As filed with the Securities and Exchange Commission on April 29,
1998
Registration No. 333- _______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
Under the Securities Act of 1933
BOATRACS, INC.
(Exact name of registrant as specified in its charter)
California 5060 33-0644381
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
10675 Sorrento Valley Road, Suite 200
San Diego, California 92121
(619) 657-0100
(Address and telephone number of registrant's principal executive
offices)
Michael Silverman, Chairman of the Board
BOATRACS, Inc.
10675 Sorrento Valley Road, Suite 200
San Diego, California 92121
(619) 657-0100
(Name, address and telephone number of agent for service)
It is requested that copies of communications be sent to:
Norman L. Smith, Esq.
Solomon Ward Seidenwurm & Smith
401 B Street, Suite 1200
San Diego, California 92101
(619) 231-0303
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC: From time to time after this Registration Statement
becomes effective, which time is to be determined by the Selling
Securityholders. All of the Securities offered hereby are
offered for the account of the Selling Securityholders.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
/ /
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed
each class maximum maximum Amount of
of securities Amount to offering aggregate registration
to be registered be registered (1) price per offering fee
unit (2) price (2)
Common Stock, no 9,900,070 $3.75 $3.75 $9,407.80
par value shares
(1) The number of share of Common Stock set forth includes
1,650,000 shares available for purchase by certain Selling
Shareholders pursuant to warrants and options issued by the
Registrant.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of
calculating the registration fee.
The Registrant hereby amends this Registration Statement on each
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
EXPLANATORY NOTE
Pursuant to Rule 429 under the Securities Act of 1933, the
Prospectus which constitutes part of this Registration Statement
includes 1,445,870 shares of the Company's Common Stock
previously registered on Form S-1, Commission File No 33-91284,
and Form SB-2, Commission File No. 333-26253.
<PAGE>
PROSPECTUS
9,900,070 Shares
BOATRACS, INC.
Common Stock
__________________________
This Prospectus relates to 9,900,070 shares (the "Shares") of
common stock, no par value (the "Common Stock"), of BOATRACS,
Inc., a California corporation formerly known as First National
Corporation (the "Company"). The Shares are held by or issuable
to certain shareholders of the Company (collectively, the
"Selling Shareholders"). See "Selling Shareholders." The Shares
represent approximately 48% of the outstanding Common Stock of
the Company (including 1,650,000 Shares issuable upon exercise of
the option and warrants set forth in the table of Selling
Shareholders).
The Company will not receive any proceeds from the sale of Shares
by the Selling Shareholders. All expenses incurred in connection
with this offering are being borne by the Company, other than any
commissions or discounts paid or allowed by the Selling
Shareholders to underwriters, dealers, brokers or agents.
The Selling Shareholders have not advised the Company of any
specific plans for the distribution of the Shares, but it is
anticipated that the Shares may be sold from time to time in
transactions (which may include block transactions) in the over-
the-counter market at the market prices then prevailing. Sales
of the Shares may also be made through negotiated transactions or
otherwise. The Selling Shareholders and the brokers and dealers
through which the sales of the Shares may be made may be deemed
to be "underwriters" within the meaning set forth in the
Securities Act of 1933, as amended, and their commissions and
discounts and other compensation may be regarded as underwriters'
compensation. See "Plan of Distribution."
The Company's Common Stock is quoted on the OTC Bulletin Board
under the symbol "BTRK." The closing price per share of Common
Stock as of September 21, 1998 was $3.00.
For a discussion of certain factors relating to an investment in
the Common Stock, see "Risk Factors" beginning on page 6.
____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________________________
The date of this Prospectus is September ___, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). These
reports, proxy statements and other information can be inspected
and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
should also be available for inspection and copying at the
Commission's regional offices located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Commission
maintains a Web Site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding
the Company.
The Company has filed with the Commission Registration Statements
on Forms S-1 and Form SB-2 (the "Registration Statements") under
the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the shares of Common Stock offered hereby. The
Commission file numbers for the Registration Statements are 33-
91284, 333-26253 and 333-51283. This Prospectus does not contain
all of the information set forth in the Registration Statements
or the exhibits thereto. Statements contained in this Prospectus
as to the contents of any contract or other document filed or
incorporated by reference as an exhibit to the Registration
Statements are not necessarily complete, and each such statement
is qualified in its entirety by reference to the copy of such
contract or other document filed as an exhibit to the
Registration Statements. For further information, reference is
hereby made to the Registration Statement and exhibits thereto,
copies of which may be inspected in the manner described above.
The Company will provide to any person receiving this Prospectus
a copy of the Registration Statements and the exhibits thereto
without charge upon a request directed to Boatracs, Inc., 10675
Sorrento Valley Road, Suite 200, San Diego, California, 92121,
(619) 657-0100.
____________________________________
OmniTRACS is a registered trademark of QUALCOMM Incorporated.
BOATRACS is a trademark of BOATRACS, Inc.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and
financial statements, including the notes thereto, appearing
later in this Prospectus. Each prospective investor is urged to
carefully read this Prospectus in its entirety, including but not
limited to the Risk Factors.
Certain statements contained in this Prospectus regarding matters
that are not historical facts are forward-looking statements
relating to future events or future financial performance of the
Company. Because such forward-looking statements include risks
and uncertainties, actual results may differ materially from
those expressed in or implied by such forward-looking statements.
Factors that could cause actual results to differ materially
include, but are not limited to, those discussed under "Risk
Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business," as well as
those discussed elsewhere in this Prospectus.
The Company
BOATRACS, Inc. (the "Company") has exclusive distribution rights
in the United States for marine application of the OmniTRACS
system of satellite-based communications and tracking systems
manufactured by QUALCOMM Incorporated ("QUALCOMM"). In addition,
the Company develops application software for marine application
of the OmniTRACS system. The OmniTRACS system, as adapted and
enhanced by the Company for marine application, provides
confidential two-way communications between a vessel or vessels
at sea and a base station on land 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
OmniTRACS system also allows for hourly position reporting and
monitoring and, using supplementary products, can provide engine
performance and fuel consumption monitoring. In addition,
through its recently acquired subsidiary, Enerdyne Technologies,
Inc., the Company provides versatile, high performance digital
video compression products to governmental and commercial
markets.
The Company earns revenue primarily from five sources: (a) sales
of QUALCOMM equipment and complementary equipment created by the
Company or procured from other sources; (b) data transmission and
messaging charges; (c) software licenses and custom software
development; (d) sales of video compression products; and (e)
installation and training fees.
The Company's primary source of customers is the commercial
marine industry, which includes commercial fishermen, fuel
transporters and the workboat industry of the inland waterways
and coastal areas, and governmental and other commercial markets.
<PAGE>
The Offering
Common Stock offered by the Selling Shareholders 9,900,070 shares (1)
Common Stock outstanding 18,886,377 shares
(1) Includes 1,650,000 shares available for purchase by certain
Selling Shareholders pursuant to warrants and options issued by
the Company.
OTC Bulletin Board symbol BTRK
Risk Factors
The Shares offered by this Prospectus are highly speculative
and involve a high degree of risk and should be purchased only
by investors who can afford the loss of their entire
investment. See "Risk Factors" beginning on page 6.
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
The following tables show summary consolidated financial
information and other equity information of the Company. The
summary financial information is derived from the financial
statements of the Company, and should be read in conjunction with
and is qualified in its entirety by the more detailed financial
inform
ation and related notes thereto, and other financial
information included herein.
Year Ended December 31 Six Months Ended
June 30
1997 1996 1995 1998 1997
Consolidated Statement of
Operations Data:
Communication systems $2,457 $1,428 $1,299 $2,353 $1,135
revenues
Data transmission and 2,791 2,073 1,368 1,712 1,278
messaging revenues
Loss from operations (292) (963) (678) 0 (190)
Net (loss) income (255) (905) (653) 38 (186)
Basic earnings (loss) per $(0.02) $(0.07) $(0.06) $.00 ($.01)
common share
Dilutive earnings per common NA NA NA $.00 NA
share
Weighted average common 13,535 12,597 11,277 15,854 12,602
shares outstanding
Weighted average of common NA NA NA 16,902 NA
stock outstanding assuming
dilution
December 31, June 30,
Consolidated Balance Sheet Data: 1997 1996 1998
Working capital $22 $271 $1,974
Total assets 3,036 1,581 5,815
Long-term liabilities --- --- ---
Shareholders' equity 1,387 600 3,598
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby is speculative
in nature and involves a high degree of risk. In addition to
the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company
and its business before purchasing the Common Stock offered by
this Prospectus.
The Company wishes to caution investors 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.
History of Operating Losses. The Company realized net income of
$37,674 for the six months ended June 30, 1998 and net losses of
$254,887, $905,438 and $653,136 for the years ended December 31,
1997, 1996 and 1995, respectively. At June 30, 1998, the
Company had an accumulated deficit of $3,406,515. At December
31, 1997, the Company had an accumulated deficit of $3,444,189.
There can be no assurance that the Company will achieve or
sustain profitability in the future. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Need to Develop Markets. The scope of the market for the
Company's primary products and services is the commercial
maritime industry. The Company estimates that its share of the
maritime communications market to be very small. The Company
believes that in order to achieve and sustain profitability, it
will need to expand the distribution of its products and
services into additional markets such as the market for video
compression products serviced by its recently acquired
subsidiary, Enerdyne Technologies, Inc. The Company is
implementing a number of strategies to expand into selected
markets; however, there is no assurance that any of these
efforts will be successful. See "Business -- Market Expansion."
Potential Fluctuation in Operating Results. The Company's
quarterly operating results have varied significantly as a
result of a number of factors, including varying levels of sales
and the timing of increased expenses to support the Company's
growth. The Company expects that its operating results will
fluctuate in the future as a result of these and other factors
including possible acquisitions and strategic relationships and
the level of competition. There can be no assurance that the
Company will be able to achieve and sustain a level of
profitability on a quarter-to-quarter basis. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Market Expansion."
