000 of the Debenture without
exercising the Warrant, either of which events would reduce the aggregate
purchases under the Debenture and Warrant by 900% of the amount redeemed
by Ultradata or converted without exercise.
4. When the principal amount of the Debenture falls below $100,000,
Ultradata may redeem the remaining principal for its face value. In that
event, the aggregate purchase price paid by Golden Gate for Ultradata
common stock would be only $2,200,000.
During the three months ended June 30, 2005, the Company amortized $18,630
of the note payable discount.
Note payable - face $100,000
Note payable - discount 81,370
-------
$ 18,630
=======
In June 2005, Golden Gate Investors provided $50,000 as an advance payment.
Note 5. Going Concern
--------------------
As reflected in the accompanying financial statements, a major customer of
the Company has experienced deteriorating operations during 2004 and during the
second quarter of 2004 ceased ordering products from the Company. This customer
accounted for 55.4% of sales during 2004. In addition the Company terminated
its agreements with AAA for the sale of its products using the AAA logo to AAA
retail locations. Although Management has a plan in place to replace these lost
customers, it is not yet clear that the plan will be successful. The ability of
the Company to continue as a going concern is dependent on the Company's ability
to further implement its business plan, raise capital and generate revenues.
The financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
-8-
The Company has continued its product design and development efforts to
introduce new products in 2005 and has introduced its new Road GenieTM in 2005.
In addition, the Company has completed development of two other new products.
The first is a cell-phone version of the Road Whiz technology that allows the
user to access our proprietary database by means of a cell phone. The second
is a voice-activated digital voice recorder that provides hands-free recording
of urgent reminders or other information received while driving when writing
them down is awkward or even dangerous. Based on the success of the Talking
Road Whiz with direct TV marketing, the Company is proceeding with plans to
market Road GenieTM by means of direct-response commercials, with the Company
marketing directly to consumers. This new product represents an increase in
technology compared to the Talking Road Whiz and, in addition, can be enhanced
to include a digital voice recorder for additional value to the customer. The
Company is also opening a new source of revenue by developing the cell-phone
Road Whiz application. Thus, the Company has several different methods in work
to enhance sales revenue. In addition, the Company has obtained a loan and a
commitment for additional equity capital for up to $3.3 million (see Note 4).
Management believes that actions presently taken to obtain additional funding
provide the opportunity for the Company to continue as a going concern.
Note 6. Settlement of Office Max Receivable
------------------------------------------
On April 20, 2005 Office Max settled the lawsuit we filed against them for
the full amount of the disputed receivable without interest. The first-quarter
financials reflect the reversal of the bad-debt expense of $176,475 recorded in
2004 when collection was uncertain.
Note 7. Issuance of Shares to Outside Directors
-----------------------------------------------
During 2005, an aggregrate of 6,000 shares of common stock having a
a fair market value of $1,470 were issued to outside directors for services
rendered during 2004. The shares were valued on the prevailing price on the
grant date.
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 and market 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
Talking 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 that
provide travel information. The products are based upon a data compression
technology that we developed, portions of which we have patented. Recent
developments in communications 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.
-9-
These new products are consistent with our goal of improved ease of use by the
consumer. The Spanish-speaking unit was completed in 2004 and initial
deliveries to customers have been made. The voice-recognition unit was
completed and available for sale in limited quantities in June 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. We have produced a TV commercial to
enable selling the Road Genie directly to consumers. We will attempt to
repeat the success of the Talking Road Whiz through direct TV promotion. We
began test marketing began in May 2005.
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 $59.95 per unit.
The products have been available in retail mass-market chains, catalogs,
credit-card inserts, and 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 marketplace. 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. The introduction of expensive GPS navigation
systems has brought more awareness to this category. However, most consumers
do not wish to pay over $500 or monthly fees for directions. Our low-cost
user-friendly products offer an affordable alternative.
