<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1997
Registration No. 333-21043
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 3
to
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MARINE MANAGEMENT SYSTEMS, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 7300 06-0886588
(State or other jurisdiction (Primary Standard Industry (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
470 West Avenue
Stamford, Connecticut 06902
(203) 327-6404
(Address and telephone number of principal
executive offices and principal place of business)
---------------------
Eugene D. Story
President
Marine Management Systems, Inc.
470 West Avenue
Stamford, Connecticut 06902
(203) 327-6404
(Name, address and telephone number of agent for service)
---------------------
Copies to:
Frank J. Marco, Esq. Robert J. Mittman, Esq.
Shipman & Goodwin LLP Tenzer Greenblatt LLP
One American Row 405 Lexington Avenue
Hartford, Connecticut 06103 New York, New York 10174
Telephone No.: (860) 251-5000 Telephone No.: (212) 885-5000
Facsimile No.: (860) 251-5900 Facsimile No.: (212) 885-5001
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
<PAGE>
CALCULATION OF ADDITIONAL REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class Amount Offering Aggregate Amount of
of Securities to be to be Price per Offering Registration
Registered Registered Security (1) Price Fee
=================================================================================================
<S> <C> <C> <C> <C>
Common Stock, Par value
$.002 per share ............. 276,000(2) $5.00 $1,380,000 $418.18
- -------------------------------------------------------------------------------------------------
Warrants, each to purchase
one share of Common Stock
(3) ......................... 276,000(2) $0.10 27,600 $ 8.36
- -------------------------------------------------------------------------------------------------
Common Stock, par value
$.002 per share, issuable
upon exercise of the
Warrants(3).................. 276,000(2) $5.50 $1,518,000 $460.00
- -------------------------------------------------------------------------------------------------
Underwriter's Warrants,
each to purchase one share
of Common Stock(4)........... 24,000 $.001 $ 24 (5)
- -------------------------------------------------------------------------------------------------
Common Stock, par value
$.002 per share(6)........... 24,000 $7.25 $ 174,000 $ 52.73
- -------------------------------------------------------------------------------------------------
Underwriter's Warrants,
each to purchase one
warrant(4)................... 24,000 $.0001 $ 2.40 (5)
- -------------------------------------------------------------------------------------------------
Warrants, each to purchase
one share of Common
Stock(6)..................... 24,000 $.145 $ 3,480 $ 1.05
- -------------------------------------------------------------------------------------------------
Common Stock, par value
$.002 per share(6)........... 24,000 $7.975 $ 191,400 $ 58.00
- -------------------------------------------------------------------------------------------------
Total(7)................. -- -- -- $998.32
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Assumes the Underwriter's over-allotment option to purchase up to 216,000
additional shares of Common Stock and/or 216,000 Warrants is exercised in
full.
(3) Pursuant to Rule 416, there are also being registered such indeterminable
additional shares of Common Stock as may become issuable pursuant to
anti-dilution provisions contained in the Warrants and the Underwriter's
Warrants.
(4) Represents warrants to be issued by the Company to the Underwriter at the
time of delivery and acceptance of the securities to be sold by the
Company to the public hereunder.
(5) None, pursuant to Rule 457(g).
(6) Issuable upon exercise of the Underwriter's Warrant and/or the warrants
issuable thereunder.
(7) The Registration Fee being paid herewith is in addition to the registration
fees previously paid by the Company in the aggregate amount of $4,756.19.
-------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
==============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PRELIMINARY PROSPECTUS, DATED APRIL 30, 1997
SUBJECT TO COMPLETION
[LOGO] MARINE MANAGEMENT SYSTEMS, INC.
1,440,000 Shares of Common Stock and
Redeemable Warrants to Purchase 1,440,000 Shares of Common Stock
Marine Management Systems, Inc. (the "Company") is offering hereby
1,440,000 shares (the "Shares") of the common stock, par value $.002 per share,
of the Company (the "Common Stock") and redeemable warrants to purchase
1,440,000 shares of Common Stock (the "Warrants"). The Shares and Warrants may
be purchased separately. Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock at a price of $5.50, subject to adjustment in
certain circumstances, for a period of four years commencing , 1998. The
Warrants are redeemable by the Company at any time commencing , 1998, upon
notice of not less than 30 days, at a price of $.10 per Warrant, provided that
the closing bid quotation of the Common Stock on all 20 trading days ending on
the third trading day prior to the day on which the Company gives notice (the
"Call Date") has been at least 150% (currently $8.25, subject to adjustment) of
the then effective exercise price of the Warrants and the Company obtains the
written consent of the Underwriter to such redemption prior to the Call Date.
See "Description of Securities."
Of the Shares and Warrants being sold in this offering, 200,000 Shares and
200,000 Warrants have been reserved for sale, at the initial public offering
prices set forth below, to Sperry Marine Inc. ("Sperry") or one of its
affiliates. Sperry, in addition to being a greater than 5% stockholder of the
Company, has formed a strategic alliance with the Company for the marketing and
distribution of the Company's products. See "Prospectus Summary," "Business --
Sales and Marketing," "Principal Stockholders" and "Certain Transactions."
Prior to this offering, there has been no public market for the Common
Stock or Warrants and there can be no assurance that such a market will develop.
It is anticipated that the Shares and Warrants will be quoted on the Nasdaq
SmallCap Market under the symbols "MMSY" and "MMSYW," respectively. The offering
prices of the Shares and Warrants and the exercise price of the Warrants were
determined pursuant to negotiations between the Company and the Underwriter and
do not necessarily relate to the Company's book value or any other established
criteria of value. For a discussion of the factors considered in determining the
offering prices of the Shares and Warrants, see "Underwriting."
-------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO
CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING
ON PAGE 10 AND "DILUTION" ON PAGE 24.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
==============================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- ------------------------------------------------------------------------------
Per Share ......... $5.00 $.50 $4.50
- ------------------------------------------------------------------------------
Per Warrant ...... $.10 $.01 $.09
- ------------------------------------------------------------------------------
Total(3) ......... $7,344,000 $734,400 $6,609,600
==============================================================================
(1) In addition, the Company has agreed to pay the Underwriter a 3%
nonaccountable expense allowance, to grant the Underwriter warrants (the
"Underwriter's Warrants") to purchase up to 144,000 shares of Common Stock
and/or 144,000 warrants and to retain the Underwriter as a financial
consultant. The Company has also agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
Underwriter's nonaccountable expense allowance in the amount of $220,320
($253,368 if the Underwriter's over-allotment option is exercised in full),
estimated at $870,320.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 216,000 additional
Shares and/or 216,000 additional Warrants on the same terms set forth above,
solely for the purpose of covering over-allotments, if any. If the
Underwriter's over-allotment option is exercised in full, the total price to
public, underwriting discounts and commissions and proceeds to Company will
be $8,445,600, $844,560 and $7,601,040, respectively. See "Underwriting."
-------------------
The Shares and Warrants are being offered, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to the approval
of certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering and to
reject any order in whole or in part. It is expected that delivery of
certificates representing the Shares and Warrants will be made against payment
therefor at the offices of the Underwriter, 650 Fifth Avenue, New York, New York
10019, on or about , 1997.
Whale Securities Co., L.P.
The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and, in accordance therewith, will file
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company intends to
furnish its stockholders with annual reports containing audited financial
statements and such other periodic reports as the Company deems appropriate or
as may be required by law.
------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS,
ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE,
MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE COMMON STOCK AND WARRANTS.
SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Except as otherwise noted, all information contained
in this Prospectus, including per share data and information relating to the
number of shares outstanding, gives retroactive effect to the 1-for-2.7 reverse
split of the Common Stock effected on August 20, 1996 and assumes no exercise of
the Underwriter's over-allotment option to purchase up to 216,000 additional
shares of Common Stock and/or 216,000 additional Warrants. See "Underwriting"
and Note 9 of Notes to Financial Statements.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
The Company
The Company develops, markets, sells and supports software systems, and
sells and supports associated hardware and communications systems, for the
management of commercial ships in the international maritime industry. The
Company's products are designed to enable its customers to operate their ocean-
going ships in a safer and more efficient manner through the use of shipboard
and shore-based computer applications and networks connected by wireless
communications. The Company sells its products in the international shipping
market to operators of all types of ships, including crude oil and product
tankers, gas carriers, container ships, cruise liners, bulk carriers and other
specialty ships. The Company has 27 years of experience in the maritime industry
and has an established international market presence and a significant installed
customer base of over 1,500 installations at over 600 shipboard and shore-based
sites worldwide.
The international maritime market is primarily an open, free market,
allowing ships of any country to compete for business. The broad nature of this
market, coupled with the fact that there are over 80,000 vessels in the world's
commercial fleet competing for business, has generated growing pressure on
shipowners/operators to operate their ships more efficiently. In addition, a
significant expansion of international maritime regulations has occurred in
recent years requiring shipowners/operators to operate their ships in a safer
and more environmentally protective manner or face major liability exposure. At
the same time, however, the economic pressures of the industry are leading to
smaller-sized crews on ships, which is increasing the burdens associated with
efficient ship operation and safety and environmental regulation compliance. The
Company believes that these factors have created an environment where
productivity aids, such as those provided by the Company's information
technology systems, can offer large benefits to shipowners/operators.
The Company's core business currently centers around its existing Fleet
Manager Series products, a multifaceted line of software applications for the
management of ship operations. These applications include: FleetWORKS, a systems
package for shipboard inventory and maintenance management; FleetLINK, a marine
data communications and e-mail systems package for high speed data transmission
over satellite, cellular and/or terrestrial links; and FleetWATCH, a shipboard
reporting and administrative systems package. This suite of integrated
applications allows shipowners/operators to manage costs, manage resources and
comply with both internal and externally mandated safety and environmental
issues, while combining ease of use and broad-based functionality with low
implementation costs and full scalability. The Company has also developed
services to support its Fleet Manager Series products, ranging from database
development and validation to the supply of shipboard computer hardware, related
engineering, integration and training services and maintenance support. The
Fleet Manager Series versions currently being shipped are DOS-based; however,
the Company is in the process of developing Windows- based versions. The initial
modules of the Windows-based versions have been delivered to certain customers
for beta testing, and these modules are expected to be commercially available
during the second quarter of 1997, with the balance of modules expected to be
commercially available by the end of 1997.
3
<PAGE>
While many shipowners/operators are just beginning to implement information
technology systems within their enterprises, others have already made
significant investment in their information technology infrastructures. Due to
the increasing proliferation of available technology, more and more of these
infrastructures are incorporating a variety of software environments, computing
platforms and communications protocols and applications supplied by a variety of
vendors, and such variety often results in incompatible systems and applications
within and among an enterprise's many locations. As a result, demand is
increasing for systems that offer shipowners/operators a standard interface,
transparent communications and the ability to integrate enterprise and ship
specific productivity applications for local and remote enterprise users. In
response, the Company has designed, and is currently developing, an Integrated
Shipboard Information Technology ("ISIT") platform (a computer operating
environment standard) for the maritime industry. This platform is designed to
permit the integration of a myriad of ship equipment and informational systems,
including proposed ISIT-compliant versions of the Company's Fleet Manager Series
products currently under development, under a common protocol and to provide a
standard interface to shore-based systems. When completed, the ISIT platform is
intended to provide users with a common communication path for all of their
ISIT-compliant software applications, enabling them to use most satellite
services and a variety of telephone networks and services, including the
Internet. It is also intended to provide a means for collecting and storing a
ship's operating data (for instance, the data found in the various control
systems on the ship's bridge and engine room which operate with their own
proprietary protocols) in a common database and format. The Company believes it
is the only software company developing a systems operating environment
compliant with recently created American Society for Testing and Materials
("ASTM") standards and proposed International Standards Organization ("ISO")
standards, which standards are expected to dictate the software operating
systems standard for the industry.
The Company is developing the ISIT platform as part of a project chosen for
shared expense funding by the United States government. Certain other companies
involved in various technologies and services associated with international ship
operations, design and information technologies are participating in various
related aspects of the project. Upon completion of the project, the Company will
retain all rights to the ISIT platform, subject only to a value added reseller
agreement (and a sharing of a portion of any revenues derived from the
commercialization of the ISIT platform) with the other project members and to
agreements with certain of the Company's sales agents. The Company expects to
complete initial development and to begin initial testing of the ISIT platform
in the second quarter of 1997 and to commence initial marketing of the ISIT
platform and ISIT-compliant versions of its Windows-based Fleet Manager Series
products by the fourth quarter of 1997.
As part of its strategic plan, the Company also intends to expand its
operations in order to provide its customers with satellite communication
services. Currently, the Company provides software solutions for ship-to-shore
communications, but the actual wireless communications services must be procured
by the Company's customers from other vendors. The Company intends to contract
with communications service providers and to resell their communication services
to shipowners/operators as part of a bundled offering with its other products
and services, enabling it to serve as a single-source provider for ship-to-shore
data communications.
The Company believes that once it has completed the ISIT platform and its
negotiation of reseller agreements with one or more satellite communication
service providers, the Company will be in the unique position of being able to
provide shipowners/operators with one-stop shopping for their fleet management
requirements, including application software, platform software, hardware,
systems integration and engineering services and associated communications
services. In addition, the Company believes that the development of the ISIT
platform could be a major breakthrough for the commercial shipping business and
that it represents a strategic opportunity for the Company to significantly
increase its market share position within the maritime industry. Thus, the
Company intends to expand its marketing efforts to focus not only on direct
sales of its products and services to shipowners/operators but also on the
marketing of the ISIT platform to a variety of maritime organizations, including
shipboard control system suppliers and hardware and software vendors, who will
be able to bundle the ISIT platform with their respective product lines.
4
<PAGE>
In keeping with such strategy, in December 1996, the Company and Sperry
Marine Inc. ("Sperry"), a worldwide leader in providing advanced electronic
navigation and guidance systems to commercial and military customers for marine
and aircraft applications and a wholly-owned subsidiary of Litton Industries
Inc. ("Litton"), a $3.6 billion aerospace, defense and commercial electronics
company publicly traded on the New York Stock Exchange, entered into a strategic
alliance for the sale of the Company's products (the "Sperry Alliance"). Sperry
has indicated to the Company that it intends to make its commercial marine
electronic navigation and guidance systems compliant with the Company's proposed
ISIT platform. As part of the Sperry Alliance, the Company and Sperry entered
into a marketing and distribution agreement pursuant to which Sperry has: (i)
the sole right to distribute the Company's proposed ISIT platform products as a
part of and/or within a related Sperry product or system ("Bundled") and the
Company's software application products, whether or not they are Bundled, to the
United States government; (ii) the sole right to distribute all of the Company's
products which are Bundled and sold under the "Sperry" name; and (iii) the
non-exclusive right to distribute the Company's products which are Bundled and
sold under the Company's name, subject, in the case of (ii) and (iii), to
certain territorial limitations. In addition, as part of the Sperry Alliance,
Sperry provided the Company with $500,000 in financing (the "Sperry Financing"),
for which Sperry received a 9% promissory note of the Company in the principal
amount of $250,000, which note will convert upon the consummation of this
offering into an aggregate of 100,000 shares of Common Stock (the "Sperry
Convertible Note"), a 9% promissory note of the Company in the principal amount
of $250,000, maturing upon the consummation, and payable out of the proceeds, of
this offering (the "Sperry Non-Convertible Note" and, together with the Sperry
Convertible Note, the "Sperry Notes"), and warrants to purchase 125,000 shares
of Common Stock at an exercise price of $5.00 per share (the "Sperry Warrants").
As a result of the Sperry Financing, immediately prior to the consummation of
this offering Sperry is the beneficial owner of 7.2% of the outstanding Common
Stock of the Company. In addition, of the Shares and Warrants being sold in this
offering, 200,000 Shares and 200,000 Warrants have been reserved for sale to
Sperry. If Sperry purchases such securities, it will beneficially own
approximately 9.3% of the outstanding Common Stock following the consummation of
this offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources," "Business --
Sales and Marketing," "Principal Stockholders" and "Certain Transactions."
The Company incurred operating losses of $213,602 and $1,386,782 for the
fiscal years ended December 31, 1995 and 1996, respectively, and, at December
31, 1996, had an accumulated deficit of $5,950,629. The Company expects that it
will continue at a loss until, at the earliest, the Company generates sufficient
revenues to offset the cost of its operations. There can be no assurance that
the Company will ever achieve profitability. The report of independent certified
public accountants on the Company's financial statements for all periods
presented contains an explanatory paragraph stating that there is substantial
doubt as to the Company's ability to continue as a going concern. See "Risk
Factors."
The Company was incorporated in Ohio in 1969 and reincorporated in Delaware
in February 1996. The Company's principal executive offices are located at 470
West Avenue, Stamford, Connecticut 06902, and its telephone number is (203)
327-6404. Third-party trademarks or tradenames referred to in this Prospectus
are the property of their respective owners.
Recent Developments
Bridge Financing
In January 1997, the Company completed the sale of seven investment units
(the "Bridge Units") to six private investors at a price of $50,000 per Bridge
Unit for total gross proceeds of $350,000 (the "Bridge Financing"). Each Bridge
Unit consisted of a 9% promissory note of the Company in the principal amount of
$50,000, maturing upon the consummation, and payable out of the proceeds, of
this offering (each, a "Bridge Note") and 10,000 shares of Common Stock (the
"Bridge Shares"). Immediately prior to the Bridge Financing, Eugene D. Story and
Robert D. Ohmes, each an executive officer and director of
5
<PAGE>
the Company, contributed 45,000 and 25,000 of their shares of Common Stock,
respectively, to the Company's treasury, which treasury shares were then issued
by the Company to the investors in the Bridge Financing as the Bridge Shares.
Messrs. Story and Ohmes contributed such shares to the Company's treasury for
issuance as Bridge Shares in order to keep constant the number of outstanding
shares of Common Stock. Messrs. Story and Ohmes treated such contribution of
shares as a contribution to capital and did not, and will not, receive any
consideration in exchange for such shares. After the payment of $35,000 in
placement fees to the Underwriter, who acted as placement agent for the Company
with respect to the sale of the Bridge Units, and other offering expenses of
approximately $20,000, the Company received net proceeds of approximately
$295,000 in connection with the Bridge Financing. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Securities --
Registration Rights."
Executive Stock Repurchase
Immediately prior to the date of this Prospectus, Eugene D. Story, Robert
D. Ohmes, Donald F. Logan, Jr. and Mark E. Story (each an executive officer and
director of the Company) delivered and transferred to the Company for
cancellation 27,085, 26,910, 14,627 and 9,145 shares of Common Stock,
respectively, and the Company accepted such shares, in full payment and
satisfaction of the Company's outstanding loans to such officers in the amounts
of $135,426, $134,550, $73,137 and $45,724, respectively (the "Executive Stock
Repurchase"). Because it was expected that such loan amounts would be satisfied
with shares of Common Stock prior to the date of this Prospectus, the $388,837
in loans receivable was presented as a component of stockholders' equity in the
Company's financial statements commencing as of December 31, 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Certain Transactions" and Note
15(b) of Notes to Financial Statements.
Pending CII Transactions
The Company and Connecticut Innovations, Incorporated ("CII"), an agency of
the State of Connecticut and a principal stockholder of the Company, have agreed
that, immediately prior to the consummation of this offering, all 7,500 shares
of the redeemable preferred stock, par value $100 per share, of the Company (the
"Preferred Stock") will convert into an aggregate of 277,777 shares of Common
Stock (the "Preferred Stock Conversion"). All of such shares of Preferred Stock
were purchased from the Company by CII in August 1996. In addition, the
remaining $236,924 principal amount plus accrued interest outstanding under the
Company's March 1995 promissory note to CII (the "Senior Note") is due upon, and
will be paid out of the proceeds of, this offering. Simultaneous with the
consummation of this offering, the Company will also use $95,000 of the proceeds
from this offering to buy back from CII warrants (the "CII Warrants") currently
exercisable to purchase 129,944 shares of Common Stock at an exercise price of
$2.31 per share (the "CII Warrant Redemption") and such amount will be charged
to operations. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Certain Transactions" and "Description of Securities."
---------------------
Notice to California Investors. Each purchaser of Common Stock and Warrants
in California must be an "accredited investor," as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act"), or satisfy one of the following suitability standards:
(i) minimum actual gross income of $65,000 and a net worth (exclusive of home,
home furnishings and automobiles) of $250,000; or (ii) minimum net worth
(exclusive of home, home furnishings and automobiles) of $500,000.
Notice to Washington and New Jersey Investors. Each purchaser of Common
Stock and Warrants in Washington and each purchaser of Common Stock and Warrants
in New Jersey must be an "accredited investor," as that term is defined in Rule
501(a) of Regulation D promulgated under the Securities Act.
6
<PAGE>
The Offering
Securities offered ....................... 1,440,000 shares of Common Stock
and warrants to purchase 1,440,000
shares of Common Stock. See
"Description of Securities."
Common Stock to be
outstanding after
this offering ........................... 4,441,120 shares (1)(2)
Warrants (3)
Number to be outstanding
after this offering.................... 1,440,000 Warrants
Exercise terms.......................... Exercisable for a period of four
years commencing , 1998, each to
purchase one share of Common Stock
at a price of $5.50, subject to
adjustment in certain
circumstances. See "Description of
Securities -- Public Warrants."
Expiration date......................... , 2002 (five years following the
date of this Prospectus).
Redemption.............................. Redeemable by the Company, at any
time commencing one year following
the date of this Prospectus, upon
notice of at least 30 days, at a
price of $.10 per Warrant, provided
that the closing bid quotation of
the Common Stock has been at least
150% (currently $8.25, subject to
adjustment) of the then effective
exercise price of the Warrants on
all 20 trading days ending on the
third trading day prior to the day
on which the Company gives notice
of redemption (the "Call Date") and
the Company obtains the written
consent of the Underwriter to such
redemption prior to the Call Date.
The Warrants will be exercisable
until the close of business on the
date fixed for redemption. See
"Description of Securities --
Public Warrants."
Use of Proceeds......................... The Company intends to apply the
net proceeds of this offering for
the repayment of debt and
retirement of warrants, software
development, sales and marketing,
entrance into the communications
business, capital equipment and the
balance for working capital and
general corporate purposes. See
"Use of Proceeds."
Risk Factors............................ The securities offered hereby are
speculative and involve a high
degree of risk and immediate
substantial dilution and should not
be purchased by investors who
cannot afford the loss of their
entire investment. See "Risk
Factors" and "Dilution."
Proposed Nasdaq SmallCap
Market symbols......................... Common Stock -- MMSY
Warrants -- MMSYW
- ------------
(1) Includes (i) the 70,000 Bridge Shares (which were previously contributed
back to the Company's treasury by two of its officers for issuance in the
Bridge Financing) and (ii) an aggregate of 377,777 shares of Common Stock
which will be issued in connection with the Preferred Stock Conversion and
the conversion of the Sperry Convertible Note (the "Sperry Note Conversion")
immediately prior to the consummation of this offering. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
7
<PAGE>
(2) Does not include (i) 1,440,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants, (ii) an aggregate of 288,000 shares of Common
Stock reserved for issuance upon exercise of the Underwriter's Warrants and
the warrants included therein, (iii) the 77,767 shares of Common Stock which
were cancelled by the Company in connection with the Executive Stock
Repurchase, (iv) 129,944 shares of Common Stock reserved for issuance upon
exercise of the CII Warrants which are being relinquished by CII in
connection with the CII Warrant Redemption, (v) 347,219 shares of Common
Stock reserved for issuance upon exercise of other outstanding warrants,
(vi) 67,587 shares of Common Stock reserved for issuance upon exercise of
outstanding options granted under the Company's 1996 Key Employees' Stock
Option Plan (the "Stock Option Plan"), (vii) up to 157,453 shares of Common
Stock reserved for issuance upon exercise of options available for future
grant under the Stock Option Plan, and (viii) an indeterminable number of
shares of Common Stock reserved for issuance in the event the Company fails
under certain circumstances to register, or to maintain an effective
registration statement with respect to, the Bridge Shares issued in the
Bridge Financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Management -- Stock Option Plan," "Certain Transactions," "Description of
Securities" and "Underwriting."
(3) Does not include any of the warrants referred to in clauses (ii), (iv) and
(v) of footnote (2) above.
8
<PAGE>
Summary Financial Information
(In thousands, except per share data)
Set forth below is certain summary financial information for the periods
and as of the dates indicated. This information is derived from and should be
read in conjunction with, the financial statements of the Company, including the
notes thereto, appearing elsewhere in this Prospectus.
Statement of Operations Data:
Years Ended December 31,
------------------------
1995 1996
---------- ----------
Revenues ................................. $ 4,329 $ 4,350
Gross profit .............................. 1,114 1,332
Loss from operations ..................... (214) (1,387)
Net loss ................................. (326) (1,842)
Net loss per share ........................ (.12) (.67)
Weighted average shares outstanding ...... 2,497 2,759
Balance Sheet Data:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Actual Pro Forma (2) As Adjusted (2)(3)
----------------- ---------------- --------------------
<S> <C> <C> <C>
Working capital (deficit) ............ $ (1,851) $ (1,703) $3,891
Total assets ........................ 3,612 3,935 8,060
Total liabilities .................. 3,863 4,038 2,530
Redeemable Preferred Stock ......... 750 750 --
Stockholders' equity (deficit) ...... (1,001)(1) (853) 5,522
</TABLE>
- ------------
(1) As of December 31, 1996, (i) the 77,767 shares of Common Stock returned for
cancellation to the Company by certain executive officers (in satisfaction
of $388,837 in loans outstanding from the Company to such officers)
immediately prior to the date of this Prospectus in connection with the
Executive Stock Repurchase were not included in the weighted average shares
outstanding and (ii) the $388,837 in loans receivable from such officers
which were satisfied in connection with the Executive Stock Repurchase were
included as a component of stockholders' equity, since it was expected that
such Executive Stock Repurchase would be consummated immediately prior to
the date of this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Certain Transactions" and Note 15(b) of Notes to Financial
Statements.
(2) Adjusted to give retroactive effect to (i) the Bridge Financing and (ii) the
Executive Stock Repurchase. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
(3) Adjusted to give retroactive effect to the Preferred Stock Conversion and
the Sperry Note Conversion which will occur immediately prior to the
consummation of this offering and to the sale of the 1,440,000 Shares and
1,440,000 Warrants offered hereby and the anticipated application of the
estimated net proceeds therefrom, including for the repayment of (i) the
Sperry Non-Convertible Note, (ii) an aggregate of $410,000 in principal
amount plus interest which the Company borrowed from six persons in October
and November 1996 (the "Fall 1996 Borrowings"), (iii) the Bridge Notes, and
(iv) the Senior Note to CII and for the purchase of the CII Warrants in
connection with the CII Warrant Redemption. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
9
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk including, but not necessarily limited to, the risk factors described
below. Each prospective investor should carefully consider the following risk
factors inherent in and affecting the business of the Company and this offering
prior to making an investment decision.
Qualification in the Report of Independent Certified Public Accountants
Relating to the Company's Ability to Continue as a Going Concern; Accumulated
Deficit and History of Operating Losses; Anticipated Future Losses. The report
of independent certified public accountants on the Company's financial
statements for all periods presented contains an explanatory paragraph stating
that there is substantial doubt as to the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of such uncertainty. The Company incurred
operating losses of $213,602 and $1,386,782 for the fiscal years ended December
31, 1995 and 1996, respectively, and, at December 31, 1996, had an accumulated
deficit of $5,950,629, and significant losses are continuing through the date of
this Prospectus. The Company expects that it will continue at a loss until, at
the earliest, the Company generates sufficient revenues to offset the cost of
its operations, including its continuing product development efforts. Although
the Company's sales during the fiscal years ended December 31, 1995 and 1996
were significantly greater than in prior years, approximately 34% and 27%,
respectively, of its revenues for fiscal 1995 and 1996 were generated from sales
of computer hardware to non-industry related customers and approximately 9% and
21%, respectively, of its revenues for such periods represented government
contract revenues relating to the Company's ISIT platform development project,
which funding is expected to terminate by the end of 1997. The Company's future
level of sales and potential profitability depend on many factors, including an
increased demand for the Company's existing products, the ability of the Company
to develop and sell new products and product versions to meet customers' needs,
the ability of management to control costs and successfully implement the
Company's strategy and the ability of the Company to develop and deliver
products in a timely manner. There can be no assurance that the Company will
experience any significant growth in sales (or even sustain historic sales
levels) in the future or that the Company will ever achieve profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
Significant Capital Requirements; Working Capital Deficit; Continuing Need
for Additional Financing. The Company's capital requirements have been and will
continue to be significant, and recently its cash requirements have been
exceeding its cash flow from operations (at December 31, 1996, the Company had a
working capital deficit of $1,851,082) due to, among other things, costs
associated with its product development efforts. Since July 1, 1996, the Company
has raised capital of approximately $1,926,000 through the private placement of
its debt and equity securities and has been dependent on those private
financings to fund a portion of its capital requirements. In addition, based on
the Company's current product development plans and its anticipated expansion
into the satellite communications services business, the Company's capital
requirements are expected to increase. As a result, the Company is dependent
upon the proceeds of this offering to complete the development of its proposed
products and fund its business strategies. Although the Company anticipates,
based on its currently proposed plans and assumptions relating to its operations
(including assumptions regarding the progress and timing of its new product
development efforts), that the net proceeds of this offering, together with
anticipated revenues from operations and its current cash and cash equivalent
balances, will be sufficient to fund the Company's operations and capital
requirements for at least 18 months following the consummation of this offering,
there can be no assurance that such funds will not be expended prior thereto due
to unanticipated changes in economic conditions or other unforeseen
circumstances. In the event the Company's plans change or its assumptions change
or prove to be inaccurate, the Company could be required to seek additional
financing sooner than currently anticipated. The Company has no current
arrangements with respect to, or potential sources of, any additional financing,
and it is not anticipated that existing stockholders will provide any portion of
the Company's future financing requirements. Consequently, there can be no
assurance that any additional financing will be available to the Company when
needed, on commercially reasonable terms, or at all. Any inability to obtain
additional financing when needed would have a material adverse effect on the
Company. In addition, any additional equity financing may involve substantial
dilution to the interests of the Company's then existing stockholders. See "Use
of Proceeds," "Capitalization," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
10
<PAGE>
Significant Outstanding Indebtedness; Consequences of Default and Covenants
Under Loans. As of December 31, 1996, the Company had a term loan of
approximately $205,000, an additional loan of $75,000 and a $400,000 demand line
of credit with a bank, all of which bear interest at 1 1/2% over the bank's
prime rate. The term loan is payable in equal monthly installments of $5,833,
plus interest, until June 1998, at which time the balance of approximately
$100,000, plus interest, will be due in full. The $75,000 loan and the demand
line of credit each mature on April 1, 1998, provided that, in the case of the
demand line of credit, the Company maintains an account with the bank with a
minimum balance of $800,000 as additional security for repayment of the
Company's loans from the bank. As of December 31, 1996, the Company had no
further availability under the line of credit. All of the foregoing indebtedness
is subject to various financial and operating covenants, including requirements
to maintain certain financial ratios and a minimum net worth. Following the
consummation of this offering, the Company will still have, in addition to its
bank indebtedness, an aggregate of $666,000 principal amount of indebtedness
outstanding under notes issued by the Company to certain of its affiliates, some
of which notes bear interest at the rate of 9% per annum and some at 2% over
prime. The Company's ability to meet its debt service obligations will depend on
the Company's future operations, which are subject to prevailing industry
conditions and other factors, many of which are beyond the Company's control.
