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 June 30, 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
ADVANCED REMOTE COMMUNICATION SOLUTIONS, 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 theExchange 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:18,990,453 shares of common stock as
of August 10, 1999.
Transitional Small Business Disclosure Format (check one): Yes __ No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
REVENUES:
Communications systems $438,608 $1,168,573 $ 991,817 $ 2,352,611
Data transmission and
messaging 1,131,391 901,355 2,209,806 1,712,097
Video compression 907,568 2,343,244
----------- ------------ ---------- -----------
TOTAL REVENUES 2,477,567 2,069,928 5,544,867 4,064,708
----------- ----------- ---------- -----------
COSTS AND EXPENSES:
Communications systems 294,792 738,208 637,944 1,489,672
Data transmission and
messaging 329,678 511,646 775,282 957,373
Video compression 384,194 755,486
Selling, general and
administrative 1,739,303 917,742 3,356,253 1,618,106
----------- ------------ ---------- ----------
TOTAL COSTS AND
EXPENSES 2,747,967 2,167,596 5,524,965 4,065,151
----------- ------------ ----------- -----------
(LOSS) INCOME
FROM OPERATIONS (270,400) (97,668) 19,902 (443)
Interest income 3,026 4,922 5,572 38,117
Interest expense 203,157 407,888
----------- ------------ ----------- -----------
(LOSS) INCOME
BEFORE TAXES (470,531) (92,746) (382,414) 37,674
INCOME TAX BENEFIT 112,500 223,500
=========== ============ =========== ===========
NET (LOSS) INCOME $ (358,031) $ (92,746) (158,914) $ 37,674
=========== ============ =========== ===========
BASIC EARNINGS PER
COMMON SHARE ($0.02) ($0.01) ($0.01) $0.00
DILUTED EARNINGS PER
COMMON SHARE n/a n/a n/a $0.00
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 18,947,555 15,875,443 18,885,750 15,853,527
Dilutive effect of:
Employee stock
options n/a n/a n/a 955,485
Warrants n/a n/a n/a 92,845
Series A preferred
stock n/a n/a n/a n/a
Weighted average of
common shares
outstanding,
assuming dilution n/a n/a n/a 16,901,857
See Notes to Consolidated
Financial Statements
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
------------------ ------------------
ASSETS 1999 1998
(Unaudited)
CURRENT ASSETS:
Cash $2,770,025 $416,361
Accounts receivable - net 2,126,033 2,320,404
Inventories 636,597 684,737
Prepaid expenses and other assets 209,163 259,379
------------------ ------------------
TOTAL CURRENT ASSETS 5,741,818 3,680,881
PROPERTY - net 702,624 738,337
PATENT - net 16,896,635 17,459,135
GOODWILL - net 10,983,616 11,192,133
------------------ ------------------
TOTAL $34,324,693 $33,070,486
================== ==================
LIABILITIES AND STOCKHOLDERS'EQUITY
CURRENT LIABILITIES:
Accounts payable $892,525 $1,068,347
Accrued expenses 581,475 1,064,993
Current portion of notes payable 1,914,549 1,730,399
------------------ ------------------
TOTAL CURRENT LIABILITIES 3,388,549 3,863,739
NOTES PAYABLE - net of current portion 6,859,321 8,094,778
DEFERRED TAX LIABILITY 6,414,584 6,639,584
STOCKHOLDERS'EQUITY:
Preferred stock, no par value;
1,000,000 shares authorized,
300 shares of Series A issued 3,000,000
Common stock, no par value;
100,000,000 shares authorized,
18,990,453 and 18,834,032 shares
issued and outstanding
in 1999 and 1998 respectively 17,876,251 17,527,483
Accumulated deficit (3,214,012) (3,055,098)
------------------ ------------------
TOTAL STOCKHOLDERS'EQUITY 17,662,239 14,472,385
------------------ ------------------
TOTAL $34,324,693 $33,070,486
================== ==================
See Notes to Consolidated Financial Statements
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
1999 1998
Operating activitie
Net (loss) income ($158,914) $37,674
Adjustments to reconcile net
(loss) income
to net cash used in operating
activities:
Deferred tax benefit (225,000)
Depreciation and amortization 1,103,475 114,399
Changes in assets and liabilities:
Accounts receivable, net 194,371 (458,114)
Inventories 48,139 30,147
Deposit in escrow (500,000)
Prepaid expenses and other
assets 50,217 (110,823)
Accounts payable and accrued
xpenses (505,590) 567,138
--------------- ----------------
Net cash provided by (used in)
operating activities 506,698 (319,579)
--------------- ----------------
Investing activities:
Capital expenditures (94,870) (82,506)
Goodwill acquired in acquisition (50,000)
Prepaid acquisition costs (165,968)
--------------- ----------------
Net cash used in investing
activities (144,870) (248,474)
--------------- ----------------
Financing activities:
Issuance of series A preferred stock 3,000,000
Payments received on notes receivable
issued for common stock 2,073,562