Another quite different channel is a cell-phone implementation of the
Road Whiz function. In this case, the user can download software to his cell
phone and use the Company's proprietary database and functionality
availability in the Road Whiz product by subscription on his cell phone.
We're in the process of completing development of an initial implementation of
the Road Whiz that functions on the user's cell phone. We will market it to
service providers as another feature available to modern cell phone
subscribers. The user will need no other hardware beyond a current-generation
cell phone. The cell-phone Road Whiz also has the potential of enabling
service discounts based on the user's location needs. Information that there
is a brand name motel, for example, with rooms available 10 miles down the
road can be provided to the user and offered at a significant discount to that
highly-targeted consumer. The Company has a patent on electronic coupons for
travelers that may be significant as real-time targeting of travelers grows.
The initial implementation of this application will operate on a number of new
models of cell phones. Specific software is in development that will broaden
the list of models compatible with this capability. There will, therefore, be
a ramp-up over time of potential users. Because of the large number of cell-
phone users, we expect that small market penetration could produce significant
results for the Company.
We have had a number of successful years selling our products followed
by a number of years when significant losses took place. The most recent
downward sales trend was reversed in 2003 due to the successful introduction
of the Talking Road WhizTM in the third quarter of 2003. The success of this
new product enabled us to overcome losses in the first three quarters of the
year with a superb fourth quarter and be profitable for the year. In 2004,
this trend continued through the first two quarters of the year. In the
second half of the year, sales declined due to internal problems at Media
Solutions Services, who accounted for 55.4% of sales during 2004. This
customer experienced deteriorating operations during 2004, which resulted in
the customer ceasing to order products from us during the second quarter of
2004. In addition, at the request of AAA corporate office, we terminated our
agreements with AAA for the use of the AAA logo on certain versions of our
products. The effect of this development is difficult to quantify. We
realized about 4% of sales from AAA stores in 2003 and 2004. These events led
our independent registered public accounting firm, in their report dated March
5, 2005, to express substantial doubt about our ability to continue as a going
concern. These events have resulted in a significant decline in revenue and
have placed increased pressure on our company to develop new customers. We
are working to rectify that situation by expanding our channels of
distribution and introducing new products we hope are attractive to the
marketplace, as outlined below.
We are making progress with wider channels of distribution of our
present products, with Kohl's and Wal-Mart committing to carry these products
later this year. Our efforts include using branding sources other than AAA,
and we have a product in the market with Automobile Clubs of America (ACA)
brand. We are also attempting to broaden the markets for our products in 2005
and are taking on the tasks of promoting products, such as Road Genie - tasks
that traditionally have been performed by our customers. This development
-10-
will add to our marketing costs in 2005 but should permit us to command a
higher margin than we could otherwise realize. In the past wholesalers or
distributors were burdened with these marketing costs, which will fall to us
on the new products.
In the area of new products, the Company has recently completed a voice-
activated audio navigation system called Road GenieTM which is just coming to
market. The user requests data verbally, and the unit responds verbally with
directions to the service requested. Because this device provides for hands-
free operation, it represents a significant jump in performance over earlier
products and we hope will generate revenue if funds for marketing it are
available. The funds necessary for marketing the Road Genie will be available
from the funding described in Note 4 to the Financial Statements.
Based on the past success of selling our product on TV directly to the
consumer by a major distributor, who sold approximately 200,000 Talking Road
Whiz units in 2004, we plan to market through television commercials directly
to the consumer rather than through a major distributor. We hope to establish
sales during the second half of 2005. Although we anticipate our marketing
expenses will be greater in the short term as we pay for media time, we will
receive the full retail price rather than having to pay a percentage of the
sale price to a distributor.
We also plan to add a voice-activated digital voice recorder feature to the
Road Genie at little additional cost. Development is complete, and this feature
will add value and make the product even more attractive to consumers.
