SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2003
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to _____
Commission File Number: 0-25380
ULTRADATA SYSTEMS, INCORPORATED
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(Name of small business issuer in its charter)
Delaware 43-1401158
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1240 Dielman Industrial Court, St. Louis, MO. 63132
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(Address of principal executive office) (Zip code)
Issuer's telephone number, including area code: (314) 997-2250
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to the Form 10-KSB. [X]
State the issuer's revenues for its most recent fiscal year: $2,863,258
The aggregate market value at March 7, 2004 of the voting stock held by
non-affiliates, based on the closing price as reported by the OTC Bulletin
Board, was approximately $3,567,240. The aggregate market value has been
computed by reference to a share price of $0.90 (the price at which stock was
sold, or the average bid or asked price of such stock on March 7, 2004). All
directors, officers, and stockholders owning more than five percent of the
outstanding common stock of the Registrant have been deemed "affiliates" for
the purpose of calculating such aggregate market value.
The number of shares outstanding of the issuer's common stock, as of
March 7, 2004, was 6,057,746
Transitional Small Business Disclosure Format: Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE: None
YOU SHOULD NOT RELY ON FORWARD LOOKING STATEMENTS
This annual 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 for ease of travel, 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
develop and market its products. Among these factors are:
* The fact that our financial resources are minimal and will not
sustain us past this 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
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 this reason, you should not place undue reliance on any of
the forward-looking statements in this report, as there is a significant risk
that we will not be able to fulfill our expectations for Ultradata.
PART I
ITEM 1. BUSINESS
Overview
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 technology
have opened up new opportunities for us to use our technology.
The Company has sold over 3 million of its low-cost handheld travel
computers, demonstrating that there is a market for travel information
products. To re-awaken that market with an improved product that speaks, the
Company has developed a Talking Road WhizTM. Significant deliveries of this
product began in September of 2003 and, the Company received significant
revenue in the last four months of 2003 from sales of this new addition to
its product line. Company earnings in the fourth quarter of 2003 were
sufficient to offset losses in the first three quarters of 2003. It has
substantial purchase orders in hand for delivery in the first quarter of
2004.
Each of our consumer products is designed to allow the consumer to
access useful information stored in a convenient manner. Our handheld
computers generally sell at retail prices between $19.95 and $49.95 per unit.
The products have been in retail mass-market chains plus many other
locations. The new TRAVEL*STAR 24 is expected to be offered at retail for
under $300, which should make it very competitive in the auto aftermarket.
Its portability and the fact that it requires no elaborate installation offer
advantages over the more expensive in-car systems.
Handheld Travel Computers
The Road WhizTM Line of Products
Our core business is a line (currently 7 products) of hand-held
computers that utilize our proprietary data compression technology to provide
a library of information in a pocket-size box. Most of the products contain
travel information, customized to specific markets, and so the flagship
products have carried variations of the trademark "Road Whiz". Within the
chip that powers a Road WhizTM can be found information regarding over 100,000
services and amenities along the U.S. Interstate Highway System and
directions on how to reach the service or amenity of choice. Some versions
of the Road Whiztm also contain information about services and attractions
within the cities linked by the Interstate Highway System, and some versions
include U.S. highways as well as Interstates. The products also provide
distances between major U. S. cities, with over 100,000 pre-calculated
routes. The service information provided by a Road Whiztm product includes
directions and mileage to gas stations, hotels, motels, hospitals, and 24-
hour restaurants, as well as highway patrol emergency numbers. We sell our
handheld products through independent sales representatives, mass merchandise
retailers, catalog companies, department stores, office supply stores, direct
mail promotions, luggage stores and selected television shopping channels.
We have achieved a significant advance in the technology in our product
with the introduction of the Talking Road WhizTM. The unit speaks in a clear,
loud, real voice appropriate prompts for the user's next action as well as
the information presented on the display. This technological improvement
makes the unit easier to use and more attractive to buy, and paves the way
for other applications of this new technology.
Among the other hand-held products we currently offer are the following:
Road WhizTM Plus provides complete routing information for over 90
cities, giving driving distances, driving time and detailed directions. A
similar product made by Ultradata is sold by one of our major distributors
under the name Auto PilotTM. Our products are designed to be marketed by mass
merchandise retailers.
The Road WhizTM RV Special adds to the standard Road WhizTM features
useful for an RV owner, such as the location of dump stations and the
availability of parking for recreational vehicles at restaurants, and is sold
through RV magazines and Camping World stores. It contains over 60,000
services and stored routes between 250 cities.
AAA TripWizardTM is the product of a joint effort between Ultradata and
the American Automobile Association (AAA). During 1998, we entered into an
agreement with AAA to develop an expanded database to include AAA's diamond-
rated restaurants and lodging facilities, AAA-approved auto repair, camp
grounds and attractions, as well as the AAA ratings, where available, for the
facilities in our proprietary Interstate database. This expanded database
has been incorporated into a hand-held travel computer called the
TripWizardTM. TripWizardTM is being marketed to AAA's affiliates, consisting
of 93 clubs, 1,100 offices and over 41 million members in the United States,
as well as through other channels, including QVC.
Our Marketing Strategy
After our initial public offering of securities in 1995, we were able
to commence widespread marketing of the handheld products. We priced them to
the upper range gift market ($49 to $129) and focused our marketing efforts
on direct sales through television and print ads, as well as through a sales
representative network. That strategy was successful in expanding our sales
for three years, while the products were new to the market. The expansion of
sales, however, did not bring with it a proportionate expansion of profits.
Too many of our marketing techniques were only marginally profitable, and as
our products lost some of their newness, marketing techniques such as direct
mailing produced diminishing returns. For that reason, beginning late in
1998 we revised our marketing strategy. Products without the voice feature
now generally retail for $19.95 to $29.95. At this price point, we expected
to gain sufficient volume to achieve economies of scale with new low-cost
manufacturing methods, permitting us to operate profitably at a lower level
of annual sales. We have been successful in reducing the cost of marketing
as well as other operating costs. In addition, we successfully increased the
volume of sales in 2003 and reached profitability. In 2004, we will strive
to broaden the markets for our products and further increase our sales volume
as a consequence. We will have the entire year for Talking Road WhizTM sales
as compared with only the last four months of 2003.
Distribution through mass merchandise channels accounted for over 75%
of our revenue in 2003. We expect that a small group of mass-market channels
will continue to dominate the market for our handheld computer products. The
following table identifies the most significant customers on the basis of
sales in the past two years as well as other mass-market retailers that carry
our products. In 2002, sales emphasis shifted from mass-market retailers to
other channels of mass distribution that require far less marketing costs.
This approach continued throughout 2003.
Channel of Distribution
2003 Sales % of Sales 2002 Sales % of Sales
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Media Solutions Services $ 1,608,052 56.2% $ 634,339 36.4%
QVC $ 481,619 16.8% $ 177,552 10.2%
AAA Clubs $ 118,657 4.1% $ 35,442 2.0%
Target $ 63,508 2.2% $ - -%
Central to the marketing strategy is our effort to develop a variety of
distribution paths, so as to maximize our penetration of the potential market
for our products. To date, in addition to our sales to retailers, the
following types of distribution have been put in place:
* Private Branding. The leading example of the private label
marketing strategy was the introduction in 1998 of the AAA
TripWizardTM as a joint venture with the American Automobile
Association.
* Direct Response Marketing. Our largest customer during 2003 was
Media Solutions Services. This distributor specializes in multi-
media direct-response marketing and has resources and expertise that
can achieve high sales effectiveness at relatively low promotional
cost. We have received first-quarter 2004 orders from Media
Solutions Services amounting to $1,939,406 and expect significant
additional sales from this customer in 2004.
The objective of this marketing strategy is an increase in sales
revenue with a significant reduction in selling and administrative expense,
as the costs associated with direct retail marketing are reduced. With
expected product success, the lean, efficient operation we now have in place
should enable a return to profitability. If the fourth quarter results of
2003 and backlog for 2004 are any indication of future results, we can
reasonably expect to achieve profits during each quarter of 2004, and will be
aggressively marketing our products with that objective in mind. We expect
2004 sales and earnings will exceed those of 2003.
Manufacturing
We do not manufacture any of our products. We retain assemblers to
manufacture the products. At present, there is one manufacturer to whom we
contracted all of our assembly work in 2003. Each year, the manufacturer
quotes prices to us based upon estimated annual quantities. Exact pricing is
usually good for 90 days. Significant changes in chip prices result in
similar changes from our manufacturer. Then we place individual purchase
orders for production. Our arrangements with this manufacturer - up to the
point of a purchase order - are terminable at will by either party. If the
manufacturer becomes unavailable to us, alternate sources would be readily
available. Nevertheless, the sudden loss of our manufacturer or
unanticipated interruptions or delays from our present manufacturer would
likely result in a temporary interruption to our planned operations.
Backlog
As of March 7, 2004 our total backlog was $973,865 as compared to
$96,266 on March 7, 2003.
Patents
We own four patents - two that are utilized in our present Road WhizTM
products. They provide us a technological advantage which, to date, has
prevented any similar product from appearing. One patent covers our method
of compressing data relating to travel information. This compression
technology permits our travel products to store more data on smaller and less
expensive memory devices. The second patent covers the methodology that
enables our travel devices to account for changes that occur when the
traveler crosses a state border. We have another patent involving electronic
coupons while traveling that we believe would be valuable for future use in
up-scale travel information products.
Database Research
A broad and accurate database is essential to the success of our
products. For this reason, we have developed a systematic approach to
updating our ROAD WHIZTM database. A significant part of the ROAD WHIZTM
database is gathered and verified by "Road Helpers." Road Helpers are
generally retirees and others that travel extensively and report to us
regarding the facilities they encounter. The data provided by the Road
Helpers is, in turn, reviewed and augmented at our corporate headquarters
along with use of publicly available information from chains and states on
businesses and facilities.
Competition
To date, we have not faced significant competition in selling our
handheld computer products. The primary reasons for the lack of competition
are:
* Our patented data compression technology permits the storage of
unusually large volumes of information in low-cost devices.