Dependence on Key Management. The Company's success will
continue to depend to a significant extent upon its Chairman,
Michael Silverman, its President, Jon Gilbert, its Executive
Vice President, Annette Friskopp, its Vice Presidents, Daniel
Negroni and Charles Drobny, its Chief Financial Officer, Curt
McLeland, its Managing Director of Boatracs (Europe) B.V., Peter
Carides, Scott Boden, Chief Technology Officer of Enerdyne, Inc.
and a Director of the Company, and Irene Shinsato, the President
of Enerdyne, Inc. Irene Shinsato, Scott Boden and Charles
Drobny have all entered into non-competition agreements with the
Company. Daniel Negroni, Jon Gilbert and Annette Friskopp are
also subject to agreements precluding the use of Company
information. The Company does not maintain key man life
insurance on any officer or on its Chairman. The loss of the
services of any of these individuals could have a material
adverse effect upon the Company's business. There can be no
assurance that the Company will be able to retain its existing
personnel or to attract additional qualified employees in the
future. See "Management."
Dependence on QUALCOMM. The foundation of the Company's
maritime communications business is the License and Distribution
Agreement between QUALCOMM and the Company pursuant to which the
Company has exclusive 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 core
communications 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 core communications
business. While the Company has an agreement with QUALCOMM for
the products and services provided by it, QUALCOMM has the right
to terminate this Agreement under certain circumstances. 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. See "Business -- Agreements with
QUALCOMM."
Dependence on Third Party Satellite Providers. The Company is
dependent upon QUALCOMM's OmniTRACS system which currently
operates on leased Ku-band satellite transponders in the areas
where the Company is active. The Company has been informed that
in the United States QUALCOMM's satellite transponder lease and
the position reporting satellite transponder lease run through
the year 2001. QUALCOMM has represented to the Company that it
believes any additional required transponder capacity will be
available on acceptable terms. 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.
The Company does not have direct contracts with satellite
providers. In Europe, the Company relies on its service
supplier, ALCATEL QUALCOMM, which in turn has a relationship
with EUTELSAT, the satellite provider. In Canada, the Company
relies on its service provider, CANCOM Mobile, which has
relationships with Canadian satellite providers. In the United
States, the Company relies on its service provider, QUALCOMM
Inc., who in turn has a relationship with satellite providers in
the United States. The Company is not privy to the details of
their service providers' contracts with satellite providers.
There can be no assurance that the transponders used in Europe,
Canada and the United States will continue to function or that
future transponder capacity will be available on acceptable
terms as needed. Any failure by the providers to maintain
adequate satellite capacity would have a material adverse effect
on the Company's business and financial results.
Dependence on Telephone Systems. The messaging service provided
by the Company involves data transfers via standard telephone
lines. The Company's operations rely upon the availability of
stable telephone connections between the Company and QUALCOMM's
Network Management Facility and between the Company, its
customers, the Internet and QUALCOMM's Network Management
Facility. See "Business -- The OmniTRACS and BOATRACS Systems."
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.
Dependence on Proprietary Technology. 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. The Company's subsidiary, Enerdyne
Technologies, Inc. ("Enerdyne"), holds a patent in the United
States for its Adaptive Digital Video System. Should Enerdyne's
competitors develop or patent technologies that are
substantially equivalent or superior to Enerdyne's patent,
Enerdyne's position in the market could be compromised.
Dependence on the Internet. The Company relies upon the
Internet for a significant amount of its general business
correspondence, for certain messaging services provided to
customers, and for delivery of fishing vessel data to the United
States Government. Any failure, natural disaster, or
significant delay of the Internet that resulted in an
interruption of the stable Internet service would have a
material adverse effect on the Company's business and financial
results.
Risks Associated with Acquisition of Enerdyne. The Company
concluded the acquisition of Enerdyne on July 7, 1998. See
"Business -- Acquisition of Enerdyne." The acquisition resulted
in substantial dilution to existing shareholders.
The integration of the Company's and Enerdyne's operations will
require substantial capital funding and the dedication of
management resources that may temporarily detract attention from
the day-to-day operations of the combined company. The
combination of the two companies will also require coordination
of their research and development and sales and marketing
efforts. The difficulties of combining the two companies may be
increased by the necessity of coordinating geographically
separated organizations, integrating personnel with disparate
business backgrounds and combining two different corporate
cultures. The process of combining the two organizations may
cause an interruption of, or a loss of momentum in, the
activities of either or both of the companies' businesses, which
could have an adverse effect on the revenue and operating results
of the combined company, at least in the near term. There can be
no assurance that the combined entity will be able to retain its
key technical and management personnel or that the combined
entity will realize any of the anticipated benefits of the
merger. Failure to effectively accomplish the integration of the
two companies' operations could have an adverse effect on the
combined company's results of operations and financial condition.
The Company acquired Enerdyne with the expectation that the
combination of the companies will result in beneficial synergies.
There can be no assurance that these synergies will be achieved.
Additionally, there can be no assurance that the results of
operations and financial condition of the Company and Enerdyne as
a combined company after the merger will be as strong as the
results of such companies had they continued to operate
independently.
Enerdyne has relied heavily on the transportation and
governmental markets for its revenues. Military and other
governmental spending cuts could impact profits. Enerdyne relies
on continuing technological innovation, including innovations
which are internally generated and technology developed by third
parties. Competing technologies could impact revenues and profit
margins as well as provide incentive for more competition.
Devoting resources to internally generated technological
innovation would require devotion of engineering, sales and
marketing resources which might result in a shift in focus from
existing product lines and markets. Technological innovation may
also lead to obsolescence of components used in Enerdyne's
products or create compatibility problems with existing units.
Risks Associated with Other Acquisitions. In connection with the
Company's plan to expand into new markets, the Company may
acquire existing companies and convert or integrate such
companies' existing operations and products with the Company's
operations and products. If the Company does enter into any such
acquisition transactions, the shareholders of the Company may not
have the ability to review the financial statements of the
acquisition candidate or to vote on the acquisition. Any such
acquisition could substantially dilute the ownership interest of
the existing shareholders. The Company may compete for
acquisition and expansion opportunities with companies that have
significantly greater financial and other resources. There can be
no assurance that the Company will be able to locate or acquire
suitable acquisition candidates, or that any operations that are
acquired can be effectively and profitably integrated into the
Company's existing operations. Additionally, although
acquisitions will be designed to increase the Company's long-term
profitability, they may negatively impact the Company's operating
results, particularly during the periods immediately following an
acquisition as a result of factors similar to those described in
the risk factor entitled "Risks Associated with Acquisition of
Enerdyne." and "Business -Market Expansion."
Need for Foreign Regulatory Approvals. In countries in which
the Company contracts with QUALCOMM's local OmniTRACS service
provider, the Company believes that such service provider or the
Company will be responsible for securing the necessary
regulatory approvals, licenses and permits and/or renewals
thereof for maritime operations from the local governments and
authorities. 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, licenses
and permits and/or renewals thereof. Changes in the regulation
of QUALCOMM's OmniTRACS system, or the inability to obtain
foreign regulatory approvals, licenses and permits and/or
renewals thereof, could have a material adverse effect on the
Company's operating results and its ability to expand its
business in the future.
Control by Management Shareholders. Officers and directors of
the Company and its subsidiaries beneficially own in the
aggregate (excluding options and warrants exercisable within 60
days) approximately 51% of the issued and outstanding Common
Stock of the Company. As a result, such management shareholders
have the power to exercise majority control of the Company, with
the ability to approve fundamental corporate transactions and to
control the election of the Board of Directors. See
"Management" and "Principal Shareholders."
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. Several competing entities
provide satellite-based mobile voice and data systems in marine
markets. The Company's primary competitors to the Company's core
communications business include American Mobile Satellite
Corporation and Globe Wireless, Inc. The Company's competitors
are aggressively pricing their products and will likely continue
to do so in the future. In addition, these competitors are
offering new value-added products and services similar to those
developed or being developed by the Company or QUALCOMM.
Emergence of new competitors, particularly those offering lower
cost products, enhancements, additional features and Low-Earth
Orbit (LEO) satellite communications systems, may impact margins
and intensify competition in new markets.
The Company also faces competition abroad from numerous suppliers
of equipment and services. One of the Company's competitors,
INMARSAT Service Providers, provide maritime voice, facsimile and
data services nearly worldwide using capacity on a combination of
owned and leased satellites. 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 February, 1999. The Company's
OmniTRACS system cannot become GMDSS approved because the
system's coverage is not global. The Company is at a disadvantage
without such approvals when attempting to sell to certain
shipping, fishing, workboat and towing companies.
The Company also competes with other mobile communications
systems both domestically and abroad, including radio and
cellular telephone. All of these competitors are aggressively
pricing their products and services and the Company expects
continuing pricing pressures.
The Company is in the process of finalizing an agreement whereby
the Company will become an Inmarsat Service Provider and Agent.
Even as an Inmarsat Service Provider and Agent of Inmarsat
services, the Company will continue to compete against other
Inmarsat providers. See "Risks of Offering New Services."
Enerdyne competes with a limited number of companies in its
current market, each of which provides one or more products
offered by Enerdyne and some of which have access to greater
financial resources. Enerdyne faces increased domestic
competition, and as technological innovation becomes more
available, it is possible that foreign competition could
increase. There is no assurance that Enerdyne will continue to
be competitive in its existing and prospective markets. See
"Business -- Competition."
Dependence on Significant Customers. The Company's primary
source of customers, in its core communications business, is the
commercial marine industry. Two customers, Kirby Corporation
and Tidewater Marine, each represented 12% and 18%,
respectively, of the Company's total sales in 1997. The loss of
either one would have a material adverse effect on the Company's
financial position and results of operations. Moreover,
purchases of communication systems by those customers may not
occur yearly and there can be no assurance that such customers
will make significant purchases of the Company's products in
1998 or in the future. For the nine month period ended March
31, 1998, Enerdyne had two significant customers: Tadiran
Spectralink, Ltd. and Intelect Network Technologies, Inc., whose
sales represented 25% and 16% of Enerdyne's revenues,
respectively. The loss of either of these customers could have
a material adverse effect on the Company.
