SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the fiscal year ended September 28, 1996.
Commission file number 0-8936.
DATAMARINE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2454559
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7030 220th S.W., Mountlake Terrace, Washington 98043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 771-2182
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, with par value of $.01
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of December 20, 1996 was approximately $5,978,000.
The number of shares of the Registrant's common stock outstanding as of
December 20, 1996 was 1,309,786 shares.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Information from the Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A for the 1997 Annual Meeting of Stockholders is
incorporated by reference into Part III, Items 10, 11, 12 and 13.
The total number of pages in this Form 10-K is 41.
See Index to Exhibits on page 31.
PART I
ITEM 1. BUSINESS
Introduction
Datamarine International, Inc. and its subsidiaries (collectively the
"Company") manufacture radio communications and navigation instrumentation
products. Presently, the Company's primary operations are in a single industry
segment, namely electronics. The Company also owns and manages specialized
mobile radio ("SMR") licenses in the 220 MHz radio service, although such
operations to date have been negligible.
Datamarine International, Inc. was incorporated in Massachusetts on April 23,
1969. All of the Company's product development and manufacturing facilities are
at its Mountlake Terrace, Washington location. It has sales and service
facilities on the East and West coasts of the United States and in Sydney,
Australia. Sales of marine communication products, branded SEA, and marine
instrumentation products, branded Datamarine, are made worldwide through
approximately 300 dealers in the United States and dealers in approximately 20
foreign countries.
Sales of narrowband communications products for the land mobile radio market
are made through the Company's wholly-owned subsidiary, SEA, Inc. ("SEA"), to
business users nationwide. SEA has developed and marketed narrowband radio
equipment since 1984 and began selling its newest line of narrowband equipment
for use in the 220 MHz band in the fourth quarter of FY1993. Sales to the land
mobile radio market were 58% of consolidated sales in FY1996 compared to 45% in
1995 and 36% in 1994.
On October 19,1992, the Federal Communications Commission ("FCC") conducted a
lottery which has led to the issuance of approximately 3,500 licenses for a new
land mobile service in the 220-222 MHz band. The FCC adopted challenging
technical parameters for the equipment to be used in the 220 MHz radio service.
By establishing these parameters the FCC intended to encourage the development
of new spectrum-efficient technologies for land mobile applications. This
service is mandated to use narrowband technologies which will result in a
fivefold increase in the number of communications channels as compared to
conventional technologies. SEA was the first manufacturer to receive FCC type
acceptance for 220 MHz radio equipment. SEA shipped its first 220 MHz radios in
July 1993.
As of September 30, 1996 ownership of licenses for locations which had not met
regulatory build-out requirements reverted to the Federal government. The FCC
intends to conduct an auction for new licenses, but specific rules and timing
for the auction have not been set. No new licenses will be issued until the
auction is completed. Until such time as new licenses are issued, demand for
the Company's higher margin base station products will be lower than in
previous years.
During FY1995 Narrowband Network Systems, Inc. ("NNS") was incorporated in the
state of Washington as a subsidiary of SEA, and SEA owns 97.5% of NNS's
outstanding stock. NNS was formed to participate in the business of providing
SMR services. NNS has entered into both "Management Agreements" and "Operator
Agreements" with the holders of 220 MHz licenses granted by the FCC related to
SMR services in approximately 45 market areas across the United States.
Management Agreements require NNS to construct, develop and operate SMR systems
in certain markets. Operator Agreements require NNS to provide licenses, system
facilities and "SMR Operators" in certain markets.
The Management Agreements typically allow NNS to acquire the license holder's
interest in exchange for a percentage of gross receipts from the system and a
percentage of any profit realized by NNS upon the system's ultimate
disposition. The Operator Agreements typically give NNS a contractual
percentage of system revenue based on the level of support provided to each
system. The Company has met all regulatory build-out requirements related to
its licenses. Because NNS commenced only limited operations at the end of 1995,
revenues and associated expenses were negligible during the years ended
September 28, 1996 and September 30, 1995.
Foreign sales accounted for approximately 6% of the Company's consolidated
sales in FY1996, 8% in FY1995 and 14% in FY1994. Foreign sales are declining as
a percentage of total sales because narrowband products are only sold
domestically.
Products and Marketing
The composition of the Company's sales by product line was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Land mobile communications $ 9,531,816 58% $ 6,642,984 45% $ 4,272,085 36%
Marine communications 5,011,520 30% 5,296,945 36% 4,234,524 36%
Marine instrumentation 2,046,666 12% 2,846,729 19% 3,322,828 28%
------------------------------------------------------------------
Total $ 16,590,002 100% $ 14,786,658 100% $ 11,829,437 100%
==================================================================
</TABLE>
Land Mobile Communications -- The Company's narrowband land mobile radio system
products have been type accepted by the FCC for use in the 220 MHz radio
service. These products consist of hand held, mobile and base station
components, utilizing the narrowband technology, an enhanced form of single
sideband that is ideal for the 5 KHz channel width used in the 220 MHz radio
service, and were developed for sale to business users of private land mobile
radio services. The narrowband technology helps solve the problem of frequency
congestion by allowing five narrowband channels to be operated within the same
spectrum as would presently be utilized by one 25 KHz FM channel.
Marine Communications -- The SEA marine communications products are high
performance radios used on commercial vessels, fishing vessels and ocean-going
yachts. The product line currently consists of 28 products with suggested list
prices of between $765 and $5,505. The SEA Products include HF/SSB and VHF/FM
radios, Satcom C, Weather fax, Emergency distress radio beacons (EPIRBS),
Search and rescue transponders (SARTS) and Global Marine Distress and Safety
Radio Systems (GMDSS).
Marine Instrumentation -- Marine instrumentation products are sold primarily to
the recreational boating market. The products are well established in the
marketplace with up-to-date instruments for each type of pleasure craft: small
boats and yachts; sail and power; inshore and offshore. The Datamarine product
line currently consists of 15 products sold under the DART, LINK, Corinthian
and ChartLINK names, with suggested list prices of between $400 and $3900. The
Datamarine products include depth sounders, knotmeters and water temperature
instruments, wind speed and direction instruments, integrated instruments, and
video chart displays.
Competition and Markets
Datamarine and its subsidiary, SEA, are generally considered to be leading
suppliers of marine instruments and radio communication products to the marine
markets. Approximately 20 electronics manufacturers have competing models in
their product lines and are considered competitors.
SEA has at this time one competitor supplying narrowband equipment for the 220
MHz radio service. Approximately 25 competitors offer alternative FM land
mobile products for use in other radio services and could become competitive
suppliers of equipment in the 220 MHz radio service market.
Several of the Company's competitors in the various markets have substantially
greater financial, technical and marketing resources.
The Company's business does not depend on any single customer, the loss of whom
would have a materially adverse impact on the Company's business. No portion of
the Company's business is subject to renegotiation of profits or termination of
contracts or sub-contracts at the election of the government. The markets for
the Company's products are generally not considered to be seasonal.
Sales order backlogs stood at $5,412,000 at September 28, 1996, compared to
$9,794,000 at September 30, 1995. Of the total September 28, 1996 backlog, land
mobile products represented $5,208,000. Land mobile orders are subject to
cancellation under certain conditions and the Company does not consider the
land mobile backlog to be firm. Sales expected to be realized by filling orders
comprising the land mobile backlog are highly dependent upon FCC actions as
described above.
Suppliers
Certain components in the Company's products, such as printed circuits and
injection molded plastic parts, are provided by local vendors using tooling and
designs owned by the Company. The Company believes that adequate alternative
sources of supply are available for these purchased components along with other
supplies and raw materials. The Company and its subsidiaries maintain
sufficient inventory to continue production for a reasonable period if new
material sources are required.
Warranty
Depending upon the product, they are sold with either a one-year or two-year
parts and labor limited warranty.
Research and Development
The Company is committed to a continuing program of designing new products and
improving the product designs presently in production. During FY 1996, FY1995
and FY1994 the Company spent approximately $1,235,000, $1,420,000 and
$1,414,000, respectively, on Company-sponsored research and development for
continuing operations and had approximately 16 full-time employees engaged in
such activities.
Patents
The Company has two United States patents related to its radio products. The
Company views its patents as valuable assets, but believes that its position in
the market is not dependent upon the protection offered thereby.
Employees
The Company had approximately 110 full-time employees on September 28, 1996.
This compares to 100 on September 30, 1995 and 135 on October 1, 1994. The
Company has no collective bargaining agreements and believes relations with its
employees are good.
Environmental
The Company knows of no statutory requirements with respect to environmental
quality which can be expected to have a material effect upon the Company's
capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
The manufacturing and general administrative offices of the Company are located
in a 28,500 square-foot building in Mountlake Terrace, Washington, pursuant to
a lease which expires in June 1998. During FY1995 the Company renegotiated its
lease at the Pocasset, Massachusetts facility through June 1997 where the
service facility for the marine instrumentation product line now occupies 5000
square-feet. The sales and warehousing operation of a majority-owned
subsidiary, Datamarine International Australia, PTY, LTD., is located in a
leased 2,500 square-foot masonry steel building in Artarmon, New South Wales,
Australia. A subsidiary, Nautical Realty A/S, owns a 20,000 square-foot steel
and concrete industrial building, subject to mortgage, located in Sorup,
Denmark, which is leased under a twelve-year contract, including extensions,
expiring in 1998 to an unaffiliated tenant. All of the above-mentioned
facilities are well maintained and suitable and adequate for the present
activities therein.
ITEM 3. LEGAL PROCEEDINGS
On December 12, 1996 the Company filed a collection action against one of its
customers for accounts totaling approximately $132,000 at September 28, 1996.