* Our database is unique, and it would be time-consuming to replicate
it.
* We have fourteen years of experience in developing this line of
products, which gives us insight into the needs and desires of the
traveling consumer.
* We have a simple, low-cost design for our products, which employs a
minimum of parts.
* We have developed low-cost, but high quality manufacturing sources.
* The devices that perform functions similar to those performed by our
handheld products are considerably more expensive, and often lack the
data quality of our products.
These several factors have, thus far, served as a barrier to any
effective competition with our handheld products.
GPS Products
Travel*Star 24TM GPS Auto Navigational System
We have developed a low cost, portable navigation unit for the
automotive after-market, which we will market as the "Travel*Star 24TM." The
Travel*Star 24TM utilizes the Talon GPS receiver and antenna to pinpoint the
longitude and latitude of the moving vehicle. The unit is capable of
calculating a route, displaying visual directions and distance as well as
providing audible turn-by-turn prompts and warnings when the driver strays
from the route. The Travel*Star 24TM also includes an expanded version of the
proprietary and unique Road WhizTM database, providing the driver directions
to over 200,000 services across the U.S.A. As the driver travels, the GPS
signals are referenced to the service database, so that the driver can
instantly find businesses, hotels, service stations, rest stops, restaurants,
hospitals, tourist attractions, airports, etc. in more than 250 metropolitan
areas, as well as directions to over 12,000 smaller cities and towns.
While there are a wealth of potential users for a GPS-based navigation
system, we intend to target the Travel*Star 24TM to the 12-volt automotive
after-market, which currently consists of over 150 million vehicles and grows
by 15 million vehicles annually.
Currently, millions of GPS-based navigation systems are sold annually.
These include installed original equipment, which are generally priced in the
$2,000 range; low-end hand-held units of very limited capability (generally
approximately $200); and middle market units priced in the $400 to $1000
range. Examples across this middle range can be found in the lines of
Magellan, Garmin and Lowrance. Travel*Star 24TM will compete in this range, as
we expect it to have an initial retail price under $300.
The Travel*Star 24TM can easily fit into a briefcase or purse; so it is
portable to any rental vehicle. Testing has been ongoing and has uncovered
several software issues, some of which have been resolved. Additional
development and testing is required. Market introduction will occur when the
product has been adequately tested and has passed the requisite test.
Travel*Star 24TM has taken much longer to complete than originally
planned because the tasks and approach were much more difficult than
anticipated. Nonetheless, Management feels that the result is a product that
outstrips the competition in performance for the price. This assessment is
derived from discussions with contacts in the retail markets at trade shows
and elsewhere. We are, therefore, anticipating a positive reception when the
product finally reaches the market.
Patents
We hold two additional patents that have potential utility in the GPS
market. Patent 5,943,653 was awarded in August, 1999 and covers the delivery
of electronic coupons in a handheld computer for discounts of services. The
technology can be combined with the GPS locational function to cause time and
site-specific coupons to be delivered to the driver offering, for example, a
discount at the upcoming hotel. We would, of course, receive a fee for each
customer that the hotel gained in this fashion.
The other related patent, which was awarded in May of 1999, covers a
method of integrating a GPS receiver into a radar detection device. By use
of this patented technology, it becomes practical to eliminate many false
radar detection alarms, as well as to provide audible warnings of speed
zones.
GPS/Internet Auto Navigation and Tracking System
For some time we have been planning an effort to exploit the synergy
between the communications capabilities of the Internet and the locational
capabilities of a GPS antenna. If and when the capital resources become
available, we expect to commence development of a GPS/Internet auto
navigation and tracking system. The utility of the product will be to create
a rich link between the driver and a stationary source of communications, be
it a family member on a home PC or a hotel chain soliciting the driver's
business.
We plan to modify the Travel*Star 24TM to incorporate a cellular
transceiver into the existing housing. Information in the vehicle would
originate in and be displayed on the Travel*Star 24TM, which has a four-line
text display and a menu-driven "soft key" user interface. The Travel*Star
24TM also has a built-in GPS receiver, and can generate the necessary geo-
coordinates to identify the vehicle's location. The vehicle's identity, its
geo-coordinates, and any outgoing messages would be passed to the cellular
transceiver for broadcast to the local phone cell, then transferred via the
Internet to the "Home Base" PC.
At the "Home Base", mapping software would be installed, which can
translate the geo-coordinates into a position display on a map. The person at
home could thus track the location and progress of the vehicle, using the
connectivity provided by the Internet. The same "Windows"-based software can
receive and display incoming messages, and generate pre-formatted outbound
messages and position queries. Similarly, pre-formatted messages can be sent
from the vehicle to the Internet site, where the messages are available to
friends and family.
The GPS/Internet System is in the planning stage only. There are a
number of technical tasks required to make the system operational, and we
have no certainty that we can accomplish these tasks. We will also require
additional capital resources or partners before we can undertake this project
in earnest.
Research and Development
Ultradata performs ongoing research and development, seeking to improve
existing products and to develop new products. These activities are
primarily conducted at our corporate headquarters, although we periodically
engage outside computer system design consultants to expedite the completion
of the development and test stages. The success of the Talking Road WhizTM
came directly from our R&D efforts, and we plan to carry the product line to
the next level of voice recognition. This feature promises to further
simplify product use and attract a wider market by requiring less of the user
to access valuable information.
In 2003, the Company incurred $63,156 in research and development costs
compared to $251,609 in 2002. Research activities for 2003 were primarily
focused on continued development of Travel*Star 24TM and the Talking Road
WhizTM products.
Employees
The Company currently has 8 full-time employees, including four
officers, all of whom are located at the Company's headquarters in St. Louis,
Missouri. The Company employs three people in sales, customer service and
shipping, three people in executive management and administration, one person
in product development, and one person in inventory management. None of the
Company's employees belong to a collective bargaining union. In addition, a
number of part-time consultants are retained for database research, website
development and maintenance, and software development. The Company has not
experienced a work stoppage and believes that its employee relations are
good.
Item 2. PROPERTIES
Our headquarters, principal administrative offices, and research and
development facilities are located in approximately 5,000 square feet of
leased office space in an industrial building located at 1240 Dielman
Industrial Court, St. Louis, Missouri. The Company reduced the space
occupied when its previous lease expired on October 31, 2001 from 12,500
square feet to the 5,000 square feet identified above. The Company pays a
monthly rent plus 31% of all building expenses under a new lease that expires
October 31, 2005. The Company maintains no manufacturing operations on site
and employs outside contractors to perform all of its manufacturing
requirements.
Aggregate rental expense totaled $47,299 for 2003, compared to $58,829
in 2002. The Company believes that its facilities are adequate for the
Company's present and foreseeable requirements.
Item 3. LEGAL PROCEEDINGS
During the 4th Quarter of 2002 the Company's action against SmartTime
(now known as E-tegral) resulted in a judgment awarding $861,000 to the
Company. Efforts to collect the judgment are underway, but it is unknown to
what extent, if any, we will be successful in collecting the judgment.
During 2003, the Company settled an arbitration action it had commenced
against BDO Seidman, LLP. The Company received $127,000 in the settlement.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information
The following table sets forth the prices for the Company's Common
Stock (OTC Bulletin Board: ULTR) for the eight quarters starting January 1,
2002 and ending December 31, 2003. Since August 29, 2001 the Common Stock
has been quoted on the OTC Bulletin Board.
Bid
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Quarter Ending High Low
March 31, 2002 0.24 0.20
June 30, 2002 0.20 0.11
September 30, 2002 0.15 0.08
December 31, 2002 0.27 0.20
March 31, 2003 0.30 0.13
June 30, 2003 0.16 0.05
September 30, 2003 0.16 0.10
December 31, 2003 0.17 0.12
(b) Shareholders
At March 7, 2003, there were 128 registered stockholders of record of
the Company's Common Stock. Based upon information from nominee holders, the
Company believes the number of owners of its Common Stock exceeds 3,000.
(c) Dividends
The Company has never paid or declared any cash dividends on its Common
Stock and does not foresee doing so in the foreseeable future. The Company
intends to retain any future earnings for the operation and expansion of the
business. Any decision as to future payment of dividends will depend on the
available earnings, the capital requirements of the Company, its general
financial condition, and other factors deemed pertinent by the Board of
Directors.
(d) Sale of Unregistered Securities
The Company did not sell any securities during the 4th quarter of 2003
that were not registered under the Securities Act. Sales of unregistered
securities earlier in the year were reported in the Company's Quarterly
Reports on Form 10-QSB.
(e) Repurchase of Equity Securities
The Company did not repurchase any of its equity securities that were
registered under Section 12 of the Securities Act during the 4th quarter of
2003.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Overview
One factor has been dominant in causing our poor financial results over
the past several years: our inability to sustain the high level of sales of
the hand-held products at upscale retail prices that we realized in 1996 and
1997. With lower prices, our margins shrank, and, combined with expenses
related to new-product development and marketing, losses resulted.
The downward sales trend has been 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 the Company to overcome losses
in the first three quarters of the year with a superb fourth quarter and be
profitable for the year. Because of our present lean operation,
profitability can take place at a lower level of sales than in previous years.
In 2001 and 2002 sales in the poor economy became difficult. Our major
customer in 2000 had excess inventory that was not eliminated until the end
of 2001. Other customers were nervous about the holiday seasons and acquired
less product inventory than they would have otherwise. The failure to
achieve another successful product line besides the Road Whiz line also
constrained sales. Specifically, the delay of Travel*Star 24TM has been a
serious issue for the Company, as the development effort places demands on
our financial and managerial resources while not producing revenues.
Completion of the Talking Road WhizTM product enabled sales to be elevated in
2003 over 2002 levels. We believe the Talking Road WhizTM is rejuvenating the
niche market we are in of handheld travel computers and is leading the
Company back to positive operating earnings, given our reduction in overhead
and other costs.