No Assurance of Public Market; Potential Volatility of Stock
Price. Subsequent to the reorganization of the Company in
January, 1995, there has been only a limited public trading
market for the Common Stock. Price and volume quotations are
currently reported on the OTC Bulletin Board, but there can be
no assurance that an active trading market will develop or be
sustained. The market price of the Common Stock could be
subject to significant fluctuations in response to operating
results and other factors, many of which are not within the
control of the Company. In addition, in recent years the stock
market in general, and the market for shares of small
capitalization stocks in particular, have experienced extreme
price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of affected
companies. These fluctuations, as well as general economic and
market conditions, may adversely affect the market price of the
Common Stock.
Risks Associated with "Penny Stocks." The Company's Common
Stock currently meets the definition of a "penny stock" under
Commission regulations. Accordingly, any broker engaging in a
transaction in the Common Stock is required to provide any
potential purchaser of the Common Stock with a risk disclosure
document, disclosure of market quotations, if any, disclosure of
the compensation of the broker-dealer and salesperson in
connection with such a transaction and monthly account
statements showing the market value of the Common Stock held in
such customer's accounts. The bid and offer quotation and
compensation information must be provided prior to effecting the
transaction and must be contained on the customer's
confirmation, and further, the broker must make a special
written suitability determination for other than established
customers and receive the purchaser's agreement to a transaction
prior to consummating the transaction. Brokers are generally
less willing to engage in transactions in "penny stocks" because
of these rules. This can make it more difficult for holders of
the Common Stock to dispose of their shares.
Effects of Possible Issuance of Preferred Stock. The Company's
Amended and Restated Articles of Incorporation authorize the
issuance of preferred stock in the future without further
shareholder approval and upon such terms and conditions, and
having such rights, privileges and preferences, as the Board of
Directors may determine. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that may be issued
in the future. The Company has no present plans to issue any
shares of preferred stock. Any issuance of preferred stock
could make it more difficult for a third party to acquire, or
could discourage a third party from acquiring, a majority of the
outstanding voting stock of the Company. See "Description of
Capital Stock."
Risks of International Business. The Company, through its wholly-
owned subsidiaries, Boatracs (Europe) B.V., Oceantrac, Inc., and
Enerdyne is currently expanding its operations abroad. The
Company has limited experience in managing foreign operations.
International expansion efforts are likely to strain the
Company's management, financial and other resources. Any failure
of the Company to expand in an efficient manner or to manage its
dispersed organization could have a material adverse impact on
the Company's business and financial results. Other risks that
will be faced by the Company in its international business
include costly regulatory requirements; unexpected changes in
regulatory requirements; application of foreign law; fluctuations
in currency exchange rates (which could materially and adversely
affect the Company's results of operation and, in addition, may
have an adverse effect on demand for the Company's products
abroad); tariffs or other barriers; difficulties in staffing and
managing foreign operations; political and economic instability;
difficulties in accounts receivable collection; extended payment
terms; and potentially negative tax consequences. Additionally,
Enerdyne's products and technology as well as products and
technologies developed by Enerdyne could be subject to
restrictions on sales to certain foreign countries by the United
States Government. These factors could have an adverse impact on
the Company's business and financial results in the future or
require the Company to modify its current business practices.
Risks of Offering New Services. The Company is in negotiations
to become an Inmarsat Service Provider and an Agent for Inmarsat
services. The Company has limited experience in reselling
Inmarsat services. Such expansion of service and product
offerings could strain the resources and possibly deteriorate the
Company's reputation with customers, and could have a material
adverse impact on the Company's core communications business. See
"Business -- Market Expansion."
Uncertainty of Government Regulation and Renewal of Licenses.
The Company's products are subject to various FCC regulations in
the U.S. These regulations require that the Company's products
meet certain radio frequency emission standards and not cause
unallowable interference to other services. 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 pursued a Petition for Rulemaking
which it filed with the FCC in 1992 to amend the Table of
Frequency Allocations permitting 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 mobile communication
terminals 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.
Effect of QUALCOMM's Right to Purchase the Company's Business.
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. QUALCOMM's right of first refusal could adversely
affect the ability of the Company to sell its business to a
third party purchaser. See "Business -- Agreements with
QUALCOMM."
Substantial Future Capital Needs; No Funding Commitments.
Expansion of the Company's business, the acquisition of Enerdyne
and other potential acquisitions, 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. The Company has no current
commitments or arrangements with respect to, or readily
available sources of, additional funding. 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
will likely result. If adequate funds are not available, the
Company's business would be adversely affected.
Decrease in Licensed Fishing Vessels. Fishing vessels
constitute a portion of the Company's existing and potential
customers. Fishing resources are in decline in many areas of
the world, resulting in a decline in the number of licensed
fishing vessels. Significant declines in the number of such
vessels could have a material adverse impact on the Company's
operating results and its ability to expand in the future.
Possible Adverse Risk on Existing Shares Due to Offering of
Shares. The 9,900,070 Shares offered hereby represent
approximately 48% of the outstanding shares of the Company's
Common Stock presuming the exercise of certain stock options and
warrants in the amount of 1,650,000 shares. The possibility
that substantial amounts of these shares may be sold in the
public market may adversely affect prevailing market prices for
the securities and could impair the Company's ability to raise
needed capital through the sale of equity securities. See
"Shares Eligible for Future Sale."
Possible Adverse Effects Due to Shares Eligible for Future Sale.
In addition to the 9,900,070 Shares offered hereby, as of
September 1, 1998, 3,496,813 shares of Common Stock were
eligible for unrestricted sale in the public market and an
additional 5,489,494 shares of Common Stock were eligible for
sale in the public market subject to Rule 144 under the
Securities Act of 1933, as amended. Rule 144 may impose volume
limitations and certain other restrictions on the sale of
restricted securities and securities held by "affiliates" of the
Company. It is not possible to predict the effect, if any, that
sales of shares of Common Stock or even the availability of such
shares for such sale will have on the market price of the Common
Stock. The possibility that substantial amounts of the
Company's Common Stock may be sold in the public market may
adversely affect prevailing market prices for the securities and
could impair the Company's ability to raise capital through the
sale of equity securities. See "Shares Eligible for Future
Sale."
Year 2000 Issues. In the operation of its business, the Company
uses commercial computer software primarily purchased from or
provided by independent software vendors. After an analysis of
the Company's exposure to the impact of "year 2000 issues" (i.e.
issues that may arise resulting from computer programs that use
only the last two, rather than all four, digits of the year), the
Company believes that such commercial software is already
substantially year 2000 compliant, and that completion of year
2000 compliance should not have a material impact on the
Company's business, operations or financial condition; however,
the Company is still assessing the impact of this year 2000
issue.
The Company has performed an internal analysis and is in the
process of finalizing a specific written plan to address the year
2000 issues for both internally developed products and products
developed and manufactured by Qualcomm. Qualcomm has assured the
Company that all the products supplied to BOATRACS, Inc. during
the course of the relationship and going forward will be upgraded
to ensure compliance with Year 2000 standards. This assurance
will be at no charge to the Company or customers but the Company
may be required to exchange certain chip sets of our customers at
minimal cost.
For internally developed products, the upgrade process is in
final testing phase and will be completed by the end of the
current fiscal year. Development costs associated with the
upgrade have been included in operations as incurred. The
Company's preliminary review, shows that the potential future
cost to complete the conversion is estimated at $20,000 and will
also be included in operations as incurred.
The Company is not in a position to evaluate the extent (if any)
to which any year 2000 issues that may affect the economy
generally or any suppliers or others with whom the Company does
business in particular would also be likely to affect the
Company. Failure of one or more of the supplier's computer
products to be year 2000 compliant would have a material effect
on the Company's business.
USE OF PROCEEDS
All proceeds from the Shares offered by this Prospectus will be
earned by the respective Selling Shareholders. The Company will
not receive any of the proceeds from this offering.
DIVIDEND POLICY
The Company has not paid any dividends since its reorganization
in January, 1995, and the predecessor BOATRACS company did not
pay any dividends prior to the reorganization. The Company
intends to retain earnings, if any, to finance the development
and expansion of its business. Accordingly, the Company does
not intend to pay cash dividends in the foreseeable future on
its Common Stock. Holders of the Company's Common Stock are
entitled to dividends when, as and if declared by the Board of
Directors, in its discretion, out of funds legally available for
payment of the dividends. Cash dividends, if any, that may be
paid in the future to holders of Common Stock will be payable
when, as and if declared by the Board of Directors of the
Company, based on the Board's assessment of the financial
condition of the Company, its earnings, need for funds, capital
requirements and other factors, including any applicable laws.
In addition, any financing which the Company may obtain in the
future may contain provisions restricting the Company's ability
to pay dividends. The Company is not currently a party to any
agreement restricting the payment of dividends.
SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial
statements and notes thereto included elsewhere in this
Prospectus. The statement of operations data for the six months
ended June 30, 1998 and 1997 and the balance sheet data as of
June 30, 1998 are unaudited. However, in the opinion of
management, such unaudited results properly reflect all
transactions during those periods. The results of the six month
periods are not necessarily indicative of results for a whole
year. The statement of operations data for the years ended
December 31, 1995, 1996 and 1997 and the balance sheet data at
December 31, 1996 and 1997 are derived from the audited
financial statements included elsewhere in this Prospectus. You
should read these audited financial statements.
