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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
____________________________________ to
_________________________________
Commission file number 0-11038
BOATRACS, INC.
(Name of small business issuer in its charter)
California
33-0644381
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
6440 Lusk Blvd. Suite D201, San Diego, CA
92121
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code:
(619) 587-1981
Securities registered pursuant to Section 12(b) of the
Act:
NONE
Securities registered pursuant to Section 12(g) of the
Act:
COMMON STOCK
(Title of Class)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
X Yes No
Check if there is no disclosure of delinquent filers
in response to Items 405 of Regulation S-B in this form, and
no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB.
[ X ]
State issuer's revenues for its most recent fiscal year.
$2,667,000
The aggregate market value of the voting stock held by non
affiliates of the Registrant as of February 29, 1996, was
$4,407,406.*
(ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the
Exchange Act after the distribution of securities under a plan
confirmed by a court. X Yes No
The number of shares outstanding of Registrant's common
stock was 12,577,710 shares as of March 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (Check
one): Yes No X
________________
*Excludes the common stock held by executive officers,
directors and stockholders whose ownership exceeds 5% of the
common stock outstanding at February 29, 1996. Exclusion of
such shares should not be construed to indicate that any such
person possess the power, direct or indirect, to direct or
cause the direction of the management or policies of the
Registrant or that such person is controlled by or under
common control with the Registrant.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
BOATRACS, Inc.'s ("The Company") objectives include
providing the most effective data communications system for
all vessels including boats, ships and barges (marine
application). To achieve this objective, the Company
currently offers the OmniTRACS satellite-based
communications and tracking system (the "OmniTRACS System")
developed, manufactured and licensed by QUALCOMM,
INCORPORATED ("QUALCOMM"). The Company has
distribution rights for the OmniTRACS System in the
United States for marine application under a License and
Distribution Agreement dated June 13, 1990, as amended from
time to time, with QUALCOMM. The Company's 24-hour
messaging center provides personal message relaying services
to individual vessels and backup services to fleets of
vessels.
The Company derives revenue primarily from two sources:
a. Sales of QUALCOMM equipment and software and
additional, complimentary and/or modified equipment created or
procured for maritime application; and
b. Message and monitoring revenues.
BOATRACS' primary source of customers is the commercial
marine industry, which includes commercial fishermen,
fuel transporters and the workboat industry of the inland
waterways. The industry has demanding service
requirements including mobility, positioning, durability,
confidentiality and
integrity of communications signals for the management
of information. Such information includes vessel logs,
supplies, wage information, and fuel and engine
monitoring. Confidentiality of data transmission is an added
concern of commercial maritime fleet operators. For
example, scallop fishermen need to be able to communicate to
shore about their catches and from boat to boat without
informing competitors. Towboat dispatchers need to keep
communications about customers confidential. Two-way radio
and cellular phone service provide mobility but lack complete
privacy.
The need for improved position reporting and
communications abilities for commercial vehicles, such as
trucking fleets, was addressed by QUALCOMM in 1988 with the
development of its OmniTRACS System. The OmniTRACS System
provides confidential two-way data messaging, position
reporting and confirmation services. Through the adaptation
and enhancement of QUALCOMM's already successful OmniTRACS
system for marine application, BOATRACS believes that it
has developed cost-effective, reliable and user-friendly
solutions for many of the communications, vessel tracking
and near "real time" data transfer needs of commercial vessel
operators.
Background
The Company was incorporated in California in 1982 under
the name First National Corporation as a bank holding
company. From 1982 to 1993, the Company provided, through
its whollyowned subsidiaries, business and individual
banking services and certain corporate trust services.
On November 9, 1993, First National Corporation filed
a voluntary petition under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of California (the "Bankruptcy
Court"). First National Corporation sold its principal asset
consisting of 2,125,000 shares of common stock in First
National Bank pursuant to an order of the Bankruptcy Court
authorizing and approving such sale. On December 23,
1994, the Bankruptcy Court entered its order confirming
First National Corporation's Second Amended Plan of
Reorganization (the "Plan of Reorganization"), which
became effective January 3, 1995.
On January 12, 1995, the Company (formerly First
National Corporation) merged with BOATRACS, Inc. ("Old
BOATRACS"), a California corporation formed in 1990 to be a
distributor in the United States marine market of the
OmniTRACS satellitebased communications and tracking
system manufactured by QUALCOMM (the "Merger"). The
merger of Old BOATRACS with and into the Company was
implemented pursuant to the Plan and Agreement of
Reorganization by Merger of BOATRACS, Inc. with and into
First National Corporation under the name of "BOATRACS,
Inc." (the "Agreement"). The Agreement was approved by the
Bankruptcy Court as part of the Plan of Reorganization. First
National Corporation had no significant assets at the
effective date of the Merger.
Pursuant to the Merger, the Company, which was the
surviving corporation, changed its corporate name to
"BOATRACS, Inc."; the outstanding shares of Old BOATRACS
were converted into the right to receive slightly less than
95% of the shares of common stock to be issued by the
surviving corporation; and each of the outstanding shares
of First National Corporation was converted into the
right to receive 1/7 share of the common stock of the
surviving corporation, with an aggregate of slightly more
than 5% of the shares of common stock issued by the
surviving corporation to be issued to the shareholders of
First National Corporation prior to the Merger. As a result
of the Merger, the 63,018 issued and outstanding shares of
Old BOATRACS were converted into the right to receive
9,500,000 shares of the Company's common stock, and the
3,570,899 issued and outstanding shares of the common stock
of First National Corporation were converted into the right
to receive approximately 510,000 shares of the Company's common
stock. The Company intends to operate and continue the
business of Old BOATRACS.
The OmniTRACS and BOATRACS Systems
The OmniTRACS System, as adapted and enhanced by the
Company for marine application (the "BOATRACS System"),
provides confidential two-way data communications between a
vessel or vessels at sea and a base station on land through
the use of a mobile communications terminal ("MCT") and
a satellite communications system. The BOATRACS System
also allows for hourly position reporting and
monitoring and, using supplementary products, can provide
engine performance and fuel consumption monitoring. At
December 31, 1995, the Company had installed approximately
600 systems on marine vessels. The BOATRACS System is
effective while a vessel is within the satellite's "footprint,"
which extends approximately 200 to 400 miles offshore most areas
of the continental United States. The BOATRACS System is an interactive
communications network linking a vessel to shore and from
shore-based personnel to vessels and from boat to boat.
Messaging and positioning information are beamed from the
vessel, via Ku-bank satellite, to the QUALCOMM Network
Management Center ("NMC") in San Diego, California, to base
stations at the customers' offices or to the BOATRACS 24
Hour Messaging Center also in San Diego. Messages that go
to BOATRACS can be relayed by an operator via phone or fax.
The BOATRACS System is capable of sending or receiving
digital (text) messages or files to or from a vessel.
The QUALCOMM Automatic Satellite Position Reporting
("QASPR") system is featured in all BOATRACS mobile units.
The NMC uses the QASPR system to calculate a vessel's
position, accurate to 1000 feet. This position is made
available to shore-based users.
The QUALCOMM NMC is the communications hub of the
BOATRACS System. All communications are transmitted via
satellite through a 7.6 meter dish located on the QUALCOMM
premises. A backup NMC facility and dish are maintained by
QUALCOMM in Las Vegas, Nevada. Connections to the QUALCOMM
NMC are supported through existing lease-line and dial-up
services.
Satellite service is provided by GTE aboard an
existing satellite under a "protected lease" which
guarantees transponders will be available to QUALCOMM through
one of GTE's available satellites.
The BOATRACS 24 Hour Messaging Center is located in San
Diego and provides message relaying and stand-by backup services
for fleets and individual vessels using the system.
Computers communicate to the QUALCOMM NMC by modem to
monitor customer accounts on the system. BOATRACS
operators personally relay satellite messages between
vessels and their families or business associates on shore
and from shore-based personnel to vessels. Other custom
services are also available. BOATRACS charges its customers
for the transmission of each message and, additionally, for
the transmission of each character within a message. There
also is a monthly connection fee for the MCT to be online and
for hourly position reports. The charges are subject to certain volume
discounts.
On the Vessel
The MCT consists of three basic components: the
Communications Unit, the Keyboard/Display Unit and the
Outdoor Unit. The Communications Unit is about the size of a
briefcase with a rugged exterior casing. The Keyboard Display
Unit has an imbedded display and is usually kept in the pilot house
or wherever other communication and navigation devices are
kept on the vessel. Messages are both created and received
on a fourline liquid crystal display screen. The Outdoor
Unit is the antenna which is mounted externally, generally
on top of the wheelhouse. The design of the unit allows for both
ease of installation and efficient use of what is usually
limited space. Software menus and simple wording on the Keyboard/Display
Unit facilitate easy use of the system to send and receive messages. Although
many of BOATRACS'
customers use only the basic MCT, BOATRACS offers optional
products that interface with the basic unit. Customers also
have he option of using a personal computer and
BOATRACS' BOATCOMM User Interface Software instead of he
standard Keyboard/Display Unit.
Boatracs Messaging Center
BOATRACS operates a 24-hour Messaging Service from its
San Diego, California-based offices where messages are
forwarded to vessels and land-based connections. After
initial set-up costs have been incurred, the messaging
facility is virtually a fixed cost operation with the
potential to handle hundreds of additional units at a
small incremental cost.
BOATRACS' Messaging Center is linked via a dedicated
telephone line for data transfers via modem directly to
QUALCOMM's Network Management Facility in San Diego, where message
transmissions to and from the vessels are formatted
and processed.
Network Management Facilities
One component of the Network Management Facility is an
earth station for communication with the MCTs via
satellite. All individual messages originating from either the
Network Management Facility or the vessels are
automatically acknowledged electronically upon receipt and
checked for accuracy of transmission by the system. If not
received correctly, the messages are automatically retransmitted. Since all
messages and position reports are
transmitted in data format, they can be stored for later
retrieval and viewing.
In the Office
Generally, a customer with less than four units uses
the Company's 24-hour Messaging Service only. Typically,
a customer who has more than four BOATRACS units elects
to establish an in-house base station. The base station
provides the customer with an in-house communications link
and vesseltracking capability. The base station is
comprised of a computer and BOATRACS or third party
communications software containing a mapping function whereby
a customer can follow the progress of its fleet on a detailed
computer map.
Communications are conducted via modem directly between
the customer's base station and the Network Management
Facility maintained by QUALCOMM for satellite
transmission to the customer's vessels.
Customers in the commercial marine industry have informed
the Company that the BOATRACS System provides much needed
services and has been very effective in saving time and
money. Based upon conversations with customers, the Company
believes that its customers typically experience
increased worker productivity, asset utilization and
dispatching efficiency while saving communications costs.
Many customers enter into a three- to five-year contract,
establishing a fixed rate to be paid for messaging services
used by the customer during the contract term.
Agreements with QUALCOMM
The Company has distribution rights for the OmniTRACS System
in the United States for marine application under a License
and Distribution Agreement dated June 13, 1990, as amended
from time to time (the "Distribution Agreement") with
QUALCOMM. The Distribution Agreement has an initial term of
five years with three options to extend for five years
each (provided that BOATRACS is in full compliance with
the terms of the Distribution Agreement) for a total of twenty years
through 2010. The first option to extend has been exercised
by the Company. The Distribution Agreement calls for the
negotiation in good faith of a new agreement upon the
expiration of the last option.
Under the Distribution Agreement, the Company has the
exclusive rights to distribute the OmniTRACS System
for marine application and to provide messaging services to
end users of such products for marine application, in the
following geographic areas (the "Territory"): within the
coastal waters of the United States (as defined in the
Distribution Agreement) of the Atlantic and Pacific Oceans,
excluding (i) the Gulf of Mexico, (ii) all gulf state waterways
bordering the Gulf of Mexico, (iii) all inland waterways and (iv) all
international territories. The Company has non-exclusive rights
to distribute such products and provide such message services
in the following areas (the "Non-Exclusive Territory"): (a)
those coastal waters (as defined) constituting the Gulf of
Mexico and (b) the inland waterways of the United States.
After the Company sells 700 MCTs, the Territory, in which the
Company has exclusive distribution rights, will be expanded by
the addition of the Non-Exclusive Territory. The
Company anticipates reaching 700 MCTs during 1996.
Under the Distribution Agreement, BOATRACS is required to
sell a certain minimum number of MCTs in order to
maintain the exclusivity of its distribution rights,
commencing with 480 MCTs in the aggregate by December 31, 1996.
This requirement has been met by the Company. Thereafter,
the minimum purchase requirements for each calendar year are
to be agreed upon between the Company and QUALCOMM subject to
a minimum of 300 MCTs for the calendar year ending December
31,1997 and increasing by 10% each year thereafter.
QUALCOMM, a public company with fiscal 1995 revenues in
excess of $386 million and current capitalization in excess
of $1 billion, is a leader in digital wireless communications
technologies. QUALCOMM manufactures and services the
MCTs. QUALCOMM also directly sells MCTs, along with
office-based software and computers to monitor and
communicate with the MCTs, to the transportation industry.
QUALCOMM provides the OmniTRACS service for its own
customers as well as BOATRACS' customers, by leasing the
Ku-band satellite transponders and maintaining the Network
Management Facility which processes all communications
between the satellites and customers' and the Company's
base stations. QUALCOMM also maintains a back-up Network
Management Facility in Las Vegas, Nevada in case of any
malfunction to the system in San Diego, California.
QUALCOMM is responsible for the manufacture and warranty
repair of all of the OmniTRACS units supplied by them.
Warranties for a specified period are passed on to the
Company's customers. Extended warranties may be purchased at
an additional cost.
If BOATRACS desires to sell its business, QUALCOMM has a
right of first refusal under the Distribution Agreement to
purchase the business of BOATRACS on the terms of the
sale to the proposed transferee.
