U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
|_| 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)
10675 Sorrento Valley Road, Suite 200, San Diego, CA 92121
(Address of Principal Executive Offices)
(619) 657-0100
(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: 18,852,508 shares of common stock as
of May 10, 1999.
Transitional Small Business Disclosure Format (check one): Yes __ No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
1999 1998
---- ----
REVENUES:
Communications systems $553,209 $1,192,215
Data transmission and messaging 1,078,415 810,573
Video compression 1,435,676
----------------- ------------------
TOTAL REVENUES 3,067,300 2,002,788
----------------- ------------------
COSTS AND EXPENSES:
Communications systems 343,152 759,078
Data transmission and messaging 445,604 442,868
Video compression 371,292
Selling, general and administrative 1,616,950 703,257
----------------- ------------------
TOTAL COSTS AND EXPENSES 2,776,998 1,905,203
----------------- ------------------
INCOME FROM OPERATIONS 290,302 97,585
Interest income 2,545 32,835
Interest expense 204,730
----------------- ------------------
INCOME BEFORE TAXES 88,117 130,420
INCOME TAX BENEFIT 111,000
================= ==================
NET INCOME $ 199,117 $ 130,420
================= ==================
BASIC EARNINGS PER COMMON SHARE $0.01 $0.01
------ -----
DILUTED EARNINGS PER COMMON SHARE $0.01 $0.01
------ -----
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 18,839,476 15,831,368
Dilutive effect of:
Employee stock options 2,237,888 854,461
Warrants 580,000 77,667
Weighted average of common shares
outstanding, assuming dilution 21,657,364 16,763,496
See Notes to Consolidated Financial Statements
BOATRACS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
------------------ ------------------
ASSETS 1999 1998
- ------ ---- ----
(Unaudited)
CURRENT ASSETS:
Cash $295,706 $416,361
Accounts receivable - net 3,138,547 2,320,404
Inventories 595,681 684,737
Prepaid expenses and other assets 276,917 259,379
------------------ ------------------
TOTAL CURRENT ASSETS 4,306,851 3,680,881
PROPERTY - net 704,435 738,337
PATENT - net 17,177,885 17,459,135
GOODWILL - net 11,000,585 11,192,133
------------------ ------------------
TOTAL $33,189,756 $33,070,486
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $1,214,430 $1,068,347
Accrued expenses 621,820 1,064,993
Current portion of notes payable 1,730,399 1,730,399
------------------ ------------------
TOTAL CURRENT LIABILITIES 3,566,649 3,863,739
NOTES PAYABLE - net of current portion 8,387,177 8,094,778
DEFERRED TAX LIABILITY 6,527,084 6,639,584
STOCKHOLDERS' EQUITY:
Preferred stock, no par value;
1,000,000 shares authorized,
no shares issued
Common stock, no par value;
100,000,000 shares authorized,
18,852,508 and 18,834,032 shares
issued and outstanding
in 1999 and 1998 respectively 17,564,827 17,527,483
Accumulated deficit (2,855,981) (3,055,098)
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 14,708,846 14,472,385
------------------ ------------------
TOTAL $33,189,756 $33,070,486
================== ==================
See Notes to Consolidated Financial Statements
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
1999 1998
---- ----
Operating activities:
Net income $199,117 $130,420
Adjustments to reconcile net income
to net cash used in operating activities:
Deferred tax benefit (112,500)
Depreciation and amortization 548,929 44,310
Changes in assets and liabilities:
Accounts receivable, net (818,143) (527,487)
Inventories 89,056 (40,948)
Deposit in escrow 0 (500,000)
Prepaid expenses and other assets (17,538) (15,402)
Accounts payable and accrued expenses (297,090) 251,492
----------------- -----------------
Net cash used in operating activities (408,169) (657,615)
----------------- -----------------
Investing activities:
Capital expenditures (42,229) (50,957)
----------------- -----------------
Net cash used in investing activities (42,229) (50,957)
----------------- -----------------
Financing activities:
Payments received on notes receivable
issued for common stock 549,579
Draws on line of credit 650,000
Cash received from exercise
of stock options 37,344 39,927
Payments on notes payable (357,601)
Issuance of notes receivable (17,000)
----------------- -----------------
Net cash provided by financing
activities 329,743 572,506
----------------- -----------------
Net decrease in cash (120,655) (136,066)
Cash at beginning of period 416,361 392,712
----------------- -----------------
Cash at end of period $295,706 $256,646
================= =================
See Notes to Consolidated Financial Statements
BOATRACS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements as of and for the three months ended March
31, 1999 and 1998 are unaudited and 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 considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1999 are not necessarily indicative of the results that may be
expected for any other interim period or for the year ending December 31, 1999.