Year Ended December 31 Six Months Ended
1997 1996 1995 6/30/98 6/30/97
(in thousands, except (Unaudited)
per share data)
Statement of Operations
Data
Revenues:
Communication $2,457 $1,428 $1,299 $2,353 $1,135
systems
Data transmission 2,791 2,073 1,368 1,712 1,278
and messaging
Total 5,248 3,501 2,667 4,065 2,413
Operating Expenses:
Communication 1,616 913 901 1,490 756
systems
Data transmission 1,419 1,090 833 957 647
and messaging
Selling, general and 2,505 2,461 1,611 1,618 1,200
administrative expenses
Total 5,540 4,464 3,345 4,065 2,603
Loss from operations (292) (963) (678) 0 (190)
Other income 37 58 25 38 4
Net income (loss) $(255) $(905) $(653) $38 $(186)
=== === === == ===
Basic earnings (loss) per $(.02) $(.07) $(.06) $.00 $(.01)
share
Dilutive earnings per NA NA NA $.00 NA
common share
Weighted average common 13,535 12,597 11,277 15,854 12,602
shares outstanding
Weighted average of NA NA NA 16,902 NA
common shares assuming
dilution
December 31,
(in thousands)
1997 1996 6/30/98
Balance Sheet Data:
Working capital $22 $271 $1,974
Total assets 3,036 1,581 5,815
Long-term liabilities --- --- ---
Shareholders' equity (1) 1,387 600 3,598
_________________________________
(1) No cash dividends were declared or paid during the periods
presented.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected
Financial Data" and the Company's financial statements and notes
thereto appearing elsewhere in this Prospectus.
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 a vessel or vessels at sea and base stations on land 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 earns revenue primarily from five sources: (a)
sales of QUALCOMM equipment and complementary equipment created
by the Company or procured from other sources; (b) data
transmission and messaging charges; (c) software licenses and
custom software development; (d) sales of video compression
products; and (e) installation and training fees.
Effective November 1, 1997, the Company acquired certain assets
and liabilities of MED Associates, Inc. ("MED") for $500,000
cash and 300,000 shares of Common Stock. The stock payment is
subject to an option in favor of the Company exercisable if MED
does not achieve a certain earnings level for the fiscal year
ending December 31, 1998. The option allows the Company to
repurchase for a nominal price one share for every dollar MED's
earnings fall short of the target earnings level. The assets
and liabilities of MED are reflected on the consolidated balance
sheets as of June 30, 1998 and December 31, 1997. The results
of MED's operations from the date of the acquisition to
December 31, 1997 were not significant. Goodwill in the amount
of $845,000 was recorded in the acquisition and will be
amortized over ten years.
On July 7, 1998, the Company purchased Enerdyne, a provider of
versatile, high performance digital video compression products
to the government and commercial markets. Enerdyne, formed in
1984, is located in Santee, California. The acquisition price
of $22.6 million was paid for by a combination of cash, common
stock and notes payable. Goodwill of approximately $3.1 million
was recorded and will be amortized over ten years. The two
shareholders of Enerdyne signed employment contracts with the
Company as follows: Scott Boden has been engaged for two year
term as Enerdyne's Chief Technology Officer and Irene Shinsato
has been engaged for a one year term as President of Enerdyne.
Both will receive an annual salary of $120,000 and both received
a stock option to purchase 500,000 shares of the Company's
Common Stock at $2.00 per share with a vesting term conforming
to the term of their employment contracts.
Effective July 1, 1998, the Company acquired all of the
outstanding shares in Oceantrac Inc., a Canadian corporation
("OceanTrac"). The acquisition was effected by the exercise of
the Company's rights under a Joint Venture Agreement entered
into among the Company, Oceantrac and Oceantrac Systems Limited,
a Nova Scotia corporation ("Systems") during 1996. In addition,
the Company purchased all of the assets of Systems for
consideration of 5,000 shares of the Company's Common Stock.
The acquisition of Oceantrac and Systems resulted in recording
of intangibles in the amount of approximately $433,000 which
will be amortized by the Company over ten years.
The acquisitions of MED, Enerdyne and Oceantrac represent the
Company's continuing efforts to diversify its operations. The
Company intends to continue to evaluate other acquisition
opportunities.
The Company recognizes revenues from the sale of communication
systems at the time the equipment is shipped to the customer.
The Company recognizes revenue from messaging at the time the
transmission is made by the customer. The Company recognizes
software license and development revenues, and installation and
training charges as incurred. The Company recognizes revenues
from the sale of video compression units which do not entail
significant customer modification upon shipment to customers,
and on the percentage of completion method for products
requiring significant customer modification or the development
of new technology.
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 Six Months
December 31, Ended
1997 1996 1995 6/30/98 6/30/87
% % % % %
Revenues
Communications 47 41 49 58 47
systems
Data transmission and 53 59 51 42 53
messaging
Total 100 100 100 100 100
Operating expenses:
Communications 31 26 34 37 31
systems
Data transmission and 27 31 31 23 27
messaging
Selling, general and 48 71 60 40 50
administrative expenses
Total 106 128 125 100 108
Loss from operations (6) (28) (25) 0 (8)
Other income 1 2 1 1 ---
Net income (loss) (5) (26) (24) 1 (8)
For the six months ended June 30, 1998 and 1997
Total revenues for the six months ended June 30, 1998 were
$4,064,708 an increase of $1,651,926 or 68.5% as compared to
total revenues of $2,412,782 for the six months ended June 30,
1997.
Communications systems revenues, which consist of revenues from
the sale of maritime communications systems, related software and
revenues from MED Associates, Inc. ("MED") were $2,352,611 or
57.9% of total revenues, an increase of $1,217,263 or 107.2%
compared to $1,135,348 or 47.1% of total revenues in the first
six months of 1997. The increase in communication systems
revenues compared to the same period in the prior year, primarily
reflects increased sales of communication units to vessels in the
United States, an increase in software revenues and the income
from MED which the Company acquired in November, 1997 (see note 2
to audited financial statements). The increase was partially
offset by a decrease in the sale of communications units in
Europe and Canada in the first six months of 1998 compared to the
same period in 1997. Data transmission and messaging revenues
were $1,712,097 or 42.1% of total revenues, an increase of
$434,663 or 34.0% compared to $1,277,434 or 52.9% of total
revenues in the comparable six months of 1997. The increase in
revenues reflects an overall increase in data transmission and
messaging services provided by the Company as a result of growth
in the number of maritime communications systems installed on
vessels.
Communications systems expenses were $1,489,672 or 63.3% of
communications systems revenues for the six months ended June 30,
1998, an increase of $734,289 or 97.2% compared to $755,383 which
represented 66.5% of communications systems revenues in the
corresponding quarter of the prior year. The dollar increase in
expenses primarily reflects the increase in sales of the
Company's maritime communications systems. The increase in the
gross margin in communications systems revenues primarily
reflects a decrease in price from the Company's supplier in June
1997 and an additional promotional discount in the second quarter
of 1998, offset by an increase in sales to dealers at discounted
prices. Data transmission and messaging expenses were $957,373
or 55.9% of data transmission and messaging revenues for the six
months ended June 30, 1998, an increase of $310,593 or 48.0%
compared to $646,780 which represented 50.6% of data transmission
and messaging revenues in the corresponding six months of 1997.
The dollar increase in costs reflects increased data transmission
and messaging services rendered due to increased the Company's
maritime communications systems installed on vessels. The
decrease in gross margin in data transmission and messaging
revenues is due to a continuing change in the customer mix in the
United States and credits given to customers for miscellaneous
testing. In addition, messaging customers have increased in the
European and Canadian markets which have a lower gross margin.
Selling, general and administrative expenses were $1,618,106 or
39.8% of total revenues for the six months ended June 30, 1998,
an increase of $417,746 or 34.8% compared to $1,200,360 or 49.8%
of total revenues in the corresponding six months of 1997. The
increase dollar amount is primarily attributable to increases in
salary expenses due to additional employees, amortization of
goodwill on the acquisition of MED, general office expenses,
operating expenses of MED, and an increase in legal expenses due
to an acquisition and a pending legal suit (see Item 1-Legal
Proceedings). In addition, certain European evaluation inventory
units were reclassified to property in the amount of $88,372
which increased depreciation expense. Software development costs
are written off as incurred.
Interest income of $38,117 in the six months ended June 30, 1998,
represents interest earned on a promissory note which was repaid
during June 1998. This represents an increase of $31,924 or
515.5% compared to $6,193 in the prior year which represented
interest earned on investments.
Years ended December 31, 1997 and 1996
Total revenues for the year ended December 31, 1997 were
$5,247,541, an increase of $1,746,359, or 50%, as compared to
total revenues of $3,501,182 for the year ended December 31,
1996.
Communication systems revenues in 1997, which consist
principally of revenues from the sale of maritime communications
equipment and related software, were $2,456,638, or 47%, of
total revenues, an increase of $1,028,816, or 72%, over the
prior year. This growth in communications systems revenues is
attributable primarily to an increase in sales of equipment to
new customers in Europe and Canada and increased software sales
in the United States. Communication systems revenues also
include two months of MED revenues.
Data transmission and messaging revenues, which consist of fees
for messaging services provided to maritime communications
systems units installed on vessels, were $2,790,903, or 53%, of
total revenues, an increase of $717,543, or 35%, over the prior
year. The increase in data transmission and 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.
Communication systems expenses were $1,615,929, or 66% of
communications systems revenues for 1997, an increase of
$702,865, or 77%, compared to $913,064, which represented 64% of
communications systems revenues in 1996. The dollar increase in
expenses primarily reflects increased equipment sales in Europe
and Canada and related software. The increase in communications
systems expenses as a percentage of communications systems
revenues is primarily due to the inclusion of two months of
expenses of MED purchased in 1997. Without the MED expenses the
percentage would be unchanged from the prior year.
Data transmission and messaging expenses were $1,418,461, or 51%
of data transmission and messaging revenues in 1997, an increase
of $328,742, or 30%, compared to $1,089,719, which represented
53% of data transmission and messaging revenues in the prior
year. The dollar increase in costs reflects increased data
transmission and messaging services rendered due to increased
equipment sales and related usage. The decrease in data
transmission messaging costs as a percentage of data
transmission messaging revenues is due to increased revenues
with a relatively low marginal cost of providing this service,
and to increased sales to fleet customers with greater
utilization of the system.