QUALCOMM's obligation to provide messaging services pursuant
to the Distribution Agreement is contingent upon, among
other things, the receipt of a permanent license from the
FCC to operate the OmniTRACS System for marine application.
See "-Regulation." If such license is not obtained, the
Distribution Agreement will automatically terminate and the
Company would be unable to continue its operations.
If QUALCOMM becomes unable to provide messaging services
either directly or through a third party, or elects not to
remain in the business of providing such services, QUALCOMM
may terminate the Distribution Agreement with no further
liability by giving BOATRACS six months prior notice. If
QUALCOMM elects to terminate the Distribution Agreement,
QUALCOMM shall take reasonable and necessary steps to
enable BOATRACS to continue to provide messaging services to
its end users. BOATRACS may terminate the Distribution
Agreement under certain circumstances if new technology
for a system comparable to the BOATRACS System is developed
by certain entities other than QUALCOMM.
The Company recently entered into a license agreement
with QUALCOMM (the "License Agreement") pursuant to which
QUALCOMM will pay the Company a per copy royalty for the
right to use, sublicense and distribute certain interface
software developed and owned by the Company as an
enhancement to QUALCOMM's OmniTRACS System. The License
Agreement term commenced in March 1995 and will
terminate upon the termination of the Distribution
Agreement between the Company and QUALCOMM.
Agreement with Intrex
In September 1995, the Company signed a three-year
distribution agreement with Intrex Data Communications
Corporation whereby the Company became the exclusive
distributor of the Intrex Fuel System products, which
provide a fuel and engine monitoring system to the marine
market. This system allows the crew onboard to monitor
engine performance and fuel consumption of
the vessel while underway, which can be used to conserve
fuel. When this system is interfaced to the BOATRACS
MCT, this information can be transmitted to base stations on
land. This product will require the Company to undertake
a marketing program to sell the system and expenditures to
train personnel and develop software to support the system.
If the price of fuel to the marine market is reduced, the
system will be less desirable because of the reduced need
for fuel consumption management. The territory covers
North America, Central America, South America and Europe.
There is a minimum number of units to be sold yearly to
maintain exclusivity.
In
addition, BOATRACS will be the non-exclusive distributor
for Dolphin products, the associated Intrex software. The
agreement automatically renews for an additional five
years unless a party is notified to the contrary. The
Company believes there exists a market for this product.
Memo of Understanding with ALCATEL QUALCOMM
In February 1996, the Company signed a Memorandum
of Understanding (the "MOU") with ALCATEL QUALCOMM, a
French company, which is a joint venture company between the
ALCATEL Group and QUALCOMM. The MOU contemplates BOATRACS
operating in Europe under a similar basis that it operates
in the United States by providing maritime satellite-based
communications and tracking of vessels.
Regulation
Domestic Operations
QUALCOMM filed an application with the FCC for a
standard experimental license with a two-year term, which
was granted effective August 18, 1995. In addition, QUALCOMM
is pursuing a Petition for Rulemaking which it filed with the
FCC in 1992 that would amend the Table of Frequency
Allocations to permit non-experimental use of the
frequencies utilized by the OmniTRACS System in the
United States coastal waters. There can be no assurance
that the Table of Frequency Allocations will be amended
and that QUALCOMM's current license will continue to be
renewed. In the event of non-renewal or revocation of
QUALCOMM's license by the FCC, the License and Distribution
Agreement between QUALCOMM and the Company may be terminated
and the Company may be unable to continue its United States
operations.
International Operations
BOATRACS intends to expand into international markets. See "-
Market Expansion." In countries which QUALCOMM has
an affiliated OmniTRACS service provider, the Company
believes that such affiliate or BOATRACS will attempt to
secure the necessary regulatory approvals for maritime
applications from the local governmental authorities for
the affiliate or the Company.
In countries in which no QUALCOMM affiliate is
operating, the Company will apply to the local
governmental authority for applicable approvals. No assurance
can be given that the Company will be able to obtain the
required approvals. During the fourth quarter 1995 a messaging
office was opened in The Netherlands, contemplating the
expansion into this market.
Additional Products
BOATRACS continues to develop new software products
to complement the BOATRACS product line. This software is sold
to BOATRACS' customers under BOATRACS' proprietary names.
The Company is seeking strategic alliances with companies
that have a proven product or service in the marine
market. In addition, BOATRACS strives to stay abreast of new
products and services that can complement its existing
product and service offerings and seeks to build
additional strategic relationships with companies that
are developing new interfaces and marine related products
that require communications between a vessel and the
shore. BOATRACS continues to explore ways to
economically take advantage of these relationships by
acquiring either sales and distribution rights to, or direct
ownership of, the products developed. The Company believes
that these efforts have the potential to result in
significant growth in installed units and message volume in
the future.
The Company has agreed to enter into a reseller
arrangement with Orbital Communications Corporation
("ORBCOMM"), which is developing a Low-Earth Orbit system
("LEO"), pursuant to which the Company will distribute
ORBCOMM's LEO services to the worldwide marine market if
and when such services become commercially available.
The LEO system, if it proves successful, will
complement BOATRACS' present services. The reseller agreement is
currently being negotiated.
Market Expansion
The Company believes that there is a sizable market in
the United States and abroad for its products and has
developed a strategy to expand into selected markets
by providing innovative solutions to customer needs. Following
are descriptions of certain areas of potential market
expansion being explored by the Company. There can be no
assurances that any of the Company's market expansion
efforts will be successful.
Proposed United States Fishing Regulations
As a result of the critical level of various fishing
resources, the National Marine Fisheries Service ("NMFS"), a
division of the United States Department of Commerce, is
managing the population of specific marine species through
recently imposed (but suspended) regulations of the domestic
scallop and ground fishing fleets. These regulations impose
restrictions on the number of days and locations that
certain vessels can fish. Compliance with these regulations
requires a certified tracking device to monitor on a 24-hour
basis the position of vessels licensed to catch a regulated
species. The BOATRACS System has been preliminarily approved
by NMFS in this capacity, but would be subject to a
certification process that has not been announced. These
regulations were due to become effective for the scallop
industry on September 1, 1994, and although the implementation of
the regulations has been delayed, BOATRACS believes that eventually
the regulations will become effective. The Company believes that the
sales potential in the domestic scallop and ground fishing
industries are difficult to forecast. It is anticipated that as fish
stocks dwindle, the number of licensed fishing vessels also declines.
Additionally, the currently contemplated implementation
of satellite transponders onboard fishing vessels may be
overruled by emergency measures, alternative management
schemes, or acts of Congress which could close certain
fisheries in total or in part. BOATRACS has installed more
than 100 units on fishing vessels that could fall within the
proposed regulations calling for certified tracking devices.
The Company believes that implementation of such regulations would
expand the market for the Company's products and services.
International Distribution of the BOATRACS System Numerous Ku-band
satellites currently provide coverage in regions outside the
United States, including Japan, Europe, Canada, Mexico and regions
of the former Soviet Union. Additionally, QUALCOMM uses a C-Band
satellite to provide coverage in Brazil. As a result, the Company believes
that a significant opportunity exists for utilization of the
BOATRACS System outside of the United States. Because the
Company's business is currently dependent upon services
provided by QUALCOMM through its OmniTRACS operations, the Company's
primary strategy is to expand its services to selected areas of the world
where the OmniTRACS service has been established. The Company's operations
in such areas would be conducted pursuant to agreements to be negotiated
between the Company and QUALCOMM's local OmniTRACS service providers.
In countries in which no OmniTRACS service provider is
operating, the Company may seek to enter into agreements
with providers of other communications services, if available.
Canada. In May 1995, the Company signed a Memorandum
of Understanding with OceanTrac Systems Limited of Canada to
form a new company in Canada in which the Company will
have a minority interest. The new company will be granted
exclusive rights for the marketing, distribution and sale of
the BOATRACS System in the Canadian provinces of Ontario,
Quebec, New Brunswick, Prince Edward Island, Nova Scotia,
Newfoundland and Labrador. OceanTrac serves as the
exclusive distributor and provides messaging services for
BOATRACS in Eastern Canada.
Europe. QUALCOMM's press releases indicate that
over 10,000 MCTs are currently in operation throughout Europe.
The Company has currently established a base station in
The Netherlands to offer the BOATRACS System in the European
and Mediterranean markets. Except for anticipated
modifications to incorporate European maps, minimal
product changes or enhancements are necessary to enter the European market.
The Company's success in Europe is dependent upon identifying
or developing software solutions and providing them to the
market in a timely manner. EUTELSAT and QUALCOMM's United
Kingdom service provider, ALCATEL EUTELTRACS U.K.,
installed test equipment on five British vessels on an
evaluation basis. EUTELSAT has requested, and BOATRACS has
agreed to offer, the BOATRACS 24-hour Messaging Services to
these evaluation units to demonstrate the value-added
message relaying and monitoring services that BOATRACS could
provide to the fishing industry throughout Europe. BOATRACS
has been invited by EUTELSAT and ALCATEL QUALCOMM (a joint
venture between QUALCOMM and ALCATEL N.V. that is responsible
for the European OmniTRACS operations) to contact other
European marine customers that are currently evaluating or
who have purchased the OmniTRACS System to offer them trial
messaging services. In February 1996, the Company signed a
Memorandum of Understanding with ALCATEL QUALCOMM,
contemplating BOATRACS operating in Europe under a
similar basis that it operates in the United States.
BOATRACS intends to focus on three key market sectors
in Europe: fishing, coastal and inland towing. The Company
plans to establish sales activities in European countries
where an agreement can be reached with the local
OmniTRACS service provider or distributor of other
communications services and where a marine license can
be obtained from the local government. The Company also
intends to provide messaging services on demand and begin
working with industry associations
to better utilize today's technology. Through local
sales agents and a highly focused sales strategy aimed
directly at the largest fleets, BOATRACS hopes to establish
a profitable market in the European marine industry.
Additional Overseas Expansion. The Company has been asked
by various entities to commence activities in Asia and
South America. Expansion in these areas will depend on
available capital resources, as these are large markets
with specific needs. No decision has yet been made regarding such
possible expansion.
Potential Acquisitions
Preliminary discussions that may lead to acquisitions
of additional businesses related to the Company's
existing business are in progress but the Company presently has
no understandings, agreements or commitments with respect to
any such potential acquisition. There is no assurance that
the Company will be able to identify suitable candidates
for acquisition or consummate advantageous acquisitions. Any
such acquisition may be achieved through the payment of
cash, the issuance of the Company's stock or notes, or a
combination of cash, stock and notes. If the Company does
make one or more acquisitions, such acquisitions may not
be profitable or otherwise beneficial to the Company.
Sales and Distribution
Since its inception, the Company has engaged
manufacturer's representatives to place the Company's
products with marine electronics dealers who sell to the end user.
The representatives provided BOATRACS with a much-needed introduction
to the marine market. However, with few exceptions, BOATRACS has
not had success from the dealer and manufacturers' representative
system of distribution.
Except in the New England fishing market, most of the
selling and distributing has been generated by the San
Diego office. Although some dealers provide excellent
local service, the Company has begun to assign salespeople
to geographic areas where there is a concentration of
potential customers.
In addition, the Company is continually seeking relationships
with third-party distributors who can provide sales and
service support for its products. The Company believes
that such arrangements have the potential to result in
sales in areas where it is not cost-effective to have a
full-time BOATRACS salesperson.
Competition
The mobile communications industry is highly competitive.
The industry includes major domestic and international
companies, many of which have financial, technical,
marketing, sales, distribution and other resources
substantially greater than those of the Company. The
Company competes in its market on the basis of product
quality, reliability, price, customer support and product
features. The Company believes that it is competitive with
respect to each of these factors.
The following is an overview of certain competing
and substitute products and services that BOATRACS faces:
Alternative Satellite Service Providers. Several
competing entities provide satellite-based mobile voice and
data systems in marine markets. INMARSAT, an international
consortium, provides maritime voice, facsimile and data services
nearly worldwide using capacity on a combination of owned and
leased satellites. American Mobile Satellite Corporation
currently offers data communications and vessel tracking using
its newly launched L-band satellite, and has announced that
it expects to offer a voice-based system later in 1996. ARGOS
provides oneway (ship to shore) communications and position
reporting in many parts of the world. When ARGOS operates
on the Japanese ADEOS2 satellite from the late 1990's, they
will offer two-way communication. Mobile Datacom
Corporation offers mobile terminals for the provision of
data communications and position location services in the
marine market using leased L-band transponder space.
INMARSAT is approved to provide Global Marine Distress
Safety System ("GMDSS") notices and communications. GMDSS requires
shipping vessels of a certain size that operate certain distances
from shore to have a GMDSS approved communications system by 1997. The
Company is at a disadvantage without such approval. The
BOATRACS System cannot become GMDSS approved because the
BOATRACS system's coverage is not global. EUTELSAT,
BOATRACS AND QUALCOMM is currently working on a request to
the International Maritime Organization ("IMO") to consider
approving a regional category that would allow vessels
operating in a specific regional area to utilize a regional-
based system such as the BOATRACS System.
Alternatively, a request to be recognized as a
distress monitoring and safety system to individual countries
in which the Company operates could be made, but there are no
assurances that countries would respond to such a
request. If such approval is not obtained, the Company will be at a
disadvantage when attempting to sell to certain shipping,
workboat, and towing companies.
Radio. Although radios are required for most vessels,
many small businesses rely exclusively on radios for
their communication needs throughout the marine industry.
Radio can be used to communicate with a marine operator, who
can in turn place a long distance telephone call for the
radio user. Typically, the cost of the marine operator
together with the long distance telephone charges can be
significant. Radio is not dependable in inclement weather,
lacks confidentiality, and does not always provide a clear
signal.