Results of Operations
Sales. Sales for 2003 increased 64.4% to $2,863,258 from $1,741,557 in
2002 due to the success of the Talking Road WhizTM in the latter four months
of 2003. Our plan is to continue to pursue mass-market outlets for both our
traditional products as well as new products and to grow sales in this
fashion. In addition, we have engaged the services of new representative
organizations in an effort to reach new retail sales channels with which they
have significant contacts. Our present sales came primarily from non-retail-
store business such as TV ads, shopping catalogs, magazine ads, and credit-
card inserts, leaving retail channels open for exploitation.
Gross Profit. Because of the increase in sales of new products, our
gross profit in 2003 was $1,376,716, or 48.1% of sales, compared to a
negative margin in 2002 of ($146,212), or (8.4%) of sales, in 2002. Margin
was negative in 2002 due to the lower volume of sales as well as an inventory
write-down in that year.
Selling Expenses. During 2003, we incurred $253,564, or 8.9% of sales,
in advertising, promotion, and marketing program expenses, as compared to
$219,259, or 12.6% of sales, in 2002. The reduced percentage is primarily
due to the increased sales base. Our 2004 plan expects similar selling costs
on the order of 10% with the advent of retail channels and the costs
associated with reaching that increased base.
Research and Development Expenses. Our research and development
expenses in 2003 were $63,156, reduced from $251,609 in 2002, a decrease of
$188,453, or 74.9%. The primary reasons for the reduction was lack of
capital resources in 2003 and completion of the development of the Talking
Road WhizTM in early 2003. We will continue to perform research and
development in our own niche market, leading to improved products. R&D work
in 2004 will be oriented around improved features of the Talking unit,
including voice recognition.
General and Administrative Expenses. Our G&A expenses were $876,528 in
2003 as compared to $1,159,158 in 2002, representing a reduction of $282,630,
or 24.4%. This reduction reflects the continued effort in cost cutting that
began in late 2001. We do not believe that the expected increase in sales in
2004 will require a significant increase in G&A expense.
Other Expense. During 2003, other expense was ($73,773) compared to
($261,495) in 2002, a decrease of $187,772, or 71.8%. Although interest
expense was increased due to short-term loans added to debt servicing, the
settlement of our dispute with BDO Seidman, offset by a loss on the early
payment of notes from our sale of Talon in 2000, resulted in an overall
significant reduction in this category. For 2004, we would expect these
expenses to be low, since we have retired our convertible debt with the
healthy fourth-quarter cash flow from increased sales, as discussed more
fully under "Liquidity and Capital Resources" below.
Net Income. As a result of the foregoing, net income for 2003 was
$109,695 as compared to a net loss of ($2,037,733) for 2002. Net income
available to common stockholders for 2003 was $104,505, or $0.02 per basic
and diluted share, when $5,190 of preferred stock dividends are taken into
account, compared with ($2,041,333), or ($0.59) per basic and diluted share
in 2002, including $3,600 of preferred dividends.
Liquidity and Capital Resources
Fourth-quarter 2003 cash from sales of our Talking Road WhizTM allowed
the Company to pay off in the 4th quarter the notes the Company sold earlier
in the year. Cash from 4th quarter sales also permitted the Company to retire
its convertible debt in early January 2004.
The Company had an insignificant change in its cash position during the
year. Cash used in operations and a net deficit in cash from financing
activities was nearly offset by cash provided by investing activities,
specifically the Company's agreement to accept a discounted payment in
cancellation of the notes it had received on sale of its interest in Talon in
2001. The Company ended the year with a small amount of cash on hand, as it
made a significant payment to convertible debt-holders in late December 2003.
However, a large receivable was paid in early January 2004, providing cash
for 1st quarter operations. Management expects that funds from the first-
quarter 2004 backlog will be sufficient to support operations for the balance
of 2004 and that other sales expected during the year will add to those
resources.
Because the Company has reduced its costs of doing business and has
excellent prospects for increased sales in 2004, Management expects to
continue the trend begun with the return to profitability in 2003 and the
backlog thus far in 2004.
Impact of Accounting Pronouncements
There were no recent accounting pronouncements that have had or are
likely to have a material effect on the Company's financial position or
results of operations.
Item 7. FINANCIAL STATEMENTS
The financial statements of Ultradata Systems, Incorporated, together
with notes and the Report of Independent Certified Public Accountants, are
set forth immediately following Item 14 of this Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
See Current Report on Form 8-K dated October 21, 2003 regarding
dismissal of Weinberg & Co., P.A. and retention of Webb & Company, P.A.
Item 8A. Controls and Procedures
Monte Ross, our Chief Executive Officer, and Ernest Clarke, our Chief
Financial Officer, performed an evaluation of the Company's disclosure
controls and procedures as of December 31, 2003. Based on their evaluation,
they concluded that the controls and procedures in place are sufficient to
assure that material information concerning the Company which could affect
the disclosures in the Company's quarterly and annual reports is made known
to them by the other officers and employees of the Company, and that the
communications occur with promptness sufficient to assure the inclusion of
the information in the then-current report.
There have been no significant changes in the Companys internal
controls or in other factors that could significantly affect those controls
subsequent to the date on which Messrs. Ross and Clarke performed their
evaluation.
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists certain information regarding the officers
and directors of the Company as of March 10, 2003:
NAME AGE POSITION
---------------------------------------------------------------------------
Monte Ross 71 Chief Executive Officer, Director
Ernest Clarke 64 President & Chief Financial Officer,
Director
Mark L. Peterson 47 Vice President-Engineering,
Secretary, Director
Duane Crofts 66 Vice President-Sales &
Advanced Products
Donald Rattner 70 Director
H. Krollfeifer, Jr. 63 Director
Matthew Klapman 34 Director
Directors hold office until the election and qualification of their
successors at a meeting of the Company's stockholders. Officers hold office,
subject to removal at any time by the Board, until their successors are
appointed and qualified.
Background of Directors and Executive Officers:
Monte Ross founded the Company in 1986 and has served as its Chief
Executive Officer and Chairman since inception. He also served as President
until April 2001. For over 20 years prior to founding the Company, Mr. Ross
was employed by McDonnell Douglas Corporation (now Boeing) in a variety of
positions. When he left McDonnell Douglas, Mr. Ross was Director of Laser
Systems, responsible for the group of approximately 400 employees, which
developed the first space laser communication system and first space laser
radar. Mr. Ross is a Fellow of the Institute of Electrical and Electronic
Engineers and the past President of the International Laser Communication
Society. Mr. Ross was awarded a Master of Science degree in Electrical
Engineering by Northwestern University in 1962. He is the father-in-law of
Mark L. Peterson, the Company's Vice President-Engineering.
Ernest Clarke has been a Director of the Company since it was founded
in 1986. From August 1990 to June 1999 he served as Vice President -
Government Programs. He then served as Company's Vice President - Controller
from June of 1999 until April 2001. He was elevated to President in April
2001. For over 20 years prior to joining Ultradata, Mr. Clarke was employed
by McDonnell Douglas Corporation (now Boeing) in a variety of positions.
When he left McDonnell Douglas, Mr. Clarke was its Laser Product Development
Manager with responsibility to supervise over 40 engineers. Mr. Clarke was
awarded a Master of Science degree in Electrical Engineering by Stanford
University in 1966.
Mark L. Peterson has been a Director of the Company since it was
founded in 1986. He has served as the Company's Vice President of
Engineering since 1988. He is responsible for the design of the Company's
hand-held products. During the four years prior to joining the Company, Mr.
Peterson was employed by McDonnell Douglas Corporation as an electronics
engineer for fiber optic products and satellite laser cross-link programs.
Mr. Peterson was awarded a Master of Science degree in Electrical Engineering
by Washington University in 1980. He is the son-in-law of Monte Ross.
Duane Crofts joined the Company as Vice President - Advanced Products
in 1994. Prior to joining the Company, Mr. Crofts served for over five years
as a Program Director with McDonnell Douglas Corporation. In that role he
was responsible for engineering management, production management,
subcontract management, and program management. Mr. Crofts most recently was
manager of a multi-million dollar electro-optic development program. Mr.
Crofts was awarded a Bachelor of Science degree in Mechanical Engineering by
the University of Missouri at Rolla.
Donald Rattner joined the Company in 1999 to serve as a member of the
Board of Directors. Mr. Rattner is a member/partner in BrookWeiner, LLC, a
Chicago-based accounting firm, and a member of the American Institute of
Certified Public Accountants and the Illinois CPA Society. He has served on
the boards of several corporations.
H. Krollfeifer, Jr. joined the Company in 2000 to serve as a member of
the Board of Directors. Mr. Krollfeifer is retired after 35 years in the
equipment leasing and financing industry. He has worked closely with The
American Association of Equipment Lessors (AAEL), an industry trade group for
which he served as a speaker, lecturer, and teacher for various educational
programs starting in 1986. That organization evolved into The Equipment
Leasing Association of America (ELA), and Mr. Krollfeifer was added to their
training faculty in January 2000 where he continues to serve on a part-time
basis.
Matthew Klapman joined the Company in 2002 to serve as a member of the
Board of Directors. Mr. Klapman is the CEO of Future Vision Technologies,
Inc., which he co-founded 1990. He has maintained a strong career in
technological innovation, business strategy, negotiation, and team
management. He has invented and developed a myriad of products in the video,
3-D graphics, and communication fields. As a Director at Motorola, he
developed the computer graphics and marketing strategy for its corporate
strategy office and broadband wireless communications sector. In addition,
as Director of Research and Development for Motorola's Personal
Communications Sector, he spearheaded the creation of the new user interface
platform that is the basis for all of Motorola's cellular phones. He has
developed products and designs that have earned several industry awards. He
received a B.S. in Computer Engineering and a J.D. from the University of
Illinois at Urbana. He holds 4 issued and 7 pending patents.
AUDIT COMMITTEE
The Board of Directors has appointed an Audit Committee of the Board.
The present members of the Audit Committee are Donald Rattner and H.
