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, 1996
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.
Yes X 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. [ ]
State issuer's revenues for its most recent fiscal year
$3,501,000
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of February 28, 1997, was
$7,096,000.*
(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. Yes X No
The number of shares outstanding of Registrant's common
stock was 12,602,310 shares as of March 1, 1997.
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 28, 1997. 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
exclusive 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, and the
integration of this information directly into shared-based
office computer systems is vital to BOATRACS' customers. The
Company has built software tools for both the vessel and the
office enabling the integration of this information.
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 wholly-
owned 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 satellite-
based 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, 1996, the Company had
installed approximately 800 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-band satellite,
to the QUALCOMM Network Management Facility ("NMF") 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 NMF 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 NMF 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 NMF and dish are maintained by QUALCOMM in Las Vegas,
Nevada. Connections to the QUALCOMM NMF 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 NMF 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 on-line 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 four-
line 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 the option
of using a personal computer and BOATRACS' BOATCOMM User
Interface Software instead of the standard Keyboard/Display
Unit. This software allows for the same features as the
standard keyboard with the added benefits of using a full
screen and being able to send/receive computer files of any
type.
BOATRACS Messaging Center
BOATRACS operates a 24-hour Messaging Service from its San
Diego, California-based offices and a messaging center in
Leiden, The Netherlands 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 NMF 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 NMF 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 vessel-
tracking 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 NMF 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.
Dependence Upon Significant Customers
The Company's primary source of customers is the commercial
marine industry. The following customers, Tidewater Marine and
Kirby Corporation, the loss of whom would have a material
adverse effect on the Company operations, each represented more
than 10% of the Company's total sales in 1996.
The major customers may change yearly as they are calculated on
total revenues including sales of communications systems.
Purchases of communication systems by a customer may not occur
yearly and there can be no assurance that such customers will
make significant purchases of the Company's products in the
future. The only relationship between the Company and any of
the above customers is that the Company sells to each customer
communication systems and messaging services.
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 had 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 had 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. During 1996,
the "Non-Exclusive Territory" became exclusive Territory when
the Company reached a goal of selling 700 MCTs.
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 year ended September 30,
1996 revenues in excess of $813 million and current
capitalization in excess of $3 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. Effective
January 3, 1997, this license was granted to QUALCOMM, which
added marine capability to use with the OmniTRACS system for up
to 100,000 MCTs for a term of 10 years.
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 also 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.
During March 1995, the Company issued 1,112,265 shares of
common stock to QUALCOMM 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. The
transaction was recorded as a note receivable for common stock
issued which is reduced as discounts are earned. Through
December 31, 1996, a total of $315,578 in discounts were
earned.
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. Under the terms of the contract,
the Company is no longer the exclusive distributor. 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 requires 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. In addition, BOATRACS is a 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.
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
International Operations
BOATRACS intends to expand into international markets. 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, which was used
in 1996 by potential customers evaluating BOATRACS' systems for
possible purchase.
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.
In June 1996, the Company entered 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. ORBCOMM
estimates the system will be operational during 1997.
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. The 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 not enforced) 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. Currently the Company is participating
in a voluntary experimental program with the NMFS to evaluate
the effectiveness of the System. 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 140 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 September 1996, the Company entered into an
agreement with Oceantrac Systems Limited of Canada ("SYSTEMS")
reflecting the terms of a Memorandum of Understanding between
the Company and SYSTEMS, providing for the establishment of
Oceantrac, Incorporated, a wholly-owned Canadian subsidiary of
Systems ("OCEANTRAC"). Under the terms of the agreement,
OCEANTRAC will act as the sole representative of SYSTEMS for
marketing, distribution and sale of the BOATRACS System and any
related business in the territory granted under the license
from the Company including the provinces of Ontario, Quebec,
New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland
and Labrador.
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. BOATRACS continues to offer Messaging
Services to evaluation units to demonstrate the value-added
message relaying and monitoring services that BOATRACS could
provide to the maritime industry in certain areas of Europe.
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.
