U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-11038
BOATRACS, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0644381
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
6440 Lusk Blvd., Suite D201, San Diego, CA 92121
(Address of Principal Executive Offices)
(619) 587-1981
(Issuer's telephone number)
Check whether the issuer (1) 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 __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes X No __
APPLICABLE ONLY TO CORPORATE FILERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 12,602,310
shares of common stock as of August 10, 1996.
Transitional Small Business Disclosure Format (check one): Yes __
No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOATRACS, INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
REVENUES:
Communications systems sales $413,533 $525,741 $874,506 $718,922
Messaging 490,160 299,400 933,792 559,754
TOTAL REVENUES $903,693 $825,141 $1,808,298 $1,278,676
COSTS AND EXPENSES:
Communications systems sales 271,953 363,389 576,039 467,090
Messaging 262,237 183,236 516,010 349,448
Selling, general and
administrative 634,903 366,249 1,167,131 716,140
TOTAL COSTS AND
EXPENSES $1,169,093 $912,874 $2,259,180 $1,532,678
LOSS FROM OPERATIONS (265,400) (87,733) (450,882) (254,002)
Interest Expense (968) (6,716) (2,163) (14,022)
Interest Income 18,989 2,232 36,350 7,093
NET LOSS ($247,379)($92,217) ($416,695) ($260,931)
NET LOSS PER SHARE ($.02) ($.01) ($.03) ($.02)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 12,602,310 11,154,244 12,592,578 10,560,601
See Notes to Financial Statements
BOATRACS, INC.
BALANCE SHEETS (Unaudited)
June 30, December 31,
ASSETS 1996 1995
CURRENT ASSETS:
Cash $40,446 $151,728
Investment securities 913,050 1,464,849
Accounts receivable (net of allowance
for uncollectible accounts of $14,374
and $18,297 in 1996 and 1995,
respectively) 595,747 407,492
Inventories 35,078 32,309
Prepaid expenses and other assets 55,159 16,625
TOTAL CURRENT ASSETS 1,639,480 2,073,003
NOTES RECEIVABLE 415,863 214,775
PROPERTY at cost (net of accumulated
depreciation of $78,241 and $61,499
in 1996 and 1995, respectively) 99,484 72,399
TOTAL $2,154,827 $2,360,177
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $784,053 $692,757
Current portion of capital lease
obligation 0 708
TOTAL CURRENT LIABILITIES 784,053 693,465
LONG-TERM LIABILITIES:
Deferred Compensation 369,230 369,230
TOTAL LIABILITIES 1,153,283 1,062,695
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
authorized 1,000,000 shares, no
shares issued and outstanding
Common stock, no par value,
authorized 100,000,000 shares;
issued and outstanding 12,602,310
and 12,577,710 in 1996 and 1995,
respectively 4,210,925 4,186,325
Accumulated deficit (2,700,559)(2,283,864)
Note receivable for Common Stock
issued (508,822) (604,979)
TOTAL SHAREHOLDERS' EQUITY 1,001,544 1,297,482
TOTAL $2,154,827 $2,360,177
See Notes to Financial Statements
BOATRACS, INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30,
1996 1995
Operating activities:
Net loss ($416,695) ($260,931)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 16,742 17,192
Accrued interest on long-term debt 0 13,853
Bad debt expense 0 16,671
Write off of allowance for bad debt (3,923) 0
Accrued interest on notes receivable (5,466) 0
Changes in assets and liabilities:
Accounts receivable (184,332) (178,631)
Inventories (2,769) (25,745)
Prepaid expenses and other assets (38,534) (12,223)
Accounts payable and accrued
expenses 115,895 322,404
Net cash used in operating activities (519,082) (107,410)
Investing activities:
Purchases of capital equipment (43,827) (17,208)
Net maturities of investment securities 551,799 0
Payments received on note receivable
issued for common stock 96,157 46,146
Net cash provided by investing activities 604,129 28,938
Financing activities:
Increase in notes receivable (195,621) (33,000)
Payments on capital lease obligation (708) (864)
Net cash used in financing activities (196,329) (33,864)
Net decrease in cash (111,282) (112,336)
Cash at beginning of period 151,728 531,753
Cash at end of period $40,446 $419,417
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Common stock issued for note receivable $0 $737,000
Conversion of promissory note and interest to
equity $0 $215,621
Conversion of deposit to equity $0 $50,000
Common stock issued for services rendered $24,600 $0
See Notes to Financial Statements
BOATRACS, INC.