Krollfeifer, Jr. The Board of Directors has determined that Donald Rattner
is qualified to serve as an "audit committee financial expert", as defined in
the Regulations of the Securities and Exchange Commission. Mr. Rattner is an
"independent director", as defined in the Regulations of the Securities and
Exchange Commission.
CODE OF ETHICS
The Company has adopted a "Code of Business Ethics for Ultradata
Systems, Inc." The Code is applicable to all employees of the Company,
including its principal executive officer, principal financial officer,
principal accounting officer, or persons performing similar functions. The
Company will provide a copy of the Code of Ethics, without charge, to any
person who submits a request in writing to the President of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
None of the directors, officers, or beneficial owners of more than 10%
of Ultradata's common stock failed to file on a timely basis reports required
during 2003 by Section 16(a) of the Exchange Act.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by,
or paid by Ultradata to executives for services rendered in all capacities to
Ultradata during each of the last three fiscal years. There was no other
executive officer whose total salary and bonus for the fiscal year ended
December 31, 2003 exceeded $100,000.
Annual Long-term
Compensation Compensation
Name & Position Year Salary Bonus Other (1) Options
------------------------------------------------------------------------------
Monte Ross, 2003 $ 146,789 $ - $ -
Chief Executive Officer 2002 $ 152,938 $ - $ - (2)
2001 $ 156,278 $ - $ 6,000
Ernest Clarke 2003 $ 103,238 $ - $ -
President 2002 $ 103,783 (3)
2001 $ 107,691
(1) Included premium payments for a life insurance policy on Mr. Ross, with
his estate as beneficiary, discontinued in 2001.
(2) During 2002 the Board's Stock Option Committee awarded Mr. Ross options
to purchase 80,500 shares of Common Stock at an exercise price of $.07.
(3) During 2002 the Board's Stock Option Committee awarded Mr. Clarke
options to purchase 38,500 shares of Common Stock at an exercise price of
$.07.
Employment Agreements
Messrs. Ross, Peterson, and Clarke have individual employment
agreements with Ultradata beginning September 1, 1994. Except as noted
herein, the terms of the employment agreements are substantially identical.
The agreements were extended in 1997 by action of the Board of Directors to
October 31, 2000, again in 2000 to October 31, 2003, and again in 2003 to
October 1, 2005. The agreements provide for base salaries, which are
adjusted annually by the Board of Directors. If the majority of the Board
cannot agree as to a level of salary adjustment, the salary will increase by
10% for Mr. Clarke and Mr. Peterson and 5% for Mr. Ross. The employment
agreements restrict each officer from competing with Ultradata for one year
after the termination of his employment unless that employee establishes that
his employment by a competitor will not involve the use of any information
considered confidential by Ultradata.
Stock Option Awards
No executive officer was granted or exercised any options during 2003.
The following tables set forth certain information regarding the stock
options acquired by the Company's Chief Executive Officer and Chief Financial
Officer during the year ended December 31, 2003 and those options held by
each of them on December 31, 2003.
Option Grants in the Last Fiscal Year
Percent
of total
Number of options
securities granted to
underlying employees Exercise
option in fiscal Price Expiration
Name granted year ($/share) Date
---------------------------------------------------------------------------
M. Ross 0 N.A. N.A. N.A.
E. Clarke 0 N.A. N.A. N.A.
Aggregated Fiscal Year-End Option Values
Number of securities Value of unexercised
underlying unexercised in-the-money options
options at fiscal at fiscal
year end (#) year-end ($)
Name (All exercisable) (All exercisable)
---------------------------------------------------------------------------
M. Ross 80,500 $8,050
E. Clarke 38,500 $3,850
Remuneration of Directors
Outside Directors receive $500 per meeting and are reimbursed for out-
of-pocket expenses incurred on the Company's behalf.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to us with respect to
the beneficial ownership of our common stock by the following:
* each shareholder known by us to own beneficially more than 5% of our
common stock;
* Monte Ross and Ernest Clarke;
* each of our other directors; and
* all directors and executive officers as a group.
There are 6,057,746 shares of our common stock outstanding at March 7,
2004. Except as otherwise indicated, we believe that the beneficial owners
of the common stock listed below have sole voting power and investment power
with respect to their shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percent ownership of that person, we
include:
* shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within
60 days, and
We do not, however, include these "issuable" shares in the outstanding shares
when we compute the percent ownership of any other person.
Name and Amount and
Address of Nature of Percentage
Beneficial Beneficial of Outstanding
Owner (1) Ownership Shares (12)
---------------------------------------------------------------------------
Monte Ross 444,500(2) 7.4%
Ernest Clarke 219,352(3) 3.6%
Mark Peterson 203,964(4) 3.3%
Donald Rattner 66,000(5) 1.1%
H. Krollfeifer, Jr. 32,000(6) 0.7%
Matthew Klapman 12,500 0.2%
All officers and
directors as a
group (7 persons) 1,069,726(7) 16.9%
Harley Brixey 1,385,000(8) 22.9%
3 Friendship Court
Troy, MO 63379
(1) Unless otherwise indicated, the address of each of these shareholders
is c/o Ultradata Systems, Incorporated, 1240 Dielman Industrial Court, St.
Louis, Missouri 63132
(2) Includes 100,000 shares owned by the Harriet Ross Revocable Trust, and
214,000 shares owned by the Monte Ross Revocable Trust. Also includes
options to purchase 80,500 shares.
(3) All shares are owned jointly with Mr. Clarke's spouse. Also includes
options for 38,500 shares.
(4) Includes options for 62,000 shares.
(5) Includes options for 29,000 shares.
(6) Includes 24,000 shares owned by D&H Enterprises, Inc., of which Mr.
Krollfeifer is a principal. Also includes options for 4,000 shares.
(7) Includes options for 269,171 shares.
(8) As reflected on a Form 144 filed on January 2, 2004.
Stock Option Plans
The information set forth in the table below regarding equity
compensation plans (which includes individual compensation arrangements) was
determined as of December 31, 2003.
Equity Compensation Plan Information
Number
of
securities
Number of Weighted remaining
securities to be average available
issued upon exercise price for future
exercise of of outstanding issuance
outstanding options, under equity
options, warrants warrants compensation
and rights and rights plan
-------------------------------------------------------------------------------
Equity compensation plans
approved by security
holders 405,477 $.18 0
Equity compensation plans
not approved by security
holders 22,186* $.07 -
-------------------------------------------
Total 427,663 $.17 0
===========================================
* Represents non-qualified stock options given to the Company's outside
directors. The options expire on November 18, 2007.
We have two stock option plans: the 1994 Incentive Stock Option Plan
and the 1996 Incentive Stock Option Plan, both of which were approved by our
shareholders. The material terms of the Plans are identical. In aggregate,
the Plan authorize the issuance of options for 500,000 shares, all of which
have been issued. Of those, options have been exercised to purchase 94,523
shares of common stock.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Item 13. EXHIBITS, LIST, AND REPORTS
(a) Financial Statements
List of Financial Statements Under Item 7 of this Report:
Independent Auditors' Report
Balance Sheet as of December 31, 2003.
Statements of Operations for each year in the two-year period ended
December 31, 2003.
Statements of Stockholders' Equity for each year in the two-year
period ended December 31, 2003.
Statements of Cash Flows for each year in the two-year period ended
December 31, 2003.
Notes to Financial Statements for each year in the two-year period
ended December 31, 2003.
(b) Exhibits Index
Exhibit Number
3-a. Articles of Incorporation, and 1989 amendment. (1)
3-a(1) Amendment to Articles of Incorporation dated March 4, 1991,
March 22, 1994, and November 18, 1994. (1)
3-a(2) Certification of Correction of Articles of Incorporation. (1)
3-a(3) Amendment to Articles of Incorporation dated July 26, 1996 (2)
3-b. By-laws. (1)
4-a. Specimen of Common Stock Certificate. (1)
10-a. Lease dated May 23, 1990, as amended on November 31, 1993, for premises
at 9375 Dielman Industrial Drive, St. Louis, Missouri.(1)
10-a(1) Lease Addendum dated October 17, 1995, for premises at 9375 Dielman
Industrial Drive, St. Louis, Missouri.(1)
10-a(2) Lease Addendum dated October 5, 2001, for premises at 1240-1244
Dielman Industrial Court, St. Louis, Missouri - filed as an exhibit to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2002 and incorporated herein by reference.
10-b. 1994 Stock Option Plan.(1)
10-c Amended and Restated 1996 Stock Option Plan filed as an Exhibit to
the Company's Registration Statement on Form S-8 (333-32098) and
incorporated herein by reference.
10-d. Employment Agreement with Monte Ross.(1)
10-d(1) Extended Employment Agreement between the Company and Monte Ross (2)
10-e. Employment Agreement with Mark L. Peterson.(1)
10-e(1) Extended Employment Agreement between the Company and Mark L.
Peterson.(2)
10-f. Employment Agreement with Ernest Clarke.(1)
10-f(1) Extended Employment Agreement between the Company and Ernest Clarke (2)
10-g. Royalty Agreement dated September 14, 1989, between the Company and
Leonard Missler.(1)
10-g(1) Modification Agreement dated November 4, 1995, to Royalty Agreement
dated September 14, 1989, between the Company and Leonard Missler. (1)
10-h Option Agreement between the Company and Influence Incubator, L.L.C.
dated May 30, 2000 - filed as an exhibit to the Company's Current
Report on Form 8-K dated May 30, 2000 and incorporated herein by
reference.
21. Subsidiaries - None.
31. Rule 13a-14(a) Certification
32. Rule 13a-14(b) Certification
--------------------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form SB-2 (33-85218 C) and incorporated herein by reference.
(2) Previously filed as an Exhibit to Form 10-KSB for the year ended
December 31, 1997, and incorporated herein by reference.
Reports on Form 8-K:
Report dated October 21, 2003 regarding a change in independent
accountants.
Item 14. Principal Accountant Fees and Services
Audit Fees
Webb & Company, P.A. billed $8,900.00 to the Company for professional
services rendered for the audit of our 2003 financial statements and review
of the financial statements included in our 3rd quarter 10-QSB.