Cellular phone. Cellular phone provides clear, easy to
use communication to many boats including pleasure boats
and commercial shipping, workboat, and towing operators.
Although a cellular system provides a clear hook-up and a
reliable service, it is expensive. Compared to cellular
costs, the Company believes that an average, long-range
operating customer could save enough to pay for its BOATRACS
System within the first year to year and a half of use.
The cellular range is also limited because the networks of
cell sites were placed in locations most suitable for
automobiles and not for vessels. This means that coverage
on the water is limited.
Cellular phones are usually out of range ten miles from the
coast; however, Waterway Communications Systems, Inc.
("Watercomm") provides cellular radio phone service for
vessels operating on inland waterways. Both cellular and
Watercomm phones are out of range when outside of their
home cells, in which case the vessel's phone "roams," which
often incurs an additional $2 to $3 per day in roaming
charges in addition to higher per minute charges in the
limited areas where roaming is available. In Europe, GSM cellular
phone service offers extensive coverage and plans to provide coverage to
nearly all of Europe's population. GSM cellular phone service also
provides a user the convenience of using a single phone in many
different countries;however, there are significant roaming charges when
roaming in a non-home country.
Proprietary Information
The Company relies on a combination of copyrights, trade
secrets, trademarks and proprietary information to maintain and
enhance its competitive position. According to reports filed
with the Commission, QUALCOMM has been granted United States
patents and has patent applications pending in the United
States with respect to the OmniTRACS System. QUALCOMM has also
reported that it actively pursues patent protection in other
countries of interest, which protection may or may not cover
OmniTRACS products.
Employees
At December 31, 1995, the Company had ten full-time and seven
part-time employees.
RISK FACTORS
The Company wishes to caution readers that the following risk
factors, among others, in some cases have affected, and in the
future could affect, the Company's actual results and could
cause the Company's actual results in the future to differ
materially from those expressed in any forward-looking
statements made by, or on behalf, of the Company.
The foundation of the Company's business is the License
and Distribution Agreement between QUALCOMM and the
Company pursuant to which the Company has distribution rights in
the United States for marine application of the OmniTRACS
system of satellite-based communications and tracking
systems manufactured by QUALCOMM. QUALCOMM is the sole supplier of
the equipment sold by the Company and provides certain
services that are essential to the Company's business.
Should QUALCOMM decide to discontinue its satellite
communications business or the manufacture of such equipment,
the Company would be unable to continue its operations. In addition,
any manufacturing delay or difficulty in procuring components
experienced by QUALCOMM resulting in a shortage of available
OmniTRACS units could have a material adverse impact on the
Company's business and financial results. Under the
License and Distribution Agreement, QUALCOMM retains all
ownership rights to the OmniTRACS software and all updates, upgrades,
improvements or modifications thereto, whether made by QUALCOMM or the
Company. Additionally, the Company is dependent upon
QUALCOMM's OmniTRACS system which currently operates on
leased Ku-band satellite transponders. The Company has
been informed that QUALCOMM's satellite transponder leases
run through the year 2003 and that QUALCOMM has contracts
for backup transponder capacity in case of failure.
However, there can be no assurance that the satellite
transponders leased by QUALCOMM will continue to function
or that future transponder capacity will be available on
acceptable terms when needed. Any failure by QUALCOMM to
maintain adequate satellite capacity would have a material
adverse effect on the Company's business and financial
results.
All message transmissions to and from vessels equipped with
the Company's products are formatted and processed in
QUALCOMM's Network Management Facility and although QUALCOMM
maintains a back-up facility, any interruption in this service
would have a material adverse effect on the Company's
business and financial results. Further, the messaging service provided
by the Company involves data transfers via standard telephone
lines and any system failure or natural disaster that resulted
in an interruption of stable telephone service would have a
material adverse effect on the Company's business and financial
results.
QUALCOMM filed an application with the FCC for a
standard experimental license with a two-year term, which
was granted effective August 18, 1995. In addition, QUALCOMM
is pursuing a Petition for Rulemaking which it filed with
the FCC in 1992 that would amend the Table of Frequency
Allocations to permit non-experimental use of the
frequencies utilized by the OmniTRACS System in the United States coastal
waters. There can be no assurance that the Table of Frequency
Allocations will be amended and that QUALCOMM's current
license will continue to be renewed. In the event of
non-renewal or revocation of QUALCOMM's license by the FCC, the License
and Distribution Agreement between QUALCOMM and the Company
may be terminated and the Company may be unable to continue its
United States operations.
According to reports filed with the Commission, QUALCOMM
has been granted United States patents and has patent
applications pending in the United States with respect to
its OmniTRACS system, which is distributed by the Company for
marine applications. QUALCOMM has also reported that it
actively pursues patent protection in other countries of
interest, which protection may or may not cover OmniTRACS
products. There can be no assurance that the pending
patent applications will be granted, that QUALCOMM's patents or
copyrights will provide adequate protection, or that competitors will
not independently develop or patent technologies that are substantially
equivalent or superior to the OmniTRACS System. From time
to time, certain companies may assert exclusive patent,
copyright and other intellectual property rights to
technologies which are important to the industry or to the
products distributed by the Company. If QUALCOMM is unable to
license protected technology used in its products, or if the
OmniTRACS product were found to infringe on protected
technology, QUALCOMM could be prohibited from marketing such products.
In such circumstances, the Company would be unable to continue
its operations.
In countries in which the Company contracts with
QUALCOMM's local OmniTRACS service provider, the Company
believes that such service provider or BOATRACS will be
responsible for securing the necessary regulatory approvals for
maritime
operations from the local governments. The Company and
such local service providers may be less prominent in
such international markets than local competitors and may have
less opportunity to influence regulatory and standards
policies. In countries in which the Company contracts with distributors
of other communications systems, the Company may apply to
the local governments for applicable approvals. No assurance
can be given that the Company will be able to obtain the
required approvals. Changes in the regulation of QUALCOMM's
OmniTRACS system, or the inability to obtain foreign regulatory
approvals, could have a material adverse effect on
the Company's operating results and its ability to expand
its business in the future.
Pursuant to the License and Distribution Agreement
between QUALCOMM and the Company, if the Company desires to
sell its business, QUALCOMM has a right of first refusal to
purchase the Company's business on the terms of the sale to
the proposed transferee.
The Company is subject to a number of other risks,
including; loss of senior management; dependence on
large customers concentrated in the commercial marine
industry; where fishing resources are in decline in many
areas of the world; the risks associated with
international expansion, including local regulatory requirements,
no prior experience in managing foreign operations, and fluctuations
in currency exchange rates; operating restrictions imposed
by contractual relationships with foreign firms; risks associated
with business expansion and the acquisition of
additional businesses; competition with companies that
have greater financial, technical and marketing resources than the
Company; fluctuations in the Company's quarterly operating
results; and lack of liquidity for the Company's common
stock, which could result in significant price
fluctuations in response to operating results and other factors.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its 8,300 square foot facility located at
6440 Lusk Blvd., San Diego, California, under four non
cancelable operating leases, which expire in September 1998.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any pending legal proceedings to
which the Company is a party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock began trading in the over-the
counter market in March 1995 and is quoted on the OTC Bulletin
Board under the symbol "BTRK". The following table sets fiscal
1995 high and low bid quotations for the common stock as
provided by the National Association of Securities Dealers,
Inc.:
High Bid Low Bid
Period from April 31, 1995
through June 30, 1995 $1.375 $1.375
Quarter ended
September 30, 1995 1.625 1.375
Quarter ended December 31, 1995 l.375 .686
On February 29, l996, the closing high and low bid price of the
common stock, as reported on the OTC Bulletin Board, was $1.125
and $.875 per share, respectively. As of January 8, 1996, the
Company had 347 holders of record of its common stock.
The Company has not paid any dividends since the Merger and
does not currently intend to declare any dividends.
The quotations set forth above represent inter-dealer
prices without retail mark-up, mark-down or commission, and
may not necessarily represent actual transactions. The
existence of quotations for the Common Stock should not be
deemed to imply that there is an established public
trading market for the Company's common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company has distribution rights in the United States
for marine application of the OmniTRACS system of satellite-
based communications and tracking systems manufactured by
QUALCOMM. In addition, the Company develops application
software for marine applications of the OmniTRACS system.
The OmniTRACS system, as adapted and enhanced by the
Company for marine application, provides confidential
two-way communications between vessels at sea and base
stations on land or with other vessels and is effective
while a vessel is within the satellite's "footprint," which
extends roughly 200 to 400 miles offshore of the continental
United States. The system also allows for hourly position tracking and
monitoring and, using supplementary products, can provide
engine performance and fuel consumption monitoring.
The Company was incorporated in California in 1982 under
the name First National Corporation as a bank holding
company. From 1982 to 1993, the Company provided, through
its whollyowned subsidiaries, business and individual
banking services and certain corporate trust services.
On November 9, 1993, First National Corporation filed
a voluntary petition under Chapter 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court
for the Southern District of California. On January 12,
1995, the Company (formerly First National Corporation)
merged with Old BOATRACS, a California corporation formed
in 1990 to be a distributor in the United States marine
market of the OmniTRACS satellite-based communications and
tracking system manufactured by QUALCOMM. The merger of Old
BOATRACS with and into the Company was implemented
pursuant to a Plan and Agreement of Reorganization that
was approved by the Bankruptcy Court. First National
Corporation had no significant assets or operations at
the effective date of the Merger. The Company intends to
operate and continue the business of Old BOATRACS. For
accounting purposes, the Merger has been treated as a
recapitalization of Old BOATRACS with Old BOATRACS as
the acquirer. Accordingly, the financial information
presented herein represents that of Old BOATRACS.
Results of Operations
The following table sets forth for the periods indicated
the relative percentages that certain income and expense items
bear to total revenues:
Year Ended December 31,
1992 1993 1994 1995
Revenues
Communications systems 41.9% 58.4% 51.7% 48.7%
Messaging. . . . . . . . 58.1 41.6 48.3 51.3
Total. . . . . . . . 100.0 100.0 100.0 100.0
Operating expenses:
Communications systems . 26.8 40.4 38.0 33.8
Messaging. . . . . . . 64.4 35.9 31.9 31.2
Selling, general and
administrative expenses.82.9 47.4 49.5 60.4
Loss from operations.. . (74.1) (23.7) (19.4) (25.4)
Other income (expense). (12.0) (2.4) (1.9) .9
Net loss. . . . . . . . (86.1)%(26.1)% (21.3%) (24.5)%
Years ended December 31, 1995 and 1994
Total revenues for the year ended December 31, 1995
were $2,666,684, an increase of $1,204,836 or 82% as
compared to total revenues of $1,461,848 for the year ended
December 31, 1994.
Communications systems revenues, which consists principally
of revenues from the sale of BOATRACS equipment and
related software, were $1,299,330 or 49% of total revenues, an
increase of $543,756 or 72% over the prior year. This
growth in communications systems revenues is attributable
primarily to an increase in sales of equipment.
Messaging revenues, which consist of fees for
messaging services provided to BOATRACS units installed on
vessels, were $1,367,354 or 51% of total revenues, an
increase of $661,080 or 94% compared to $706,274 in the prior
year. The increase in messaging revenues primarily reflects an overall
increase in messaging services provided by the Company as a result
of growth in the number of units installed on vessels in
prior periods.
Communications systems expenses were $900,980 or 69%
of communications systems revenues for 1995, an increase
of $346,172 or 62%, compared to $554,808 which represented 73%
of communications systems revenues in 1994. The dollar
increase in expenses primarily reflects increased equipment
sales. The decrease in communications systems expenses as a
percentage of communications systems revenues is primarily due to sales
mix, fewer discounts given to particular customers determined
on a case by case basis, including factors such as volume
sales or anticipated volume sales of communication systems and
messaging operations. Messaging expenses were $833,148 or
61% of messaging revenues in 1995, an increase of $366,476 or
79%, compared to $466,672 which represented 66% of messaging
revenues in the prior year. The dollar increase in
costs reflects increased messaging services rendered due to
increased equipment sales and related usage. The decrease in
messaging costs as a percentage of messaging revenues is due
to increased margin on messaging services due to the
continuing increase in revenues over the relatively fixed costs of
providing this service and an increase in sales to fleet customers
with greater utilization of the system.
Selling, general and administrative expenses were $1,610,86l
or 60% of total revenues for 1995, an increase of $886,775
or 122%, compared to $724,086 or 50% of total revenues in
the prior year. The increased dollar amount is primarily
attributable to expenses incurred on travel in connection
with potential expansion into foreign markets, additional
legal expenses including legal expenses connected with the
Merger, preparation of Securities & Exchange Commission
filings and documents, the hiring of additional sales and
administrative personnel, expenses incurred in software
development and general increases in operating expenses associated
with the Company's growth. The Company anticipates that the
dollar amount of selling, general and administrative
expenses will increase in the future to accommodate the
Company's growth.
Interest expense in 1995 was $16,149 or .6% of total
revenues, a decrease of $16,025 or 50%, compared to $32,174
which was 2% of total revenues in the prior year. The
dollar decrease reflects the effects of the payoff of long-
term debt during 1995. Interest income was $41,318 or 2% of
total revenues, an increase of $36,616 or 779% compared to $4,702
or .3% in the prior year due to interest earned on funds invested as a
result of the amount raised in a private placement in
September 1995 in the net amount of $1,904,292.
As a result of the factors described above, net loss
was $653,136 for 1995 as opposed to $311,190 for 1994, an
increase of $341,946 or 110%.
Years ended December 31, 1994 and 1993
Total revenues for the year ended December 31, 1994
were $1,461,848, an increase of $505,155 or 52.8% as
compared to total revenues of $956,693 for the year ended December
31, 1993.