On December 23, 1996 the same customer filed suit against the Company alleging
breach of certain express and implied warranty and contractual obligations, and
negligent representation with respect to sales of the Company's narrowband
products. The suit seeks $6,000,000 - $9,000,000 in damages and unspecified
amounts for interest and other costs. The ultimate outcome of the litigation
cannot presently be determined. The Company is not aware of any other legal
proceedings or claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended September 28, 1996, no
matter was submitted to a vote of security holders through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded Over-The-Counter and is quoted on the
NASDAQ National Market System under the ticker symbol "DMAR". As of December
20, 1996, there were approximately 1000 stockholders of record.
The accompanying table shows the range of trading prices for the past two years
by fiscal quarter:
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
------ ------ ------ ------
<S> <S> <C> <C> <C> <C>
FY 1996: High 11 1/4 11 1/4 13 3/4 11 3/4
Low 5 7/8 7 7/8 9 1/4 9
FY 1995: High 17 13 3/8 11 1/4 9 3/4
Low 9 1/4 7 3/4 8 1/4 7 1/2
</TABLE>
No dividends have been declared or paid by the Company. The Company currently
intends to retain its earnings to fund the development and growth of its
business.
ITEM 6. SELECTED FINANCIAL DATA
All of the historical selected financial data set forth below has been derived
from audited financial statements of the Company.
<TABLE>
<CAPTION>
September 28, September 30, October 1, October 2, October 3,
Income Statement Data for the Year Ended 1996 1995 1994 1993 1992
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 16,590,002 $ 14,786,658 $ 11,829,437 $ 7,948,840 $ 9,304,961
Cost of products sold 9,555,599 9,128,693 7,049,898 5,252,053 5,626,136
Operating expenses, excluding restructuring
charge 5,627,499 5,584,954 5,159,848 4,697,510 4,591,994
Restructuring charge - 686,458 - - -
---------------------------------------------------------------------------
Operating income (loss) 1,406,904 (613,447) (380,309) (2,000,723) (913,169)
---------------------------------------------------------------------------
Interest expense 316,564 193,037 62,258 13,174 61,171
Other (income) expense (48,724) (39,719) (46,619) 19,008 (1,873)
Income tax expense (benefit) 388,083 (1,083,640) - (132,506) (243,000)
---------------------------------------------------------------------------
Income (loss) from continuing operations 750,981 316,875 (395,948) (1,900,399) (729,467)
Discontinued operations: - - - - -
Net income - - - 129,026 282,211
Net gain on sale - - - 239,553 -
---------------------------------------------------------------------------
Net income (loss) $ 750,981 $ 316,875 $ (395,948) $ (1,531,820) $ (447,256)
===========================================================================
Income (loss) Per Share:
Continuing operations $ .49 $ .23 $ (0.33) $ (1.59) $ (0.62)
Discontinued operation - - - .31 .24
---------------------------------------------------------------------------
Net income (loss) $ .49 $ .23 $ (0.33) $ (1.28) $ (0.38)
===========================================================================
<CAPTION>
September 28, September 30, October 1, October 2, October 3,
Balance Sheet Data 1996 1995 1994 1993 1992
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total assets $ 12,649,846 $ 9,323,581 $ 7,862,611 $ 6,359,826 $ 8,717,397
Notes payable to banks 1,750,000 1,325,353 795,353 400,000 700,000
Long-term debt 2,022,978 642,800 439,819 274,337 783,676
Stockholders' equity 6,536,934 5,198,391 4,331,293 4,624,006 6,026,633
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following tables set forth certain items (expressed as a percentage of net
sales) included in Selected Financial Data and should be read in connection
with the Consolidated Financial Statements of the Company including the Notes
to such Statements, presented elsewhere in this report.
<TABLE>
<CAPTION>
Income and Expense Items
As a Percentage of Net Sales Percentage
Increase (Decrease) Increase (Decrease)
----------------------------- -------------------
1995 1994
to to
1996 1995 1994 1996 1995
<C> <C> <C> <S> <C> <C>
100% 100% 100% Net sales 12% 25%
58 62 60 Cost of products sold 5 29
42 38 40 Gross profit 24 18
7 10 12 Research and development (13) -
16 16 19 Selling 9 10
11 12 13 General and administrative 1 13
- 4 - Restructuring charge n.m. n.m.
34 42 43 Operating expenses (10) 22
9 (4) (3) Operating income (loss) n.m. n.m.
2 1 1 Interest expense 49 210
- - (1) Other (income) expense, net 21 (15)
7 (5) (3) Income (loss) before income taxes n.m. 93
2 (7) - Income tax expense (benefit) n.m. n.m.
5% 2% (3)% Net income (loss) 137 n.m.
</TABLE>
Fiscal 1996 compared to 1995
Net sales increased by $1,803,344 or 12%, to $16,590,002 for 1996 from
$14,786,658 in 1995. Net sales of the Company's narrowband products increased
by $2,888,832, or 43%, to $9,531,816 for 1996 from $6,642,984 in 1995. Net
sales of the Company's marine radio systems decreased by $285,425, or 5%, to
$5,011,520 for 1996 from $5,296,945 in 1995. Net sales of the Company's
recreational marine instrumentation systems declined by $800,063, or 28%, to
$2,046,666 for 1996 from $2,846,729 in 1995.
Sales of narrowband products are greatly influenced by the regulatory
environment, principally license and operating rules issued by the FCC. The
Company cannot control, nor reliably predict which rules the FCC will issue and
the effective dates thereof, although management expects future revenue growth
from this product line. Sales of marine radio systems and are expected to
improve slightly in the upcoming year due to higher sales of existing products
and sales of new products. Sales of marine instrumentation systems have
declined over the last four years and are expected to improve as the Company
introduces new products in 1997.
Gross profit for 1996 was $7,034,403 (42% of net sales), as compared to
$5,657,965 (38% of net sales) in 1995, an increase of $1,376,438 or 24%. The
gross profit on narrowband products for 1996 was $3,718,826 (39% of such
sales), as compared to $3,003,527 (45% of such sales) in 1995, an increase of
$715,299 or 24%. Margins on narrowband products fluctuate based on product mix,
and generally are higher on base station products than on mobile radios. In the
coming years, narrowband sales will likely be comprised of a greater proportion
of mobile radios rather than base stations, and thus will likely achieve a
lower overall percentage margin than was achieved for 1996. The gross profit on
marine radio systems for 1996 was $2,221,079 (44% of such sales), as compared
to $2,156,023 (41% of such sales), an increase of $65,056 or 3%. Margins on
marine communications products were slightly higher in 1996 due to sales of the
new GMDSS products. The gross profit on marine instrumentation systems for 1996
was $1,094,978 (53% of such sales), as compared to $498,415 (18% of such
sales), an increase of $596,083 or 120%. Margins on marine instrumentation
products were higher due to lower production costs realized by the move of
marine instrumentation production to the Mountlake Terrace, Washington
facility.
Operating expenses were $5,627,499 (34% of net sales) in 1996, as compared to
$6,271,412 (42% of net sales) in 1995, a decrease of $643,913 or 10%. 1995
operating expenses included a restructuring charge of $686,458. Comparable
operating expenses excluding the 1995 restructuring charge increased $42,545.
Selling expenses increased $218,336, due mainly to sales commissions on higher
sales volume. Administrative expenses increased $9,099. Lower professional fees
and savings from the consolidation of administrative operations in Mountlake
Terrace were offset by depreciation expense in NNS.
During 1995 the Company established a special charge of $686,458 in connection
with a restructuring program designed to improve productivity and permanently
reduce costs. The Company moved corporate administrative functions and
production of its Datamarine product line to its facility in Mountlake Terrace,
Washington. Costs associated with the restructuring included the write down of
leasehold improvements, product tooling and equipment to net realizable values,
the phase out of certain products, employee termination benefits, and the costs
to settle the long-term lease of the Massachusetts facility.
The restructuring was announced effective January 1995 and was substantially
completed by December 31, 1995. The program resulted in the permanent reduction
of approximately 30 employees and 35,000 square feet of manufacturing and
office space.
The restructuring charges were comprised of $346,524 in write downs of
production equipment and leasehold improvements, $94,630 in write downs of
inventory related to discontinued products, $147,748 in employee termination
benefits, and $97,556 in lease settlement costs.
Interest expense for 1996 was $316,564 as compared to $193,037 for 1995.
Interest expense increased primarily as a result of interest and issuance costs
related to the convertible debenture. Other income, net, was approximately the
same in 1996 and 1995.
Income tax expense for 1996 was $388,083 compared to an income tax benefit of
$1,083,640 in 1995. The 1995 income tax benefit included a $702,000 reduction
in the valuation allowance.
Net income for 1996 was $750,981 compared to $316,875 in 1995.
Fiscal 1995 compared to 1994
Net sales for 1995 increased by $2,957,221 or 25%, to $14,786,658 from
$11,829,437 in 1994. Increased sales of narrowband and marine communication
products were partially offset by lower sales in marine instrumentation.
Gross profit for 1995 was $5,657,965 (38% of net sales), as compared to
$4,779,539 (40% of net sales) in 1994, an increase of $878,426 or 18%.
Increased sales of higher margin narrowband products, and improved margins on
marine communications products accounted for most of the increase.
Operating expenses were $6,271,412 (42% of net sales) in 1995, as compared to
$5,159,848 (43% of net sales) in 1994, an increase of $1,111,564 or 22%. The
increase in operating expenses included $686,458 of restructuring charges,
increased selling expenses due to commissions on higher sales, and increased
administrative expenses, primarily professional fees, insurance, rent and taxes
other than income.
Interest expense for 1995 was $193,037, as compared to $62,258 in 1994. The
increase was due to increased prime based lending rates and larger balances
outstanding.