Audit-Related Fees
Webb & Company, P.A. billed $0.00 to the Company in 2003 for assurance
and related services that are reasonably related to the performance of the
2003 audit or review of the quarterly financial statements.
Tax Fees
Webb & Company, P.A. billed $0.00 to the Company in 2003 for
professional services rendered for tax compliance, tax advice and tax
planning.
All Other Fees
Webb & Company, P.A. billed $0.00 to the Company in 2003 for services
not described above.
It is the policy of the Company's Audit Committee that all services
other than audit, review or attest services, must be pre-approved by the
Audit Committee. All of the services described above were approved by the
Audit Committee.
INDEPENDENT AUDITORS' REPORT
To the Audit Committee of:
Ultradata Systems, Inc.
We have audited the accompanying balance sheet of Ultradata Systems, Inc. as
of December 31, 2003, and the related statements of operations, changes in
stockholders' deficiency and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit. The financial statements of Ultradata Systems, Inc. as of
December 31, 2002 were audited by other auditors whose report dated February
7, 2003 included a paragraph describing conditions that raised substantial
doubt about the Company's ability to continue as a going concern.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of Ultradata Systems, Inc. as
of December 31, 2003 and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally
accepted in the United States of America.
WEBB & COMPANY, P.A.
Boynton Beach, Florida
February 20, 2004
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Ultradata Systems, Inc.
We have audited the accompanying statements of operation, changes
in stockholders' equity (deficiency) and cash flows of Ultradata
Systems, Inc. (the "Company") for the year ended December 31, 2002.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present
fairly, in all material respects, the results of operations and cash
flows of Ultradata Systems, Inc. for the year ended December 31, 2002,
in conformity with accounting principles generally accepted in the
United States of America.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 7, 2003
ULTRADATA SYSTEMS, INCORPORATED
BALANCE SHEET
DECEMBER 31, 2003
ASSETS
CURRENT ASSETS
Cash $ 2,926
Trade accounts receivable, net
of allowance for doubtful accounts
of $14,703 627,490
Inventories, net 55,594
Prepaid expenses 5,166
--------
Total Current Assets 691,176
--------
PROPERTY AND EQUIPMENT - NET 25,958
OTHER ASSETS 5,444
--------
TOTAL ASSETS $ 722,578
========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 460,701
Accrued liabilities 90,792
Notes payable - current 173,802
--------
TOTAL CURRENT LIABILITIES 725,295
STOCKHOLDERS' DEFICIENCY
Preferred stock, $0.01 par value,
4,996,680 shares authorized,
none issued and outstanding -
Series A convertible preferred stock,
3,320 shares authorized, none issued
and outstanding with a stated value
of $1,000 -
Common stock, $0.01 par value,
10,000,000 shares authorized,
5,783,840 issued and outstanding 57,838
Additional paid-in capital 8,916,685
Accumulated deficit (8,977,240)
---------
TOTAL STOCKHOLDERS' DEFICIENCY (2,717)
---------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY $ 722,578
=========
See accompanying notes to financial statements.
ULTRADATA SYSTEMS, INCORPORATED
STATEMENTS OF OPERATIONS
AS OF DECEMBER 31, 2003 AND 2002
2003 2002
---------- -----------
NET SALES $ 2,863,258 $ 1,741,557
COST OF SALES 1,486,542 1,887,769
--------- ---------
GROSS PROFIT (LOSS) 1,376,716 (146,212)
OPERATING EXPENSES
Selling 253,564 219,259
General and administrative 876,528 1,159,158
Research and development 63,156 251,609
--------- ---------
Total Operating Expenses 1,193,248 1,630,026
--------- ---------
OPERATING INCOME (LOSS) 183,468 (1,776,238)
--------- ---------
OTHER INCOME (EXPENSE)
Interest and dividend income 6,402 30,698
Interest expense (155,801) (76,216)
Loss on early retirement of note receivable (57,813) -
Settlement of legal dispute 127,000 -
Impairment of development tools - (198,764)
Loss on disposal of fixed assets - (17,440)
Other, net 6,439 227
--------- ---------
Total Other Income (Expense) (73,773) (261,495)
--------- ---------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE 109,695 (2,037,733)
Income tax expense - -
--------- ----------
NET INCOME (LOSS) $ 109,695 $(2,037,733)
--------- ----------
INCOME (LOSS) PER SHARE
Net income (loss) $ 109,695 $(2,037,733)
Preferred stock dividends (5,190) (3,600)
--------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON $ 104,505 $(2,041,333)
SHAREHOLDERS ========= ==========
Income (loss) per share -
basic and diluted $ 0.02 $ (0.59)
========= ==========
Weighted average shares outstanding -
basic and diluted 4,872,026 3,444,312
========= ==========
See accompanying notes to financial statements.
ULTRADATA SYSTEMS, INCORPORATED
STATEMENTS OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
Note
Receivable Total
Preferred Stock Common Stock Additional for Tresury Stock Stockholders'
--------------- ---------------- paid-in Common ---------------- Accumulated Equity
Shares Amount Shares Amount capital Stock Shares Amount Deficit (Deficiency)
--------------------------------------------------------------------------------------------------------------------------------
Balance at
December 31, 2001 16 $ 16,000 3,698,350 $ 36,983 $9,573,281 (186,668) 326,171 $(942,311) $(7,049,202) $ 1,448,083
Conversion of
notes payable
to common stock 515,106 5,151 57,809 62,960
Issuance of common
stock to directors
for serv. perf. 11,000 110 660 770
Payments on notes
receivable to
purchase common
stock 84,299 84,299
Net loss, 2002 (2,037,733) (2,037,733)
---------------------------------------------------------------------------------------------------------
Balance at
December 31, 2002 16 16,000 4,224,456 42,244 9,631,750 (102,369) 326,171 (942,311) (9,086,935) (441,621)
Conversion of
preferred stock
to note payable (16) (16,000) (8,790) (24,790)
Conversion of
notes payable
to common stock 1,372,555 13,726 141,494 155,220
Issuance of
common stock to
non-employee for
services performed 30,000 300 4,200 4,500
Exercise of
employee stock
options 3,000 30 180 210
Stock issued as
part of short-term
loan offering 480,000 4,800 86,900 91,700
Payments on notes
receivable to
purchase common
stock 102,369 102,369
Retirement of
treasure shares (326,171) (3,262) (939,049) (326,171) 942,311 -
Net income, 2003 109,695 109,695
---------------------------------------------------------------------------------------------------------
Balance at
December 31, 2003 - - 5,783,840 57,838 8,916,685 - - - (8,977,240) (2,717)
=========================================================================================================
See accompanying notes to financial statements.
ULTRADATA SYSTEMS, INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
2003 2002
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 109,695 $(2,037,733)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 32,308 157,256
Write-down of inventory 17,673 813,094
Stock issued for services 4,500 770
Loss on early settlement of notes receivable 57,813 -
Loss on disposal of property and equipment - 17,440
Provision for doubtful accounts (693) (64,086)
Loss on asset impairment - 198,764
Non-cash accrued interest receivable (12,397) (22,539)
Changes in assets and liabilities:
Trade accounts receivable, net (485,198) 298,916
Inventories 29,219 430,912
Prepaid expenses and other assets (604) 7,087
Accounts payable 182,872 181,695
Accrued liabilities (98,032) (83,321)
--------- ---------
Net Cash Used In Operating Activities (162,844) (101,745)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from early settlement of notes
receivable 202,517 -
Capital expenditures (12,834) (5,622)
--------- ---------
Net Cash (Used In) Provided By Investing
Activities 189,683 (5,622)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (338,844) (103,772)
Dividends paid to preferred stockholders (8,790) -
Proceeds from notes payable 91,600 -
Proceeds from sale of common stock 91,910 -
Payments received on subscriptions, net 102,369 84,299
--------- ---------
Net Cash Used In Financing Activities (61,755) (19,473)
--------- ---------
NET DECREASE IN CASH (34,916) (126,840)
CASH - BEGINNING OF YEAR 37,842 164,682
--------- ---------
CASH - END OF YEAR $ 2,926 $ 37,842
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION
Interest paid during the year $ 48,204 $ 74,290
========= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 2003, a portion of the notes payable in the amount of $155,220 was
converted to 1,312,535 shares of common stock.
During 2003, the Company retired 326,171 shares of Treasury Stock with a cost
of $942,311.
During 2002, a portion of the notes payable in the amount of $62,960 was
converted to 515,106 shares of common stock.
See accompanying notes to financial statements.
ULTRADATA SYSTEMS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003 AND 2002
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) Nature of Operations
Ultradata Systems, Incorporated (the "Company") was incorporated in the
State of Missouri in March 1986 under the name of Laser Data Technology,
Inc. The Company subsequently merged into its wholly owned subsidiary,
Ultradata Systems, Incorporated, incorporated in the State of Delaware,
and Laser Data was dissolved. The principal business activity of the
Company, located in St. Louis, is the design, manufacture, and sale of
hand-held electronic information products. The Company sells the
products in the United States through direct marketing, independent
sales representatives, mail order catalogs, and mass market retailers.
(B) Use of Estimates
The financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
and, as such, include amounts based on informed estimates and
assumptions by management, with consideration given to materiality.
Actual results could vary from those estimates.
(C) Cash
Cash includes deposits at financial institutions.
(D) Revenue Recognition
Net sales are recognized when products are shipped. The Company has
established programs, which, under specified conditions, enable
customers to return product. The Company establishes liabilities for
estimated returns at time of shipment. In addition, accruals for
customer discounts and rebates are recorded when revenues are
recognized.
(E) 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.
(F) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
The Company capitalizes certain software development costs in accordance
with the American Institute of Certified Public Accountants Statement of
Position No. 98-1, "Accounting for the Costs of Software Developed or
Obtained for Internal Use." Costs incurred for the Company's own
personnel who are directly associated with software development are
capitalized. Capitalized software costs will be amortized over an
estimated useful life of five years. Depreciation is provided using the
straight-line basis over the estimated useful lives of the assets,
generally five years. Leasehold improvements are amortized over the
shorter of the term of the related lease or their useful life.