Communications systems revenues, which consist of revenues
from the sale of BOATRACS equipment and related software,
were $755,574 or 51.7% of total revenues, an increase of
$197,031 or 35.3% over the prior year. This growth in
communications systems revenues is attributable to an
increase in sales of equipment and related software.
Messaging revenues, which consist of fees for
messaging services provided to BOATRACS units installed on
vessels, were $706,274 or 48.3% of total revenues, an
increase of $308,124 or 77.4% compared to $398,150 in the
prior year. The increase in messaging revenues primarily
reflects an overall increase in messaging services
provided by the Company as a result of growth in the
number of units installed on vessels in prior periods.
Communications systems expenses were $554,808 or 73.4%
of communications systems revenues for 1994, an increase
of $167,499 or 43.2%, compared to $387,309 which represented
69.3% of communications systems revenues in 1993. The
dollar increase in expenses primarily reflects increased
equipment sales. The increase in communications systems
expenses as a percentage of communications systems revenues
is primarily due to discounts given to particular customers
determined on a case by case basis, including factors such
as volume sales or anticipated volume sales of
communication systems and messaging operations. Messaging
expenses were $466,672 or 66.1% of messaging revenues in
1994, an increase of $123,334 or 35.9%, compared to
$343,338 which represented 86.2% of messaging revenues in
the prior year. The dollar increase in costs reflects
increased messaging services rendered due to increased
equipment sales. The decrease in messaging costs as
a percentage of messaging revenues is due to increased margin
on messaging services due to the continuing increase in
revenues over the relatively fixed costs of providing this
service.
Selling, general and administrative expenses were $724,086
or 49.5% of total revenues for 1994, an increase of $270,796
or 59.7%, compared to $453,290 or 47.4% of total revenues in
the prior year. The increased dollar amount is
primarily attributable to expenses incurred on travel in connection
with potential expansion into foreign markets, additional
legal expenses including legal expenses connected with the
Merger, the hiring of additional personnel and general
increases in operating expenses associated with the Company's
growth.
Interest expense in 1994 was $32,174 or 2.2% of total
revenues, an increase of $10,054 or 45.4%, compared to
$22,492 which was 2.3% of total revenues in the prior year.
The dollar increase reflects the effects of an increase in
average outstanding debt balances over 1993.
As a result of the factors described above, net loss
was $311,190 for 1994 as opposed to $249,736 for 1993, an
increase of $61,454.
Liquidity and Capital Resources
The Company's cash balance at December 31, 1995 was $151,728,
a decrease of $380,025, or 71% over the December 31, 1994
cash balance of $531,753. At December 31, 1995, working
capital was $1,379,538, an increase of $990,213 from the
working capital of $389,325 at December 31, 1994. Cash of
$546,644 was used in operating activities, cash of
$1,577,647 was used in investing activities and cash of
$1,744,266 was provided by financing activities during 1995.
Investment securities increased $1,464,849 at December
31, 1995, compared to the prior year due to funds raised
through a private placement concluded in September 1995 in
the net amount of $1,904,292. Accounts receivable net of an
allowance for uncollectible amounts increased $215,100 to
$407,492 due to more units sold and higher messaging
billings during the year. Prepaid expenses and other assets
were $16,625 at December 31, 1995, an increase of $6,333 or
62% due primarily to increased prepaid insurance. Inventory
at December 31, 1995 was $32,309, compared to $11,531 in the
prior year, an increase of $20,778 due primarily to units
and antennas held for future sales. Property, net of
accumulated depreciation, was $72,399 at December 31,
1995, compared to $30,184 in the prior year, an increase of
$42,215 or 140%, due primarily to the purchase of computer
equipment and office furniture. Notes receivable
increased to $214,775 at December 31, 1995, from $9,000
at December 31, 1994, an increase of $205,775 or 229%,
due primarily to the increase of a loan of $69,000 to a
Canadian distributor, bringing the balance to $78,000 at
December 31, 1995, and a note in the amount of $120,000
plus accrued interest was issued to the Chief Executive
Officer and President of the Company, which is collateralized by
deferred compensation owed to the officer in the amount of
$369,230.
Accounts payable was $692,757 at December 31, 1995, an
increase of $337,897 or 95% compared to a balance of
$354,860 in the prior year due to higher vendor payables
owing to the Company's supplier resulting from increased
sales of units and messaging costs.
Long-term debt and related accrued interest was reduced
by $368,421 during 1995 to a zero balance at December 31,
1995, due to loans being paid in cash and by $215,621 being
converted into common stock in accordance with the terms of a
promissory note.
Note receivable for common stock issued relates to a
note receivable issued by a supplier in return for stock
issued. On April 1, 1995, the balance was $737,000 which was
subsequently reduced to $604,979 at December 31, 1995 in
accordance with the agreement by amortizing the balance
through discounts received on purchases of equipment and
messaging from the supplier.
Initial responses to the BOATRACS System in Europe have
been favorable. BOATRACS has participated in a number of
tests of the OmniTRACS and BOATRACS System in Europe. The
results of the Systems under evaluation have been positive
and a messaging center was opened in late 1995. The
magnitude of the required funding will depend upon the
results of such evaluation, the regulatory issues the
Company faces, the number of countries the Company seeks
to do business in, the strength of the competition, the
complexity of business operations in each country, and
the perceived demand at the time. Any funding requirements
will be satisfied through the $1,904,292 net raised by
the Company through a private placement of its common stock in
September 1995, collaborative arrangements, or through public
or private financing as discussed below. Excluding
potential public and private financing, the known resources
of liquidity of the Company are expected to cover the
Company's cash needs until at least the end of 1996.
The Company anticipates making capital expenditures in
excess of $70,000 during 1996. To date the Company has
financed its working capital needs through private loans,
the issuance of stock and cash generated from operations.
Expansion of the Company's business may require a commitment
of substantial funds. To the extent that the net proceeds of recent
private financing activities and internally generated funds are
insufficient to fund the Company's operating requirements, it
may be necessary for the Company to seek additional funding,
either through collaborative arrangements or through public or
private financing. There can be no assurance that additional
financing will be available on acceptable terms or at all. If
additional funds are raised by issuing equity securities,
dilution to the existing shareholders may result. If adequate
funds are not available, the Company's business would be
adversely affected.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements as of December 31, 1995 and
1994, and for each of the three years in the period ended
December 31, 1995, and the report of Deloitte and Touche LLP,
independent accountants, are included in this report on pages F
2 through F-12.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a)
The executive officers and directors of the Company and their
ages as of December 31, 1995 are as follows:
Name Age Position
Michael Silverman 51 Chairman, Chief Executive Officer,
President, Director
Annette Friskopp 31 Chief Operating Officer, Secretary,
Director
Dale Fisher 49 Chief Financial Officer,
Assistant Secretary
Giles Bateman 51 Director
Luis Maizel 45 Director
Norman Kane 45 Director
Mr. Silverman formed Old BOATRACS in 1990 and served
as Chairman, Chief Executive Officer, President and a director
of that company from its inception until the Merger, at which
time he assumed his present positions with the Company.
Mr. Silverman is also a director of JAYARK Corporation, an
importer and distributor of furniture. Mr. Silverman is a
Chartered Accountant (South Africa) and received a Master
of Business Administration degree from Stanford University.
Ms. Friskopp joined Old BOATRACS in 1991 as Senior
Vice President of Production, Development and Operations and
assumed her present positions with the Company following the
Merger. Prior to Ms. Friskopp joining Old BOATRACS, she attended
Harvard Business School full-time where a Master of Business
Administration degree was conferred upon her. Ms. Friskopp
holds a Bachelor of Science degree in Accounting with emphasis
on international business from the University of Nebraska, and
she has credits from other universities for her studies in
Europe and Asia. She is a Certified Public Accountant and
previously worked in the audit division of Price Waterhouse.
Ms. Fisher joined Old BOATRACS as Controller in April 1994 and
was appointed Chief Financial Officer in August 1994. She
became Chief Financial Officer of the Company upon the Merger.
Prior to joining Old BOATRACS, Ms. Fisher served with The Price
Company, the operator of the Price Club warehouse clubs, for
more than 11 years in various management positions including
Director of Investor Relations, Manager of Financial Accounting
and Audit Manager. Ms. Fisher is a Certified Public Accountant
and holds a Bachelor of Science degree in Accounting from San
Diego State University.
Mr. Bateman was elected a Director of Old BOATRACS in 1994 and
became a Director of the Company upon the Merger. Since 1991,
Mr. Bateman has served as a Director of Comp USA, a superstore
computer retailer, and has served as that company's Chairman
since 1993. Mr. Bateman was a co-founder of The Price Company
and served as Chief Financial Officer and a Director of that
company from 1976 to 1991 and as Vice Chairman from 1986 to
1991.
Mr. Maizel became a Director of the Company in October 1995.
For more than the past five years, Mr. Maizel has been
president of LM Advisors, LM Capital Management, money
management firms and board member of several financial and
commercial corporations both in the U.S. and Mexico. He was
born and raised in Mexico City, holds a BS in Mechanical
Electrical Engineering, an MS in Industrial Engineering from
the National University of Mexico and an MBA from Harvard
Business School where he also was a faculty member.
Dr. Kane became a Director of the Company in October 1995. Dr.
Kane is an orthopedic surgeon practicing in San Diego. For
more than the past five years, Dr. Kane has been the President
of La Jolla Sports and Knee Surgery Medical Group and a
Director of TRI CITY Orthopedic Medical Group. From 1986
through 1989, Dr. Kane was the surgeon for the San Diego
Chargers, and in 1988 was the surgeon for the San Diego
Soccers.
Selwyn Klein was appointed a director of the Company in October
1995. He resigned in December 1995.
The Company has a Compensation Committee of which Mr. Bateman
is the Chairman and Mr. Maizel is a member. The Committee has
had no meetings to date.
Compliance with Section 16(a) of the Securities Exchange Act
of 1934
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the
Company's equity securities, to file reports of ownership
and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on review of the copies of such forms furnished
to the Company, or written representations that no Forms 5
were required, the Company believes that during its fiscal
year ended December 31, 1995, all Section 16(a) filing
requirements applicable to its officers, directors and
greater than tenpercent beneficial owners were complied with.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth for the years indicated certain
compensation of the Company's current chief executive officer
and the executive officers of the Company who earned $100,000
or more in such years:
SUMMARY COMPENSATION TABLE
Annual Compensation
Principal Position Year Salary Bonus
Michael Silverman 1995 $100,000 (1) $0
Chairman, President and 1994 100,000 $0
Chief Executive Officer 1993 100,000 $0
Annette Friskopp 1995 $107,654 $31,800
Chief Operating Officer 1994 92,654 $0
1993 72,000 $0
____________________
(1) All of Mr. Silverman's compensation earned during 1993
and $69,230 of compensation earned during 1994 was
deferred pursuant to a deferred compensation arrangement
entered into between the Company and Mr. Silverman. At
December 31, 1995, deferred compensation totaled $369,230.
The Company also provides certain compensatory benefits
and other non-cash compensation to the persons named in the
Summary Compensation Table. The incremental cost to the
Company of all such benefits and other compensation paid
in the years indicated to such named individuals was less
than 10% of their reported compensation and also less than
$50,000.
The Company entered into an employment agreement with
Michael Silverman, its Chairman, Chief Executive Officer,
President and majority shareholder, effective January 1,
1995. Under the agreement, Mr. Silverman's annual
base compensation is $100,000, with such increases, bonus
compensation and benefits as the Board of Directors may
determine from time to time. The agreement has a one-year
term and automatically renews annually for successive one-
year periods unless terminated by the Board of Directors upon
notice given by November 1 of the prior year. The agreement is
terminable by the Company only for good cause, as defined in
the agreement.
Pursuant to the terms of the subscription agreement between
the Company and certain shareholders of the Company, Mr.
Silverman shall not be entitled to (i) compensation from the
Company in excess of $100,000 per year or (ii) any stock
options or profit sharing from the Company, and the Company
shall not make any payments on any loans or debts owed to
Mr. Silverman, until certain conditions, including the
acquisition of at least $2,000,000 in assets, are satisfied.
The Company has entered into an Addendum to Stock
Issuance/Employment Agreement effective January 21, 1991, and
amended July 1995, whereby Annette Friskopp's salary from April
to December 1995 shall be $108,000 and after December 1995
shall be $120,000 per annum. In addition, beginning January
1995 she will receive a bonus for each unit sold to an end
user. In addition, the Agreement granted Ms. Friskopp an
option to acquire 100,000 additional shares of common stock,
which has been treated as being a grant pursuant to the
Company's 1996 Stock Option Plan at a price equal to the fair
market value of such shares on the date of grant. The options
will vest 20% annually over five years.
Compensation Committee Interlocks and Insider Participation
During the last completed fiscal year, Michael Silverman and
Annette Friskopp, both of whom are officers of the Company,
participated in deliberations of the Company's Board of
Directors concerning executive officer compensation.
Director Compensation
In fiscal year 1995, non-employee directors of the Company
received $500 for each meeting of the Board of Directors that
they attended.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Set forth below is certain information concerning the
ownership of the Company's common stock as of January 31,
1996, by (i) all persons known to the Company to be
beneficial owners of more than 5% of the outstanding
common stock, (ii) each director of the Company, (iii)
each executive officer of the Company, and (iv) all
executive officers and directors of the Company as a group.
Except as otherwise indicated, and subject to applicable
community property and similar laws, the persons named have
sole voting and investment power with respect to the
securities owned by them.
Number of Shares Percent of
Beneficially Owned Outstanding Shares
QUALCOMM Incorporated 1,112,265 9%
6455 Lusk Boulevard
San Diego, CA 92121
Michael Silverman 6,005,027(1) 48
Annette Friskopp 377,931 3
Dale Fisher 12,001(5) *
Giles Bateman 599,525(2) 5
Luis Maizel 83,600(3) *
Norman Kane 469,667(4) 4
All Directors and Executive
Officers as a group
(7 persons) 8,660,016 69%
______________________
(1) Includes 285,894 shares held by Mr. Silverman's son.