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 products and services
that compete with BOATRACS products and services:
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 a voice-based system. ARGOS
provides one-way (ship to shore) communications and position
reporting in many parts of the world. When ARGOS operates on
the Japanese ADEOS2 satellite during the late 1990's, they will
offer two-way communication. INMARSAT is approved to provide
Global Marine Distress Safety System ("GMDSS") notices and
communications. GMDSS requires shipping vessels of a certain
nature and size that operate certain routes 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 and BOATRACS continue to consider
submitting 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. Watercomm phones utilize radio towers placed
along the major U.S. rivers to send and receive voice and data
transmissions. Watercomm users incur a connection charge as
well as a per-minute usage charge, based on where the vessel is
operating. 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, 1996, the Company had 13 full-time and six 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.
Effective January 3, 1997, this license was granted to
QUALCOMM, which added marine capability to use with the
OmniTRACS system for up to 100,000 MCTs for a term of 10 years.
There can be no assurance 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; loss of fishing
resources which 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.
In addition, in December 1996, the Company signed a five year
lease for office space in the Netherlands commencing January 1,
1997.
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
1996 and 1995 high and low bid quotations for the common stock
as provided by the National Association of Securities Dealers,
Inc.:
Hi Bid Low Bid
Quarter Ended
December 31, 1996 $1.50 $ .625
September 30, 1996 1.50 .75
June 30, 1996 2.00 .75
March 31, 1996 .937 .75
December 31, 1995 1.375 .686
September 30, 1995 1.625 1.375
June 30, 1995 1.375 (1) 1.375 (1)
(1) April 30 through June 30,1995
On February 28, l997, the closing high and low bid price of the
common stock, as reported on the OTC Bulletin Board, was
$1.625. As of January 31,1997, the Company had 300 holders of
record of its common stock. In addition, approximately 2.4
million shares are held in street name accounts. 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 wholly-
owned 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,
1996 1995 1994
Revenues
Communications systems . . 40.8% 48.7% 51.7%
Messaging. . . . . . . . . 59.2 51.3 48.3
Total. . . . . . . . 100.0 100.0 100.0
Operating expenses:
Communications systems. . . 26.1 33.8 38.0
Messaging. . . . . . . . . 31.1 31.2 31.9
Selling, general and
administrative expenses. . . 70.3 60.4 49.5
Loss from operations. . . . . (27.5) (25.4) (19.4)
Other income (expense). . . . 1.6 .9 (1.9)
Net loss. . . . . . . . . . . (25.9)% (24.5)% (21.3)%
Years ended December 31, 1996 and 1995
Total revenues for the year ended December 31, 1996 were
$3,501,182, an increase of $834,498 or 31.3% as compared to
total revenues of $2,666,684 for the year ended December 31,
1995.
Communications systems revenues, which consists principally of
revenues from the sale of BOATRACS equipment and related
software, were $1,427,822 or 41% of total revenues, an increase
of $128,492 or 10% over the prior year. This growth in
communications systems revenues is attributable primarily to an
increase in sales of equipment to new and existing customers.
Messaging revenues, which consist of fees for messaging
services provided to BOATRACS units installed on vessels, were
$2,073,360 or 59% of total revenues, an increase of $706,006 or
52% compared to $1,367,354 or 51% of total revenues 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 and increased usage by
some customers.
Communications systems expenses were $913,064 or 64% of
communications systems revenues for 1996, an increase of
$12,084 or 1.34%, compared to $900,980 which represented 69% of
communications systems revenues in 1995. The dollar increase
in expenses primarily reflects increased equipment sales and
related software. The decrease in communications systems
expenses as a percentage of communications systems revenues is
primarily due to a reduction in the cost charged by the
supplier to the Company per unit commencing in the second
quarter of 1996. Messaging expenses were $1,089,719 or 53% of
messaging revenues in 1996, an increase of $256,571 or 31%,
compared to $833,148 which represented 61% 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, an increase in sales to fleet customers with greater
utilization of the system, and a change in the price structure
charged by the Company's supplier.