Expenditures for maintenance and repairs are charged to expense as
incurred. The Company continually reviews property and equipment to
determine that the carrying values are not impaired.
(G) Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", long-lived assets and certain identifiable
intangible assets held and used by the Company are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. For purposes of
evaluating the recoverability of long-lived assets, the recoverability
test is performed using undiscounted net cash flows related to the long-
lived assets. The Company reviews long-lived assets to determine that
carrying values are not impaired. During 2002, the Company recognized an
impairment on capitalized software costs (See Notes 3 and 13).
(H) Advertising
The Company expenses the production costs of advertising the first time
advertising takes place, except for direct response advertising, which
is capitalized and amortized over its expected period of future
benefits. Advertising expense totaled $60,950 and $109,189 for the
years ended December 31, 2003 and 2002, respectively.
(I) Reclassification
Certain amounts from prior periods have been reclassified to conform to
the current year presentation.
(J) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure About
Fair Value of Financial Instruments," requires certain disclosures
regarding the fair value of financial instruments. Trade accounts
receivable, accounts payable, and accrued liabilities are reflected in
the financial statements at fair value because of the short-term
maturity of the instruments. Long-term notes receivable that do not
bear interest are discounted by an interest rate commensurate to the
Company's estimated incremental borrowing rate.
(K) Research and Development Costs
Research and development costs consist primarily of expenditures
incurred bringing a new product to market or significantly enhancing
existing products. The Company expenses all research and development
costs as they are incurred unless they are associated with the
development of tools or processes for production used in-house rather
than for product delivered to a customer.
(L) Royalty Expense
Royalty expense is recognized on a pro rata basis as units are sold
during the same period in which the related unit sales were recognized.
(M) Income Taxes
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 in income in the
period that includes the enactment date.
(N) Income (Loss) Per Share
Basic and diluted income (loss) per share is calculated by dividing net
income (loss) for the period (plus preferred stock dividends) by the
weighted average number of shares of common stock outstanding during the
period. The assumed exercise of stock options and warrants is only
included in the calculation of diluted earnings per share, if dilutive.
(O) Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123
(SFAS No. 123), the Company has elected to account for stock options
issued to employees under Accounting Principles Board Opinion No. 25
("APB Opinion No. 25") and related interpretations. The Company
accounts for stock options issued to consultants and for other services
in accordance with SFAS No. 123.
(P) New Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities (FIN 46)", and, in December 2003, issued a
revision to FIN 46. FIN 46 is an effort to expand upon and strengthen
existing accounting guidance as to when a company should consolidate the
financial results of another entity. Interpretation 46 requires
"variable interest entities" as defined to be consolidated by a company
if that company is subject to a majority of expected losses of the
entity or is entitled to receive a majority of expected residual returns
of the entity, or both. The company that is required to consolidate a
variable interest entity is referred to as the entity's primary
beneficiary. The interpretation also requires certain disclosures about
variable interest entities that a company is not required to
consolidate, but in which it has significant variable interest.
The consolidation and disclosure requirements apply immediately to
variable interest entities created after January 31, 2003. For all
variable interest entities created prior to February 1, 2003, FIN 46 is
effective for periods ending after March 15, 2004, except for entities
that are considered Special Purpose Entities, to which the provisions
apply as of December 31, 2003. The adoption of this pronouncement will
not have any effect on the Company.
(Q) Business Segments
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information."
The Company operates in one segment and therefore segment information is
not presented.
NOTE 2 INVENTORIES
Inventories (net) at December 31, 2003 consist of the following:
Raw materials $ 3,738
Work in process -
Finished goods 51,856
-------
$ 55,594
=======
At December 31, 2003, the Company has reserved $816,150 for obsolete
inventory.
NOTE 3 PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2003 consist of the following:
Research and development equipment $ 39,997
Tooling and test equipment 86,112
Office furniture and equipment 236,803
Sales displays 52,101
Leasehold improvements 29,989
--------
445,002
Less accumulated depreciation and
amortization (419,044)
--------
$ 25,958
========
Depreciation and amortization expense for the years ended December 31,
2003 and 2002 totaled $32,308 and $157,256, respectively.
During 2001, the Company began amortizing the capitalized costs of the
Travel*Star24TM when shipments to customers commenced. Sales of the
Travel*Star24TM were suspended later in the year when it was discovered that
the units contained errors that required additional work to correct. The costs
incurred to correct the errors are being expensed as incurred. The Company
cannot thus far be certain all of these errors have been discovered and
corrected without further testing, which is ongoing. Accordingly, the entire
Travel*Star24TM inventory and related capitalized software costs were written
off in 2002 (See Note 13).
NOTE 4 NOTES RECEIVABLE
As part of the sale of the investment in Talon, a $150,000 face value
unsecured promissory note was received from each of two principals of
Talon for aggregate notes receivable of $300,000. Since the notes do
not bear interest for the first three years, the notes were discounted
by 10% per year for three years to an aggregate net present value of
$225,394. An aggregate of $22,539 of interest income was accrued on the
notes during 2002. During years four and five, the notes bear 5% simple
interest per year. The notes are payable on the earlier of (1) December
11, 2006, at which date $330,000 would be payable or (2) the date on
which a signer sells 20% of his Talon interest or (3) the date on which
Talon is acquired by or merged into another entity or (4) the date on
which Talon sells equity to the public.
In July 2003 the Company offered the noteholders a premium for early
payment in order to address the Company's severe shortage of cash from
operations. Accordingly, the Company accepted payment in full of
$202,517 for both notes, representing a loss of $57,813 on the present
value of the notes.
NOTE 5 ACCRUED LIABILITIES
Accrued liabilities at December 31, 2003 consist of the following:
Accrued sales commissions and royalties $ 27,045
Accrued payroll and related expenses 13,016
Accrued vacation 32,615
Accrued expenses 15,681
Other accrued liabilities 2,435
-------
$ 90,792
=======
NOTE 6 NOTES PAYABLE
On August 13, 2001, the Company entered into an exchange agreement
whereby 1,408 of the remaining Preferred Shares (all but 16 of the
Preferred Shares) were exchanged for two identical (except for the
holder) 11.25% senior secured convertible promissory notes whose
principal amount equals the sum of (1) the stated value of the Preferred
Shares ($1,408,000), (2) cumulative dividends since issuance ($199,320),
and (3) a premium (deemed an additional dividend) equal to 10% of the
stated value of the Preferred Shares ($140,800) for an aggregate amount
of $1,748,120. Each of the two notes called for three monthly payments
of $35,000 followed by monthly payments of $45,000 thereafter until the
notes were satisfied. Under the payment terms, the Company made
payments totaling $140,000 in September 2001, but suspended payments due
to limited cash flow pending a resolution of the negotiations regarding
the sale of its investment in Talon. The agreement also provided for a
10% interest accrual on any principal outstanding on June 1, 2002. The
conversion cap of the Preferred Shares was also amended to limit the
number of common shares into which the Preferred Shares could be
converted during 2001 to 20% of the cumulative trading volume for the 66
trading days preceding conversion. In the same transaction, the
exercise price of the warrants was reduced from $5.00 to $1.50 per
share. The warrants have since expired.
On December 11, 2001, the Company amended its agreement with the note
holders. The amendment provided that the Company would instruct the
buyer of its investment in Talon to transfer the $930,000 proceeds
directly to the note holders in order to reduce the Company's liability
under the notes. The amendment also (1) reduced the aggregate monthly
obligation under the notes from $90,000 to $15,000 per month,
(2) eliminated the 10% interest accrual that had been scheduled for June
1, 2002, (3) eliminated the Company's obligation to register with the
SEC the shares underlying the notes, and (4) raised the conversion cap
of the notes to 28% of the cumulative trading volume for the 66 trading
days preceding conversion. Finally, the exercise price of the warrants
held by the note holders was reduced from $1.50 to $.50 and have since
expired. (See Note 15).
Notes payable at December 31, 2003 consist of the following:
Notes payable in monthly installments of $15,000,
including interest at 11.25%, secured by substantially
all of the Company's assets $ 173,802
Less: current portion (173,802)
--------
$ -
========
Interest expense for the years ended December 31, 2003 and 2002 was
$46,278 and $76,216, respectively.
NOTE 7 COMMITMENTS AND CONTINGENCIES
(A) Operating Lease
The Company renewed its operating lease whereby it reduced the size of
its corporate facilities as of November 1, 2001. The lease is an
operating lease, which expires October 31, 2005. The Company pays
monthly rent of $3,779, plus 22% of all building expenses. Until
November 1, 2002, the Company also occupied adjoining warehouse space on
a month-to-month basis at a rate of $1,275 per month.
Future minimum lease payments under the operating lease at December 31,
2003, consist of the following:
Year Amount
--------------------------
2004 $ 45,348
2005 $ 37,790
-------
Total $ 83,138
=======
Rent expense totaled $47,299 and $58,829 for the years ended
December 31, 2003 and 2002, respectively.
(B) Royalty Agreements
On September 14, 1989, the Company entered into a twenty-year royalty
agreement relating to its ROAD WHIZTM product. After 20,000 ROAD WHIZTM
had been sold, the agreement thereafter provides for a 1% royalty
payment on net sales of the ROAD WHIZTM product and 0.5% on the Company's
other products that incorporate the ROAD WHIZTM database. Royalty
payments are made quarterly until September 13, 2009. During the years
ended December 31, 2003 and 2002, royalty expense totaled $26,693 and
$15,936, respectively.
On September 15, 1998, the Company entered into a three-year royalty
agreement with AAA related to the AAA TripWizardTM. The terms are
automatically renewable for one year and amount to 10% of the wholesale
price on sales other than through AAA stores and $1.00 per unit on AAA
sales. This agreement recognizes the benefit of the AAA logo and data
and their promotion of the product through their travel stores. On July
1, 2002, the agreement was amended to provide a royalty of $1 per unit
on all sales of the unit. During the years ended December 31, 2003 and
2002, royalty expense totaled $39,821 and $25,964, respectively. On
September 15, 2003, this agreement automatically renewed for an
additional year.
