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, 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
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 43-1401158
-------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1240 Dielman Industrial Court, St. Louis, MO 63132
--------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (314) 997-2250
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
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 November 4, 2005
----------------------------------------------------------------------
Common, $.01 par value 7,875,717
Transitional Small Business Disclosure Format Yes [ ] No [X]
File Number
0-25380
ULTRADATA SYSTEMS, INCORPORATED
FORM 10-QSB
September 30, 2005
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Balance Sheets at September 30, 2005 (unaudited)
and December 31, 2004 3.
Condensed Statements of Operations for the three month
and nine month periods ended September 30, 2005 and
2004 (unaudited) 4.
Condensed Statements of Cash Flows for the nine months
ended September 30, 2005 and 2004 (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, 2005 and December 31, 2004
----------------------------------------------------------------------------
September 30, December 31,
2005 2004
(Unaudited)
--------------- --------------
Assets
Current assets:
Cash $ 41,498 $ 385,966
Trade accounts receivable, net of
allowance for doubtful accounts of $100 52,062 38,459
Inventories, net 159,613 89,890
Prepaid expenses 69,201 41,515
---------- ----------
Total current assets 322,374 555,830
---------- ----------
Property and equipment, net 19,102 30,458
Other assets 5,444 5,444
---------- ----------
Total assets $ 346,920 $ 591,732
========== ==========
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Accounts payable $ 144,351 $ 126,019
Accrued liabilities 123,528 55,967
---------- ----------
Total current liabilities 267,879 181,986
Note payable - long term 90,800 -
---------- ----------
Total liabilities 358,679 181,986
Stockholders' equity (deficiency)
Preferred Stock, $0.01 par value, 4,996,680
shares authorized, none outstanding - -
Common stock, $.01 par value; 50,000,000
shares authorized; 7,161,484 shares issued
and outstanding September 30,2005, and
6,410,187 shares issued and outstanding
December 31, 2004 71,615 64,102
Additional paid-in capital 9,480,979 9,121,022
Accumulated deficit (9,564,353) (8,659,418)
Deferred stock compensation - (115,960)
---------- ----------
Total stockholders' equity (deficiency) (11,759) 409,746
---------- ----------
Total liabilities and stockholders' equity
(deficiency) $ 346,920 $ 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 nine months ended September 30, 2005 and 2004 (unaudited)
---------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
---------------------- -------------------------
Net sales $ 140,119 $ 101,205 $ 335,288 $ 3,309,260
Cost of sales 110,892 51,588 199,395 1,703,108
--------- --------- --------- ----------
Gross profit 29,227 49,617 135,893 1,606,152
Selling expense 61,388 26,318 209,418 183,183
General and administrative
expenses 247,091 210,283 608,958 687,672
Research and development
expense 93,801 35,957 219,795 90,941
--------- --------- --------- ----------
Total operating expenses 402,280 272,558 1,038,171 961,796
--------- --------- --------- ----------
Operating (loss) profit (373,053) (222,941) (902,278) 644,356
Other income (expense):
Interest and dividend
income 82 852 597 1,190
Interest expense (80,550) (697) (101,963) (6,408)
Royalty income 44,800 - 84,800 -
Settlement of legal dispute - - 13,844 -
Other, net 1 (168) 65 16
--------- --------- --------- ----------
Total other expense, net (35,667) (13) (2,657) (5,202)
--------- --------- --------- ----------
(Loss) earnings income
before income taxes (408,720) (222,954) (904,935) 639,154
Income tax - - - -
--------- --------- --------- ----------
Net (loss) income $ (408,720) $ (222,954) $ (904,935) $ 639,154
========= ========= ========= ==========
(Loss) earnings per share
- basic $ (0.06) $ (0.04) $ (0.14) $ 0.10
========= ========= ========= ==========
(Loss) earnings per share
- fully diluted $ (0.06) $ (0.04) $ (0.14) $ 0.10
========= ========= ========= ==========
Weighted Average Shares
Outstanding - Basic 6,587,587 6,257,480 6,470,168 6,152,552
========= ========= ========= ==========
Weighted Average Shares
Outstanding - Fully
diluted 6,587,587 6,257,480 6,470,168 6,419,244
========= ========= ========= ==========
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, 2005 and 2004 (unaudited)
2005 2004
(unaudited) (unaudited)
----------- -----------
Cash flows from operating activities:
Net (loss) income $ (904,935) $ 639,152
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 12,171 10,780
Provision for doubtful accounts (176,104) 283
Reserve for inventory impairment 9,597 -
Stock issued for services 117,430 14,495
Non-cash amortization of note payable discount 96,800 -
Increase (decrease) in cash due to changes
in operating assets and liabilities:
Trade accounts receivable 162,502 395,660
Inventories (79,320) (46,292)
Prepaid expenses and other current assets (27,686) (20,638)
Accounts payable 18,332 (427,443)
Accrued expenses 67,561 (28,624)
-------- --------
Net cash (used in) provided by operating
activities (703,652) 537,373
-------- --------
Cash flows from investing activities:
Capital expenditures (816) (8,206)
-------- --------
Net cash used in investing activities (816) (8,206)
-------- --------
Cash flows from financing activities:
Proceeds from stock issued for cash and
options exercised - 9,061
Proceeds from sale of convertible debentures 300,000 -
Proceeds from sale of warrants 60,000 -
Note payable - Short term - 165,000
Principal payments on notes payable - (311,202)
-------- --------
Net cash provided by (used in) financing
activities 360,000 (137,141)
-------- --------
Net (decrease) increase in cash (344,468) 392,026
Cash at beginning of period 385,966 2,926
-------- --------
Cash at end of period $ 41,498 $ 394,952
======== ========
Non-cash transactions included $6,000 of debentures converted to common
stock.