Payments on line of credit (650,000)
Cash received from exercise of
stock options 43,143 99,927
Payments on notes payable (401,307)
Issuance of notes receivable (37,000)
--------------- ----------------
Net cash provided by financing
activities 1,991,836 2,136,489
--------------- ----------------
Net increase in cash 2,353,664 1,568,436
Cash at beginning of period 416,361 392,712
--------------- ----------------
Cash at end of period $2,770,025 $1,961,148
=============== ================
SUPPLEMENTAL DISCLOSURE ON NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Reclassification of evaluation
inventory units to property $ 88,372
Discount on redemption of note receivable
for common stock $ 44,274
Issuance of common stock:
Common stock issued in acquisition $ 151,875
Common stock issued to reduce
accounts payable $ 153,750
See Notes to Consolidated Financial Statements
ADVANCED REMOTE COMMUNICATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements as of and for the six months ended
June 30, 1999 and 1998 are unaudited and have been prepared in accordance
ith 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 six months ended June 30, 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
6/30/99 12/31/98
---------------- ---------------
Accounts receivable $2,190,233 $2,384,604
Less allowance for doubtful accounts 64,200 64,200
---------------- ----------------
$2,126,033 $2,320,404
---------------- ----------------
Inventory:
Raw materials $ 393,482 $364,889
Work in progress 171,383 214,155
Finished goods 71,732 105,693
---------------- ----------------
Total $636,597 $684,737
---------------- ----------------
Property - at cost:
Computers and equipment $ 961,727 $835,320
Furniture and fixtures 205,368 211,905
Leasehold improvements 55,390 55,390
---------------- ----------------
1,222,485 1,102,615
Less accumulated depreciation 519,861 364,278
---------------- ----------------
$ 702,624 $738,337
---------------- ----------------
Goodwill $11,810,078 $11,633,203
Less accumulated amortization 826,462 441,070
---------------- ----------------
$10,983,616 $11,192,133
---------------- ----------------
Patent $18,000,000 $18,000,000
Less accumulated amortization 1,103,365 540,865
---------------- ----------------
$16,896,635 $17,459,135
---------------- ----------------
Depreciation expense was $155,583 and $72,149 for the six months ended June
30, 1999 and 1998, respectively. Amortization expense was $947,892 and
$42,250 for the six months ended June 30, 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., one of the Company"s major suppliers, (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 and restated 1996 Stock Option Plan ("the Plan"), the
Company may grant incentive and non-qualified options to purchase up to
4,000,000 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. Option life for Non Qualified
options will not exceed 10 years and for Incentive Stock Options, the life
shall be a 10 year period after the options are granted and generally become
exercisable ratably over a five-year period following the date of grant. At
June 30, 1999, there were 2,718,500 options outstanding under the plan.
NOTE 5 - 401(k) PLAN
In April, 1999 the Company implemented a 401(k) plan allowing eligible employees
to contribute up to 10% of their salary, not toexceed $10,000 annually. The
Company matches 25% of the employees contribution with a three year vesting
schedule. During the second quarter the company contributed a total of
$11,760 to the plan.
NOTE 6 - GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION
The Company operates what management believes to be two reportable
business segments: Communications and Video Compression/Multiplexing.
The Company's reportable segments are strategic business units that
offer different products andservices. They are managed separately based on
fundamental differences in their operations.
The Communications segment consists of the operations of Boatracs, Boatracs
(Europe) B.V. and Oceantracs, Inc., as well as theoperations of Boatracs
Gulfport. The Communications segment has exclusive distribution rights in
the United States for marineapplication of the OmniTRACS system of satellite
based communication and tracking systems manufactured by QUALCOMM. In addition
the Company' wholly owned subsidiaries, Boatracs (Europe) B.V.and Oceantracs,
Inc. have agreements with QUALCOM'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 and multiplexing equipment
to the government and commercial markets. In the second quarter of 1998,
there was only one segment: communications.
Information by industry segment for the six months ended June 30, 1999 is set
forth below.
