<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1997
REGISTRATION NO. 333-21043
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MARINE MANAGEMENT SYSTEMS, INC.
(Name of small business issuer in its charter)
<TABLE>
<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)
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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)
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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
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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. [ ]
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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.
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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 8, 1997
SUBJECT TO COMPLETION
MARINE MANAGEMENT SYSTEMS, INC.
1,200,000 SHARES OF COMMON STOCK AND
REDEEMABLE WARRANTS TO PURCHASE 1,200,000 SHARES OF COMMON STOCK
Marine Management Systems, Inc. (the "Company") is offering hereby
1,200,000 shares (the "Shares") of the common stock, par value $.002 per
share, of the Company (the "Common Stock") and redeemable warrants to
purchase 1,200,000 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."
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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.
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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) ................ $6,120,000 $612,000 $5,508,000
==============================================================================
(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 120,000 shares of Common
Stock and/or 120,000 warrants, to retain the Underwriter as a financial
consultant and to grant the Underwriter a right of first refusal in
connection with future financings. 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 $183,600
($211,140 if the Underwriter's over-allotment option is exercised in
full), estimated at $833,600.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 180,000
additional Shares and/or 180,000 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 $7,038,000, $703,800 and $6,334,200,
respectively. See "Underwriting."
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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.
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[Company LOGO]
Marine Management Systems, Inc.
Advanced Software Solutions
for the Marine Industry
[Photos of ships, ship's bridge and communications satellite dish]
MMS's software 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.
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 180,000 additional shares of Common Stock and/or 180,000 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
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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 9.8% 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."
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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 Investors. Each purchaser of Common Stock and
Warrants in Washington must be an "accredited investor," as that term is
defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
6
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THE OFFERING
Securities offered............. 1,200,000 shares of Common Stock and
warrants to purchase 1,200,000 shares of
Common Stock. See "Description of
Securities."
Common Stock to be outstanding
after this offering ........ 4,201,120 shares (1) (2)
Warrants (3)
Number to be outstanding
after this offering........ 1,200,000 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) 1,200,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants, (ii) an aggregate of 240,000
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:
<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
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------
As Adjusted
Actual Pro Forma (2) (2)(3)
------------ ------------- --------------
<S> <C> <C> <C>
Working capital (deficit) .... $(1,851) $(1,703) $2,834
Total assets ................. 3,612 3,935 6,995
Total liabilities ............ 3,863 4,038 2,530
Redeemable Preferred Stock ... 750 750 --
Stockholders' equity (deficit) (1,001)(1) (853) 4,465
</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 1,200,000 Shares and
1,200,000 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. 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 $1,174,150
(25.1%) 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 $1,400,250 (30.0%) 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 pro- ducts 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 38.7% 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. 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 Com- pany'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 loss of 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 6.3% 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."
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
17
<PAGE>
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 pro-
duct 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 $4.41 (88%) 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 $1.31 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 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
18
<PAGE>
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 4,201,120 shares of Common Stock
outstanding, of which the 1,200,000 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, 529,914 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 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 follow-
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<PAGE>
ing 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
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."
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<PAGE>
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; (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; and (iii)
to grant to the Underwriter a three- year right of first refusal to underwrite
or place any public or private sale of the Company's securities. 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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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,200,000 Shares and
1,200,000 Warrants offered hereby are estimated to be approximately
$4,674,400 ($5,473,060 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) . $1,400,250 30.0%
Software development (2) ......................... 1,200,000 25.7
Sales and marketing (3) .......................... 600,000 12.8
Entrance into communications business (4) ........ 200,000 4.3
Capital equipment (5) ............................ 100,000 2.1
Working capital and general corporate purposes (6) 1,174,150 25.1
------------- -------------
$4,674,400 100.0%
============= =============
</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 $58,326, 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."
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<PAGE>
If the Underwriter exercises its over-allotment option in full, the
Company will realize additional net proceeds of $798,660. If the 1,200,000
Warrants offered hereby are exercised, the Company will realize proceeds
relating thereto of $6,600,000, 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 1,200,000 Shares and the
1,200,000 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 $2,463,204 or $.59 per share.
