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, 2006
( ) 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) 991-8494
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 [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
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 10, 2006
Common, $.01 par value 17,548,665
Transitional Small Business Disclosure Format Yes [ ] No [X]
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
June 30, 2006
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Condensed Unaudited Financial Statements
Condensed Balance Sheets at June 30, 2006
(consolidated and unaudited) and December 31, 2005 3.
Condensed Statements of Operations for the three
months and six months ended June 30, 2006
(consolidated and unaudited) and 2005 (unaudited) 4.
Condensed Statements of Cash Flows for the six
months ended June 30, 2006 (consolidated and
unaudited) and 2005 (unaudited) 5.
Notes to Condensed Consolidated Financial
Statements (unaudited) 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, AND SUBSIDIARY
Condensed Balance Sheets
As of June 30, 2006 (Consolidated) (unaudited)
and December 31, 2005
June 30, December 31,
2006 2005
-------------- ------------
(Consolidated)
Assets (Unaudited)
Current assets:
Cash $ 66,613 $ 133,524
Trade accounts receivable, net of
allowance for doubtful accounts of
$100 15,399 96,910
Inventories, net 78,538 86,314
Prepaid expenses 36,179 39,144
--------- ---------
Total current assets 196,729 355,892
Property and equipment, net 25,952 33,251
Other assets 5,444 5,444
--------- ---------
Total assets $ 228,125 $ 394,587
========= =========
Liabilities and Stockholders' Deficiency
Current liabilities:
Accounts payable $ 120,283 $ 200,172
Accrued liabilities 283,711 177,687
Notes payable 76,000 119,993
Derivative and warrant liability - 4,816,193
--------- ---------
Total current liabilities 479,994 5,314,045
--------- ---------
Total liabilities 479,994 5,314,045
Redeemable Stock:
Series B convertible preferred stock,
210,000 shares authorized and outstanding
with a stated value of $1,050 1,050 -
Series C convertible preferred stock,
150,000 shares authorized, with a stated
value of $750 - 100,000 shares outstanding 500 -
Stockholders'deficiency:
Preferred Stock, $0.01 par value,
4,636,680 shares authorized, none
outstanding - -
Common stock, $.01 par value; 50,000,000
shares authorized; 17,548,665 and
8,341,343 shares issued and outstanding 175,487 83,413
Additional paid-in capital 13,850,723 9,528,366
Accumulated deficit (14,279,629) (14,531,237)
---------- ----------
Total stockholders' deficiency (253,419) (4,919,458)
--------- ---------
Total liabilities and stockholders'
deficiency $ 228,125 $ 394,587
========= =========
See accompanying summary of accounting policies and notes to financial
statements.
-3-
ULTRADATA SYSTEMS, INCORPORATED, AND SUBSIDIARY
Condensed Statements of Operations
For the three and six months ended June 30, 2006
(consolidated and unaudited)
and 2005 (unaudited)
Three months ended June 30, Six months ended June 30,
2006 2005 2006 2005
(Consolidated) (Consolidated)
(unaudited) (unaudited)
----------------------------- ---------------------------
Net sales $ 45,032 $ 111,344 $ 130,358 $ 195,169
Cost of sales 21,038 44,601 71,432 88,503
-------- -------- -------- --------
Gross profit 23,994 66,743 58,926 106,666
Selling expense 16,886 125,620 34,189 148,030
General and
administrative expenses 158,094 262,283 333,858 361,867
Research and development
expense 15,319 90,793 58,582 125,994
-------- -------- -------- --------
Total Operating Expenses 190,299 478,696 426,629 635,891
-------- -------- -------- --------
Operating (loss) profit (166,305) (411,953) (367,703) (529,225)
Other income (expense):
Interest and dividend
income 13 136 143 515
Interest expense (53,597) (14,655) (163,044) (21,413)
Fair Value expense 782,212 - 782,212 -
Royalty income - 40,000 - 40,000
Other, net - 13,858 - 13,908
-------- -------- -------- --------
Total other income
(expense), net 728,628 39,339 619,311 33,010
--------- -------- -------- --------
Income (loss) before
income taxes $ 562,323 (372,614) 251,608 (496,215)
Income tax expense - - - -
--------- -------- -------- --------
Net income (loss) 562,323 $ (372,614) $ 251,608 $ (496,215)
========= ======== ======== ========
Income (loss) per share:
Basic $ 0.04 $ (0.06) $ 0.02 $ (0.08)
========= ======== ======== ========
Income (loss) per share:
Fully diluted $ 0.04 $ (0.06) $ 0.02 $ (0.08)
========= ======== ======== ========
Weighted Average Shares
Outstanding:
Basic 15,511,514 6,410,846 12,239,245 6,410,518
========== ========= ========== =========
Weighted Average Shares
Outstanding:
Fully diluted 15,511,514 6,410,846 12,239,245 6,410,518
========== ========= ========== =========
See accompanying summary of accounting policies and notes to condensed
financial statements.