Video
Communications Compression/ Consolidated
--------------- Multiplexing --------------
------------
Revenues $ 3,201,624 $ 2,343,243 $5,544,867
Income (loss) from
operations 102,202 (82,300) 19,902
Interest income 3,654 1,918 5,572
Interest expense 9,193 398,695 407,888
Depreciation and
amortization 146,369 957,106 1,103,475
Total assets $ 5,672,121 $28,652,572 $34,324,693
The Company has two foreign subsidiaries: Boatracs (Europe) B.V. and
ceantracs 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:
Six months ended 6/30/99 Six months ended 6/30/98
Long- Long-
Lived Lived
Revenues Assets Revenues Assets
---------- ---------- ---------- ------------
United States $5,339,772 $17,515,852 $3,901,193 $267,541
International 205,095 83,407 163,515 55,051
---------- ---------- ---------- ------------
Total $5,544,867 $17,599,259 $4,064,708 $322,592
---------- ---------- ---------- ------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The Company has two main business units:
1. 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) developmen
and sales of video compression products.
At the annual meeting of shareholders on May 11, 1999, the Company passed
a resolution to change its name. To more accurately reflect the Company's
capabilities, BOATRACS, Inc. has changed its name to Advanced Remote
Communications Solutions Inc. (ARCOMS). ARCOMS is a global company delivering
innovative and proprietary solutions to customers in specific markets for
their remote information needs. BOATRACS is a business unit of ARCOMS;
Enerdyne Technologies Inc. remains a wholly owned subsidiary of ARCOMS.
ARCOMS is headquartered in San Diego, and has offices in Santee, CA, Gulfport,
MS and The Netherlands.
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 continuin
reliance upon QUALCOMM, Inc., one of the major suppliers 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 June 30, 1999 and 1998
Total revenues for the quarter ended June 30, 1999, were $2,477,567 an increase
of $407,639 or 19.7% as compared to total revenues of $2,069,928 for the quarter
ended June 30, 1998.
Communications systems revenues, which consist of revenues from the sale of
BOATRACS systems and related software were $438,608 or 17.7% of total revenues
a decrease of $729,965 or 62.5% compared to $1,168,573 or 56.5% of total
revenues in the second 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, Europe and Canada for the three months ended June
30, 1999. During the second quarter of 1998, the Company experienced
substantial sales resulting from legislation related to the fishing industry in
the north east United States.
Data transmission and messaging revenues were $1,131,391 or 45.7% of total
revenues, an increase of $230,036 or 25.5% compared to U$901,355 or 43.6% of
total revenues in the second 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 twelve months.
Video compression revenues in the amount of $907,568 or 36.6% of total
revenues, represent revenues from Enerdyne which the Company acquired on July
7, 1998.
Communications systems expenses were $294,792 or 67.2% of communications
systems revenues for the quarter ended June 30, 1999, a decrease of $443,416 or
60.1%, compared to $738,208 which represented 63.2% 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.
The decrease in gross margin to 33% from 37% in the prior year is due to a
different customer mix in the second quarter and sales of certain units fro
a different supplier with a lower margin. The gross margin on software sales,
included in communications systems, remained relatively unchanged.
Data transmission and messaging expenses were $329,678 or 29.1% of data
transmission and messaging revenues for the quarter ended June 30, 1999, a
decrease of $181,968 or 35.6%, compared to $511,646 which represented 56.8%
of data transmission and messaging revenues in the corresponding quarter o
the prior year. The dollar decrease in costs and the increase in gross margin
percentage in the second quarter of 1999 in the amount of 28% is primarily due
to a change in the billing structure and also a reduction in costs from the
service provider during the second half of 1998. Video compression expenses
were $384,194 in the second quarter which was 42.3%of video compression revenues
Selling, general and administrative expenses were $1,739,303 or 70.2% of
total revenues for the quarter ended June 30, 1999, an increase of $821,561 or
89.5%, compared to $917,742 or 44.3% 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 $307,473 or 70.9%,
rent increased by $49,273 or 160% due to the acquisition and a relocation of
the corporation offices, insurance increased by $45,182 or 132% and marketing
and promotion increased by $25,987 all due to additional staff and expenses
related to the acquisitions. In addition, amortization of goodwill and a
patent was $475,096 in the second quarter of 1999 compared to 21,100 in the
second quarter of 1998. Depreciation increased by $52,292 or 62% to $79,452
from $48,990 in the prior second quarter.