Because most of the Company's indebtedness will bear interest at rates that
fluctuate with prevailing interest rates, increases in such prevailing rates
would increase the Company's interest payment obligations and could adversely
effect the Company's financial condition and results of operations. Further, the
Company's bank indebtedness is secured by substantially all of the Company's
assets. In the event of a violation by the Company of any of its loan covenants
or any other default by the Company on its obligations relating to its
indebtedness, the lenders could declare such indebtedness to be immediately due
and payable and, in certain cases, the bank could then foreclose on the
Company's assets. The Company was in violation of certain of its bank loan
covenants during 1996, including covenants regarding its net worth and cash flow
ratios, but was able to secure waivers from the bank relating to such violations
until May 15, 1997. In addition, during 1996, the Company defaulted in payment
under its Senior Note to CII, but CII waived all payments of principal and
interest under the Senior Note through the earlier of the consummation of this
offering, at which time the Senior Note is to be repaid in full, or May 15,
1997, at which time payments of principal and interest will be resumed as set
forth in the Senior Note. Although the Company expects that it will be in
compliance with all of its loan covenants upon the consummation of this
offering, there can be no assurance that the Company will be able to maintain
such compliance in the future. There can also be no assurance that, in the event
the Company either fails to achieve compliance prior to the expiration of its
current waivers or violates its loan covenants in the future, the Company will
be able to secure additional waivers from the bank. A default relating to the
Company's indebtedness, in the absence of a waiver, could have a material
adverse effect upon the Company's business and financial condition. Moreover, to
the extent that all of the Company's assets continue to be pledged to secure its
outstanding bank indebtedness, such assets will not be available to secure
additional indebtedness, which may adversely affect the Company's ability to
borrow in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Certain Transactions" and Notes 4 and 6
of Notes to Financial Statements.
Dependence on Fleet Manager Series; Need to Develop Windows-Based Product
Versions. A majority of the Company's revenues to date have been derived from
its Fleet Manager Series software applications products and from the related
computer hardware and system integration and engineering services provided by
the Company to its Fleet Manager Series customers. Further, the Company
anticipates that these products and services will, and is in fact relying upon
them to, continue to account for a significant portion of its revenues for the
foreseeable future. If sales of the Fleet Manager Series were to decline
significantly for any reason, the Company's business, results of operations and
financial condition would be materially adversely affected. Consequently,
potential investors should be aware that the Fleet Manager Series is currently
comprised solely of DOS-based applications and that the market for marine
software applications products has recently begun to shift from DOS-based
applications toward Windows-based applications. The Company, in response to the
shifting trend, is in the midst of developing Windows-based versions of all of
its Fleet Manager Series products (the initial modules of which have been
delivered to certain customers for beta testing and which the Company expects to
have commercially available during the second quarter of 1997, with the balance
of modules expected to be commercially available by the end of 1997).
Nonetheless, previous introductions of Windows-based products by the Company's
competitors or additional such introductions prior to the Company's completion
of its new product versions, could exert downward price pressure on the
Company's existing Fleet Manager Series products or could render them obsolete
and unmarketable. Moreover, there can be no assurance that the Company will be
11
<PAGE>
able to successfully develop its proposed Windows-based products within
anticipated time-frames, or at all, or that, if developed, its new Windows-based
versions will achieve market acceptance. See "Business -- The Fleet Manager
Series," "-- Research and Development" and "-- Competition."
Uncertainties Relating to Development and Commercialization of the
Company's ISIT Platform and ISIT-Compliant Products; Dependence Upon ISIT
Platform Development Project Members. The Company's ISIT platform development
project was chosen for shared expense funding under the United States
government's DARPA/MARITECH program in July 1995. Pursuant to the cooperative
agreement between the government and the project members (the "Cooperative
Agreement"), the Company is responsible for the development of the ISIT platform
while certain other companies involved in various technologies and services
associated with international ship operations, design and information
technologies are responsible for various related aspects of the project. The
success of the ISIT platform development effort is dependent upon the project
members working together to complete the development project within scheduled
timeframes as the government has the right to terminate the Cooperative
Agreement in the event certain milestones are not met by designated dates.
Pursuant to the Cooperative Agreement, development of the ISIT platform was
originally to be completed by the end of 1996, but it was recently amended to
provide for a completion date of November 1997. To date, eleven out of seventeen
milestones established for the ISIT platform development project have been
satisfied. The remaining six milestones are based upon a time phase rollout of
the activities associated with completion of the development of the ISIT
platform, land-based testing of the platform and the installation and testing of
the platform on a demonstration vessel. In keeping with the new schedule, the
Company expects to begin initial testing of the platform in the second quarter
of 1997 and to commence marketing of the platform by the fourth quarter of 1997.
There can be no assurance, however, that these revised timetables will be met or
that the government will grant any further extensions. Thus, any further delays
in the project's completion could have a material adverse effect on the
Company's business. The Company is also engaged in the development of upgrades
of its Fleet Manager Series software products to make them ISIT-compliant, and
its future operating results will likely depend to a considerable extent upon
its ability to also develop and implement additional ISIT-compliant products.
There can be no assurance that the development of the ISIT platform or of
ISIT-compliant versions of the Fleet Manager Series or other products will be
completed, or that any product resulting from such development will adequately
meet the requirements of the marketplace, be of acceptable quality or achieve
market acceptance. The success of the Company in developing, introducing,
selling and supporting the ISIT platform, ISIT-compliant versions of the Fleet
Manager Series or additional ISIT platform-related products will depend on a
variety of factors in addition to the timely and successful completion of
product design and development, including timely and efficient implementation of
manufacturing processes, effective sales, marketing and customer support
service, and the absence of performance problems or other difficulties that may
require design modifications and related expenses and hinder or damage market
acceptance. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- The ISIT Platform Development Project."
Uncertainty of Market Acceptance for the Company's ISIT Platform; Need to
Overcome Industry Bias. The Company's future growth and profitability will
depend, in large part, on the success of its personnel and agents in fostering
acceptance among maritime companies of the ISIT platform and ISIT-compliant
versions of the Fleet Manager Series, the demand and market acceptance for which
are currently untested. Such acceptance will be substantially dependent on
educating these companies as to the distinctive characteristics and perceived
benefits of the ISIT platform. While the Company believes that there exists a
strong industry interest in the ISIT platform, the Company also believes that
many maritime companies have a bias against the use of any information
technology on ships. Accordingly, even if the Company is successful in
demonstrating the efficacy of the ISIT platform, future revenues from the ISIT
platform and the Company's ISIT-compliant products will be dependent upon the
Company overcoming such biases. The Company believes that in order for the ISIT
platform, ISIT-compliant versions of the Fleet Manager Series and additional
ISIT platform-related products to meet with widespread market acceptance, the
ISIT platform must become the industry standard. In other words, additional
application software must be developed by the Company and by third-party
software vendors to interface with the ISIT platform. The creation of an
industrial standard is difficult even for companies with substantially greater
resources than the Company and, accordingly, there can be no assurance that the
ISIT platform will become accepted as the industry standard or that application
software which is ISIT-compliant will become commercially available. Moreover,
the potential market for the ISIT platform is a developing market subject to a
high degree of uncertainty. There can be no assurance that the ISIT platform
will receive the necessary acceptance by the
12
<PAGE>
maritime community. If the market for the ISIT platform fails to develop,
develops more slowly than anticipated, or if ISIT-compliant products do not
achieve market acceptance, the Company's business, results of operations and
financial condition will be materially adversely affected. See "Business -- The
ISIT Platform Development Project."
Broad Discretion in Application of Proceeds; Substantial Use of Proceeds to
Repay Indebtedness; Benefits to Related Parties. Approximately $1,931,356
(33.7%) of the estimated net proceeds of this offering has been allocated to
working capital and general corporate purposes. Accordingly, the Company's
management will have broad discretion as to the application of such proceeds. In
addition, the Company intends to use approximately $1,407,924 (24.5%) of the
estimated net proceeds of this offering to repay certain outstanding
indebtedness and to retire the CII Warrants. Therefore, such proceeds will be
unavailable to fund future growth. In addition to the $95,000 in proceeds to be
paid to CII, a principal stockholder of the Company, in connection with the CII
Warrant Redemption, the indebtedness to be repaid with proceeds from this
offering includes, among other things, approximately $259,850 due to CII in
repayment of the Senior Note, approximately $263,400 due to Sperry, a greater
than 5% stockholder of the Company, in repayment of the Sperry Non-Convertible
Note and the interest on the Sperry Convertible Note, and approximately
$104,200, $52,100, $5,200 and $5,200, respectively, due to Lyman C. Hamilton,
Jr., a director of the Company, a trust for the benefit of the mother of Donald
F. Logan, Jr., an executive officer and director of the Company, and the brother
and niece of Eugene D. Story, an executive officer and director of the Company,
in connection with the repayment of the Fall 1996 Borrowings. See "Use of
Proceeds" and "Certain Transactions."
Rapid Technological Changes. The market for the Company's products and
products under development is relatively new and is characterized by rapid
technological change, evolving industry standards, changes in end-user
requirements and new product introductions and enhancements. As a result, the
Company and others may, from time to time, announce new or planned products,
capabilities or technologies that have the potential to replace or shorten the
life cycle of, and cause customers to defer purchasing, existing Company
products. In addition, the introduction of products embodying new technologies
and the emergence of new industry standards could render the Company's existing
products and products currently under development obsolete and unmarketable. For
instance, while the Company believes that the Windows NT and Windows 95
operating systems (which will be used by both the ISIT platform and the new
versions of the Fleet Manager Series products currently under development) will
become and remain the industry's operating standards for the next several years,
there can be no assurance that they will not be replaced by new or enhanced
operating systems that obviate the need for the products currently under
development by the Company. If any new or enhanced operating systems were to
gain widespread use and the Company failed to develop and/or adapt its products
for these operating systems on a timely basis, the Company's competitive
position, sales and operating results would be materially adversely affected.
Moreover, the Company's future success will depend, in general, upon its ability
to continually enhance its products and to develop and introduce new products
that keep pace with technological developments and respond to evolving end-user
requirements. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements on a timely basis
or that any new products or product enhancements developed by the Company will
achieve market acceptance. See "Business -- Research and Development."
Potential for Undetected Errors. Software products as complex as those
offered and being developed by the Company may contain undetected errors or
failures when first introduced or as new versions are released. There can be no
assurance that, despite significant testing by the Company and by current and
potential customers, errors will not be found in new products after commencement
of commercial shipments. In addition, the third-party products upon which the
Company's products and products under development are, or are expected to be,
dependent, such as the Windows 95 and Windows NT operating systems, as well as
certain software products licensed from others and offered by the Company as
system choices with its Fleet Manager Series products, such as the Cargomax
System for ship loading and the Orion and Polaris weather routing software, and
the various computer hardware components used by the Company's customers in
connection with their computer operations, may contain defects which could
reduce the performance of the Company's products or render them useless.
Although the Company has not experienced material adverse effects resulting from
any such errors or defects to date, there can be no assurance that errors or
defects will not be discovered in the future, causing
13
<PAGE>
delays in product introduction and shipments or requiring design modifications
that could materially adversely affect the Company's competitive position,
business, results of operations and financial condition. The Company currently
does not maintain errors and omissions insurance. See "Business -- Research and
Development" and "-- Intellectual Property."
Risks Relating to Establishment of Satellite Communications Services
Business. The Company intends to use approximately $200,000 of the proceeds from
this offering and to expend significant personnel resources to establish a
satellite communications services business and expects to begin offering
satellite communications services to its customers (bundled with the software
products, hardware components and associated integration and engineering
services already provided by the Company) by the end of 1997. However, although
the Company was one of the first companies to use satellite communications for
ship-to-shore fleet management systems, it has no prior experience relating to
the establishment and operation of a satellite communications services business.
Consequently, there can be no assurance that the Company will be able to
successfully negotiate required reseller agreements with service providers by
such date, or at all, or that it will be able to effectively package its
proposed satellite communications services with its existing products and
services or successfully market and sell these services to its customer base.
There can also be no assurance that, in an industry such as the satellite
communications services industry, which is, in general, characterized by low
margins, the Company will be able to achieve acceptable margins relating to its
proposed services. The Company's prospects relating to its new business venture
must, therefore, be considered in light of the risks, expenses, delays, problems
and difficulties frequently encountered in the establishment of a new business
in an evolving industry characterized by an increasing number of market entrants
and intense competition. In addition, the satellite communications industry is
subject to extensive international and domestic regulation, is rapidly changing
and is dominated by large competitors with significantly greater resources than
the Company. Further, if, after its initial start-up in the satellite
communications services business, the Company, in an effort to reduce its costs,
determines to act as a bulk reseller, the Company will be required to purchase a
significant minimum number of satellite hours from one or more service
providers. If, after the Company's expenditure of significant funds and
resources to establish its proposed satellite communications services business
or, subsequently, to establish itself as a bulk reseller, such venture does not
achieve market acceptance, the Company's business, results of operations and
financial condition could be materially adversely affected. See "Business --
Proposed Satellite Communications Services Business."
Competition. The Company has a number of significant competitors for its
existing line of Fleet Manager Series products, including SpecTec, a division of
Visma ASA, Marinor, Computer Expert Systems LTD and Nautical Technology
Corporation. As markets for these products continue to develop, additional
companies, including companies in the computer hardware, software and networking
industries with significant market presence, may enter the markets in which the
Company competes and further intensify competition. Many of these competitors
and potential competitors have significantly greater financial, technical, sales
and marketing and other resources than the Company. The Company is unaware of
any company in this country or internationally that is currently producing or
marketing a standard shipboard computing platform similar to the ISIT platform.
However, there are numerous other companies that could enter this new market,
many of which have substantially greater financial, technical, production,
marketing and other resources than the Company. In the case of an entity with
such resources, the Company does not believe that there currently are, or likely
to be in the foreseeable future, prohibitive barriers to entry into the business
of developing and marketing a standard shipboard computing platform. The Company
expects that competitors for its new satellite communications services will
include the same land-earth station providers with whom the Company intends to
enter into reseller agreements, including COMSAT Corporation ("COMSAT"),
Teleglobe, British Telecom, PLC and PTT Telecom Netherlands, among others. In
addition, the Company believes that it will face competition from other
satellite communications resellers. Many of these competitors have substantially
greater financial, technical, production, marketing and other resources than the
Company. There can be no assurance that existing or future competition will not
have a material adverse effect upon the Company's operations. See "Business --
Competition."
Limited Assurances as to Protection of Proprietary Technology. The Company
has no patents relating to proprietary technology, but instead relies primarily
on trade secret laws, confidentiality procedures and contractual provisions,
including confidentiality and/or non-disclosure agreements with its employees
and consultants, to protect its proprietary rights. There can be no assurance
that such measures will be adequate to protect the
14
<PAGE>
Company from infringement by others of its technologies. Despite the Company's
efforts to protect its proprietary rights, it may be possible for, and attempts
may be made by, unauthorized third parties to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect the
Company's intellectual property to the same extent as do the laws of the United
States. The loss of any material service mark, trademark, trade name, trade
secret or copyright could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, while the
Company does not believe that its products infringe on the rights of third
parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such assertion
will not result in costly litigation and/or a determination adverse to the
Company's interests. In the event the Company's products are ever deemed to
infringe on the proprietary rights of others, the Company could be required to
modify the design of its products or obtain licenses from third parties relating
to technology used in its products. There can be no assurance that the Company
would be able to do so, either in a timely manner, upon acceptable terms and
conditions or at all, and the failure to do so could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business -- Intellectual Property."
Potential Fluctuations in Quarterly Operating Results. The Company's
quarterly operating results have varied in the past and will vary significantly
in the future depending on factors such as the size and timing of significant
orders and their fulfillment; demand for the Company's products; the successful
development and market acceptance of new products; changes in pricing policies
by the Company or its competitors; the number, timing and significance of
product enhancements and new product announcements by the Company and its
competitors; changes in the Company's level of operating expenses; customer
order deferrals in anticipation of new products or otherwise; fluctuations in
foreign currency exchange rates, in warranty and customer support expenses and
in the financial condition and budgetary processes of the Company's customers;
software bugs and other product quality problems; the timing and volume of sales
discounts provided by the Company; and the nonrenewal of maintenance agreements.
In addition, a significant portion of the Company's expenses are relatively
fixed in the short term. Accordingly, if revenue levels fall below expectations,
operating results are likely to be disproportionately adversely affected. As a
result of these and other factors, the Company believes that its quarterly
operating results will vary in the future and period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance. Furthermore, due to all of the
foregoing factors, in the event the Company consummates this offering, it is
likely that in some future quarter the Company's operating results will be below
the expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Lengthy Sales and Installation Cycles. The sales cycle for the Company's
Fleet Manager Series software products, which generally commences at the time of
the Company's initial contact with a prospective customer and ends upon the
execution of a purchase order with that customer, varies by customer but often
extends for periods of six months or more, depending on a number of factors,
including the prospective customer's familiarity with and acceptance of
shipboard information technology systems. (The sales cycle for existing or
repeat customers, which customers have historically represented over one-third
of the Company's annual sales, typically runs shorter.) As a result of the
Company's lengthy sales cycle, the sales process for the Company's pro-
ducts and services generally requires substantial time commitments, effort and
expense, and there can be no assurance that the Company, after expending such
resources, will obtain a significant contract or order from such efforts. In
addition, the Company's installation cycle, which is the period from the
execution of a purchase order until actual shipboard installation of the
software, will significantly vary by customer, depending on the scope of work,
number of sites and geographical location of the installation, and could, like
the Company's sales cycle, extend for periods of six months or more. The Company
does not recognize revenue from the sale of its software products or from the
sale of any associated hardware until the time of shipment and does not
recognize revenue for its installation and initial training services
(representing about 40% of its software revenues) until such installation and
training is completed, and in some cases, as much as one-third of the
installation/training fees may be deferred by the customer until the completion
of the one-year warranty period while the installed products' efficacy is
tested. Consequently, for larger orders, a significant period of time may pass,
and significant up-front capital and resources may be expended by the Company,
between the execution of a purchase order and the recognition of all revenue
associated with such sale. See "Management's Discussion and Analysis of
15
<PAGE>
Financial Condition and Results of Operations -- Overview," "Business -- Sales
and Marketing" and "-- Installation, Service and Support."
Control by Current Management. Upon the consummation of this offering, the
Company's directors and officers as a group will beneficially own approximately
36.6% of the outstanding shares of Common Stock. As a result of their ownership
of Common Stock, the Company's directors and officers acting together will be
able to continue to exert significant influence over all matters requiring
stockholder approval, including the election of directors and the approval of
significant corporate transactions (such as acquisitions of the Company or its
assets). See "Principal Stockholders" and "Description of Securities."
Dependence on Key Personnel; Dependence on Continuing Ability to Retain
Employees. The Company's success depends to a significant extent on the
continued active participation of a number of key employees, including Eugene D.
Story, its President and Chief Executive Officer, Robert D. Ohmes, its Executive
Vice President and Chief Financial Officer, Donald F. Logan, Jr., its Senior
Vice President - Operations, Mark E. Story, its Vice President - Technical and
Michael P. Barney, its Vice President - Corporate Development and Marketing.
Although the Company has entered into two-year employment agreements with these
individuals, effective upon the consummation of this offering, which restrict
these individuals from competing with the Company during the term of the
agreements and for a period of one year following any termination of such
agreements, any incapacity or inability of such individuals to perform their
services could have a material adverse effect on the Company. Moreover, the
Company maintains only limited amounts of key person life insurance on the lives
of any of such employees, including $200,000 on each of Eugene Story and Robert
Ohmes and $500,000 on each of Donald Logan, Mark Story and Michael Barney. The
Company believes that its success also depends on its continuing ability to
attract and retain highly qualified technical, managerial and sales personnel.
Competition for such qualified personnel is intense and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. See "Business -- Employees" and "Management."
Dependence on International Revenues; Risks Associated with International
Operations. International revenues represented approximately 31% and 21% of the
Company's revenues in fiscal 1995 and 1996, respectively. The Company believes
that its continued growth and future profitability will require expansion of its
international operations. To successfully expand international sales, the
Company will need to recruit additional international sales agents and
distributors. There can be no assurance that the Company will be able to
maintain or increase international sales of its products or that the Company's
international distribution channels will be able to adequately service and
support the Company's products. International operations generally are subject
to certain risks, including fluctuations in foreign economic conditions,
compliance with foreign regulatory and market requirements, variability of
foreign economic conditions and changing restrictions imposed by United States
export laws. Additional risks inherent in the Company's international business
activities include unexpected changes in tariffs and other trade barriers, costs
of localizing products for foreign countries, longer accounts receivable payment
cycles, currency fluctuations, potentially adverse tax consequences (including
restrictions on the repatriation of earnings) and the burdens of complying with
a wide variety of foreign laws. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international sales
and, consequently, the Company's business, results of operations and financial
condition. All of the Company's sales are made in United States dollars. The
Company does not engage in any hedging transactions through the purchase of
derivative securities. See "Business -- Sales and Marketing."
Dependence Upon Independent Sales Agents. The Company is dependent upon
independent sales agents for substantially all of its international sales.
Accordingly, the Company is dependent upon the continued viability of such
agents. The Company's relationship with its agents is usually established
through a formal sales agency agreement, which generally may be terminated by
either party without cause at the end of each year of the agreement. There can
be no assurance that any of the Company's current agents will continue to
represent the Company's products, and any inability of the Company to retain or
replace its agents could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, three of
the Company's agents have territorial exclusives (one in Greece, one in
Singapore, Malaysia and Indonesia, and one in Hong Kong, each of which is a
major territory in the maritime industry), and, under the marketing and
distribution agreement with Sperry, Sperry has the sole right to sell to the
United States government all of the Company's software application products and
the Bundled ISIT platform products. None of these arrangements
16
<PAGE>
is subject to any minimum performance or payment levels, and some of the
Company's agents may offer the products of several different companies,
including, in a few cases, products that are competitive with those of the
Company. There can be no assurance that the Company's agents will not devote
greater resources to marketing and selling the products of other companies or
that economic conditions or industry demand will not adversely affect the
ability of such agents to market and sell the Company's products. The loss of,
or a significant reduction in revenue from, the Company's agents would have a
material adverse effect on the Company. See "Business -- Sales and Marketing."
Dependence Upon Principal Customers. During the fiscal year ended December
31, 1995, Business Information and Development Corp. and Phillips Medical
Systems North America Co. ("Phillips Medical") each accounted for over 10% of
the Company's revenues, and in the aggregate accounted for 23% of the Company's
revenues. During the fiscal year ended December 31, 1996, Phillips Medical and
the United States government each accounted for over 10% of the Company's
revenues and in the aggregate accounted for 38% of the Company's revenues.
Significant sales of computer hardware to Phillips Medical (a non-industry
customer) generated 26% of the Company's revenues in fiscal 1996. Revenues from
the United States government were generated pursuant to the Cooperative
Agreement relating to the ISIT platform development project. Revenues from other
principal customers were generated pursuant to purchase orders rather than
pursuant to any ongoing contractual arrangements and there are currently no
continuing contracts between the Company and such customers. Although the
Company sells its products to a large number of customers and while typically no
single customer consistently accounts for a significant portion of the
Company's revenues, the inability to replace certain customers could cause the
Company's revenues and operating results to fluctuate from period to period and
the failure to obtain additional purchase orders from certain customers could
have a material adverse impact on the Company's business. See "Business --
Customers."
Reliance Upon Certain Licensed Third-Party Software. The Company is
dependent on third-party suppliers for certain software included with certain of
its products, such as the Cargomax System for ship loading from Herbert
Engineering Corp., the Orion and Polaris weather routing software from
Weathernews, Inc. and the SNAPS purchasing software product from ShipNet AS.
Although the Company believes that the functionality provided by software which
is licensed from third parties is obtainable from multiple sources or could be
developed by the Company, if any such third-party licenses were terminated or
not renewed or if these third parties fail to develop new products in a timely
manner, the Company could be required to develop an alternative approach to
developing its products which could require payment of substantial fees to third
parties, create internal development costs and delays and which might not be
successful in providing the same level of functionality. Such delays, increased
costs and reduced functionality could materially adversely affect the Company's
business, results of operations and financial condition. See "Business --
Intellectual Property."
Potential Conflicts of Interest. Michael C. Hughes, a director of the
Company, is Vice President of Finance and Planning of COMSAT International
Communications, a unit of COMSAT, a provider of satellite communications. Mr.
Hughes serves on the Board of Directors of the Company pursuant to the terms of
a Stock Purchase, Option and Shareholder Agreement dated as of June 20, 1990
(the "Shareholder Agreement") which gives a subsidiary of COMSAT, COMSAT Mobile
Investments, Inc. ("COMSAT Mobile"), the right to designate such percentage of
the members of the Company's Board of Directors as is equal to COMSAT Mobile's
percentage ownership of the Company's outstanding Common Stock (subject to
COMSAT Mobile's right to designate a minimum of one member during such time as
it continues to own at least 5% of the outstanding Common Stock). COMSAT Mobile
currently owns 8.8% of the outstanding Common Stock and, upon completion of this
offering, will own 6.0% of the outstanding Common Stock. The right to
representation on the Company's Board of Directors was originally granted to
COMSAT Investments, Inc. ("COMSAT Investments") as a condition to the purchase
by COMSAT Investments of 265,537 shares of the Company's Common Stock pursuant
to the Shareholder Agreement. COMSAT Investments subsequently transferred such
265,537 shares and assigned its rights under the Shareholder Agreement to COMSAT
Mobile. In connection with the Company's intended expansion into the satellite
communications services business, the Company intends to enter into reseller
agreements with one or more satellite communications service providers, which
providers may be direct competitors of COMSAT. Such agreements may give rise to
conflicts of interest for Mr. Hughes. There can be no assurance that if
conflicts do arise, they will be resolved in a manner favorable to the Company.
The Company does not currently have a formal policy to address any conflicts of
interest that may arise. See "Management."
17
<PAGE>
Possible Exposure to Product Liability Claims; No Product Liability
Insurance. The Company's software license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions contained in the Company's license agreements may not be
effective as a result of existing or future international, federal, state or
local laws or ordinances or unfavorable judicial decisions. Although the Company
has never had a product liability claim asserted against it, the sale and
support of the Fleet Manager Series and the ISIT platform by the Company may
involve the risk of such claims, any of which may be substantial in light of the
use of the Fleet Manager Series and the anticipated use of the ISIT platform in
high-end applications. The Company maintains no product liability insurance;
consequently, a successful product liability claim brought against the Company
could have a material adverse effect upon the Company's business, results of
operations and financial condition.
No Assurance of Public Trading Market; Arbitrary Determination of Offering
Price; Possible Volatility of Market Price. Prior to this offering, there has
been no public trading market for any of the Company's securities, including the
Shares and Warrants offered hereby. There can be no assurance that a regular
trading market for either the Shares or the Warrants will develop or be
sustained after this offering. The initial public offering prices of the Shares
and Warrants and the exercise price of the Warrants have been determined
arbitrarily by negotiation between the Company and the Underwriter and are not
necessarily related to the Company's asset value, net worth, results of
operations or any other established criteria of value and may not be indicative
of the prices that may prevail in the public market. In addition, the market
prices of the Shares and Warrants may be highly volatile as has been the case
with the securities of other companies in emerging growth businesses. Factors
such as the Company's operating results, the introduction of new products by the
Company or its competitors, changes in financial estimates by securities
analysts, changes in stock prices of the Company's competitors or computer
software companies generally, and factors affecting the computer software
industry generally, may have a significant impact on the market price of the
Company's securities. Additionally, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
the stock of many companies, particularly of small and emerging growth
companies, the common stock of which trade in the over-the-counter market, have
experienced wide price fluctuations which have not necessarily been related to
the operating performance of such companies. See "Underwriting."
Immediate and Substantial Dilution to New Investors Exceeding 80%. A
purchaser in this offering will experience an immediate and substantial dilution
of approximately $4.21 (84%) per share between the adjusted net tangible book
value per share after the consummation of this offering and the initial public
offering price of $5.00 per Share. See "Dilution."
Benefits of Offering to Existing Stockholders. Upon the consummation of
this offering, the existing stockholders of the Company will receive substantial
benefits, including the creation of a public trading market for their securities
(although substantially all of such shares are subject to a 12-month lock-up
agreement with the Underwriter and will not be registered for sale under the
Securities Act and will thus be "restricted securities" as defined in Rule 144
promulgated under the Securities Act) and the corresponding facilitation of
sales by such stockholders of their shares of Common Stock in the secondary
market, as well as an immediate increase in net tangible book value of $1.51 per
share to such stockholders based upon the adjusted net tangible book value per
share after this offering and the initial public offering price per share
offered hereby. If, at the time the existing stockholders are able to sell their
shares of Common Stock in the public market, the market price per share remains
at the $5.00 initial public offering price (of which there can be no assurance)
such stockholders would realize an aggregate gain of $8,913,326 ($2.97 per
share) on the sale of all of their existing shares. See "Use of Proceeds,"
"Dilution," "Underwriting" and "Shares Eligible for Future Sale."
Current Prospectus and State Registration Required to Exercise Warrants.
Holders of the Warrants will be able to exercise the Warrants only if (i) a
current prospectus under the Securities Act, relating to the securities
underlying the Warrants, is then in effect and (ii) such securities are
qualified for sale or exempt from qualification under the applicable securities
laws of the states in which the various holders of Warrants reside. Although the
Company has undertaken and intends to use its best efforts to maintain a current
prospectus covering the securities underlying the Warrants following the
consummation of this offering, to the extent required by federal securities
laws, there can be no assurance that the Company will be able to do so. The
value of the
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<PAGE>
Warrants may be greatly reduced if a prospectus covering the securities issuable
upon the exercise of the Warrants is not kept current or if the securities are
not qualified, or exempt from qualification, in the states in which the holders
of Warrants reside. Persons holding Warrants who reside in jurisdictions in
which such securities are not qualified and in which there is no exemption will
be unable to exercise their Warrants and would either have to sell their
Warrants in the open market or allow them to expire unexercised. See
"Description of Securities -- Public Warrants."
Potential Adverse Effect of Redemption of Warrants. The Warrants may be
redeemed by the Company, commencing one year following the date of this
Prospectus, at a redemption price of $.10 per Warrant, upon notice of not less
than 30 days, provided that the closing bid quotation of the Common Stock on all
20 trading days ending on the third trading day prior to the date on which the
Company gives notice (the "Call Date"), has been at least 150% (currently $8.25,
subject to adjustment) of the then effective exercise price of the Warrants and
the Company obtains the written consent of the Underwriter to such redemption
prior to the Call Date. Redemption of the Warrants could force the holders (i)
to exercise the Warrants and pay the exercise price therefor at a time when it
may be disadvantageous for the holders to do so, (ii) to sell the Warrants at
the then current market price when they might otherwise wish to hold the
Warrants, or (iii) to accept the redemption price which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. Although the Company is required to have in effect, as of the date
of redemption (if and when the Warrants become redeemable by the terms thereof),
a current prospectus under the Securities Act relating to the securities
underlying the Warrants, the Company will not be required to qualify the
underlying securities for sale under all applicable state securities laws prior
to exercising its redemption rights. See "Description of Securities -- Public
Warrants."