-4-
ULTRADATA SYSTEMS, INCORPORATED, AND SUBSIDIARY
Condensed Statements of Cash Flows
Six months ended June 30, 2006 (consolidated and unaudited) and
2005 (unaudited)
2006 2005
(Consolidated)
(unaudited) (unaudited)
-------------- -----------
Cash flows from operating activities:
Net income (loss) $ 251,608 $ (496,215)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 7,299 8,788
Provision for doubtful accounts 58 (176,252)
Reserve for inventory impairment 6,785 6,489
Stock issued for services - 88,440
Non-cash derivative liability (782,212) -
Non-cash amortization of note payable discount 158,507 18,630
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Trade accounts receivable 81,452 207,432
Inventories 991 (13,479)
Prepaid expenses and other current assets 2,966 (63,222)
Accounts payable (79,888) (108,308)
Accrued expenses 106,023 39,052
--------- ---------
Net cash used in operating activities (246,411) (488,645)
--------- ---------
Cash flows from investing activities:
Capital expenditures - (1,366)
--------- ---------
Net cash used in investing activities - (1,366)
--------- ---------
Cash flows from financing activities:
Sale of preferred stock 210,000 -
Proceeds from sale of convertible debentures - 100,000
Advance on future debenture conversion - 50,000
Note payable - Short term 76,000 -
Principal payments on notes payable (106,500) -
--------- ---------
Net cash provided by financing activities 179,500 150,000
--------- ---------
Net decrease in cash and cash equivalents (66,911) (340,011)
Cash and cash equivalents at beginning of period 133,524 385,966
--------- ---------
Cash and cash equivalents at end of period $ 66,613 $ 45,955
========= =========
During the six months ended June 30, 2006, the Company issued 9,207,322 shares
of common stock to satisfy convertible debt aggregating to $172,000
See accompanying summary of accounting policies and notes to condensed
financial statements.
-5-
ULTRADATA SYSTEMS, INCORPORATED, AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 2006 (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, 2006 and 2005,
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, 2005, as filed with the
Securities and Exchange Commission on Form 10-KSB (Commission File Number
0-25380).
Cash
Cash includes deposits at financial institutions with maturities of
three months or less. The Company at times has cash in banks in excess of
FDIC insurance limits and places its temporary cash investments with high
credit quality financial institutions. At June 30, 2006, the Company had
no amounts in excess of the FDIC insured limits.
Income Tax
The Company accounts for income taxes under the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes",
("SFAS 109"). Under SFAS 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carry-forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized income in the period that includes the
enactment date.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Provision for
potentially obsolete or slow moving inventory is made based on management's
analysis of inventory levels and future sales forecasts.
Recent Pronouncements
SFAS 155, Accounting for Certain Hybrid Financial Instruments and
SFAS 156, Accounting for Servicing of Financial Assets were recently
issued. SFAS 155 and 156 have no current applicability to the Company and
have no effect on the financial statements.
Principles of Consolidation
The 2006 consolidated financial statements include the accounts of
Ultradata Systems, Incorporated, and its wholly-owned subsidiary, RW Data,
Inc. (June 1, 2006, inception). The 2005 financial statements include
Ultradata Systems, Incorporated. All significant intra-company accounts
and transactions have been eliminated in consolidation. Ultradata Systems,
Inc. and RW Data, Inc. are hereafter referred to as the "Company".
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.