NOTE 2 - BALANCE SHEET DETAILS
3/31/99 12/31/98
---------------- ----------------
Accounts receivable $3,202,747 $2,384,604
Less allowance for doubtful accounts 64,200 64,200
---------------- ----------------
$3,138,547 $2,320,404
---------------- ----------------
Inventory:
Raw materials $ 343,091 $364,889
Work in progress 127,920 214,155
Finished goods 124,670 105,693
---------------- ----------------
Total $595,681 $684,737
---------------- ----------------
Property - at cost:
Computers and equipment $ 870,786 $835,320
Furniture and fixtures 218,668 211,905
Leasehold improvements 55,390 55,390
---------------- ----------------
1,144,844 1,102,615
Less accumulated depreciation 440,409 364,278
---------------- ----------------
$ 704,435 $738,337
---------------- ----------------
Goodwill $11,633,203 $11,633,203
Less accumulated amortization 632,618 441,070
---------------- ----------------
$11,000,585 $11,192,133
---------------- ----------------
Patent $18,000,000 $18,000,000
Less accumulated amortization 822,115 540,865
---------------- ----------------
$17,177,885 $17,459,135
---------------- ----------------
Depreciation expense was $76,137 and $23,159 for the three months ended March
31, 1999 and 1998, respectively. Amortization expense was $472,792 and $21,151
for the three months ended March 31, 1999 and 1998, respectively.
NOTE 3 - SELLING STOCKHOLDER REGISTRATION WITH THE SECURITIES AND EXCHANGE
COMMISSION
On April 29, 1998, a Registration Statement on Form SB-2 was filed with the
Securities & Exchange Commission ("Commission") which provides for registration
of 5,370,070 shares (later revised to 10,154,865) of common stock on behalf of
certain selling stockholders, including (1) QUALCOMM, Inc., a major supplier
of the Company, (2) shares received by an officer and director in connection
with a Restricted Stock Purchase Agreement, (3) warrants granted to two
directors of the Company, (4) warrants granted to a Company consultant
and (5) shares purchased by shareholders in private transactions. The Company
did not receive any proceeds related directly to the Form SB-2. The
Registration Statement became effective May 11, 1999.
NOTE 4 - STOCK OPTIONS
Under the amended 1996 Stock Option Plan ("the Plan"), the Company may grant
incentive and non-qualified options to purchase up to 2,000,000 shares of common
stock to employees, directors and consultants at prices that are not less than
100% (85% for non-qualified) of fair market value on the date the options are
granted. Options issued under the Plan expire seven years after the options are
granted and generally become exercisable ratably over a five-year period
following the date of grant. At March 31, 1999, there were 1,904,000 options
outstanding under the plan.
NOTE 5 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION
The Company operates what management believes to be two reportable business
segments: Communications and Video Compression. The Company's reportable
segments are strategic business units that offer different products and
services. They are managed separately based on fundamental differences in their
operations.