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1- BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and six months
ended June 30, 1996 are not necessarily indicative of the results that
may be expected for any other interim period or for the year ending
December 31, 1996.
NOTE 2 - NET LOSS PER SHARE
Net loss per share amounts are calculated by dividing net loss by the
weighted average number of common shares outstanding during each
period including common stock equivalents. Net loss per share is
unchanged on a fully diluted basis for all periods presented.
NOTE 3 - NOTES RECEIVABLE
During October 1994, the Company entered into an agreement with a
Canadian company whereby it agreed to advance up to $20,000. The
agreement was amended during 1995 and the first two quarters of 1996,
increasing the advance to $138,000 at June 30, 1996. Advances bear
interest at 9% per annum and are due on demand. Advances under the
agreement totaled $78,000 at December 31, 1995. The note has been
classified as long-term based upon the Company's intent not to request
payment prior to July 1, 1997.
During May 1995 the Company signed a Memorandum of Understanding with
the Canadian company to form a new company in Canada in which the
Company will have a minority interest. The new Company will be
incorporated in Canada and will be granted exclusive rights for the
marketing, distribution and sale of the BOATRACS System in the
Canadian provinces of Ontario, Quebec, New Brunswick, Prince Edward
Island, Nova Scotia, Newfoundland and Labrador. The Canadian company,
which had served as the exclusive distributor for BOATRACS in Eastern
Canada, will provide message monitoring for BOATRACS in Eastern
Canada.
During 1995, the Company entered into a Promissory Note with an
individual who is an officer, Director and majority stockholder of the
Company under which it agreed to advance up to $369,230. Advances are
secured by deferred compensation, bear interest at 5.5% and are due on
demand. Advances under the agreement totaled $120,000 at December 31,
1995 and $250,000 at June 30, 1996, plus accrued interest. The note
has been classified as long-term based upon the Company's intent not
to request payment prior to July 1, 1997.
NOTE 4 - AGREEMENTS WITH QUALCOMM INCORPORATED
On March 31, 1995, the Company entered into a Subscription Agreement
and an Amendment (#6) to the License and Distribution Agreement with
QUALCOMM Incorporated, the Company's supplier of OmniTRACS Satellite-
based communications and tracking equipment. Through these two
agreements QUALCOMM acquired 1,112,265 shares, or approximately 9%,
of BOATRACS, Inc. common stock increasing the shares outstanding at
that date to 11,122,651. The shares were issued for total
consideration of $737,000 which will be paid by providing discounts on
future purchases of OmniTRACS equipment and messaging units from
QUALCOMM. The transaction was recorded as a note receivable for
shares issued which is reduced as discounts are earned. During the
second quarter of 1996, a total of $47,399 in discounts were earned
reducing the receivable balance to $508,822, compared to the second
quarter of the prior year when $44,646 of discounts were earned,
reducing the receivable balance to $690,854.
NOTE 5 - REGISTRATION STATEMENTS WITH THE SECURITIES AND EXCHANGE
COMMISSION
On May 3, 1995, the Company filed a registration statement on Form S-1
with the Securities & Exchange Commission which became effective on
July 6, 1995, registering shares held by : 1) certain shareholders of
old BOATRACS, Inc.; 2) QUALCOMM Incorporated, the Company's sole
supplier and 3) shares which were converted into common stock from a
Promissory Note by a director of the Company on June 15, 1995. A
total of 4,840,222 shares were registered. The Company did not
receive any proceeds from the transaction.