-6-
ULTRADATA SYSTEMS, INCORPORATED, AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 2006 (Unaudited)
Note 1. Inventories
Inventories consist of the following:
June 30, December 31,
2006 2005
Consolidated
(Unaudited)
Raw Materials, net of obsolete $ 5,602 $ 9,664
Finished Goods, net of obsolete 72,936 76,649
-------- --------
Total $ 78,538 $ 86,313
======== ========
Obsolete inventory on hand $ 229,648 $ 712,062
Note 2. Prepaid Expenses
Prepaid expenses consist of the following:
June 30, December 31,
2006 2005
Consolidated
(Unaudited)
Prepaid insurance $ 3,786 $ 6,752
Prepaid expenses 32,393 32,393
-------- --------
$ 36,179 $ 39,145
======== ========
-7-
ULTRADATA SYSTEMS, INCORPORATED, AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 2006 (Unaudited)
Note 3. Income (Loss) Per Share
For the three months For the six months
ended June 30, ended June 30,
2006 2005 2006 2005
--------------------- ---------------------
Basic
Numerator:
Net income (loss) $ 562,324 $(372,614) $ 251,608 $(496,215)
Numerator for basic
income (loss) per share $ 562,324 $(372,614) $ 251,608 $(496,215)
======== ======== ======== ========
Denominator:
Weighted average common
shares 15,511,514 6,410,846 12,239,245 6,410,518
Denominator for basic
income (loss) per share 15,511,514 6,410,846 12,239,245 6,410,518
Basic income (loss) per
share $ 0.04 $(0.06) $ 0.02 $(0.08)
Fully Diluted Numerator:
Net income (loss) $ 562,324 $(372,614) $ 251,608 $(496,215)
Numerator for fully diluted
income (loss) per share $ 562,324 $(372,614) $ 251,608 $(496,215)
======== ======== ======== ========
Denominator:
Weighted average common
shares 15,511,514 6,410,846 12,239,245 6,410,518
Common stock equivalents - - - -
---------- --------- ---------- ---------
Denominator for fully
diluted income (loss)
per share 15,511,514 6,410,846 12,239,245 6,410,518
Fully diluted income
(loss) per share $ 0.04 $(0.06) $ 0.02 $(0.08)
-8-
ULTRADATA SYSTEMS, INCORPORATED, AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 2006 (Unaudited)
Note 4. Convertible Debentures
To obtain funding for ongoing operations, the Company entered into a
Securities Purchase Agreement (the SPA) and various amendments to the SPA
with Golden Gate Investors, Inc. (GGI) on February 14, 2005 for the sale of
(i) $300,000 in unsecured convertible debentures (the Notes) and (ii)
warrants to purchase 300,000 shares of the Company's common stock.
The Notes bore interest at 4.75% per annum, matured three years from
the date of issuance and were convertible into the number of shares of the
Company's common stock equal to the dollar amount of the Notes being
converted multiplied by 11, less the product of the conversion formula
multiplied by 10 times the dollar amount of the Notes being converted,
which is divided by the conversion formula. The conversion formula was the
lesser of (a) $1.25, (b) eighty percent of the average of the three lowest
volume weighted average prices during the twenty trading days prior to the
conversion. Accordingly, there was no limit on the number of shares into
which the Notes may be converted.
The Notes included certain features that are considered embedded
derivative financial instruments, such as the conversion feature, events of
default and a variable liquidated damages clause. These features are
described below, as follows:
* The Notes' conversion feature is identified as an embedded derivative
and has been bifurcated and recorded on the Company's balance sheet
at its fair value;
* The SPA includes a penalty provision based on any failure to meet
registration requirements for shares issuable under the conversion of
the Notes or exercise of the warrants, which represents an embedded
derivative, but such derivative has a de minimus value and has not
been recorded in the accompanying financial statements; and
The SPA contains certain events of default including not having
adequate shares registered to effectuate allowable conversions; in
that event, the Company is required to pay a conversion default
payment at 125% of the then outstanding principal balance on the
Notes, which is identified as an embedded derivative, but such
derivative has a de minimus value and has not been recorded in the
accompanying consolidated financial statements.
In conjunction with the Notes, the Company issued warrants to
purchase 300,000 shares of common stock. The accounting treatment of the
derivatives and warrants requires that the Company record the warrants at
their fair values as of the inception date of the agreement, which totaled
$600.