The Communications segment consists of the operations of Boatracs, Inc.,
Boatracs (Europe) B.V. and Oceantracs, Inc., as well as the operations of
BOATRACS Gulfport. The Communications segment has exclusive distribution rights
in the United States for marine application of the OmniTRACS system of
satellite-based communication and tracking systems manufactured by QUALCOMM. In
addition, the Company's wholly owned subsidiaries, Boatracs (Europe) B.V. and
Oceantracs, Inc. have agreements with QUALCOMM'S authorized service providers in
Europe and Canada for marine distribution of OmniTRACS in parts of Europe and
Canada. BOATRACS Gulfport is a provider of software applications and service
solutions to the commercial work boat and petroleum industries, including
customers of Boatracs.
The Video Compression segment consists of the operations of Enerdyne which the
Company acquired in July 1998. Enerdyne is a provider of versatile, high
performance digital video compression products to the government and commercial
markets. In the first quarter of 1998, there was only one segment:
Communications.
Information by industry segment for the quarter ended March 31, 1999 is set
forth below.
Video
Communications Compression Consolidated
--------------- ------------ -------------
Revenues $ 1,631,624 $ 1,435,676 $3,067,300
Income from operations 43,702 246,600 290,302
Interest revenue 1,613 932 2,545
Interest expense 2,304 202,426 204,730
Depreciation and
amortization 72,651 476,278 $548,929
Total assets $ 3,077,774 $30,111,982 $33,189,756
The Company has two foreign subsidiaries: Boatracs (Europe) B.V. and
Oceantracs Inc. Boatracs (Europe) B.V. is located in The Netherlands and
provides communication services to the European market. Oceantrac Inc.
provides communication services in Eastern Canada. In addition, Enerdyne
has limited foreign sales. The following table presents revenues and long
lived assets (excluding goodwill) for each of the geographical areas in
which the Company operates:
3/31/99 3/31/98
------------------------- ---------------------------
Long- Long-
Lived Lived
Revenues Assets Revenues Assets
-------- ------------ --------- -------
United States $2,953,530 $17,786,732 $1,927,725 $206,610
International 113,770 95,588 75,063 45,051
--------- ---------- ----------- ---------
Total $3,067,300 $17,882,320 $2,002,788 $251,661
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company has two main business units:
1. BOATRACS, Inc. ("BOATRACS"), and
2. Enerdyne Technologies, Inc. ("ENERDYNE"), a wholly owned subsidiary
The Company earns revenue primarily from four sources: (a) sales of satellite
based communications equipment and software, and additional complementary and/or
modified equipment created or procured by BOATRACS for marine application; (b)
data transmission and messaging charges; (c) software license fees and charges
for custom software development solutions and (d) development and sales of video
compression products.
Statements within this 10-QSB which are not historical facts, including
statements about strategies and expectations for new and existing products,
technologies, and opportunities, are forward-looking statements that involve
risks and uncertainties. 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 more fully described in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1998.
For the three months ended March 31, 1999 and 1998
Total revenues for the quarter ended March 31, 1999, were $3,067,300 an
increase of $1,064,512 or 53.2% as compared to total revenues
of $2,002,788 for the quarter ended March 31, 1998.
Communications systems revenues, which consist of revenues from the sale of
BOATRACS systems and related software were $553,209 or 18.0% of total revenues,
a decrease of $639,006 or 53.6% compared to $1,192,215 or 59.5% of total
revenues in the first quarter of 1998. The decrease in communication systems
revenues compared to the same period of the prior year, reflects decreased sales
in the United States in the amount of $573,379 or 77%, primarily due to timing.
The sales cycle of communication systems is not even throughout the year and the
sales process can take a considerable amount of time.
Data transmission and messaging revenues were $1,078,415 or 35.2% of total
revenues, an increase of $267,842 or 33.0% compared to $810,573 or 40.5% of
total revenues in the first quarter of 1998. The increase in revenues reflects
an overall increase in data transmission and messaging services provided by the
Company as a result of growth in the number of BOATRACS systems installed on
vessels in the past year.
Video compression revenues in the amount of $1,435,676 or 46.8% of total
revenues, represent revenues from Enerdyne which the Company acquired on
July 7, 1998.