(2) Includes 119,400 shares held by trusts for which
Mr. Bateman or his wife serve as trustees.
(3) All of Mr. Maizel's shares are held by the Maiz
Family Trust of which Mr. Maizel is a trustee.
(4) Includes 92,150 shares held by the Norman Kane
Defined
Benefit Plan of which Dr. Kane has beneficial ownership.
(5) Includes 10,000 shares held in a Family Trust for which
Ms. Fisher is a trustee, and 2,000 shares are held in an
IRA account.
________________________________________
* Less than 1%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1995, QUALCOMM, the sole supplier of the OmniTRACS
equipment sold by the Company, purchased 1,112,265 shares of
the Company's common stock in consideration of a reduction in
price of certain products and services provided by QUALCOMM to
the Company. As a result of such purchase, QUALCOMM owns
approximately 9% of the Company's issued and outstanding common
stock.
In March 1995, the Company entered into the License Agreement
with QUALCOMM authorizing QUALCOMM to use, sublicense and
distribute certain interface software developed and owned by
the Company as an enhancement to QUALCOMM's OmniTRACS System.
The License Agreement will terminate upon the termination of
the Distribution Agreement between the Company and QUALCOMM.
See "Business--Agreements with QUALCOMM."
In March 1995, the Distribution Agreement between the Company
and QUALCOMM was amended. As a result of such amendment, the
Company will have the exclusive distribution rights in the
United States for marine application of the OmniTRACS System
after the Company purchases 700 MCTs from QUALCOMM, subject to
certain minimum purchase requirements. See "Business-
Agreements with QUALCOMM."
During 1992 Old BOATRACS issued two notes payable aggregating
$260,000 to two investors. Principal and interest, accrued at
7.5% per annum, totaled $297,328 at December 31, 1993 and was
due in April 1995. In October 1994, $158,221 of the outstanding
principal and accrued interest were extinguished through the
conversion into 267,884 shares of newly issued common stock of
the Company. The remaining balance of such notes at
December 31, 1994 totaled $160,539, including $2,318 of accrued
interest. The notes bore interest at 7.5% per annum and were
held by the Company's President and Chief Operating Officer.
The principal and interest was paid in full during September
1995.
In July 1994 Old BOATRACS issued a convertible promissory note
for $200,000 to a director of Old BOATRACS. Principal and
interest, accrued at 8% per annum, were due in July 1999. The
promissory note was convertible into shares of common stock at
the option of the holder from April 1, 1995 to June 30, 1999.
In addition, the Company has the right to convert such
indebtedness after April 1, 1996. The conversion price was to
be equal to 80% of the common stock fair market value at the
exercise date. In connection with the issuance of the
convertible promissory note, Old BOATRACS granted the holder an
option to purchase up to 5% of Old BOATRACS' outstanding common
stock for a maximum aggregate purchase price of $50,000. In
July 1994, 419,840 shares of common stock were issued by Old
BOATRACS pursuant to the exercise of such option resulting in
net proceeds to Old BOATRACS of $50,000. On June 15, 1995, the
director converted the principal and accrued interest on the
promissory note into 179,684 shares of common stock.
In November 1995, a promissory note between the Company
and Michael Silverman, President and Chief Executive Officer,
was entered into, allowing Mr. Silverman to borrow up to
$369,230 from the Company. The promissory note is
collateralized by deferred income owing to Mr. Silverman in
the same amount and will bear interest at 5.5%. At
December 31, 1995, Mr. Silverman had borrowed $120,000,
and interest in the amount of $455 had been accrued.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Documents included in the report:
Page Independent Auditors' Report F-2
Balance Sheets as of December 31, 1995 and 1994 F-3
Statements of Operations for the years ended
December 31, 1995,1994 and 1993 F-4
Statements of Shareholders' Equity/(Deficit)
for the years ended December 31, 1995, 1994 and
1993 F-5
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-6
Notes to Financial Statements F-7
EXHIBIT INDEX
Exhibits Description
2 Plan of Reorganization by Merger(1)
3.1 Amended and Restated Articles of Incorporation(1)
3.2 Amended and Restated Bylaws(1)
4.1 Form of the Company's Common Stock Certificate(4)
4.2 Form of Subscription Agreement--October 1994 investors(4)
4.3 Subscription Agreement--QUALCOMM(4)
4.4 Second Amended Plan of Reorganization of First
National Corporation(2)
4.5 Bankruptcy court order confirming Second Amended Plan
of Reorganization(3)
4.6 Warrant to Purchase Common Stock of BOATRACS,
Inc.(7)
10.1* License and Distribution Agreement dated June 13,1990,
by and between QUALCOMM and the Company, as amended(5)
10.2* License Agreement dated March 31, 1995, between the
Company and QUALCOMM(4)
10.3 Employment Agreement--Michael Silverman(4)
10.4 Employment Agreement--Annette Friskopp, as amended(4)
10.5 Stock Issuance/Employment Agreement between the Company and
Annette Friskopp, as amended(4)
10.6 Convertible Promissory Note dated July 1, 1994(4)
10.7 Addendum to Stock Issuance/Employment Agreement
between the Company and Annette
Friskopp dated July 1, 1995(6)
11 Statement regarding computation of net loss per share
______________
(1) Incorporated by reference to the exhibit of the same
number to the Company's Current Report on Form 8-K dated
January 12, 1995.
(2) Incorporated by reference to Exhibit A to First National
Corporation's Current Report on Form 8-K dated January 9,
1995 ("FNC 8-K").
(3) Incorporated by reference to Exhibit B to the FNC 8-K.
(4) Incorporated by reference to the exhibit of the same
number to the Company's Form S-1, SEC File No. 33-91284, filed
with the SEC on May 4, 1995.
(5) Incorporated by reference to the exhibit of the same
number to the Company's Amendment No. 3 to Form S-1, SEC File
No. 33-91284, filed with the SEC on July 6, 1995.
(6) Incorporated by reference to the exhibit of the same
number to the Company's Form S-1, SEC file No. 33-98810 filed
with the SEC on October 31, 1995.
(7) Attached herewith.
*Confidential treatment requested
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed by the
Registrant during the fourth quarter of the fiscal year
ended December 31,1995.
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.
March 27, 1996.
BOATRACS, INC.
By:MICHAEL SILVERMAN
Michael Silverman,
President
Power of Attorney
Know all persons by these presents, that each person whose
signature appears below constitutes and appoints Michael Silverman
and Annette Friskopp, and each of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place, and stead,
in any and all capacities, to sign any and all amendments to
this Report, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that all said attorneys
in-fact and agents, or any of them or their or his substitute
or substituted, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Exchange
Act of 1934, this Report has been signed below by the following
persons on behalf of Registrant in the capacities and on the
dates indicated.
MICHAEL SILVERMAN Chairman of the March 27, 1996
Michael Silverman Board, President,
Chief Executive
Officer, and
Director
ANNETTE FRISKOPP Chief Operating March 27, 1996
Annette Friskopp Officer and Director
DALE FISHER Chief Financial March 27, 1996
Dale Fisher Officer and Chief
Accounting Officer
GILES BATEMAN Director March 27, 1996
Giles Bateman
LUIS MAIZEL Director March 27, 1996
Luis Maizel
NORMAN KANE Director March 27, 1996
Norman Kane
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE
(in thousands, except earnings (loss) per share
data)
Primary and Fully Diluted
Earnings (Loss) per Share:
For the Year Ended December 31
1995 1994 1993
Net Earnings (Loss) <$653> <$311> <$250>
Weighted average common shares outstanding:
Weighted average common
shares 11,277 7,976 7,938
Common shares issued during
the year ended December 31,
1994 (1) --- 1,524 1,524
TOTAL 11, 277 9,500 9,462
Net Earnings (Loss) per share <$.06> <$.03> <$.03>
(1) Represents shares of common stock issued within 12
months of the merger.
Such shares are considered to be outstanding for all
periods presented in the same manner as a stock split.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Boatracs, Inc.:
We have audited the accompanying balance sheets of Boatracs, Inc.
(the "Company") as of December 31, 1995 and 1994, and the related
statements of operations, stockholders' equity (deficit), and
cash flows for each of the three years in the period ended
December 31, 1995. 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, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted
accounting principles.
February 12, 1996
F-2
<PAGE>
BOATRACS, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
CURRENT ASSETS:
Cash $ 151,728 $531,753
Investment securities,
at amortized cost (approximate
fair value of $1,464,746) 1,464,849
Accounts receivable (net of
allowance for uncollectible accounts
of $18,297 and $6,376 in 1995
and 1994, respectively) 407,492 192,392
Inventories 32,309 11,531
Prepaid expenses and other assets 16,625 10,292
Total current assets 2,073,003 745,968
PROPERTY, at cost (net of accumulated
depreciation of $61,499 and
$37,165 in 1995 and 1994, respectively) 72,399 30,184
NOTES RECEIVABLE 214,775 9,000
DEPOSIT IN ESCROW AND OTHER ASSETS 58,556
TOTAL $ 2,360,177 $ 843,708
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 692,757 $ 354,860
Current portion of capital
lease obligation 708 1,783
Total current liabilities 693,465 356,643
LONG-TERM LIABILITIES:
Deferred compensation 369,230 369,230
Long-term debt 368,421
Capital lease obligation 730
Total long-term liabilities 369,230 738,381
Total liabilities 1,062,695 1,095,024
COMMITMENTS (Notes 6, 10 and 11)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value;
1,000,000 shares authorized, no
shares issued or outstanding
Common stock, no par value;
100,000,000 shares authorized,
12,577,710 and 9,500,000 shares
issued and outstanding in 1995
and 1994, respectively 4,186,325 1,379,412
Accumulated deficit (2,283,864)(1,630,728)
Note receivable for common
stock issued (604,979)
Total stockholders'
equity (deficit) 1,297,482 (251,316)
TOTAL $ 2,360,177 $ 843,708
See notes to financial statements.
F-3
<PAGE>
BOATRACS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
REVENUES:
Communication system sales $ 1,299,330 $ 755,574 $ 558,543
Messaging 1,367,354 706,274 398,150
Total revenues 2,666,684 1,461,848 956,693
COSTS AND EXPENSES:
Communication system sales 900,980 554,808 387,309
Messaging 833,148 466,672 343,338
Selling, general and
administrative 1,610,861 724,086 453,290
Total costs and expenses 3,344,989 1,745,566 1,183,937
LOSS FROM OPERATIONS (678,305) (283,718) (227,244)
INTEREST INCOME 41,318 4,702
INTEREST EXPENSE (16,149) (32,174) (22,492)
NET LOSS $ (653,136) $ (311,190) $ (249,736)
NET LOSS PER SHARE $ (0.06) $ (0.03) $ (0.03)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 11,277,245 9,500,000 9,461,586
See notes to financial statements.
F-4
<PAGE>
BOATRACS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Note Total
Receivable Stockholders'
Common Stock for Common Equity
------------- Accumulated Stock (Deficit)
Shares Amount Deficit Issued
BALANCE,
JANUARY 1, 1993 7,855,011 $ 640,361 $ (1,069,802) $ - $(429,441)
Common stock
issued in
connection
with employment
agreement 121,203 643 643
Additional
paid-in capital 34,500 34,500
Net loss (249,736) (249,736)
BALANCE,
DECEMBER 31, 1993 7,976,214 675,504 (1,319,538) - (644,034)
Common stock
issued in
connection with:
Exercise of
stock options 419,840 50,000 50,000
Stock sale 836,062 495,687 495,687
Long-term debt
and accrued
interest
conversion 267,884 158,221 158,221
Net loss (311,190) (311,190)
BALANCE,
DECEMBER 31, 1994 9,500,000 1,379,412 (1,630,728) - (251,316)
Common stock
issued in
connection with:
Merger 510,386 (50,000) (50,000)
Long-term
debt and
accrued interest
conversion 179,684 215,621 215,621
Note receivable 1,112,265 737,000 (737,000)
Stock sale 1,275,375 1,904,292 1,904,292
Payments received
on note receivable 132,021 132,021
Net loss (653,136) (653,136)
BALANCE,
DECEMBER
31, 1995 12,577,710 $4,186,325 $(2,283,864) $(604,979) 1,297,482
See notes to financial statements.
F-5
<PAGE>
BOATRACS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
OPERATING ACTIVITIES:
Net loss $ (653,136) $ (311,190) $ (249,736)
Adjustments to reconcile
net loss to net cash
(used in) provided by
operating activities:
Depreciation and amortization 32,890 26,952 24,320
Net accretion of discount
on investment securities (27,505)
Provision for bad debts 18,297
Non-cash expense for stock
option issued 643
Changes in assets and liabilities:
Accounts receivable (233,397) (13,389) (145,789)
Inventories (20,778) 10,696 (4,249)
Prepaid expenses and
other assets (6,333) (6,709) (1,702)
Accounts payable and
accrued expenses 337,897 14,913 258,245
Accrued interest payable 5,421 29,314 21,420
Deferred compensation 69,230 100,000
Net cash (used in)
provided by
operating activities (546,644) (180,183) 3,152
INVESTING ACTIVITIES:
Purchase of
investment securities (2,096,344)
Proceeds from maturities
of investment securities 659,000
Issuance of notes receivable (205,775) (9,000)
Payments received on
note receivable issued
for common stock 132,021
Capital expenditures (66,549) (23,300) (5,860)
Escrow deposit (50,000)
Net cash used
in investing activities (1,577,647) (82,300) (5,860)
FINANCING ACTIVITIES:
Net proceeds from
issuance of common stock 1,904,292 545,687
Payments on long-term
debt and capital
lease obligation (160,026) (41,813) (1,354)
Proceeds from issuance of long-term debt 240,000
Proceeds from additional paid-in capital 34,500
Net cash
provided by
financing activities 1,744,266 743,874 33,146
NET (DECREASE) INCREASE IN CASH (380,025) 481,391 30,438
CASH AT BEGINNING OF YEAR 531,753 50,362 19,924
CASH AT END OF YEAR $ 151,728 $ 531,753 $50,362
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 10,416 $ 2,318 $ -
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Common stock issued
for note receivable $ 737,000
Conversion of long-term
debt and accrued
interest to common stock $ 215,621 $ 158,221
Conversion of
escrow deposit to equity $ 50,000
See notes to financial statements.