Delaware Anti-Takeover Statute. Section 203 of Delaware's General
Corporation Law prohibits the Company, once public, from entering into certain
business combinations without the approval of its Board of Directors and, as
such, could prohibit or delay mergers or other attempted takeovers or changes in
control with respect to the Company. Such provisions, accordingly, may
discourage attempts to acquire the Company. See "Description of Securities --
Anti-Takeover Provisions of Delaware Law."
Shares Eligible for Future Sale; Registration Rights. Upon consummation of
this offering, the Company will have 4,441,120 shares of Common Stock44
outstanding, of which the 1,440,000 Shares offered hereby will be freely
tradeable without restriction or further registration under the Securities Act.
All of the remaining 3,001,120 shares of Common Stock are "restricted
securities," as that term is defined in Rule 144 promulgated under the
Securities Act, and in the future may only be sold pursuant to a registration
statement under the Securities Act, in compliance with the exemption provisions
of Rule 144 or pursuant to another exemption under the Securities Act. Subject
to the contractual restriction described below, 524,914 of these restricted
securities will be freely tradeable under Rule 144 commencing as of the date of
this Prospectus, and the balance will be eligible for sale under Rule 144,
subject to certain volume and manner of sale limitations described in Rule 144,
at various times commencing 90 days following the date of this Prospectus. An
aggregate of 946,640 of such restricted securities and 125,000 shares of Common
Stock issuable upon the exercise of warrants are subject to certain demand and
piggyback registration rights, and the Company has granted the Underwriter
demand and piggyback registration rights with respect to the securities issuable
upon exercise of the Underwriter's Warrants. No prediction can be made as to the
effect, if any, that sales of shares of Common Stock or even the availability of
such shares for sale will have on the market prices prevailing from time to
time. While all of the Company's officers and directors and substantially all of
the Company's stockholders have agreed not to sell, assign or transfer any of
their securities of the Company for a period of 12 months following the date of
this Prospectus without the Underwriter's prior written consent, the possibility
that substantial amounts of Common Stock and/or Warrants may be sold in the
public market subsequent to the offering, pursuant to Rule 144 or otherwise,
could adversely affect the market price of the Common Stock and could impair the
Company's ability to raise additional capital through the sale of its equity
securities. See "Description of Securities," "Shares Eligible for Future Sale"
and "Underwriting."
Possible Restrictions on Market-Making Activities in the Company's
Securities. The Company believes that the Underwriter intends to make a market
in the Company's securities and may be responsible for a substantial portion of
the market making activities in such securities. Regulation M under the Exchange
Act may
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<PAGE>
prohibit the Underwriter from engaging in any market-making activities with
regard to the Company's securities for the period from five business days (or
such other applicable period as Regulation M may provide) prior to any
solicitation by the Underwriter of the exercise of outstanding Warrants until
the termination (by waiver or otherwise) of any right that the Underwriter may
have to receive a fee for the exercise of the Warrants following such
solicitation; and any period during which the Underwriter, or any affiliated
parties, participate in a distribution of any securities of the Company for the
account of the Underwriter or any such affiliate. As a result, the Underwriter
may be unable to provide a market for the Company's securities during certain
periods, including while the Warrants are exercisable. Any temporary cessation
of such market-making activities could have an adverse effect on the liquidity
for the Company's securities. See "Underwriting."
Possible Delisting of Securities from Nasdaq System; Risks Relating to
Penny Stocks. It is currently anticipated that the Common Stock and Warrants
will be eligible for listing on the Nasdaq SmallCap Market upon the completion
of this offering. In order to continue to be listed on the Nasdaq SmallCap
Market, however, the Company must maintain $2,000,000 in total assets, a
$200,000 market value on the public float and $1,000,000 in total capital and
surplus. In addition, continued inclusion requires two market-makers and a
minimum bid price of $1.00 per share; provided, however, that if the Company
falls below such minimum bid price it will remain eligible for continued
inclusion in the Nasdaq SmallCap Market if the market value of the public float
is at least $1,000,000 and the Company has $2,000,000 in capital and surplus.
The Nasdaq SmallCap Market has recently proposed new maintenance criteria which,
if implemented, would eliminate the exception to the minimum bid price of $1.00
per share and require, among other things, $2,000,000 in net tangible assets,
$1,000,000 market value on the public float and adherence to certain corporate
governance provisions. The failure to meet these maintenance criteria in the
future may result in the delisting of the Common Stock and Warrants from the
Nasdaq SmallCap Market, and trading, if any, in the Common Stock and Warrants
would thereafter be conducted in the non-Nasdaq over-the-counter market. As a
result of such delisting, an investor could find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, the Common Stock
and Warrants.
In addition, if the Common Stock and Warrants were to become delisted from
trading on the Nasdaq SmallCap Market and the trading price of the Common Stock
were to fall below $5.00 per share, trading in the Common Stock would also be
subject to the requirements of certain rules promulgated under the Exchange Act,
which require additional disclosure by broker-dealers in connection with any
trades involving a stock defined as a penny stock (generally, any non-Nasdaq
equity security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally defined as an investor with a net worth in
excess of $1,000,000 or annual income exceeding $200,000 individually or
$300,000 together with a spouse). For these type of transactions, the broker-
dealer must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to the sale.
The broker-dealer also must disclose the commissions payable to the
broker-dealer, current bid and offer quotations for the penny stock and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Such information
must be provided to the customer orally or in writing before or with the written
confirmation of trade sent to the customer. Monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The additional burdens
imposed upon broker-dealers by such requirements could, in the event the Common
Stock were deemed to be a penny stock, discourage broker-dealers from effecting
transactions in the Common Stock which could severely limit the market liquidity
of the Common Stock and the ability of purchasers in this offering to sell the
Common Stock in the secondary market.
No Dividends. The Company has never paid cash dividends on its Common Stock
and does not intend to pay any dividends in the foreseeable future. In addition,
certain of the Company's financing agreements contain prohibitions on the
payment of dividends without the lender's consent. See "Dividend Policy."
Limitations on Liability of Directors and Officers. The Company's
Certificate of Incorporation includes provisions to eliminate, to the full
extent permitted by Delaware General Corporation Law as in effect from time
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to time, the personal liability of directors of the Company for monetary damages
arising from a breach of their fiduciary duties as directors. The Certificate of
Incorporation also includes provisions to the effect that the Company shall, to
the maximum extent permitted from time to time under the law of the State of
Delaware, indemnify, and upon request shall advance expenses to any director or
officer to the extent that such indemnification and advancement of expense is
permitted under such law, as it may from time to time be in effect. See
"Management -- Limitation of Liability and Indemnification."
Tax Loss Carryforward. The Company's net operating loss carryforwards
("NOLs") expire in the years 1999 to 2011. Under Section 382 of the Internal
Revenue Code of 1986, as amended, utilization of prior NOLs is limited after an
ownership change, as defined in Section 382, to an annual amount equal to the
value of the loss corporation's outstanding stock immediately before the date of
the ownership change multiplied by the federal long-term exempt tax rate. The
additional equity financing obtained by the Company since its inception may have
resulted in an ownership change and, thus, in a limitation on the Company's use
of its prior NOLs. In the event the Company achieves profitable operations, any
significant limitation on the utilization of its NOLs would have the effect of
increasing the Company's tax liability and reducing net income and available
cash resources. See Note 11 of Notes to Financial Statements.
Ongoing Contractual Obligations to the Underwriter. The Company has agreed
that, if it is requested to do so by the Underwriter, it will use its best
efforts, for a period of three (3) years from the date of this Prospectus, to
elect a designee of the Underwriter as a director of the Company, or, at the
Underwriter's option, as a non-voting advisor to the Company's Board of
Directors. While the Underwriter has advised the Company that it has no current
intention to make such a request, if it were to exercise its right to designate
such a person and such designee were to serve on the Board, potential conflicts
could arise between the Company and the Underwriter because the Company will
also have certain other ongoing contractual obligations to the Underwriter
following the consummation of this offering. Such obligations include the
Company's agreement (i) to pay to the Underwriter a fee equal to 5% of the
Warrant exercise price for each Warrant exercised (provided the Warrant exercise
is solicited by the Underwriter and certain other conditions are met) commencing
one year after the date of this Prospectus; and (ii) to register the
Underwriter's Warrants, and the securities underlying the Underwriter's
Warrants, under the Securities Act on one occasion during their exercise term,
upon the demand of the Underwriter (subject to certain limitations and
exclusions), and to include such securities in any appropriate registration
statement which is filed by the Company during the seven years following the
date of this Prospectus. In addition, the Company has agreed to retain the
Underwriter as a financial consultant for a period of two years, at an annual
fee of $12,500, the entire $25,000 payable in advance upon the consummation of
this offering. In connection with such consulting arrangement, the Underwriter
will also be entitled to receive a finder's fee in the event that it originates
a financing or a merger, acquisition, joint venture or other similar transaction
to which the Company is a party. See "Underwriting."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,440,000 Shares and
1,440,000 Warrants offered hereby are estimated to be approximately $5,739,280
($6,697,672 if the Underwriter's over-allotment option is exercised in full)
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. The Company expects to use the net proceeds
(assuming no exercise of the Underwriter's over-allotment option) approximately
as follows:
<TABLE>
<CAPTION>
Approximate
Approximate Percentage
Dollar of Net
Application of Proceeds Amount Proceeds
- ----------------------- -------------- -----------
<S> <C> <C>
Repayment of debt and retirement of warrants (1) ......... $1,407,924 24.5%
Software development (2) ................................. 1,400,000 24.4
Sales and marketing (3) ................................. 700,000 12.2
Entrance into communications business (4) ............... 200,000 3.5
Capital equipment (5) .................................... 100,000 1.7
Working capital and general corporate purposes (6) ...... 1,931,356 33.7
----------- -------
$5,739,280 100.0%
=========== =======
</TABLE>
- ------------
(1) Represents the repayment of (i) the Fall 1996 Borrowings in the aggregate
principal amount of $410,000, including $100,000 to Lyman C. Hamilton, Jr.,
a director of the Company; $50,000 to a trust for the benefit of the mother
of Donald F. Logan, Jr., an executive officer and director of the Company;
and $5,000 each to the brother and niece of Eugene D. Story, an executive
officer and director of the Company; (ii) the Sperry Non-Convertible Note,
in the principal amount of $250,000, to Sperry, a greater than 5%
stockholder of the Company; (iii) the Bridge Notes in the aggregate
principal amount of $350,000; (iv) the Senior Note to CII, a principal
stockholder of the Company, in the principal amount of $236,924; and (v)
interest accrued on all of the foregoing, at the rate of 10% per annum in
the case of (i) and (iv) and at the rate of 9% per annum in the case of (ii)
and (iii), through and until the anticipated date of repayment, in the
estimated aggregate amount of $66,000, and the retirement of the CII
Warrants in connection with the CII Warrant Redemption for $95,000. The
proceeds from the Company's recent Fall 1996 Borrowings, Sperry Financing
and Bridge Financing were used in connection with the Company's operations,
for pre-offering expenses payable in connection with this offering and for
working capital and general corporate purposes. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources," "Principal Stockholders," "Certain Transactions" and
"Description of Securities -- Existing Warrants."
(2) Represents the costs associated with the development of Windows-based
versions of the Company's Fleet Manager Series products, extended ISIT
platform development and communications interfaces. See "Business -- The
ISIT Platform Development Project" and "-- Research and Development."
(3) Represents the costs associated with advertising, seminars, promotional
presentations, marketing materials and presentation software. See "Business
-- Sales and Marketing."
(4) Represents equipment costs of $25,000, initial business development
personnel costs of $75,000, marketing and sales costs of $50,000,
contingency costs of $25,000 and miscellaneous expenses of $25,000. See
"Business -- Proposed Satellite Communications Services Business."
(5) Represents the costs of computer equipment and furniture and fixtures
associated with the expansion of personnel.
(6) A portion of the proceeds allocated to working capital may be utilized to
pay the salaries of the Company's seven executive officers which salaries
are anticipated to aggregate $750,000 for the twelve months following the
date of this offering. See "Management."
22
<PAGE>
If the Underwriter exercises its over-allotment option in full, the Company
will realize additional net proceeds of 958,392. If the 1,440,000 Warrants
offered hereby are exercised, the Company will realize proceeds relating thereto
of $7,920,000, before any solicitation fees which may be paid in connection
therewith. Such additional proceeds, if received, are expected to be used for
working capital and general corporate purposes. See "Underwriting."
The allocation of the net proceeds from this offering as set forth above
represents the Company's best estimates based upon its currently proposed plans
and assumptions relating to its operations and certain assumptions regarding
general economic conditions. If any of these factors change, the Company may
find it necessary or advisable to reallocate some of the proceeds within the
above-described categories. The Company anticipates, based on its currently
proposed plans and assumptions relating to its operations (including assumptions
regarding the progress and timing of its new product development efforts), that
the net proceeds of this offering, together with anticipated revenues from
operations and its current cash and cash equivalent balances, will be sufficient
to satisfy the Company's operations and capital requirements for at least 18
months following the consummation of this offering. In the event the Company's
plans change or its assumptions change or prove to be inaccurate, the Company
could be required to seek additional financing sooner than currently
anticipated. The Company has no current arrangements with respect to, or
potential sources of, any additional financing, and there can be no assurance
that any additional financing will be available to the Company when needed, on
commercially reasonable terms, or at all. Any inability to obtain additional
financing when needed would have a material adverse effect on the Company.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest-
bearing investments.
DIVIDEND POLICY
The Company has never paid any cash dividends on its capital stock. The
Company currently intends to retain all available earnings (if any) for the
development and growth of its business and, therefore, does not anticipate
paying any cash dividends in the foreseeable future. The Company's financing
agreement with a bank governing the terms of the Company's term loan and demand
line of credit with the bank prohibits the Company from declaring or paying
dividends to its stockholders without the bank's prior review and written
consent. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
23
<PAGE>
DILUTION
The difference between the initial public offering price per share of
Common Stock and the net tangible book value per share of Common Stock after
this offering constitutes the dilution to investors in this offering. Net
tangible book value per share on any given date is determined by dividing the
net tangible book value of the Company (total tangible assets less total
liabilities) on such date by the number of then outstanding shares of Common
Stock.
As of December 31, 1996, the net tangible book value (deficit) of the
Company was $(3,317,011) or $(1.23) per share. Giving retroactive effect to the
Executive Stock Repurchase, the Bridge Financing and to the issuance,
immediately prior to the consummation of this offering, of 377,777 shares of
Common Stock in connection with the Preferred Stock Conversion and the Sperry
Note Conversion, the pro forma net tangible book value (deficit) of the Company
at December 31, 1996 would have been $(2,169,011) or $(.72) per share. After
also giving effect to the sale of the 1,440,000 Shares and the 1,440,000
Warrants offered hereby and the receipt and application of the net proceeds
therefrom (less underwriting discounts and commissions and estimated expenses of
this offering), the as adjusted net tangible book value of the Company as of
December 31, 1996 would have been $3,520,410 or $.79 per share. This represents
an immediate increase in net tangible book value of $1.51 per share to existing
stockholders and an immediate dilution of $4.21 (84%) per share to new investors
in this offering.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price per share .............................. $5.00
Net tangible book value (deficit) before pro forma adjustments ...... $ (1.23)
Increase attributable to pro forma adjustments ........................ .51
---------
Pro forma net tangible book value (deficit) before this offering ...... (.72)
Increase attributable to investors in this offering .................. 1.51
---------
Adjusted net tangible book value after this offering .................. .79
-------
Dilution to investors in this offering ................................. $4.21
=======
</TABLE>
The following table sets forth, with respect to existing stockholders
(giving effect to the Preferred Stock Conversion and the Sperry Note Conversion)
and new investors in this offering, a comparison of the number of shares of
Common Stock purchased from the Company, the percentage ownership of such
shares, the total consideration paid, the percentage of total consideration
paid, and the average price paid per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------- --------------------------- Average Price
Number Percent Amount Percent Per Share
------------ ---------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ...... 3,001,120 67.6% $ 6,098,040 45.9% $2.03
New investors ............... 1,440,000 32.4 7,200,000 54.1 $5.00
----------- ------- ------------- -------
Total ..................... 4,441,120 100.0% $ 13,298,040 100.0%
=========== ======= ============= =======
</TABLE>
The above table assumes no exercise of the Underwriter's over-allotment
option. If such option is exercised in full, the new investors will have paid
$8,280,000 for 1,656,000 shares of Common Stock, representing approximately
57.6% of the total consideration for 35.6% of the total number of shares
outstanding. In addition, the above table also assumes no exercise of
outstanding stock options and warrants. As of the date of this Prospectus
(assuming the consummation of the CII Warrant Redemption), there are outstanding
warrants to purchase 347,219 shares of Common Stock at exercise prices ranging
from $3.38 to $5.00 per share and options under the Stock Option Plan to
purchase 67,587 shares of Common Stock at an exercise price of $3.38 per share.
To the extent that options or warrants are exercised at prices below the public
offering prices per share, there will be further dilution to new investors. See
"Management -- Stock Option Plan," "Description of Securities" and
"Underwriting."
24
<PAGE>
CAPITALIZATION
The following table sets forth the Company's short-term debt and
capitalization as of December 31, 1996 (i) on a historical basis, (ii) on a pro
forma basis to give effect to the Executive Stock Repurchase and the Bridge
Financing, and (iii) as further adjusted to give effect to the Preferred Stock
Conversion, the Sperry Note Conversion and the sale of the 1,440,000 Shares and
1,440,000 Warrants offered hereby and the anticipated application of the
estimated net proceeds therefrom (including for the repayment of the Sperry
Non-Convertible Note, the Senior Note to CII, the Fall 1996 Borrowings and the
Bridge Notes and for the CII Warrant Redemption):
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------
Actual Pro Forma As Adjusted
---------------------- ---------------- -------------------
<S> <C> <C> <C>
Short-term debt:
Short-term borrowings and subordinated debt-
related parties ................................... $ 1,385,000 $ 1,560,000 $ --(1)
Current portion of long-term debt and capital lease
obligations ...................................... 296,767 296,767 111,767
------------ ------------- --------------
Total short-term debt ............................ $ 1,681,767 $ 1,856,767 $ 111,767
============ ============= ==============
Long-term debt:
Long-term debt and capital lease obligations less
current portion ................................... $ 266,292 $ 266,292 $ 689,368
Subordinated debt-related parties .................. 666,000 666,000 666,000
------------ ------------- --------------
Total long-term debt ............................ 932,292 932,292 1,355,368
------------ ------------- --------------
Redeemable Preferred Stock, par value $100; 7,500
shares authorized; 7,500 shares issued and out-
standing (actual and pro forma); none issued and
outstanding (as adjusted) ........................ 750,000 750,000 --
------------ ------------- --------------
Stockholders' equity:
Common Stock, par value $.002; 9,000,000 shares
authorized; 2,701,110 shares issued and out-
standing (actual); 2,623,343 shares issued and
outstanding (pro forma); 4,201,120 shares
issued and outstanding (as adjusted)(2) ........... 5,402 5,247 8,882
Additional paid-in capital ........................ 5,333,475 5,092,793 11,828,438 (3)
Accumulated deficit .............................. (5,950,629) (5,950,629) (6,314,629)(3)
Loans receivable officers ........................ (388,837)(4) -- --
------------ ------------- --------------
Total stockholders' equity (deficit) ............. (1,000,589) (852,589) 5,522,691
------------ ------------- --------------
Total capitalization ............................ $ 681,703 $ 829,703 $ 6,878,059
============ ============= ==============
</TABLE>
- ------------
(1) Reflects a reclassification from short-term debt to long-term debt of a
$400,000 demand line of credit, a $75,000 loan and $135,000 of a term loan,
each from a bank. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
(2) Does not include (i) 1,440,000 shares of Common Stock reserved for issuance
upon exercise of the Warrants, (ii) an aggregate of 288,000 shares of Common
Stock reserved for issuance upon exercise of the Underwriter's Warrants and
the warrants included therein, (iii) 129,944 shares of Common Stock reserved
for issuance upon exercise of the CII Warrants which are being relinquished
by CII in connection with the CII Warrant Redemption, (iv) 347,219 shares of
Common Stock reserved for issuance upon exercise of other outstanding
warrants, (v) 67,587 shares of Common Stock reserved for issuance upon
exercise of outstanding options granted under the Stock Option Plan, (vi) up
to 157,453 shares of Common Stock reserved for issuance upon exercise of
options available for future grant under the Stock Option Plan, and (vii) an
indeterminable number of shares of Common Stock reserved for issuance in the
event the Company fails under
25
<PAGE>
certain circumstances to register, or to maintain an effective registration
statement with respect to, the Bridge Shares issued in the Bridge Financing.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Management -- Stock Option Plan" and "Description of
Securities."
(3) Assumes approximately $66,000 of interest expense on the Sperry Notes, the
Bridge Notes, the Fall 1996 Borrowings and the Senior Note to CII and a
related credit to additional paid-in capital and $95,000 for the CII Warrant
Redemption, all of which is expected to be paid from the proceeds of this
offering. Also reflects a charge to operations of $203,000 related to the
loan discount and debt issuance costs of the Bridge Financing.
(4) The $388,837 in loans receivable from certain executive officers of the
Company was included as a component of stockholders' equity as it was
expected that such loans would be satisfied via the return to the Company of
77,767 shares of Common Stock by such officers in connection with the
Executive Stock Repurchase. See Note 15(b) of Notes to Financial Statements.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following selected financial data for each of the two years in the
period ended December 31, 1996 and at December 31, 1996 are derived from, and
should be read in conjunction with, the Company's Financial Statements and Notes
thereto, audited by BDO Seidman, LLP, independent certified public accountants,
included elsewhere in this Prospectus. The auditor's report on the financial
statements at December 31, 1996 and each of the two years in the period ended
December 31, 1996, contains an explanatory paragraph stating that there is
substantial doubt as to the Company's ability to continue as a going concern.
Statement of Operations Data:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1995 1996
--------------------- -----------
<S> <C> <C>
Revenues ................................. $ 4,329 $ 4,350
Gross profit .............................. 1,114 1,332
Loss from operations ..................... (214) (1,387)
Net loss ................................. (326) (1,842)
Net loss per share ........................ (.12) (.67)
Weighted average shares outstanding ...... 2,497 2,759
Balance Sheet Data:
December 31, 1996
--------------------
Working capital (deficit) ............... $ (1,851)
Total assets .............................. 3,612
Total liabilities ........................ 3,863
Redeemable Preferred Stock ............... 750
Stockholders' equity (deficit)(1) ......... (1,001)
</TABLE>
- ------------
(1) As of December 31, 1996, (i) the 77,767 shares of Common Stock returned for
cancellation to the Company by certain executive officers (in satisfaction
of $388,837 in loans outstanding from the Company to such officers)
immediately prior to the date of this Prospectus in connection with the
Executive Stock Repurchase were not included in the weighted average shares
outstanding and (ii) the $388,837 in loans receivable from such officers
which were satisfied in connection with the Executive Stock Repurchase were
included as a component of stockholders' equity, since it was expected that
such Executive Stock Repurchase would be consummated immediately prior to
the date of this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 15(b) of Notes to Financial Statements.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company, founded in 1969, develops, markets, sells and supports
software systems, and sells and supports associated hardware and communications
systems, for the management of commercial ships in the international maritime
industry. The Company's products are designed to enable its customers to operate
their ocean-going ships in a safer and more efficient manner through the use of
shipboard and shore-based computer applications and networks connected by
wireless communications. The Company's revenues are primarily derived from
software license fees, hardware sales, and service revenues. License fees
include revenues from noncancelable software license agreements entered into
between the Company and its customers with respect to both the Company's
products and third-party products distributed by the Company. Such revenues are
recognized upon shipment only if no significant Company obligations remain and
collection of the resulting receivable is deemed probable. Hardware sales
consist of revenues from the configuration and resale of computer hardware
systems in connection with the Company's system product sales and from the
resale of hardware components. For instance, the Company acts as a distributor
for a variety of hardware components and has derived significant revenues from
sales of such products to a limited number of non-maritime customers. Revenues
from hardware sales are recognized when the products are delivered. Service
revenues include revenues from installation (including integration and
engineering) services, customer training, on-going customer support, hardware
maintenance and product updates. The Company's installation cycle varies
significantly by customer depending on the scope of work, the number of
installation sites and the geographical location of the installations and can
extend for periods of six months or more. Installation and training fees
(representing about 40% of the Company's software revenues) are recognized when
such services are completed; however, in a limited number of cases, as much as
one-third of the installation/training fees may be deferred by the customer
until the completion of the one-year warranty period. Service fees for on-going
customer support, hardware maintenance and product updates are recognized
ratably over the term of the contract, which is typically twelve months.
The Company has devoted substantial resources in connection with the
research and development of new and enhanced software products. Costs incurred
for research and development are charged to operations in the period incurred.
Upon the establishment of technological feasibility, the Company begins to
capitalize certain costs associated with the product which will be available for
sale. Once the product is available for sale, the Company ceases to capitalize
these costs. Upon completion of such products, these costs are amortized and
charged to operations over the estimated economic life of the product. A major
portion of the Company's current capitalized costs relate to products which are
not as yet available for sale. The establishment of technological feasibility
and the estimated economic life of the product requires considerable judgment by
management. Any changes to the estimates made by management may result in more
rapid amortization of the capitalized costs.
The Company's strategy is to aggressively market its existing and future
products both directly and through the use of sales agents around the world.
During 1995 and 1996, the Company significantly increased the number of sales
and marketing personnel and also substantially increased the number of
production and development personnel. In addition, in December 1996, as part of
the Sperry Alliance, the Company entered into a five-year marketing and
distribution agreement with Sperry (the "Sperry Agreement"), pursuant to which
the Company granted Sperry, among other things, certain sole rights relating to
the distribution of the Company's software application products and ISIT
platform products to the United States government and non-exclusive rights
relating to the distribution of all the Company's products elsewhere, subject to
certain territorial limitations.
The Company incurred operating losses of $213,602 and $1,386,782 for the
fiscal years ended December 31, 1995 and 1996, respectively, and, at December
31, 1996, had an accumulated deficit of $5,950,629. The Company anticipates,
based on preliminary unaudited financial statements, that it will incur a
significant loss for the three months ended March 31, 1997. The Company expects
that it will continue at a loss until, at the earliest, the Company generates
sufficient revenues to offset the cost of its operations. The report of
independent auditors on the Company's financial statements for all periods
presented contains an explanatory paragraph stating that there is substantial
doubt as to the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
such uncertainty. The Company's future level of sales and potential profitabil-
27
<PAGE>
ity will depend on many factors including an increased demand for the Company's
existing products, the ability of the Company to develop and sell new products
and product versions to meet customers' needs, the ability of management to
control costs and successfully implement the Company's strategy and the ability
of the Company to develop and deliver products in a timely manner.
Results of Operations
The following table sets forth for the periods indicated selected items of
the Company's operations as a percentage of its net revenues:
Years Ended
December 31,
---------------------------
1995 1996
------------- -----------
Revenues ........................... 100.0% 100.0%
Cost of revenues ..................... 74.3 69.4
---------- ----------
Gross profit ........................ 25.7 30.6
Operating expenses:
Research and development ............ 5.7 9.2
Selling and administrative ......... 24.1 51.7
Depreciation and amortization ...... 0.8 1.6
---------- ----------
Total operating expenses ........... 30.6 62.5
Loss from operations ............... (4.9) (31.9)
Other income (expense):
Interest income ..................... 0.6 --
Interest expense .................. (3.2) (10.4)
---------- ----------
Total other expense .............. (2.6) (10.4)
Net loss ........................... (7.5)% (42.3)%
========== ==========
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 0.5% from $4,329,270 for the year ended
December 31, 1995 to $4,350,282 for the year ended December 31, 1996. Hardware
revenues decreased 33% from $2,042,384 for the year ended December 31, 1995 to
$1,370,447 for the year ended December 31, 1996 consisting of a reduction of
sales of hardware components to non-maritime and maritime customers of
approximately $235,000 and $435,000, respectively. The reduction was due
partially to the unavailability of product at the end of 1996, plus the
completion of a major hardware sale to a large customer in 1995. Software
revenues increased 7% from $1,896,129 for the year ended December 31, 1995 to
$2,024,388 for the year ended December 31, 1996, predominantly as the result of
the addition of new customers. Contract revenues increased 144% from $390,757
for the year ended December 31, 1995 to $955,444 for the year ended December 31,
1996. The increase in contract revenues was primarily attributed to the increase
in revenues from Federal and State agencies associated with the development of
the ISIT platform.
Cost of Revenues. Cost of revenues decreased 6% from $3,215,259 for the
year ended December 31, 1995 to $3,017,950 for the year ended December 31, 1996.
Cost of hardware revenues decreased 31% from $1,607,316 for the year ended
December 31, 1995 to $1,105,238 for the year ended December 31, 1996. The
reduction was due to a reduction in sales of hardware components to non-maritime
and maritime customers. Cost of software revenues, including software
amortization, increased 16% from $1,217,186 for the year ended December 31, 1995
to $1,406,817 for the year ended December 31, 1996. This reflects a significant
increase of approximately $380,000 in software services and support revenues
without a corresponding increase in support personnel offset by an increase in
software amortization of approximately $260,000 primarily attributed to the
Company recognizing a $228,000 charge due to a change in the estimated economic
life of its products. The cost of software revenues, excluding software
amortization, decreased by approximately $70,000 from the year ended December
31, 1995 to the year ended December 31, 1996. Cost of contract revenues
increased 29% from $390,757 for the year ended December 31, 1995 to $505,895 for
the year ended December 31, 1996. The increase in costs of contract revenues was
primarily attributed to the increase in revenues from Federal and State agencies
associated with the development of the ISIT platform.
28
<PAGE>
Operating Expenses. Operating expenses increased 104.8% from $1,327,613 for
the year ended December 31, 1995 to $2,719,114 for the year ended December 31,
1996. The increase was attributable primarily to an increase in selling and
marketing expenses, as well as a significant increase in research and
development costs.
Net Loss. As a result of the foregoing, the Company's net loss increased
from $325,700 for the year ended December 31, 1995 to $1,842,314 for the year
ended December 31, 1996.
Liquidity And Capital Resources
Since inception, the Company has financed its operations with private
placements of equity, government funding, cash from operations, subordinated
debt, bank term loans, bank credit lines and inventory "floor plan" financing.
For the years ended December 31, 1995 and 1996, the Company had net cash
used in operations of $250,760 and $607,513, respectively. The cash used in
operations during these periods was primarily attributed to the increase in the
Company's payroll, marketing and sales expenses, technical consulting costs and
an increase in trade accounts receivable associated with an increase in
revenues.