The initial fair value assigned to the embedded derivatives and
warrants was $5,957,188. The Company recorded the first $300,000 of fair
value of the derivatives and warrants to debt discount which will be
amortized to interest expense over the term of the Notes. The Company
recorded an amortization expense for the three months ended March 31, 2006
of $34,339. During the quarter ending June 30, 2006, no such amortization
expense was incurred
The market price of the Company's common stock significantly impacts
the extent to which the Company may be required or may be permitted to
convert the unrestricted and restricted portions of the Notes into shares
of the Company's common stock. The lower the market price of the Company's
common stock at the respective times of conversion, the more shares the
Company will need to issue to convert the principal and interest payments
then due on the Notes. If the market price of the Company's common stock
falls below certain thresholds, the Company will be unable to convert any
such repayments of principal and interest into equity, and the Company will
be forced to make such repayments in cash. The Company's operations could
be materially adversely impacted if the Company is forced to make repeated
cash payments on the Notes.
During the 3-month period ending June 30, 2006, conversions of
$100,000 of the debenture resulted in eliminating the Fair Value liability
taken in 2005 in accordance with guidance provided in EITF 00-19:
Note payable as of 12/31/2005 $ 278,500
Conversions during the first quarter 2006 72,000
Conversions during the second quarter 2006 100,000
Note payable principal balance paid in cash in second
quarter 2006 106,500
Discount on note payable -
Note payable - net -
Amortized amount charged to interest 52,280
Initial (non-cash) fair-value charge $ 4,816,193
Reduction in liability due to first quarter conversions 1,245,120
Reduction in liability due to second quarter conversions 2,788,861
---------
Gain from reduction in fair-value liability 782,212
=========
-9-
ULTRADATA SYSTEMS, INCORPORATED, AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 2006 (Unaudited)
On June 8, 2006 the Company fully satisfied the Notes by a payment
of $106,612.40, which equaled the remaining principal balance and accrued
interest on that date. In connection with that payment, Golden Gate
Investors, Inc. agreed to a termination of the Warrant to Purchase Common
Stock that had been linked to the Debenture.
Note 5 Note Payable
In May 2006, a loan of $76,000 was advanced by our supplier Sweda to
allow the Company to buy product and continue operations during this
transition period. The Company issued a note payable to Sweda, which is to
be repaid from proceeds of the sale of the assets of the RW Data subsidiary
of the Company when that occurs. The note is non-interest-bearing, is due
and payable December 31, 2006, and is secured by the intangible assets of
the Company.
Note 6 Preferred Stock
On June 6, the Company filed with the Delaware Secretary of State a
Certificate of Designation of 210,000 shares of Series B Preferred Stock.
The holder of the Series B shares will be entitled to cast 51% of the votes
at any shareholders meeting. The holder will be entitled to convert the
Series B stock into 10% of the outstanding shares of Ultradata common
stock, but only if Ultradata has acquired an operating company during 2006.
Otherwise the Series B Preferred Stock will be redeemed automatically for a
price of $.001 per share on December 31, 2006. In the event the Company
declares a dividend, the holder of a share of Series B Preferred Stock will
receive the same dividend as the holder of a share of common stock. In the
event of a liquidation of the Company, the holder of a share of Series B
Preferred Stock will receive $.005 per share before any distribution is
made to the holders of common stock, and will then share in the
distribution on a pari passu basis.
On June 6, the Company filed with the Delaware Secretary of State a
Certificate of Designation of 150,000 shares of Series C Preferred Stock.
The holder of the Series C shares will not be entitled to cast votes at any
shareholders meeting. The holder will be entitled to convert the Series C
stock into 2% of the outstanding shares of Ultradata common stock, but only
if Ultradata has acquired an operating company during 2006. Otherwise the
Series C Preferred Stock will be redeemed automatically for a price of
$.001 per share on December 31, 2006. In the event the Company declares a
dividend, the holder of a share of Series C Preferred Stock will receive
the same dividend as the holder of a share of common stock. In the event
of a liquidation of the Company, the holder of a share of Series C
Preferred Stock will receive $.005 per share before any distribution is
made to the holders of common stock, and will then share in the
distribution on a pari passu basis.
Note 7 Financing Activity
On June 1, 2006 Ultradata entered into a group of agreements. The
purpose of the agreements is to fund Ultradata's ongoing operations and
enable Ultradata to acquire a new business under new management. The
business that will be acquired has not yet been determined.