In August of 2003, the Company entered into a royalty agreement with AAA
for use of the AAA brand on the Company's Talking Road Navigator. This
agreement is similar to the above agreement with regard to sales through
AAA stores and royalties for other sales. Prior review and approval by
AAA of the use of AAA brands in TV and other media are a part of the
agreement. (See Note 15)
On April 19, 2001, the Company entered into a three-year royalty
agreement with Rand McNally. The agreement renews automatically for
one-year periods up to a maximum of five additional years unless
terminated earlier. The agreement calls for the Company to pay a
royalty of 10% of net sales of the TripLink and Pocket TripLink devices
that contain the Rand McNally logo or $1.50 for each device sold,
whichever is greater. For the first year of the agreement, the Company
guarantees a minimum payment of $150,000, and must pay an additional
$50,000 if 50,000 or more devices are sold. The guaranteed annual
minimum for each subsequent anniversary year increases to 115% of the
amount of the royalties due (inclusive of the guaranteed annual minimum)
for the previous year. In addition to the per unit royalty, the Company
must pay (1) a royalty of $.01 to $.02 for each route created by
authorized users of the services provided by the agreement, (2) a
royalty of $0.48 to $0.62 for each Pocket Road Atlas ordered from Rand
McNally, and (3) a $0.12 license fee for each Pocket Road Atlas shipped
to customers. During the years ended December 31, 2003 and 2002,
royalty expense totaled $138 and $4,892, respectively.
On February 21, 2002, the royalty agreement with Rand McNally was
amended as follows: (1) beginning December 16, 2002, either party may
terminate the agreement with sixty days written notice, (2) the Company
may begin using the Rand McNally logo on additional products, (3)
beginning March 1, 2002, the Company shall pay twelve monthly
installments of $8,333 to the remaining balance of $100,000 owed to Rand
McNally for the first year minimum, and (4) the Company shall sell its
TripLink device to Rand McNally for $7.50 per unit below the normal
selling price, and this discount shall be used as a credit against the
monthly payment in (3) above.
In February 2003, the agreement with Rand McNally was further amended to
provide a new payment schedule and basis for the TripLink royalties.
The Company agreed to pay the remaining balance for the TripLink Program
in accordance with the following terms:
The beginning balance of $52,251 on January 1, 2003, shall bear interest
at the rate of 6% APR. The payment schedule shall consist of $2,000
upon signing of the amendment and $2,000 on the 15th of each month
commencing March 15, 2003. On or before August 31, 2003, a final
balloon payment is required equal to the sum of the outstanding balance
and any accrued unpaid interest, less any credits resulting from
TripLink sales in the interim. The agreement was signed and the initial
payment of $2,000 was made in February 2003.
In 2003, the Company paid $20,000, including $2,341 in interest, to Rand
McNally and reduced the balance to $27,045 on December 31, 2003, when
credits are also taken into account. Since the Company was unable to
retire the balance by August 31, 2003 as planned, the Company continued
monthly payments and accrual of interest.
(C) Exclusive Distribution Agreement
In November 2002, the Company entered into an exclusive distribution agreement
with a major distributor for a branded version of its Talking Road Whiz
product. The initial term of the agreement is for the calendar year 2003
and is contingent upon a commitment for 150,000 units with a scheduled
delivery date not later than September 30, 2003. The agreement provides for
automatic renewal rights if 300,000 or more units are distributed during the
initial term. The terms of this agreement couldn't be met, so it has expired
and has no effect on the financial statements.
NOTE 8 STOCKHOLDERS' DEFICIENCY
(A) Common Stock Issuances
During 2003, a portion of the notes payable in the amount of $155,220
was converted to 1,372,555 shares of common stock. No gain or loss was
recognized on this transaction.
During 2003, an aggregate of 30,000 shares of common stock having a fair
value of $4,500 were issued to a consultant for services rendered during
the year. The shares were valued based on the prevailing market price
on the grant date.
During 2003 and aggregate of 480,000 shares of common stock were issued
for cash of $91,910 to holders of short-term notes.
During 2003, a director exercised 3,000 common stock options for cash of
$210.
During 2002, a portion of the notes payable in the amount of $62,960 was
converted to 515,106 shares of common stock. No gain or loss was
recognized on this transaction.
During 2002, an aggregate of 11,000 shares of common stock having a fair
value of $770 were issued to directors for services rendered during the
year. The shares were valued based on the prevailing market price on
the grant date.
(B) Convertible Preferred Stock
(i) Original Terms
On May 16, 2000, the Company issued 16 Series A Convertible Preferred
Shares to a consultant as a commission. These shares have no voting
rights. The holder of the shares is not entitled to any cash
dividends. However, they accrue an additional 11.25% per annum (or
22.5% if the Common Stock is de-listed by NASDAQ) for purposes of
conversion, redemption, and liquidation ($6,529 at December 31,
2002). The main points of the Preferred Shares were as follows:
1. The Preferred Shares have a liquidation preference, upon the
liquidation of the Company or its bankruptcy or certain other
events, equal to their $1,000 face value plus an accrued amount
equal to 11.25% from the date of their issuance (22.5% if the
Common Stock is delisted by NASDAQ).
2. The Preferred Shares, combined with the additional 11.25% per
annum, may be converted into Common Stock at any time at the option
of the holders. If not previously converted, the Preferred Shares
will automatically convert into Common Stock on May 15, 2003. The
conversion rate will be the lower of $3.50 or 75% of the 5-day
average closing bid price, subject to certain anti-dilution rights
and to the Floor. The "Floor" was originally $2.50 and applies
only during the first 18 months after issuance of the Preferred
Shares. Under the terms of the Preferred Shares, the floor price
was initially adjusted to $2.00, then to $1.50. In March 2001, the
floor was eliminated.
In May of 2003, the Company and the shareholder reached a mutually
satisfactory agreement to convert the shares to a note of $24,870
rather than converting in accordance with the formula above. This
note was paid off completely by September 30, 2003.
NOTE 9 STOCK OPTIONS AND WARRANTS
(A) Stock Options Issued Under Qualified Stock Option Plans
Under the 1994 Incentive Stock Option Plan, the Company may grant
incentive stock options to its employees, officers, directors, and
consultants of the Company to purchase up to 175,000 shares of common
stock. Under the 1996 Incentive Stock Option Plan the Company may grant
incentive stock options to its employees, officers, directors, and
consultants of the Company to purchase up to 175,000 shares of common
stock. In July 2000, the Company's shareholders approved an extension
of the 1996 Incentive Stock Options plan to provide for 150,000
additional shares to be made available for future grant. Under both
plans, the exercise price of each option equals or exceeds the market
price of the Company's stock on the date of grant, and the options'
maximum term is five years. Options are granted at various times and
are exercisable immediately.
During the first quarter of 2002, the Company cancelled incentive stock
options to purchase 227,950 shares of common stock at exercise prices
ranging from $1.50 to $4.00 per share.
During November 2002, the Company granted 390,002 stock options to
certain employees during the year ended December 31, 2002. The Company
applies APB Opinion No. 25 and related interpretations in accounting for
stock options issued to employees. Accordingly, no compensation cost
has been recognized for options issued to employees. Had compensation
cost been determined based on the fair market value at the grant date,
consistent with SFAS 123, the Company's net income (loss) would have
changed to the pro-forma amounts indicated below.
2003 2002
--------------------------
Net income (loss) available to
common shareholders As Reported $104,505 $(2,041,333)
Pro Forma $104,505 $(2,066,456)
Basic and diluted income
(loss) per share As Reported $ 0.02 $ (0.59)
Pro Forma $ 0.02 $ (0.60)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 2002: dividend yield of zero;
expected volatility of 132%, risk-free interest rate of 5.40%; expected
lives of five years for both plans.
A summary of the status of Company's two fixed stock option plans as of
December 31, 2003 and 2002, and the changes during the years then ended
is presented below:
2003 2002
---------------------- ------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Options Shares Price Shares Price
-----------------------------------------------------------------------------
Outstanding at beginning
of year 405,477 $ 0.18 243,425 $ 3.29
Cancelled - $ - (227,950) $ 3.31
Granted - $ - 390,002 $ 0.07
Forfeited - $ - - $ -
Expired (5,692) $ 4.00 - $ -
Exercised - $ - - $ -
---------------------------------------------
Outstanding at end of year 399,785 $ 0.18 405,477 $ 0.18
=============================================
Options exercisable at year
end 399,785 405,477
======= =======
Weighted average fair value
of options granted to
employees during the year $ - $ 0.06
======= =======
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at December Contractual Exercise at December Exercise
Price 31, 2003 Life Price 31, 2003 Price
-------------------------------------------------------------------------
$0.00 - 0.99 390,002 4.0 $ 0.07 390,002 $ 0.07
1.00 - 1.99 5,160 2.0 1.56 5,160 1.56
2.00 - 2.99 2,965 0.8 2.13 2,965 2.13
3.00 - 3.99 - - - - -
4.00 - 4.99 - - - - -
5.00 - 5.56 1,658 1.3 5.56 1,658 5.56
--------------------------------- ----------------------
399,785 3.94 0.18 399,785 0.18
================================= ======================
Options Outstanding Options Exercisable
----------------------------------------------- ------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise at December Contractual Exercise at December Exercise
Price 31, 2002 Life Price 31, 2002 Price
----------------------------------------------- -----------------------
$0.00 - 0.99 390,002 5.0 $ 0.07 390,002 $ 0.07
1.00 - 1.99 5,160 3.0 1.56 5,160 1.56
2.00 - 2.99 2,965 1.8 2.13 2,965 2.13
3.00 - 3.99 - - - - -
4.00 - 4.99 5,692 0.3 4.00 5,692 4.00
5.00 - 5.56 1,658 2.3 5.56 1,658 5.56
--------------------------------- -----------------------
405,477 4.87 0.18 405,477 0.18
================================= =======================
(B) Non-Qualified Stock Options Issued and Outstanding
2003 2002
--------------------------
Stock options issued to a consultant that
arranged the placement of preferred stock.