See accompanying summary of accounting policies and notes to condensed
financial statements.
-5-
ULTRADATA SYSTEMS, INCORPORATED
Notes to Condensed Financial Statements
September 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 nine-month periods ended September 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), 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
Inventories consist of the following:
September 30, December 31,
2005 2004
--------------- --------------
(Unaudited)
Raw Materials, net of obsolete $ 10,422 $ 4,966
Finished Goods, net of obsolete 149,191 84,924
-------- --------
Total $ 159,613 $ 89,890
======== ========
Obsolete inventory on hand $ 725,211 $ 738,826
Note 2. Prepaid Expenses
Prepaid expenses consist of the following:
September 30, December 31,
2005 2004
--------------- --------------
(Unaudited)
Prepaid insurance $ 18,674 $ 6,015
Prepaid expenses 42,527 35,500
Prepaid advertising 8,000 -
-------- --------
$ 69,201 $ 41,515
======== ========
-6-
ULTRADATA SYSTEMS, INCORPORATED
Notes to Condensed Financial Statements
September 30, 2005 (Unaudited)
Note 3. (Loss) Income Per Share
For the three months For the nine months
ended September 30, ended September 30,
2005 2004 2005 2004
-------------------- ---------------------
Basic
Numerator:
Net (loss) income $(408,720) $(222,954) $(904,935) $ 639,154
-------- -------- -------- --------
Numerator for basic income
(loss) per share $(408,720) $(222,954) $(904,935) $ 639,154
======== ======== ======== ========
Denominator:
Weighted average common shares 6,587,587 6,257,480 6,470,168 6,152,552
Denominator for basic income
(loss) per share 6,587,587 6,257,480 6,470,168 6,152,552
Basic income (loss) per share $ (0.06) $ (0.04) $ (0.14) $ 0.10
Fully Diluted Numerator:
Net income (loss) $(408,720) $(222,954) $(904,935) $ 639,154
-------- -------- -------- --------
Numerator for fully diluted
income (loss) per share $(408,720) $(222,954) $(904,935) $ 639,154
======== ======== ======== ========
Denominator:
Weighted average common shares 6,587,587 6,257,480 6,470,168 6,152,552
Common stock equivalents - - - 266,692
--------- --------- --------- ---------
Denominator for fully
diluted income (loss) per
share 6,587,587 6,257,480 6,470,168 6,419,244
========= ========= ========= =========
Fully diluted income (loss)
per share $ (0.06) $ (0.04) $ (0.14) $ 0.10
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 has received proceeds of the
purchase price of $300,000, less $40,000 for legal fees associated with the SEC
registration filings required to 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"). The registration statement was
declared effective by the SEC during the third quarter of 2005. As a result of
the beneficial conversion of the debenture, the Company has allocated $300,000
to additional paid-in capital and recorded a discount on the debenture of
$300,000.
-7-
ULTRADATA SYSTEMS, INCORPORATED
Notes to Condensed Financial Statements
September 30, 2005 (Unaudited)
Interest that accrues on the Debenture, at 43/4% per annum, is paid
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 holder's commitment to purchase 3% of the equity
underlying the Debenture and Warrant is not effective, however, in any month
during which the volume-weighted average price of the common stock falls below
$.50.