In July 1995, the Company, on behalf of itself and certain other companies
involved in the ISIT platform development project, entered into the Cooperative
Agreement relating to such project with the United States Department of
Transportation, Maritime Administration under the Federal DARPA/MARITECH
program. Pursuant to the Cooperative Agreement, the government has committed to
fund one-half of the actual expenses of the project (currently budgeted at
approximately $3.9 million, of which the Company's expenses have been estimated
at approximately $2 million), up to a maximum of $1,912,763, upon the
achievement of project milestones defined in the Cooperative Agreement. To date,
eleven out of seventeen milestones established for the ISIT platform development
project have been satisfied. The remaining six milestones are based upon a time
phase rollout of the activities associated with completion of the development of
the ISIT platform, land-based testing of the platform and installation and
testing of the platform on a demonstration vessel. The Company and other project
members are required to supply the government with documentation that the
milestones have been accomplished, but the government does not comment on or
contribute to such documentation and payment is based only upon the government's
receipt and acceptance of such documentation. The Company and the other project
members are not required to deliver any product to the government. The Company,
as the financial manager for the development project, allocates and distributes
the government's reimbursement payments to the project members according to the
project budget and their expenditures thereunder. The Company's potential share
of the funding is $1,014,533. Through December 31, 1996, the Company had
expended a total of $1,804,958 in connection with the project and recognized
contract revenues from the government for such project in the amount of
$820,775.
In July 1995, the Company and CII entered into an agreement whereby CII
agreed to fund $487,433 of the ISIT project costs. Such funding was provided
pursuant to the State of Connecticut's Federal Technology Partnership Program
under which the State matches 50% of the funding provided by the United States
government under a recognized Federal cooperative funding program, such as
DARPA/MARITECH. CII provided the first installment of the funding in the amount
of $240,033 in August 1995. The remaining $247,400 was provided in June 1996
upon the Company's successful completion of the required project milestones. The
Company is not obligated to repay any of the contract revenues received pursuant
to the Cooperative Agreement or pursuant to the agreement with CII, regardless
of the final outcome of the ISIT project.
Net cash used in investing activities for the years ended December 31, 1995
and 1996 of $517,081 and $1,317,729, respectively, was primarily attributed to
an increase in capitalized software costs.
Net cash provided by financing activities for the year ended December 31,
1995 of $778,166 was primarily attributed to increases in outstanding
indebtedness. Net cash provided by financing activities for the year ended
December 31, 1996 of $1,968,009 was primarily attributed to increases in
outstanding indebtedness and to the sale of Common Stock and Preferred Stock.
The Company currently has a $205,000 term loan and a $400,000 demand line
of credit with a bank, both of which bear interest at 1 1/2% over the bank's
prime rate and are secured by substantially all of assets of the
29
<PAGE>
Company. The term loan is payable in equal monthly installments of $5,833 plus
interest until June 1998, at which time the balance of approximately $100,000,
plus interest, will be due in full. The demand line of credit matures on April
1, 1998, provided that the Company maintains an account with the bank with a
minimum balance of $800,000 as additional security for repayment of the
Company's loans from the bank. As of December 31, 1996, the Company had no
further availability under such facility. The agreement under which the term
loan and the demand line of credit were established contains certain covenants,
including provisions requiring the Company to maintain specified financial
ratios and a minimum net worth. The Company was in violation of certain of its
bank loan covenants during 1996, including covenants (i) to maintain a zero
balance under the $400,000 line of credit for a period of thirty consecutive
days during 1995 and 1996, (ii) to supply the bank with copies of quarterly and
annual financial statements, (iii) not to issue any indebtedness without the
written consent of the bank, (iv) not to make loans or advances to any officer,
employee, stockholder or director of the Company without the written consent of
the bank, (v) not to permit the ratio of unsubordinated liabilities to net worth
plus subordinated liabilities to exceed 3.25 to 1, (vi) not to permit minimum
cash flows on an annual basis to be less than 1.2 times the annual scheduled
principal and interest payments on the term loan and line of credit, and (vii)
not to make certain capital expenditures without the written consent of the
bank. The Company was able to secure waivers with respect to (i) above for 1995
and 1996, with respect to (ii) through (iv) above for 1996 and with respect to
(v) through (vii) above for 1996 and through May 15, 1997. In addition, the
Company obtained a $150,000 letter of credit from the bank in October 1995 to
secure landlord improvements to the Company's offices, which letter of credit is
guaranteed by the Connecticut Development Authority, an agency of the State of
Connecticut. The letter of credit became self-amortizing at the rate of $7,500
per month on May 31, 1996, and, as of December 31, 1996, there was a total of
$90,000 outstanding under this facility.
In March 1995, the Company obtained a $500,000 loan from CII bearing
interest at the rate of 10% per annum, evidenced by the Senior Note. In
connection with this loan, the Company issued warrants to CII to purchase an
aggregate of 259,888 shares of Common Stock at an initial exercise price of
$2.31 per share. In August 1996, the Company sold 7,500 shares of its Preferred
Stock to CII in exchange for (i) CII's payment of $500,000 in cash; (ii) the
cancellation of $236,924 of the $473,848 principal amount of indebtedness then
outstanding under the Senior Note, the balance of which is repayable, together
with accrued interest, in aggregate monthly installments of $10,624 (subject to
payment in full upon the consummation of this offering); and (iii) CII's
relinquishment of one-half of its warrants, leaving CII with the CII Warrants to
purchase 129,944 shares of Common Stock. Immediately prior to the consummation
of this offering, the 7,500 shares of Preferred Stock held by CII will be
converted into an aggregate of 277,777 shares of Common Stock. In addition, upon
the consummation of this offering, the Company intends to use a portion of
proceeds from this offering to repay the balance of the Senior Note ($236,924
plus approximately $23,000 in accrued interest) and to redeem the CII Warrants
(approximately $95,000). During 1996, the Company was in default in payment
under the Senior Note, but was able to secure a waiver from CII of all payments
of principal and interest under the Senior Note through the earlier of the
consummation of this offering, at which time the Senior Note is to be repaid in
full, or May 15, 1997, at which time payments of principal and interest will be
resumed as set forth in the Senior Note. See "Certain Transactions."
In February through July 1996, the Company sold to 16 accredited investors
an aggregate of 233,326 shares of Common Stock at a purchase price of $3.38 per
share, for an aggregate purchase price of $787,500 (the "1996 Private
Placement"). The net proceeds from this financing were used to fund working
capital requirements for further software development of the Fleet Manager
Series and of the ISIT platform and for additional marketing and sales expenses
related to the Fleet Manager Series.
During 1995, Robert D. Ohmes, the Executive Vice President, Chief Financial
Officer and a director of the Company and Scott R. Ohmes, son of Robert D. Ohmes
and a principal stockholder of the Company, advanced a total of $225,000 to the
Company. In June 1996, these advances were converted into 66,666 shares of
Common Stock. See "Certain Transactions."
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<PAGE>
In June 1996, Robert D. Ohmes acquired a $75,000 loan from a bank, the
proceeds of which he, in turn, loaned to the Company. Subsequently, in November
1996, such loans were amended to reflect the Company as the bank's borrower and
eliminating Mr. Ohmes as a lender. The Company's note to the bank evidencing
such indebtedness bears interest at 1 1/2% over the bank's prime rate and the
note matures on April 1, 1998. See "Certain Transactions."
In connection with the Fall 1996 Borrowings, the Company borrowed an
aggregate of $410,000 from Lyman C. Hamilton, Jr., a director of the Company, a
trust for the benefit of the mother of Donald F. Logan, Jr., a Senior Vice
President and director of the Company, Christopher Story, the brother of Eugene
D. Story, the President, Chief Executive Officer and a director of the Company,
and Tiffany Story, the niece of Eugene D. Story, and two other persons in
October and November 1996. These loans bear interest at 10% per annum and are
due and payable on the earlier of the consummation of this offering and six
months from the date of issuance of the promissory notes representing such
loans. Such loans are subordinated to all other indebtedness of the Company
except for an aggregate of $500,000 payable to Eugene D. Story and Robert D.
Ohmes. Upon the consummation of this offering, the Company intends to use
approximately $429,000 of the proceeds from this offering to repay, in full, the
principal amount of, and accrued interest on, these notes. See "Certain
Transactions."
From September through December 1996, the Company borrowed an aggregate of
$166,000 from Eugene D. Story, Robert D. Ohmes, Mark E. Story, a Vice President
and director of the Company, Donald F. Logan, Jr. and Scott R. Ohmes. These
loans bear interest at 9% per annum and are due and payable on December 2, 1998.
Such loans are subordinated to all other indebtedness of the Company except for
an aggregate of $500,000 payable to Eugene D. Story and Robert D. Ohmes. See
"Certain Transactions."
In connection with the Sperry Financing, the Company borrowed an aggregate
of $500,000 from Sperry in December 1996, in return for which the Company issued
to Sperry (i) the Sperry Convertible Note in the principal amount of $250,000,
convertible into an aggregate of 100,000 shares of Common Stock upon the
consummation of this offering, (ii) the Sperry Non-Convertible Note in the
principal amount of $250,000, and (iii) the Sperry Warrants to purchase 125,000
shares of Common Stock at an exercise price of $5.00 per share. The Sperry Notes
bear interest at the rate of 9% per annum and are due and payable on the earlier
of the consummation of this offering and January 31, 1998. The Company intends,
upon consummation of this offering, to use approximately $266,000 of the
proceeds from this offering to repay the Sperry Non-Convertible Note, including
interest accrued thereon through and until such repayment date, and to pay
interest accrued on the Sperry Convertible Note. See "Certain Transactions."
In connection with the Bridge Financing, the Company borrowed an aggregate
of $350,000 from six private investors in January 1997, in return for which the
Company issued to such investors Bridge Notes in the aggregate principal amount
of $350,000 and an aggregate of 70,000 Bridge Shares from its treasury stock.
Immediately prior to the consummation of the Bridge Financing, Eugene D. Story
and Robert D. Ohmes contributed an aggregate of 70,000 shares of Common Stock to
the Company's treasury for issuance by the Company as Bridge Shares to the
investors in the Bridge Financing. After payment of $35,000 in placement fees to
the Underwriter, which acted as placement agent for the Company in connection
with the Bridge Financing, and other offering expenses of approximately $20,000,
the Company received net proceeds of approximately $295,000 in connection with
the Bridge Financing. The Company intends, upon consummation of this offering,
to use approximately $358,000 of the proceeds from this offering to repay the
Bridge Notes, including interest accrued thereon through and until such
repayment date.
Immediately prior to the date of this Prospectus, Eugene D. Story, Robert
D. Ohmes, Mark E. Story and Donald F. Logan, Jr. delivered and transferred to
the Company for cancellation an aggregate of 77,767 shares of Common Stock and
the Company accepted such shares in full payment and satisfaction of the
Company's outstanding loans to such parties in the aggregate amount of $388,837.
Because it was expected that such loan amounts would be satisfied with shares of
Common Stock prior to the date of this Prospectus, the $388,837 in loans
receivable was presented as a component of stockholders' equity in the Company's
financial statements commencing as of December 31, 1995. See "Certain
Transactions."
As of December 31, 1996, the Company had cash of $58,117 and a working
capital deficit of $1,851,082. Although the Company anticipates that the net
proceeds of this offering, together with anticipated revenues from
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operations and its current cash and cash equivalent balances, will be sufficient
to fund the Company's operations and capital requirements for at least 18 months
following the consummation of this offering, there can be no assurance that such
funds will not be expended prior thereto due to unanticipated changes in
economic conditions or other unforeseen circumstances. In the event the
Company's plans change or its assumptions change or prove to be inaccurate, the
Company could be required to seek additional financing sooner than currently
anticipated. The Company has no current arrangements with respect to, or
potential sources of, any additional financing, and it is not anticipated that
existing stockholders will provide any portion of the Company's future financing
requirements. Consequently, there can be no assurance that any additional
financing will be available to the Company when needed, on commercially
reasonable terms, or at all.
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<PAGE>
BUSINESS
The Company
The Company develops, markets, sells and supports software systems, and
sells and supports associated hardware and communications systems, for the
management of commercial ships in the international maritime industry. The
Company's products are designed to enable its customers to operate their
ocean-going ships in a safer and more efficient manner through the use of
shipboard and shore-based computer applications and networks connected by
wireless communications. The Company sells its products in the international
shipping market to operators of all types of ships, including crude oil and
product tankers, gas carriers, container ships, cruise liners, bulk carriers and
other specialty ships. The Company has 27 years of experience in the maritime
industry and has an established international market presence and a significant
installed customer base.
Industry Background
There are over 80,000 vessels in the world's commercial fleet. The primary
target market for the Company's integrated fleet management systems and services
consists of the 22,500 vessels over 5,000 dead weight tons in the international
"deep sea" trade. The types of vessels in this group include oil tankers,
liquefied natural gas carriers, chemical carriers, bulk carriers, container
ships, roll-on/roll-off carriers and passenger ships. The ownership of these
vessels includes high concentrations in Greece, Japan, China, Russia and the
United States. Estimates of market penetration indicate that only approximately
15% of the Company's primary target market currently has integrated fleet
management systems. The secondary target market for the Company's products is
the coastal and inland waterway vessels which represent the other 57,500 vessels
in the world's commercial fleet. However, these vessels are of various sizes and
often have limited resources available for shipboard technology. Consequently,
while this secondary market represents significant potential based on the number
of vessels included in such market, the average sale per vessel in this
secondary market will typically be smaller than the average sale per vessel in
the Company's primary target market.
The international maritime industry is responsible for the transportation
of over 95% of the cargo moving in intercontinental trade and no known means of
transportation or technology currently exists which will permit any significant
change from this transportation format. The market for cargo shipping is
primarily an open, free market, allowing ships of any country to compete for
business. The broad nature of this market, coupled with the fact that there are
over 80,000 vessels in the world's commercial fleet competing for business, has
generated growing pressure on shipowners/operators to operate their ships more
efficiently. In addition, a significant expansion of international maritime
regulations has occurred in recent years requiring shipowners/operators to
operate their ships in a safer and more environmentally protective manner or
face major liability exposure. At the same time, however, the economic pressures
of the industry are leading to smaller-sized crews on ships which is increasing
the burdens associated with efficient ship operation and safety and
environmental regulation compliance. The Company believes that these factors
have created an environment where productivity aids, such as those provided by
information technology systems, can offer large benefits to
shipowners/operators.
Information technology systems enable ships' crews to access and perform
planned maintenance schedules, keep a more accurate inventory of critical parts,
communicate with shore support facilities and access needed information to
operate their ships in a safer and more efficient manner. While many
shipowners/operators are just beginning to implement such systems within their
enterprises, others have already made significant investment in their
information technology infrastructures, frequently incorporating within them a
variety of software environments, computing platforms and communications
protocols. These business critical enterprise applications and personal
productivity tools have also historically been supplied by a variety of vendors,
often resulting in incompatible systems and applications within and among an
enterprise's many locations. As a result of this proliferation of technology,
demand is increasing for systems that offer shipowners/operators a standard
interface, transparent communications and the ability to integrate enterprise
and ship specific productivity applications for local and remote enterprise
users.
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Current challenges faced by shipowners/operators employing information
technology systems include:
o Platform Diversity. In addition to Windows, desktop computing systems
within an enterprise may include DOS systems, UNIX workstations,
X-Terminals, Macintosh systems and OS/2 workstations, many of which do not
support 32-bit Windows applications.
o Remote Users. The diversity of network connection types, protocols and
communication services limits the ability of shipowners/operators and other
organizations to deploy applications on a cost-effective and efficient
basis among remote shipboard users.
o Extended Enterprise. The extension of enterprise information systems to
ships, suppliers, technical support activities and regulatory bodies
creates application deployment issues that are outside the control of
information systems managers, such as the quality and security of the
network connection, the client platform involved and the technical
expertise of the remote user.
o Diverse Shipboard Control Systems. Data residing on diverse, non-integrated
control systems aboard ship which is required for ship management purposes
is currently inaccessible to the ship management applications software.
Enterprise system managers must cope with this non-compatibility problem
existing on remote mobile systems.
o Non-Compatible Satellite Communications. While over the past 15 years the
international shipping industry has operated as a monopoly with satellite
analog data communications provided by the International Marine Satellite
consortium ("INMARSAT"), the delivery of communications services to ships
is expected to change drastically in the next five years. New lower cost
satellite communications services are being offered using digital data
technology. At the present time, no standard protocol to send data through
an earth station into the public telephone networks exists. System
providers and information technology managers are therefore faced with a
difficult operational problem of locating and acquiring the best
communications solutions for any given situation.
Strategy
In order to address the challenges currently associated with the use of
information technology by the maritime industry, the Company has adopted a
strategic plan focused on three distinct, yet interrelated, areas of the
maritime information technology market, including: (i) the continuation and
enhancement of the Company's core business which centers around its existing
Fleet Manager Series of software products for the management of ship operations
and includes applications ranging from shipboard inventory and maintenance
management to ship-to-shore e-mail; (ii) the development of the Integrated
Shipboard Information Technology ("ISIT") platform, which is designed to become
the first industry standard for computer operating environments to integrate a
myriad of ship equipment and informational systems, including proposed
ISIT-compliant versions of the Company's existing Fleet Manager Series products,
which are currently under development; and (iii) its expansion into the
satellite communication services business as a reseller of satellite
communications services, which expansion the Company expects will allow it to
provide its customers with a single source service for ship-to-shore data
communications. The Company intends to focus on these three strategic areas in
order to become a leading supplier of integrated management and communications
systems to the international maritime industry.
In keeping with its goal, the Company is employing the following
strategies:
Deliver Easy-to-Use, High-End Fleet Management Solutions. The Company
believes that today's maritime requirements dictate high levels of usability due
to crews of varying nationalities, training, sizes and experience levels. In
addition, in order for the systems to be effective at managing operating costs,
the systems must have high levels of functionality in order to encompass a broad
spectrum of international customers. The Company's unique suite of application
software products, the Fleet Manager Series, addresses these needs by providing
ease of use and broad-based functionality with low implementation costs and full
scalability. The Company provides solutions for customers seeking to preserve
existing information technology investments and minimize the costs and
complexity of integrating with existing management systems.
Establish Broad-Based Acceptance of the ISIT Platform. In order to
establish broad-based acceptance of the ISIT platform, the Company intends to
expand its marketing efforts to focus not only on direct sales to
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shipowners/operators but also on the marketing of the ISIT platform to a variety
of maritime organizations, including shipboard control system suppliers and
hardware and software vendors, who will be able to bundle the ISIT platform with
their respective product lines. In addition, the Company, both on its own and
through a distribution agreement with Sperry, plans to market the ISIT platform
through shipyards for newbuild ship constructions, with the intention that the
ISIT platform will become the default information technology system for newbuild
ships. In order to better understand the needs of the maritime industry and to
facilitate market acceptance of the ISIT platform, the Company has created an
Industry Advisory Board for the ISIT platform project, which includes 30 firms
representing a broad cross-section of the maritime industry, including
shipowners/operators, communications organizations, shipyards, regulatory bodies
and suppliers of marine equipment.
Develop Strategic Alliances. The Company believes that entering into
strategic alliances for the development and sales of its products will allow for
a broader-based acceptance of such products and a corresponding increase in its
overall sales. To this end, the Company: (i) as the leader of the ISIT platform
development project, formed the ISIT Platform Development Team (consisting of a
group of the leading companies involved in various technologies and services
associated with international ship operations, design and information
technologies) to specifically address the problem of standards for
shipboard/shoreside data access, handling and communications; and (ii) entered
into the Sperry Alliance in December 1996, pursuant to which the Company granted
Sperry, among other things, certain sole rights relating to the distribution of
the Company's software application products and ISIT platform products to the
United States government and non-exclusive rights relating to the distribution
of the Company's products elsewhere, subject to certain territorial limitations.
Capitalize on Large Installed Customer Base. The Company plans to continue
to leverage its installed base of over 1,500 application system installations at
over 600 shipboard and shore-based sites worldwide. The Company's strategy is to
sell new products, as well as future, enhanced generations of the current Fleet
Manager Series, into this customer base. The additional products intended to be
added to the product line include the ISIT platform, satellite communications
services, Windows-based versions of the Fleet Manager Series, ISIT-
compliant versions of the Fleet Manager Series, and applications within the
Fleet Manager Series. The Company continues to devote significant resources to
enhance its products and services.
Develop Industry Standards. The Company has taken a leadership role in the
development of standards in the area of shipboard information technology
applications. Executives of the Company currently chair two task groups at the
American Society of Testing and Materials ("ASTM") in the F-25 Committee on
Ships and Marine Technology. This Committee has established a liaison with the
International Standards Organization ("ISO") Technical Committee 8, Ships and
Marine Technologies, and has reached consensus that any standards adopted by
ASTM will be submitted to the ISO. The Company believes that taking a leadership
role in the development of relevant industry standards reinforces the industry
perception of the Company as a leader in its field.
Support International Safety. The international regulations for both ship
safety and environmental protection are formulated through the United Nations'
International Maritime Organization ("IMO"). This organization develops
regulations through a treaty process of the United Nations. These regulations
are enforced by the port states through local inspectors. An active effort
within the IMO exists to develop technology applications which will promote
regulation enforcement. Currently, this enforcement is primarily a manual and
labor intensive effort. The Company is working to apply its ISIT platform
technology as the base technology for such technology developments including
vessel traffic services similar to air traffic control and voyage data recorders
similar to flight recorders.
Leverage Worldwide Infrastructure. The Company has developed an extensive
international network of agents to provide direct and indirect sales and
support. The Company's products are designed and built for an international
marketplace. The Company has significant resources allocated to the selection
and development of this agent network, and expects those investments to
continue. International sales represented 31% of revenues in fiscal 1995 and 21%
in fiscal 1996. The Company believes that this network will be an important
competitive factor in taking advantage of the growing use of technology in the
maritime industry.
Differentiate Through Superior Customer Support. The Company believes that
superior customer support is critical for customers to successfully implement
high-end technology solutions. Due to the complexity and
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logistics of the maritime environment, support services must be designed to
address issues remotely, in a cost efficient manner, and on a timely basis. The
Company has 27 years of experience in supporting the maritime customer base and
six years experience supporting the current Fleet Manager Series. Because each
customer has unique needs, the Company offers modular customer support programs
that match each customer's requirements.
The Fleet Manager Series
The Company's Fleet Manager Series is a multi-faceted line of software
products, including: (i) FleetWORKS, a systems package for the control of the
equipment and spare parts inventory onboard a ship; (ii) FleetLINK, a marine
data communications and e-mail systems package providing data compression and
high speed data transmission over satellites, cellular and/or terrestrial links;
and (iii) FleetWATCH, a shipboard reporting and administrative systems package.
The Fleet Manager Series was developed through several years of industry use and
feedback and is currently in its fifth generation. This suite of integrated
applications allows shipowners/operators to manage costs, manage resources, and
comply with both internal and externally mandated safety and environmental
issues.
The benefits of the Fleet Manager Series include:
o An integrated suite of applications which allows more robust communication
of data between applications and reduces user workload by preventing
multiple data entries.
o Associated systems integration and engineering services which develop
fleet-wide equipment and parts numbering mechanisms and initialize system
operations.
o The ability to dramatically reduce ship-to-shore satellite communications
costs.
The Fleet Manager Series software applications have been designed to offer
ease-of-use and an integration of information for a multitude of ship management
operations using a single user interface. In addition, the Company has developed
services to support these systems, from database development and validation to
the supply of shipboard computer hardware, related engineering, integration and
training services and maintenance support. Thus, in addition to its sale of the
software products themselves, the Company may, for instance, pre-load the Fleet
Manager Series software products on personal computers and sell the bundled
product. Consequently, although individual modules list for between $1,500 and
$9,000, a typical customer may buy multiple modules for multiple ships in a
fleet resulting in a sale to a customer that could approach $50,000, including
hardware and integration and engineering services. Moreover, by offering
standardized PC and LAN configurations, the Company provides an added value to
clients. All these computer hardware configurations include the Company's
MarineCare "exchange-basis" warranty, providing a blanket coverage for all
components supplied by the Company, regardless of manufacturer, with all
individual warranties extended to one full year.
The Fleet Manager Series is designed to provide information about ship
operations in order to assist the shipowner/operator in meeting safety and
environmental requirements. On July 1, 1998, almost all commercial ships over
500 gross tons will be required to comply with the International Safety
Management ("ISM") Code, developed and mandated by the IMO. The ISM Code
includes new procedures which must be followed and requirements which must be
met in order to achieve certification for a ship. The Fleet Manager Series
currently provides shipowners/operators with a substantial portion of the
information required in order to achieve ISM certification.
The Fleet Manager Series versions currently being shipped are DOS-based;
however, the Company is in the process of developing Windows-based versions
(which will be Windows 3.1, Windows95 and Windows NT compliant) of all of its
existing products. The initial modules of the Windows-based versions have been
delivered to certain customers for beta testing, and these modules are expected
to be commercially available during the second quarter of 1997, with the balance
of modules expected to be commercially available by the end of 1997. The
Company's application software for Windows will require modification in order to
utilize such software on the ISIT platform being developed. Initial
ISIT-compliant modules of the Fleet Manager Series are expected to be released
in mid-1997.
The Company develops its software using modern systems development tools
and techniques, including a rigorous system development methodology. Such
methodology, or process, includes design, development and quality assurance
steps. The software is duplicated and packaged, along with supporting
documentation, at the Company's offices in Stamford, Connecticut.
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The following lists the modules which are included in each of the
applications in the Fleet Manager Series:
<TABLE>
<CAPTION>
FleetWORKS FleetLINK
- ---------- ----------
<S> <C>
o Equipment Management o Fleet Wide E-Mail
o Spare Parts Inventory Management o Satellite and Cellular Data Communications
o Consumables Management o Global E-Mail Interface
o Requisitioning/Budgeting
o Bar Coding Inventory FleetWATCH
o Purchasing Interface -----------
o Maintenance Scheduling o Vessel Reporting
o Equipment History Tracking o Cargo Loading
o Predictive Maintenance Interface o Personnel/Payroll Management
o Weather Reporting
</TABLE>
FleetWORKS
FleetWORKS is a fully integrated inventory and maintenance systems package.
Starting with basic management of equipment name plate status and details,
FleetWORKS may be expanded to include systems for inventory control,
requisitioning, purchase orders, budgeting, consumables ordering, planned
maintenance, predictive maintenance, bar coding and equipment history tracking.
Management believes that FleetWORKS allows the most comprehensive configuration
of software solutions on the market today, offering marine operators the
benefits of a custom-tailored system, while providing the reliability and
economy of standardized software. The Company's proprietary distributed database
technology allows FleetWORKS to operate independently on each ship, while
maintaining an accurate record of each ship's machinery, spare parts and
maintenance databases on the complete fleet-wide shore system. In addition to
fleet-wide control, the software reduces paperwork by automatically transmitting
requisitions to the shore office via satellite. The system also schedules
planned and predictive maintenance which improves maintenance quality, provides
a better overview of machinery condition and creates a detailed equipment
history. Modules list for between $2,000 and $4,000.
FleetLINK
FleetLINK is a marine data communications and e-mail systems package.
FleetLINK provides data compression and high speed data transmission over
satellites, cellular and/or terrestrial links. FleetLINK achieves effective
throughput of up to approximately 30,000 bits per second over INMARSAT A and
approximately 19,000 bits per second with cellular services. In addition to
reliable, error-free ship-to-shore connections, FleetLINK provides full-featured
"paperless forms" to streamline fleet-wide information processing. The software
can transfer most file types between ship and shore computers with interfaces to
commercial e-mail software including cc: Mail, DaVinci e-Mail and a number of
other packages. In addition, FleetLINK exchanges mail and files with X.400
services. FleetLINK is a cost-saving alternative to telex and fax for shipboard
operations. Designed to maximize existing satellite and cellular services,
FleetLINK is intended to meet the needs of the Company's customers in the future
as communications technology rapidly evolves. The data communications and
messaging module lists for approximately $2,000.
FleetWATCH
FleetWATCH is a shipboard reporting and administrative systems package.
FleetWATCH provides consolidated fleet-wide voyage activity data, including
vessel status and position reporting and tracking. This information can be used
by an operations office to evaluate voyage performance and plan subsequent
voyages with a view to maximizing ship efficiency. FleetWATCH also offers a
cargo loading module which provides accurate loading, trim and stability
calculations and maximization loading safety for tankers, container and bulk
carriers. The systems offers fleet personnel and crew information reports and
payroll management in order to streamline personnel management. FleetWATCH
supports quality initiatives such as ISO9000 and ISM by providing an automated
mechanism to deliver safety and quality procedures to ships. Modules list for
between $2,000 and $6,000.
The ISIT Platform Development Project
Utilizing its core technologies and strategic relationships with leaders in
the maritime industry, the Company has taken the premier role in designing, and
is currently developing, the ISIT platform, a software operat-
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ing environment standard for the maritime industry. The Company believes that
the development of the ISIT platform could be a major breakthrough for the
commercial shipping business and that it represents a strategic opportunity for
the Company to significantly increase its market share position within the
maritime industry, as the ISIT platform is intended to permit the integration,
under a common protocol, of a myriad of ship equipment and informational systems
and to provide a common computing environment for shipboard systems to share
data and communicate with shore-based management. In addition, the ISIT platform
will reside on top of Microsoft Corporation's Windows NT in order to provide
enterprise-wide distributed processing and is intended to serve as an open
architecture to make data from different sources and vendors available and
accessible in one database. Because it will be an advanced technology
application, the ISIT platform will also have the potential to integrate
information requirements for other industries using any client/server
applications on the Windows NT operating system.
When completed, the ISIT platform is intended to provide three primary
services for any shipboard application. First, it is designed to provide a
stable platform on which software applications which are ISIT-compliant can run
and to include a layer of standard services necessary to permit remote support
of such applications. ISIT-compliant software applications are expected to
include new versions of the Company's Fleet Manager Series products, software
applications currently under development by other members of the ISIT Platform
Development Team (described below), which will not be competitive with the Fleet
Manager Series, and software applications which are expected to be developed by
third parties, some of which may be competitive with the Fleet Manager Series.
Second, the ISIT platform is designed to provide a common communication path for
any ISIT-compliant application using most available communication services. Of
the numerous new digital satellite services coming on the market, each will
require its own data protocols. The ISIT platform is intended to provide the
common communications interface for most satellite services, as well as an
optional shore-based hub to interface with various telephone networks and
services, including the Internet. Third, the ISIT platform is designed to allow
for the collection and storing of a ship's operating data in a common database
and in a common format. This data collection function provides an interface into
the various shipboard control systems on the bridge and the engine room that
operate with their own proprietary protocols. The ISIT platform is designed to
convert these different protocols into a common protocol and make the data
available for other applications, such as diagnostics. As a result of the
foregoing, the Company anticipates that the ISIT platform will address a number
of key maritime industry issues, including:
o The ability to provide a common, remotely-controllable environment for any
shipboard management system. This capability, the core of the ISIT
platform, is intended to allow shipowners/operators to manage the
increasingly complex shipboard information technology environment aboard
their world-wide fleet from a centralized shore location.
o The ability to capitalize on rapidly evolving wireless communications
technologies and to provide shipowners/operators tools to automatically
select wireless service providers.
o The ability to collect data from any of the traditionally closed shipboard
control systems (such as machinery control, navigation control, or cargo
control) for use by other shipboard systems or analysis by management
ashore.