Selling, general and administrative expenses were $2,505,190, or
48% of total revenues for 1997, an increase of $44,172, or 2%,
compared to $2,461,018, or 71% of total revenues in the prior
year. The increased dollar amount is primarily attributable to
various increased expenses including salary and related
expenses, outside consultants, advertising and shareholder
relations and certain prepaid consultant costs, partially offset
by a decrease in legal, computer consultants, telephone and
European expenses. In 1997, the selling, general and
administrative expenses include two months of expenses of MED.
In addition, selling, general and administrative expenses
include two months amortization of goodwill on the purchase of
MED in the amount of $14,083. The Company anticipates that the
dollar amount of selling, general and administrative expenses
will increase in the future to accommodate the Company's growth.
Other income in both 1997 and 1996 consisted of interest income
partially offset by interest expense.
As a result of the factors described above, net loss was
$254,887, or 5% of total revenues for 1997, compared to
$905,438, or 26% of total revenues for 1996, a decrease in net
loss of $650,551. This represents a 72% decrease in net loss
compared to the prior year.
Liquidity and Capital Resources
The Company's cash balance at June 30, 1998, was $1,961,148, an
increase of $1,568,436 compared to the December 31, 1997 cash
balance of $392,712. At June 30, 1998, working capital was
$1,973,692 an increase of $1,951,716 from the working capital of
$21,976 at December 31, 1997. Cash of $319,579 was used in
operating activities, cash of $248,474 was used in investing
activities and cash of $2,136,489 was provided by financing
activities in the first six months of 1998. Net accounts
receivable increased $458,114 to $1,395,124 at June 30, 1998,
compared to $937,010 at December 31, 1997, due to increased sales
in communications systems and data transmission and messaging
revenues in the current periods. Inventory decreased $118,519 at
June 30, 1998, compared to December 31, 1997, due to sales of
communications systems from inventory and a reclassification of
European inventory to property in the amount of $88,372. Deposit
in escrow in the amount of $500,000 at June 30, 1998, relates to
a deposit pursuant to a letter of intent with Enerdyne (see note
2 to audited financial statements and "Subsequent Events").
Prepaid expenses and other assets increased by $110,823 primarily
due to a deposit paid on new office space. Acquisition costs in
the amount of $165,968 relates to the acquisition of Enerdyne
(see "Subsequent Events"). Notes receivable increased $37,000 at
June 30, 1998, compared to December 31, 1997, due to monies
loaned in connection with a promissory note to a Canadian Company
(see note 5 to audited financial statements and "Subsequent
Events").
Accounts payable increased $337,804 at June 30, 1998, compared to
December 31, 1997, primarily due to an increase of payables due
the supplier of maritime communications and messaging systems as
sales and expenses have increased. Accrued expenses increased
$229,334 to $494,610 from $265,276 at December 31, 1997 due
primarily to increased legal and accounting accruals relating to
acquisition operating costs including office related and
personnel expenses. Notes receivable for common stock issued
decreased to zero from $2,117,836. These notes receivable for
common stock consist of a Promissory Note from an officer and
major shareholder of the Company, and an agreement with the major
supplier of the Company. During the six months ended June 30,
1998, the Promissory Note was sold to an outside party at a
discount of $44,274, which was recorded as a deduction to common
stock. The remainder of notes receivable were decreased by
discounts received on purchases of equipment and data
transmission and messaging in accordance with the agreement with
the major supplier.
The Company anticipates making capital expenditures in excess of
$150,000 during 1998 (other than cash for acquisitions) primarily
on computer and office equipment, including office furniture and
equipment for new office space which the Company relocated to
during July 1998. This amount excludes any capital expenditures
which may result from the acquisition of Enerdyne. "See
Subsequent Events."
The acquisition of Enerdyne and other acquisitions may require a
commitment of additional funds. The Company does not maintain a
line of credit. Enerdyne has been profitable for the past three
fiscal years (excepting 1996 where a loss was posted as a result
of extraordinary compensation expense). However, there is no
assurance that Enerdyne will continue to generate profits. To
the extent that 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.
See "Subsequent Events" and "Risks Associated with Acquisition of
Enerdyne."
Year 2000 Issues
In the operation of its business, the Company uses commercial
computer software primarily purchased from or provided by
independent software vendors. After an analysis of the Company's
exposure to the impact of "year 2000 issues" (i.e. issues that
may arise resulting from computer programs that use only the last
two, rather than all four, digits of the year), management has
determined that such commercial software is already substantially
year 2000 compliant, and that completion of year 2000 compliance
should not have a material impact on the Company's business,
operations or financial condition.
The Company has performed an internal analysis and is in the
process of finalizing a specific written plan to address the year
2000 issues for both internally developed products and products
developed and manufactured by Qualcomm. Qualcomm has assured the
Company that all the products supplied to BOATRACS, Inc. during
the course of the relationship and going forward will be upgraded
to ensure compliance with Year 2000 standards. This assurance
will be at no charge to the company or customers but the Company
may be required to exchange certain chip sets of our customers at
minimal cost.
For internally developed products, the upgrade process is in
final testing phase and will be completed by the end of the
current fiscal year. Development costs associated with the
upgrade have been included in operations as incurred. The
Company's preliminary review shows that the potential future cost
to complete the conversion is estimated at $20,000 and will also
be included in operations as incurred.
Management is not in a position to evaluate the extent (if any)
to which any year 2000 issues that may affect the economy
generally or any suppliers or others with whom the Company does
business in particular would also be likely to affect the
Company.
BUSINESS
Introduction
The Company's objectives include providing reliable and cost
effective data communications systems for commercial marine
applications. 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. The Company has exclusive distribution
rights for the OmniTRACS System in the United States for marine
application under a License and Distribution Agreement with
QUALCOMM dated June 13, 1990, which has been amended from time to
time. In addition, the Company or its wholly owned subsidiaries,
BOATRACS (Europe) B.V. and Oceantracs has agreements with
QUALCOMM's authorized service providers in Canada and Europe for
marine distribution of OmniTRACS for Canada and parts of Europe.
The Company's 24-hour network centers provides personal message
relaying services to individual vessels and backup services to
fleets of vessels.
The Company derives revenue primarily from five sources:
a. Sales of QUALCOMM equipment and software and
additional, complimentary and/or modified equipment
created or procured by the Company for maritime
application.
b. Data transmission and messaging charges.
c. Software license fees and charges for custom software
development.
d. Sales of video compression product.
e. Installation and training fees.
A material source of the Company's customers is the commercial
marine industry, which includes commercial fishermen, fuel
transporters and the workboat industry of the inland waterways
and coastal areas. 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.
The integration of this information directly into shared-based
office computer systems is very important to the Company's
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 may lack complete privacy and have
limited range.
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, The Company
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.
Effective November 1, 1997, the Company purchased certain assets
of MED as a going concern. MED" is a Mississippi based provider
of software applications and service solutions to the commercial
work boat industry and oil companies.
Effective July 1, 1998, the Company acquired 100% of Oceantrac,
its Eastern Canadian distributor, by exercising options and
warrants and by calling a loan due to the Company. The
acquisition was effected by the exercise of the Company's rights
under a Joint Venture Agreement entered into among the Company,
Oceantrac and Systems during 1996. In addition the Company
purchased all of the assets of Systems for consideration of
5,000 of the Company's shares. Arising from the acquisition of
Oceantrac and Systems intangibles were recorded in the amount of
approximately $433,000 and will be amortized by the Company over
ten years. Oceantrac will continue to act as the Company's
appointed distributor of the OmniTRACS system and related
Company products and will operate the Company's 24-hour
messaging center which is based in Yarmouth Nova Scotia, Canada
which was previously operated by Systems.
The Company acquired Enerdyne, a privately held company located
in Santee, California on July 7, 1998. Enerdyne sells video
compression equipment for military and commercial applications.
The acquisition was funded through the issuance of Common Stock,
warrants and options to purchase the Company's Common Stock,
notes payable and the payment of cash.
In addition, the Company may be required to raise additional
capital to fund the operations and growth of the combined
companies. The Company cannot, at this time, determine the
amount of capital which will be required or the sources of that
capital. The issuance of common stock and warrants and options
to purchase Common Stock resulted in dilution to existing
shareholders.
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 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 of one 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 Company 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 became the successor to 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"), a satellite communications
system and data delivery systems. The BOATRACS System also
allows for hourly position reporting and monitoring and, using
supplementary products, can provide engine performance and fuel
consumption monitoring. As of December 31, 1997, the Company had
installed approximately 1200 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,
Canada and parts of Europe. 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, or similar facilities
in Canada and Europe, and then onto base stations at the
customers' offices or to the Company's 24-hour network center
("BNC") also in San Diego or to OceanTrac in Yarmouth, Canada.
Messages that go to the Company can be relayed by fax or e-mail,
or 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 systems. The QUALCOMM NMF
uses the QASPR system to calculate a vessel's position, within a
radius of 1000 feet. This position is made available to shore-
based users. As an option, MCTs can be provided with integrated
global positioning systems ("GPS").
The QUALCOMM NMF is the communications hub of the BOATRACS
System. All communications are transmitted via satellite through
a 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. In other countries where the Company operates,
the OmniTRACS system is available through QUALCOMM's authorized
service providers for that particular country.
In the United States, satellite service is provided by General
Electric aboard an existing satellite under a "protected lease"
which guarantees transponders will be available to QUALCOMM
through one of General Electric's available satellites. In other
countries, other regional or national satellites are utilized by
the Company through arrangements with QUALCOMM's authorized
service providers.
The BNC is located in the San Diego headquarters and provides
message relaying and stand-by backup services for fleets and
individual vessels using the system in the United States. The
BNC also facilitates some services, which are offered to European
vessels. The Company also offers certain services from its
wholly owned subsidiary BOATRACS (Europe) B.V. office in Leiden,
The Netherlands, to European vessels. In addition, the
Company's wholly owned subsidiary, Oceantrac, provides services
to Canadian vessels from a 24 hour network center in Nova Scotia,
Canada. Computers communicate to the QUALCOMM NMF by modem to
monitor customer accounts on the system. Operators 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. The BNC also provides
enhanced communication services to the customers, including the
relay of E-mail messaging, broadcast of weather, distribution of
data relating to customer's positioning and emergency back-up
services.