Selling, general and administrative expenses were $2,461,018 or
70% of total revenues for 1996, an increase of $850,157 or 53%,
compared to $1,610,861 or 60% of total revenues in the prior
year. The increased dollar amount is primarily attributable to
significant increased expenses incurred in development of the
European market including travel and the hiring of consultants,
and the operation of a messaging center in the Netherlands. In
the United States, the increased dollar amount is primarily
attributable to payroll and related expenses due to the hiring
of additional sales and technical personnel, increased costs in
shareholder relations, advertising, insurance and general
office expenses offset by a decrease in legal and accounting
expenses. In addition, the Company has incurred significant
increased costs on the development of software to facilitate
customer operations. The Company anticipates that the dollar
amount of selling, general and administrative expenses will
increase in the future to accommodate the Company's growth. A
breakdown of operating results for 1996 on a geographic basis
reflects pretax income of approximately $360,000 for U.S.
operations before software research and development expenses.
European operations lost approximately $905,000 before research
and development expenses, due to start-up and marketing costs
incurred in the development of the market.
Interest expense in 1996 was $2,936 or .08% of total revenues,
a decrease of $13,213 or 82%, compared to $16,149 which was .6%
of total revenues in the prior year. The dollar decrease
reflects the effects of lower debt outstanding during 1996.
Interest income was $60,117 or 2% of total revenues, an
increase of $18,799 or 45% compared to $41,318 or 2% 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
$905,438 for 1996 compared to $653,136 for 1995, an increased
loss of $252,302 or 39%.
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%.
Liquidity and Capital Resources
The Company's cash balance at December 31, 1996 was $103,144, a
decrease of $48,584, or 32% over the December 31, 1995 cash
balance of $151,728. At December 31, 1996, working capital was
$271,007, a decrease of $1,108,531 from the working capital of
$1,379,538 at December 31, 1995. Cash of $1,042,069 was used
in operating activities, cash of $670,660 was provided by
investing activities and cash of $322,825 was provided by
financing activities during 1996.
Investment securities were $425,852 at December 31, 1996, a
decrease of $1,038,997, compared to the prior year balance of
$1,464,849, due to funds being used to finance operations
during the year. Accounts receivable net of an allowance for
uncollectible amounts increased $149,754 to $557,246 due
primarily to higher messaging billings during the year.
Prepaid expenses and other assets were $73,710 at December 31,
1996, an increase of $57,085 or 343% due primarily to increased
prepaid insurance and a deposit of $39,000 on investment
consulting fees. Inventory at December 31, 1996 was $92,118,
compared to $32,309 in the prior year, an increase of $59,809
due primarily to units held for future sales in Europe.
Property, net of accumulated depreciation, was $120,731 at
December 31, 1996, compared to $72,399 in the prior year, an
increase of $48,332 or 67%, due primarily to the purchase of
additional computer equipment and office furniture. Notes
receivable increased to $208,463 at December 31, 1996, from
$94,320 at December 31, 1995, an increase of $114,143 or 121%,
due to the increase of a loan to a Canadian distributor, which
is expected to continue to increase during 1997.
Accounts payable and accrued expenses were $796,666 at December
31, 1996, an increase of $103,201 or 15% compared to a balance
of $693,465 in the prior year due to higher vendor payables
owing to the Company's supplier resulting primarily to
increased messaging costs. Short-term margin loan was $139,268
at December 31, 1996, reflecting borrowings against investment
securities.
Deferred compensation, net of borrowings, was $45,129 at
December 31, 1996, compared to $248,775 in the prior year due
to additional borrowing against the Deferred Compensation
during the year. The borrowings have been offset against
deferred compensation in accordance with the amended terms of
the note.
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. Since year end,
the Company signed a contract with a German company, Deutsche
Binnenreederei to supply 105 MCTs to the German company's
fleet. Any funding requirements will be satisfied through
potential public and private financing. The known resources of
liquidity of the Company, coupled with the projections for
revenue, are expected to cover the Company's cash needs until
at least the end of 1997.
The Company anticipates making capital expenditures in excess
of $80,000 during 1997. 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, 1996 and
1995, and for each of the three years in the period ended
December 31, 1996, 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)
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Part III, Items 9, 10, 11 and 12
is hereby incorporated by reference to the Company's definitive
Proxy Statement to be mailed to shareholders in April, 1997.