On October 31, 1995, the Company filed a second registration statement
with the Securities & Exchange Commission registering an additional
1,275,375 newly issued shares which were issued to new and existing
shareholders in September 1995. The Company did not receive any
proceeds from the transaction.
Proceeds net of commissions in the amount of $1,904,292 were raised
from a Private Placement Offering in September 1995.
On May 7, 1996, Post-Effective Amendment No. 3 to Form S-1 was filed
with the Securities and Exchange Commission to update the registration
statement of the 6,033,385 shares of common stock previously issued.
The Company did not receive any proceeds from the transaction.
NOTE 6 - STOCK OPTIONS
During April 1996, the Company awarded to certain employees and
directors of the Company a total of 252,500 stock options at an
exercise price of $1.00 per share and in May 1996, 20,000 options were
awarded at an exercise price of $1.81 each. The options vest over
five years and expire in seven years.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company has distribution rights in the United States for marine
application of the OmniTRACS system of satellite-based communications
and tracking systems manufactured by QUALCOMM Incorporated
("QUALCOMM"). The OmniTRACS system provides confidential two-way
communications between vessels at sea and base stations on land or
with other vessels and is effective while a vessel is within the
satellite's "footprint," which extends roughly 200 to 400 miles
offshore of the continental United States. The system also allows for
hourly position tracking and 24 hour messaging service and, using
supplementary products, can provide engine performance and fuel
consumption monitoring.
The Company wishes to caution readers to the risk factors inherent to
the business including, but not limited to, the continuing reliance
upon QUALCOMM, INC., the sole supplier of equipment sold by the
Company and reliance upon Qualcomm's Network Management Facility
through which the Company's message transmissions are formatted and
processed. These and other risks are described fully in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995.
The Company was incorporated in California in 1982 under the name
First National Corporation as a bank holding company. From 1982 to
1993, the Company provided, through its wholly-owned subsidiaries,
business and individual banking services and certain corporate trust
services.
On November 9, 1993, First National Corporation filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of
California. On January 12, 1995, the Company (formerly First National
Corporation) merged with BOATRACS, Inc., ("Old BOATRACS"), a
California corporation formed in 1990 to be a distributor in the
United States marine market of the OmniTRACS satellite-based
communications and tracking system manufactured by QUALCOMM. The
merger of Old BOATRACS with and into the Company (the "Merger") was
implemented pursuant to a Plan and Agreement of Reorganization that
was approved by the Bankruptcy Court. First National Corporation had
no significant assets or operations at the effective date of the
Merger. The Company intends to operate and continue the business of
Old BOATRACS.
For the Three Months Ended June 30, 1996 and 1995
Total revenues for the quarter ended June 30, 1996 were $903,693, an
increase of $78,552 or 9.5% as compared to total revenues of $825,141
for the quarter ended June 30, 1995.
Communications systems revenues, which consists of revenues from the
sale of the BOATRACS system and related software, were $413,533 or
45.8% of total revenues, a decrease of $112,208 or 21.3% compared to
$525,741 or 63.7% of total revenues in the second quarter of 1995.
The decrease in communication systems revenues primarily reflects
timing differences in the installation of units at several major
customers in the second quarter of 1996 compared to the same period in
1995. Messaging revenues were $490,160 or 54.2% of total revenues, an
increase of $190,760 or 63.7% compared to $299,400 or 36.3% of total
revenues in the second quarter of 1995. The increase in messaging
revenues reflects an overall increase in messaging services provided
by the Company as a result of growth in the number of BOATRACS systems
installed on vessels and increased usage by some customers.
Communications systems expenses were $271,953 or 65.8% of
communications systems revenues for the quarter ended June 30, 1996, a
decrease of $91,436 or 25.2%, compared to $363,389 which represented
69.1% of communications systems revenues in the corresponding quarter
of the prior year. The dollar decrease in expenses primarily reflects
the decrease in sales of BOATRACS systems. The decrease in
communications systems expenses as a percentage of communications
systems revenues is primarily due to a lower cost to the Company per
unit charged by the supplier commencing in the second quarter of 1996.