Earnings before interest, taxes, depreciation and amortization for the quarter
ended June 30, 1999 were $284,150 compared to negative $27,577 in the second
quarter of 1998.
Interest expense in the amount of $203,157 for the second 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 $112,500 in the quarter
ended June 30, 1999 represents the amortization of a temporary tax difference
on the life of the Enerdyne patent.
For the six months ended June 30, 1999 and 1998
Total revenues for the six months ended June 30, 1999, were $5,544,867
an increase of $1,480,159 or 36.4% as compared to total revenues of $4,064,708
for the six months ended June 30, 1998.
Communications systems revenues, which consist of revenues from the sale of
BOATRACS systems and related software were $991,817 or 17.9% of total revenues,
a decrease of $1,360,794 or 57.8% compared to $2,352,611 or 57.9% of total
revenues in the corresponding period of the prior year. The decrease in
communication systems revenues compared to the same period of the prior year,
reflects decreased sales in the United States, Europe and Canada, primarily
due to timing. During the first six months of 1998 the Company
experienced substantial sales resulting from legislation related to the
fishing industry in the north east United States. Data transmission and
messaging revenues were $2,209,806 or 39.9% of total revenues, an increase
of $497,709 or 29.1% compared to $1,712,097 or 42.1% of total revenues in the
corresponding six months 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 $2,343,244 or 42.3% of total
revenues, represent revenues from Enerdyne which the Company acquired on July
7, 1998.
Communications systems expenses were $637,944 or 64.3% of communications
systems revenues for the six months ended June 30, 1999, a decrease of $851,728
or 57.2%, compared to $1,489,672 which represented 63.3% of communications
systems revenues in the corresponding six months of the prior year. The dollar
decrease in expenses primarily reflects the decrease in communication
systems sales. The gross margin on communication systems remained relatively
flat at approximately 36%.
Data transmission and messaging expenses were $775,282 or 35.1% of data
transmission and messaging revenues for the six months ended
June 30, 1999, a decrease of $182,091 or 19.0%, compared to $957,373 which
represented 55.9% of data transmission and messaging revenues in the
corresponding six months of the prior year. The dollar decrease in costs,
even though message revenues were increased and the increase in gross margin
of 21% reflects a new contract with volume discounts from the supplier
commencing in the second halfof 1998 with an additional reductions in the second
quarter of 1999.
Video compression expenses were $755,486 for the six months, which was 32.2% of
video compression revenues.
Selling, general and administrative expenses were $3,356,253 or 60.5% of total
revenues for the six months ended June 30, 1999, an increase of $1,738,147 or
107%, compared to $1,618,106 or 39.8% of total revenues in the prior
corresponding period. 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 $633,591 or 84%, rent increased by
$82,217 or 145%, insurance increased by $78,020 or 131% and travel increased
by $26,036 or 22% all due to additional staff and expenses related to the
acquisitions. In addition, amortization of goodwill and a patent was $947,892
for the six months ended June 30, 1999 compared to $42,250 for the six months
ended June 30, 1998. Depreciation expense was $155,583 for the six months
ended June 30, 1999 compared to $72,149 in the corresponding period of the prior
year.
Earnings before interest, taxes, depreciation and amortization for the six
months ended June 30, 1999 were $1,122,691 compared to $113,956 for the six
months ended June 30, 1998.
Interest expense in the amount of $407,888 for the six months ended June 30,
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 $223,500 for the six month
ended June 30, 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 June 30, 1999 was $2,770,025, an increase of
$2,353,664 compared to the December 31, 1998 cash balance of $416,361. At
June 30, 1999, working capital was $2,353,269 an increase of $2,536,127
from the negative working capital of $416,361. At June 30, 1999, working
capital was $2,353,269 an increase of $2,536,127 from the negative working
capital of $182,858 at December 31, 1998. Cash of $506,698 was provided by
operating activities, cash of $144,870 was used in investing activities and
cash of $1,991,836 was provided by financing activities in the first six 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. There were no
amounts drawn on the line at June 30, 1999.
Accounts receivable net of an allowance for uncollectible accounts decreased
$194,371 to $2,126,033 at June 30, 1999 from $2,320,404 at December 31, 1998
due primarily to the timing and decrease of total sales for the quarter ended
June 30, 1999. Property, net of accumulated depreciation, was $702,624 at
June 30, 1999, a decrease of $35,713 due primarily to depreciation expense
in the second quarter of 1999. Goodwill and patent, net of amortization,
decreased by $208,517 and $562,500 respectively due to amortization
expense in the first six months of 1999. The goodwill decrease was offset by
an increase of $176,875 representing goodwill paid for an acquisition in April
1999 (see Item 2 Changes in Securities).