The Company's ISIT platform development project was chosen in July 1995 for
shared expense funding under the United States government's DARPA/MARITECH
program (a program formed to, among other things, promote the development and
application of technology to and for the maritime industry as part of the
government's effort to revitalize United States shipyards). The Company, as the
leader of the ISIT platform project, formed the ISIT Platform Development Team
(consisting of a group of the leading companies involved in various technologies
and services associated with international ship operations, design and
information technologies) to specifically address the problem of standards for
shipboard/shoreside data access, handling and communications. Pursuant to their
Cooperative Agreement with the government, the Company and certain other members
of the ISIT Platform Development Team (the "Project Participants") are
responsible for the ISIT platform development project. The Company is
responsible for the development of the ISIT platform itself while the other
Project Participants have responsibility for various related aspects of the
project. The costs relating to the ISIT platform project have been budgeted at
approximately $3.9 million, of which the Company's expenses have been estimated
at approximately $2 million (before giving effect to the government's
reimbursement funding). The
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government has agreed to reimburse the expenses of the Project Participants in
an amount equal to the lower of approximately $2 million and 50% of their actual
expenses. The government makes payments upon the completion of various defined
project milestones, which payments are allocated among the Project Participants
by the Company, according to the project budget and each participant's
expenditures thereunder. Upon completion of the project, the Company will retain
the rights to the ISIT platform, subject to a value added reseller agreement
(and a sharing of a portion of any revenues derived from the commercialization
of the ISIT platform) with the other Project Participants. Such agreement is
currently under negotiation.
The following is a list of the members of the ISIT Platform Development Team
and their specialized fields:
ISIT PLATFORM DEVELOPMENT TEAM
<TABLE>
<S> <C>
Marine Management Systems, Inc.* ............... ISIT Platform
Sperry Marine Inc. ........................... Integration of Bridge Control Systems
GE Marine Systems .............................. Integration of Machinery Control Systems
Radix Systems, Inc.* ........................... System Integration and Project Management
Ultimateast Data Communications Limited* ...... Satellite Services and Communications Hub
ABS Marine Services, Inc. ..................... Classification/Standards
M. Rosenblatt & Son, Inc.* ..................... Naval Architects and Marine Engineers-Installation
Sinteff Marine Controls ........................ Control System Interfaces
</TABLE>
- ------------
*Also a Project Participant.
There is also an ISIT Platform Advisory Board which has been put in place
in order to advise the ISIT Platform Development Team on the developments and
implementation of the ISIT platform. The ISIT Platform Advisory Board includes
shipowners/operators, communication companies, shipyards, and classification
societies and government entities.
ISIT PLATFORM PROJECT ADVISORY BOARD
<TABLE>
<CAPTION>
Shipowners/Operators Ship Builders
- -------------------- -------------
<S> <C>
o Chevron Shipping Company o Alabama Shipbuilding
o Coscol Marine Corporation o Avondale Industries, Inc.
o Eletson Corporation o Bath Iron Works Corporation
o Marine Transport Lines, Inc. o Ingalls Shipbuilding
o Osprey-Acomarit Ship Management, Inc. o McDermott Shipbuilding, Inc.
o Sea-Land Service, Inc. o National Steel and Shipbuilding Company
o Stolt Parcel Tankers Inc. o Newport News Shipbuilding
o U.S. Military Sealift Command o Trinity Marine Group, Inc.
</TABLE>
<TABLE>
<CAPTION>
Communication Companies Classification Society/Government Entities
- ----------------------- --------------------------------------------
<S> <C>
o American Mobile Satellite Corporation o American Bureau of Shipping
o COMSAT Mobile Corporation o Canadian Coast Guard
o Iridium, Inc. o Canadian Navy
o Mobile Datacom Corp. o Det Norske Veritas
o NewEast Wireless Telecom, Inc. o Lloyd's Register
o Orbital Communications Corporation o U.S. Coast Guard
o U.S. Military Sealift Command
</TABLE>
The Company expects to complete initial development and to begin initial
testing of the ISIT platform in the second quarter of 1997. This initial testing
of the ISIT platform is intended to validate its ability to connect shipboard
systems with each other and with management ashore. Thereafter, the Company
expects to commence initial marketing of the ISIT platform as well as
ISIT-compliant versions of its Windows-based Fleet Manager Series products by
the fourth quarter of 1997.
39
<PAGE>
Proposed Satellite Communications Services Business
The Company currently provides software solutions for ship-to-shore
communications, but shipowners/operators must still contract with another vendor
for the actual wireless communications services. The Company intends to contract
with communications service providers and to resell those communication services
to shipowners/operators as part of a bundled offering with the other products
and services of the Company. This will provide shipowners/operators with
one-stop shopping for their fleet management requirements, including application
software, platform software, hardware, systems integration and engineering
services, and associated communications services. The Company believes that
significant technical advantages to bundling the ISIT platform with the
associated communications services exist which will allow shipowners/operators
to improve the return from those communications expenses. The Company's system
could provide a least-cost-routing controller on the ship which would
automatically choose the lowest cost communications routing. In addition, the
Company could route the call through lower cost cellular services when in range.
When satellite usage is at a high enough level, the Company will have the
opportunity to implement a virtual earth station ("VES") or communications hub
that can link a ship's communications to terrestrial services. The Company
expects to expand this to other communication services using a VES developed
under the ISIT platform project.
Sales and Marketing
The Company's marketing efforts are primarily directed at broadening the
market for the Fleet Manager Series by increasing the awareness of the
importance of information systems for the efficient management of ship
operations. The Company's marketing is divided between advertising, seminars and
trade shows, and promotional presentations. The Company advertises primarily in
industry magazines.
The Company sells its Fleet Manager Series products both directly and
through the use of independent sales agents located in many of the largest
maritime centers in the world. Currently, the Company has approximately 25 sales
agents all of which are subject to written agreements, which generally are
non-exclusive and may be terminated by either party at the end of each year of
the agreement. Three of the Company's current sales agents, however, have
territorial exclusives (one in Greece, one in Singapore, Malaysia and Indonesia
and one in Hong Kong, each of which is a major territory in the maritime
industry). None of the Company's agents are subject to any minimum performance
levels. The Company supports its agents with product documentation, marketing
materials, demonstration software and training sessions.
In December 1996, as part of the Sperry Alliance, the Company entered into
the Sperry Agreement with Sperry, a worldwide leader in providing advanced
electronic navigation and guidance systems to commercial and military customers
for marine and aircraft applications and a wholly-owned subsidiary of Litton, a
$3.6 billion aerospace, defense and commercial electronics company publicly
traded on the New York Stock Exchange. Sperry has indicated to the Company that
it intends to make its commercial marine electronic navigation and guidance
systems compliant with the Company's proposed ISIT platform. Pursuant to the
Sperry Agreement, Sperry has the sole right to distribute to the United States
Government, under Sperry's name or under the Company's name, the Company's ISIT
platform products, as part of and/or within a related Sperry product or system
("Bundled"), and the Company's software application products, whether or not
they are Bundled. Sperry also has the sole right to otherwise distribute the
Company's ISIT platform and software application products which are Bundled and
sold under the Sperry name, provided, however, that Sperry may not sell such
software application products in Greece until June 1997. Sperry is not required
to make any minimum payments or sales under the Sperry Agreement in order to
retain such sole distribution rights. In addition, Sperry has the non-
exclusive right to otherwise distribute the Company's software application and
ISIT platform products which are Bundled and sold under the Company's name,
provided, however, that Sperry may not sell such software application products
in Greece, Singapore, Malaysia, Indonesia or Hong Kong for various periods
extending until January 1998. Sperry shall purchase the software application
products from the Company at a discount and will be entitled to a commission if
it introduces the Company to a customer that purchases software application
products from the Company. Sperry's discounts and commissions relating to ISIT
platform products will reflect the Company's most favorable pricing terms then
in effect.
The sales cycle for the Company's Fleet Manager Series software products,
which generally commences at the time of the Company's or the agent's initial
contact with a prospective customer and ends upon the execu-
40
<PAGE>
tion of a purchase order with that customer, varies by customer but often
extends for periods of six months or more, depending on a number of factors,
including the prospective customer's familiarity with and acceptance of
shipboard information technology systems. (The sales cycle for existing
customers, which customers have historically represented over one-third of the
Company's annual sales, is typically much shorter.)
For the years ended December 31, 1995 and 1996, sales in the international
market represented approximately 31% and 21%, respectively, of the Company's
revenues. The Company believes that its continued growth and future
profitability will require expansion of its international operations, and,
accordingly, the Company intends to recruit additional international sales
agents and distributors.
Customers
The Company has installed over 1,500 software modules for over 60 active
companies with over 600 ship and shore-based operational sites. The Company's
target customers are primarily companies with ocean-going or "deep sea" vessels
weighing over 5,000 dead weight tons. These medium and large-sized vessels have
more sophisticated fleet operations and are more likely to employ information
technology systems than the smaller coastal and inland waterway vessels. The
Company's largest groups of customers are commercial vessels including oil and
chemical tankers, bulk carriers, container ships and passenger ships. The
following is a representative list of the Company's customers:
Algoma Central Marine Canada
Amerada Hess New York
Arco Marine California
Armada Shipping Denmark
BP Exploration England
BP Shipping Ohio
Canartic Shipping Canada
Chevron Shipping California
Coastal Corporation Texas
Cunard Line (Queen Elizabeth II) New York
Denholm Ship Management Scotland
Essar Shipping India
Esso Canada Canada
Inland Steel Indiana
Marine Transport Lines New Jersey
Maritrans GP Pennsylvania
Military Sealift Command Virginia
Mitsubishi Heavy Industries Japan
Mobil Shipping Company England
Navigo Management Company Cyprus
National Maritime Foundation Philippines
National Shipping Company Saudi Arabia
North West Shelf Shipping Services Australia
Pan Ocean Shipping Korea
P&O Bulk Carriers England
Princess Cruises California
Sea-Land Services New Jersey
Stolt Parcel Tankers Texas
Thraki Shipping Greece
Torm A/S Denmark
Transoceanic Cable (AT&T) New Jersey
United Arab Shipping Kuwait
Wilderness Cruises Washington
Yukong Line Korea
41
<PAGE>
During the fiscal year ended December 31, 1995, Business Information and
Development Corp. and Phillips Medical each accounted for over 10% of the
Company's revenues, and in the aggregate accounted for 23% of the Company's
revenues. During the fiscal year ended December 31, 1996, Phillips Medical and
the United States government each accounted for over 10% of the Company's
revenues and in the aggregate accounted for 38% of the Company's revenues.
Significant sales of computer hardware to Phillips Medical (a non-industry
customer) generated 26% of the Company revenues in fiscal 1996. While revenues
from the United States government were generated pursuant to the Cooperative
Agreement relating to the ISIT platform development project, the majority of the
Company's revenues from other customers, including from sales to Philips Medical
and the Company's other principal customers, have been generated pursuant to
purchase orders rather than pursuant to any ongoing contractual arrangements.
In the future, the Company expects that it will continue to generate the
majority of its non-government related revenues pursuant to purchase orders.
Installation, Service and Support
The Company believes that superior customer service and support, including
system integration and engineering services, customer support and customer
training, are critical for achieving and maintaining customer satisfaction and
for assisting customers to utilize successfully the Company's software
applications. Due to the complexity of the implementation of the Company's
software products, the Company's service and support are vital to the growth in
customer satisfaction with the Company's products.
System Installation, Integration and Engineering Services
The Company offers installation, integration and engineering services for
customers who have purchased the Company's software and/or hardware products.
Such services facilitate the integration of the Company's systems with the
customer's shipboard operations (with an emphasis on the integration of
inventory and maintenance systems) and provide the customer with a turn-key
solution. These services provide a greater likelihood of success to the
Company's clients in the use of the Company's Fleet Manager Series software
products. Services include development of coding schemes for fleet-wide
equipment nameplates, spare parts and consumable inventory, onboard engineering
ship check and validation services, detailed data development for
equipment/inventory items, maintenance procedures/schedules and personnel
payroll.
Customer Support
The Company offers a full range of customer support services to ensure
proper and continuing operation of software and hardware systems. Customer
support includes initial warranty support which lasts one year and which
includes taking appropriate action to maintain software operation, and extended
warranty services for an additional annual fee. If an extended warranty is not
purchased, support is provided after the initial warranty period on a time and
materials basis. Hardware support is offered on an extended warranty basis or on
a time and materials basis.
Customer Training
The Company provides client personnel training sessions, including hands-on
training in the Company's training facility at its corporate offices. The
Company is committed to offering its customers a range of training courses and
materials. Customers may attend training sessions which include lectures,
demonstrations and extensive hands-on exercises in basic computer hardware and
operation of the Company's software.
Research and Development
Since its inception, the Company has made substantial investments in
product development, and the Company anticipates that it will continue to commit
substantial resources to product development in the future. The Company's
principal development projects include the development of the ISIT platform, the
complete reengineering of the Fleet Manager Series for integration into the ISIT
platform, the conversion of the DOS-based Fleet Manager Series to Microsoft
Windows and enhancements to the DOS-based Fleet Manager Series. The Fleet
Manager Series for Windows applications are being developed to feature a full
backend compatibility with the DOS-based product line, thereby providing clients
with a clear upgrade path where the two product lines can operate side by side
within the same corporate and network environment. The Company's goal is to have
all of its products ISIT-compliant while retaining simplicity and reliability of
operation, as well as retaining the capability of operating outside the ISIT
platform environment.
The Company's product development activities are conducted at its Stamford,
Connecticut facility. As of February 28, 1997, the Company had a total of 26
employees and contractors in product development. The
42
<PAGE>
Company's product development expenditures for fiscal 1995 and 1996 were $0.7
million and $1.6 million, respectively, net of contract revenues from CII and
the federal government during such periods in the aggregate amounts of $390,757
and $483,990, respectively. The Company expects that product development
expenses will continue to increase through 1997.
Competition
The Company has a number of significant competitors for its existing line
of Fleet Manager Series products, including SpecTec, a division of Visma ASA,
Marinor, Computer Expert Systems LTD and Nautical Technology Corporation. While
there are currently no dominant players in the marine systems markets, the
markets for the Company's Fleet Manager Series products are characterized by
intense competition. As markets for these products continue to develop,
additional companies, including companies in the computer hardware, software and
networking industries with significant market presence, may enter the markets in
which the Company competes and further intensify competition. Many of these
competitors and potential competitors have significantly greater financial,
technical, sales and marketing and other resources than the Company. Moreover,
some of the Company's competitors, including Marinor, Computer Expert Systems
LTD and Nautical Technology Corporation, currently offer some Windows-based
applications. While the Company is currently in the process of migrating its
Fleet Manager Series software products from DOS to Windows, all of its products
are currently DOS-based.
The Company believes that the most significant competitive factors of the
Fleet Manager Series software products include ease of use, performance to
industry standards, system functionality, product performance and quality,
customer support and price. The Company believes it presently competes favorably
with respect to each of these factors. However, the Company's market is still
evolving and there can be no assurance that the Company will be able to compete
successfully against current and future competitors and the failure to do so
successfully will have a material adverse effect upon the Company's business.
The Company is unaware of any company in this country or internationally
that is currently producing or marketing a standard shipboard computing platform
similar to the ISIT platform. However, there are numerous other companies that
could enter this new market, many of which have substantially greater financial,
technical, production, marketing and other resources than the Company. In the
case of an entity with such resources, the Company does not believe that there
currently are, or likely to be in the foreseeable future, prohibitive barriers
to entry into the business of developing and marketing a standard shipboard
computing platform.
The Company expects that competitors for its proposed satellite
communications services will include the same land-earth station providers with
whom the Company intends to enter into reseller agreements, including COMSAT,
Teleglobe, British Telecom, PLC and PTT Telecom Netherlands, among others. In
addition, the Company believes that it will face competition from other
satellite communications resellers. Many of these competitors have substantially
greater financial, technical, production, marketing and other resources than the
Company.
There can be no assurance that existing or future competition will not have
a material adverse effect upon the Company's operations.
Intellectual Property
The Company has successfully applied for and obtained federal registration
for the service mark "MMS." The Company has also applied for federal
registration for the MMS design logo and the trademark "ISIT," which
applications are currently pending. The Company has no patents relating to
proprietary technology, but instead relies primarily on trade secret laws,
confidentiality procedures and contractual provisions, including confidentiality
and/or non-disclosure agreements with its employees and consultants, to protect
its proprietary rights. There can be no assurance that such measures will be
adequate to protect the Company from the infringement by others of its
technologies. Despite the Company's efforts to protect its proprietary rights,
it may be possible for, and attempts may be made by, unauthorized third parties
to copy aspects of the Company's products or to obtain and use information that
the Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's intellectual property to the same extent
as do the laws of the United States. The loss of any material service mark,
trademark, trade name, trade secret or copyright could have a material
43
<PAGE>
adverse effect on the Company's business, results of operations and financial
condition. In addition, while the Company does not believe that its products
infringe on the rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company in the future or
that any such assertion will not result in costly litigation and/or a
determination adverse to the Company's interests. In the event the Company's
products are ever deemed to infringe on the proprietary rights of others, the
Company could be required to modify the design of its products or obtain
licenses from third parties relating to technology used in its products. There
can be no assurance that the Company would be able to do either in a timely
manner, upon acceptable terms and conditions or at all, and the failure to do so
could have a material adverse effect on the Company's business, results of
operations and financial condition.
While the Company's competitive position may be affected by its ability to
protect its proprietary information, the Company believes that because of the
rapid pace of technological change in the industry, factors such as technical
expertise, knowledge and innovative skill of the Company's management and
technical personnel, its strategic relationships, name recognition, the
timeliness and quality support services provided by the Company and its ability
to rapidly develop, enhance and market software products may be more significant
in maintaining the Company's competitive position.
The Company is dependent on third-party suppliers for certain software
included with certain of its products, such as the Cargomax System for ship
loading from Herbert Engineering Corp., the Orion and Polaris weather routing
software from Weathernews, Inc. and the SNAPS purchasing software product from
ShipNet AS. Although the Company believes that the functionality provided by
software which is licensed from third parties is obtainable from multiple
sources or could be developed by the Company, if any such third-party licenses
were terminated or not renewed or if these third parties fail to develop new
products in a timely manner, the Company could be required to develop an
alternative approach to developing its products which could require payment of
substantial fees to third parties, create internal development costs and delays
and which might not be successful in providing the same level of functionality.
Such delays, increased costs or reduced functionality could materially adversely
affect the Company's business, operating results and financial condition.
Employees
As of February 28, 1997, the Company had 56 full-time employees, all of
which were based in the United States. Of the total, 22 were engaged in
development, 15 were engaged in sales and marketing, 9 were engaged in support
and 10 were engaged in administration and finance. In addition, the Company
engages a number of temporary and contract personnel to augment departmental
employees and work on selected projects. The Company is not a party to any labor
agreements and none of its employees are represented by a labor union. The
Company believes its employee relations are good.
Facilities
The Company leases 13,355 square feet for its executive offices in
Stamford, Connecticut, for a base rent of approximately $13,000 per month. The
Company has an option for an additional 4,000 square feet at the same location.
The lease expires in 2002. The Company believes that its present facilities
including the option space are adequate for its current level of operations. The
Company will need to increase its space in the event of any substantial increase
in demand for its products. The Company believes that suitable additional or
alternative space will be available in the future on commercially reasonable
terms as needed. Nevertheless, any move to new facilities or expansion could be
disruptive and could have a material adverse effect on the Company's business,
results of operations and financial condition.
44
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Eugene D. Story 69 President, Chief Executive Officer and Director
Robert D. Ohmes 61 Executive Vice President, Chief Financial Officer, Secretary
and Director
Donald F. Logan, Jr. 43 Senior Vice President - Operations and Director
Mark E. Story 42 Vice President - Technical and Director
Michael P. Barney 44 Vice President - Corporate Development and Marketing
Arie Slot 53 Vice President - Sales
Susan C. Rodricks 51 Controller
Donald W. Forster 58 Director
Lyman C. Hamilton, Jr. 70 Director
Michael C. Hughes 41 Director
</TABLE>
Eugene D. Story, a founder of the Company, has served as President and
Chief Executive Officer of the Company since 1970 and as a director since 1969.
Mr. Story has over 40 years of experience in the shipping business. His past
positions include Manager of Project Development and Design in the Marine
Transportation Department for Mobil Oil Corporation, President of Stal-Laval
Turbine Company, Supervisor of Marine Construction for California-Texas Oil
Corporation and Naval Architect at Gibbs and Cox, Inc. He has written over a
dozen papers on topics ranging from a 1974 paper entitled Advanced Applications
of Management Computers in the Marine Industry to a 1993 paper for INMARSAT
entitled Integrating the Shipboard and Shore Office Management Systems. Mr.
Story received a B.S. in Marine Engineering from the U.S. Merchant Marine
Academy and B.S. in Naval Architecture and Marine Engineering from the
University of Michigan. Mr. Story is the father of Mark E. Story, the Vice
President - Technical and a director of the Company.
Robert D. Ohmes, a founder of the Company, has served as Executive Vice
President and Chief Financial Officer of the Company since 1974 and as a
director since 1969. His past positions have included Vice President of W.R.
Grace, Director of Business Development of Olin Corporation, Director of
Investment Analysis at ITT Corporation, and attorney for the marine law division
of Mobil Oil Corporation. He has also authored papers including the four volumes
of Shipboard Management Information Systems Feasibility Study for the U.S.
Marine Administration. Mr. Ohmes received a B.A. from Williams College, an LLB
and J.D. from Fordham Law School and an M.B.A. from New York University. Mr.
Ohmes is the father of Scott R. Ohmes, a beneficial owner of 7.4% of the
Company's Common Stock upon the consummation of this offering.
Donald F. Logan, Jr. has served as Senior Vice President - Operations since
December 1996 and as a director since January 1987. From January 1995 through
November 1996, Mr. Logan was Vice President - Marketing and Sales of the
Company. From January 1991 through December 1994, Mr. Logan was Vice President -
Marine Systems of the Company, and from January 1985 through December 1990, he
was Vice President - Microsystems of the Company. Prior to joining the Company
in 1979, Mr. Logan served in the Marine Department of Exxon Company with
responsibility for navigation and supervision of cargo operations. Mr. Logan
received a B.S. from the U.S. Merchant Marine Academy.
Mark E. Story has served as Vice President - Technical of the Company since
January 1995 and as a director since February 1994. From January 1992 through
December 1994, Mr. Story was Director of Software Services of the Company. From
April 1989 to December 1992, he was Manager, Technical Division of the Company.
Mr. Story is the principal architect of the Company's distributed management
system with satellite link between ship and shore offices, including the
communications data transfer protocols. Mr. Story received a B.S. in Computer
Science from the University of Vermont. Mr. Story is the son of Eugene D. Story,
the President, Chief Executive Officer and a director of the Company.
Michael P. Barney has served as Vice President - Corporate Development and
Marketing since December 1996. From July 1995 through November 1996, Mr. Barney
was Vice President-Corporate Development of the
45
<PAGE>
Company. From March 1990 to May 1995, Mr. Barney was General Manager of
Administration at Seer Technologies, Inc., a high technology software/consulting
firm. From June 1986 to February 1990, Mr. Barney was Vice President of
Information Systems at First Boston Corporation. Mr. Barney graduated summa cum
laude from the University of Connecticut with a B.S. in Finance and an MBA.
Arie Slot has served as Vice President - Sales of the Company since joining
the Company in January 1997. From May 1991 to December 1996, Mr. Slot was an
area sales director for Hyperion Software, a developer of enterprise-wide
financial software applications. From October 1989 to May 1991, Mr. Slot was a
regional director for Execucom Systems Corporation, a provider of decision
support software, and from September 1984 to October 1989 he held various sales
manager positions with Boeing Computer Services, a division of the Boeing
Company.
Susan C. Rodricks has served as Controller of the Company since July 1996.
Ms. Rodricks served as Director of Finance and Accounting of the Company from
September 1995 to July 1996. Prior to joining the Company, Ms. Rodricks was a
regional controller of Corporate Express, Inc., a supplier of office products,
from October 1994 to May 1995, and controller of International Marine Holdings,
Inc., a manufacturer and distributor of marine equipment, from September 1978 to
June 1994.
Donald W. Forster has served as a director of the Company since June 1995.
Mr. Forster has been President of Marine & Industrial Power, Inc., a consulting
company to the maritime industry, since March 1995. From February 1990 to March
1995, Mr. Forster was with General Electric Company as Manager -- Navy and
Marine Sales with responsibility for General Electric's marine field sales
force. Mr. Forster is a member of the Board of Directors of the U.S. Merchant
Marine Academy Alumni Association.
Lyman C. Hamilton, Jr. has served as a director of the Company since
January 1990. Mr. Hamilton is currently an investment manager. From October 1994
to May 1995, he served as Chief Executive Officer of InterDigital Communications
Corporation, a specialized communications corporation. Previously, he served as
Chairman of Alpine PolyVision, Inc., a flat panel display manufacturer, during
1993, and as President and Chief Executive Officer from January 1991 to December
1992. He was Chairman and President of Imperial Corporation of America, a
financial services company, from July 1989 to February 1990, and Chairman and
President of Tamco Enterprises, Inc. a private investment company, from November
1979 to January 1989. Mr. Hamilton was employed by ITT Corporation from 1962
until 1979 in a number of executive positions, including as President and Chief
Operating Officer during 1977 and as President and Chief Executive Officer from
1978 until 1979. Mr. Hamilton is a director of ScanOptics, Inc.
Michael C. Hughes has served as a director of the Company since October
1995. Mr. Hughes has been Vice President of Finance and Planning for COMSAT
International Communications, a unit of COMSAT, a provider of satellite
communications, since June 1996. Mr. Hughes has been employed by COMSAT in
various financial capacities since 1980, including serving as controller of
COMSAT International Communications from September 1995 to June 1996. Mr. Hughes
is a C.P.A. and received a B.S.B.A. in Accounting from Georgetown University.
Mr. Hughes currently serves on the Board of Directors pursuant to the terms
of a certain Stock Purchase, Option and Shareholder Agreement (the "Shareholder
Agreement") dated as of June 20, 1990 by and among COMSAT Investments, the
Company and Eugene D. Story, Robert D. Ohmes and Donald F. Logan, Jr. COMSAT
Investments is a subsidiary of COMSAT. This agreement provides that so long as
COMSAT Investments owns at least five percent of the outstanding shares of
Common Stock of the Company, COMSAT Investments has the right to designate the
number of members of the Board of Directors as is proportionate to its holdings
of Common Stock, with a minimum of one member. Messrs. Story, Ohmes and Logan
are obligated to vote their shares in favor of the person or persons designated
by COMSAT Investments. The Shareholder Agreement has since been assigned to
COMSAT Mobile, another subsidiary of COMSAT.
All directors currently hold office until the next annual meeting of
stockholders and until their successors have been duly elected and qualified.
Executive officers serve at the discretion of the Board of Directors.
46
<PAGE>
Executive Compensation
The following table sets forth the compensation paid by the Company to
Eugene D. Story, the Company's President and Chief Executive Officer, and to the
Company's only other executive officer whose total salary and bonus exceeded
$100,000 for services rendered in all capacities to the Company during the
fiscal year ended December 31, 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
---------------------------------------------
All Other
Name and Principal Position Year Salary($) Compensation($)(1)
- --------------------------- ------- ------------ --------------------
<S> <C> <C> <C>
Eugene D. Story, President and Chief Executive Officer ...... 1996 $107,000 $3,325
Robert D. Ohmes, Executive Vice President, Chief
Financial Officer and Secretary ........................... 1996 $107,000 $3,325
</TABLE>
- ------------
(1) Represents the Company's contribution under the Company's 401(k) Plan.
Employment Agreements
The Company has entered into employment agreements, effective upon the
consummation of this offering, with each of Eugene D. Story, Robert D. Ohmes,
Mark E. Story, Michael P. Barney and Donald F. Logan, Jr., pursuant to which
they will act as President, Executive Vice President, Vice President, Vice
President and Vice President of the Company, respectively. The agreements
provide for an annual base salary of $130,000 in the case of Eugene Story and
Mr. Ohmes and $105,000 in the case of Mark Story and Messrs. Barney and Logan,
subject to salary increases on an annual basis equal to the percentage increase,
if any, in the consumer price index for the Metropolitan New York area, and
bonus as may be determined by the Compensation Committee of the Board of
Directors from time to time, such bonus not to exceed 50% of the annual base
salary then in effect. The agreements expire on the earliest to occur of (i) the
second anniversary date of the consummation of this offering, (ii) the death of
the employee, and (iii) the termination of the employee for incapacity, upon
written notice from the Company and according to specified conditions, and are
subject to automatic renewal on an annual basis unless either party gives 90
days prior notice of termination with respect to any renewal. Under the terms of
the agreements, if the Company terminates the agreements at the end of any term
or terminates the employee for incapacity, the employee shall be entitled to
receive his annual base salary then in effect for a period of nine months after
termination in the case of Eugene Story and Mr. Ohmes and for a period of six
months after termination in the case of Mark Story and Messrs. Barney and Logan.
The agreements restrict each employee from competing with the Company during the
term of the agreement and for a period of one year following any termination of
the agreement; provided that if the agreements are terminated for any reason
other than for cause, the Company shall pay to each employee 60% of his annual
base salary then in effect for a period of two years following the termination
in consideration of such agreement not to compete. In the event the Company
should seek to enforce such non-competition provisions in court, a state court,
may, in exercising its discretionary authority, determine not to enforce, or to
limit enforcement of, such provisions against an employee.
Director Compensation
The Company's directors do not receive any cash compensation for service on
the Board of Directors or any committee thereof, but are reimbursed for expenses
actually incurred in connection with attending meetings of the Board of
Directors and any committee thereof.
Limitation of Liability and Indemnification
The Company's Certificate of Incorporation provides that the personal
liability of the directors of the Company shall be limited to the fullest extent
permitted by the provisions of Section 102(b)(7) of the General Corporation Law
of the State of Delaware (the "DGCL"). Section 102(b)(7) of the DGCL generally
provides that
47
<PAGE>
no director shall be liable personally to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that the
Certificate of Incorporation does not eliminate the liability of a director for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) acts or omissions in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (iv) any transaction from which such director derives improper
personal benefit. The effect of this provision is to eliminate the rights of the
Company and its stockholders (through stockholders' derivatives suits on behalf
of the Company) to recover monetary damages against a director for breach of her
or his fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (iv) above. The limitations summarized above, however, do
not affect the ability of the Company or its stockholders to seek nonmonetary
remedies, such as an injunction or rescission, against a director for breach of
her or his fiduciary duty.