The term of the option is three years
expiring May 16, 2003. The options are
exercisable at $2.50 per share. - 128,000
Stock options issued to a former affiliate.
The term of the option is five years
expiring May 9, 2005. The options are
exercisable at $4.00 and $5.00 per share. 300,000 300,000
Stock options issued to directors for
services rendered. The term of the options
is five years expiring November 18, 2007.
The options are exercisable at $0.07 per
share. 19,186 22,186
------- -------
Total 319,186 450,186
======= =======
(C) Stock Warrants
In conjunction with the issuance of preferred stock on May 16, 2000, the
Company issued warrants to purchase an aggregate of 478,506 shares of the
Company's common stock at an exercise price of $5.00 per share. The warrants
are exercisable immediately until expiration on May 16, 2003. In an exchange
agreement effective August 13, 2001, the exercise price of the warrants was
reduced from $5.00 to $1.50 per share. In an amendment to the exchange
agreement effective December 11, 2001, the exercise price of the warrants was
further reduced from $1.50 to $0.50 per share. As of December 31, 2002 and
2003, none of the warrants had been exercised, and the warrants have expired.
NOTE 10 INCOME (LOSS) PER SHARE
A reconciliation of the numerator and denominator of the income (loss)
per share calculations is provided for all periods presented. The
numerator and denominator for basic and diluted income (loss) per share
for the years ended December 31, 2003 and 2002, is as follows:
Basic 2003 2002
Numerator: --------------------------------
Net income (loss) $ 109,695 $ (2,037,733)
Preferred Stock Dividends (a) (5,190) (3,600)
------- ----------
Numerator for basic and diluted
income (loss) per share $ 104,505 $ (2,041,333)
======== =========
Denominator:
Weighted average common shares 4,872,026 3,444,312
Common stock equivalents (b) - -
--------- ---------
Denominator for basic and diluted
income (loss) per share 4,872,026 3,444,312
========= =========
Fully Diluted 2003 2002
Numerator: --------------------------------
Net income (loss) $ 109,695 $ (2,037,733)
Preferred Stock Dividends (a) (5,190) (3,600)
Numerator for basic and diluted -------- ---------
income (loss) per share $ 104,505 $ (2,041,333)
======== =========
Denominator:
Weighted average common shares 4,872,026 3,444,312
Common stock equivalents (b) 299,022 -
--------- ---------
Denominator for basic and diluted
income (loss) per share 5,171,048 3,444,312
========= =========
Basic and diluted income (loss)
per share $ 0.02 $ (0.59)
========= =========
(a) See Note 8(B)
(b) Conversion of the preferred stock was not included in the
denominator of the diluted loss per share during 2002 because the effect
of the preferred stock conversion was anti-dilutive. Diluted income
includes options and warrants that are excluded from basic earnings per
share using the Treasury Stock Method to the extent that these
securities are not anti-dilutive. For the year ended December 31, 2003,
299,022 equivalent shares related to stock options were included in
fully diluted earnings per share. Options and warrants to purchase
1,334,169 shares of common stock at prices between $0.07 and $5.56 per
share were outstanding at December 31, 2002, but were not included in
the computation of fully diluted loss per share because they were anti-
dilutive.
NOTE 11 INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 2003 and
2002 consist of the following:
2003
Current Deferred Total
------------------------------------
Federal $ - $ - $ -
State - - -
-----------------------------------
$ - $ - $ -
===================================
2002
Current Deferred Total
------------------------------------
Federal $ - $ - $ -
State - - -
-----------------------------------
$ - $ - $ -
===================================
Income tax expense for the years ended December 31, 2003 and 2002
differed from amounts computed by applying the statutory U. S. federal
corporate income tax rate of 34% to income before income tax benefit as
a result of the following:
2003 2002
-------------------------------
Expected income tax (benefit) expense $ 37,296 $ (692,829)
Increase (decrease) in income taxes
resulting from:
Valuation allowance increase (decrease) (36,880) 784,388
Nondeductible expenses for federal income
tax purposes (416) (91,559)
-----------------------------
Income tax expense (benefit) $ - $ -
=============================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2003
and 2002 include the following:
2003 2002
------------------------------
Deferred tax assets:
Net operating loss carryforward $ 3,454,150 $ 3,714,245
Note receivable reserved for financial
reporting purposes - 253,283
Notes and accounts receivable reserves 5,475 5,475
Inventory reserves, principally due to
accruals for financial reporting
purposes and basis differences 277,491 377,632
Other - 9,604
---------------------------
Total deferred tax assets 3,989,776 4,360,239
---------------------------
Deferred tax liabilities
Property, plant and equipment,
principally due to differences in
depreciation basis (12,385) (17,179)
---------------------------
Total deferred tax liabilities (12,385) (17,179)
Gross deferred tax asset 3,977,391 4,343,060
Valuation allowance (3,977,391) (4,343,060)
---------------------------
Net deferred tax asset $ - $ -
===========================
At December 31, 2003, the Company had net operating loss carryforwards
of $10,159,265 for income tax purposes, available to offset future
taxable income expiring on various dates through 2023. The valuation
allowance at December 31, 2002 was $4,343,060. The net change in the
valuation allowance during the year ended December 31, 2003 was a
decrease of $365,669.
NOTE 12 CONCENTRATIONS OF CREDIT RISK
The Company relied on two customers for approximately 73% of sales for
the year ended December 31, 2003, and two customers for approximately
47% of sales for the year ended December 31, 2002. At December 31,
2003, accounts receivable from those two customers totaled $582,168.
NOTE 13 SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 2002, the Company recorded significant adjustments
that increased the net loss by approximately $812,000. These adjustments
included $613,000 related to an increase in the inventory reserve for
obsolescence, and $199,000 related to the write-off of the remaining
capitalized expense for software tools relating to the TRAVEL*STAR24TM.
NOTE 14 EMPLOYEE BENEFIT PLANS
Effective January 1, 1998, the Board of Director's approved a savings and
retirement plan covering all full-time employees. Subject to approval by
the Board of Directors, the Company fully matches employee contributions up
to 3% of total compensation paid to participating employees and one-third
of one percent is matched for each percentage of participating employee
contributions between 4% and 6% of total compensation. Because of the
Company's financial condition, the Company contributions were suspended in
late 2002 and throughout 2003. Expense attributable to Company contributions
totalled $21,949 during the year ended December 31, 2002.
NOTE 15 SUBSEQUENT EVENTS
(A) AAA Agreement Amendment
In January 2004, the Company reached an agreement with AAA National to
terminate the existing agreement for private branding of the AAA Talking
Road NavigatorTM as of March 27, 2004. This termination occurred at the
request of AAA National for internal business reasons and not for cause
or non-performance by the Company, in accordance with the terms for
cancellation of the agreement by either party. The termination only
applies to the 2003 agreement for the Talking Road NavigatorTM and does
not affect the agreement with regard to the AAA TripWizardTM. (See Note
7(B))
(B) Retirement of Notes Payable
On January 8, 2004, the convertible debt was retired by payment in full
of the outstanding balance including all accrued interest. Between
January 1, 2004, and January 8, 2004, a portion of the notes payable in
the amount of $27,600 was converted to 273,906 shares of common stock.
(See Note 6).
(C) Note Payable
On January 7, 2004, the Company issued a nine-month note payable in the
amount of $150,000. The note earns interest at 12% APR and is
unsecured.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Ultradata Systems, Incorporated
By: /s/ Monte Ross
-----------------------------
Monte Ross, Chairman
In accordance with the Exchange Act, this report has been signed below
by the following persons, on behalf of the registrant and in the capacities
and on the dates indicated.
March 27, 2003
/s/ Monte Ross
---------------------
Monte Ross
Chief Executive Officer and Chairman of the Board
March 27, 2003
/s/Ernest Clarke
---------------------
Ernest Clarke
Chief Financial and Accounting Officer, Director
March 27, 2003
/s/ Mark L. Peterson
---------------------
Mark L. Peterson,
Director
March 27, 2003
/s/ Donald Rattner
---------------------
Donald Rattner
Director
March 27, 2003
/s/ H. Krollfeifer, Jr.
H. Krollfeifer, Jr.,
----------------------
Director
March 27, 2003
/s/ Matthew Klapman
----------------------
Matthew Klapman
Director
* * * * *
EXHIBIT 31: Rule 13a-14(a) CERTIFICATION
I, Monte Ross, certify that:
1. I have reviewed this annual report on Form 10-KSB of Ultradata
Systems, Incorporated;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements and other
financial information included in this report fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the small business issuer's
internal control over financial reporting.
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal controls over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal controls over financial reporting.
Date: March 27, 2003 /s/ Monte Ross
------------------------------------
Monte Ross, Chief Executive Officer
I, Ernest Clarke, certify that:
1. I have reviewed this annual report on Form 10-KSB of Ultradata
Systems, Incorporated;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the financial statements and other
financial information included in this report fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such
evaluation; and
c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the small business issuer's
internal control over financial reporting.
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's ability
to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: March 27, 2003 /s/ Ernest S. Clarke
--------------------------------------
Ernest Clarke, Chief Financial Officer
EXHIBIT 32: Rule 13a-14(b) CERTIFICATION
The undersigned officers certify that this report fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934, and
that the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations of Ultradata
Systems Incorporated.
A signed original of this written statement required by Section 906 has been
provided to Ultradata Systems, Incorporated and will be retained by Ultradata
Systems, Incorporated and furnished to the Securities and Exchange Commission
or its staff upon request.
March 27, 2003 /s/ Monte Ross
--------------------------------
Monte Ross
(Chief executive officer)
/s/ Ernest S. Clarke
-------------------------------
Ernest S. Clarke
(Chief financial officer)