Messaging expenses were $262,237 or 53.5% of messaging revenues for
the quarter ended June 30, 1996, an increase of $79,001 or 43.1%,
compared to $183,236 which represented 61.2% of messaging revenues in
the corresponding quarter of the prior year. The dollar increase in
costs reflects increased messaging services rendered due to increased
BOATRACS systems installed on vessels and increased usage by some
customers. The decrease in messaging costs as a percentage of
messaging revenues is due to the continuing increase in revenues over
the relatively fixed costs of providing this service and a change in
the price structure charged by the Company's supplier.
Selling, general and administrative expenses were $634,903 or 70.3% of
total revenues for the quarter ended June 30, 1996, an increase of
$268,654 or 73.4%, compared to $366,249 or 44.4 % of total revenues in
the prior corresponding quarter. The increased dollar amount is
primarily attributable to additional expenses incurred, including the
hiring of additional sales and technical personnel, increased costs
in shareholder relations and general increases in operating expenses
associated with the Company's growth, offset in part by a reduction of
legal expenses. In addition, the Company has
incurred significant costs pursuing the commencement of operations in
Europe, including travel, opening and maintaining a messaging center
in The Netherlands and various consultant fees. The Company also has
incurred costs in the development of software to facilitate customer
operations. The costs are written off as incurred. A breakdown of
operating results for the second quarter of 1996 on a geographical
basis reflects pretax income of approximately $86,000 for U.S.
operations before software research and development expenses.
Interest expense for the quarter ended June 30, 1996 was $968 or .1%
of total revenues, a decrease of $5,748 compared to $6,716 which was
.8% of total revenues in the prior corresponding quarter. The dollar
decrease reflects the effects of a decrease in average outstanding
debt balances over the corresponding quarter in the prior year.
Interest expense in the second quarter of 1996 was incurred on short-
term borrowings against investments.
Interest income of $18,989 in the quarter ended June 30, 1996
represents interest earned on cash investments. This represents an
increase of $16,757 or 751%, compared to interest income of $2,232 in
the second quarter of 1995.
For the Six Months Ended June 30, 1996 and 1995
Total revenues for the six months ended June 30, 1996 were $1,808,298,
an increase of $529,622 or 41.4% as compared to total revenues of
$1,278,676 for the six months ended June 30, 1995.
Communications systems revenues, which consists of revenues from the
sale of the BOATRACS system and related software, were $874,506 or
48.4% of total revenues, an increase of $155,584 or 21.6% compared to
$718,922 or 56.2% of total revenues for the six months ended June 30,
1995. The increase in communication systems revenues primarily
reflects increased sales of communication units to vessels for the six
months ended June 30, 1996 compared to the same period in 1995.
Messaging revenues were $933,792 or 51.6% of total revenues, an
increase of $374,038 or 66.8% compared to $559,754 or 43.8% of total
revenues for the six months ended June 30,1995. The increase in
revenues reflects an overall increase in messaging services provided
by the Company as a result of growth in the number of BOATRACS systems
installed on vessels and increased usage by some customers.
Communications systems expenses were $576,039 or 65.9% of
communications systems revenues for the six months ended June 30,
1996, an increase of $108,949 or 23.3%, compared to $467,090 which
represented 65.0% of communications systems revenues in the
corresponding six months of the prior year. The dollar increase in
expenses primarily reflects the increase in sales of BOATRACS systems.
Communications systems expenses as a percentage of communications
systems revenues were essentially unchanged on a year to date basis,
reflecting a lower margin in the first quarter offset by a higher
margin in the second quarter. Messaging expenses were $516,010 or
55.3% of messaging revenues for the six months ended June 30, 1996, an
increase of $166,562 or 47.7%, compared to $349,448 which represented
62.4% of messaging revenues in the corresponding six months of the
prior year. The dollar increase in costs reflects increased messaging
services rendered due to increased BOATRACS systems installed on
vessels and increased usage by some customers. The decrease in
messaging costs as a percentage of messaging revenues is due to the
continuing increase in revenues over the relatively fixed costs of
providing this service and a change in the price structure charged by
the Company's supplier.