If we sell 100,000 Road Genie units in 2005, which is much less than the
number of less-capable Talking Road Whiz units sold in 2004, we will reach
revenue levels above $4 million and should achieve profitability for the year,
with expectations of a better year in 2006 when a full year of Road Genie
sales can occur.
Further revenue can be expected downstream by implementation of the cell-
phone Road Whiz application now in field test. The marketing objective for that
product is to have the service carrier include this application in offers to his
customer base. Since there is no hardware cost to the consumer, Road Whiz
information can be obtained at very low cost to the consumer. Economic models,
such as a monthly subscription of $1 or pay-per-use method, all contribute
revenue to us with large numbers of potential clients, namely anyone with a cell
phone traveling on the highways.
The product-development plan for 2006 consists of adding a GPS receiver
and to incorporate software we've developed to implement a relatively low-cost
voice-activated navigation system with even more capability than the Road Genie
for simplicity of operation by the consumer.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2005 Compared to Three and Six Months
Ended June 30, 2004
Operating results for the six-month period ended June 30, 2005, as compared
the same period in 2004, differed primarily due to the fact that the Talking
Road Whiz was very successful in the first half of 2004 whereas the problems
with distribution in the second half of 2004 have persisted into 2005, pending
the marketing of the new Road Genie by direct response in the second half of
2005 and by placing Talking Road Whiz in more locations.
Sales. During the three and six months ended June 30, 2005, net sales
totaled $111,344 and $195,169, respectively, compared with $1,454,556 and
$3,208,055, respectively, for the same periods in 2004. These figures represent
a decrease of 92.4% for the three-month period and of 93.9% for the six-month
period.
Our sales revenue in 2005 comes, primarily, from individual orders as
opposed to 2004 when revenues were concentrated from a small number of mass
market retailers. For example, in the first six months of 2004 over 85% of our
revenue came from two customers. This concentration of our business among a few
customers means that our historical results are not a reliable predictor of
future results. Until we develop a broader customer base, our quarter-to-
quarter operating results are likely to vary considerably, depending on when
our customers choose to place their orders. In June we received orders from
QVC and Kohl's for delivery in the last half of the year.
-11-
Backlog. As of June 30, 2005, the Company had a backlog of $328,116. This
backlog is for purchase orders to be fulfilled in the third and fourth quarter
of 2005. On June 30, 2004 we had a backlog of $520,447 for shipment through
the remainder of 2004.
Gross Profit. Gross profit margin for the three- and six-month periods
ending June 30, 2005 were 59.9% and 54.7%, respectively, representing an
increase over gross margin in corresponding periods of 2004 of 48.0% and 48.5%,
respectively. Gross profit in 2004 was slightly lower due to the pricing that
applies to the high-volume sales contracts that were fulfilled in 2004.
S,G&A Expense. Selling expenses for the three- and six-month periods ended
June 30, 2005 were $125,620, or 113% of sales, and $148,030, or 75.9% of sales,
respectively, compared with $108,272, or 7.4% of sales, and $156,865, or 4.9% of
sales, respectively, for the corresponding periods in 2004. These figures
mirror the sales levels of the respective periods in that similar amounts for a
much smaller sales base will amount to a much larger percentage. In addition,
significant expenses have been incurred in developing the TV ads we need to
promote the product ourselves, as well as the costs associated with initial test
marketing. We expect these percentages to come down but to be significantly
higher than in 2004 because of the differences in our marketing approach in
2005.
General and administrative expenses for the three- and six-month periods
ended June 30, 2005 were $260,813 and $360,397, respectively, compared with
$217,181 and $477,389, respectively, for the corresponding periods in 2004. The
quarter comparison reflects consulting expenses from a New York firm in the
current quarter that were not present in 2004. The six-month figures include a
significant reversal of a bad-debt expense in the first quarter of 2005 due to
collection of the Office Max receivable. The figures reflect continued success
in our on-going effort to maintain efficiency in our control of overhead costs.