The Company adopted FAS 109, "Accounting for Income Taxes" effective October 3,
1993. Upon adoption and at October 1, 1994, full valuation allowances were
recorded with respect to the Company's deferred tax asset balances due to
uncertainty of future taxable income estimates. During fiscal 1995, the
valuation allowance was reduced by $702,000 to reflect management's assessment
of the amount of deferred tax assets which were more likely realizable than
not. This assessment was based upon management's estimates of future taxable
income and reflected the substantial growth realized in sales of and order
backlog for narrowband land mobile products, as well as the administrative cost
reductions and manufacturing efficiencies achieved as a result of the 1995
restructuring activities. Based upon this assessment, the Company recognized a
deferred federal income tax benefit of $1,083,640 in the year ended September
30, 1995.
Net income for 1995 was $316,875 compared to a loss of $395,948 in 1994.
Capital Expenditures
Capital expenditures were $959,000, $699,000 and $538,000 in fiscal years 1996,
1995 and 1994, respectively. Planned capital expenditures in fiscal year 1997
are $286,000, primarily for production and engineering equipment.
Liquidity and Capital Resources
Net cash used in operating activities for 1996 increased by $780,984 to
$871,149 from net cash used in operating activities of $90,255 in 1995. The
increase was due mostly to build-up of land mobile inventories and accounts
receivable. At the end of 1996, the sales order backlog for the Company's
narrowband products stood at $5,208,000 (although not considered firm) and the
total backlog was $5,412,000. During 1996 one of the Company's bank lines was
increased from $2,000,000 to $2,500,000. A second $1,000,000 line related
specifically to NNS was not renewed and the balance of $166,526 outstanding at
that time was converted to a term loan. The Company's line of credit is subject
to debt covenants which require the Company to be profitable, maintain a
tangible net worth of $5,400,000, a minimum current ratio of 1.50, a maximum
debt to net worth ratio of 1.25 and a minimum debt service ratio of 1.50.
During 1996 the Company issued $2,000,000 in private placement Convertible
Debentures due December 19, 2000, bearing interest at increasing rates from
10-15% per annum. The proceeds have been used for normal working capital
requirements, and to develop NNS.
The Company believes its cash flow from operations, available bank lines of
credit and other financing sources are sufficient to meet its working capital
and other capital requirements for at least the next two years.
Other Matters
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"). FAS
121 requires that long-lived assets and certain intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. If impairment has
occurred, an impairment loss must be recognized. Implementation of FAS 121 is
required in fiscal year 1997. The impact of the adoption of this standard is
not expected to be material to the financial position, results of operations,
or liquidity of the Company.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", which will be effective for the Company's fiscal year 1997. The
Company has not decided which of the alternatives provided under that statement
will be applied and, therefore, its impact on the Company's future financial
statements cannot be currently determined.
Impact of Inflation
The Company's results are affected by the impact of inflation on manufacturing
and operating costs. Historically, the Company has used selling price
adjustments, cost containment programs and improved operating efficiencies to
offset the negative impact of inflation on its operations.
Statements included in this report which are not historical in nature are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. This Annual Report on Form
10-K and Quarterly Reports on Form 10-Q contain certain detailed factors that
could cause the Company's actual results to materially differ from
forward-looking statements made by the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Financial Statements
September 28, 1996
INDEX
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
Report of Independent Accountants 13
Consolidated Balance Sheets, September 28, 1996 and
September 30, 1995 14
Consolidated Statements of Operations for the years
ended September 28, 1996, September 30, 1995 and
October 1, 1994 15
Consolidated Statements of Stockholders' Equity for
the years ended September 28, 1996, September 30,
1995 and October 1, 1994 16
Consolidated Statements of Cash Flows for the years
ended September 28, 1996, September 30, 1995 and
October 1, 1994 17
Notes to Consolidated Financial Statements 18-29
</TABLE>
Report of Independent Accountants
To the Stockholders and Board of Directors of
Datamarine International, Inc.
We have audited the accompanying consolidated balance sheets of Datamarine
International, Inc. and subsidiaries as of September 28, 1996 and September 30,
1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended September 28, 1996, September 30,
1995 and October 1, 1994. 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 audit 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 consolidated financial position of Datamarine
International, Inc. and subsidiaries as of September 28, 1996 and September 30,
1995, and the consolidated results of their operations and their cash flows for
the years ended September 28, 1996, September 30, 1995 and October 1, 1994 in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Seattle, Washington
December 20, 1996, except for Note 13 to the financial
statements as to which the date is January 8, 1997.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS September 28, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 330,076 $ 252,843
Accounts receivable, less allowance for doubtful accounts
of $171,990 and $158,193, respectively 3,335,052 2,337,607
Inventories 5,230,705 3,371,976
Prepaid expenses and other current assets 202,067 242,148
Deferred income taxes, current 332,825 340,000
-----------------------------
Total current assets 9,430,725 6,544,574
Property, plant and equipment 5,169,121 4,210,085
Less accumulated depreciation 2,889,267 2,472,871
-----------------------------
Property, plant and equipment, net 2,279,854 1,737,214
Deferred income taxes, non-current 405,084 785,992
Other assets, net 534,183 255,801
-----------------------------
Total assets $ 12,649,846 $ 9,323,581
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 1,750,000 $ 1,325,353
Notes payable, other - 30,000
Current maturities of long-term debt and capital lease
obligations 173,293 265,389
Accounts payable 718,240 814,437
Accrued expenses 1,621,694 1,312,600
-----------------------------
Total current liabilities 4,263,227 3,747,779
Long-term debt and capital lease obligations, less current
maturities 1,849,685 377,411
-----------------------------
Total liabilities 6,112,912 4,125,190
-----------------------------
Commitments and contingencies
Redeemable preferred stock, $1 par value, issued, none - -
Stockholders' equity:
Convertible preferred stock, $1 par value - authorized
1,000,000 shares; including redeemable preferred stock,
issued, none - -
Common stock, $.01 par value - authorized 3,000,000
shares; 1,309,411 and 1,296,684 shares issued and
outstanding, respectively 13,094 12,967
Capital in excess of par value 3,644,662 3,078,182
Unearned compensation (12,421) (33,376)
Retained earnings 2,891,599 2,140,618
-----------------------------
Total stockholders' equity 6,536,934 5,198,391
-----------------------------
Total liabilities and stockholders' equity $ 12,649,846 $ 9,323,581
=============================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements Of Operations
for the years ended September 28, 1996, September 30, 1995 and October 1, 1994
<TABLE>
<CAPTION>
September 28, September 30, October 1,
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Net sales $ 16,590,002 $ 14,786,658 $ 11,829,437
Cost of products sold 9,555,599 9,128,693 7,049,898
----------------------------------------------
Gross profit 7,034,403 5,657,965 4,779,539
Operating expenses:
Research and development 1,235,014 1,419,904 1,414,353
Selling 2,637,422 2,419,086 2,202,055
General and administrative 1,755,063 1,745,964 1,543,440
Restructuring charge - 686,458 -
----------------------------------------------
Operating expenses 5,627,499 6,271,412 5,159,848
----------------------------------------------
Operating income (loss) 1,406,904 (613,447) (380,309)
Interest expense 316,564 193,037 62,258
Other (income), net (48,724) (39,719) (46,619)
----------------------------------------------
Income (loss) before income taxes 1,139,064 (766,765) (395,948)
Income tax expense (benefit) 388,083 (1,083,640) -
----------------------------------------------
Net income (loss) $ 750,981 $ 316,875 $ (395,948)
==============================================
Net income (loss) per share:
Primary $ .49 $ 0.23 $ (0.33)
Fully diluted $ .49 $ 0.23 $ (0.33)
Weighted average number of common shares:
Primary 1,519,985 1,358,099 1,212,953
Fully diluted 1,525,590 1,358,099 1,212,953
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements Of Stockholders' Equity
for the years ended September 28, 1996, September 30, 1995 and October 1, 1994
<TABLE>
<CAPTION>
Common Stock Capital in Total
-------------------- Excess of Unearned Retained Stockholders'
Shares Amount Par Value Compensation Earnings Equity
--------- -------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 2, 1993 1,205,934 $ 12,059 $ 2,492,748 $ (100,492) $ 2,219,691 $ 4,624,006
Net loss for 1994 - - - - (395,948) (395,948)
Issuance of shares under Employee
Investment Plan and Employee Stock
Purchase Plan 13,959 140 57,867 - - 58,007
Amortization of unearned compensation - - - 45,228 - 45,228
------------------------------------------------------------------------------
Balance at October 1, 1994 1,219,893 12,199 2,550,615 (55,264) 1,823,743 4,331,293
Net income for 1995 - - - - 316,875 316,875
Issuance of shares under Employee
Investment Plan and Employee Stock
Purchase Plan 5,871 59 50,159 - - 50,218
Issuance of shares under lease
settlement agreement 22,000 220 179,780 - - 180,000
Exercise of stock options 48,920 489 235,776 - - 236,265
Compensation element of stock options
granted - - 19,500 (19,500) - -
Tax benefit of options exercised - - 42,352 - - 42,352
Amortization of unearned compensation - - - 41,388 - 41,388
------------------------------------------------------------------------------
Balance at September 30, 1995 1,296,684 12,967 3,078,182 (33,376) 2,140,618 5,198,391
Net income for 1996 - - - - 750,981 750,981
Issuance of shares under Employee
Investment Plan and Employee Stock
Purchase Plan 4,577 46 42,776 - - 42,822
Finalization of shares under lease
settlement agreement (2,000) (20) 20 - - -
Exercise of stock options 10,150 101 43,684 - - 43,785
Proceeds of convertible debt
attributable to conversion rights - - 480,000 - - 480,000
Amortization of unearned compensation - - - 20,955 - 20,955
------------------------------------------------------------------------------
Balance at September 28, 1996 1,309,411 $ 13,094 $ 3,644,662 $ (12,421) $ 2,891,599 $ 6,536,934
==============================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
for the years ended September 28, 1996, September 30, 1995 and October 1, 1994
<TABLE>
<CAPTION>
September 28, September 30, October 1,
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 750,981 $ 316,875 $ (395,948)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 441,467 406,831 497,976
Gain on asset dispositions - - (49,776)
Non-cash portion of loss from restructuring charge - 441,154 -
Amortization of debenture discount and issue costs 93,624 - -
Provision for losses on accounts receivable 81,615 59,725 (42,048)
Employee investment plan expense 36,937 42,216 52,596
Amortization of unearned compensation 20,955 41,388 45,228
Provision for (benefit of) deferred income taxes 388,083 (1,083,640) -
Changes in operating assets and liabilities:
Accounts receivable (1,079,060) (78,967) (1,455,322)
Inventories, prepaid expenses and other current
assets (1,818,648) (246,730) 55,735
Accounts payable and accrued expenses 212,897 10,893 1,234,663
----------------------------------------------
Net cash used in operating activities (871,149) (90,255) (56,896)
----------------------------------------------
Investing activities:
Net proceeds from asset dispositions - - 95,104
Purchases of property, plant and equipment, including
self-constructed equipment (959,036) (699,125) (538,745)
Other (135,569) (145,951) (89,672)
----------------------------------------------
Net cash used in investing activities (1,094,605) (845,076) (533,313)
----------------------------------------------
Financing activities:
Proceeds from sale of common stock 49,670 244,267 5,411
Proceeds from bank and other borrowings 3,750,000 1,084,843 560,352
Deferred financing costs (197,508) - -
Principal payments on revolving line of credit and
long-term debt (1,559,175) (321,862) (177,600)
----------------------------------------------
Net cash provided by financing activities 2,042,987 1,007,248 388,163
----------------------------------------------
Increase (decrease) in cash and equivalents during year 77,233 71,917 (202,046)
Cash and equivalents at beginning of year 252,843 180,926 382,972
----------------------------------------------
Cash and equivalents at end of year $ 330,076 $ 252,843 $ 180,926
==============================================
Supplementary Cash Flow Information
Interest paid $ 110,500 $ 207,000 $ 42,500
Income taxes paid, net - - $ 6,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
1. Business Activities:
Datamarine International, Inc. and subsidiaries (the "Company")
manufactures and markets electronics including radio/telephone systems
for land and marine applications and marine depth sounders and related
instrumentation. Narrowband products consist of hand held, mobile and
base station components for use in the 220 MHz radio service, and are
sold primarily to business users of private radio services. Marine
communications products are high performance radios used on commercial
vessels, fishing vessels and ocean-going yachts. Marine instrumentation
products are up-to-date instruments for pleasure craft; small boats and
yachts; sail and power; inshore and offshore. Marine communication and
marine instrumentation products are sold worldwide through approximately
320 dealers.