Communications systems expenses were $343,152 or 62.0% of communications systems
revenues for the quarter ended March 31, 1999, a decrease of $415,926 or 54.8%,
compared to $759,078 which represented 63.7% of communications systems revenues
in the corresponding quarter of the prior year. The dollar decrease in expenses
primarily reflects the decrease in communication systems sales.
Data transmission and messaging expenses were $445,604 or 41.3% of data
transmission and messaging revenues for the quarter ended March 31, 1999, an
increase of $2,736 or 1%, compared to $442,868 which represented 54.6% of data
transmission and messaging revenues in the corresponding quarter of the prior
year. The dollar increase in costs reflects increased data transmission and
messaging services rendered for transmission and messaging activities due to the
greater number of BOATRACS systems installed on vessels. The increase in gross
margin percentage in the first quarter of 1999 in the amount of 13% is primarily
due to a change in the billing structure from the service provider and also a
reduction in costs from the service provider during the second half of 1998.
Video compression expenses were $371,292 in the first quarter which was 25.9% of
video compression revenues.
Selling, general and administrative expenses were $1,616,950 or 52.7% of total
revenues for the quarter ended March 31, 1999, an increase of $913,693 or
129.9%, compared to $703,257 or 35.1% of total revenues in the prior
corresponding quarter. The increased dollar amount is primarily attributable to
increases in operating expenses in connection with the acquisition of Enerdyne
Technologies, Inc. in July 1998. Salary expenses increased due to additional
employees in the amount of $236,043 or 48%, rent increased by $44,069 or 60%,
insurance increased by $32,843 or 57% and travel increased by $26,798 or 35% all
due to additional staff and expenses related to the acquisitions. In addition,
amortization of goodwill and a patent was $472,792 in the first quarter of 1999.
Depreciation increased by $52,292 or 69%.
Earnings before interest, taxes, depreciation and amortization for the
quarter ended March 31, 1999 were $838,544 compared to $120,746 in the first
quarter of 1998.
Interest expense in the amount of $204,730 for the first quarter of 1999
primarily represents interest on notes payable issued in connection with the
acquisition of Enerdyne on July 7, 1998.
The income tax benefit recorded in the amount of $111,000 in the quarter ended
March 31, 1999 represents the amortization of a temporary tax difference on the
life of the Enerdyne patent.
Liquidity and Capital Resources
The Company's cash balance at March 31, 1999 was $295,706, a decrease of
$120,655 compared to the December 31, 1998 cash balance of $416,361. At March
31, 1999, working capital was $806,677 an increase of $989,535 from the negative
working capital of $182,858 at December 31, 1998. Cash of $408,169 was used in
operating activities, cash of $42,229 was used in investing activities and cash
of $329,743 was provided by financing activities in the first three months of
1999.
On December 29, 1998, the Company signed a promissory note with a bank in the
amount of $4,250,000 and used the proceeds to pay down a portion of a $8,000,000
note issued in connection with the acquisition of Enerdyne. The interest rate on
the promissory note is 7.75% per annum and will be paid over five years in
monthly payments of $70,833. In addition, the Company entered into a line of
credit agreement with the bank of borrow up to $750,000 at an interest rate
equal to the lender's prime rate which was 7.75% on December 29, 1998. The
agreement expires on December 29, 2000. The amount drawn on the line at March
31, 1999 was $650,000.
Accounts receivable net of an allowance for uncollectible amounts increased
$818,143 to $3,138,547 at March 31, 1999 from $2,320,404 at December 31, 1998
due primarily to the timing and increase of total sales. Property, net of
accumulated depreciation, was $704,435 at March 31, 1999, a decrease of $33,902
due primarily to depreciation expense in the first quarter of 1999. Goodwill and
patent, net of amortization, decreased by $191,548 and $281,250 respectively due
to amortization expense in the first quarter of 1999.