F-6
<PAGE>
BOATRACS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Merger - During January 1995, Boatracs, Inc. ("Old
Boatracs") was merged into First National Corporation
("FNC"), a public company, which had previously filed a
voluntary petition under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the Southern District of California.
Pursuant to the plan of reorganization and merger (the "Plan"),
(i) FNC, which was the surviving corporation, changed its name to
Boatracs, Inc. (the "Company"), (ii) the outstanding shares of
Old Boatracs were converted into the right to receive an
aggregate of 9,500,000 shares or approximately 95% of the post
merger outstanding common stock, and (iii) each outstanding share
of FNC was converted into the right to receive 1/7 share of the
common stock of the surviving corporation, for an aggregate of
510,386 shares or approximately 5% of the post merger outstanding
common stock. The Company paid $50,000 to FNC stockholders in
connection with the merger. Such consideration was used to pay
claims of creditors of FNC and to pay a dividend to the pre-
merger stockholders of FNC. The Plan also required an amendment
to the Company's capital structure to provide for the
authorization of 1,000,000 shares of preferred stock and
100,000,000 shares of common stock.
For accounting purposes the acquisition has been treated as a
recapitalization of Old Boatracs with Old Boatracs as the
acquirer. Accordingly, the historical financial statements prior
to January 12, 1995 are those of Old Boatracs. The financial
statements for all periods presented have been retroactively
frestated to reflect the equivalent number of shares received in
the merger and the change in the capital structure. Pro forma
information has not been provided as it is not required.
The Company - The foundation of the Company's business is the
distribution of the OmniTRACS satellite-based communications and
tracking system for marine application under a license and
distribution agreement with Qualcomm, Inc. ("Qualcomm", see Note
10). Under the agreement, the Company sells mobile
communications terminals and software for use onboard marine
vessels and by marine dispatchers. In addition, the Company also
provides 24 hour messaging and relaying services. Should
Qualcomm decide to discontinue its business or equipment
deliveries, the Company would be unable to continue its
operations.
Cash and Cash Equivalents - The Company considers all highly
liquid investments with an original maturity of 30 days or less
to be cash equivalents.
Investment Securities - Investment securities represent U.S.
Treasury securities that the Company has the positive intent and
ability to hold to maturity which are reported at amortized cost.
Interest earned on these investment securities is included in
interest income.
Inventories - Inventories, which are comprised entirely of
finished goods, are carried at the lower of cost (specific
identification) or market.
Property - Property is recorded at cost. Depreciation is
provided under an accelerated method over the estimated useful
lives of the assets (generally 5-7 years).
F-7
<PAGE>
Revenue Recognition - Revenue from the sale of communication
systems is recognized at the time the equipment is shipped to the
customer. Revenue from messaging is recognized at the time the
transmission is made by the customer.
Significant Customers - Major customers individually accounted
for 23%, 18% and 12% of 1995 sales, 21% and 11% of 1994 sales,
and 29% and 14% of 1993 sales. Accounts receivable from these
customers aggregated $184,844 at December 31, 1995. The Company
has not historically experienced any significant losses on its
accounts receivable.
Income Taxes - Effective October 1994, the Company elected C
corporation status (Note 7). Prior to October 1994 the Company
had elected S corporation status for federal income tax and
California franchise tax purposes. As such, taxable income or
loss through September 1994 was attributed to the stockholders of
the Company.
Deferred income taxes are recorded to reflect the net tax effects
of temporary differences between the carrying amount of assets
and liabilities for financial reporting and income tax purposes.
A valuation allowance is maintained to reduce deferred income tax
assets to an amount which, in the opinion of management, will
more likely than not be realized by the Company.
Net Loss Per Share - Net loss per share amounts are calculated by
dividing net loss by the weighted average number of common shares
outstanding during the year.
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 expenes during the
reporting period. Actual results could differ from those
estimates.
Reclassifications - Certain amounts in the 1994 and 1993
financial statements have been reclassified to conform to the
1995 presentation.
2. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities at
December 31, 1995 were as follows:
Gross
Amortized Unrealized Fair Carrying
Cost Losses Value Value
$ 1,464,849 $ (103) $ 1,464,746 $ 1,464,849
Investment securities consist of U.S. Treasury securities which
are contractually due in one year or less. The fair value was
obtained from independent pricing services. There were no sales
of these securities during 1995.
3. NOTES RECEIVABLE
During October 1994, the Company entered a note receivable
agreement with Oceantracs Systems Ltd. ("Oceantracs") under which
it agreed to advance up to $20,000. The note was amended during
1995 to provide for additional advances. Outstanding advances on
the note bear interest at 9.0% and are due on demand. Advances
on the note totalled $78,000 and $9,000 at December 31, 1995 and
1994, respectively. The note has been classified as long-term
based upon the Company's intent not to request payment prior to
January 1, 1997.
F-8
<PAGE>
During May 1995, the Company signed a memorandum of
understanding with Oceantracs to form a new company in Canada in
which the Company will have a minority interest. The new Company
will be incorporated in Canada and will be granted exclusive
rights for the marketing, distribution and sale of the Company's
communication system in the Canadian provinces of Ontario,
Quebec, New Brunswick, Prince Edward Island, Nova Scotia,
Newfoundland and Labrador. Oceantracs, which had served as the
exclusive distributor for the Company in Eastern Canada, will
provide message monitoring in Eastern Canada.
During 1995, the Company entered a note receivable agreement with
an individual who is an officer, director and majority
stockholder of the Company under which it agreed to advance up to
$369,230. Advances are secured by deferred compensation (see
Note 9), bear interest at 5.5% and are due on demand. Advances
under the agreement totalled $120,000 at December 31, 1995. The
note has been classified as long-term based upon the Company's
intent not to request payment prior to January 1, 1997.
4. PROPERTY
Property at December 31, 1995 and 1994 is summarized as follows:
1995 1994
Computers and equipment $133,898 $67,349
Less accumulated depreciation (61,499) (37,165)
$72,399 $30,184
Depreciation expense was $24,334, $12,289 and $9,655 for the
years ended December 31, 1995, 1994 and 1993, respectively.
5. LONG-TERM DEBT
Notes Payable - During 1992 the Company issued two notes payable
aggregating $260,000 at an interest rate of 7.5%. During October
1994, $158,221 of the outstanding principal and accrued interest
was extinguished through the conversion into 267,884 shares of
newly issued common stock of the Company. The remaining balance
of these notes was paid during 1995.
Convertible Promissory Note - During July 1994, the Company
issued a convertible promissory note for $200,000 at an interest
rate of 8% to a director of the Company. During June 1995, the
outstanding principal and accrued interest was converted into
179,684 shares of the Company's common stock at 80% of the fair
market value.
6. LEASES
Facility Leases - The Company leases its facility under four non
cancelable operating leases which expire through September 1998.
Rent expense was approximately $31,900, $14,360 and $22,773 for
the years ended December 31, 1995, 1994 and 1993, respectively.
The Company's leases have rent escalation terms based on the
Consumer Price Index, which will affect future minimum lease
payments.
Capital Lease - Included in property at December 31, 1995 and 1994
is property under a capital lease of $6,289 with related
accumulated amortization of $5,201 and $4,477, respectively.
F-9
<PAGE>
Future minimum lease payments under capital and non-cancelable
operating leases at December 31, 1995 are summarized as follows:
Capital Operating
Year Ending December 31, Lease Leases
1996 $ 1,028 $ 61,925
1997 62,400
1998 47,947
Total 1,028 $ 172,272
Less: Amount
representing interest (320)
Current portion $ (708)
7. INCOME TAXES
Prior to October 1994 the Company had elected S corporation
status for federal income tax and California franchise tax
purposes. As such, taxable income or loss through September
1994 was attributed to the stockholders of the Company.
Effective October 1994, the Company elected C corporation
status. Due to a valuation allowance provided for deferred
income tax assets for the year ended December 31, 1995 and the
period from October 1, 1994 to December 31, 1994, the Company's
effective income tax rate was 0%.
The tax effects of significant items comprising the Company's
deferred income tax asset were approximately as follows:
1995 1994
Deferred income tax assets:
Net operating loss carryforwards $ 271,000 $ 57,000
Deferred employee compensation 148,000 148,000
Accrued employee compensation 13,000
Allowance for uncollectible accounts 7,000 3,000
Deferred income 1,000 3,000
State income taxes 500 500
Other reserves 6,000 2,000
Total deferred income tax assets 446,500 213,500
Less valuation allowance (446,500) (213,500)
Net deferred income tax asset $ - $ -
At December 31, 1995, the Company had unused net operating loss
carryforwards of approximately $730,000 for federal income tax purposes
which expire at various dates from 2005 to 2010.
F-10
(PAGE>
8. STOCKHOLDERS' EQUITY (DEFICIT)
Stock Sales - During October 1994, the Company issued 836,062
shares of common stock for net proceeds of $495,687. Pursuant
to the terms of such financing, the Company's CEO and
majority stockholder is restricted from (i) receiving
compensation in excess of $100,000 per year, (ii) receiving
any stock options or profit sharing, and (iii) receiving
any deferred compensation payments from the Company until
certain conditions are satisfied. These conditions
include, among other items, profitable operations for the
preceding calendar year.
Note Receivable Issued for Common Stock - During March
1995, the Company issued 1,112,265 shares of common stock
to Qualcomm (see Note 10) for $737,000. The purchase price
of the shares will be paid by a reduction in the price of
certain products and services currently provided by
Qualcomm to the Company and, upon satisfaction of certain
conditions, the conversion of a certain non-exclusive
territory to an exclusive territory, under the license and
distribution agreement (see Note 10). The transaction was
recorded as a note receivable for common stock issued which
is reduced as discounts are earned. At
December 31, 1995, a total of $132,021 in discounts had been
earned.
Stock Option - In connection with the issuance of the
convertible promissory note (see Note 5) the Company
granted the holder an option to purchase up to 5% of the
Company's outstanding common stock for a maximum aggregate
purchase price of $50,000. During July 1994, 419,840
shares of common stock were issued by the Company pursuant
to the exercise of such option resulting in net proceeds to
the Company of $50,000.
Stock Warrants - During October 1995, the Company issued
25,000 common stock purchase warrants. The warrants
represent the right to purchase one share of the Company's
common stock at $1.50 and expire during October 1998.
Registration Statements with the Securities and Exchange
Commission - During 1995, the Company filed two
registration statements on Form S-1 with the Securities and
Exchange Commission, registering a total of 6,049,684
shares of the Company's common stock. The Company did not
receive any proceeds from these transactions.
9.RELATED PARTY TRANSACTIONS
The Company has entered into a deferred compensation
arrangement with its majority stockholder pursuant to which
the Company has recorded an annual salary expense of
$100,000 for the years ended December 31, 1995, 1994 and
1993. At December 31, 1995, deferred compensation totalled
$369,230 (see Note 3).
10.LICENSE AND DISTRIBUTION AGREEMENT
On June 13, 1990, the Company entered into a license and
distribution agreement, as amended through May 26, 1995,
with Qualcomm. Pursuant to the agreement, the Company was
appointed Qualcomm's exclusive and non-exclusive
distributor, in defined territories, of the OmniTRACS
satellite-based communications and tracking system (the
"System") for marine application, as defined. The Company
was also appointed provider of message services to the
users of the System. In connection therewith, the Company
was also granted an exclusive and non-exclusive license to
certain software used with the System for an annual
maintenance fee of $1,000, and Qualcomm was granted an
exclusive perpetual, worldwide, royalty free license to any
improvements made by the Company to the System or related
software.
F-11
<PAGE>
Under the agreement, the Company is required to sell a
certain minimum number of systems in order to maintain the
exclusivity of its distribution rights, commencing with 480
systems in the aggregate by December 31, 1996. As of
December 31, 1995, this requirement has been met by the
Company. Thereafter, the minimum purchase requirements for
each calendar year are to be agreed upon between the
Company and Qualcomm subject to a minimum of 300 systems
for calendar year ended December 31, 1997 and increasing by
10% each year thereafter.
In the event the Company desires to sell its business, the
Company shall first provide notice in writing to Qualcomm.
Qualcomm shall then have thirty days to exercise its option
to purchase the Company at the purchase price and on the
terms stated in the notice.
The agreement expires during June 2000 and may be renewed
for two additional five-year periods. The agreement is
subject to renegotiation at the end of the option period.
11.SUBSEQUENT EVENTS
Memorandum of Understanding - Subsequent to December 31,
1995, the Company entered into a memorandum of
understanding with ACATEL Qualcomm, a French company,
whereby the Company agreed to establish and distribute a
certain satellite communication system within a certain
number of countries comprising the joint venture territory,
as defined in the memorandum, for vessel applications. The
Company agreed to use the European TeleCommunications
Satellite Signatory Organization to distribute its system.
Stock Option Plan - Subsequent to December 31, 1995, the
Company approved a stock option plan for certain employees
and directors of the Company. The plan provides for the
issuance of options to acquire up to 1,000,000 shares of
the Company's common stock. The plan is subject to approval
by the Company's stockholders and the California Department
of Corporations.