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, 1996 and 1995 F-3
Statements of Operations for the years ended December 31,
1996, 1995 and 1994 F-4
Statements of Stockholders' Equity/(Deficit) for
the years ended December 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 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)
3.3 Amendment of the Bylaws, Article III, Section 2(9)
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)
10.8* Agreement entered into between BOATRACS, Inc. and
Oceantrac Systems Limited and Oceantrac Incorporated,
effective September 1996(8)
10.9 BOATRACS, Inc. 1996 Stock Option Plan(10)
11 Statement regarding computation of net loss per
share (filed herewith)
___________________________
(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) Incorporated by reference to the exhibit of the same
number to the Company's Form 10-K filed with the SEC
March 1996.
(8) Incorporated by reference to the exhibit of the same
number to the Company's
Form 10-QSB filed with the SEC November 1996.
(9) Incorporated by reference to the Company's Form 10-QSB
filed with the SEC in
May, 1996.
(10) Incorporated by reference to the Company's Form S-8
filed with the SEC on
March 29, 1996.
*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
31,1996.
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 23, 1997
BOATRACS, INC.
By: /s/ 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.
/s/ Michael Silverman Chairman of the Board, March 23, 1997
Michael Silverman President,
Chief Executive Officer,
and Director
/s/ Annette Friskopp Chief Operating Officer March 23, 1997
Annette Friskopp and Director
/s/ Dale Fisher Chief Financial Officer March 23, 1997
Dale Fisher and Chief Accounting Officer
/s/ Giles Bateman Director March 23, 1997
Giles Bateman
/s/ Luis Maizel Director March 23, 1997
Luis Maizel
/s/ Norman Kane Director March 23, 1997
Norman Kane
s/ Ilana Silverman Director March 23, 1997
Ilana Silverman
<PAGE>
(DELOITTE & TOUCHE LLP LETTERHEAD)
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, 1996 and 1995, and the related
statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the 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, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
February 7, 1997
F-2
<PAGE>
BOATRACS, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
CURRENT ASSETS:
Cash $103,144 $151,728
Investment securities 425,852 1,464,849
Accounts receivable - net 557,246 407,492
Inventories 92,118 32,309
Prepaid expenses and other
assets 73,710 16,625
Total current assets 1,252,070 2,073,003
PROPERTY, at cost 120,731 72,399
NOTES RECEIVABLE 208,463 94,320
TOTAL $1,581,264 $2,239,722
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $796,666 $693,465
Short-term margin loan on
securities 139,268
Deferred compensation- net 45,129
Total current
liabilities 981,063 693,465
LONG-TERM LIABILITIES -
Deferred Compensation - net 248,775
Total liabilities 981,063 942,240
COMMITMENTS (Notes 4 and 8)
STOCKHOLDERS' EQUITY:
Preferred stock, no par
value; 1,000,000 shares
authorized, no shares issued
Common stock, no par value;
100,000,000 shares authorized,
12,602,310 and 12,577,710
shares issued and outstanding
in 1996 and 1995,
respectively 4,210,925 4,186,325
Accumulated deficit (3,189,302) (2,283,864)
Note receivable for
common stock issued (421,422) (604,979)
Total
stockholders'
equity 600,201 1,297,482
TOTAL $1,581,264 $2,239,722
See notes to financial statements.
F-3
<PAGE>
BOATRACS, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
REVENUES:
Communication system sales $1,427,822 $1,299,330 $ 755,574
Messaging 2,073,360 1,367,354 706,274
Total revenues 3,501,182 2,666,684 1,461,848
COSTS AND EXPENSES:
Communication system sales 913,064 900,980 554,808
Messaging 1,089,719 833,148 466,672
Selling, general and
administrative 2,461,018 1,610,861 724,086
Total costs
and expenses 4,463,801 3,344,989 1,745,566
LOSS FROM OPERATIONS (962,619) (678,305) (283,718)
INTEREST INCOME 60,117 41,318 4,702
INTEREST EXPENSE (2,936) (16,149) (32,174)
NET LOSS $ (905,438) $ (653,136) $ (311,190)
NET LOSS PER SHARE $ (0.07) $ (0.06) $ (0.03)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 12,597,471 11,277,245 9,500,000
See notes to financial statements.