This represents an immediate increase in net tangible book value of $1.31 per
share to existing stockholders and an immediate dilution of $4.41 (88%) 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>
<CAPTION>
<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 ......... 1.31
---------
Adjusted net tangible book value after this offering .......... .59
-------
Dilution to investors in this offering ........................ $4.41
=======
</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 71.4% $ 6,098,040 50.4% $2.03
New investors ....... 1,200,000 28.6 6,000,000 49.6 $5.00
----------- --------- ------------- ---------
Total ..... 4,201,120 100.0% $12,098,040 100.0%
=========== ========= ============= =========
</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
$6,900,000 for 1,380,000 shares of Common Stock, representing approximately
53.1% of the total consideration for 31.5% 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
1,200,000 Shares and 1,200,000 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 $ 1,580,000 $ --(1)
Current portion of long-term debt and capital
lease obligations ............................ 296,767 296,767 111,767
-------------- ------------- --------------
Total short-term debt ...................... $ 1,681,767 $ 1,876,767 $ 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
outstanding (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
outstanding (actual); 2,623,343 shares issued
and outstanding (pro forma); 4,201,120 shares
issued and outstanding (as adjusted)(2) ...... 5,402 5,247 8,402
Additional paid-in capital ...................... 5,333,475 5,092,793 10,764,038(3)
Accumulated deficit ............................. (5,950,629) (5,950,629) (6,306,955)(3)
Loans receivable officers ....................... (388,837)(4) -- --
-------------- ------------- --------------
Total stockholders' equity (deficit) ....... (1,000,589) (852,589) 4,465,485
-------------- ------------- --------------
Total capitalization .................... $ 681,703 $ 829,703 $ 5,820,853
============== ============= ==============
</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 $146,670 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) 1,200,000 shares of Common Stock reserved for
issuance upon exercise of the Warrants, (ii) an aggregate of 240,000
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 $58,326 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 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:
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------------
1995 1996
-------- ---------
<S> <C> <C>
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)%
======== =========
</TABLE>
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 $230,000 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 244% 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 $1,014,562. Through December 31,
1996, the Company had expended a total of $1,825,162 in connection with the
project and recognized contract revenues from the government for such project
in the amount of $912,518.
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 $1,968,029 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."
30
<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 $426,100 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 $263,400 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 $355,900 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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<PAGE>
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.
32
<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 Comp- any'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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<PAGE>
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 Vessel Reporting
o Maintenance Scheduling o Cargo Loading
o Equipment History Tracking o Personnel/Payroll Management
o Predictive Maintenance Interface 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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<PAGE>
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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<PAGE>
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>
<CAPTION>
<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.
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<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:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
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.
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
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<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. 42 Senior Vice President -- Operations and Director
Mark E. Story 41 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
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<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.
<TABLE>
<CAPTION>
Number of Shares
Name Underlying Warrants Expiration Date
-------------------- ------------------- ---------------
<S> <C> <C>
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
</TABLE>
- ------
(1) Robert F. Ohmes and Scott R. Ohmes are the sons of Robert D. Ohmes.
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<PAGE>
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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<PAGE>
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 1,200,000
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% 21.0%
Robert D. Ohmes ........................................... 492,649(4) 16.3% 11.7%
Scott R. Ohmes
41 Briar Oak Drive
Weston, CT 06883 .......................................... 313,830(5) 10.3% 7.4%
Connecticut Innovations, Incorporated
40 Cold Spring Road
Rocky Hill, CT 06067 ...................................... 277,777 9.3% 6.6%
COMSAT Mobile Investments, Inc.
6560 Rock Spring Drive
Bethesda, MD 20817 ........................................ 265,537(6) 8.8% 6.3%
Sperry Marine Inc.
1070 Seminole Trail
Charlottesville, VA 22901 ................................. 225,000(7) 7.2% 5.2%(8)
Donald F. Logan, Jr. ...................................... 105,890(9) 3.5% 2.5%
Mark E. Story ............................................. 99,258(10) 3.2% 2.3%
Lyman C. Hamilton, Jr.