The Company charges its customers for the transmission of each
message and for the transmission of each character within a
message. There is also a monthly connection fee for the MCT to
be on-line and for hourly position reports. The charges are
subject to certain volume discounts. Additional charges are
assessed for certain services provided by the network centers.
On the Vessel
The MCT consists of three basic components: the Communications
Unit, the Keyboard/Display Unit and the Outdoor Unit and sells in
a range of approximately $5,000 to $6,000 dependent on features
and volume discounts. 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- or fifteen-line liquid crystal display
screen. The Outdoor Unit is the antenna, which is mounted
externally, generally on top of the vessel 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
the Company's customers use only the basic MCT, optional products
that interface with the basic unit are also offered. Customers
also have the option of using personal computer and BOATRACS'
WINDOWS BOATCOMM User Interface Software ("WBUI") instead of the
Keyboard/Display Unit. The WBUI allows for the same features as
the Keyboard Display Unit with the added benefits of using a full
screen and being able to send/receive computer files of any type.
Many of the Company's customers also use marine application
software programs developed by BOATRACS' Gulfport division
(formerly MED). Such application software enables onboard users
to enter business information into forms which are saved to a
local database and are transmitted to the shore station as files.
BOATRACS Network Center
BOATRACS operates its 24-hour BNC from its San Diego, California-
based offices and Network Centers in Leiden, The Netherlands, and
Yarmouth, Nova Scotia where messages are forwarded to vessels and
land-based connections. Additionally, the San Diego and Yarmouth
Network Centers retrieve and provide fishing vessel data to the
United States and Canadian governments respectively. After
expending initial set-up costs, the network facility is a
virtually fixed cost operation with the potential to handle
hundreds of additional units at a small incremental cost.
In San Diego, the BNC 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. The BNC also has a dedicated line to a
local internet service provider for internal internet use as well
as value-added messaging services for vessels. The Yarmouth
network center is linked via a VSAT connection to the CANCOM
(QUALCOMM's Canadian licensee) earth station, where message
transmissions to and from the vessels are formatted and
processed. Connections to the Internet are also maintained.
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 BNC
only. Typically, a customer who has more than four BOATRACS
System 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 the Company's 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. Some customers also have custom developed
marine application software which was developed by BOATRACS'
Gulfport division. This application software stores data files
received from the vessels and enables management, dispatchers,
and others to retrieve reports to manage their fleet of vessels
and to provide data to their customers.
Based upon reports from customers, the Company believes that its
marine industry 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 with the Company, establishing a fixed rate
to be paid for messaging services used by the customer during the
contract term.
Research and Development
During 1997 and 1996 the Company spent $199,000 and $255,000
respectively on the research and development of software to
complement the BOATRACS System. These costs were not passed on
to the Company's customers.
Purchase of MED Associates, Inc.
Effective November 1, 1997, the Company purchased certain assets
and liabilities of MED for $500,000 cash, and 300,000 shares of
Common Stock valued at $1.40 per share. The stock payment is
subject to an option in favor of the Company exercisable if MED
does not achieve a certain earnings level for the fiscal year
ending December 31, 1998. The option allows the Company to
purchase at a nominal cost one share for every dollar such
earnings fall short of the target.
MED, now known as BOATRACS Gulfport division, is a Mississippi-
based developer of external application software services to the
marine industry for use in connection with the BOATRACS System
and other communication systems. The external application
software can enhance the customer's use of operational data sent
through the BOATRACS System. Additionally, their proximity to
existing and future Company customers in the work boat industry
facilitates more timely customer service solutions to those
customers.
The BOATRACS' Gulfport division provides custom developed
software applications to offshore and some inland boat and barge
companies. The BOATRACS Gulfport division's services include
systems design, development, implementation, training and
installation onboard. Their relationships with key large
customers often lead to serial consulting assignments whereby one
project leads to another. Some customers outsource a significant
amount of their information technology needs to the BOATRACS
Gulfport division. The ability of the BOATRACS Gulfport division
to provide solutions for customers has enhanced the ability of
the Company to sell mobile communications terminals to vessel
operators.
Purchase of Enerdyne
The Company acquired Enerdyne, a privately held company located
in Santee, California, on July 7, 1998. Enerdyne sells video
compression equipment for military and commercial applications.
The acquisition was funded through the issuance of the Company's
common stock warrants, notes payable and the payment of cash.
Enerdyne provides video products that enables the realization of
high performance digital video compression solutions. Enerdyne's
patented technology provides the Company with a market position
in encoders, decoders and multiplexing equipment used in airborne
and ground based digital video systems. Primary markets for
these products include Defense, Intelligent Transportation
Systems, Surveillance and Aerospace. Enerdyne has focused, and
the Company will continue to focus on developing products that
have long life cycles and require minimal modification over their
life cycles.
Enerdyne designs, develops and manufactures its products at its
location in Santee, California. Products range from rack mounted
industrial equipment to ultra miniatured severe environmental
units. The products have interfaces with data channels,
including wire, microwave and fiber optic. Enerdyne has
relationships with various United States government agencies
including military, the Department of Transportation and the
Department of Defense.
The communication industry is undergoing change due to
deregulation and there is increased demand for advanced
transmission enabling technologies. Customer demand has
increased bandwidth requirements and investment in broadwidth
infrastructure has increased.
Dependence upon Significant Customers
A material source of the Company's customers for its core
communications business is the commercial marine industry. Two
customers, Tidewater Inc. and Kirby Corporation, represented 18%
and 12%, respectively, of the Company's total sales in 1997. The
loss of either one of these customers could have a material
adverse effect on the Company. In addition, the BOATRACS
Gulfport Division derives significant portions of its revenues
from Tidewater Inc. (45% of MED's total revenues for the last two
months of 1997). For the nine month period ended March 31, 1998,
Enerdyne has relied on two customers, i.e. Tadiran Spectralink,
Inc. and Intelect Network Technologies, Inc., which represented
25% and 16%, respectively, of Enerdyne's revenues.
The major customers may change yearly as they are calculated on
total revenues including sales of communications systems, video
transmission products and other Company products. Purchases of
communication systems and video transmission products 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.
In addition, the BOATRACS Gulfport division provides software
solutions to communication customers of the Company.
Agreements
Agreements with 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 (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 the Company is in full compliance with the terms of the
Distribution Agreement) for a total of twenty years through 2010.
The first option to extend has been exercised by the Company.
The Distribution Agreement calls for the negotiation in good
faith of a new agreement upon the expiration of the last option.
Under the Distribution Agreement, the Company has exclusive
rights to distribute the OmniTRACS System for marine application
and to provide messaging services to end users of such products
for marine application within the coastal waters of the United
States (as defined in the Distribution Agreement) of the Atlantic
and Pacific Oceans.
Under the Distribution Agreement, the Company 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. 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. The requirements were
met for the years ended December 31, 1997 and 1996.
QUALCOMM, a public company with fiscal year ended September 30,
1997 revenues in excess of $2,096 million and current
capitalization in excess of $3.0 billion, is a leader in digital
wireless communications technologies. In the United States,
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. In the United States, 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 it subject to the terms
of the Distribution Agreement. Warranties for a specified period
are passed on to the Company's customers. Extended warranties
may be purchased at an additional cost.
If the Company desires to sell its core maritime communications
business, QUALCOMM has a right of first refusal under the
Distribution Agreement to purchase the Company's business on the
terms of the sale to the proposed transferee.
QUALCOMM's obligation to provide messaging services pursuant to
the Distribution Agreement was contingent upon, among other
things, receiving a permanent license from the FCC to operate the
OmniTRACS System for marine application. This license was
granted to QUALCOMM, effective January 3, 1997, which added
marine capability to use with the OmniTRACS system for up to
100,000 MCTs for a term of 10 years. In addition, the
International Telecommunications Union ("ITU") approved the Ku-
band frequency which OmniTRACS uses for mobile use including
marine applications.
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 the
Company six months prior notice. If QUALCOMM elects to terminate
the Distribution Agreement, QUALCOMM must take reasonable and
necessary steps to enable the Company to continue to provide
messaging services to its end users. The Company 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 Agreement and the Distribution Agreement. The
transaction was recorded as a note receivable for Common Stock
issued which is reduced as discounts are earned. Through June
30, 1998, a total of $737,000 in discounts had been earned
reducing the note receivable balance to zero.
Sub-Service Provider Agreement with ALCATEL QUALCOMM
In March, 1997, the Company's wholly-owned subsidiary BOATRACS
(Europe) B.V. signed a five year Sub-Service Provider Agreement
with ALCATEL QUALCOMM, a French company, which is a joint venture
company between the ALCATEL Group and QUALCOMM. The agreement
appoints BOATRACS (Europe) B.V. to be the maritime distributor
and to provide maritime satellite-based communications and
tracking of vessels to certain countries in Europe on a similar
basis that the Company operates in the United States.
Agreement with CANCOM
In April, 1998, the Company signed an extension to its agreement
with CANCOM Mobile, a Canadian Company, for the exclusive
maritime distribution rights of OmniTRACS in Canada for a period
ending January 1, 1999.
Service Provider Agreement with ALCATEL QUALCOMM
In May, 1998, the Company's wholly-owned subsidiary BOATRACS
(Europe) B.V. entered into a Sub-Service Provider Agreement with
ALCATEL QUALCOMM, a French company, which is a joint venture
company between the ALCATEL Group and QUALCOMM. The Agreement
appoints BOATRACS (Europe) as the maritime service provider for
the countries in Europe specified in the Sub-Service Provider
Agreement for a period of five years.
Service Provider Agreement with Iceland Telecom
In July, 1998, the Company's wholly-owned subsidiary BOATRACS
(Europe) B.V. entered into a Sub-Service Provider Agreement with
Iceland Telecom, an Icelandic company, which is the EUTELSAT
signatory for Iceland. The Agreement appoints BOATRACS (Europe)
B.V. to be the maritime service provider of the EUTELTRACS
service for Iceland and its territorial waters.