Selling, general and administrative expenses were $1,167,131 or 64.5%
of total revenues for the six months ended June 30, 1996, an increase
of $450,991 or 63.0%, compared to $716,140 or 56.0% of total revenues
in the corresponding six months of the prior year. The increased
dollar amount is primarily attributable to additional expenses
incurred, including the hiring of additional sales and technical
personnel and general increases in operating expenses associated with
the Company's growth. In addition, the Company has incurred
significant costs pursuing the commencement of operations in Europe,
including travel, legal, opening and maintaining a messaging center in
The Netherlands, payments to various consultants and participation in
European trade shows. The Company also has incurred significant costs
in the development of software to facilitate customer operations. The
costs are written off as incurred. A breakdown of operating results
for the first six months of 1996 on a geographic basis reflects pretax
income of approximately $159,000 for U.S. operations before software
research & development expenses.
Interest expense for the six months ended June 30, 1996 was $2,163 or
.1% of total revenues, a decrease of $11,859 compared to $14,022 which
was 1.1% of total revenues in the corresponding six months of the
prior year. The dollar decrease reflects the effects of a decrease in
average outstanding debt balances over the corresponding six months of
the prior year. Interest expense for the six months ended June 30,
1996 was incurred on short-term borrowings against investments.
Interest income of $36,350 in the six months ended June 30, 1996
represents interest earned on cash investments. This represents an
increase of $29,257 or 412%, compared to interest income of $7,093 in
the corresponding six months of the prior year.
Liquidity and Capital Resources
The Company's cash balance at June 30, 1996 was $40,446, a decrease
of $111,282 over the December 31, 1995 cash balance of $151,728. At
June 30, 1996, working capital was $855,427, a decrease of $524,111
from the working capital of $1,379,538 at December 31, 1995. Cash of
$519,082 was used in operating activities, cash of $604,129 was
provided by investing activities and cash of $196,329 was used in
financing activities in the first six months of 1996.
Accounts receivable, net of allowance for uncollectible accounts,
increased $188,255 at June 30, 1996 compared to December 31, 1995, due
to the increased sales and messaging charges in the second quarter not
yet paid for. Inventory increased $2,769 at June 30, 1996 compared to
year end. Notes receivable including accrued interest increased
$201,088 at June 30, 1996 compared to year end due to monies loaned in
connection with Promissory Notes (see Note 3 to the financial
statements).
Accounts payable and other accrued expenses increased $91,296 at June
30, 1996 compared to year end, primarily due to payables due to the
supplier of BOATRACS communications and messaging systems. Reduction
of note receivable for common stock issued in the amount of $96,157
relates to discounts received on purchases of equipment and messaging
from the supplier as provided in accordance with the terms of the note
(see Note 4 to the financial statements).
The Company anticipates making capital expenditures in excess of
$80,000 during 1996. To date the Company has financed its working
capital needs through private loans, the issuance of stock and cash
generated from operations. Expansion of the Company's business may
require a commitment of additional funds. To the extent that the net
proceeds of recent private financing activities and internally
generated funds are insufficient to fund the Company's operating
requirements, it may be necessary for the Company to seek additional
funding, either through collaborative arrangements or through public
or private financing. There can be no assurance that additional
financing will be available on acceptable terms or at all. If
additional funds are raised by issuing equity securities, dilution to
the existing shareholders may result. If adequate funds are not
available, the Company's business would be adversely affected.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable
ITEM 2. CHANGES IN SECURITIES
Inapplicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Results of the May 9, 1996 shareholder's meeting were reported in Form
10-QSB for the period ended March 31, 1996.
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item
(a) (1) Exhibit 11 - Computation re Net Loss
per share (filed herewith).
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
BOATRACS, Inc.
Registrant
August 12, 1996 /s/ MICHAEL SILVERMAN
Date Michael Silverman
Chief Executive Officer
August 12, 1996 /s/ DALE FISHER
Date Dale Fisher
Chief Financial Officer