<PAGE>
EXHIBIT 4.6
COMMON STOCK WARRANT PURCHASE AGREEMENT
This Agreement is made and effective on October 31, 1995,
by and among Torrey Pines Securities ("Torrey Pines") and BOATRACS, Inc.
(the "Company").
WHEREAS, the Company desires that Torrey Pines provide
certain services relating to the market in its common stock; and
WHEREAS, Torrey Pines desires to invest in the Company
pursuant to the Warrant to Purchase Common Stock in accordance with
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises of the parties contained herein, and for other good
and valuable consideration which is acknowledged to have been received,
the parties agree as follows:
ARTICLE I
ISSUANCE OF THE WARRANT
Subject to the terms of this Agreement, The Company agrees
to issue to Torrey Pines the Warrant to Purchase Common Stock for
the purchase of 25,000 shares of common stock
of the Company at one dollar and fifty cents ($1.50) per share
pursuant to the terms of the Warrant to Purchase Common Stock attached
as Exhibit A (the "Warrant"). Torrey Pines agrees to provide the services
pursuant to Article III of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. The Company. The Company hereby represents and
warrants to Torrey Pines as follows:
2.1.1. No Contravention of Laws. The execution,
delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby, including the
issuance of the Warrant will not cause the Company to violate or
contravene (i) any provision of law, (ii) any rule or
regulation of any agency or government,
or (iii) any order, writ, judgment, injunction, decree,
determination or award to which the
Company is subject.
2.1.2. Good Standing. The Company is a corporation
duly organized, validly
existing and in good standing under the laws of the State of
California.
2.1.3. Binding Agreement. This Agreement constitutes
the valid and legally
binding obligation of the Company and is enforceable in
accordance with its terms. The
Company has full power, authority and legal right to execute
and deliver this Agreement.
2.2. Torrey Pines. Torrey Pines hereby represents and
warrants to the Company as
follows:
2.2.1. Binding Agreement. This Agreement constitutes
the valid and legally
binding obligation of Torrey Pines and is enforceable in
accordance with its terms. Torrey
Pines has the full power, authority and legal right to execute
and deliver this Agreement and
to perform and observe the terms and conditions hereof.
2.2.2. No Conflict. No provision of any contract,
agreement or other
commitment binding on Torrey Pines or affecting Torrey Pines
in any material way conflicts
with, or in any way prevents, the execution, delivery or
performance of the terms of this
Agreement by Torrey Pines.
2.2.3. No Brokers or Finders. No person has or, as a
result of the transactions
contemplated hereby, will have, directly or indirectly, any
valid claim directly against or
upon the Company, or the Company, for any compensation as a
finder, broker or agent, or
in any similar capacity with respect to the transactions
contemplated hereby.
2.3. Survival of Representations and Warranties. The
representations and warranties
of the Company and Torrey Pines contained herein shall survive
the consummation of the
transactions contemplated herein.
ARTICLE III
SERVICES OF TORREY PINES
3.1. The consideration for the benefits under this
Agreement shall be the past and
future services rendered and to be rendered in connection with
the public offering of the
Company.
ARTICLE IV
MISCELLANEOUS
4.1. Notices. Any notices or other communications
pursuant to this Agreement shall
be deemed to have been given when delivered personally, or by
facsimile or when deposited
in the United States mail, registered or certified, with
proper postage and registration or
certification fees prepaid, or when delivered to Federal
Express or a similar overnight
carrier, addressed to the following:
IF TO THE COMPANY:
Mr. Michael L. Silverman, President
BOATRACS, Inc.
6440 Lusk Boulevard, Suite D201
San Diego, CA 92121
with a copy to:
Solomon Ward Seidenwurm & Smith
401 B Street, Suite 1200
San Diego, CA 92101
Attn: Norman L. Smith, Esq.
Fax: (619) 231-4755
IF TO TORREY PINES:
140 Marine View Drive
Suite 110
Solana Beach, CA 92075
with a copy to:
or to such other addresses as may be designated by any of the
parties from time to time by
written notice given to the other party in the aforesaid
manner.
4.2. Survival. The agreements made in this Agreement
shall survive the date of this
Agreement.
4.3. Arbitration. In the event of any dispute concerning
or arising out of this
Agreement, such dispute shall be submitted to binding
arbitration. Arbitration proceedings
may be commenced by giving the other party written notice
thereof and proceeding thereafter
in accordance with the rules and procedures of the American
Arbitration Association. This
arbitration shall take place before a single arbitrator if the
amount in dispute is $50,000 or
less, and before three arbitrators if the amount in dispute is
greater than $50,000, in San
Diego, California. The arbitration shall be governed by and
subject to the applicable laws of
the State of California (including Section 1283.05 of the
California Code of Civil Procedure
regarding discovery) and the then prevailing rules of the
American Arbitration Association
for the Arbitration of Commercial Disputes. The arbitrator's
or arbitrators' award shall be
final and binding and a judgment upon the award may be
enforced by any court of competent
jurisdiction.
4.4. Attorneys' Fees. In the event of any arbitration,
suit or action to enforce any of
the terms or provisions of this Agreement, the prevailing
party shall be entitled to its
reasonable attorneys' fees and costs. The foregoing
entitlement shall also include attorneys'
fees and costs of the prevailing party on any appeal of a
judgment and for any action to
enforce a judgment.
4.5. Binding Effect. The terms and provisions of this
Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto
and their respective assigns, heirs,
representatives and successors.
4.6. Applicable Law. This Agreement and the rights and
obligations of the parties
hereunder shall be construed under, and governed by, the laws
of California without giving effect to conflict of laws provisions.
4.7. Entire Agreement. This Agreement and the attached
exhibit referenced herein,
and the instrument to be executed and delivered pursuant
hereto, constitute the entire
understanding of the parties with respect to the subject
matter hereof.
4.8. Waiver, Modification on Cancellation. Any waiver,
modification or cancellation
of any of the provisions of this Agreement shall not be valid
unless in writing and signed by
the parties hereto.
4.9. Headings. The various headings or titles used herein
are for convenience only
and shall not affect the interpretation of any of the
provisions hereof.
4.10. Publicity. All notices to third parties and all
other publicity concerning the
transactions contemplated herein shall be jointly planned and
coordinated by and between
Torrey Pines and the Company. Neither of the parties shall
act unilaterally in this regard
without the prior written consent of the other; however, such
consent shall not be
unreasonably withheld.
4.11. Exhibits. The Exhibit identified in this Agreement
is incorporated herein by
reference and made a part hereof.
4.12. Counterparts. This Agreement may be executed in one
or more counterparts,
each of which shall be deemed an original but all of which
together shall constitute one and
the same instrument.
4.13. Construction. The parties hereto have participated
jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation
arises, this Agreement shall be construed as if drafted
jointly by the parties and no
presumption of burden of proof shall arise favoring or
disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
4.14. No Third-Party Beneficiaries. This Agreement shall
not confer any rights or
remedies upon any person other than the parties and their
respective successors and permitted
assigns.
IN WITNESS WHEREOF, the parties have executed this
Agreement.
Torrey Pines: The Company:
Torrey Pines Securities BOATRACS, Inc.
By:_____________________
By:________________________
This Warrant Has Not Been Registered Under The Securities Act
Of 1933 Or Under
Any State Securities Laws And May Not Be Sold, Offered For
Sale, Pledged Or
Hypothecated In The Absence Of A Registration Statement in
Effect With Respect
To The Securities Under Such Act Or State Securities Laws Or
Any Opinion Of
Counsel Satisfactory To The Company That Such Registration Is
Not Required.
No. WB-1
Warrant to Purchase 25,000 Shares of
Common Stock, no par value per share
WARRANT TO PURCHASE COMMON STOCK
of
BOATRACS, Inc.
Void after October 31, 1998
This certifies that, for value received, Torrey Pines
Securities, or registered assigns
("Holder") is entitled, subject to the terms set forth below,
to purchase from BOATRACS, Inc.
(the "Company"), a California corporation, 25,000 shares of
the Common Stock of the
Company, as constituted on the date hereof (the "Warrant Issue
Date"), upon surrender hereof,
at the principal office of the Company referred to below, with
the subscription form attached
hereto duly executed, and simultaneous payment therefor in
lawful money of the United States
or otherwise as hereinafter provided, at the Exercise Price as
set forth in Section 2 below. The
number of such shares of Common Stock are subject to
adjustment as provided below. The term
"Warrant" as used herein shall include this Warrant, and any
warrants delivered in substitution
or exchange therefor as provided herein.
"This Warrant is issued in connection with that certain
Common Stock Warrant
Purchase Agreement between the Company and Torrey Pines
described therein, dated
as of October 31, 1995 (the ' Warrant Purchase Agreement').
The holder of this
Warrant is subject to certain restrictions set forth in the
Warrant Purchase Agreement
and shall be entitled to certain rights and privileges set
forth in the Warrant Purchase
Agreement. This Warrant is the Warrant referred to as the
'Warrant' in the Warrant
Purchase Agreement."
1. Term of Warrant. Subject to the terms and conditions
set forth herein, this Warrant
shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date
and ending at 5:00 p.m., Pacific Standard Time, on October 31,
1998, and shall be void
thereafter.
2. Exercise Price. The Exercise Price at which this
Warrant may be exercised shall be
one dollar and twenty-five cents ($1.50) per share of Common
Stock, as adjusted from time to
time pursuant to Section 11 hereof.
3. Exercise of Warrant.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder in
whole; such number being subject to adjustment as provided in
Section 11 below), at any time,
or from time to time, during the term hereof as described in
Section 1 above, by the surrender
of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed on
behalf of the Holder, at the office of the Company (or such
other office or agency of the
Company as it may designate by notice in writing to the Holder
at the address of the Holder
appearing on the books of the Company), upon payment in cash
or by check acceptable to the
Company.
(b) This Warrant shall be deemed to have been exercised
immediately prior to the close
of business on the date of its surrender for exercise as
provided above, and the person entitled
to receive the shares of Common Stock issuable upon such
exercise shall be treated for all
purposes as the holder of record of such shares as of the
close of business on such date. As
promptly as practicable on or after such date and in any event
within ten (10) days thereafter,
the Company at its expense shall issue and deliver to the
person or persons entitled to receive
the same a certificate or certificates for the number of
shares issuable upon such exercise. In
the event that this Warrant is exercised in part, the Company
at its expense will execute and
deliver a new Warrant of like tenor exercisable for the number
of shares for which this Warrant
may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or
scrip representing
fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional
share to which the Holder would otherwise be entitled, the
Company shall make a cash payment
equal to the Exercise Price multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence
reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this
Warrant and, in the case of loss,
theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and
substance to the Company or, in the case of mutilation, on
surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver,
in lieu of this Warrant, a new
warrant of like tenor and amount.
6. Rights of Stockholders. Subject to Sections 9 and 11
of this Warrant, the Holder
shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or
any other securities of the Company that may at any time be
issuable on the exercise hereof for
any purpose, nor shall anything contained herein be construed
to confer upon the Holder, as
such, any of the rights of a stockholder of the Company or any
right to vote for the election of
directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or
withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock,
reclassification of stock, change of par value, or change of
stock to no par value, consolidation,
merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or
subscription rights or otherwise until the Warrant shall have
been exercised as provided herein.
7. Transfer of Warrant.
(a) Non-Transferability and Non-negotiability of
Warrant. This Warrant may not be
transferred or assigned in whole or in part without the
written consent of the Company in its sole
and absolute discretion.
(b) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance
hereof, acknowledges that this
Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired
solely for the Holder's own account and not as a nominee for
any other party, and for
investment, and that the Holder will not offer, sell or
otherwise dispose of this Warrant or any
shares of Common Stock to be issued upon exercise hereof or
conversion thereof are being
acquired solely for the Holder's own account and not as a
nominee for any other party, and for
investment, and that the Holder will not offer, sell or
otherwise dispose of this Warrant or any
shares of Common Stock to be issued upon exercise hereof
except under circumstances that will
not result in a violation of the Act or any state securities
laws. Upon exercise of this Warrant,
the Holder shall, if requested by the Company, confirm in
writing, in a form satisfactory to the
Company, that the shares of Common Stock so purchased are
being acquired solely for the
Holder's own account and not as a nominee for any other party,
for investment, and not with
a view toward distribution or resale.
(ii) This Warrant and all shares of Common Stock
issued upon exercise hereof
shall be stamped or imprinted with a legend in substantially
the following form (in addition to
any legend required by state securities laws):
The Securities Represented Hereby Have Been Acquired For
Investment And Have
Not Been Registered Under The Securities Act Of 1933. Such
Securities And Any
Securities Or Shares Issued Hereunder Or Thereunder May Not Be
Sold Or
Transferred In The Absence Of Such Registration Or An
Exemption Therefrom Under
Said Act. Copies Of The Agreement Covering The Purchase Of
These Securities And
Restricting Their Transfer Or Sale May Be Obtained At No Cost
By Written Request
Made By The Holder Of Record Hereof To The Secretary Of The
Company At The
Principal Executive Offices Of The Company.
8. Reservation of Stock. The Company covenants that
during the term this Warrant
is exercisable, the Company will reserve from its authorized
and unissued Common Stock a
sufficient number of shares to provide for the issuance of
Common Stock upon the exercise of
this Warrant and, from time to time, will take all steps
necessary to amend its Certificate of
Incorporation (the "Certificate") to provide sufficient
reserves of shares of Common Stock
issuable upon exercise of the Warrant. The Company further
covenants that all shares that may
be issued upon the exercise of rights represented by this
Warrant, upon exercise of the rights
represented by this Warrant and payment of the Exercise Price,
all as set forth herein, will be
free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect
of any transfer occurring contemporaneously or otherwise
specified herein). The Company
agrees that its issuance of this Warrant shall constitute full
authority to its officers who are
charged with the duty of executing stock certificates to
execute and issue the necessary
certificates for shares of Common Stock upon the exercise of
this Warrant.