Under the primary agreement on June 1, 2006 Ultradata sold to Warner
Technology & Investment Corp. ("Warner Technology") 210,000 shares of
Series B Preferred Stock for $210,000 in cash paid on that date. In
connection with the purchase by Warner Technology of the Series B Preferred
Stock, the present directors of Ultradata elected to the Board a designee
of Warner Technology and submitted their resignations from the Board,
effective June 30, 2006. After that change of control, Warner Technology
and its designee to the Board bear responsibility for negotiating the
acquisition of an operating company. The Certificate of Designation of the
Series C stock provides, however, that no corporation acquisition can be
completed without the approval of the holders of the Series C stock - i.e.
the Managers (identified below). In the Management Agreement, the Managers
agreed that they will approve any corporate acquisition in which (a) the
acquired company had not less than $2.5 million in revenue and not less
than $700,000 in net pre-tax income in the year ended September 30, 2005,
(b) the shareholders of Ultradata at the time of the merger and the holders
of the Series C Preferred Stock will, on closing of the acquisition, own
not less than five percent of the equity in Ultradata, and (c) there are no
other material terms of the corporate acquisition that are objectionable to
the Managers.
Also on June 1, 2006, Ultradata entered into an Assignment and
Assumption Agreement, which effected the transfer of all of Ultradata's
operating assets to a wholly-owned subsidiary named "RW Data, Inc." In the
same agreement, RW Data agreed to pay all of Ultradata's debts and
obligations existing on June 1, 2006.
-10-
ULTRADATA SYSTEMS, INCORPORATED, AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
June 30, 2006 (Unaudited)
On the same date Ultradata and RW Data entered into a Management
Agreement with Monte Ross, Ernest Clarke and Mark Peterson (the
"Managers"), who were officers and members of Ultradata's Board of
Directors prior to June 30, 2006. All directors of Ultradata resigned, and
John Leo, the designee of Warner Technology, became the sole director. The
Managers agreed to the termination of their employment agreements with
Ultradata, and that they would instead assume responsibility for the
management of RW Data, Inc. The Managers undertake to use their best
efforts to effect a sale of the assets of RW Data during 2006. In
consideration for their commitment, Ultradata issued to the Managers a
total of 100,000 shares of Series C Preferred Stock and granted them
options to purchase a total of 50,000 additional Series C shares for
$150,000.
The Managers will be able to convert the Series C Preferred Stock
into 2% of the outstanding Ultradata shares (3% if they exercise the option
for additional Series C shares), but only if Ultradata has acquired an
operating company during 2006. Otherwise the Series C Preferred Stock will
be cancelled. If the 100,000 shares of Series C Preferred Stock are
converted into common stock, the Managers will be entitled to sell the
shares to Ultradata after April 1, 2007 for a price equal to the sum of
$275,000 less all liabilities of RW Data at December 31, 2006 and all
liabilities of Ultradata that existed on June 1, 2006 and remain on the
balance sheet on December 31, 2006. In the event that the afore-mentioned
liabilities exceed $275,000, then the Managers will be required to
surrender one Series C share for each $2.75 of excess liabilities.
Note 8 Going Concern
As reflected in the accompanying financial statements, for the three
months ended June 30, 2006 the Company had an operating loss of $166,305
and a negative cash flow from operations of $246,411. At June 30, 2006, it
had a working capital deficiency of $283,265, and a stockholders'
deficiency of $253,419. As a result of its financing activities (see Notes
5 and 7), the Company has had an infusion of capital from its supplier,
Sweda, and from the sale of Series B Preferred Stock. Consequently,
Management believes the Company has access to sufficient resources to
continue operations throughout the transition period begun with the signing
of the agreements outlined in Note 7.
Note 9 Subsequent Event: Legal Proceeding
On August 9, 2006 a lawsuit was commenced in the Superior Court of the
State of California against Ultradata and its previous Chief Executive Officer
and Chief Financial Officer, among other defendants. The complaint alleged
that the defendants conspired to sell the AutoPilot Talking Road Navigator(tm)
in the State of California by means of false advertising. The complaint
asserts claims under California laws against false advertising and unfair
competition, as well as under California consumer protection statutes. The
complaint seeks restitution, compensatory damages and punitive damages.
Ultradata and its management are evaluating the complaint and the extent to
which indemnity for the claim is available from Ultradata's insurance
carrier.