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 five conditions that will reduce the aggregate purchase price
paid by Golden Gate below $3,300,000:
1. As long as the volume-weighted average price of the common stock is
below $.50 on any day during a month, Golden Gate has no obligation to
purchase any shares during that month.
2. 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.
3. 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.
4. 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.
5. 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 third quarter of 2005, Golden Gate Investors converted $6,000
of the debenture and exercised the Warrant for $60,000 which resulted in the
issuance of 746,297 shares of Ultradata Systems, Inc. Common Stock to Golden
Gate Investors, Inc. As a result of those transactions, the Company amortized
$90,800 of the note-payable discount during the three months ended September
30, 2005.
-8-
ULTRADATA SYSTEMS, INCORPORATED
Notes to Condensed Financial Statements
September 30, 2005 (Unaudited)
Note payable - face $294,000
Note-payable - discount 203,200
-------
$ 90,800
=======
Note 5 Going Concern
As reflected in the accompanying financial statements, a major customer
of the Company 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.
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 future 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 Issuance of Shares to Outside Directors
During 2005, an aggregate of 6,000 shares of common stock having 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.
Note 7 Subsequent Events
Subsequent to September 30, 2005, Golden Gate Investors, Inc. converted
$3,500 in principal amount of its Debenture and exercised its Warrant for
$35,000, which resulted in the issuance of 714,233 shares to Golden Gate
Investors.
-9-
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 without continued success of the Talking Road WhizTM product
line or an infusion of new capital;
* 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) and Road Genie(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. 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 summer of 2005. The voice recognition product is called
the Road Genie Audio Navigation System and represents a quantum jump in user
convenience. 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. The test marketing has shown mixed results, with some TV channels
successful and others with different demographics less so. We will focus on
those channels which show promise.
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
-10-
niche in the marketplace. Thus far, Management feels the Company has barely
penetrated this huge, largely untapped market. The Company hopes 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 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. Product has been shipped to both chains for sale in the 4th quarter
of 2005. 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 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.
-11-
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. We had expected that the funds necessary for initial marketing of
the Road Genie would be available from the funding described in Note 4 to the
Financial Statements. However, to date we have received only insignificant
funds from that source due to the low price of our common stock in recent
months. So we do not know at this time whether we will be able to introduce the
Road Genie(tm) to the market in any effective manner.
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.
With this same technology, we have designed a digital voice recorder that
responds to voice commands for use in automobiles. Originally, we expected to
have it available by the end of 2005, but production engineering issues have
set that date back a few months.
If funds for continued development and introductory marketing become
available, 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 includes adding a GPS receiver and
incorporating 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. In addition, we will have the new
voice-command digital voice recorder and a full year of Road Genie sales if the
funds needed to sustain those projects become available.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2004
Operating results for the third quarter of 2005 were comparable to those
of the third quarter of 2004. Cumulative operating results for the nine months
through the third quarter of 2005 were significantly less when compared to the
same period in 2004. Much of the reduction in sales for the period 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 Company results since the second half of 2004.
Management is addressing this problem aggressively with some success as
outlined below.
-12-
Sales. During the three and nine months ended September 30, 2005, net
sales totaled $140,119 and $335,288, respectively, compared with $101,205 and
$3,309,260, respectively for the same periods in 2004. These figures represent
an increase of 38.5% for the quarter and a decrease of 89.9% for the nine-montH
period.
Backlog. As of September 30, 2005, the backlog for delivery in the
fourth quarter 2005 was $300,204, as compared with $558,722 as of September 30,
2004.
Gross Profit. Gross profit for the three- and nine-month periods ending
September 30, 2005 were 20.9% and 40.5% of sales, respectively, as compared to
49.0% and 48.5%, respectively, for the corresponding periods in 2004. The
reductions in gross margin as a percent of sales are due to a one-time
transaction in the third quarter required by our settlement with AAA. AAA paid
$4 per unit of branded AAA products remaining in our inventory - a sale
representing negative gross profit. Without that transaction the gross margin
for the three and nine-month periods would have been 65.0% and 52.9%,
respectively. These results reflect the additional gross margin resulting from
direct sales. There is additional selling expense resulting from this sales
method, as discussed below.
SG&A Expense. Selling expenses for the three- and nine-month periods
ended September 30, 2005 were $61,388 and $209,418, respectively, compared with
$26,318 and $183,183, respectively, for the corresponding periods in 2004. As
a percent of sales, selling expenses for the periods in 2005 were 43.8% and
62.5%, respectively as compared to 26.0% and 5.5% for the same periods in 2004.