Service Provider and Agency Agreements with British Telecom
In July, 1998, the Company entered into agreements with British
Telecom to become an Inmarsat Service Provider and Agent of
Inmarsat services offered through British Telecom's Land Earth
Stations.
Regulation
Domestic Operations
The Company's products are subject to various FCC regulations in
the U.S. These regulations require that the Company's
communications products meet certain radio frequency emission
standards and not cause unallowable interference to other
services. 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 pursued
a Petition for Rulemaking which it filed with the FCC in 1992 to
amend the Table of Frequency Allocations permitting 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.
International Operations
The Company intends to continue its expansion into additional
international markets. In countries which QUALCOMM has an
affiliated OmniTRACS service provider, the Company believes that
such affiliate or the Company will attempt to secure the
necessary regulatory approvals, licenses and/or permits and
renewals thereof 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, licenses and/or permits and renewals
thereof. No assurance can be given that the Company will be able
to obtain the required approvals, licenses and/or permits and
renewals thereof. The Company, though its BOATRACS (Europe) B.V.
subsidiary, maintains a sales and customer support office and
network center in Leiden, The Netherlands. Currently the Company
has MCTs installed on vessels in a number of countries in Europe.
Additional Products
The Company continues to develop new software products to
complement the Company's product line. This software is sold to
the Company's customers under the Company's proprietary names.
The Company is seeking strategic alliances with companies that
have a proven product or service in the marine market. In
addition, the Company uses its commercially reasonable best
efforts 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. The
Company continues to explore ways to economically enhance 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 March, 1998, the Company amended the 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 on a non
exclusive basis to the worldwide marine market if and when such
services become commercially available. The LEO system, if it
proves successful, will complement the Company's present
services. ORBCOMM estimates the system will be operational during
late 1998 or 1999.
The Company is in the process of finalizing an Agreement whereby
the Company will become an Inmarsat Service Provider and Agent.
As an Inmarsat Service Provider and Agent of Inmarsat services,
the Company will be able to provide global coverage to customers.
See - "Risks of Offering New Services."
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.
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 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. On March 11, 1998, The BOATRACS System was
certified by NMFS and enforcement commenced in May, 1998. The
Company believes that the sales potential in the domestic scallop
and ground fishing industries are still difficult to forecast.
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. As an
Inmarsat Service Provider, the Company could expand its
geographic service offerings globally.
Canada. In September, 1996, the Company entered into a joint
venture agreement with Systems providing for the establishment
of Oceantrac which was a Canadian subsidiary of Systems. Under
the terms of the agreement, Oceantrac acted 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. Effective July
1, 1998, the Company acquired all of the outstanding shares in
Oceantrac. The acquisition was effected by the exercise of the
Company's rights under a Joint Venture Agreement entered into
among the Company, Oceantrac and Systems during 1996. In
addition the Company purchased all of the assets of Systems for
consideration of 5,000 shares of the Company's Common Stock.
The total consideration of $506,000 included the recording of
intangibles of $433,000 which will be amortized by the Company
over ten years.
In December, 1997, Systems signed a Memorandum of Understanding
with the Department of National Defense of Canada which defines
their relationship in search and rescue operations ("SAR").
Within the Canadian Federal SAR system, there is a requirement
for a single Initial Point of Contact (IPOC) for service
providers like Systems. The Memorandum of Understanding
establishes the Rescue Coordination Center (RCC) in Halifax,
Canada, as the IPOC for marine emergency calls received by
Systems and outlines the procedures for Systems to forward
information to RCC Halifax and to assist in resolving SAR cases.
The Memorandum of Understanding has been assigned to the Company.
Europe. BOATRACS (Europe) B.V. has currently established a
network center, sales and customer support office in The
Netherlands to offer the BOATRACS System in the European and
Mediterranean markets. Except for anticipated modifications to
incorporate European maps, only minimal product changes or
enhancements are necessary to enter the European market. The
success of BOATRACS (Europe) B.V. in Europe is in part dependent
upon identifying or developing software solutions and providing
them to the market in a timely manner. The largest customer of
BOATRACS (Europe) B.V. is in Germany and it continues to offer
the BOATRACS System as evaluation units to demonstrate the value-
added message relaying and monitoring services that the Company
could provide to the maritime industry in certain areas of
Europe.
The Company intends to focus on three key market sectors in
Europe: fishing, coastal and inland towing. BOATRACS (Europe)
B.V. 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 network services
on demand and to 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, the Company 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
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 which sell to the end user. The
representatives provided the Company with introductions to the
marine market. However, with few exceptions, the Company 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 and its field sales representatives.
Although some dealers provide excellent local service, the
Company assigns salespeople to geographic areas where there is a
concentration of potential customers. In addition, the Company
is continually seeking relationships with third-party
distributors which 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 salesperson. In the New England
and Atlantic fishing markets the Company has agreements with ten
dealers.
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 currently
generally competitive with respect to each of these factors.
However, the Company's competitors are aggressively pricing their
products and will likely continue to do so in the future. In
addition, these competitors are offering new value-added products
and services similar to those developed or being developed by the
Company or QUALCOMM. Emergence of new competitors, particularly
those offering lower cost products, enhancements, additional
features and Low-Earth Orbit (LEO) satellite communications
systems, may impact margins and intensify competition in new
markets. Two LEO systems are soon to be commercially available,
IRIDIUM and Gobalstar. Due to their unproven capabilities, the
Company is not sure how their products and services will compete
directly against the Company's existing products and services.
The Company is exploring ways to compete and/or offer these new
generation of products and services. However, the new
competition could have a material impact upon the Company's
business.
The following is an overview of certain products and services
that compete with the Company's communications 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 it 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 February, 1999.
The BOATRACS System cannot become GMDSS approved because the
BOATRACS System's coverage is not global. The Company is at a
disadvantage without such approval. EUTELSAT, a European
organization, has lobbied 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.
H F Radio. At least one competitor, Globe Wireless, Inc., now
operates a network of H F radio stations that allow for email
capabilities and transfer of data files. Globe Wireless, Inc.,
states that its system operates "much like a digital cellular
network except it is worldwide". Globe Wireless, Inc., competes
directly with the Company and its advertised world wide coverage
appears to be extremely appealing to the marketplace. They have
also advertised the ability to deliver software system solutions
for its customers. The Company is uncertain whether H F radio is
as dependable as satellite communications.
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 relatively more expensive. 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, in the United States, 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, the European
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.
Video Compression Products. The Company's subsidiary, Enerdyne,
competes with a limited number of companies in its current
markets each of which provides one or more products offered by
the Company and some of which have access to greater financial
resources. The following are significant competitors to the
Enerdyne products and services:
L-3 Communications Corp. Formed in 1997 by Lockheed Martin,
Lehman Brothers Capital Partners 111 and ex-Loral Crop.
management. The Conic Division of this Company provides numerous
components/products for the military and aerospace markets
including video compression/expansion systems and
encryption/decryption modules. L-3 Communications is also a
customer of Enerdyne, purchasing video compression products and
integrating them with L-3 Communication products for sale in the
defense and aerospace industries.
Aydin Corporation. Aydin Corp. produces a line of data
acquisition products including airborne and ground systems for
gathering, processing, formatting, and transmitting information
related to satellites, spacecraft, aircraft and missiles. Their
products include a line of rugged airborne and ground station
telemetry products capable of capturing and transmitting digital
video.
Delta Information Systems. Delta produces a number of video
related products including encoders and decoders. Certain Delta
products are purchased by Aydin Corp. and integrated into the
systems of Aydin Corp. which are sold to the Department of
Defense.
Tektronix, Inc. is a global electronics company that offers
numerous products to the computer, aerospace and communications
industry. It produces video transmission products for the
conferencing, surveillance, intelligent highway/traffic markets
including video encoders and decoders.
Canadian Marconi Company produces electronics products for the
avionics, communications, transportation and specialized
electronics industries including video capture, transmission and
display product which are marketed to government agencies for
surveillance and highway monitoring.
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.
Enerdyne currently holds one patent in the United States, Patent
Number 5633686 for an Adaptive Digital Video System. The patent
covers a system in which a decoder at a receiving station for a
digitally encoded signal is able to automatically adapt to
varying formats and operating modes. The method is independent
of the particular video format or compression scheme employed,
and functions with any transmission medium and bandwidth. The
patent was filed on September 14, 1994 and issued on May 27,
1997. Enerdyne currently has two trademarks: ADVS (Adaptive
Video Standard) and Passlink.
Employees
At September 15, 1998, the Company and its subsidiaries had 71
full-time and 5 part-time employees.
Facilities
The Company conducts its operations from a leased 12,700 square
foot facility in San Diego, California. The lease expires in
December, 2002. The Company also leases a 9,800 square foot
building in Santee, California for its Enerdyne subsidiary which
expires in July 1999, and a 2,507 square foot facility in
Gulfport, Mississippi which expires in January, 2000. BOATRACS
(Europe) B.V. operates from a facility in Leiden, The
Netherlands, pursuant to a lease expiring in December, 2001.
Legal Matters
On April 9, 1998, the Company filed a complaint in the United
States District Court, Southern District of California (the
"California Action") against Seacor Marine, Inc. ("Seacor
Marine") and Globe Wireless, Inc. ("Globe") seeking damages and
injunctive relief for copyright infringement, unfair competition
and declaratory relief arising from the alleged infringement of
the Company's copyright registration No. TXU 799-191 (the
"Boatracs Software"). The Company has filed a motion to amend
its complaint in the California Action to include Seacor Smit
Inc. ("Seacor Smit") as a defendant in the California Action.
The Boatracs Software formed part of the assets acquired from
MED. On May 8, 1998, Seacor Marine and Globe filed a lawsuit in
the District Court of Harris County, Texas (the "Texas Action")
against the Company, Summerwood, Inc. and Charles J. Drobny, Jr.
asserting causes of action and seeking damages and injunctive
relief for misappropriation of trade secrets, misappropriation of
confidential business information, conversion, breach of contract
and unfair competition.