F-4
<PAGE>
BOATRACS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Note
Receivable Total
Common Stock for Common Stockholders'
Accumulated Stock Equity
Shares Amount Deficit Issued (Deficit)
BALANCE,
JANUARY 1,
1994
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
conver-
sion 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
conver-
sion 179,684 215,621 215,621
Note
receiv-
able 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
Common
stock
issued
in
connection
with
services
rendered 24,600 24,600 24,600
Payments
received
on note
receivable 183,557 183,557
Net loss (905,438) (905,438)
BALANCE,
DECEMBER 31,
1996 12,602,310 $4,210,925 $(3,189,302) $(421,422) $600,201
See notes to financial statements.
F-5
<PAGE>
BOATRACS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
OPERATING ACTIVITIES:
Net loss $(905,438) $(653,136) $(311,190)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 44,420 32,890 26,952
Net accretion of discount
on investment securities (42,204) (27,505)
Provision for bad debts 18,297
Changes in assets and
liabilities:
Accounts receivable (149,754) (233,397) (13,389)
Inventories (59,809) (20,778) 10,696
Prepaid expenses and
other assets (57,085) (6,333) (6,709)
Accounts payable and
accrued expenses 127,801 337,897 14,913
Accrued interest payable 5,421 29,314
Deferred compensation 69,230
Net cash used
in operating
activities (1,042,069) (546,644) (180,183)
INVESTING ACTIVITIES:
Purchase of investment
securities (2,825,799) (2,096,344)
Proceeds from maturities
of investment securities 3,907,000 659,000
Issuance of notes receivable (317,789) (205,775) (9,000)
Capital expenditures (92,752) (66,549) (23,300)
Escrow deposit (50,000)
Net cash provided
by (used in)
investing activities 670,660 (1,709,668) (82,300)
FINANCING ACTIVITIES:
Payments received on note
receivable issued for
common stock 183,557 132,021
Proceeds from short-term
margin loan 139,268
Payments on long-term debt
and capital lease obligation (160,026) (41,813)
Net proceeds from issuance
of common stock 1,904,292 545,687
Proceeds from issuance of
long-term debt 240,000
Net cash provided
by financing
activities 322,825 1,876,287 743,874
NET (DECREASE) INCREASE IN CASH (48,584) (380,025) 481,391
CASH AT BEGINNING OF YEAR 151,728 531,753 50,362
CASH AT END OF YEAR $ 103,144 $ 151,728 $ 531,753
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,936 $ 10,416 $ 2,318
SUPPLEMENTAL DISCLOSURES OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Common stock issued for
services rendered $24,600
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, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - 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, Incorporated
("Qualcomm", see Note 8). 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.
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 restated 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.
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 stated at cost. Depreciation is provided
under a straight-line method for assets acquired in 1996, and an
accelerated method for assets purchased prior to 1996 over the
estimated useful lives of the assets (generally 3-5 years).
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.
F-7
<PAGE>
Significant Customers - Major customers individually accounted
for 26%, 15% and 8% of 1996 sales, 23%, 18% and 12% of 1995
sales, and 21% and 11% of 1994 sales. Accounts receivable from
these customers aggregated $300,413 at December 31, 1996. The
Company has not historically experienced any significant losses
on its accounts receivable.
Stock-Based Compensation - Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation,"
encourages, but does require companies to record compensation
cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, " Accounting for
Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options is measured as
the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must
pay to acquire the stock.
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 expenses during the reporting period. Actual results could
differ from those estimates.
Reclassifications - Certain amounts in the 1995 and 1994
financial statements have been reclassified to conform to the
1996 presentation.
2. BALANCE SHEET DETAILS
1996 1995
Accounts Receivable $570,780 $425,789
Less allowance for doubtful accounts 13,534 18,297
$557,246 $407,492
Property- at cost:
Computers and equipment $226,650 $133,898
Less accumulated depreciation (105,919) (61,499)
$120,731 $72,399
Deferred Compensation - Officer (Note 7) $369,230 $369,230
Less Note Receivable - Officer ( Note 3) 324,101 120,455
$ 45,129 $248,775
Depreciation expense was $44,420, $24,334 and $12,289 for the
years ended December 31, 1996, 1995 and 1994, respectively.