In addition, the Certificate of Incorporation provides that the Company
shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify all
persons whom it may indemnify pursuant to Section 145 of the DGCL. Section 145
of the DGCL permits a company to indemnify an officer or director who was or is
a party or is threatened to be made a party to any proceeding because of his or
her position, if the officer or director acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
Management Warrants
In April and June 1996, the Company issued to certain executive officers of
the Company and their affiliates warrants to purchase an aggregate of 222,219
shares of Common Stock at a purchase price of $3.38 per share (the "Management
Warrants"). The Management Warrants are exercisable for a ten-year period
commencing on the date of grant. The following table sets forth information
regarding the Management Warrants issued in April and June of 1996.
Number of Shares
Name Underlying Warrants Expiration Date
- ----------------------- ---------------------- -----------------
Eugene D. Story 19,259 6/3/06
Robert D. Ohmes 19,259 6/3/06
Donald F. Logan, Jr. 10,370 6/3/06
Mark E. Story 92,592 4/1/06
Mark E. Story 6,666 6/3/06
Michael P. Barney 18,518 4/1/06
Robert F. Ohmes (1) 18,518 4/1/06
Scott R. Ohmes (1) 37,037 4/1/06
- ------------
(1) Robert F. Ohmes and Scott R. Ohmes are the sons of Robert D. Ohmes.
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Stock Option Plan
In March 1996, the Company adopted the Stock Option Plan. The purposes of
the Stock Option Plan are to encourage stock ownership by key employees of the
Company, to provide an incentive for such key employees to promote the financial
interests of the Company and to assist the Company in attracting and retaining
key employees. Under the terms of the Stock Option Plan, the Company is
authorized to grant non-qualified stock options to key employees of the Company
(including employees who are officers or directors) as determined by the Board
of Directors. An aggregate of 225,040 shares of Common Stock may be issued under
the Stock Option Plan. The Stock Option Plan provides that all options granted
pursuant to the Stock Option Plan shall vest 25% per year commencing one year
after the date of grant. As of the date of this Prospectus, options to purchase
an aggregate of 67,587 shares of Common Stock at a purchase price of $3.38 per
share are outstanding under the Stock Option Plan, including options held by
Susan C. Rodricks, an executive officer of the Company, to purchase 5,555 shares
of Common Stock. Options to purchase 16,901 shares of Common Stock are currently
exercisable.
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PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus (giving
effect to the Preferred Stock Conversion, the Sperry Note Conversion and the CII
Warrant Redemption), and as adjusted to reflect the sale of the 1,440,000 Shares
offered hereby, certain information known to the Company regarding the
beneficial ownership of the Company's Common Stock by: (i) each person known by
the Company to own beneficially more than 5% of the outstanding Common Stock of
the Company; (ii) each director of the Company; (iii) each executive officer of
the Company named in the Summary Compensation Table; and (iv) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
Percentage of Outstanding
Shares
Beneficially Owned (2)
------------------------------
Name and Address of Number of Shares Before After
Beneficial Owner (1) Beneficially Owned Offering Offering
---------------------- --------------------- ----------- ----------------
<S> <C> <C> <C>
Eugene D. Story .......................................... 887,883(3) 29.4% 19.9%
Robert D. Ohmes .......................................... 492,649(4) 16.3% 11.1%
Scott R. Ohmes
41 Briar Oak Drive
Weston, CT 06883 .......................................... 313,830(5) 10.3% 7.0%
Connecticut Innovations, Incorporated
40 Cold Spring Road
Rocky Hill, CT 06067 ....................................... 277,777 9.3% 6.3%
COMSAT Mobile Investments, Inc.
6560 Rock Spring Drive
Bethesda, MD 20817 .......................................... 265,537(6) 8.8% 6.0%
Sperry Marine Inc.
1070 Seminole Trail
Charlottesville, VA 22901 ................................. 225,000(7) 7.2% 4.9%(8)
Donald F. Logan, Jr. ....................................... 105,890(9) 3.5% 2.4%
Mark E. Story ............................................. 99,258(10) 3.2% 2.2%
Lyman C. Hamilton, Jr.
69 Byron Drive
Avon, CT 06001 ............................................. 72,074 2.4% 1.6%
Donald W. Forster
192 Helena Street, Suite 2
Leominster, MA 01453 ....................................... -- -- --
Michael C. Hughes
6560 Rock Spring Drive
Bethesda, MD 20817 ....................................... --(11) -- --
All directors and executive officers as a group (10 persons) 1,688,770(12) 53.3% 36.6%
</TABLE>
- ------------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o the
Company, 470 West Avenue, Stamford, CT 06902.
(2) Except as indicated in the footnotes to this table, the Company believes
that all the persons named in the table have sole voting and investment
power with respect to all Common Stock shown as beneficially owned by them,
subject to community property laws where applicable. In accordance with the
rules of the Commission, a person or entity is deemed to be the beneficial
owner of Common Stock that can be acquired by such person or entity within
60 days from the date of this Prospectus upon the exercise of
50
<PAGE>
options or warrants or other rights to acquire Common Stock. Each
beneficial owner's percentage ownership is determined by assuming that
options and warrants that are held by such person (but not those held by
any other person) and which are exercisable within 60 days of the date of
this Prospectus have been exercised. The inclusion herein of such shares
listed as beneficially owned does not constitute an admission of beneficial
ownership. Percentages herein assume a base of 3,001,120 shares of Common
Stock outstanding as of the date of this Prospectus and a base of 4,441,120
shares of Common Stock outstanding immediately after the consummation of
this offering.
(3) Includes 19,259 shares issuable upon the exercise of Management Warrants.
(4) Includes 3,703 shares owned by Evelyn Ohmes, Robert D. Ohmes' wife, and
19,259 shares issuable upon the exercise of Management Warrants. Mr. Ohmes
disclaims beneficial ownership of the shares owned by his wife.
(5) Includes 37,037 shares issuable upon the exercise of Management Warrants.
(6) Michael C. Hughes, a director of the Company, is the Vice President of
Finance and Planning for a unit of COMSAT, the parent corporation of COMSAT
Mobile Investments, Inc.
(7) Includes 125,000 shares issuable upon the exercise of the Sperry Warrants.
Does not include the 200,000 Shares reserved for sale to Sperry in this
offering at the initial public offering price.
(8) If Sperry purchases the 200,000 Shares which have been reserved for sale to
Sperry in this offering, Sperry will beneficially own approximately 9.3% of
the outstanding Common Stock following the consummation of this offering.
(9) Includes 10,370 shares issuable upon the exercise of Management Warrants.
(10) Consists of 99,258 shares issuable upon the exercise of Management
Warrants.
(11) Mr. Hughes disclaims beneficial ownership of the 265,537 shares owned by
COMSAT Mobile Investments, Inc.
(12) Includes 166,664 shares issuable to executive officers upon the exercise of
Management Warrants and 1,389 shares issuable to an executive officer upon
exercise of options that are exercisable within 60 days of the date of this
Prospectus. Does not include 265,537 shares as to which a director
disclaims beneficial ownership (see footnote (6) above).
CERTAIN TRANSACTIONS
On October 17, 1988, Christopher Story, the brother of Eugene D. Story, the
President, Chief Executive Officer and a director of the Company, loaned the
Company $25,000 in exchange for a convertible subordinated note of the Company
bearing interest at 1% over prime and convertible into 10,018 shares of Common
Stock. On June 30, 1996, Christopher Story exercised his right to convert such
note into 10,018 shares of Common Stock.
On July 1, 1994, Eugene D. Story loaned the Company $300,000 and Robert D.
Ohmes, the Executive Vice President, Chief Financial Officer and a director of
the Company, loaned the Company $200,000. In exchange, the Company issued to
Eugene D. Story and Robert D. Ohmes notes bearing interest at 2% over prime.
These notes were subordinated to other indebtedness of the Company existing at
the time of the loans.
On July 28, 1994, Scott R. Ohmes, son of Robert D. Ohmes, loaned the
Company $70,000 in exchange for a ten-year convertible subordinated debenture
bearing interest at 8% and convertible into 259,259 shares of Common Stock. On
June 30, 1996, Scott Ohmes converted the subordinated note into 259,259 shares
of Common Stock. Over the period from November 1994 through December 1995, Scott
Ohmes made loans to the Company totaling $150,000, which the Company agreed to
repay with interest accruing at approximately 12%. On June 1, 1996, Scott Ohmes
exchanged the $150,000 of loans for 44,444 shares of Common Stock.
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<PAGE>
On January 3, 1995, Lyman C. Hamilton, Jr., a director of the Company,
exchanged two existing convertible subordinated notes in the amount of $50,000
(dated October 31, 1988) and $12,500 (dated April 1, 1989), including accrued
interest thereon, for a new convertible subordinated note bearing interest at
10% and convertible into 62,074 shares of Common Stock. On June 30, 1996, Mr.
Hamilton exercised his right to convert such note.
On December 5, 1995, Robert D. Ohmes loaned to the Company $75,000, which
the Company agreed to repay with interest accruing at approximately 12%. On June
1, 1996, Robert D. Ohmes exchanged the $75,000 of loans for 22,222 shares of
Common Stock.
In April and June 1996, the Company issued to certain executive officers
Management Warrants to purchase an aggregate of 222,219 shares of Common Stock
at a purchase price of $3.38 per share. At the request of Robert D. Ohmes,
Management Warrants to purchase 55,555 shares issuable to him were issued to his
sons, Robert F. Ohmes and Scott R. Ohmes. See "Description of Securities --
Existing Warrants."
In May 1990, Eugene D. Story, Robert D. Ohmes and Donald F. Logan, Jr., a
Senior Vice President and director of the Company, received 840, 793, and 466
shares, respectively, of the Company's 6% Non-Cumulative Preferred Stock, par
value $100 per share, as part of their compensation for services rendered to the
Company. On June 1, 1996, Messrs. Story, Ohmes and Logan exchanged such shares
of 6% Non-Cumulative Preferred Stock for 25,337, 23,151 and 13,703 shares,
respectively, of Common Stock.
During the period from 1987 through 1994, the Company made loans to Eugene
D. Story, Robert D. Ohmes, Donald F. Logan, Jr. and Mark E. Story, a Vice
President and director of the Company. Interest accrued on such loans over the
period at rates ranging from 6% to 10%. The total outstanding loans and accrued
interest thereon as of September 30, 1996 was $135,426 for Eugene D. Story,
$134,550 for Robert D. Ohmes, $73,137 for Donald F. Logan, Jr. and $45,724 for
Mark E. Story. In connection with the Executive Stock Repurchase, the loans were
repaid in full immediately prior to the date of this Prospectus through the
return to the Company for cancellation of 27,085, 26,910, 14,627 and 9,145
shares of Common Stock by Eugene D. Story, Robert D. Ohmes, Donald F. Logan, Jr.
and Mark E. Story, respectively.
In March 1995, the Company obtained a $500,000 loan from CII, currently a
principal stockholder of the Company, bearing interest at the rate of 10% per
annum evidenced by the Senior Note. In connection with this loan, the Company
issued warrants to CII to purchase an aggregate of 259,888 shares of its Common
Stock at an initial exercise price of $2.31 per share. In August 1996, the
Company sold 7,500 shares of its Preferred Stock to CII in exchange for (i)
CII's payment of $500,000 in cash, (ii) the cancellation of $236,924 of the
$473,848 principal amount of indebtedness then outstanding under the Senior
Note, and (iii) CII's relinquishment of one-half of its warrants, leaving CII
with the CII Warrants to purchase 129,944 shares of Common Stock. Immediately
prior to the consummation of this offering, the 7,500 shares of Preferred Stock
held by CII will be converted into an aggregate of 277,777 shares of Common
Stock, which shares will be subject to piggyback registration rights. In
addition, upon the consummation of this offering, the Company intends to use
proceeds from this offering to repay the balance of the Senior Note ($236,924
plus approximately $23,000 in accrued interest) and to redeem the CII Warrants
(approximately $95,000). See "Description of Securities."
In June 1996, Robert D. Ohmes acquired a $75,000 loan from a bank, the
proceeds of which he, in turn, loaned to the Company. Subsequently, in November
1996, such loans were amended to reflect the Company as the bank's borrower and
eliminating Mr. Ohmes as a lender.
In connection with the Fall 1996 Borrowings, on October 29, 1996, Lyman C.
Hamilton, Jr., a trust for the benefit of Donald F. Logan, Jr.'s mother,
Christopher Story, and Tiffany Story, the niece of Eugene D. Story, loaned the
Company $100,000, $50,000, $5,000 and $5,000 respectively. Each of these loans
bears interest at 10% per annum and is due and payable upon the earlier of the
consummation of this offering and May 16, 1997. All of such indebtedness is
subordinated to all other indebtedness of the Company except for an aggregate of
$500,000 payable to Eugene D. Story and Robert D. Ohmes.
From September through December 1996, the Company borrowed $90,000 from
Scott R. Ohmes, $29,000 from Eugene D. Story, $10,000 from Robert D. Ohmes,
$15,000 from Mark E. Story and $22,000 from Donald
52
<PAGE>
F. Logan, Jr. All of such indebtedness bears interest at the rate of 9% per
annum and matures on December 2, 1998. In addition, all of such indebtedness is
subordinated to all other indebtedness of the Company except for an aggregate of
$500,000 payable to Eugene D. Story and Robert D. Ohmes.
In December 1996, the Company entered into the Sperry Agreement, a
five-year marketing and distribution agreement, with Sperry. In connection with
the Sperry Agreement, Sperry provided $500,000 in financing to the Company,
which financing consisted of the Sperry Convertible Note in the principal amount
of $250,000, the Sperry Non-Convertible Note in the principal amount of
$250,000, and the Sperry Warrants. As a result of this transaction, immediately
prior to the consummation of this offering Sperry is the beneficial owner of
7.2% of the outstanding Common Stock of the Company. In addition, at the time
that the Company and Sperry entered into their strategic marketing alliance, the
Company agreed to reserve securities for offer and sale to Sperry in connection
with the Company's initial public offering provided that Sperry made a request
for such a reservation within a specified time period. Such a request was not
made in the required time period and any obligation on the part of the Company
to make such a reservation expired by its terms. Nonetheless, subsequently, at a
meeting between the principals of the Company and Sperry relating to their
marketing alliance, which was held in late February 1997, Sperry renewed its
interest in increasing its equity interest in the Company via a possible
investment in this offering. Consequently, while there are no written or
otherwise binding agreements between any of the Company, Sperry or the
Underwriter relating to the purchase or sale of any securities to Sperry in this
offering, the Underwriter has agreed to accommodate Sperry by reserving for
offer and sale to Sperry, at the initial public offering prices, up to 200,000
of the Shares and 200,000 of the Warrants being offered hereby. Sperry is under
no obligation, however, to purchase any securities in this offering and, if the
securities reserved for purchase by Sperry are not in fact purchased by Sperry,
the Underwriter will sell such securities to other purchasers in accordance with
the terms of the Underwriting Agreement entered into between the Company and the
Underwriter as of the date of this Prospectus.
In connection with the Bridge Financing, Eugene D. Story and Robert D.
Ohmes contributed 45,000 and 25,000 of their shares of Common Stock,
respectively, to the Company's treasury immediately prior to the closing of such
financing. Such 70,000 shares were then issued by the Company to the investors
in the Bridge Financing as the Bridge Shares.
Eugene D. Story and his spouse have personally guaranteed the payment of
all indebtedness of the Company to the Company's bank. As of December 31, 1996,
the principal amount of such indebtedness was approximately $680,000. Mr.
Story's spouse has also executed an open-end mortgage deed with respect to the
residence of Mr. Story and his spouse, which mortgage deed secures the payment
of the guarantee up to a maximum of $225,000. In addition, Robert D. Ohmes and
his spouse have personally guaranteed the payment of all indebtedness of the
Company to the bank. Mr. Ohmes and his spouse have also executed an open-end
mortgage deed with respect to the residence of Mr. Ohmes and his spouse, which
mortgage deed secures the payment of the guarantee up to a maximum of $100,000.
Furthermore, Mr. Ohmes and his spouse pledged $131,000 in securities as
additional collateral for their guarantee.
There can be no assurance that all of the foregoing transactions were on
terms no less favorable to the Company than could be obtained from independent
third parties. Future transactions, if any, between the Company and any of its
directors, officers and/or 5% stockholders will be on terms no less favorable to
the Company than could be obtained from independent third parties and will be
approved by a majority of the independent, disinterested directors of the
Company.
DESCRIPTION OF SECURITIES
General
The Company is authorized to issue 9,000,000 shares of Common Stock, par
value $.002 per share, and 7,500 shares of Preferred Stock, par value $100 per
share. As of the date of this Prospectus, the Company has 2,623,343 shares of
Common Stock outstanding held by 52 stockholders and 7,500 shares of Preferred
Stock outstanding held by one stockholder. Upon the consummation of this
offering (assuming also the consummation of the Preferred Stock Conversion and
the Sperry Note Conversion), there will be 4,441,120 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding.
53
<PAGE>
Common Stock
The holders of the Common Stock are entitled to one vote for each share
held of record in the election of directors of the Company and in all other
matters to be voted on by the stockholders. There is no cumulative voting with
respect to the election of directors, with the result that the holders of more
than 50% of the shares voting for the election of directors can elect all of the
directors. Subject to the rights of holders of Preferred Stock, holders of
Common Stock are entitled (i) to receive such dividends as may be declared from
time to time by the Board of Directors out of funds legally available therefor
and (ii) in the event of liquidation, dissolution or winding up of the Company,
to share ratably in all assets remaining after payment of liabilities. Holders
of Common Stock have no conversion rights and are not subject to further capital
calls or assessments. There are no redemption or sinking fund provisions
applicable to the Common Stock. The holders of Common Stock have no preemptive
rights. All of the outstanding shares of Common Stock are fully paid and
non-assessable.
Preferred Stock
The holder of the 7,500 shares of Preferred Stock is entitled to receive a
dividend on such shares of 8% payable quarterly in arrears. Each share of
Preferred Stock will be automatically converted into shares of Common Stock upon
the consummation of this offering. Based upon the current conversion price of
$2.70, the 7,500 outstanding shares of Preferred Stock will be converted into a
total of 277,777 shares of Common Stock. In addition, the holder of the
Preferred Stock is entitled to certain registration rights with respect to the
Common Stock into which the Preferred Stock is convertible. See "-- Registration
Rights."
Existing Warrants
There are currently outstanding warrants to purchase an aggregate of
477,163 shares of Common Stock, consisting of the Management Warrants which are
exercisable to purchase an aggregate of 222,219 shares of Common Stock, the CII
Warrants which are exercisable to purchase an aggregate of 129,944 shares of
Common Stock and the Sperry Warrants to purchase an aggregate of 125,000 shares
of Common Stock. Each Management Warrant entitles its holder to purchase one
share of Common Stock at an exercise price of $3.38 per share and expires in
2006. Each CII Warrant entitles its holder to purchase one share of Common Stock
at an exercise price of $2.31 per share and expires in 2005. In connection with
the CII Warrant Redemption which is to occur simultaneously with the
consummation of this offering, the Company will use approximately $95,000 of the
proceeds from this offering to purchase the CII Warrants back from CII. Each
Sperry Warrant entitles its holder to purchase one share of Common Stock at an
exercise price of $5.00 per share and expires in 2001. The holder of the Sperry
Warrants is also entitled to certain registration rights with respect to the
shares of Common Stock underlying the Sperry Warrants. See "-- Registration
Rights."
Public Warrants
Each Warrant offered hereby will entitle the registered holder thereof to
purchase one share of Common Stock, at a price of $5.50, subject to adjustment
in certain circumstances, at any time during the four-year period commencing on
, 1998. The Warrants will be separately transferable immediately upon
issuance.
The Warrants are redeemable by the Company, at any time commencing on
, 1998, upon notice of not less than 30 days, at a price of $.10 per Warrant,
provided that the closing bid quotation of the Common Stock on all 20 trading
days ending on the third trading day prior to the day on which the Company gives
notice (the "Call Date") has been at least 150% (currently $8.25, subject to
adjustment) of the then effective exercise price of the Warrants and the Company
obtains the written consent of the Underwriter to such redemption prior to the
Call Date. The holders of the Warrants will have the right to exercise their
Warrants until the close of business on the date fixed for redemption.
The Warrants will be issued in registered form under a warrant agreement by
and among the Company, American Stock Transfer & Trust Company, as warrant agent
(the "Warrant Agent"), and the Underwriter (the "Warrant Agreement"). The
exercise price and number of shares of Common Stock or other securities issuable
on exercise of the Warrants are subject to adjustment in certain circumstances,
including in the event of a stock dividend, recapitalization, reorganization,
merger or consolidation of the Company. However, the Warrants are
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<PAGE>
not subject to adjustment for issuances of Common Stock at prices below the
exercise price of the Warrants. Reference is made to the Warrant Agreement
(which has been filed as an exhibit to the Registration Statement of which the
Prospectus forms a part) for a complete description of the terms and conditions
therein (the description herein contained being qualified by reference thereto).
The Warrants may be exercised upon surrender of the warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the warrant certificate completed and
executed as indicated, accompanied by full payment of the exercise price (by
certified check or bank draft payable to the Company) to the Warrant Agent for
the number of Warrants being exercised. The holders of Warrants do not have the
rights or privileges of holders of Common Stock.
No Warrant will be exercisable unless, at the time of exercise, the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt from registration or
qualification under the securities laws of the state of residence of the holder
of such Warrant. The Company will use its best efforts to have all such shares
so registered or qualified and to maintain a current prospectus relating thereto
until the expiration of the Warrants, subject to the terms of the Warrant
Agreement. However, while it is the Company's intention to maintain such a
current prospectus for such time period, there can be no assurance that it will
be able to do so.
No fractional shares will be issued upon exercise of the Warrants. However,
if a warrantholder exercises all Warrants then owned of record by him, the
Company will pay to such warrantholder, in lieu of the issuance of any
fractional share which is otherwise issuable, an amount in cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
Registration Rights
Upon the consummation of this offering, the holders of 946,640 shares of
Common Stock and 125,000 shares of Common Stock issuable upon the exercise of
warrants, or their assignees, will be entitled to certain rights with respect to
the registration of such shares under the Securities Act. In particular, the
Company has granted certain demand and/or piggyback registration rights with
respect to the 233,326 shares of Common Stock issued in the 1996 Private
Placement, the 277,777 shares of Common Stock issuable upon conversion of the
Preferred Stock, the 100,000 shares issuable upon conversion of the Sperry
Convertible Note, the 125,000 shares issuable upon exercise of the Sperry
Warrants, the 265,537 shares of Common Stock owned by COMSAT Mobile Investments,
Inc. and the 70,000 Bridge Shares. The holders of all such registration rights
have waived their rights to have their securities included in this registration
statement or any registration statement for a period of twelve months following
the date of this Prospectus without the Underwriter's prior written consent.
In connection with the Bridge Financing, the Company has agreed to include
the 70,000 Bridge Shares in a registration statement which the Company will
prepare and file with, and use its best efforts to have declared effective by,
the Commission so as to permit the public trading of the Bridge Shares pursuant
thereto commencing no later than 15 months following the consummation of this
offering. If such registration statement is not declared effective by the
Commission within 15 months following the consummation of this offering, then,
commencing on the first day of the 16th month following the consummation of this
offering, the Company shall issue to each holder of Bridge Shares, on the first
day of each month a registration statement continues not to have been declared
effective by the Commission, such number of additional shares of Common Stock
(the "Additional Shares") as is equal to 10% of the number of the sum of Bridge
Shares and Additional Shares held by each holder thereof. Notwithstanding the
foregoing, in the event, and during such time as, the effectiveness of such
registration statement is delayed due to unforeseen reasons beyond the Company's
control, the Company shall not be obligated to issue Additional Shares to any
holder of Bridge Shares during any consecutive 12-month period commencing on the
16th month following the consummation of this offering which are equal to more
than 25% of such holder's original Bridge Shares. In the event the Company fails
to maintain the effectiveness of a registration statement with respect to the
Bridge Shares, the Company is obligated to issue, on one occasion only, other
added shares of Common Stock.
In connection with this offering, the Company has agreed to grant to the
Underwriter certain demand and piggyback registration rights in connection with
the 288,000 shares of Common Stock issuable upon exercise of the Underwriter's
Warrants and the warrants included therein. See "Underwriting."
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<PAGE>
Anti-Takeover Effect of Provisions of Delaware Law and Certain Charter
Provisions
Upon consummation of this offering, the Company will be subject to the
provisions of Section 203 of the DGCL. In general, such statute prohibits a
publicly traded Delaware corporation from engaging in various "business
combination" transactions with any "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless (i) the transaction in which the "interested
stockholder" obtained such status or the business combination is approved by the
Board of Directors prior to the date the "interested stockholder" obtained such
status; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an "interested stockholder," the "interested stockholder"
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
shares outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date the "business combination" is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 662/3% of the outstanding voting stock that is not owned by the
"interested stockholder." For purposes of Section 203, a "business combination"
includes a merger, asset sale or other transaction resulting in a financial
benefit to such interested stockholder, and an "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three years
prior, did own) 15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. To the extent
permitted by the DGCL, the provisions eliminate a director's personal liability
for monetary damages for a breach of fiduciary duty. The provisions also
indemnify directors and officers to the fullest extent permitted by the DGCL.
Transfer Agent and Registrar
The Company's Transfer Agent and Registrar is American Stock Transfer &
Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 4,441,120
shares of Common Stock outstanding (assuming no exercise of the Warrants or
other outstanding options or warrants), of which the 1,440,000 Shares offered
hereby will be freely tradeable without restriction or further registration
under the Securities Act.
The remaining 3,001,120 shares of Common Stock outstanding are "restricted
securities" as that term is defined in Rule 144 and may only be sold pursuant to
an effective registration under the Securities Act, in compliance with the
exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. Subject to the contractual restrictions described below, 524,914
of such restricted shares will be freely tradeable without registration, under
Rule 144, commencing as of the date of this Prospectus, and the balance of such
shares will be eligible for sale without registration, under Rule 144, subject
to certain volume and manner of sale limitations prescribed by Rule 144, at
various times commencing 90 days following the date of this Prospectus. The
officers, directors and substantially all of the stockholders of the Company
who, in the aggregate, beneficially own 2,830,540 shares of Common Stock have
agreed not to sell their shares of Common Stock for a period of twelve months
following the date of this Prospectus without the Underwriter's prior written
consent.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including persons who may be deemed "affiliates" of the Company as
that term is defined under the Securities Act, is entitled to sell, within any
three-month period, such number of restricted shares of Common Stock that have
been beneficially owned by such holder for at least one year which does not
exceed the greater of (i) 1% of the Company's then outstanding shares of Common
Stock or (ii) an amount equal to the average weekly trading volume in the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice and
the availability of current public information about the Company. A person who
is not an affiliate, has not been an affiliate within three months prior to the
sale and has beneficially owned the restricted shares for at least two years
is entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
56
<PAGE>
Prior to this offering, there has been no market for any of the securities
of the Company, and no predictions can be made as to the effect, if any, that
sales of Common Stock or the availability of Common Stock for sale will have on
the market price of the Company's securities prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
may adversely affect prevailing market prices.
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase the
1,440,000 Shares and 1,440,000 Warrants offered hereby from the Company. The
Underwriter is committed to purchase and pay for all of the Shares and Warrants
offered hereby if any of such securities are purchased. The Shares and Warrants
are being offered by the Underwriter subject to prior sale, when, as and if
delivered to and accepted by the Underwriter and subject to approval of certain
legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Shares and Warrants to the public at the public offering prices set forth on the
cover page of this Prospectus. The Underwriter may allow to certain dealers who
are members of the National Association of Securities Dealers, Inc. (the "NASD")
concessions, not in excess of $ per Share and $ per Warrant, of which not in
excess of $ per Share and $ per Warrant may be reallowed to other dealers
who are members of the NASD.
The Company has granted to the Underwriter an option, exercisable for 45
days following the date of this Prospectus, to purchase up to 216,000 additional
Shares and/or 216,000 additional Warrants at the respective public offering
prices set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriter may exercise this option in whole or,
from time to time, in part, solely for the purpose of covering over-allotments,
if any, made in connection with the sale of the Shares and/or Warrants offered
hereby.
The Company has agreed to pay to the Underwriter a nonaccountable expense
allowance equal to 3% of the gross proceeds of this offering, including the
gross proceeds from the sale of any Shares and Warrants sold pursuant to the
Underwriter's exercise of its over-allotment option, $50,000 of which has been
paid as of the date of this Prospectus. The Company has also agreed to pay all
expenses in connection with qualifying the Shares and Warrants offered hereby
for sale under the laws of such states as the Underwriter may designate,
including expenses of counsel retained for such purpose by the Underwriter.
The Company has agreed to issue to the Underwriter and its designees, for
an aggregate of $132, the Underwriter's Warrants to purchase up to 144,000
shares of Common Stock, at an exercise price of $7.25 per share (145% of the
public offering price per share), and/or up to 144,000 warrants (each to
purchase one share of Common Stock at $7.975 per share), at a purchase price of
$.145 per warrant (145% of the public offering price per Warrant). The
Underwriter's Warrants may not be transferred for one year following the date of
this Prospectus, except to the officers and partners of the Underwriter and
members of the selling group, and are exercisable at any time and from time to
time during the four-year period commencing one year following the date of this
Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the
holders of the Underwriter's Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Company's Common
Stock. To the extent that the Underwriter's Warrants are exercised, dilution to
the interests of the Company's stockholders will occur. Further, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants, the underlying shares of
Common Stock or the underlying warrants, or the shares of Common Stock issuable
upon exercise of such underlying warrants, may be deemed additional underwriter
compensation. Subject to certain limitations and exclusions, the Company has
agreed, at the request of the holders of a majority of the Underwriter's
Warrants, at the Company's expense, to register the Underwriter's Warrants and
the underlying securities under the Securities Act on one occasion during the
Warrant Exercise Term and to include such Underwriter's Warrants and such
underlying securities in any appropriate registration statement which is filed
by the Company during the seven years following the date of this Prospectus.
57
<PAGE>
The Company has agreed, for a period of three years following the date of
this Prospectus, if so requested by the Underwriter, to nominate and use its
best efforts to elect a designee of the Underwriter as a director of the
Company, or, at the Underwriter's option, as a non-voting advisor to the
Company's Board of Directors. The Company's officers, directors and
substantially all of its stockholders have agreed to vote their shares of Common
Stock in favor of such designee. The Underwriter has not yet exercised its right
to designate such a person.
The Company also has agreed, in connection with the exercise of the
Warrants pursuant to solicitation (commencing one year following the date of
this Prospectus), to pay to the Underwriter a fee of 5% of the exercise price
for each Warrant exercised; provided, however, that the Underwriter will not be
entitled to receive such compensation in Warrant exercise transactions in which
(i) the market price of Common Stock at the time of the exercise is lower than
the exercise price of the Warrants; (ii) the Warrants are held in any
discretionary account; (iii) disclosure of compensation arrangements is not
made, in addition to the disclosure provided in this Prospectus, in documents
provided to holders of the Warrants at the time of exercise; (iv) the holder of
the Warrants has not confirmed in writing that the Underwriter solicited such
exercise; or (v) the solicitation of exercise of the Warrants was in violation
of Rule 101 promulgated under the Exchange Act.