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 acquire a new operating company, to sell our
existing operations, and to return our company to 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 implement this plan. Among these
factors are:
* The fact that we may not be able to complete a satisfactory
acquisition within the time limits set in the June 2006 agreement.
* The fact that we may not be able to sell our current operations on
satisfactory terms.
* The fact that, if we continue in the current business beyond 2006,
our financial resources will be insufficient to sustain us.
-11-
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's mission since 1987 has been to aid the road traveler
with useful information with products easy to use and affordable in price.
For almost 20 years 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. These new products are consistent with our goal of improved ease of
use by the consumer. In 2005, development of the Road Genie Audio
Navigation System was accomplished. We also have developed a low-cost
voice-controlled audio recorder for automobile use using the same voice-
recognition technology. Production of this unit was initiated in the first
quarter of 2006. Availability for sale depends on obtaining commitments
sufficient to complete production.
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. This success continued in the first two
quarters of 2004, which have traditionally been weak quarters for
Ultradata. Our growth was stalled, however, in the second half of 2004,
when our primary distributor and one significant customer both ceased
placing orders. We engaged in efforts to replace those sales lost in 2005
but without success, although sales of the product continue in the same
channels as in 2005. More broadly, the Company is completing development
of a Cellular Road Whiz application using our proprietary database and
enabling access via a cell phone rather through separate hardware. Users
who subscribe to our service can get not only information about services
along their route with directions and distance from their location but, in
addition, can obtain fuel prices in real time and select their stop on that
basis. We started tests of the system in June 2006.
In the Spring of 2006 Management determined that the Company was
unlikely to obtain the funding necessary to carry out its plans for
launching new products. Accordingly, in June 2006 we commenced an
initiative whose goal is to (a) acquire a new operating company and (b)
dispose of our current operations. Towards that end we sold a controlling
interest in Ultradata to Warner Technology, subject to a provision that
Warner Technology will lose its shares if Ultradata has not completed a
satisfactory acquisition by the end of 2006. We also transferred our
operating assets to a wholly-owned subsidiary, and entered into an
agreement with members of our Management that charges them with
responsibility for obtaining a buyer for those operations. To date no
transaction of the sort contemplated in the June 2006 activities has been
completed.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2006 Compared to Three and Six
Months Ended June 30, 2005
Operating results for the six-month period ended June 30, 2006, were
significantly below those of the same period in 2005.
Sales. During the three and six months ended June 30, 2006, net sales
totaled $45,032 and $130,358, respectively, compared with $111,344 and
$195,169, respectively, for the same periods in 2005. The reason for the
reduction in 2006 was primarily due to a lack of sales to large retailers
and a lack of significant sales through QVC.
Our sales revenue in 2006 comes, primarily, from individual orders as
it was in 2005.
Backlog. As of June 30, 2005, the Company had a backlog of $20,395.
On June 30, 2005 we had a backlog of $328,116.
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Gross Profit. Gross profit margin for the three- and six-month
periods ending June 30, 2006 as a percent of sales was 53.3% and 54.8%,
respectively, comparing favorably with gross margin in corresponding
periods of 2005 of 59.9% and 54.7%, respectively.
S,G&A Expense. Selling expenses for the three- and six-month periods
ended June 30, 2006 were $16,886, or 16.0% of sales, and $34,189, or 17.9%
of sales, respectively, compared with $125,620, or 113% of sales, and
$148,030, or 75.9% of sales, respectively, for the corresponding periods in
2005. These figures reflect the elimination of inefficient advertising
campaigns used in 2005.
General and administrative expenses for the three- and six-month
periods ended June 30, 2006 were $158,094 and $333,858, respectively,
compared with $262,283 and $361,867, respectively, for the corresponding
periods in 2005. The quarter comparison reflects consulting expenses from
a New York firm in the 2005 quarter that were not present in 2006. The
six-month figures are comparable. 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 30,2006 were $15,319 and $58,582,
respectively, as compared to $90,793 and $125,994, respectively, for the
same periods in 2005. These decreases reflect the completion of 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 ($166,305) and
($367,703) for the three- and six-month periods ended June 30, 2006,
respectively, compared to ($411,953) and ($529,225) for the corresponding
periods in 2005.