In July 1993, the Company launched its newest land mobile product line
which represents 58%, 45% and 36% of net sales in fiscal 1996, 1995 and
1994, respectively. In addition, the Company has entered into agreements
for the construction and operation of narrowband land mobile systems (see
Note 9). As of September 28, 1996, the Company had a significant backlog
related to these narrowband products, although such orders are not
considered firm, and management expects continued growth of the product
line in fiscal 1997.
The Federal Communications Commission ("FCC") intends to conduct an
auction for new 220 MHz licenses, but specific rules and timing for the
auction have not been set. No new 220 MHz licenses will be issued until
the auction is completed. Until such time as new licenses are issued,
demand for the Company's higher margin base station products will be
lower than in previous years.
2. Significant Accounting Policies:
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, SEA, Inc. ("SEA"), and Nautical Realty
A/S; the Company's 97.5% owned subsidiary, Narrowband Network Systems,
Inc. ("NNS") and its 60% owned subsidiary, Datamarine International
Australia PTY, LTD. The Company has recognized the losses attributable to
the minority owner's interest in Datamarine International Australia PTY,
LTD. in excess of the minority owner's investment. Upon consolidation,
all intercompany accounts, transactions and profits have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fiscal Year
The Company's fiscal year ends on the Saturday nearest September 30.
Revenue Recognition
Revenue from the sale of products and services is recognized in the
consolidated statements of operations as services are rendered or
deliveries made.
Cash and Cash Equivalents
The Company considers all highly liquid investments, with an original
maturity of three months or less when purchased, to be cash equivalents.
Concentration of Credit Risk
The concentration of credit risk with respect to trade receivables is, in
management's opinion, considered minimal due to the Company's diverse
customer base. The customers for the marine products are primarily
distributors and dealers who resell to both recreational and commercial
boaters. The customers for the land mobile communication products consist
primarily of industrial users of private land mobile radio services. The
Company sells to customers located throughout the United States as well
as in Australia and other countries. The Company had no significant
foreign operations but had export sales of approximately $975,000 in
1996, $1,161,000 in 1995, and $1,068,000 in 1994. Credit evaluations of
its customers' financial condition are performed periodically, and the
Company generally does not require collateral from its customers. Land
mobile customers account for approximately 67% of the accounts receivable
balance as of September 28, 1996.
Inventories
Inventories are stated at the lower of cost based on the first-in,
first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment, including self constructed assets, are
stated at cost. Depreciation is based on the straight-line method over
the useful lives of the assets (see Note 4). Upon disposition of
property, plant and equipment, the cost and related depreciation are
removed from the accounts, and any gain or loss is reflected in the
consolidated statement of operations.
FCC License Costs
Costs associated with acquiring and developing 220 MHz licenses are
amortized on a straight-line basis over ten years.
Deferred Financing Costs
Deferred financing costs of $167,884 at September 28, 1996 represent the
direct costs of issuing the convertible debentures and are included in
other assets. These costs are amortized by the effective interest method
over the five year term of the related debt.
Research and Development
Expenditures for research and development are charged to expense as
incurred.
Warranty Costs
The Company provides, by a current charge to income, an amount it
estimates will be needed to cover future warranty obligations for
products sold during the year.
Income Taxes
The Company uses the liability method of accounting for income taxes
whereby deferred tax balances are recognized at the currently enacted tax
rates for all temporary differences between the book and tax bases of
assets and liabilities, net of a valuation allowance as appropriate.
Earnings Per Share
Net income (loss) per common share is based on the weighted average
number of common shares and common stock equivalents outstanding. Common
stock equivalents include shares issuable upon exercise of the Company's
stock options and the Company's convertible preferred stock. Fully
diluted earnings per share is computed based on the weighted average
number of shares of common stock and common stock equivalents outstanding
during the period taking into consideration maximum potential dilution.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements in order to conform to the 1996 presentation, with no impact
on previously reported net income (loss) or stockholders' equity.
Future Effects of New Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS
121"). FAS 121 requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable. If
impairment has occurred, an impairment loss must be recognized.
Implementation of FAS 121 is required in fiscal year 1997. The impact of
the adoption of this standard is not expected to be material to the
financial position, results of operations, or liquidity of the Company.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", which will be effective for the Company's
fiscal year ending September 27, 1997. The Company has not decided which
of the alternatives provided under that statement will be applied and,
therefore, its impact on the Company's future financial statements cannot
be currently determined.
3. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Finished goods and subassemblies $ 1,700,558 $ 1,445,715
Purchased parts and materials $ 3,530,147 1,926,261
--------------------------
$ 5,230,705 $ 3,371,976
==========================
</TABLE>
As of September 28, 1996, inventories include approximately $486,000
related to land mobile base station equipment. The timing of sales of
such equipment is largely dependent upon the issuance of additional
licenses pursuant to an auction yet to be scheduled by the FCC (See Note
1). Management does not anticipate any loss on the ultimate disposition
of this equipment.
4. Property, Plant and Equipment:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
Estimated
1996 1995 Useful Lives
----------- ----------- -------------
<S> <C> <C> <C>
Design, test and manufacturing equipment $ 2,606,559 $ 2,528,204 5 years
Narrowband network equipment 1,500,024 615,013 10 years
Office furniture and general equipment 503,854 489,441 3 - 5 years
Buildings and improvements 450,106 468,849 10 - 25 years
Leasehold improvements 101,178 101,178 3 - 10 years
Delivery vehicles 7,400 7,400 5 years
-------------------------
$ 5,169,121 $ 4,210,085
=========================
</TABLE>
Design, test and manufacturing equipment includes equipment under capital
leases with an original cost of $178,000 and accumulated depreciation of
$73,000 as of September 28, 1996.
5. Accrued Expenses:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accrued payroll and related fringe benefits $ 711,249 $ 628,746
Accrued warranty costs 235,497 237,469
Accrued marketing costs 222,752 194,810
Other accrued expenses 452,196 251,575
--------------------------
$ 1,621,694 $ 1,312,600
==========================
</TABLE>
6. Notes Payable to Banks:
The Company has a bank line of credit of $2,500,000 with interest payable
monthly at .75% over prime (9.0% and 9.5% at September 28, 1996 and
September 30, 1995 respectively). The outstanding balance on this line
was $1,750,000 at September 28, 1996, and $1,325,353 at September 30,
1995. The line of credit is collateralized by essentially all of the
assets of the Company. The line of credit is also subject to debt
covenants which require the Company to be profitable, maintain a tangible
net worth of $5,400,000, a minimum current ratio of 1.50, a maximum debt
to net worth ratio of 1.25 and a minimum debt service ratio of 1.50.
A second $1,000,000 line of credit related specifically to NNS was not
renewed and the outstanding balance of $166,526 at the time was converted
to a collateralized equipment term loan due April 30, 1998.
The weighted-average interest rate on short-term borrowings was 9.2% and
9.8% for fiscal years 1996 and 1995, respectively.
7. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Subordinated Convertible Debentures, due December 2000,
interest payable quarterly commencing March 1997 $ 2,000,000 $ -
Less discount, net of accumulated amortization of
$64,000 related to allocation of debt proceeds to
stock conversion rights (416,000) -
------------------------
1,584,000 -
Foreign denominated mortgage notes payable (DKK 1,017,424
and DKK 1,061,064 at September 28, 1996 and September 30,
1995, respectively) total monthly payments of $2,433
(DKK 14,247), varying interest rates from 9% to 10.5%,
due 2005 through 2011, collateralized by the underlying
building 173,775 192,053
Mortgage note, monthly payments of $1,220, including
interest at prime plus 2.5%, adjustable annually, due
July 2003, collateralized by the underlying building 70,082 88,954
Collateralized equipment loan, monthly payments of $4,168,
plus interest at prime plus 1.75%, due October 1997 54,167 104,167
Collateralized equipment loan, monthly payments of $4,626,
plus interest at prime plus 1.25%, due April 30, 1998 92,515 143,397
------------------------
1,974,539 528,571
Less current maturities 124,854 204,960
------------------------
$ 1,849,685 $ 323,611
========================
</TABLE>
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Fiscal
1997 $ 124,854
1998 62,652
1999 23,849
2000 26,481
2001 2,029,403
Thereafter 123,300
</TABLE>
On December 19, 1995 the Company completed a private placement issuance
of $2,000,000 in Subordinated Convertible Debentures (the "Debentures")
due December 19, 2000. The Debentures bear interest at increasing rates
from 10-15% per annum, and may be prepaid at any time, subject to the
lender's rights of conversion. The lender may convert the Debentures
after December 19, 1998 into 2,000 shares of redeemable preferred stock
and 2,000 shares of convertible preferred stock. The Company may convert
at its option after December 19, 1997. The $2,000,000 proceeds from the
Debentures were allocated to the Debentures' carrying value and
additional paid in capital based on the relative fair values of the
Debentures and the 163,967 shares of common stock obtainable upon
conversion. The related discount of $480,000 on the Debentures is
accreted by periodic charges to earnings over the five year life of the
issue.
Due to the unique terms and conditions of the Debentures, there are no
quoted market prices for similar instruments. At the date of issuance,
the Company estimated the fair value of the debt component of the
Debentures to be approximately $2,185,000 based upon then current
interest rates for straight bonds of companies with similar
creditworthiness. Based upon interest rates through September 28, 1996,
management believes that the fair value of the debt component of the
Debentures (carrying value of $1,584,000 as of September 28,1996) has not
changed materially from the date of issuance.
The estimated fair value of notes payable to banks and other long-term
debt at September 28, 1996 approximates the carrying value of such debt
in the financial statements, based on current interest rates for similar
obligations with like maturities.
8. Commitments and Contingencies:
The Company leases manufacturing, warehouse and office facilities under
various operating leases. Rental expense for these leases, excluding real
estate taxes paid by the Company for a leased building, was $196,000 in
1996, $207,000 in 1995, and $260,000 in 1994. During 1995, the Company
renegotiated the terms of its Pocasset, Massachusetts facility lease. The
expenses of settlement were included in the restructuring charge (see
Note 12).
Approximate future minimum lease payments, by year and in the aggregate,
under capital and noncancelable operating leases, were as follows at
September 28, 1996:
<TABLE>
<CAPTION>
Capital Operating
Fiscal Leases Leases
------ -------- ---------
<C> <C> <C>
1997 $ 56,726 $ 178,536
1998 - 114,210
---------------------
Total future minimum lease payments 56,726 $ 292,746
=========
Less amounts representing interest (8,287)
--------
Present value of future minimum lease payments, all current $ 48,439
========
</TABLE>
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. While the ultimate results of such
matters cannot be determined, management does not expect that they will
have a material adverse effect on the Company's consolidated results of
operations, financial position or liquidity.
9. Narrowband Network Systems, Inc. ("NNS"):
On November 18, 1994, NNS was incorporated in the State of Washington as
a subsidiary of SEA to participate in the business of providing
specialized mobile radio ("SMR") services.
NNS has entered into management agreements ("Management Agreements") with
the holders of 220 MHz licenses granted by the Federal Communications
Commission ("FCC") in approximately 45 markets across the United States
(the "Managed Markets"). Under the Management Agreements, NNS is required
to construct and develop the SMR systems in the Managed Markets. NNS
retains the revenues generated by the systems, after remitting a fixed
percentage to the license holders.
Under each of the Management Agreements, NNS has an option after
construction to acquire the license holder's interest in their respective
SMR system in exchange for (i) a fixed percentage of the gross receipts
from the system for as long as it continues to be operated by NNS and
(ii) a fixed percentage of any profit realized by NNS upon the system's
ultimate disposition. In certain cases, NNS has guaranteed a minimum
dollar amount to be remitted to the license holder upon system
disposition.
In April 1995, NNS entered into an agreement with Incom Communications
Corporation ("ICC") for the operation of the SMR systems in certain of
the Managed Markets. Under the terms of this agreement, NNS is obligated
to provide the licenses and certain backbone equipment for each system
and ICC is required to provide either all or partial operational support.
Revenues from system operations are split between NNS and ICC using
contractual percentages based upon the level of support provided by each.
In addition, the Company has contracted with other third parties ("SMR
Operators") for operation of the systems in certain of the Managed
Markets. Under the terms of these agreements, NNS is to provide the
system facilities and the SMR Operators agree to provide essentially all
other operational support in exchange for a fixed percentage of the gross
revenues from each system and an equity interest in the systems,
including the related licenses.
As of September 30, 1996 ownership of licenses for locations which had
not met regulatory build-out requirements reverted to the Federal
government. The Company has met all regulatory build-out requirements
related to its licenses.
At September 28, 1996 and September 30, 1995, fixed assets include
$1,500,024 and $615,013 (less accumulated depreciation of $90,619 and $0)
respectively, of facilities related to the SMR systems. Other assets
include $360,760 and $235,695 (less accumulated amortization of $23,743
and $0) respectively, representing legal and other costs associated with
the acquisition of license interests in the Managed Markets. Because only
limited operations have commenced, revenues from NNS's operations were
negligible through September 28, 1996.
The recoverability of narrowband network equipment and related
capitalized legal and acquisition costs of FCC licenses is dependent upon
the successful development of systems in each of the respective markets,
or through the sale of such assets. Management estimates that it will
recover the carrying amounts of those assets from cash flow generated by
the systems once they have been developed. However, it is possible that
such estimates could change as a result of technological, regulatory or
other changes.
10. Stockholders' Equity:
1992 Stock Option Plan for Non-Employee Directors
The 1992 Stock Option Plan for Non-Employee Directors provides for annual
grants of nonqualified options to purchase 1,500 common shares to each
non-employee Director. The exercise price for options granted is equal to
the fair market value at the date of grant. Options granted under this
Plan are immediately vested and exercisable for a period of ten years
from the date of grant so long as the holder remains a Director. The Plan
was terminated by the Board of Directors on December 12, 1995 and no new
awards will be made under the 1992 Plan.
<TABLE>
<CAPTION>
Shares Price
------ -------------
<S> <C> <C>
Outstanding at October 2, 1993 3,000 $ 4.00
Granted 3,000 5.12
----------------------
Outstanding at October 1, 1994 6,000 4.00 - 5.12
Granted 3,000 8.62
----------------------
Outstanding at September 30, 1995 9,000 4.00 - 8.62
Exercised (4,500) 4.00 - 8.62
----------------------
Outstanding and exercisable at September 28, 1996 4,500 $ 4.00 - 8.62
======================
</TABLE>
1995 Stock Option Plan for Non-Employee Directors
The 1995 Stock Option Plan for Non-Employee Directors was approved by the
stockholders at the special meeting held in 1996. The Plan provides for
annual grants of nonqualified options to purchase 2,000 common shares to
each non-employee Director. The exercise price for options granted is
equal to the fair market value at the date of grant. Options granted
under this Plan are immediately vested and exercisable for a period of
ten years from the date of grant so long as the holder remains a
Director.
<TABLE>
<CAPTION>
Shares Price
------ ------
<S> <C> <C>
Granted in fiscal 1996 8,000 $ 9.00
---------------
Outstanding and exercisable at September 28, 1996 8,000 $ 9.00
===============
</TABLE>
1991 Stock Option Plan
The 1991 Stock Option Plan authorized grants of incentive and
nonqualified stock options for 350,000 common shares, of which 200,000
shares are reserved for issuance of options at an exercise price equal to
the fair market value at the date of grant and vest equally over time,
generally four years (the "Qualified Options"), 100,000 shares are
reserved for issuance of options which vest equally over time but do not
meet the requirements of the Qualified Options (the "Nonqualified
Options"), and 50,000 shares are reserved for issuance of options which
also do not meet such requirements, but are subject to an accelerated
vesting schedule (the "Piggy-Back Options").
Qualified Options and Nonqualified Options expire not more than ten years
from the date of grant and Piggy-Back Options expire twenty years and six
months from the date of grant. The Piggy-Back Options are to be granted
in conjunction with the grant of Nonqualified Options. The Piggy-Back
Options shall not be exercised prior to twenty years from the date of the
grant, except that if, within five years from the date of grant, the
trading price exceeds a specified price, such Piggy-Back Options shall
become subject to a five-year vesting schedule with respect to the number
of shares equal to 50% of the unexercised portion of Nonqualified Options
granted to the employee. All Piggy-Back Options outstanding at September
28, 1996, commenced five year vesting on September 9, 1994.
Proceeds received from the exercise of options are credited to the
capital accounts. Compensation cost is recorded based upon the difference
between market prices and exercise prices at the date of grant and
amortized to expense over the vesting period.