Accounts payable were $1,214,430 at March 31, 1999, an increase of $146,083
compared to a balance of $1,068,347 at December 31, 1998. Accrued expenses
decreased by $443,173 at March 31, 1999 to $621,820 from $1,064,993. When
combining these two accounts, the change is a $297,090 decrease. The combined
decrease is due primarily to a decrease in vendor payables due to less
communication systems sold in the first quarter of 1999 compared to the fourth
quarter of 1998. In addition there was a reduction of accrued salaries in the
amount of approximately $50,000 due to the timing of payroll. Short-term portion
of notes payable in the amount of $1,730,399 relates to the promissory note to a
bank entered into in December 1998 and notes owing to the previous owners of
ENERDYNE.
The Company anticipates making capital expenditures in excess of $200,000 during
1999. 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 substantial 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.
Year 2000 Issues
In the operation of its business, the Company uses commercial computer software
primarily purchased from or provided by independent software vendors. After an
analysis of the Company's exposure to the impact of "year 2000 issues" (i.e.
issues that may arise resulting from computer programs that use only the last
two, rather than all four, digits of the year), the Company believes that such
commercial software is already substantially year 2000 compliant, and that
completion of year 2000 compliance should not have a material impact on the
Company's business, operations or financial condition; however, the Company is
still assessing the impact of this year 2000 issue.
The Company has performed an internal analysis and is in the process of
finalizing a specific written plan to address the year 2000 issues for both
internally developed products and products developed and manufactured by
Qualcomm. Qualcomm has assured the Company that all the products supplied to
BOATRACS, Inc. during the course of the relationship and going forward will be
upgraded to ensure compliance with Year 2000 standards. This assurance will be
at no charge to the Company or customers but the Company may be required to
exchange certain chip sets of our customers at minimal cost.
For internally developed products, the upgrade process is in final testing phase
and will be completed by the end of the current fiscal year. Development costs
associated with the upgrade have been included in operations as incurred. The
Company has spent a total of $15,000 to date and anticipates that the total cost
to complete the conversion will be approximately $25,000 and will be included in
operations as incurred.
The Company does not have a contingency plan, however management is continuing
to evaluate and assess the impact of the year 2000 issue and will report when
the assessment is complete.
The Company is not in a position to evaluate the extent (if any) to which any
year 2000 issues that may affect the economy generally or any suppliers or
others with whom the Company does business in particular would also be likely to
affect the Company. Failure of one or more of the supplier's computer products
to be year 2000 compliant would have a material effect on the Company's
business.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not aware of any current or pending legal proceedings to which
the Company is a party.
ITEM 2. CHANGES IN SECURITIES
Inapplicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 11, 1999, the Company held its Annual Meeting of Shareholders at the
corporate office.
The following directors were elected:
FOR AGAINST
Michael Silverman 16,477,347 1,942
Jon Gilbert 16,470,347 8,942
Giles Bateman 16,477,347 1,942
Luis Maizel 16,477,347 1,942
Mitchell Lynn 16,470,347 8,942
Scott Boden 16,477,347 1,942
Thomas Bernard 16,477,347 1,942
The following proposals were adopted at the meeting:
1. Amendments to the BOATRACS, Inc. 1996 Stock Option Plan increasing the
number of shares available to 4,000,000 from 2,000,000 and to make additional
amendments to conform the Plan to the requirements of Internal Revenue Code
Section 422 and the California Securities Rules.
For: Against: Abstain: Non-vote:
13,679,863 39,503 4,852 4,883,290
2. To consider and act upon a change in the Company name to Advanced Remote
Communications Solutions, Inc.
For: Against: Abstain: Non-vote:
16,062,016 8,372 15,576 2,521,544
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item:
(a)(1) Exhibit 11 - Computation of Net Earnings 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
May 14, 1999 /s/ MICHAEL SILVERMAN
Date MICHAEL SILVERMAN
CHAIRMAN OF THE BOARD
May 14, 1999 /s/ JON GILBERT
Date PRESIDENT AND CHIEF
EXECUTIVE OFFICER
May 14, 1999 /s/ JOHN O'BRYANT
Date CHIEF FINANCIAL OFFICER