69 Byron Drive
Avon, CT 06001 ............................................ 72,074 2.4% 1.7%
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% 38.7%
</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 4,201,120 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
9.8% 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 $23,700 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 April 29, 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, 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, to Sperry.
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
$137,000 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 4,201,120 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding.
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
53
<PAGE>
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 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 com-
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<PAGE>
pleted 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 240,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants and the warrants included therein. See "Underwriting."
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
55
<PAGE>
"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 66 2/3 % 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 4,201,120
shares of Common Stock outstanding (assuming no exercise of the Warrants or
other outstanding options or warrants), of which the 1,200,000 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,
529,944 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 two years 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 three years is entitled to sell such shares under Rule
144 without regard to any of the limitations described above. The Commission
has approved changes to Rule 144 to be adopted as of April 29, 1997 reducing
the foregoing two-year period and three-year period to one year and two
years, respectively.
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<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
1,200,000 Shares and 1,200,000 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 180,000
additional Shares and/or 180,000 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 120,000
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 120,000 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.
The Company has granted the Underwriter a three-year right of first
refusal to underwrite or place any public or private sale of debt or equity
securities of the Company, or of any subsidiary or successor of the Company,
offered for sale by the Company or any of its subsidiaries, successors or
securityholders. In addition, the Company's officers, directors and
substantially all of its securityholders have granted the Underwriter a
three- year right of first refusal to purchase for the Underwriter's account
or to sell for the account of the Company's officers, directors or such
securityholders, any securities of the Company sold through a broker, agent
or underwriter pursuant to Rule 144.
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-23
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 1,288,201 2,002,281
$1,306,426
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 - 750,000
authorized, none and 7,500 shares issued and outstanding (Note 9)
- ---------------------------------------------------------------------------------------------------------------------------------
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, 2,100 209,900 -
shares authorized, 2,099 shares issued and outstanding at December 31,
1995
Common stock, $.002 par value, 9,000,000 shares authorized, 2,007,576 and 4,015 5,402
2,701,110 issued and outstanding
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
==================================================================================================
</TABLE>
RESTUBBED TABLE
<TABLE>
<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 Business Description
Accounting Policies
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.
F-7
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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.
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.
F-8
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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 initial 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.
F-9
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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.
F-10
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
2. Property and Property and equipment consist of the following:
Equipment
December 31,
1995 1996
----------------------------------------------------------------
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
================================================================
3. Related Party The Company has outstanding loans to certain
Transactions 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.
F-11
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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.
5. Billings in Excess of Billings and costs on uncompleted contracts
Costs on Uncompleted (See Note 12) are summarized as follows:
Contracts
<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 $107,391 $81,704
contracts
==========================================================================================
</TABLE>
F-12
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
6. Long-term Debt and Long-term debt and capital lease obligations
Capital Lease consist of the following:
Obligations
<TABLE>
<CAPTION>
December 31,
1995 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Long term debt:
Note payable, Bank, payable in monthly installments of $275,000 $205,000
$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
guaranteed by certain officers/directors and matures
June 1998 (a)
Note payable, payable in monthly installments of $10,624 500,000 236,924
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)
- ------------------------------------------------------------------------------------------
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. At various dates
through January 3, 1997, 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.
F-13
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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
=====================================================
7. Subordinated Debt - Subordinated debt consists of the following:
Related Parties
<TABLE>
<CAPTION>
December 31,
1995 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Note payable, officer and director, interest $300,000 $300,000
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).
Note payable, officer and director, interest at the 200,000 200,000
prime rate plus 2%, 10-1/4% at December 31, 1996,
with no principal payment provisions, secured by
the assets of the Company (a).
Note payable, director, interest at 10% payable 62,500 -
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).
Note payable, interest at the prime rate plus 1%, 25,000 -
9-1/4% at June 30, 1996, payable 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).
Note payable, interest at 8%, payable on demand, 70,000 -
convertible into 259,259 shares of the Company's
common stock and is secured by the assets of the
Company (a) and (b).
Note payable, officers and related party, interest - 166,000
at 9%, payable monthly, due December 2, 1998,
secured by the general assets of the Company (a).
Unsecured note payable, director and related - 410,000
parties, interest at 10% due at the earlier of
April 1997 or the closing of the anticipated
initial public offering (a).