<TABLE>
<CAPTION>
Piggy-Back
Qualified Options Nonqualified Options Options
---------------------- ---------------------- --------------
Shares Price Shares Price Shares Price
------- ------------ ------- ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at October 2, 1993 and October 1, 1994 93,508 $4.00 - 4.50 51,500 $1.50 25,750 $4.50
Exercised (20,670) 4.00 - 4.50 (7,500) 1.50 (750) 4.50
Granted 21,500 9.00 6,500 6.00 - -
Canceled - - - - (3,000) 4.50
---------------------------------------------------------------
Outstanding at September 30, 1995 94,338 4.00 - 9.00 50,500 1.50 - 6.00 22,000 4.50
Exercised (2,525) 4.50 - 9.00 (3,125) 1.50 - 6.00 - -
Canceled (875) 9.00 (375) 6.00 - -
---------------------------------------------------------------
Outstanding at September 28, 1996 90,938 4.00 - 9.00 47,000 1.50 - 6.00 22,000 4.50
Exercisable at September 28, 1996 75,563 $4.00 - 4.50 42,500 $1.50 - 6.00 13,200 $4.50
Available for grant at September 28, 1996 85,867 36,625 27,250
</TABLE>
Employee Stock Purchase Plan
The Company has an employee stock purchase plan for full-time employees
who have attained certain length-of-service requirements and who do not
own 5% or more of the Company's outstanding stock. Under the terms of the
plan, eligible employees are granted the right on a semiannual basis to
purchase shares of the Company's common stock. The purchase price is
equal to 90% of the fair market value of the Company's common stock
during certain predetermined periods, and employees may purchase shares
having an aggregate value of up to 10% of basic compensation. The Company
issued 843 shares in 1996, 1,272 shares in 1995 and 1847 shares in 1994
in connection with the Employee Stock Purchase Plan.
Employee Investment Plan
The Company maintains the Datamarine Employee Investment Plan (a 401(k)
Plan). All full-time employees who have reached age 21 and have one year
of service are eligible for participation. Employees can contribute up to
12% of their base salary with the Company matching 50% of the first 6% of
base salary contributed. The Company issued 3,734 shares in 1996, 4,599
in 1995 and 12,112 shares in 1994 under the Employee Investment Plan.
Shares Reserved for Future Issue
At September 28, 1996, the Company had reserved the following shares of
its common stock for future issue:
<TABLE>
<S> <C>
Employee Stock Purchase Plan 6,828
1991 Stock Option Plan:
Qualified Options 176,805
Nonqualified Options 83,625
Piggy-Back Options 49,250
1992 Stock Option Plan for Non-employee Directors 4,500
1995 Stock Option Plan for Non-employee Directors 40,000
Convertible Debentures 163,967
-------
524,975
=======
</TABLE>
Preferred Stock
In connection with the issuance of the Debentures in fiscal 1996, the
Company also authorized 1,000,000 shares of preferred stock, $1 par.
Under certain conditions, the Debentures are convertible into 2,000
shares of redeemable preferred stock and 2,000 shares of convertible
preferred stock.
Each $1,000 principal value of the Debentures is convertible into one
share of redeemable preferred stock. The redeemable preferred stock is
entitled to dividends in an amount equal to the interest that would
otherwise be payable on the Debentures, and is subject to mandatory
redemption in December 2000. The redeemable preferred stock has no voting
rights. The Company has the option any time after December 19, 1997 of
redeeming all, but not less than all, of the redeemable preferred stock
then outstanding at a price of $1,000 per share.
Each share of convertible preferred stock is convertible into
approximately 82 shares of the Company's common stock. Convertible
preferred shares have voting rights equal to common shares, and are
entitled to such number of votes per share as equals the number of shares
of common stock into which each share of convertible preferred is then
convertible. The Company has the option any time after December 19, 2000
of converting the convertible preferred stock to common stock, or
redeeming the shares at fair value. In accordance with the Debenture
Agreement, the Company has reserved for future issue 4,000 shares of
preferred stock.
11. Income Taxes:
The components of income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------------- ------
<S> <C> <C> <C>
Deferred (benefit) provision - Federal $ 388,083 $ (1,083,640) $ -
==================================
</TABLE>
The tax effects of temporary differences that give rise to deferred
tax assets are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 622,000 $ 967,000
Accrued expenses not currently deductible for
tax purposes 206,000 233,000
General business tax credit carryforwards 128,000 127,000
Property and equipment 12,000 47,000
Allowance for doubtful accounts 58,000 53,000
Inventory, principally due to valuation
differences and overhead application 148,000 138,000
Other, individually less than 5% of deferred
tax asset 909 992
--------------------------
1,174,909 1,565,992
Less valuation allowance (437,000) (440,000)
--------------------------
Net deferred tax assets $ 737,909 $ 1,125,992
==========================
</TABLE>
At October 1, 1994, a valuation allowance was recorded equal to the
Company's deferred tax asset balance of $1,142,000 due to the uncertainty
of future taxable income estimates. During fiscal 1995, the valuation
allowance was reduced by $702,000 to reflect management's then current
assessment of the amount of deferred federal tax assets which were more
likely realizable than not. The valuation allowance balance at September
28, 1996 and September 30, 1995 relates primarily to deferred state tax
benefits of net operating loss carryforwards and future deductible
temporary differences which are not expected to be realized on a separate
company return basis.
The Company has recorded a net deferred tax asset of $738,000 including
the benefit of loss carryforwards, which expire in varying amounts
between fiscal 2008 and 2010. Realization is dependent on generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more
likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
The reconciliation of income taxes at the federal statutory rate of 34%
to the income tax provision (benefit) presented in the consolidated
statement of operations is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------------ ----------
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate $ 387,000 $ (261,000) $ (135,000)
State income taxes, net of federal tax benefit 4,000 (99,000) (67,520)
Unrecognized deferred income tax benefit - - -
Unrecognized net operating loss benefit - - -
Other 83 (21,640) 2,520
Change in valuation allowance (3,000) (702,000) 200,000
--------------------------------------
Income tax expense (benefit) $ 388,083 $ (1,083,640) $ -
======================================
</TABLE>
As of September 28, 1996, the Company has net operating loss
carryforwards of $811,000 which are available to reduce future federal
taxable income ($71,000 of which expire in fiscal 2008, $513,000 in
fiscal 2009 and the remainder in 2010). The Company also has general
business tax credit carryforwards of $128,000.
12. Restructuring Charge:
During fiscal 1995, the Company recognized a special charge of $686,458
in connection with a restructuring program designed to improve
productivity and permanently reduce costs. The Company moved its
corporate administrative functions and production of its instrumentation
product line from Pocasset, Massachusetts to its facility in Mountlake
Terrace, Washington. The restructuring was announced effective January
1995 and was substantially completed by December 31, 1995. The program
resulted in the permanent reduction of approximately 30 employees and
35,000 square feet of manufacturing and office space. The restructuring
charge was comprised of $346,524 in writedowns of production equipment
and leasehold improvements, $94,630 in writedowns of inventory related to
discontinued products, $147,748 in employee termination benefits, and
$97,556 in lease settlement costs. The lease was settled for $210,000,
including $112,444 related to past due rental amounts, comprised of
$30,000 in cash and the issuance of 22,000 shares of the Company's
common stock having a fair market value of $180,000. Upon final pricing
2,000 of the settlement shares were returned to the Company.
13. Subsequent Event:
On December 12, 1996 the Company filed a collection action against one of
its customers for accounts totaling approximately $132,000 at September
28, 1996. On December 23, 1996 the same customer filed suit against the
Company alleging breach of certain express and implied warranty and
contractual obligations, and negligent representation with respect to
sales of the Company's narrowband products. The suit seeks $6,000,000 -
$9,000,000 in damages and unspecified amounts for interest and other
costs. The ultimate outcome of the litigation cannot presently be
determined, accordingly no provision for any liability that may result
upon adjudication has been made in the accompanying financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and offices of all executive officers of the Registrant are as
follows:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <S>
Peter D. Brown 49 Chairman of the Board, President and
Chief Executive Officer of Registrant
David C. Thompson 67 Director, Treasurer and Secretary of
Registrant, President and Chief Executive
Officer of SEA, Inc., a subsidiary
</TABLE>
The term of office of the executive officers of the Registrant is as set forth
in the Registrant's bylaws, namely: "until the next annual election to the
office which he holds and until his successor is chosen and qualified or until
he sooner dies, resigns, is removed or becomes disqualified." There is no
family relationship between the executive officers.
Mr. Brown was elected President of the Registrant in September 1991. Mr. Brown
is CEO of The South Beach Company, a management company, and Vice President and
Treasurer of Gordon & Ferguson, a manufacturer of mens' and boys' outerwear.
From 1974 through 1990, Mr. Brown was CEO of Heather Hill Sportswear Co., an
apparel company.
Mr. Thompson served as Acting Chief Executive Officer of the Registrant from
June 1990 until January 1991. Mr. Thompson served as Executive Vice President
and Chief Operating Officer of the Registrant from October 1989 until February
1992. Mr. Thompson has served as President and Chief Executive Officer of SEA,
Inc., a wholly-owned subsidiary of the Registrant, since its acquisition by the
Registrant in 1986. He had held the same position with SEA before the merger
since 1980. In 1996, he was named Treasurer and Secretary of the Registrant.
Mr. Thompson was previously President, Chief Executive Officer and a Director
of SBE, Inc., a public corporation involved in the manufacture of CB radios,
land mobile and marine VHF communication products.
ITEMS 10, 11, 12 and 13.
The information called for by Items 10, 11, 12 and 13 is hereby incorporated by
reference from the Registrant's definitive proxy statement to be filed pursuant
to Regulation 14A for the 1997 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
The financial statements as set forth under Item 8 are filed as part of
this report.
Schedule II - Valuation and Qualifying Accounts
Report of Independent Accountants on above listed financial statement
schedule.
Schedules not listed above have been omitted since they are either not
required, not applicable, or the information is included in the
consolidated financial statements or notes thereto.
(b) Reports on Form 8-K. None.
(c) List of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Articles of Organization, as amended, incorporated by reference to
Annual Report on Form 10-K for the Fiscal Year Ended September 30,
1995.
3.2 Bylaws, incorporated by reference to Registration Statement 0-8936
on Form 10.