Accounts payable were $892,525 at June 30, 1999, a decrease of $175,822
compared to a balance of $1,068,347 at December 31, 1998.
Accrued expenses decreased $483,518 at June 30, 1999 to $581,475 from
$1,064,993. When combining these two accounts, the change is a
$659,340 decrease. The combined decrease is due primarily to a
decrease in vendor payables due to less product sold in the second
quarter of 1999 compared to the fourth quarter of 1998. In addition,
the terms to a major supplier were reduced in the secondqquarter and
additional volume discounts received which also reduced the payables.
Accrued expenses were further reduced by the timing of certain payments in the
second quarter compared to year-end. Total notes payable (short term plus
long term) in the amount of $8,773,870 at June 30, 1999 compared to $9,825,177
at year end relates to the promissory note to a bank entered into in December
1998 and notes owing to the previous owners of ENERDYNE. Total payments of
$1,051,307 were made in the first 6 months of 1999.
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, completed a summary plan
that identifies all critical systems, assesses the compliance status,
and includes a plan to achieve compliance on non-compliant systems 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 September 30, 1999. Development costs
associated with the upgrade have been included in operations as incurred.
The Company has spent a total of $16,000 to date and anticipates that the total
expenditures remaining to complete the conversion will be approximately
$30,000 and will be included in operations as incurred.
The Company has completed contingency plans for most systems, however
management is continuing to evaluate and assess the impact of
the year 2000 issue and will report when the final assessment is complete,
estimated to by September 30, 1999.
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
In April 1999, the Company entered into an Asset Purchase Agreement with two
individuals to purchase a communications components business. The Company paid
$50,000 in cash and issued 75,000 restricted common shares in reliance on
Section 4 (2) of the Securities Act of 1933 ("Securities Act") valued at $2.03
each. Goodwill of approximately $200,000 was recorded as a result of the
transaction.
In May 1999, the Company issued 60,000 restricted common shares, in reliance
on section 4 (2) of the Securities Act, to Qualcomm, Inc., a major supplier of
the Company as payment on certain accounts payable. The shares were issued at
fair market value of $2.56.
In June 1999, the Company entered into a Series A Preferred Stock Purchase
Agreement ("Agreement") with a private company. Pursuant to the Agreement, the
Company issued 300 restricted shares of Series A Convertible Preferred stock
("Preferred Stock") under Rule 506, of the Securities Act for an aggregate
purchase price of $3,000,000. The Preferred Stock shall be entitled to receive,
when and if declared by the Board of Directors, cumulative cash dividends, in
preference and priority to dividends on any junior stock at 9% yearly. Each
share of the Preferred Stock valued at $10,000 is convertible into common stock
at a conversion price of $4.00 per common share and may be adjusted for certain
recapitalization events.
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 16,469,347 8,942
Giles Bateman 16,477,347 1,942
Luis Maizel 16,477,347 1,942
Mitchell Lynn 16,469,347 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 4,000,000from 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).
3.4 Certificate of Amendment and Restatement of Articles of Incorporation
filed herewith).
4.2 On reliance of section 4 (2) of the Security Act.
10.31 Amended and restated 1996 BOATRACS, INC., Stock Option Plan.
(incorporated by reference to the Company's Form S-8
filed with the SEC on June 15, 1999).
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except earnings per share data)
Three months ended Six months ended
June 30 June 30
1999 1998 1999 1998
Net (loss) income ($358) ($93) ($159) $38
Basic earnings per
common share ($.02) ($.01) ($.01) $.00
Diluted earnings
per common share n/a n/a n/a $.00
Weighted average
common shares
outstanding 18,948 15,875 18,886 15,854
Weighted average
common shares
outstanding assuming 18,948 15,875 18,886 16,902
dilution
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its ehalf by the Undersigned,
thereunto duly authorized.
ADVANCED REMOTE COMMUNICATION SOLUTIONS, Inc.
Registrant
August 14, 1999 /s/ MICHAEL SILVERMAN
Date MICHAEL SILVERMAN
CHAIRMAN OF THE BOARD
August 14, 1999 /s/ JON GILBERT
Date JON GILBERT
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
August 14, 1999 /s/ JOHN O'BRYANT
Date CHIEF FINANCIAL OFFICER