- ------------------------------------------------------------------------------------------
$657,500 $1,076,000
==========================================================================================
</TABLE>
F-14
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
--------
(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 The Company leases certain operating and data
Contingencies 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 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.
F-15
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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.
F-16
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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.
F-17
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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 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.
F-18
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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:
Year ended
December 31, 1996
--------------------------------------------------
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)
==================================================
F-19
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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>
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 $1.70
granted during the year
==========================================================================================
</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.
F-20
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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.
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.
F-21
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
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 Supplemental disclosure of cash flow information:
Flows - Supplemental
Disclosures
<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 two hundred thousand shares of
common stock of the Company at a price of $5
per share and one million two hundred 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.
(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.
F-22
<PAGE>
Marine Management
Systems, Inc.
Notes to Financial Statements
================================================================================
(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-23
<PAGE>
[COMPANY LOGO] Integrated Shipboard
Information Technology
(ISIT) PLATFORM
[GRAPHIC REPRESENTATION OF ISIT PLATFORM ARCHITECTURE
CONTAINING TEXT AS FOLLOWS:]
SHIPBOARD APPLICATIONS
Planned Crew Personnel Data Vessel
Maintenance Purchasing & Payroll Communication Status
[GRAPHIC] [GRAPHIC] [GRAPHIC] & E-MAIL [GRAPHIC]
[GRAPHIC]
FleetWORKS FleetWORKS FleetWATCH FleetLINK FleetWATCH
Cargo Safety & Condition Spare Parts Report
Loading Regulatory Monitoring & Consumables Writer
[GRAPHIC] [GRAPHIC] [GRAPHIC] Inventory [GRAPHIC]
[GRAPHIC]
FleetWATCH FleetWORKS FleetWORKS FleetWORKS FleetREPORT
[GRAPHIC]
SHIPBOARD HARDWARE
Navigation Machinery Communications Engine Vessel Voyage
Control Control Monitoring Traffic Data
System Recorder
[GRAPHIC]
INFORMATION LAYER
System & Safety Databases
[GRAPHIC]
ISIT PLATFORM
ISIT Executive Services, Data Acquisition Services and
System Communications
[GRAPHIC]
OPERATING SYSTEM
Windows NT TM
MMS is developing the ISIT platform to permit the integration of a myriad of
ship equipment and informational systems (including porposed ISIT-compliant
versions of MMS's Fleet Manager Series software products) under a common
protocol and to provide a standard interface to shore-based systems. MMS
believes it is the only company developing a systems operating environment
compliant with recently created ASTM and proposed ISO standard, which standards
are expected to become the software operating systems standards for the
industry.
<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
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary ........................ 3
Risk Factors .............................. 10
Use of Proceeds ........................... 22
Dividend Policy ........................... 23
Dilution .................................. 23
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
</TABLE>
------
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.
1,200,000 Shares of Common Stock
and
Redeemable Warrants to Purchase
1,200,000 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>
<CAPTION>
<S> <C>
SEC registration fee .......................................... $ 4,756.19
NASD filing fee ............................................... 2,069.55
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 ................................................. 5,674.26
-------------
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 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 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 Associates 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 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 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.*
II-3
<PAGE>
</TABLE>
<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, 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 Administration 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
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 8, 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 and April 8, 1997
-------------------------- Director
Eugene D. Story
/s/ Robert D. Ohmes Executive Vice President, Chief Financial April 8, 1997
-------------------------- Officer, Secretary and Director (Principal
Robert D. Ohmes Accounting Officer)
Donald F. Logan, Jr.* Senior Vice President - Operations and April 8, 1997
-------------------------- Director
Donald F. Logan, Jr.
Mark E. Story* Vice President - Technical and Director April 8, 1997
--------------------------
Mark E. Story
Donald W. Forster* Director April 8, 1997
--------------------------
Donald W. Forster
Lyman C. Hamilton, Jr.* Director April 8, 1997
--------------------------
Lyman C. Hamilton, Jr.