4 Debenture Purchase Agreement with exhibits, incorporated by
reference to Annual Report on Form10-K for the Fiscal Year Ended
September 30, 1995.
10.1 Datamarine International, Inc. 1991 Stock Option Plan, incorporated
by reference to Registration Statement 33-48532 on Form S-8.
10.2 1992 Stock Option Plan for Non-employee Directors, incorporated by
reference to Annual Report on Form 10-K for the Fiscal Year Ended
October 1, 1994.
10.3 Debenture Purchase Agreement with exhibits, same as 4 above.
10.4 1995 Stock Option Plan for Non-employee Directors
11 Computation of Earnings Per Share
21 Subsidiaries
23 Consent of Independent Accountants
27 Financial Data Schedule
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATAMARINE INTERNATIONAL, INC.
By:/s/ PETER D. BROWN
- -------------------------------------------
Peter D. Brown, President
Chief Executive Officer
By:/s/ DAVID C. THOMPSON
- -------------------------------------------
David C. Thompson
Principal Financial and Accounting Officer
Date: December 23, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By:/s/ PETER D. BROWN
- -------------------------------------------
Peter D. Brown, Chairman of the Board
December 23, 1996
By:/s/ DAVID C. THOMPSON
- -------------------------------------------
David C. Thompson, Director
December 23, 1996
By:/s/ DALE N. HATFIELD
- -------------------------------------------
Dale N. Hatfield, Director
December 23, 1996
By:/s/ ROBERT BENBOW
- -------------------------------------------
Robert Benbow, Director
December 23, 1996
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
DATAMARINE INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------- ------------ ------------------------- ---------- -----------
Additions
Balance at ------------------------- Balance
Beginning Charged to Charged to Deductions at End
DESCRIPTION of Period Expenses Other (describe) of Period
- ----------- ------------ ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended September 28, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $ 158,193 81,615 67,818(1) $ 171,990
Allowance for slow moving inventory 273,624 58,056 144,551(2) 187,129
Valuation allowance for deferred tax asset 440,000 3,000(4) 437,000
-------------------------------------------------------------------
Totals $ 871,817 139,671 215,369 $ 796,119
===================================================================
Product warranty liability $ 237,469 117,608 119,580(3) $ 235,497
===================================================================
Year ended September 30, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $ 142,292 59,725 43,824(1) $ 158,193
Allowance for slow moving inventory 183,502 104,417 14,295(2) 273,624
Valuation allowance for deferred tax asset 1,142,000 702,000(4) 440,000
-------------------------------------------------------------------
Totals $ 1,467,794 164,142 760,119 $ 871,817
===================================================================
Product warranty liability $ 197,524 120,819 80,874(3) $ 237,469
===================================================================
Year ended October 1, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $ 204,031 (42,048) 19,691(1) $ 142,292
Allowance for slow moving inventory 461,491 56,482 334,471(2) 183,502
Valuation allowance for deferred tax asset 1,142,000(5) 1,142,000
-------------------------------------------------------------------
Totals $ 665,522 1,156,434 354,162 $ 1,467,794
===================================================================
Product warranty liability $ 160,293 112,965 75,734(3) $ 197,524
===================================================================
<FN>
- --------------------
<F1> Uncollectible accounts written off, net of recoveries.
<F2> Obsolete material written off.
<F3> Warranty claims honored during the year.
<F4> Reduction of deferred tax asset valuation account, credited to income
taxes expense (benefit).
<F5> Includes cumulative effect of FAS 109 "Accounting for Income Taxes"
adoption as of October 3, 1993.
</FN>
</TABLE>
Report Of Independent Accountants
To the Stockholders and Board of Directors of
Datamarine International, Inc.
Our report on the consolidated financial statements of Datamarine
International, Inc. and subsidiaries as of September 28, 1996 and September 30,
1995 and for the years ended September 28, 1996, September 30, 1995 and October
1, 1994 is included in this Annual Report on Form 10-K. In connection with our
audits of such financial statements, we have also audited the related
consolidated financial statement schedule for the years ended September 28,
1996, September 30, 1995 and October 1, 1994, listed in Item 14(a) of this Form
10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to
be included therein.
/s/:COOPERS & LYBRAND L.L.P
Seattle, Washington
December 20, 1996
EXHIBIT 10.4
1995 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
DATAMARINE INTERNATIONAL, INC.
1995 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of this Datamarine International, Inc. 1995 Stock Option Plan for
Non-Employee Directors (the "Plan") is to attract and retain the services of
experienced and knowledgeable independent directors who are not employees
(sometimes referred to herein collectively as "Participants") of Datamarine
International, Inc. ("Datamarine") for the benefit of Datamarine and its
stockholders and to provide additional incentive for such Participants to
continue to work in the best interests of Datamarine and its stockholders
through continuing ownership of its common stock.
2. SHARES SUBJECT TO THE PLAN
The total number of shares of common stock, par value $0.01 per share
("Shares"), of Datamarine for which options may be granted under the Plan shall
not exceed 48,000 Shares in the aggregate, subject to adjustment in accordance
with Section 9 hereof.
3. ELIGIBILITY; GRANT OF OPTION
Each member of the Board of Directors (the "Board") of Datamarine who is not
otherwise an employee of Datamarine or any subsidiary and who is then in
office, including newly elected non-employee directors, immediately following
each annual meeting of the Board for the years 1996 through 1999, shall
automatically be granted an option to acquire 2,000 Shares under the Plan
immediately following each such annual meeting of the Board. The date of grant
for such options granted to non-employee directors shall be the date of the
annual meeting of the Board for the years 1996 through 1999, as applicable, but
such options shall be effective as of such date of grant only if the Company's
stockholders have approved the Plan at Datamarine's Special Meeting of
Stockholders in lieu of the 1996 Annual Meeting of Stockholders in accordance
with Section 13 hereof. The options shall be non-qualified options not intended
to meet the requirements of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").
4. OPTION AGREEMENT
Each option granted under the Plan shall be evidenced by an option agreement
(the "Agreement") duly executed on behalf of Datamarine and by the director to
whom such option is granted, which Agreements shall (i) comply with and be
subject to the terms and conditions of the Plan and (ii) provide that the
optionee agrees to continue to serve as a director of Datamarine during the
term for which he was elected.
5. OPTION EXERCISE PRICE
Subject to the provisions of Section 9 hereof, the option exercise price for an
option granted under the Plan shall be the fair market value of the Shares of
the common stock of Datamarine covered by the option on the date of grant of
the option. For the purposes hereof and Section 6(b), if such Shares are then
listed on any national securities exchange, the fair market value of the common
stock of Datamarine shall be the mean between the high and low sales prices, if
any, on the largest such exchange on the date of the grant of the option or, if
none, shall be determined by taking a weighted average of the means between the
highest and lowest sales on the nearest date before and the nearest date after
the date of grant in accordance with Treasury Regulations Section 25.2512-2. If
the Shares are not then listed on any such exchange, the fair market value of
such Shares shall be the mean between the high and low sales prices, if any, as
reported in the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") National Market System for the date of the grant of the
option, or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales on the nearest date before and the
nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the Shares are not then either listed on any such
exchange or quoted in Nasdaq, the fair market value shall be the mean between
the average of the "Bid" and the average of the "Ask" prices, if any, as
reported in the National Daily Quotation Service for the date of the grant of
the option, or, if none, shall be determined by taking a weighted average of
the means between the highest and lowest sales on the nearest date before and
the nearest date after the date of grant in accordance with Treasury
Regulations Section 25.2512-2.
6. TIME AND MANNER OF EXERCISE OF OPTION
(a) Options granted under the Plan shall, subject to the provisions of Section
7, be exercisable immediately in full, provided that no option shall be
exercisable prior to approval of the Plan by the stockholders of Datamarine in
accordance with Section 13 hereof.
(b) To the extent that the right to exercise an option has accrued and is in
effect, the option may be exercised in full at one time or in part from time to
time by giving written notice, signed by the person or persons exercising the
option, to Datamarine, stating the number of Shares with respect to which the
option is being exercised, accompanied by payment in full for such Shares,
which payment may be in cash or in whole or in part in Shares of the common
stock of Datamarine already owned for a period of at least six months by the
person or persons exercising the option, valued at fair market value, as
determined under Section 5 hereof, on the date of exercise; provided, however,
that there shall be no such exercise at any one time as to fewer than two
hundred fifty (250) Shares or all, of the remaining Shares then purchasable by
the person or persons exercising the option, if fewer than two hundred fifty
(250) Shares. Upon such exercise, delivery of a certificate for paid-up
non-assessable Shares shall be made at the principal Washington office of
Datamarine to the person or persons exercising the option at such time, during
ordinary business hours, not more than thirty (30) days from the date of
receipt of the notice by Datamarine, as shall be designated in such notice, or
at such time, place and manner as may be agreed upon by Datamarine and the
person or persons exercising the option.
7. TERMS OF OPTIONS
(a) Each option shall expire ten (10) years from the date of the granting
thereof, but shall be subject to earlier termination as herein provided.
(b) In the event of the death of an optionee, the option granted to such
optionee may be exercised, to the extent the optionee was entitled to do so on
the date of such optionee's death, by the estate of such optionee or by any
person or persons who acquired the right to exercise such option by bequest or
inheritance or otherwise by reason of the death of such optionee. Such option
may be exercised at any time within one (1) year after the date of death of
such optionee, at which time the option shall terminate, or prior to the date
on which the option otherwise expires by its terms, whichever is earlier.