F-8
<PAGE>
3. NOTES RECEIVABLE
Canadian Company - The Company has a note receivable agreement
with a Canadian company. Outstanding advances on the note bear
interest at 9.0% and are due on demand. Advances on the note
totaled $208,463 and $78,000 at December 31, 1996 and 1995,
respectively. The note has been classified as long-term based
upon the Company's intent not to request payment prior to
January 1, 1998.
In September 1996, the Company entered into an agreement with
the Canadian company whereby the Canadian company, through its
subsidiary, will act as the sole representative for marketing,
distribution and sale of the Boatracs system, and any related
business in certain specified Canadian territory.
Stockholder- During 1995, the Company entered into 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 an
agreed upon offset to related deferred compensation (see
Note 7). The advances bear interest at 5.5% and are due on
demand. Advances under the agreement totaled $310,000 at
December 31, 1996, plus accrued interest. Terms of the note
receivable agreement allow satisfaction of the balance as an
offset to related deferred compensation.
4. LEASES
Facility Leases - The Company leases its facilities under five
non-cancelable operating leases which expire through September
2001. Rent expense was approximately $51,900, $31,900, and
$14,360 for the years ended December 31, 1996, 1995 and 1994,
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, 1996 and
December 31, 1995 is property acquired under a capital lease of
$6,289. All obligations in connection with this lease were paid
during 1996.
Future minimum lease payments under non-cancelable operating
leases at December 31, 1996 are summarized as follows:
Year Ending December 31,
1997 $ 88,835
1998 74,383
1999 26,436
2000 26,436
2001 26,436
$ 242,526
5. 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 years ended December 31, 1996 and 1995
and the period from October 1, 1994 to December 31, 1994, the
Company's effective income tax rate is 0%.
F-9
<PAGE>
The tax effects of significant items comprising the Company's
deferred income tax assets were approximately as follows:
1996 1995
Deferred income tax assets:
Net operating loss carryforwards $634,000 271,000
Deferred employee compensation 160,000 148,000
Accrued employee compensation 13,000
Tax credits 12,000
Allowance for uncollectible accounts 6,000 7,000
Deferred income 1,000 1,000
State income taxes 500 500
Other reserves 6,000 6,000
Total deferred income tax assets 819,500 446,500
Less valuation allowance (819,500) (446,500)
Net deferred income tax assets $ $
At December 31, 1996, the Company had unused net operating loss
carryforwards of approximately $1,650,000 for Federal income tax
purposes which expire at various dates from 2005 to 2011.
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.
6. STOCKHOLDERS' EQUITY (DEFICIT)
Note Receivable Issued for Common Stock - During March 1995, the
Company issued 1,112,265 shares of common stock to Qualcomm (see
Note 8) 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 8). The
transaction was recorded as a note receivable for common stock
issued which is reduced as discounts are earned. Through
December 31, 1996, a total of $315,578 in discounts were earned.
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.
Stock Options - During January 1996, the Company entered into a
Non-Circumvention Agreement with a financial consultant. The
agreement included a grant of 50,000 stock options at $1.50
each.
F-10
<PAGE>
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.
During May 1996, the Company filed Post-Effective Amendment No.
3 to its Form S-1, which provides for registration of 6,033,385
shares on behalf of certain selling stockholders. The Company
did not receive any proceeds from this transaction.
Stock Option Plan - Under the 1996 Stock Option Plan ("the
Plan"), the Company may grant incentive and non-qualified
options to purchase up to 1,000,000 shares of common stock to
employees, directors and consultants at prices that are not less
than 100% (85% for non-qualified) of fair market value on the
date the options are granted. Options issued under the Plan
expire seven years after the options are granted and generally
become exercisable ratably over a five-year period following the
date of grant. Stock option transactions are summarized below:
Number Price
of Shares per Share
Outstanding, January 1, 1996 0
Granted 730,500 $1.00 - $1.81
Canceled (21,000) $1.00 - $1.81
Outstanding, December 31, 1996 709,500 $1.00 - $1.81
The Company applies Accounting Principles Board of Opinion No.