Michael C. Hughes* Director April 8, 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 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 Associates
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 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 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.*
<PAGE>
</TABLE>
<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 Administration 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>
EXHIBIT 3.02
BYLAWS
OF
MARINE MANAGEMENT SYSTEMS, INC.
(a Delaware corporation)
ARTICLE I
---------
STOCKHOLDERS
------------
1. Certificates Representing Stock. Certificates representing stock in
the Corporation shall be signed by, or in the name of, the Corporation by the
Chairman or Vice-Chairman of the Board of Directors, if any, or by the President
or a Vice-President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Corporation. Any or all of the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
Corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The Corporation may issue a new certificate of stock or uncertificated
shares in place of any certificate theretofore issued by it, alleged to have
been lost, stolen, or destroyed, and the Board of Directors may require the
owner of the lost, stolen or destroyed certificate, or his legal representative,
to give the Corporation a bond sufficient to indemnify the Corporation against
any claim that may be made against it on account of the alleged loss, theft, or
destruction of any such certificate or the issuance of any such new certificate
or uncertificated shares.
2. Uncertificated Shares. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the Corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the Corporation shall be uncertificated shares. Within a reasonable
2
<PAGE>
time after the issuance or transfer of any uncertificated shares, the
Corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. Fractional Share Interests. The Corporation may, but shall not be
required to, issue fractions of a share. If the Corporation does not issue
fractions of a share, it shall (1) arrange for the disposition of fractional
interests by those entitled thereto, (2) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (3) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the Corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the condition that
they shall become void if not exchanged for certificates representing the full
shares or uncertificated full shares before a specified date, or subject to the
conditions that the shares for which scrip or warrants are exchangeable may be
sold by the Corporation and the proceeds thereof distributed to the holders of
scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. Stock Transfers. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the Corporation shall be made
only on the stock ledger of the Corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. Record Date for Stockholders. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
2
<PAGE>
day on which notice is given, or, if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the Corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by the General Corporation Law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion, or
exchange of stock, or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than sixty days prior to such action. If no record date
is fixed, the record date for determining stockholders of any such purpose shall
be at the close of business on the day on which the Board of Directors adopts
the resolution relating thereto.
6. Meaning of Certain Terms. As used herein in respect to the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the Corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
3
<PAGE>
shares of stock and any holder or holders of record of outstanding shares of
stock of any class upon which or upon whom the Certificate of Incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the Certificate of Incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the Certificate of Incorporation, except as any provision of law
may otherwise require.
7. Stockholder Meetings.
--------------------
Time. The annual meeting shall be held on the date and at the
time fixed, from time to time, by the directors, provided, that the first annual
meeting shall be held on a date within thirteen months after the organization of
the Corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
Place. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the directors may, from
time to time, fix. Whenever the directors shall fail to fix such place, the
meeting shall be held at the registered office of the Corporation in the State
of Delaware.
Call. Annual meetings and special meetings may be called by
the directors or by any officer instructed by the directors to call the meeting.
Special Meetings of the Stockholders may be called at any time for any purpose
or purposes by the request in writing of a stockholder or stockholders holding
of record at least twenty-five percent (25%) of the outstanding shares of stock
of the Company entitled to vote at such meeting. Such request shall state the
purpose or purposes of the proposed meeting.
Notice or Waiver of Notice. Written notice of all meetings
shall be given, stating the place, date, and hour of the meeting and stating the
place within the city or other municipality or community at which the list of
stockholders of the Corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any
4
<PAGE>
meeting shall also include, or be accompanied by, any additional statements,
information, or documents prescribed by the General Corporation Law. Except as
otherwise provided by the General Corporation Law, a copy of the notice of any
meeting shall be given, personally or by mail, not less than ten days nor more
than sixty days before the date of the meeting, unless the lapse of the
prescribed period of time shall have been waived, and directed to each
stockholder at his record address or at such other address which he may have
furnished by request in writing to the Secretary of the Corporation. Notice by
mail shall be deemed to be given when deposited, with postage thereon prepaid,
in the United States Mail. If a meeting is adjourned to another time, not more
than thirty days hence, and/or to another place, and if an announcement of the
adjourned time and/or place is made at the meeting, it shall not be necessary to
give notice of the adjourned meeting unless the directors, after adjournment,
fix a new record date for the adjourned meeting. Notice need not be given to any
stockholder who submits a written waiver of notice signed by him before or after
the time stated therein. Attendance of a stockholder at a meeting of
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
Stockholder List. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote at any meeting of
stockholders.
Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
5
<PAGE>
stockholders. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
Proxy Representation. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the Corporation generally.
Inspectors. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspectors at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question, or matter determined by him
or them and execute a certificate of any fact found by him or them.
Quorum. The holders of a majority of the outstanding shares of
stock shall constitute a quorum at a meeting of stockholders for the transaction
of any business. The stockholders present may adjourn the meeting despite the
absence of a quorum.
6
<PAGE>
Voting. Each share of stock shall entitle the holders thereof
to one vote. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Any other action shall be authorized by a
majority of the votes cast except where the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power, and
except as may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. Stockholder Action Without Meetings. Any action required by the
General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
----------
DIRECTORS
---------
1. Functions and Definition. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
of the Corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the Corporation would have if
there were no vacancies.
2. Qualifications and Number. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The
initial Board of Directors shall consist of seven persons. Thereafter, the
number of directors constituting the whole board shall be at least one. Subject
to the foregoing limitation and except for the first Board of Directors, such
number may be fixed from time to time by action of the stockholders or of the
directors, or, if the number is not fixed, the number shall be nine. The number
of directors may be increased or decreased by action of the stockholders of the
Corporation.
7
<PAGE>
3. Election and Term. The first Board of Directors, unless the members
thereof shall have been named in the certificate of incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the Corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. Meetings.
--------
Time. Meetings shall be held at such time as the Board shall
fix, except that the first meeting of a newly elected Board shall be held as
soon after its election as the directors may conveniently assemble.
Place. Meetings shall be held at such place within or without
the State of Delaware as shall be fixed by the Board.
Call. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, or the President, or of a majority of the directors in the office.
Notice or Actual or Constructive Waiver. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special
8
<PAGE>
meeting of the directors need be specified in any written waiver of notice.
Quorum and Action. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
Board. A majority of the directors is present, whether or not a quorum is
present, may adjourn a meeting to another time and place. Except as herein
otherwise provided, and except as otherwise provided by the General Corporation
Law, the vote of the majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board. The quorum and voting
provisions herein stated shall not be construed as conflicting with any
provisions of the General Corporation Law and these Bylaws which govern a
meeting of directors held to fill vacancies and newly created directorships in
the Board or action of disinterested directors.
Any member or members of the Board of Directors or of any
committee designated by the Board, may participate in a meeting of the Board, or
any such committee, as the case may be, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other.
Chairman of the Meeting. The Chairman of the Board, if any,
and if present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any, and if present and acting, or the President,
if present and acting, or any other director chosen by the Board, shall preside.
5. Removal of Directors. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of any such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation with the exception of
any authority the delegation of
9
<PAGE>
which is prohibited by Section 141 of the General Corporation Law, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it.
7. Written Action. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the Board or committee.
ARTICLE III
-----------
OFFICERS
--------
The officers of the Corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the Corporation shall have such authority and perform
such duties in the management and operation of the Corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the Corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
10
<PAGE>
ARTICLE IV
----------
CORPORATE SEAL
--------------
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
---------
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
----------
CONTROL OVER BYLAWS
-------------------
Subject to the provisions of the certificate of incorporation and the
provisions of the General Corporation Law, the power to amend, alter, or repeal
these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors
or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true and correct copy of
the Bylaws of Marine Management Systems, Inc., a Delaware corporation, as in
effect on the date hereof.
Dated: March 25, 1997
/s/ Robert D. Ohmes
-----------------------------
Secretary
(SEAL)
11
<PAGE>
NUMBER SHARES
M
MARINE MANAGEMENT SYSTEMS, INC.