(c) In the event that an optionee ceases to be a director of Datamarine, the
option granted to such optionee may be exercised by him, but only to the extent
that under Section 6 hereof the right to exercise the option has accrued and is
in effect. Such option may be exercised at any time within seven (7) months
after the date such optionee ceases to be a director of Datamarine, at which
time the option shall terminate, but in any event prior to the date on which
the option expires by its terms, whichever is earlier, unless termination as a
director (a) was by Datamarine for cause, in which case the option shall
terminate immediately at the time the optionee ceases to be a director of
Datamarine, (b) was because the optionee has become disabled (within the
meaning of Section 22(e)(3) of the Code), or (c) was by reason of the death of
the optionee. In the case of death, see Section 7(b) of the Plan. In the case
of disability, the option may be exercised, to the extent then exercisable
under Section 6 hereof, at any time within one (1) year after the date of
termination of the optionee's directorship with Datamarine, at which time the
option shall terminate, but in any event prior to the date on which the option
otherwise expires by its terms, whichever is earlier.
8. OPTIONS NOT TRANSFERABLE
The right of any optionee to exercise an option granted to him under the Plan
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act, or the rules thereunder. Any option granted under the Plan
shall be exercisable during the lifetime of such optionee only by him. Any
option granted under the Plan shall be null and void and without effect upon
the bankruptcy of the optionee, or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition, attachment, trustee process or similar process, whether
legal or equitable, upon such option.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION
In the event that the outstanding Shares of the common stock of Datamarine are
changed into or exchanged for a different number or kind of shares or other
securities of Datamarine or of another corporation by reason of any
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination of shares or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which outstanding options, or portions thereof then unexercised, shall be
exercisable, to the end that the proportionate interest of the optionee shall
be maintained as before the occurrence of such event, and such adjustment in
outstanding options shall be made without change in the total price applicable
to the unexercised portion of such options and with a corresponding adjustment
in the option price per share.
10. RESTRICTIONS ON ISSUE OF SHARES
Notwithstanding the provisions of Section 6 hereof, Datamarine may delay the
issuance of Shares covered by the exercise of any option and the delivery of a
certificate for such Shares until one of the following conditions shall be
satisfied:
(i) the Shares with respect to which an option has been exercised are
at the time of the issue of such Shares effectively registered
under applicable Federal and state securities acts now in force or
hereafter amended; or
(ii) counsel for Datamarine shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such Shares
are exempt from registration under applicable Federal and state
securities acts now in force or hereafter amended.
It is intended that all exercises of options shall be effective. Accordingly,
Datamarine shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that Datamarine shall be under no
obligation to cause a registration statement or a post-effective amendment to
any registration statement to be prepared at its expense solely for the purpose
of covering the issue of Shares in respect of which any option may be
exercised, except as otherwise agreed to by Datamarine in writing.
11. RIGHTS OF HOLDER ON PURCHASE FOR INVESTMENT;
SUBSEQUENT REGISTRATION
Unless the Shares to be issued upon exercise of an option granted under the
Plan have been effectively registered under the Securities Act of 1933, as now
in force or hereafter amended, Datamarine shall be under no obligation to issue
any Shares covered by any option unless the person who exercises such option,
in whole or in part, shall give a written representation and undertaking to
Datamarine which is satisfactory in form and scope to counsel to Datamarine and
upon which, in the opinion of such counsel, Datamarine may reasonably rely,
that he is acquiring the Shares issued to him pursuant to such exercise of the
option for his own account as an investment and not with a view to, or for sale
in connection with, the distribution of any such Shares, and that he will make
no transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the Securities Act of 1933, or any
other applicable law, and that if Shares are issued without such registration a
legend to this effect may be endorsed upon the securities so issued. In the
event that Datamarine shall, nevertheless, deem it necessary or desirable to
register under the Securities Act of 1933 or other applicable statutes any
Shares with respect to which an option shall have been exercised, or to qualify
any such Shares for exemption from the Securities Act of 1933 or other
applicable statutes, then Datamarine shall take such action at its own expense
and may require from each optionee such information in writing for use in any
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable
indemnity to Datamarine and its officers and directors from such holder against
all losses, claims, damages and liabilities arising from such use of the
information so furnished and caused by any untrue statement of any material
fact therein or caused by the omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made.
12. LOANS PROHIBITED
Datamarine shall not, directly or indirectly, lend money to an optionee or to
any person or persons entitled to exercise an option by reason of the death of
an optionee for the purpose of assisting him or them in the acquisition of
Shares covered by an option granted under the Plan.
13. APPROVAL OF STOCKHOLDERS
The Plan shall be subject to approval by the Company's stockholders at the next
annual meeting of the Company's stockholders, or the next special meeting in
lieu of annual meeting of the Company's stockholders, held after adoption of
the Plan by the Board, and shall take effect immediately as of its date of
adoption upon such approval.
14. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan shall be
borne by Datamarine, and none of such expenses shall be charged to any
optionee.
15. TERMINATION AND AMENDMENT OF THE PLAN
Unless sooner terminated as herein provided, the Plan shall terminate ten (10)
years from the date upon which the Plan was duly approved by the stockholders.
The Board may at any time terminate the Plan or make such modification or
amendment thereof as it deems advisable, provided however that, except as
provided in Section 9 hereof and to the extent required to qualify the Plan
under Rule 16b-3 ("Rule 16b-3") promulgated under Section 16(b) of the
Securities Exchange Act of 1934 (the "Exchange Act"), no modification or
amendment to the provisions of the Plan may be made more than once every six
(6) months other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules thereunder, if the effect of such
amendment or modification would be to change (i) the requirements for
eligibility under the Plan, (ii) the timing of the grants of options to be
granted under the Plan or the exercise price or vesting schedule thereof, or
(iii) the number of Shares subject to options to be granted under the Plan
either in the aggregate or to one director. Any amendment to the provisions of
the Plan which (i) materially increases the number of Shares which may be
subject to options granted under the Plan, (ii) materially increases the
benefits accruing to Participants under the Plan, or (iii) materially modifies
the requirement for eligibility to participate in the Plan, shall, to the
extent required to qualify the Plan under Rule 16b-3, be subject to approval by
the stockholders of Datamarine obtained in the manner stated in Section 13
hereof. Termination or any modification or amendment of the Plan shall not,
without the consent of the optionee, affect his rights under an option
previously granted to him.
16. LIMITATION OF RIGHTS IN THE OPTION SHARES
An optionee shall not be deemed for any purpose to be a stockholder of
Datamarine with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
17. NOTICES
Any communication or notice required or permitted to be given under the Plan
shall be in writing, and mailed by registered or certified mail or delivered by
hand, if to Datamarine, to its principal place of business, attention:
President, and, if to an optionee, to the address as appearing on the records
of Datamarine.
18. COMPLIANCE WITH RULE 16b-3
It is the intention of Datamarine that the Plan comply in all respects with
Rule 16b-3 and that Participants remain disinterested persons for purposes of
administering other employee benefit plans of Datamarine and having
transactions under such other plans be exempt from Section 16(b) of the
Exchange Act. Therefore, if any Plan provision is found not to be in compliance
with Rule 16b-3 or if any Plan provisions would disqualify Participants from
remaining disinterested persons, those provisions shall be deemed null and
void, and in all events the Plan shall be construed in favor of its meeting the
requirements of Rule 16b-3.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Primary 1996 1995 1994
- ------- --------- --------- ---------
<S> <C> <C> <C>
Weighted Average Shares Outstanding 1,299,446 1,252,983 1,212,953
Dilutive Effect of Stock Options 220,539 105,116 -
-----------------------------------
Weighted Average Common and Equivalent Shares Outstanding 1,519,985 1,358,099 1,212,953
===================================
Fully Diluted
Weighted Average Shares Outstanding 1,299,446 1,252,983 1,212,953
Dilutive Effect of Stock Options 226,144 105,116 -
-----------------------------------
Weighted Average Common and Equivalent Shares Outstanding 1,525,590 1,358,099 1,212,953
===================================
</TABLE>
EXHIBIT 21
SUBSIDIARIES
The Registrant has two wholly-owned subsidiaries:
SEA, Inc. - A Delaware Corporation, and
Nautical Realty A/S - A Danish Corporation.
The Registrant has a 97.5% owned subsidiary Narrowband Network Systems, Inc.
- A Washington Corporation, and a 60% owned subsidiary
- Datamarine International Australia PTY, LTD. - A New South Wales,
Australia Corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statements of
Datamarine International, Inc. and Subsidiaries on Form S-8 (File No. 2-68937)
pertaining to the Employee Stock Purchase Plan, on Form S-8 (File No. 33-48532)
pertaining to the 1991 Stock Option Plan, and on Form S-8 (File No. 333-06927)
pertaining to the 1995 Stock Option Plan for Non-employee Directors of our
reports dated December 20, 1996, except for Note 13 to the financial statements
as to which the date is January 8, 1997, on our audits of the consolidated
financial statements and financial statement schedule of Datamarine
International, Inc. and Subsidiaries as of September 28, 1996 and September 30,
1995, and for the years ended September 28, 1996, September 30, 1995 and
October 1, 1994 which reports are included in this Annual Report on Form 10-K.
/s/:COOPERS & LYBRAND L.L.P
Seattle, Washington
January 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 330,076
<SECURITIES> 0
<RECEIVABLES> 3,507,042
<ALLOWANCES> 171,990
<INVENTORY> 5,230,705
<CURRENT-ASSETS> 9,430,725
<PP&E> 5,169,121
<DEPRECIATION> 2,889,267
<TOTAL-ASSETS> 12,649,846
<CURRENT-LIABILITIES> 4,263,227
<BONDS> 1,849,685
0
0
<COMMON> 13,094
<OTHER-SE> 6,523,840
<TOTAL-LIABILITY-AND-EQUITY> 12,649,846
<SALES> 16,590,002
<TOTAL-REVENUES> 16,590,002
<CGS> 9,555,599
<TOTAL-COSTS> 9,555,599
<OTHER-EXPENSES> 5,545,884
<LOSS-PROVISION> 81,615
<INTEREST-EXPENSE> 316,564
<INCOME-PRETAX> 1,139,064
<INCOME-TAX> 388,083
<INCOME-CONTINUING> 750,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 750,981
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