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its Plan. Accordingly, no
compensation expense has been recognized for its stock-based
compensation plan. Had compensation cost been determined based
upon the fair value at the grant date for awards under the Plan
consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," the Company's net loss and pro forma net
loss for the period ended December 31, 1996 would have been
increased by approximately $166,000, or $0.01 per share.
Under FASB 123, the fair value of the options granted during
1996 is estimated as approximately $830,000 on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions: no dividend yield, expected volatility of 344%,
risk-free interest rate of 6.5%, and expected life of seven
years.
The following table summarizes information as of December 31,
1996 concerning currently outstanding and exercisable options:
----- Options Outstanding -------- --Options Exercisable
Range of Weighted Weighted Weighted
Exercise Number Avg Remaining Avg Exercise Number Avg Exercise
Prices Outstanding Contractual Life Price Exercisable Price
$1-$1.81 709,500 6.6 $1.10 30,000 $1.18
7. RELATED PARTY TRANSACTIONS
The Company has entered into a deferred compensation arrangement
with its majority stockholder. At December 31, 1996, deferred
compensation totaled $369,230. Such amount can be offset by a
note receivable from the Stockholder (see Note 3).
F-11
<PAGE>
8. LICENSE AND DISTRIBUTION AGREEMENT
On June 13, 1990, the Company entered into a license and
distribution agreement, as amended through August 26, 1996, 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. During 1996, the Company reached certain sales goals
and became the exclusive distributor in previous non-exclusive
territories. 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. Qualcomm was
granted an exclusive perpetual, worldwide, royalty free license
to any improvements made by the Company to the System or related
software.
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. The minimum purchase requirements
for each calendar year is 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.
If Qualcomm is unable to provide service or elects not to remain
in business, they may terminate the agreement with six months'
notice and have no further liability. Qualcomm shall take such
steps which are reasonable and necessary to enable the Company
to continue to provide the message services to its existing end
users.
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
re-negotiation at the end of the option period.
Memorandum of Understanding - During 1996, the Company entered
into a memorandum of understanding with ALCATEL 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.
9. SALARY REDUCTION SIMPLIFIED EMPLOYER PLAN (SAR-SEP)
During September 1996, the Company approved the adoption of a
Salary Reduction Simplified Employer Plan (SAR-SEP) allowing
eligible employees to contribute savings on a pretax basis
effective January 1996. Employees may contribute up to 15% of
their salary, not to exceed $9,500 annually. A discretionary
contribution is determined each year by the Company. In 1996, the
Company did not elect to contribute to the Plan.
10. SUBSEQUENT EVENTS
Federal Communications Commission (FCC) - In February 1997, the
FCC granted to Qualcomm Inc. a license adding marine capability
for use with the OmniTRACS system for up to 100,000 MCT's. This
replaces the previous experimental license that was being used for
marine operation of the OmniTRACS service. The term of the
license is from January 3, 1997 to January 3, 2007.
Contract signed with Deutsche Binnenreederei ("DBR") - In March
1997, the Company announced it had signed a contract with DBR who
will purchase and equip 105 of its vessels with Boatracs
equipment in the first half of 1997.
*****************
F-12
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,
1996 1995 1994
Net Loss <$905> <$653> <$311>
Weighted average common shares outstanding:
Weighted average common shares 12,597 11,277 7,976
Common shares issued during the
year ended December 31, 1994 (1) --- --- 1,524
TOTAL 12,597 11,277 9,500
Net Loss per share <$.07> <$.06> <$.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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 103,144
<SECURITIES> 425,852
<RECEIVABLES> 779,243
<ALLOWANCES> 13,534
<INVENTORY> 92,118
<CURRENT-ASSETS> 1,252,070
<PP&E> 226,650
<DEPRECIATION> 105,919
<TOTAL-ASSETS> 1,581,264
<CURRENT-LIABILITIES> 981,063
<BONDS> 0
<COMMON> 4,210,925
0
0
<OTHER-SE> (3,610,724)
<TOTAL-LIABILITY-AND-EQUITY> 1,581,264
<SALES> 3,501,182
<TOTAL-REVENUES> 3,501,182
<CGS> 2,002,783
<TOTAL-COSTS> 4,463,801
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,936
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (905,438)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