Regulation M under the Exchange Act may prohibit the Underwriter from
engaging in any market-making activities with regard to the Company's securities
for the period from five business days (or such other applicable period as
Regulation M may provide) prior to any solicitation by the Underwriter of the
exercise of outstanding Warrants until the termination (by waiver or otherwise)
of any right that the Underwriter may have to receive a fee for the exercise of
the Warrants following such solicitation; and any period during which the
Underwriter, or any affiliated parties, participate in a distribution of any
securities of the Company for the account of the Underwriter or any such
affiliate. As a result, the Underwriter may be unable to provide a market for
the Company's securities during certain periods, including while the Warrants
are exercisable.
The Company has agreed to retain the Underwriter as a financial consultant
for a period of two years following the consummation of this offering at an
annual fee of $12,500, the entire $25,000 being payable in advance, upon the
consummation of this offering. The consulting agreement with the Underwriter
will not require it to devote a specific amount of time to the performance of
its duties thereunder. It is anticipated that these consulting services will be
provided by principals of the Underwriter and/or members of the Underwriter's
corporate finance department who, however, have not been designated as of the
date hereof. In addition, in the event that the Underwriter originates a
financing, merger, acquisition, joint venture or other transaction to which the
Company is a party, the Underwriter will be entitled to receive a finder's fee
in consideration for the origination of such transaction.
All of the Company's current directors and officers, and substantially all
of its current securityholders, have agreed that, without the Underwriter's
prior written consent, for the 12-month period following the date of this
Prospectus, they will not sell or otherwise dispose of any securities of the
Company in any public market transaction (including pursuant to Rule 144) or
exercise any rights held by them to cause the Company to register any shares of
Common Stock for sale pursuant to the Securities Act.
The Underwriter has informed the Company that it does not expect sales to
discretionary accounts to exceed 1% of the securities offered hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
Prior to this offering, there has been no public market for the Shares or
Warrants. Consequently, the initial public offering prices for the Shares and
Warrants and the exercise price and terms of the Warrants have been
58
<PAGE>
determined by negotiation between the Company and the Underwriter and are not
necessarily related to the Company's asset value, net worth or other established
criteria of value. Among the factors considered in determining such prices and
terms are the Company's financial condition and prospects, management, market
prices of similar securities of comparable publicly-traded companies, certain
financial and operating information of companies engaged in activities similar
to those of the Company and the general condition of the securities market.
In order to facilitate the offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the prices of the
Common Stock and Warrants. Specifically, the Underwriter may over-allot in
connection with the offering, creating a short position in the Common Stock
and/or Warrants for its own account. In addition, to cover over-allotments or to
stabilize the price of the Common Stock and Warrants, the Underwriter may bid
for, and purchase, shares of Common Stock and Warrants in the open market. The
Underwriter may also reclaim selling concessions allowed to a dealer for
distributing the Common Stock and Warrants in the offering, if the Underwriter
repurchases previously distributed Common Stock and Warrants in transactions to
cover short positions, in stabilization transactions or otherwise. Any of these
activities may stabilize or maintain the market price of the Common Stock and
Warrants above independent market levels. The Underwriter is not required to
engage in these activities, and may end any of these activities at any time.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Shipman & Goodwin LLP, Hartford, Connecticut. Certain legal matters
will be passed upon for the Underwriter by Tenzer Greenblatt LLP, New York, New
York.
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report, which contains an explanatory
paragraph regarding substantial doubt as to the Company's ability to continue as
a going concern, appearing elsewhere herein and are included herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 under the Securities Act with respect to the securities offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto. For further information with respect to the
Company and such securities, reference is made to the Registration Statement and
the exhibits and schedules filed as a part thereof. Statements contained in this
Prospectus as to the contents of any agreement or any other document referred to
are not necessarily complete, and, in each instance, if such agreement or
document is filed as an exhibit, reference is made to the copy of such agreement
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference to such exhibit. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the principal office of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional office
located at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
material may be obtained from the Public Reference section of the Commission
located at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
In addition, the Company is required to file electronic versions of these
documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
59
<PAGE>
Marine Management
Systems, Inc.
Contents
Report of independent certified public accountants ...... F-2
Financial statements:
Balance sheets ....................................... F-3
Statements of operations .............................. F-4
Statements of stockholders' equity (deficit) ......... F-5
Statements of cash flows .............................. F-6
Notes to financial statements ........................ F-7 - F-17
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors of Marine
Management Systems, Inc.
We have audited the accompanying balance sheets of Marine Management
Systems, Inc. as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity (deficit) and cash flows for each of the two
years in the period ended December 31, 1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 Marine Management Systems,
Inc. as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
The financial statements referred to above have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has suffered losses, has a capital deficit and
has negative working capital. These conditions raise substantial doubt as to the
Company's ability to continue as a going concern. While the Company plans to
raise additional capital, there can be no assurance that such efforts will be
successful. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
BDO Seidman, LLP
Valhalla, New York
February 14, 1997
F-2
<PAGE>
Marine Management
Systems, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Assets (Notes 4, 6 and 7)
Current:
Cash ..................................................................... $ 15,350 $ 58,117
Accounts receivable (Note 12) ............................................. 891,540 954,480
Inventories ............................................................... 41,862 22,307
Prepaid expenses and other ................................................ 32,972 44,865
------------ ------------
Total current assets ..................................................... 981,724 1,079,769
Property and equipment, net (Note 2) ....................................... 96,921 210,449
Computer software costs, net of accumulated amortization of $786,779
and $1,306,426 ............................................................ 1,288,201 2,002,281
Deferred registration costs ................................................ -- 314,141
Other ..................................................................... 14,172 5,914
------------ ------------
$ 2,381,018 $ 3,612,554
============ ============
Liabilities and Stockholders' Deficit
Current:
Short-term borrowings (Note 4) ............................................. $ 375,000 $ 975,000
Accounts payable and accrued expenses .................................... 526,679 812,914
Advances payable -- related parties (Note 3) .............................. 225,000 --
Subordinated debt -- related parties (Notes 3 and 7) ..................... -- 410,000
Billings in excess of costs on uncompleted contracts (Note 5) ............ 107,391 81,704
Deferred revenue ......................................................... 82,026 275,226
Customer deposits ......................................................... 101,841 79,240
Current portion of long-term debt and capital lease obligations (Note 6) 178,374 296,767
------------ ------------
Total current liabilities ............................................... 1,596,311 2,930,851
Long-term debt and capital lease obligations, less current portion (Note 6) 650,857 266,292
Subordinated debt -- related parties (Notes 3 and 7) ........................ 657,500 666,000
------------ ------------
Total liabilities ........................................................ 2,904,668 3,863,143
------------ ------------
Redeemable preferred stock, $100 par value, 8% cumulative, 7,500 shares
authorized, none and 7,500 shares issued and outstanding (Note 9) ......... -- 750,000
------------ ------------
Commitments and contingencies (Notes 8, 13 and 15)
Stockholders' deficit (Notes 3, 7, 9 and 15):
Preferred stock, $100 par value, 6% non-cumulative preferred, 2,100
shares authorized, 2,099 shares issued and outstanding at December
31, 1995 ................................................................. 209,900 --
Common stock, $.002 par value, 9,000,000 shares authorized,
2,007,576 and 2,701,110 issued and outstanding .......................... 4,015 5,402
Additional paid-in capital ................................................ 3,759,587 5,333,475
Accumulated deficit ...................................................... (4,108,315) (5,950,629)
Loans receivable officers ................................................ (388,837) (388,837)
------------ ------------
Total stockholders' deficit ............................................... (523,650) (1,000,589)
------------ ------------
$ 2,381,018 $ 3,612,554
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Marine Management
Systems, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1995 1996
-------------- -------------
<S> <C> <C>
Revenues (Note 12):
Software ................................................... $ 1,896,129 $ 2,024,388
Hardware ................................................... 2,042,384 1,370,447
Contract ................................................ 390,757 955,447
----------- -------------
4,329,270 4,350,282
----------- -------------
Cost of revenues:
Software ................................................... 958,504 887,170
Software amortization .................................... 258,682 519,647
Hardware ................................................... 1,607,316 1,105,238
Contract ................................................ 390,757 505,895
----------- -------------
3,215,259 3,017,950
----------- -------------
Gross profit ............................................ 1,114,011 1,332,332
----------- -------------
Operating expenses:
Research and development ................................. 245,821 401,791
Selling and administrative ................................. 1,045,827 2,249,372
Depreciation and amortization .............................. 35,965 67,951
----------- -------------
1,327,613 2,719,114
----------- -------------
Loss from operations ....................................... (213,602) (1,386,782)
----------- -------------
Other income (expense):
Interest income .......................................... 24,561 --
Interest expense .......................................... (136,659) (455,532)
----------- -------------
(112,098) (455,532)
----------- -------------
Net loss ................................................... $ (325,700) $ (1,842,314)
=========== =============
Loss per share of common and common stock equivalents ...... $ (.12) $ (.67)
=========== =============
Weighted average number of shares outstanding ............... 2,496,966 2,759,234
=========== =============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Marine Management Systems, Inc.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
-------------------------- -------------------------
Shares Amount Shares Amount
---------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 .................. 2,099 $ 209,900 2,007,576 $4,015
Accrued interest contributed to capital ...... -- -- -- --
Loans receivable officers to be satisfied with
stock ....................................... -- -- -- --
Net loss .................................... -- -- -- --
-------- ---------- ----------- -------
Balance, at December 31, 1995 ............... 2,099 209,900 2,007,576 4,015
Sale of common stock for cash, net of
offering cost .............................. -- -- 233,326 467
Conversion of stock ........................ (2,099) (209,900) 62,191 124
Conversion of debt to common stock ......... -- -- 398,017 796
Adjustment from revaluation of convertible
debt ....................................... -- -- -- --
Net loss .................................... -- -- -- --
-------- ---------- ----------- -------
Balance, December 31, 1996 .................. -- $ -- 2,701,110 $5,402
======== ========== =========== =======
<CAPTION>
Additional Loans Total
Paid-in Accumulated Receivable Stockholders'
Capital Deficit Officers Equity (Deficit)
------------- --------------- ------------- ------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 .................. $3,722,587 $ (3,782,615) $ -- $ 153,887
Accrued interest contributed to capital ...... 37,000 -- -- 37,000
Loans receivable officers to be satisfied with
stock ....................................... -- -- (388,837) (388,837)
Net loss .................................... -- (325,700) -- (325,700)
----------- ------------- ----------- -------------
Balance, at December 31, 1995 ............... 3,759,587 (4,108,315) (388,837) (523,650)
Sale of common stock for cash, net of
offering cost .............................. 732,408 -- -- 732,875
Conversion of stock ........................ 209,776 -- -- --
Conversion of debt to common stock ......... 381,704 -- -- 382,500
Adjustment from revaluation of convertible
debt ....................................... 250,000 -- -- 250,000
Net loss .................................... -- (1,842,314) -- (1,842,314)
----------- ------------- ----------- -------------
Balance, December 31, 1996 .................. $5,333,475 $ (5,950,629) $ (388,837) $ (1,000,589)
=========== ============= =========== =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Marine Management
Systems, Inc.
Statements of Cash Flows
Increase (Decrease) in Cash (Note 14)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1995 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $ (325,700) $ (1,842,314)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ............................................. 294,647 587,598
Provision for losses on accounts receivable .............................. -- 25,000
Discount on issuance of preferred stock ................................. -- 13,076
Interest adjustment from revaluation of convertible debt .................. -- 250,000
Changes in assets and liabilities:
Accounts receivable ...................................................... (487,466) (87,940)
Inventories ............................................................... (435) 19,555
Prepaid expenses and other ................................................ (46,718) (11,893)
Loans receivable officers ................................................ 15,627 --
Other assets ............................................................ -- 8,258
Accounts payable and accrued expenses .................................... 153,095 286,235
Billings in excess of costs on uncompleted contracts ..................... 107,391 (25,687)
Deferred revenue and deposits ............................................. 38,799 170,599
----------- -------------
Net cash used in operating activities .................................... (250,760) (607,513)
----------- -------------
Cash flows from investing activities:
Capitalized computer software costs ....................................... (501,536) (1,233,727)
Acquisitions of property and equipment .................................... (15,545) (84,002)
----------- -------------
Net cash used in investing activities .................................... (517,081) (1,317,729)
----------- -------------
Cash flows from financing activities:
Proceeds from short-term borrowings -- net .............................. 225,000 1,010,000
Proceeds from issuance of long-term debt ................................. 500,000 166,000
Proceeds from advances payable .......................................... 325,000 --
Payments of advances payable ............................................. (185,000) --
Payments of long-term debt and capital lease obligations .................. (86,834) (126,725)
Proceeds from sale of common stock ....................................... -- 732,875
Proceeds from sale of preferred stock .................................... -- 500,000
Deferred registration costs ............................................. -- (314,141)
----------- -------------
Net cash provided by financing activities ................................. 778,166 1,968,009
----------- -------------
Net increase in cash ...................................................... 10,325 42,767
Cash, beginning of period ................................................ 5,025 15,350
----------- -------------
Cash, end of period ...................................................... $ 15,350 $ 58,117
=========== =============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business Description
Marine Management Systems, Inc. (the "Company") provides a variety of
products and services related to ship operations and maintenance management. The
Company develops and sells computer software programs, information systems and
computer equipment, as well as providing support and engineering services
related to these products throughout the world.
Reclassification
Certain 1995 account balances have been reclassified for comparative
purposes.
Inventories
Inventories, consisting primarily of computer hardware are valued at the
lower of cost or market. Cost is determined using the first-in, first-out (FIFO)
method.
Property, Equipment, Depreciation and Amortization
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed over the estimated useful lives of the assets using the
straight-line and accelerated methods for both financial reporting and income
tax purposes. Leasehold improvements are amortized using the straight-line
method over the estimated useful life of the improvement or the term of the
lease, whichever is shorter. For leasehold improvements, expected renewal terms
are included in the term of the lease.
The following estimated useful lives are applied in the computation of
depreciation and amortization.
Years
-------
Computer equipment .................. 5-7
Leasehold improvements ............... 7-10
Equipment under capital leases ...... 7
Furniture and fixtures ............... 7-10
Upon retirement or sale, the cost and related accumulated depreciation are
removed from the accounts and any resulting gains or losses are included in the
statement of operations.
Computer Software Costs and Amortization
The Company capitalizes the direct costs and allocated overhead associated
with the development and testing of software programs after technological
feasibility has been established. The annual amortization of the capitalized
costs is the greater of the amount computed using the rates that current gross
revenues for a product or products bear to the total of current and anticipated
future gross revenues for that product or products or the straight-line method
over the remaining estimated economic life of the product including the period
being presented. The establishment of technological feasibility and the on going
assessment of recoverability of capitalized computer software costs require
considerable judgment by management with respect to certain external factors,
including, but not limited to, anticipated future revenues, estimated economic
life and changes in software and hardware technologies. During the fourth
quarter of 1996, the Company recognized $228,128 of software amortization based
on a change in estimate of the estimated economic life of its products. Research
and development expenditures are expensed in the period incurred.
F-7
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
1. Summary of Significant Accounting Policies -- (Continued)
Revenue and Cost Recognition
Software revenues are revenues which are derived from the sale of software,
extended warranty and support services to the marine industry customers.
Revenues are recognized in the period when the products are delivered or the
services are rendered. Revenues from the sales of extended warranty contracts
are deferred and recognized on a straight-line basis over the term of the
contract.
Hardware revenues are revenues which are derived from the sale of hardware
to non-marine and marine industry customers.
Revenues for contracts with a term in excess of one year are recognized
using the percentage-of-completion method, measured by percentage of costs
incurred to date to estimated total costs for each contract. Contract costs
include all direct costs and those indirect costs related to contract
performance. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in job performance,
job conditions, and estimated profitability may result in revisions to costs and
income and are recognized in the period in which the revisions are determined.
Billings in excess of costs and estimated earnings on uncompleted contracts
represents billings in excess of revenues recognized on contracts in progress.
Revenues for contracts with a term less than one year are recognized when either
the services are performed or when the products are delivered.
Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and trade accounts receivable. The Company's cash investments are placed with
high credit quality financial institutions and may exceed the amount of federal
deposit insurance. Concentrations of credit risk with respect to trade
receivables are with other companies.
Income Taxes
Deferred income taxes are provided on differences between the financial
reporting and income tax bases of assets and liabilities based upon statutory
tax rates enacted for future periods.
Use of Estimates
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Financial Instruments
The carrying amounts of financial instruments including cash, accounts
receivable, accounts payable and short-term debt approximated fair value as of
December 31, 1995 and 1996, because of the relatively short maturity of these
instruments. The carrying value of long-term debt, including the current
portion, approximated fair value as of December 31, 1995 and 1996, based upon
quoted market prices for similar debt issues. The carrying value of amounts due
from and due to related parties cannot be determined because of the nature of
the terms.
Loss Per Share of Common Stock
Loss per share of common stock is calculated by dividing net loss by the
weighted average number of shares of common stock and common stock equivalents,
if dilutive, outstanding during each of the periods presented after giving
retroactive effect to the 1 for 2.7 reverse stock split (See Note 9). In
addition, when an ini-
F-8
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
1. Summary of Significant Accounting Policies -- (Continued)
tial public offering is contemplated, common stock and common stock equivalents
issued by the Company at a price less than the estimated initial public offering
price during the twelve months immediately preceding the anticipated initial
filing of the offering are treated as outstanding for all periods presented,
using the treasury stock method.
Deferred Registration Costs
Costs incurred in connection with the Company's anticipated public offering
are deferred and will be charged against stockholders' equity upon successful
completion of the offering. If the offering is not consummated, deferred costs
will be charged to expense.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 121 "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121 requires, among other things, impairment losses on assets to be
held and gains or losses from assets that are expected to be disposed of be
included as a component of income from continuing operations before taxes on
income. The Company adopted SFAS No. 121 as of January 1, 1996 and its
implementation did not have an effect on the financial statements.
Stock-Based Compensation
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company adopted the employee stock-based compensation provisions of SFAS No. 123
by disclosing the pro forma net income and pro forma net income per share
amounts assuming the fair value method as of January 1, 1995. The adoption of
this standard did not impact the Company's results of operations, financial
position or cash flows. Stock arrangements with non-employees, if applicable,
are recorded at fair value.
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
In June 1996, FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS No.
125"). SFAS No. 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. Those
standards are based on the financial components approach, which focuses on the
entity's control of its financial assets. If control of financial assets is
surrendered, a sale is recognized and the asset is recognized. Liabilities are
recognized when they are extinguished. The Company will prospectively adopt SFAS
No. 125 as of January 1, 1997 and has not determined the effect, if any, of its
adoption on the future financial statements.
2. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
----------- ----------
<S> <C> <C>
Computer equipment ................................. $387,521 $180,559
Leasehold improvements .............................. 141,299 10,641
Equipment under capital leases ........................ 160,149 167,818
Furniture and fixtures .............................. 52,229 21,771
--------- ---------
741,198 380,789
Less accumulated depreciation and amortization ...... 644,277 170,340
--------- ---------
Property and equipment, net ........................... $ 96,921 $210,449
========= =========
</TABLE>
F-9
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
3. Related Party Transactions
The Company has outstanding loans to certain officers and directors at
December 31, 1995 and 1996 in the aggregate of $388,837, including interest,
which bear interest at a variable rate, 6.3% at December 31, 1996. These loans
are unsecured and payable on demand (See Note 15b).
The Company had advances payable to related parties at December 31, 1995 in
the amount of $225,000 (See Note 9). These advances had interest rates ranging
from 9 3/4% to 12%.
The Company has subordinated debt payable to certain officers and related
parties at December 31, 1995 and 1996 in the amounts of $657,500 and $1,076,000,
respectively (See Note 7). At December 31, 1996, this debt has interest rates
ranging from 9% to 10 1/4%.
4. Short Term Borrowings
The Company has a demand line of credit with a bank for $400,000 with
interest at 1 1/2% over the bank's prime rate, 9 3/4% at December 31, 1996 and
is secured by substantially all of the assets of the Company and guaranteed by
certain officers/directors. In addition, the line of credit restricts the
declaration and payment of dividends. The outstanding balance on the line of
credit as of December 31, 1995 and 1996 was $375,000 and $400,000, respectively.
The line of credit agreement expires on December 31, 1997. The note is secured
by substantially all of the assets of the Company and guaranteed by certain
officers/directors.
In November 1996, the Company issued an additional $75,000 note which bears
interest at 1 1/2% over the bank's prime rate and is due on February 1, 1997.
This note is secured by substantially all of the assets of the Company and
guaranteed by certain officers/directors.
On January 3, 1997, the bank agreed to extend the terms of the $400,000
line of credit and the $75,000 note to April 1, 1998 subject to, among other
things, the completion of the anticipated initial public offering by May 15,
1997.
On December 12, 1996, the Company issued two promissory notes each in the
amount of $250,000 which bear interest at a rate of 9% per annum and mature at
the earlier of January 31, 1998 or the closing of an initial public offering.
One of these notes is convertible into the Company's common stock at a rate of
$2.50 per share. The note and unpaid interest thereon may be converted by the
holder at any time but automatically converts upon the closing of an initial
public offering. As of December 31, 1996, the Company recognized a charge to
operations in the amount of $250,000 in connection with the adjustment for
revaluation of the convertible debt. In addition, the Company issued a warrant,
to the holder of the notes to purchase 125,000 shares of its common stock at an
exercise price per share of $5.00. If an initial public offering is not
consummated by January 31, 1998 then the exercise price per share shall be
reduced to the lesser of $2.50 or the lowest price per share that the Company
issues stock during the six month period prior to January 31, 1998. The warrants
expire on December 12, 2001.
The weighted average amounts outstanding under the short-term borrowings
were $175,274 and $440,000 for the years ended December 31, 1995 and 1996,
respectively. The weighted average interest rates were 10.36% and 9.76% for
the years ended December 31, 1995 and 1996, respectively.
F-10
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
5. Billings in Excess of Costs on Uncompleted Contracts
Billings and costs on uncompleted contracts (See Note 12) are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- ------------
<S> <C> <C>
Billings to date .......................................... $498,148 $1,385,037
Costs incurred on uncompleted contracts .................. 390,757 886,010
Estimated earnings ....................................... -- 417,323
--------- -----------
Billings in excess of costs on uncompleted contracts ...... $107,391 $ 81,704
========= ===========
</TABLE>
6. Long-term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1996
----------- ----------
<S> <C> <C>
Long term debt:
Note payable, Bank, payable in monthly installments of $5,833 plus
interest at 1 1/2% over the bank's prime rate, 9 3/4% as of December
31, 1996, secured by all the assets of the Company and guaran-
teed by certain officers/directors and matures June 1998 (a) ........... $275,000 $205,000
Note payable, payable in monthly installments of $10,624 including
interest at 10%, commencing January 1, 1996. The note matures
on January 1, 2001 and is secured by substantially all of the
Company's assets (See Note 9)(b) ...................................... 500,000 236,924
--------- ---------
775,000 441,924
Capital lease obligations (See Note 8) ................................. 54,231 121,135
--------- ---------
829,231 563,059
Less current maturities of long-term debt and capital lease obligations . 178,374 296,767
--------- ---------
$650,857 $266,292
========= =========
</TABLE>
- ------------
(a) The loan agreement restricts the declaration on payment of dividends. In
addition, the loan agreement requires, among other things, maintenance of a
minimum tangible net worth, minimum leverage ratio and restrictions on the
Company's capital expenditures. The Company received waivers of default from
the bank of certain covenant violations through May 15, 1997. As a result,
the outstanding balance at December 31, 1996 of $205,000 is presented as a
current liability.
(b) The Company ceased payments of principal and interest in April 1996. On
January 10, 1997, the Company received a waiver of this default. Principal
and interest payments are due to recommence on May 15, 1997 or the entire
balance is due upon successful completion of the anticipated initial public
offering.
Maturities of long-term debt as of December 31, 1996 are as follows:
Years ended December 31,
------------------------
1997 ..................... $255,000
1998 ..................... 39,815
1999 ..................... 44,507
2000 ..................... 49,693
2001 ..................... 52,909
---------
$441,924
=========
F-11
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
7. Subordinated Debt -- Related Parties
Subordinated debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Note payable, officer and director, interest payable monthly at the prime rate
plus 2%, 10 1/4% at December 31, 1996 with no principal payment provisions,
secured by the general assets of the Company (a). .............................. $300,000 $ 300,000
Note payable, officer and director, interest at the prime rate plus 2%, 10 1/4% at
December 31, 1996, with no principal payment provisions, secured by the
assets of the Company (a). ................................................... 200,000 200,000
Note payable, director, interest at 10% payable semi-annually, convertible into
62,074 shares of the Company's common stock. The note matures on January
1, 2001 and is secured by the assets of the Company (a) and (b). ............... 62,500 --
Note payable, interest at the prime rate plus 1%, 9 1/4% at June 30, 1996, pay-
able monthly with no principal payment provisions, is convertible into 10,018
shares of the Company's common stock and is secured by the assets of the
Company (a) and (b). ......................................................... 25,000 --
Note payable, interest at 8%, payable on demand, convertible into 259,259
shares of the Company's common stock and is secured by the assets of the
Company (a) and (b). ......................................................... 70,000 --
Note payable, officers and related party, interest at 9%, payable monthly, due
December 2, 1998, secured by the general assets of the Company (a). ............ -- 166,000
Unsecured note payable, director and related parties, interest at 10% due at the
earlier of April 1997 or the closing of the anticipated initial public offering
(a). ........................................................................... -- 410,000
--------- -----------
$657,500 $1,076,000
========= ===========
</TABLE>
- ------------
(a) The debt is subordinated to the bank's note and the principal cannot be
repaid without its approval or until that debt has been satisfied. The
bank's note is due in 1998. Therefore, for maturity purposes, such debt,
except for $410,000 which is considered currently due, has been presented as
if it would be repaid in 1998.
(b) As of June 30, 1996, these notes were converted into an aggregate of 331,351
shares of the Company's common stock based on the original terms of the debt
agreements.
8. Commitments and Contingencies
The Company leases certain operating and data processing equipment under
capital leases expiring at various dates.
The Company also rents office space and equipment under operating leases.
In most cases, management expects that in the normal course of business,
leases will be renewed or replaced by other leases.
On October 31, 1995, the Company entered into a facility lease for seven
years with an option to extend the lease for five years. The commencement date
of the lease was March 1, 1996. The agreement calls for fixed rent to be paid in
monthly installments in advance commencing on July 1, 1996 and on the first day
of each month thereafter. In addition to the fixed rent, the lease provides for
escalation of the lease payment as maintenance cost and taxes increase. The
Company received a rent abatement from the period March 1, 1996 through June 30,
1996. In connection with this lease, a bank has issued the Company an
unconditional letter of credit of $150,000 expiring on December 31, 1997. The
letter of credit is to be used as a security deposit to be reduced
F-12
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
8. Commitments and Contingencies -- (Continued)
by $7,500 per month starting May 31, 1996 until fully liquidated. The
Connecticut Development Authority has issued a guarantee to a bank in the amount
of $150,000. The guarantee will be reduced monthly as it relates to the
facilities lease entered into October 1995 by the Company. At December 31, 1996
the outstanding balance under the letter of credit was $90,000.
Future net minimum lease payments under capital leases, and future minimum
rental payments required under operating leases as of December 31, 1996 are as
follows:
Years ended December 31, Capital Operating
- ------------------------- ---------- -----------
1997 .................................... $ 59,707 $ 188,153
1998 .................................... 50,215 194,831
1999 .................................... 31,755 200,793
2000 .................................... 25,254 198,604
2001 .................................... 12,024 188,278
Later years .............................. -- 193,648
--------- -----------
Total .................................... 178,955 $1,164,307
===========
Less amounts representing interest ...... 57,820
---------
Net .................................... $121,135
=========
Total facilities rental expense was $93,370 and $156,547 for the years
ended December 31, 1995 and 1996, respectively.
The Company has entered into employment agreements, which will become
effective upon the closing of the anticipated public offering, with certain key
employees and shall expire two years from that date. The minimum aggregate
annual compensation under these agreements is $575,000. The annual compensation
is subject to annual increases based upon the Consumer Price Index. In addition,
these employees are eligible to receive a bonus at the discretion of the Board
of Directors, not to exceed 50% of their annual compensation.
9. Capital Transactions
On February 20, 1996 the Company completed a reorganization and
incorporated in the State of Delaware. The Company authorized 9,000,000 shares
of common stock with a par value of $.001 and 2,100 shares of preferred stock
with a par value of $.001. As a result of the reorganization, each previously
issued and outstanding share of common stock of the Company was converted into
fifty shares of common stock. In addition, each issued and outstanding share of
preferred stock was converted into one share of preferred stock. As prescribed
by their terms, the holders of convertible notes and warrants also had each
share available to them converted into fifty shares of common stock. Effective
August 21, 1996, the Company completed a recapitalization of its common shares
by declaring a 1 for 2.7 reverse stock split. The Company issued one share of
$.002 par value common stock for 2.7 shares of existing $.001 par value common
stock. In connection with the August 21, 1996 recapitalization, the Company
authorized 7,500 shares of 8% cumulative preferred stock with a par value of
$100 per share. All references to par value and shares of capital stock in the
financial statements have been adjusted to give retroactive effect for these
actions.
During the year ended December 31, 1996, the Company sold 233,326 shares of
common stock for net proceeds of $732,875 pursuant to a private placement of its
stock. At June 30, 1996, advances payable to related parties of $225,000 were
exchanged for 66,666 shares of common stock. In addition, at June 30, 1996, all
of the Company's outstanding preferred stock was converted into 62,191 shares of
common stock.
In connection with the original $500,000 note payable to Connecticut
Innovations, Inc. (CII) (See Note 6), the Company issued a warrant to CII to
purchase 259,888 shares of common stock at an exercise price per share
F-13
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
9. Capital Transactions -- (Continued)
of $2.31. In connection with the August 1996 transactions, described below, one
half of these warrants have been cancelled. The remaining warrants, 129,944,
have a term of 10 years. If during the term of the warrant, the Company issues
shares at amounts less than $2.31 per share then the exercise price will be
adjusted to that amount. In connection with the warrant, CII has the right to
put the warrant to the Company at the difference between the fair market value
of the warrant and the exercise price. The put provision is exercisable, among
other occurrences, if the Company closes a public offering of its stock. In
addition, the Company may cancel the remaining warrants upon the satisfaction of
one half of the original note and pay an amount sufficient to provide a 25%
return compounded annually on the amount of the debt that was satisfied. Upon
completion of the anticipated public offering, the Company intends to redeem all
of the outstanding warrants. Upon such redemption, the Company will recognize a
charge to operations in the amount of approximately $95,000.
In August 1996, the Company sold 7,500 shares of its 8% cumulative
preferred stock, $100 par value, to CII for cash of $500,000 and the conversion
of indebtedness in the amount of $236,924. The preferred stock is convertible
into 277,777 shares of common stock and is redeemable at the holders option, in
August 1999, at the greater of the par value plus 25% compounded annually for
each year outstanding or the then fair market value of the preferred stock. Upon
the conversion, the Company recognized $13,076 of miscellaneous expense
representing the discounted purchase price.