CUSIP
INCORPORATED UNDER THE LAWS SEE REVERSE SIDE
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK
OF THE PAR VALUE OF $.002 PER SHARE OF
MARINE MANAGEMENT SYSTEMS, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate, properly
endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Countersigned and Registered American Stock Transfer & Trust Company (New
York, N.Y.) Transfer Agent and Registrar
By
---------------------
Authorized Officer
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[SEAL]
SECRETARY PRESIDENT
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE
CORPORATION.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT - as tenants by the entireties ------ --------
JT TEN - as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
-------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
-----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFICATION NUMBER OF ASSIGNEE
[ ]
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------- shares
of the capital stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
- ---------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Company
with full power of substitution in the premises.
Dated:
-------------------
----------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- -------------------------------------------
THE SIGNATURES(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 4.02
VOID AFTER , 2002
WARRANT CERTIFICATE FOR PURCHASE OF
COMMON STOCK
NUMBER MARINE MANAGEMENT SYSTEMS, INC. WARRANTS
MW
THIS IS TO CERTIFY THAT,
or registered assigns, is the owner of the number of warrants set forth above.
Each Warrant (subject to adjustments as hereinafter referred to) entitles the
owner hereof to purchase at any time from , 1998 until 5:00 p.m.
Eastern Time on , 2002 one fully paid and non-assessable share
of common stock (the "Common Stock") of Marine Management Systems, Inc., a
Delaware corporation (the "Company") (such shares of Common Stock being
hereinafter referred to as the "Shares" or a "Share"), upon payment of the
warrant price (as hereinafter described), provided, however, that under certain
conditions set forth in the Warrant Agreement hereinafter mentioned, the number
of Shares purchasable upon the exercise of this Warrant may be increased or
reduced and the warrant price may be adjusted. Subject to adjustment as
aforesaid, the warrant price per Share (hereinafter called the "Warrant Price")
shall be $5.50 per Share if exercised on or before 5:00 p.m. Eastern Time on
, 2002. As provided in said Warrant Agreement, the Warrant
Price is payable upon the exercise of the Warrant, either in cash or by
certified check or bank draft to the order of the Company.
Under certain conditions set forth in the Warrant Agreement, this Warrant may
be called for redemption on or after , 1998, at a redemption price
of $0.10 per Warrant upon 30 days' written notice.
Upon the exercise of this Warrant, the form of election to purchase on the
reverse hereof must be properly completed and executed. In the event that this
Warrant is exercised in respect to less than all of such Shares, a new Warrant
for the remaining number of Shares will be issued on such surrender.
This Warrant is issued under and the rights represented hereby are subject to
the terms and provisions contained in a Warrant Agreement dated as of ,
1997, by and among the Company, American Stock Transfer & Trust Company, as
Warrant Agent (the "Warrant Agent") and Whale Securities Co., L.P., all the
terms and provisions of which the registered holder of this Warrant, by
acceptance hereof, assents. Reference is hereby made to said Warrant Agreement
for a more complete statement of the rights and limitations of rights of the
registered holders hereof, the rights and duties of the Warrant Agent and the
rights and obligations of the Company thereunder. Copies of said Warrant
Agreement are on file at the office of the Warrant Agent.
The Company shall not be required upon the exercise of this Warrant to issue
fractions of Shares, but shall make adjustment therefor in cash on the basis of
the current market value of any fractional interest as provided in the Warrant
Agreement.
This Warrant is transferable at the office of the Warrant Agent (or its
successor as Warrant Agent) by the registered holder hereof in person or by
attorney duly authorized in writing, but only in the manner and subject to the
limitations provided in the Warrant Agreement and upon surrender of this Warrant
and the payment of any transfer taxes. Upon any such transfer, a new Warrant, or
new Warrants of different denominations, of this tenor and representing in the
aggregate the right to purchase a like number of Shares will be issued to the
transferee in exchange for this Warrant.
This Warrant, when surrendered at the office of the Warrant Agent (or its
successor as Warrant Agent) by the registered holder hereof in person or by
attorney duly authorized in writing, may be exchanged in the manner and subject
to the limitations provided in the Warrant Agreement, for another Warrant, or
other Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Shares equal to the number of
such Warrants.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
securities purchasable upon the exercise of the Warrants are closed for any
purpose, the Company shall not be required to make delivery of certificates for
the securities purchasable upon such exercise until the date of the reopening of
said transfer books.