9. Notices.
(a) Whenever the Exercise Price or number of shares
purchasable hereunder shall be
adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief
Financial Officer setting forth, in reasonable detail, the
event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment
was calculated, and the
Exercise Price and number of shares purchasable hereunder
after giving effect to such
adjustment, and shall cause a copy of such certificate to be
mailed (by first-class mail, postage
prepaid) to the Holder of this Warrant.
(b) In case:
(i) the Company shall take a record of the holders
of its Common Stock ( or
other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose
of entitling them to receive any dividend or other
distribution, or any right to subscribe for or
purchase any shares of stock of any class or any other
securities, or to receive any other right,
or
(ii) of any capital reorganization of the Company,
any reclassification of the
capital stock of the Company, any consolidation or merger of
the Company with or into another
corporation, or any conveyance of all or substantially all of
the assets of the Company to another
corporation, or
(iii) of any voluntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to
be mailed to the Holder or
Holders a notice specifying, as the case may be, (A) the date
on which a record is to be taken
for the purpose of such dividend, distribution or right, and
stating the amount and character of
such dividend, distribution or right, or (B) the date on which
such reorganization,
reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which
the holders of record of Common
Stock (or such stock or securities at the time receivable upon
the exercise of this Warrant) shall
be entitled to exchange their shares of Common Stock (or such
other stock or securities) for
securities or other property deliverable upon such
reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up.
Such notice shall be mailed at least
15 days prior to the date therein specified.
(c) All such notices, advice and communications shall be
deemed to have been received
(i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing,
on the third business day following the date of such mailing.
10. Amendments.
(a) Any term of this Warrant may be amended with the
written consent of the Company
and the holders of warrants representing not less than sixty
percent (60%) of the shares of
Common Stock issuable upon exercise of any and all outstanding
Common Stock warrants (the
"Common Stock Warrants"), even without the consent of the
Holder. Any amendment effected
in accordance with this Section 10 shall be binding upon each
holder of any of the Common
Stock Warrants, each future holder of all such Common Stock
Warrants, and the Company;
provided, however, that no special consideration or inducement
may be given to any such holder
in connection with such consent that is not given ratably to
all such holders, and that such
amendment must apply to all such holders equally and ratably
in accordance with the number
of shares of Common Stock issuable upon exercise of their
Common Stock Warrants. The
Company shall promptly give notice to all holders of Common
Stock Warrants of any
amendment effected in accordance with this Section 10.
(b) No waivers of, or exceptions to, any term, condition
or provision of this Warrant,
in any one or more instances, shall be deemed to be, or
construed as, a further or continuing
waiver of any such term, condition or provision.
11. Adjustments. The Exercise Price and the number of
shares purchasable hereunder
are subject to adjustment from time to time as follows:
11.1. Merger, Sale of Assets, etc. If at any time while
this Warrant, or any portion
thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a
combination, reclassification, exchange or subdivision of
shares otherwise provided for herein),
(ii) a merger or consolidation of the Company with or into
another corporation in which the
Company is not the surviving entity, or a reverse triangular
merger in which the Company is
the surviving entity but the shares of the Company's capital
stock outstanding immediately prior
to the merger are converted by virtue of the merger into other
property, whether in the form of
securities, cash, or otherwise, or (iii) a sale or transfer of
the Company's properties and assets
as, or substantially as, an entirety to any other person,
then, as a part of such reorganization,
merger, consolidation, sale or transfer, lawful provisions
shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon exercise
of this Warrant, during the period
specified herein and upon payment of the Exercise Price then
in effect, the number of shares of
stock or other securities or property of the successor
corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a
holder of the shares deliverable
upon exercise of this Warrant would have been entitled to
receive in such reorganization,
consolidation, merger, sale or transfer if this Warrant had
been exercised immediately before
such reorganization, merger, consolidation, sale or transfer,
all subject to further adjustment as
provided in this Section 11. The foregoing provisions of this
Section 11.1 shall similarly apply
to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or
securities of any other corporation that are at the time
receivable upon the exercise of this
Warrant. If the per-share consideration payable to the holder
hereof for shares in connection
with any such transaction is in the form other than cash or
marketable securities, then the value
of such consideration shall be determined in good faith by the
Company's Board of Directors.
In all events, appropriate adjustment (as determined in good
faith by the Company's Board of
Directors) shall be made in the application of the provisions
of this Warrant with respect to the
rights and interests of the Holder after the transaction, to
the end that the provisions of this
Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any
shares or other property deliverable after that event upon
exercise of this Warrant.
11.2. Reclassification, etc. If the Company, at any
time while this Warrant, or any
portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise,
shall change any of the securities as to which purchase rights
under this Warrant exist into the
same or a different number of securities of any other class or
classes, this Warrant shall
thereafter represent the right to acquire such number and kind
of securities as would have been
issuable as the result of such change with respect to the
securities that were subject to the
purchase rights under this Warrant immediately prior to such
reclassification or other change and
the Exercise Price therefor shall be appropriately adjusted,
all subject to further adjustment as
provided in this Section 11.
11.3. Split, Subdivision or Combination of Shares. If
the Company at any time while
this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide
or combine the securities as to which purchase rights under
this Warrant exist, into a different
number of securities of the same class, the Exercise Price for
such securities shall be
proportionately decreased in the case of a split or
subdivision or proportionately increased in the
case of a combination.
11.4. Adjustment for Dividends in Stock or Other
Securities or Property. If while
this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the
securities as to which purchase rights under this Warrant
exist at the time shall have received,
or, on or after the record date fixed for the determination of
eligible Stockholders, shall have
become entitled to receive, without payment therefor, other or
additional stock or other securities
or property (other than cash) of the Company by way of
dividend, then and in each case, this
Warrant shall represent the right to acquire, in addition to
the number of shares of the security
receivable upon exercise of this Warrant, and without payment
of any additional consideration
therefor, the amount of such other or additional stock or
other securities or property (other than
cash) of the Company that such holder would hold on the date
of such exercise had it been the
holder of record of the security receivable upon exercise of
this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and
including the date of such exercise,
retained such shares and/or all other additional stock
available by it as aforesaid during such
period, giving effect to all adjustments called for during
such period by the provisions of this
Section 11.
11.5. Certificate as to Adjustments. Upon the
occurrence of each adjustment or
readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute
such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder
of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.
The Company shall, upon the
written request, at any time, of any such Holder, furnish or
cause to be furnished to such Holder
a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price
at the time in effect; and (iii) the number of shares and the
amount, if any, of other property that
at the time would be received upon the exercise of the
Warrant.
11.6. Impairment. The Company will not, by any
voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be
observed or performed hereunder
by the Company, but will at all times in good faith assist in
the carrying out of all the provisions
of this Section 11 and in the taking of all such action as may
be necessary or appropriate in
order to protect the rights of the Holders of this Warrant
against impairment.
12. Registration Rights.
(a) If the Company shall determine, at any time during the
period commencing with the
Warrant Issue Date and ending at 5:00 p.m., Pacific Standard
Time, on October 31, 1998, to
register any of its Common Stock, for its own account or the
account of any of its shareholders,
other than a registration relating solely to employee benefit
plans, or a registration relating solely
to an SEC Rule 145 transaction, or a registration on any form
(other than Form SB-1, SB-2, S-
1, S-2, or S-3, or their successor forms) that does not
include substantially the same information
as would be required to be included in a registration
statement covering the sale of the shares
subject to this Warrant (the "Shares"), then: (i) the Company
shall, pursuant to the then-
applicable rules and regulations under the Securities Act of
1933, include a secondary offering
of the Shares held by the Holder with such public offering in
a single registration; (ii) the
Company shall in every such instance give reasonable written
notice thereof to the Holder as
soon as practicable prior to the filing of such registration
statement; and (iii) the Company shall,
upon the written request of the Holder made within fifteen
(15) days of the mailing of said
written notice by the Company, include in such registration
statement such number of the Shares
as the Holder may request. Any such registration statement
shall remain effective for a period
of not less than ninety (90) days following its effective
date; provided, however, that if the
Holder defers the sale of the Shares pursuant to subsection
(b) hereunder, then the Company
shall keep such registration statement current for an
additional period of ninety (90) days;
provided further, that the Company shall have no duty to file
any amendment to any such
registration statement at any time that the Company reasonably
believes that disclosure of the
information required to be included in such amendment would be
premature or contrary to the
best interests of the Company and its securities holders. The
inclusion of the Shares in any
registration statement shall be without any expense to the
Holder, other than fees and expenses
of counsel to the Holder and any underwriting discounts or
commissions. Neither the delivery
of such notice by the Company nor such request by the Holder
shall in any way obligate the
Company to file such registration statement, and
notwithstanding the filing of such registration
statement, the Company may, at any time prior to the effective
date thereof, determine not to
offer the securities to which such registration statement
relates, without liability to the Holder.
In the event the Company fails to receive written notice from
the Holder within fifteen (15) days
of the mailing of said written notice by the Company, then the
Company shall treat such failure
as having the same force and effect as if the Holder had
advised the Company that the Holder
does not intend to include any of the Shares in such
registration statement. If the Holder shall
advise or be deemed to have advised the Company of its
intention not to include any of the
Shares in such registration statement, then the Holder shall,
for a period of (90) days thereafter,
refrain from demanding its rights pursuant to this subsection
(a).
(b) Notwithstanding the provisions of subsection (a)
above, if the offering subject to any
registration statement referred to in subsection (a) hereunder
is made by the Company and is
underwritten, and if the managing underwriter determines that
marketing factors require a
limitation of the number of shares to be underwritten, the
managing underwriter may limit the
number of Shares to be included in the registration and
underwriting, or may exclude the Shares
entirely from such registration. Further, upon the request of
the managing underwriter of any
underwritten offering: (i) the Holder shall agree not to sell,
make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of the
Shares, whether pursuant to such
registration statement or otherwise, without the written
consent of the Company or the managing
underwriter, for a period of up to one hundred and eighty
(180) days following the effective date
of such registration statement.
(c) The Company shall use its reasonable efforts to cause
any registration statement
covering all or any portion of the Shares to become effective
as promptly as possible and, if any
stop order shall be issued in connection therewith, to use its
reasonable efforts to obtain the
removal of such order. The Company shall furnish the selling
Holder with copies of preliminary
prospectuses (together with any supplements thereto) and other
documents necessary or incidental
to the offering being made by the Holder in such quantities as
the Holder may reasonably
request. The Holder agrees to cooperate in all respects with
the Company in effectuating the
foregoing. The obligations of the Company to the Holder
hereunder are expressly conditioned
on the timely furnishing in writing by the Holder to the
Company of such information
concerning the Holder and the terms of the Holder's proposed
offering as the Company may
reasonably request.
(d) Nothing herein shall be construed to require the
Holder to exercise the Warrant with
respect to the Shares which the Holder is entitled to require
the Company to register pursuant
to any provision of this Section 12 prior to the effective
date of the registration statement
effecting such registration.
13. Miscellaneous.
13.1. Expiration on Saturdays, Sundays and Holidays. If
the term of this Warrant
shall expire pursuant to Section 1 on any Saturday, Sunday or
Federal holiday, the term of this
Warrant shall be extended to the close of business on the next
business day following the
Saturday, Sunday or Federal holiday upon which the term of
this Warrant expired pursuant to
Section 1.
IN WITNESS WHEREOF, BOATRACS, Inc. has caused this Warrant
to be executed by
its officers thereunto duly authorized.
Dated:
HOLDER: BOATRACS, Inc.
By: By:
NOTICE OF EXERCISE
To: BOATRACS, Inc.
1. The undersigned hereby elects to purchase 25,000
shares of Common Stock of
BOATRACS, Inc. pursuant to the terms of the attached Warrant,
and tenders herewith payment
of the purchase price for such shares in full.
2. In exercising this Warrant, the undersigned hereby
confirms and acknowledges that
the shares of Common Stock or the Common Stock to be issued
upon conversion thereof are
being acquired solely for the account of the undersigned and
not as a nominee for any other
party, and for investment, and that the undersigned will not
offer, sell or otherwise dispose of
any such shares of Common Stock except under circumstances
that will not result in a violation
of the Securities Act of 1933, as amended, or any state
securities laws.
3. Please issue a certificate or certificates
representing said shares of Common Stock in
the name of the undersigned or in such other name as is
specified below:
(Name)
(Name)
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of
this Warrant hereby
sells, assigns and transfer unto the Assignee named below all
of the rights of the undersigned
under the within Warrant, with respect to the number of shares
of Common Stock set forth
below:
Name of Assignee Address No. of
Shares
and does hereby irrevocably constitute and appoint Attorney
________________________ to
make such transfer on the books of BOATRACS, Inc. maintained
for the purpose, with full
power of substitution in the premises.
The undersigned also represents that, by assignment
hereof, the Assignee acknowledges
that this Warrant and the shares of stock to be issued upon
exercise hereof or conversion thereof
are being acquired for investment and that the Assignee will
not offer, sell or otherwise dispose
of this Warrant or any shares of stock to be issued upon
exercise hereof or conversion thereof
except under circumstances which will not result in a
violation of the Securities Act of 1933, as
amended, or any state securities laws. Further, the Assignee
has acknowledged that upon
exercise of this Warrant, the Assignee shall, if requested by
the Company, confirm in writing,
in a form satisfactory to the Company, that the shares of
stock so purchased are being acquired
for investment and not with a view toward distribution or
resale.
Dated:
Signature of Holder
Boatracs, Inc. hereby consents to this Assignment pursuant to
Section 7(a) of the Warrant.
Dated: Michael Silverman, President