R&D Expense. Research and development expenses in the three- and six-month
periods ended June 30,2005 were $90,793 and $125,994, respectively, as compared
to $35,315 and $54,984, respectively, for the same periods in 2004. These
increases reflect a step-up in new-product development involving the voice-
technology devices incorporated in our newest products and costs related to the
development of the cell-phone Road Whiz application.
The Company recognized a loss from operations of (411,953) and (529,225)
for the three- and six-month periods ended June 30, 2005, respectively, compared
to profits from operations of $337,876 and $867,297 for the corresponding
periods in 2004.
Other Income (Expense). Other income for the three- and six-month periods
ended June 30, 2005 totaled $39,339 and $33,010, respectively, compared with
expenses of ($65) and ($5,191), respectively, for the corresponding periods of
2004. The 2005 numbers included $40,000 of royalty income from sales to Radio
Shack by our supplier, Sweda, Ltd., of Hong Kong. Royalty revenues will
continue in the third quarter at increased levels from additional sales to Radio
Shack and sales to Wal-Mart and other retailers.
As a result of the foregoing, the Company realized a net loss of (372,614),
or ($0.06) per basic and diluted common share, for the three-month period ended
June 30, 2005, compared to a net income of $337,811, or $0.05 per basic common
and diluted share, for the three-month period ended June 30, 2004. The Company
realized a net loss of ($496,215), or ($0.08) per basic and diluted common
share, for the six-month period ended June 30, 2005, compared to a net income of
$862,106, or $0.14 per basic common and diluted share, for the six-month period
ended June 30, 2004.
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FINANCIAL CONDITION AND LIQUIDITY
At June 30, 2005, the Company had $45,955 in cash, compared to $552,823 at
December 31, 2004. The Company's operating activities in the six months ended
June 30, 2005 used cash totaling (488,645) because of the similar loss incurred
in that period.
Net cash used in investing activities for the six-month period ended June
30, 2005 totaled ($1,366) for capital equipment, compared to ($8,206) in the
same period in 2004.
Net cash provided by in financing activities for the six-month period ended
June 30, 2005 was $150,000 compared to cash used of ($137,141) in the same
period in 2004. The 2004 amount resulted from paying off debt with proceeds of
sales in the last quarter of 2003, and the 2005 amount resulted from the
debenture and advance received in the first half of 2005.
The Company's current ratio at June 30, 2005 was 1.56:1 and its working
capital was $92,122.
Management believes that the financing described in Note 4 above will
provide sufficient working capital for operations for the rest of 2005 and will
permit product promotion for sales levels that will return the Company to
profitability in 2005.
ITEM 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures: As of June 30, 2005, the
Company's management carried out an evaluation, under the supervision of the
Company's Chief Executive Officer and the Chief Financial Officer of the
effectiveness of the design and operation of the Company's system of disclosure
controls and procedures pursuant to the Securities and Exchange Act, Rule 13a-
15(e) and 15d-15(e) under the Exchange Act). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
Changes in internal controls: There were no changes in internal controls
over financial reporting that occurred during the period covered by this report
that have materially affected, or are reasonably likely to materially effect,
our internal control over financial reporting.
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity
Securities:
In June 2005 Ultradata issued a total of 6,000 shares of common
stock to three of the members of its Board of Directors. The shares
were issued in consideration for services, and were valued at the
market value on the date of issuance - i.e. $1,470. The issuances were
exempt pursuant to Section 4(2) of the Act since the issuances were not
made in a public offering and were made to individuals who had access
to detailed information about Headliners and were acquiring the shares
for their own accounts. There were no underwriters.
Item 3. Defaults upon Senior Securities:
None
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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.
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 15, 2005
/s/ Monte Ross
------------------------------
Monte Ross, CEO
(Chief executive officer)
/s/ Ernest S. Clarke
-----------------------------------
Ernest S. Clarke, President
(Principal financial and accounting
officer)
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