The increase for the quarter reflects our increased efforts to sell product
through our own advertising campaign rather than relying on our customers. For
the nine-month period, these additional expenses reflect a much higher
percentage of sales because of the much lower sales base in that period.
General and administrative expenses for the three- and nine-month periods ended
September 30, 2005 were $247,091 and $608,958, respectively, compared with
$210,283 and $687,672, respectively, for the corresponding periods in 2004.
These figures represent an increase of 17.5% for the quarter and a decrease of
and 11.4% for the nine-month period in 2005 versus the same periods in 2004.
Without the $40,000 legal expenses for the Golden Gate financing registration
booked in August 2005, G&A expenses in the third quarter of 2005 quarter would
have been slightly less than in the third quarter of 2004.
R&D Expense. Research and development expenses in the three-month period
ended September 30, 2005 amounted to $93,801 as compared to $35,957 for the
same period in 2004. For the nine-month period, they were $219,795 as compared
to $90,941 in the same period in 2004. These increases reflect the
considerable R&D effort mounted in 2005 versus 2004 in an effort to bring the
cell-phone Road Whiz application to market and to develop Road Genie and the
digital voice recorder.
The Company posted a net loss from operations of ($373,053) for the
three-month period ended September 30, 2005, compared to a net loss from
operations of ($222,941) for the corresponding period in 2004. For the nine-
month period, the Company posted an operating loss of ($902,278) compared to an
operating profit of $644,356 for the same period in 2003. The greater loss for
the quarter compared to 2004 reflects the lower gross margin and increased
expenses discussed above. The nine-month period benefited from large first-
half sales in 2004 that did not materialize in 2005, as the Company works to
transition from distributor sales to more direct sales.
Other Expense. Other expense for the three- and nine-month periods ended
September 30, 2005 totaled ($35,667) and ($2,657), respectively, compared with
($13) and ($5,202), respectively, for the corresponding periods of 2004. In
the second and third quarters of 2005, the Company received royalty credits
from Sweda for Company products sold to Radio Shack directly from the factory
by Sweda which offset part of the amortization of the Golden Gate debenture
discount.
-13-
As a result of the foregoing, the Company realized a net loss of
($408,720), or ($0.06) per basic and diluted common share, for the three-month
period ended September 30, 2005, compared to a net loss to common shareholders
of ($222,954), or ($0.04) per basic and diluted common share, for the three-
month period ended September 30, 2004. The Company realized a net loss of
($904,935), or ($0.14) per basic and diluted common share, for the nine-month
period ended September 30, 2005, compared to net income to $639,154, or $0.10
per basic and diluted common share, for the nine-month period ended September
30, 2004.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 2005, the Company had $41,498 in cash, compared to
$385,966 at December 31, 2004. The Company's operating activities in the nine
months ended September 30, 2005 used cash totaling $703,652 primarily due to
the losses for the period.
Net cash used in investing activities included $816 for capital
expenditures.
Net cash provided by financing activities for the nine-month period ended
September 30, 2005, arose from the financing arrangement with Golden Gate
Investors, Inc. and amounted to the $300,000 debenture and $60,000 for 6,000
warrants.
The Company's current ratio at September 30, 2005 was 1.2:1 and its
working capital was $54,495.
The Company's only source of capital at this time is the Debenture and
Warrant combination held by Golden Gate Investors, Inc. Unless the price of
our common stock increases substantially in the near term, that financing will
not provide us significant funds to continue operations for the next twelve
months. Our ability to sustain operations through 2006 will depend, therefore,
on the success of our marketing effort in the 4th quarter of 2005.
As shown in the accompanying condensed financial statements, the Company
has a net loss for the nine-month period ending September 30, 2005 of $904,935,
a negative cash flow from operations of $703,652, working capital of only
$54,495 and a stockholders' deficiency of $11,759. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Item 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures: As of September 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.
-14-
ULTRADATA SYSTEMS, INCORPORATED
10QSB
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
(a) Unregistered Sales of Equity Securities
During the three months ended September 30, 2005, Ultradata sold a
total of 746,297 shares of common stock to Golden Gate Investors, Inc.
The consideration for the shares was $60,000 plus satisfaction of
$6,000 in principal amount of a Debenture. The sales were exempt
pursuant to Section 4(2) of the Securities Act since the sales were
not made in a public offering and were made to an entity whose
executives had access to detailed information about Ultradata 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:
None
Item 6. 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.
November 14, 2005 /s/ Monte Ross
--------------------------
Monte Ross, CEO
(Chief executive officer)
/s/ Ernest S. Clarke
-----------------------------------
Ernest S. Clarke, President
(Principal financial and accounting
officer)