Other Income (Expense). Other income for the three- and six-month
periods ended June 30, 2006 totaled $728,628 and $619,311, respectively,
compared with expenses of $39,339 and $33,010, respectively, for the
corresponding periods of 2005. The 2006 numbers included a non-cash gain
due to the reversal of most of the non-cash Fair Value expense incurred in
the fourth quarter of 2005 due to the Golden Gate Investors convertible
debenture (see Note 6). These debentures were completely retired in June
2006 through conversions and a cash payment as described in the note.
As a result of the foregoing, the Company realized a net income of
$562,323, or $0.04 per basic and diluted common share, for the three-month
period ended June 30, 2006, compared to a net loss of ($372,614), or
($0.06) per basic and diluted common share, for the three-month period
ended June 30, 2005. The Company realized a net income of $251,608, or
$0.02 per basic and diluted common share, for the six-month period ended
June 30, 2006, compared to a net loss of ($496,215), or ($0.08) per basic
and diluted common share, for the six-month period ended June 30, 2005.
FINANCIAL CONDITION AND LIQUIDITY
At June 30, 2006, the Company had $66,613 in cash, compared to
$45,955 at December 31, 2005. The Company's operating activities in the
six months ended June 30, 2006 used cash totaling ($246,411) as compared to
($488,645) during the same period in 2005.
No cash was used in investing activities for the six-month period
ended June 30, 2006, compared to ($1,366) in the same period in 2005.
Cash provided by financing activities for the six-month period ended
June 30, 2006 was $179,500 compared to $150,000 in the same period in 2005.
The 2006 amount resulted from loans and proceeds from sale of preferred
stock (see Note 7).
As a result of our present business situation, our recent net losses,
and our negative cash flow, our auditor has expressed substantial doubt in
its opinion on our December 31, 2005 financial statements regarding our
ability to continue as a going concern. Management believes that the
financing described in Notes 5 and 7 above will provide sufficient
resources to complete the actions outlined in the agreements itemized in
Note 7.
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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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities and Small Business Issuer Purchases of
Equity Securities:
In a series of transactions taking place between April 1, 2006 and
June 8, 2006, Ultradata sold a total of 9,207,322 shares of common stock to
Golden Gate Investors, Inc. The shares were sold for a total of $172,000,
consisting of (a) conversion of $172,000 in principal amount of a
convertible debenture that Ultradata sold to Golden Gate in February 2005
and (b) payment of $0 upon exercise of a warrant that Ultradata issued to
Golden Gate in February 2005. The sales were exempt pursuant to Section
4(2) of the Act since the sales were not made in a public offering and were
made to an entity whose principals had access to detailed information about
the Company and which was acquiring the shares for its own accounts. There
were no underwriters.
On June 1, 2006 Ultradata sold 210,000 shares of Series B Preferred
Stock to Warner Technology & Investment Corp. for $210,000. The sale was
exempt pursuant to Section 4(2) of the Act since the sale was not made in a
public offering and was made to an entity whose principals had access to
detailed information about the Company and which was acquiring the shares
for its own account. There were no underwriters.
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information: Change in Management
On August 11, 2006 John Leo resigned from his position as the sole
member of Ultradata's Board of Directors and as its Chief Executive Officer
and Chief Financial Officer. Prior to resigning, Mr. Leo elected Huakang
Zhou to serve on the Board of Directors. Mr. Zhou will also serve as Chief
Executive Officer and Chief Financial Officer.
Since 1993 Huakang Zhou has been employed as chairman of the board of
Warner Technology and Investment Corp. a New Jersey corporation that he
organized in 1993. Warner Technology provides international training and
market consulting services. Warner is licensed by the People's Republic of
China to serve as an official host for Chinese government officials and
business executives in the US. As part of the hosting process Warner also
provides training programs to assist visiting Chinese officials and
business executives with the transition to doing business in the US. These
services include market and product analysis, assistance with product
distribution and distribution agreements, joint ventures, and introductions
to strategic partners.
Mr. Zhou holds a Ph.D. degree in Operations Research that was awarded in
1989 by the Polytechnic University of New York.
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Item 6. Exhibits:
Exhibits:
31 Rule 13a-14(a) Certification.
32 Rule 13a-14(b) Certification.
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 14, 2006 /s/ Huakang Zhou
---------------------------------------------
Huakang Zhou
(Chief executive officer and chief financial
officer)