During the six months ended June 30, 1996, the Company issued warrants to
key employees to purchase 222,219 shares of common stock at $3.375 per share.
The warrants vest immediately and expire in 2006.
In March 1996 and as amended in December 1996, the Board of Directors
approved a stock option plan for key employees and reserved 225,040 shares for
stock options. The board retained the authority to determine the individuals to
whom, and the times at which, stock grants would be made, along with the number
of shares, vesting schedule and other provisions relating to the stock grants.
During the year ended December 31, 1996, the Company issued stock options to
purchase 71,290 shares of common stock exercisable at $3.375 per share, of which
3,703 were forfeited, and vest at the rate of 25% per year over four years from
the date of the grant. These options expire in 2006.
As of December 31, 1996, the Company has 1,079,980 shares of its common
stock reserved for issuance pursuant to options, warrants and convertible
securities.
No options or warrants have been exercised.
Certain of the outstanding indebtedness and warrants either prohibit or
restrict the declaration or payment of dividends.
At December 31, 1996, the Company has a stock option plan and has issued
warrants to certain employees. The Company applies APB Opinion No. 25 and
related Interpretations by recording compensation expense for the excess of the
fair market value and the exercisable price per share as of date of grant in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for its issuance of 71,290 options or 222,219 warrants to employees
since the exercise price was equal to the then fair market value on the date of
grant. SFAS No. 123 requires the Company to provide pro forma information
regarding net loss and net loss per share as if compensation cost for the
Company's stock awards had been determined in accordance with the fair value
based method prescribed in SFAS No. 123. The Company estimates fair value of
each stock based award at the date of grant using the Black Scholes
option-pricing model with the following weighted average assumptions used for
grants in 1996; dividend yield of 0.0%, expected volatility at 0.0001%,
risk-free interest rate of 7.0% and expected life of ten years. Had compensation
cost for the issuance of options and warrants been determined based on the fair
value at the grant dates consistent with the fair value method of SFAS No. 123,
the Company's net loss and loss per share would have been increased to the pro
forma amounts indicated below:
F-14
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
9. Capital Transactions -- (Continued)
<TABLE>
<CAPTION>
Year ended
December 31, 1996
-------------------
<S> <C>
Net loss:
As reported ............................................ $ (1,842,314)
Pro forma ............................................... $ (1,891,314)
Loss per share of common stock and common stock equivalent:
As reported ............................................ $ (.67)
Pro forma ............................................... $ (.69)
=============
</TABLE>
A summary of the Company's stock awards at December 31, 1996 and the year
then ended are as follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
Average Average
Remaining Exercise
Life Shares Price
------------ --------- -----------
<S> <C> <C> <C>
Outstanding, at beginning of year ..................... -- $ --
Granted ................................................ 293,509 3.375
-------- -------
Outstanding, at end of year ........................... 9.5 years 293,509 $3.375
======== =======
Options exercisable at end of year ..................... 231,130 $3.375
Weighted average fair value of options granted during the
year ................................................... $ 1.70
</TABLE>
During the initial phase-in period of SFAS 123, the effects on pro forma
results are not likely to be representative of the effects on pro forma results
in future years since options vest over several years and additional awards
could be made each year.
10. Going Concern
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered losses, has a
capital deficit and has negative working capital. The Company has relied on its
capital and related party advances to sustain its working capital needs. The
predominant use of cash has been capitalized computer software costs. Management
believes that the proceeds of the contemplated initial public offering (See Note
15a), will be sufficient to meet its cash flow needs for the coming year.
However, there can be no assurance that the offering will be completed. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
11. Income Taxes
No tax provision has been recognized due to losses incurred during the
periods presented. At December 31, 1996, the Company has net operating loss
carryforwards in the amount of approximately $4,400,000 which expire during the
period 1999 to 2011. The Company had deferred tax assets of approximately
$950,000 and approximately $1,400,000 at December 31, 1995 and 1996,
respectively, relating to the net operating loss carryforwards. The Company has
recognized a valuation allowance for the entire deferred tax asset. The need for
the valuation allowance is evaluated periodically by the Company.
12. Revenues
Two customers accounted for 13% and 10% of revenues for the year ended
December 31, 1995. Two customers accounted for 26% and 12% of revenues for the
year ended December 31, 1996. One customer accounted for 16% of accounts
receivable as of December 31, 1995. One customer accounted for 22% of accounts
receivable at December 31, 1996.
F-15
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
12. Revenues -- (Continued)
For the year ended December 31, 1995, the Company had revenues from foreign
customers of approximately $1,340,000 of which the Company had revenues from
customers located in the Middle East and the United Kingdom of approximately
$860,000 and $210,000, respectively. For the year ended December 31, 1996, the
Company had revenues from foreign customers of approximately $926,000 of which
the Company had revenues from customers located in the Middle East and Australia
of approximately $228,000 and $221,000, respectively.
On July 11, 1995, the Company, as part of the Integrated Shipboard
Information Technology (ISIT) Consortium, entered into an agreement with the
United States, Department of Transportation, Maritime Administration (the
"Government") to provide advanced software, state of the art hardware and
standardized procedures, which together provide the ability to collect, process
and store information electronically from shipboard sub-systems, and distribute
that information throughout the ship and to the ship's land-based offices via
seamless satellite communications. The total estimated cost to the consortium to
complete this project is approximately $3,900,000 over an eighteen month period.
The Company's share of the project is approximately $1,950,000 of which the
Government will fund approximately $975,000 of project costs.
In addition, on July 31, 1995, the Company entered into an agreement with
CII. Under the agreement CII will fund approximately $490,000 to the ISIT
project costs.
For the years ended December 31, 1995 and 1996 $390,757 and $912,576
respectively, has been recognized as contract revenue based on the
percentage-of-completion of the project measured by the cost-to-cost method
which is based on the completion of certain milestones as defined in the
Government and CII agreements.
13. Profit Sharing Plan
The Company sponsors a 401(K) profit sharing plan which covers
substantially all employees. Company contributions to the plan totaled $30,945
and $43,862 for the years ended December 31, 1995 and 1996, respectively.
14. Statements of Cash Flows -- Supplemental Disclosures
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1996
----------- ----------
<S> <C> <C>
Cash paid for interest .............................. $136,659 $185,483
Supplemental disclosure of non-cash investing and
financing activities:
Accrued interest contributed to capital ............ 37,000 --
Conversion of debt to common stock .................. -- 382,500
Conversion of debt to preferred stock ............... -- 236,924
Adjustment for revaluation of convertible debt ...... -- 250,000
Increase in capital lease obligations ............... 60,750 97,477
</TABLE>
15. Subsequent Events
(a) The Company has a letter of intent with Whale Securities Co., L.P. in
connection with a proposed offering and sale to the public of one million four
hundred forty thousand shares of common stock of the Company at a price of $5
per share and one million four hundred forty thousand warrants at a price of
$.10 per warrant. Each warrant will be exercisable to purchase one share of
common stock at $5.50 per share.
F-16
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
15. Subsequent Events -- (Continued)
(b) Immediately prior to effectiveness of the Company's anticipated public
offering, certain officers of the Company have agreed to satisfy their
respective outstanding loan balances in the aggregate amount of $388,837 by
selling to the Company 77,767 shares of common stock. As of December 31, 1995
and 1996, such balances have been included as a reduction of stockholders'
equity.
(c) In January 1997, the Company completed the sale of seven investment
units to six investors at a price of $50,000 for each unit. Each investment unit
consists of a $50,000 promissory note which bears interest at 9% and is due at
the earlier of one year or the completion of the anticipated initial public
offering and 10,000 shares of common stock. In the connection with the sale of
units, the Company recognized a loan discount in the amount of $175,000 and debt
issuance cost of $28,000. The Company will recognize a charge to operations in
the amount of $203,000 upon satisfaction of the debt from the proceeds of the
anticipated public offering.
F-17
<PAGE>
===============================================================================
No dealer, salesperson or other person has been authorized to give any
information or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriter. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
securities offered by this Prospectus, or an offer to sell or a solicitation of
an offer to buy any securities by anyone in any jurisdiction in which such offer
or solicitation is not authorized or would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information contained herein is correct as of any
time subsequent to the date hereof.
--------------------------------------------
TABLE OF CONTENTS
Page
------
Prospectus Summary ..................... 3
Risk Factors ........................... 10
Use of Proceeds ........................ 22
Dividend Policy ........................ 23
Dilution .............................. 24
Capitalization ........................ 25
Selected Financial Data ............... 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................... 27
Business .............................. 33
Management ........................... 45
Principal Stockholders ............... 50
Certain Transactions .................. 51
Description of Securities ............ 53
Shares Eligible for Future Sale ...... 56
Underwriting ........................... 57
Legal Matters ........................ 59
Experts .............................. 59
Additional Information ............... 59
Index to Financial Statements ......... F-1
--------------------------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
==============================================================================
<PAGE>
==============================================================================
Marine Management
Systems, Inc.
1,440,000 Shares of Common Stock
and
Redeemable Warrants to Purchase
1,440,000 Shares of Common Stock
-------------------------------
PROSPECTUS
-------------------------------
Whale Securities Co., L.P.
, 1997
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
The Company's Certificate of Incorporation provides that the personal
liability of the directors of the Registrant shall be limited to the fullest
extent permitted by the provisions of Section 102(b)(7) of the General
Corporation Law of the State of Delaware (the "DGCL"). Section 102(b)(7) of the
DGCL generally provides that no director shall be liable personally to the
Registrant or its stockholders for monetary damages for breach of fiduciary duty
as a director, provided that the Certificate of Incorporation does not eliminate
the liability of a director for (i) any breach of the director's duty of loyalty
to the Registrant or its stockholders; (ii) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law; (iii) acts
or omissions in respect of certain unlawful dividend payments or stock
redemptions or repurchases; or (iv) any transaction from which such director
derives improper personal benefit. The effect of this provision is to eliminate
the rights of the Registrant and its stockholders (through stockholders'
derivatives suits on behalf of the Registrant) to recover monetary damages
against a director for breach of her or his fiduciary duty of care as a director
(including breaches resulting from negligent or grossly negligent behavior)
except in the situations described in clauses (i) through (iv) above. The
limitations summarized above, however, do not affect the ability of the
Registrant or its stockholders to seek nonmonetary remedies, such as an
injunction or rescission, against a director for breach of her or his fiduciary
duty. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers, or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been informed that in the opinion of the
Securities and Exchange Commission (the "Commission"), such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
In addition, the Certificate of Incorporation provides that the Registrant
shall, to the fullest extent permitted by Section 145 of the DGCL, indemnify all
persons whom it may indemnify pursuant to Section 145 of the DGCL. Section 145
of the DGCL permits a company to indemnify an officer or director who was or is
a party or is threatened to be made a party to any proceeding because of his or
her position, if the officer or director acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Item 25. Other Expenses of Issuance and Distribution
The estimated expenses of the Registrant to be incurred in connection with
the distribution of the shares of Common Stock registered hereby (other than
underwriting discounts and commissions and the Underwriter's nonaccountable
expense allowance) are as follows:
<TABLE>
<S> <C>
SEC registration fee ............................................. $ 5,754.51
NASD filing fee ................................................... 2,399.00
Nasdaq listing fee ................................................ 10,000.00
Underwriter's consulting fee .................................... 25,000.00
Printing expenses ................................................ 75,000.00
Fees and expenses of counsel for the Registrant .................. 225,000.00
Accounting fees and expenses .................................... 250,000.00
Blue sky fees and expenses (including counsel fees and expenses) 50,000.00
Fees and expenses of transfer agent and registrar ............... 2,500.00
Miscellaneous ................................................... 4,346.49
------------
Total expenses .................................................. $650,000.00
============
</TABLE>
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities
Within the past three years, the Registrant has issued the following
securities without registration under the Securities Act:
a) On March 21, 1995, the Registrant issued a warrant to purchase 259,888
shares of its Common Stock to Connecticut Innovations, Incorporated ("CII") in
connection with the provision of financing to the Registrant. The exercise price
under the warrant is $2.31 per share, and the warrant is exercisable until March
21, 2005. On August 21, 1996, this warrant was cancelled and replaced with a
warrant to purchase 129,944 shares of the Registrant's Common Stock, under the
same terms and conditions as the warrant issued on March 21, 1995.
b) On a number of different dates between February and July 1996, the
Registrant issued and sold an aggregate of 233,326 shares of its Common Stock to
16 investors, each of whom qualified as an "accredited investor" within the
meaning of Regulation D promulgated under the Securities Act. The aggregate
consideration received by the Company for such shares was $787,500.
c) On March 22, 1996, the Registrant granted options to purchase a total of
71,290 shares of its Common Stock to 12 employees of the Registrant pursuant to
its 1996 Key Employees' Stock Option Plan. These options have an exercise price
of $3.38 per share and are exercisable until March 22, 2006.
d) On April 1, 1996, the Registrant issued warrants to purchase an
aggregate of 166,665 shares of its Common Stock to Mark E. Story and Michael P.
Barney, each an executive officer of the Registrant, and to Robert F. Ohmes and
Scott R. Ohmes, sons of Robert D. Ohmes, an executive officer and director of
the Registrant. The exercise price under the warrants is $3.38 per share, and
the warrants are exercisable until April 1, 2006.
e) On June 1, 1996, Robert D. Ohmes and Scott R. Ohmes converted a total of
$225,000 of indebtedness from the Registrant into an aggregate of 66,666 shares
of Common Stock of the Registrant.
f) One June 1, 1996, the Registrant issued an aggregate of 62,191 shares of
its Common Stock to Eugene D. Story, Robert D. Ohmes and Donald F. Logan, Jr.,
each an executive officer and director of the Registrant, upon conversion of
2,099 shares of its Preferred Stock held by such officers.
g) On June 3, 1996, the Registrant issued warrants to purchase an aggregate
of 55,554 shares of its Common Stock to Eugene D. Story, Robert D. Ohmes, Donald
F. Logan, Jr. and Mark E. Story. The exercise price under the warrants is $3.38
per share, and the warrants are exercisable until June 3, 2006.
h) On June 30, 1996, Scott R. Ohmes converted a convertible subordinated
debenture in the principal amount of $70,000 into 259,259 shares of the
Registrant's Common Stock.
i) On June 30, 1996, Lyman C. Hamilton, Jr., a director of the Registrant,
converted a convertible subordinated note in the principal amount of $62,500
into 62,074 shares of the Registrant's Common Stock.
j) On June 30, 1996, Christopher Story, the brother of Eugene D. Story,
converted a convertible subordinated debenture in the principal amount of
$25,000 into 10,018 shares of the Registrant's Common Stock.
k) On August 21, 1996, the Registrant issued and sold 7,500 shares of its
Preferred Stock to CII for $500,000 in cash, the cancellation of $236,924 of
principal amount of indebtedness owed to CII by the Registrant and CII's
relinquishment of warrants to purchase 129,944 shares of Common Stock.
l) On December 12, 1996, the Registrant issued a promissory note in the
principal amount of $250,000, convertible into an aggregate of 100,000 shares of
its Common Stock, and a warrant to purchase 125,000 shares of its Common Stock
to Sperry Marine Inc. in connection with its provision of financing to the
Registrant. The exercise price under the warrant is $5.00 per share, and the
warrant is exercisable until December 12, 2001.
m) On January 29, 1997, the Registrant issued to George Schimenti, Thomas
Anastasoglou, Daniel M. Keenan, David Miller, Sefta Trustees Limited and
Westminster Capital, Inc. $350,000 in aggregate principal amount of promissory
notes and an aggregate of 70,000 shares of Common Stock pursuant to a private
placement (the "Bridge Financing"). The Registrant received total cash
consideration in the gross amount of $350,000. In connection with the Bridge
Financing, Whale Securities Co., L.P. ("Whale") acted as placement agent whereby
Whale received an aggregate commission of $35,000 in cash.
II-2
<PAGE>
The securities issued in the foregoing transactions were not registered
under the Securities Act in reliance upon the exemption from registration set
forth in Section 4(2) relating to transactions by an issuer not involving any
public offering. In claiming the Section 4(2) exemption with respect to the
transactions other than the grant of options to employees, the registrant relied
on the following facts: (i) each of the purchasers was an accredited investor
within the meaning of Rule 501(a) of Regulation D under the Securities Act and
acquired the shares or other securities for the purchaser's own account in a
transaction not involving any general solicitation or general advertising, and
not with a view to the distribution thereof; and (ii) a restrictive legend was
placed on each certificate evidencing the shares.
Item 27. Exhibits
The following is a list of exhibits filed as a part of this registration
statement:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -------------
<S> <C>
1.01 Form of Underwriting Agreement.*
3.01(a) Amended and Restated Certificate of Incorporation of the Registrant.*
(b) Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Regis-
trant.*
3.02 Amended Bylaws of the Registrant.*
4.01 Specimen Certificate representing shares of Common Stock, par value $.002 per share, of the
Registrant.*
4.02 Specimen Certificate representing the Public Warrants of the Registrant.*
4.03 Form of Public Warrant Agreement among the Registrant, Whale Securities Co., L.P. as Under-
writer and American Stock Transfer & Trust Company as Warrant Agent.*
4.04 Form of Underwriter's Warrant Agreement, including form of warrant certificate.*
4.05(a) Commercial Revolving Loan, Term Loan and Security Agreement between People's Bank and the
Registrant, dated June 4, 1993.*
(b) Second Modification of Commercial Revolving Loan, Term Loan and Security Agreement
between People's Bank and the Registrant, dated December 21, 1995.*
(c) Letter from People's Bank to the Registrant, dated February 8, 1995.*
(d) $450,000 Term Promissory Note from the Registrant to People's Bank, dated June 4, 1993.*
(e) $400,000 Amended and Restated Revolving Loan Note from the Registrant to People's Bank,
dated December 21, 1995.*
(f) $150,000 Irrevocable Standby Letter of Credit in favor of Seaboard Stamford Investors Associ-
ates LLC, between People's Bank and the Registrant, dated January 25, 1996.*
(g) Third Modification of Commercial Revolving Loan, Term Loan and Security Agreement, dated
February 12, 1997.*
4.06 $75,000 Loan Note from the Registrant to People's Bank, as amended, dated February 13, 1997.*
5.01 Opinion and Consent of Shipman & Goodwin LLP as to the legality of the shares to be regis-
tered.
9.01 Stock Purchase, Option and Shareholder Agreement among COMSAT Investments, Inc., the Reg-
istrant, Eugene D. Story, Robert D. Ohmes and Donald F. Logan, Jr., dated June 20, 1990.*
10.01(a) Form of Purchase Warrant for the Purchase of Common Stock, par value $.001 per share.*
(b) Schedule of Warrant Holders.*
10.02 $300,000 Subordinated Note from the Registrant to Eugene D. Story, dated July 1, 1994.*
10.03 $200,000 Subordinated Note from the Registrant to Robert D. Ohmes, dated July 1, 1994.*
10.04 $29,000 Subordinated Note from the Registrant to Eugene D. Story, dated December 2, 1996.*
10.05 $10,000 Subordinated Note from the Registrant to Robert D. Ohmes, dated December 2, 1996.*
10.06 $15,000 Subordinated Note from the Registrant to Mark E. Story, dated December 2, 1996.*
10.07 $90,000 Subordinated Note from the Registrant to Scott R. Ohmes, dated December 2, 1996.*
10.08 $22,000 Subordinated Note from the Registrant to Donald F. Logan, Jr., dated December 2,
1996. *
10.09 Key Employee Agreement between the Registrant and Eugene D. Story.*
10.10 Key Employee Agreement between the Registrant and Robert D. Ohmes.*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- -------------- ------------
<S> <C>
10.11 Form of Key Employee Agreement between the Registrant and each of Michael P. Barney, Donald
F. Logan, Jr. and Mark E. Story.*
10.12 Marine Management Systems, Inc. 1996 Key Employees' Stock Option Plan.*
10.13(a) Agreement of Lease between Seaboard Stamford Investor Associates, LLC and the Registrant,
dated October 31, 1995 with respect to Premises located at 470 West Avenue, Stamford, Connecti-
cut 06902.*
(b) Letter Amendment to Agreement of Lease, dated September 21, 1995.*
(c) Letter Amendment to Agreement of Lease.*
10.14(a) United States of America Department of Transportation Maritime Administration Notification of
Assistance Approval (Cooperative Agreement), Project Number: DTMA91-95-H-00069, Title:
Integrated Shipboard Information Technology (ISIT) Platform, Effective Date July 12, 1995.*
(b) Modification 0001 to Project Number DTMA91-95-H-00069, dated September 29, 1995.*
(c) Modification 0002 to Project Number DTMA91-95-H-00069, dated March 25, 1996.*
(d) Modification 0003 to Project Number DTMA91-95-H-00069, dated July 10, 1996.*
(e) Clarification Letter from U.S. Department of Transportation Maritime Administration to the Reg-
istrant, dated October 31, 1996.*
(f) Modification 0004 to Project Number DTMA91-95-H-00069, dated August 16, 1996.*
(g) Modification 0005 to Project Number DTMA91-95-H-00069, dated February 6, 1997.*
10.15 Federal Technology Partnership Assistance Agreement between the Registrant and Connecticut
Innovations, Incorporated, dated July 31, 1995.*
10.16 Marketing and Distribution Agreement between the Registrant and Sperry Marine Inc., dated
December 4, 1996.*
10.17 Warrant for the Purchase of Common Stock, par value $.002 per share, issued to Sperry Marine
Inc., dated December 12, 1996.*
10.18(a) Form of Registration Rights Agreement between the Registrant and the Holder, dated as of
January 29, 1997.*
(b) Schedule of Holders.*
10.19 Consulting Agreement between the Registrant and Whale Securities Co., L.P.*
23.01 Consent of BDO Seidman, LLP.
23.02 Consent of Shipman & Goodwin LLP, included in opinion filed as Exhibit 5.01.
24.01 Power of Attorney, included in the signature page of this registration statement.*
27.01 Financial Data Schedule*
</TABLE>
- ------------
* Previously filed
Item 28. Undertakings
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act,
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price present no more than
a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement, and
II-4
<PAGE>
(iii) Include any additional or changed material information on the plan
of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(c) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of this offering.
(2) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to the directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be a part of this registration
statement as of the time it was declared effective.
(b) For determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of such securities at that time as the initial bona fide
offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Stamford, State of Connecticut, on April 30, 1997.
MARINE MANAGEMENT SYSTEMS, INC.
By: /s/ Eugene D. Story
----------------------------------
Eugene D. Story
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Eugene D. Story President, Chief Executive Officer April 30, 1997
------------------------- and Director
Eugene D. Story
/s/ Robert D. Ohmes Executive Vice President, Chief April 30, 1997
------------------------- Financial Officer, Secretary and
Robert D. Ohmes Director (Principal Accounting
Officer)
Donald F. Logan, Jr.* Senior Vice President - Operations April 30, 1997
------------------------- and Director
Donald F. Logan, Jr.
Mark E. Story* Vice President - Technical and April 30, 1997
------------------------- Director
Mark E. Story
Donald W. Forster* Director April 30, 1997
-------------------------
Donald W. Forster
Lyman C. Hamilton, Jr.* Director April 30, 1997
-------------------------
Lyman C. Hamilton, Jr.
Michael C. Hughes* Director April 30, 1997
-------------------------
Michael C. Hughes
By: /s/ Eugene D. Story
-------------------------
Eugene D. Story,
Attorney-in-Fact
</TABLE>
- ------------
*Each by his Attorney thereunto duly authorized by Power of Attorney.
II-6
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ------------ --------------
<S> <C> <C>
1.01 Form of Underwriting Agreement.*
3.01(a) Amended and Restated Certificate of Incorporation of the Registrant.*
(b) Certificate of Amendment of Amended and Restated Certificate of Incorporation of
the Registrant.*
3.02 Amended Bylaws of the Registrant.*
4.01 Specimen Certificate representing shares of Common Stock, par value $.002 per
share, of the Registrant.*
4.02 Specimen Certificate representing the Public Warrants of the Registrant.*
4.03 Form of Public Warrant Agreement among the Registrant, Whale Securities Co.,
L.P. as Underwriter and American Stock Transfer & Trust Company as Warrant
Agent.*
4.04 Form of Underwriter's Warrant Agreement, including form of warrant certificate.*
4.05(a) Commercial Revolving Loan, Term Loan and Security Agreement between Peo-
ple's Bank and the Registrant, dated June 4, 1993.*
(b) Second Modification of Commercial Revolving Loan, Term Loan and Security
Agreement between People's Bank and the Registrant, dated December 21, 1995.*
(c) Letter from People's Bank to the Registrant, dated February 8, 1995.*
(d) $450,000 Term Promissory Note from the Registrant to People's Bank, dated June
4, 1993.*
(e) $400,000 Amended and Restated Revolving Loan Note from the Registrant to
People's Bank, dated December 21, 1995.*
(f) $150,000 Irrevocable Standby Letter of Credit in favor of Seaboard Stamford
Investors Associates LLC, between People's Bank and the Registrant, dated Janu-
ary 25, 1996.*
(g) Third Modification of Commercial Revolving Loan, Term Loan and Security
Agreement, dated February 12, 1997.*
4.06 $75,000 Loan Note from the Registrant to People's Bank, as amended, dated Feb-
ruary 13, 1997.*
5.01 Opinion and Consent of Shipman & Goodwin LLP as to the legality of the shares
to be registered.
9.01 Stock Purchase, Option and Shareholder Agreement among COMSAT Investments,
Inc., the Registrant, Eugene D. Story, Robert D. Ohmes and Donald F. Logan, Jr.,
dated June 20, 1990.*
10.01(a) Form of Purchase Warrant for the Purchase of Common Stock, par value $.001 per
share.*
(b) Schedule of Warrant Holders.*
10.02 $300,000 Subordinated Note from the Registrant to Eugene D. Story, dated July 1,
1994.*
10.03 $200,000 Subordinated Note from the Registrant to Robert D. Ohmes, dated July
1, 1994.*
10.04 $29,000 Subordinated Note from the Registrant to Eugene D. Story, dated Decem-
ber 2, 1996.*
10.05 $10,000 Subordinated Note from the Registrant to Robert D. Ohmes, dated Decem-
ber 2, 1996.*
10.06 $15,000 Subordinated Note from the Registrant to Mark E. Story, dated December
2, 1996.*
10.07 $90,000 Subordinated Note from the Registrant to Scott R. Ohmes, dated Decem-
ber 2, 1996.*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- ---------------
<S> <C> <C>
10.08 $22,000 Subordinated Note from the Registrant to Donald F. Logan, Jr., dated
December 2, 1996.*
10.09 Key Employee Agreement between the Registrant and Eugene D. Story.*
10.10 Key Employee Agreement between the Registrant and Robert D. Ohmes.*
10.11 Form of Key Employee Agreement between the Registrant and each of Michael P.
Barney, Donald F. Logan, Jr. and Mark E. Story.*
10.12 Marine Management Systems, Inc. 1996 Key Employees' Stock Option Plan.*
10.13(a) Agreement of Lease between Seaboard Stamford Investor Associates, LLC and the
Registrant, dated October 31, 1995 with respect to Premises located at 470 West
Avenue, Stamford, Connecticut 06902.*
(b) Letter Amendment to Agreement of Lease, dated September 21, 1995.*
(c) Letter Amendment to Agreement of Lease.*
10.14(a) United States of America Department of Transportation Maritime Administration
Notification of Assistance Approval (Cooperative Agreement), Project Number:
DTMA91-95-H-00069, Title: Integrated Shipboard Information Technology (ISIT)
Platform, Effective Date July 12, 1995.*
(b) Modification 0001 to Project Number DTMA91-95-H-00069, dated September 29,
1995.*
(c) Modification 0002 to Project Number DTMA91-95-H-00069, dated March 25,
1996.*
(d) Modification 0003 to Project Number DTMA91-95-H-00069, dated July 10,
1996.*
(e) Clarification Letter from U.S. Department of Transportation Maritime Administra-
tion to the Registrant, dated October 31, 1996.*
(f) Modification 0004 to Project Number DTMA91-95-H-00069, dated August 16,
1996.*
(g) Modification 0005 to Project Number DTMA91-95-H-00069, dated February 6,
1997.*
10.15 Federal Technology Partnership Assistance Agreement between the Registrant and
Connecticut Innovations, Incorporated, dated July 31, 1995.*
10.16 Marketing and Distribution Agreement between the Registrant and Sperry Marine
Inc., dated December 4, 1996.*
10.17 Warrant for the Purchase of Common Stock, par value $.002 per share, issued to
Sperry Marine Inc., dated December 12, 1996.*
10.18(a) Form of Registration Rights Agreement between the Registrant and the Holder,
dated as of January 29, 1997.*
(b) Schedule of Holders.*
10.19 Consulting Agreement between the Registrant and Whale Securities Co., L.P.*
23.01 Consent of BDO Seidman, LLP.
23.02 Consent of Shipman & Goodwin LLP, included in opinion filed as Exhibit 5.01.
24.01 Power of Attorney, included in the signature page of this registration statement.*
27.01 Financial Data Schedule*
</TABLE>
- ------------
* Previously filed
<PAGE>
LETTERHEAD OF SHIPMAN & GOODWIN LLP
April 30, 1997
Marine Management Systems, Inc.
470 West Avenue
Stamford, Connecticut 06902
Ladies and Gentlemen:
In connection with the proposed issuance by Marine Management Systems, Inc.
(the "Company") of up to 1,656,000 shares of its authorized but unissued Common
Stock, par value $.002 per share (the "Shares"), and up to 1,656,000 redeemable
warrants (the "Warrants") to purchase up to 1,656,000 shares of Common Stock
(the "Warrant Shares"), pursuant to a public offering, we have examined, as
counsel to the Company, the Registration Statement on Form SB-2 (and the
prospectus included therein), as amended, filed under the Securities Act of 1993
(the "Securities Act") and such other documents as we have deemed necessary or
appropriate in order to express the opinion set forth below.
In connection with our opinion hereinafter given, we have examined and
relied upon originals, or copies, certified or otherwise, identified to our
satisfaction, of such agreements, documents, certificates and other statements
of government officials, corporate officers and representatives and other
documents as we have deemed relevant and necessary as a basis for such opinion.
In such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that when (i) the
Registration Statement shall have become effective, and (ii) the Shares and the
Warrant Shares shall have been issued and delivered against payment therefor as
contemplated in the Registration Statement, in the case of the Shares, and the
Registration Statement and Warrant Agreement (as defined in the Registration
Statement), in the case of the Warrant Shares, the Shares and Warrant Shares
will be legally and validly issued, fully paid and non-assessable.
<PAGE>
Marine Management Systems, Inc.
April 30, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus included in the Registration Statement. In giving
this consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Shipman & Goodwin, LLP
-----------------------------
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Marine Management Systems, Inc.
Stamford, Connecticut
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 14, 1997, relating to the
financial statements of Marine Management Systems, Inc. which is contained in
that Prospectus. Our report contains an explanatory paragraph regarding the
Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in this
Prospectus.
/s/ BDO Seidman, LLP
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BDO Seidman, LLP
Valhalla, New York
April 29, 1997