The holder of this Warrant shall not be entitled to any of the rights of a
shareholder of the Company prior to the exercise hereof.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
WITNESS the facsimile seal of the Company and the facsimile signature of its
duly authorized officers.
DATED:
[SEAL]
SECRETARY PRESIDENT
COUNTERSIGNED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
BY: TRANSFER AGENT
AUTHORIZED OFFICER
<PAGE>
MARINE MANAGEMENT SYSTEMS, INC.
ELECTION TO PURCHASE
To Be Executed by the Registered Holder in Order to Exercise Warrants
To: MARINE MANAGEMENT SYSTEMS, INC.
c/o: American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant(s) for and to purchase thereunder,
shares of Common Stock provided for therein and tenders herewith payment of the
purchase price in full to the order of the Corporation and requests that
certificates for such shares shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
- -----------------------------|
|
|
- -------------------------------------------------------------------------------
(Please Print or Typewrite)
and be delivered to
------------------------------------------------------------
(Name)
at
----------------------------------------------------------------------------
(Street Address) (City) (State) (Zip Code)
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and
delivered to, the undersigned at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm, it will be assumed that the exercise was solicited by Whale Securities
Co., L.P.
Date: Signature:
-------------------------------- ------------------------------
Note: The above signature must
Name: correspond with the name as
-------------------------------- written upon the face of this
(Please Print or Typewrite) Warrant or with the name of the
Address: assignee appearing in the
----------------------------- assignment form below in every
(Street) particular without alteration
or enlargement or any change
- ------------------------------------- whatever.
(City) (State) (Zip Code)
*Signature Guaranteed:
------------------------------
|-----------------------------|
| |
|-----------------------------|
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
<PAGE>
ASSIGNMENT
For value received, hereby sell, assign
---------------------------------------
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------|
|
|
- -------------------------------------------------------------------------------
Please Print or Typewrite name and
- -------------------------------------------------------------------------------
address including postal zip code of assignee
( ) Warrants
- ---------------------------------------------------------- --------
represented by the within Warrant Certificate, together with all right, title
and interest therein, and do hereby irrevocably constitute and appoint
attorney
- ----------------------------------------------------------------------
to transfer said Warrant on the books of the within name Corporation, with
full power of substitution in the premises.
Dated , 19
------------------------------- ------
Signature:
------------------------------------
Note: The above signature must correspond
with the name as written upon the face of
this Warrant in every particular without
alteration or enlargement or any change
whatever.
*Signature Guaranteed:
------------------------------
* In case of assignment, or if the Common Stock issued upon exercise is to be
registered in the name of a person other than the holder, the holder's
signature must be guaranteed by a commercial bank, trust company or an NASD
member firm.
<PAGE>
Exhibit 5.01
Shipman & Goodwin LLP One American Row
Counselors at Law Hartford, CT 06103-2819
Tel: (860) 251-5000
April 8, 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 1,380,000 shares of its authorized but unissued
Common Stock, par value $.002 per share (the "Shares"), and up to 1,380,000
redeemable warrants (the "Warrants") to purchase up to 1,380,000 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 8, 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>
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 the
Prospectus.
/s/ BDO Seidman, LLP
----------------
BDO Seidman, LLP
Valhalla, New York
April 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 58,117
<SECURITIES> 0
<RECEIVABLES> 954,480
<ALLOWANCES> 0
<INVENTORY> 22,307
<CURRENT-ASSETS> 1,079,769
<PP&E> 380,789
<DEPRECIATION> 170,340
<TOTAL-ASSETS> 3,612,554
<CURRENT-LIABILITIES> 2,930,851
<BONDS> 0
750,000
0
<COMMON> 5,402
<OTHER-SE> (1,005,991)
<TOTAL-LIABILITY-AND-EQUITY> 3,612,554
<SALES> 4,350,282
<TOTAL-REVENUES> 4,350,282
<CGS> 3,017,950
<TOTAL-COSTS> 2,719,114
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 455,532
<INCOME-PRETAX> (1,842,314)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,842,314)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,842,314)
<EPS-PRIMARY> (.67)
<EPS-DILUTED> (.67)
</TABLE>