The Company has entered into a Compromise Settlement Agreement
and Mutual Release (the "Agreement") with Seacor Marine, Seacor
Smit and Globe. Under the terms of the Agreement, Seacor Marine,
Seacor Smit and Globe acknowledge the Company's ownership and
title to the Boatracs Software are subject to certain terms and
conditions specified in the Agreement. In addition, the Company
has acknowledged and agreed to Globe's ownership and title to
certain software programs known as GlobeOffshore subject to
certain terms and conditions specified in the Agreement. Except
for the obligations specified in the Agreement, the parties have
agreed to release one another from any claims asserted by the
parties in both the California and the Texas Action. The
financial obligations of the Company in this matter are limited
to legal fees of approximately $35,000.
MANAGEMENT
The executive officers and directors of the Company and their
ages as of August 15, 1998 are as follows:
Name Age Position
Michael Silverman 54 Chairman, Director
Jon Gilbert 54 President, Chief Executive Officer,
Director
Annette Friskopp 34 Executive Vice President, Director
Giles Bateman 53 Director
Luis Maizel 47 Director
Mitchell Lynn 49 Director
Daniel Negroni 32 Vice President, Business
Development and Domestic Sales
Charles Drobny, Jr. 47 Vice President, Application
Development
Curt McLeland 34 Chief Financial Officer
Peter Carides 32 Managing Director, Boatracs
(Europe) B.V.
Scott Boden 37 Director, Chief
Technology Officer, Enerdyne
Technologies, Inc.
Irene Shinsato 42 President,
Enerdyne Technologies, Inc.
Mr. Silverman formed BOATRACS, Inc. in 1990 ("Old BOATRACS") and
served as its Chairman, Chief Executive Officer, President and a
director of that company from its inception until the merger of
Old BOATRACS with the Company (the "Merger") on January 12, 1995,
at which time he assumed the same positions with the Company.
Mr. Silverman served the Company as President and Chief Executive
Officer until October, 1997. Mr. Silverman is a Chartered
Accountant (South Africa) and received a Master of Business
Administration degree from Stanford University.
Mr. Gilbert joined the Company as its President, Chief Executive
Officer and director in October, 1997. Mr. Gilbert was with
Maintenance Warehouse the previous 12 years and held several
executive positions, including the title of Chief Executive
Officer. Mr. Gilbert earned a Bachelor of Science Degree from
UCLA. In addition to being a Certified Public Accountant, he
holds a Masters in Accounting Degree.
Ms. Friskopp joined Old BOATRACS in 1991 as Senior Vice President
of Production, Development and Operations and assumed her present
positions with the Company following the Merger. Prior to
joining Old BOATRACS, Ms. Friskopp attended Harvard Business
School where she earned a Master of Business Administration. Ms.
Friskopp holds a Bachelor of Science degree in Accounting with
emphasis on International Business from the University of
Nebraska and she has credits from other universities for her
studies in Europe and Asia. She is a Certified Public Accountant
and previously worked in the audit division of Price Waterhouse.
Mr. Bateman was elected a director of Old BOATRACS in 1994 and
became a director of the Company upon the Merger. Since 1991, Mr.
Bateman has served as a director of Comp USA, a superstore
computer retailer, and has served as that company's chairman
since 1993. Mr. Bateman was a co-founder of The Price Company
and served as chief financial officer and a director of that
company from 1976 to 1991 and as vice chairman from 1986 to 1991.
Mr. Bateman holds a Bachelor of Arts Degree in Jurisprudence,
from Oxford University, England, and a Master of Business
Administration from Harvard Business School.
Mr. Maizel became a director of the Company in October, 1995. For
more than the past five years, Mr. Maizel has been president of
LM Advisors and LM Capital Management, both money management
firms, and a board member of several financial and commercial
corporations in the U.S. and Mexico. He was born and raised in
Mexico City, holds a Bachelor of Science Degree in Mechanical
Electrical Engineering, a Master of Science in Industrial
Engineering from the National University of Mexico and an Master
of Business Administration from Harvard Business School where he
also was a faculty member.
Mr. Lynn became a director of the Company in June, 1997. He is
also President and Managing Director of Combined Resources
International, a manufacturer of picture frames and other items.
Mr. Lynn was President of The Price Company, a San Diego based
warehouse club retailer from 1990-1993 and later senior executive
vice president of Price/Costco until he resigned in 1994. He is
a California Certified Public Accountant and holds Bachelor of
Arts Degree in Economics and a Master of Business Administration
from UCLA.
Mr. Negroni joined the Company in October, 1997 as Vice President
of Business Development and Domestic Sales. Prior to joining the
Company, Mr. Negroni was with Seltzer Caplan Wilkins & McMahon
where he focused on business transactional law within the high
technology industry. From 1993 to 1995, he held the position of
Vice President, Sales and Marketing, at Dearan Imports. Mr.
Negroni holds a Bachelor of Science in Business Administration
from Boston University and a Juris Doctorate degree from
Georgetown University Law Center in Washington, D.C.
Mr. Drobny joined the Company in November, 1997 as Vice
President, Application Development when the Company purchased
MED. Mr. Drobny started MED as Management Engineering Design in
September, 1993. Prior to 1993, Mr. Drobny was Vice President
and General Manager of Genesis Systems in Bay St. Louis, a
manufacturer of marine information systems.
Mr. McLeland joined the Company in March, 1998 as Chief Financial
Officer. Prior to joining the Company Mr. McLeland held the
position as Chief Financial Officer at a San Diego internet
service provider. From 1994 to 1996 Mr. McLeland held the
position as Chief Financial Officer at RJR Horizons, Inc., a San
Diego company which owns multiple software training franchises.
From 1990 to 1993 Mr. McLeland was in the audit department of
KPMG Peat Marwick, San Diego. He holds a Bachelor of Science in
Accounting from San Diego State University.
Mr. Carides joined the Company in March, 1998 as Managing
Director of the Company's wholly owned subsidiary, Boatracs
(Europe) B.V. Prior to joining the Company Mr. Carides had four
years technical and eight years of management responsibilities in
Hong Kong. He held the position of Executive Director with
Brightpoint China Ltd from July, 1996 to early 1998 with SafKong
Holdings Ltd., from 1993 to early 1998 and with Technology
Resources International Ltd. from 1994 through 1996. He holds a
Master of Business Administration from the University of Michigan
and a Bachelor of Science in electrical engineering from the
University of the Witwatersrand, South Africa.
Mr. Boden was elected as a director on September 2, 1998. Scott
Boden founded Enerdyne in 1984 and was Enerdyne's CEO and Chief
Technology Officer until July, 1998 when the Company purchased
Enerdyne. Prior to founding Enerdyne, Mr. Boden was a designer
of video products for Cinematronics Inc. Mr. Boden attended San
Diego State University. Mr. Boden remains Chief Technology
Officer of Enerdyne.
Irene Shinsato has served as President of Enerdyne since 1993.
Prior to joining Enerdyne, Ms. Shinsato owned a public accounting
practice, Irene Shinsato CPA, for nine years and was previously
with Price Waterhouse. Ms. Shinsato has a BS from San Diego
State University and is a Certified Public Accountant.
There are no family relationship between any of the Company's
directors and officers. There are no arrangements or
understandings between any director or executive officer and any
other person pursuant to which any person has been elected or
nominated as a director or executive officer. All directors and
executive officers serve for a term of one year until the next
Annual Meeting of Shareholders.
During the year ended December 31, 1997, the Board held four
meetings where all directors were present except Ms. Friskopp who
missed two meetings and Mr. Maizel and a former director, Julius
Trump, who each missed one meeting. The Company presently has a
Compensation Committee of the Board consisting of Giles Bateman
and Mitchell Lynn. The Compensation Committee's primary function
is to establish compensation for employees and to effect
promotions. The Audit Committee, consisting of Michael Silverman,
Giles Bateman, Luis Maizel and Mitchell Lynn, advises the Board
as to the selection of the Company's independent accountants.
During 1997, the Compensation Committee met three times and the
Audit Committee did not meet, although audit issues were
discussed by the committee at a regular Board meeting.
Executive Compensation
The following table sets forth for the years indicated certain
compensation of the Company's Chairman and the persons occupying
the office of Chief Executive Officer and the Company's executive
officers who actually earned or who were paid on a basis of more
than $100,000 in salary and bonuses in such years.
SUMMARY COMPENSATION TABLE
Name and No. of shares
Principal Position Year Salary Bonus underlying
Options
Michael Silverman 1997 $103,291(1) $0
Chairman, Director 1996 $100,000 $0
1995 $100,000 $0
Jon Gilbert 1997 $26,154(2) $0
President, Chief
Executive Officer,
Director
Annette Friskopp 1997 $130,769 $49,350
Executive Vice 1996 $124,961 $31,950 250,000
President, 1995 $107,654 $31,800
Director
Daniel Negroni 1997 $19,885(2) $0 100,000
Vice President,
Business
Development and
Domestic Sales
Charles Drobny, 1997 $25,000(3) $0
Jr.
Vice President,
Applications
Development
________________
(1) Mr. Silverman was the president and chief executive
officer of the Company until October, 1997. He currently
serves as Chairman of the Board at an annual salary of
$120,000.
(2) Mr. Gilbert and Mr. Negroni joined the Company during
October, 1997. Mr. Gilbert's annual salary is $120,000 and
Mr. Negroni's annual salary is $120,000.
(3) Mr. Drobny became Vice President effective November 1,
1997 through an acquisition of his company, MED Associates,
Inc. Mr. Drobny's annual salary is $150,000.
The Company entered into an employment agreement with Michael
Silverman, effective January 1, 1995. Under the agreement, Mr.
Silverman's annual base compensation was $100,000 subject to
increases in the Board's discretion. Mr. Silverman's base
compensation is currently $120,000 annually. The employment
agreement automatically renews for successive one-year periods
unless terminated, and is terminable by the Company at any time
for good cause as defined in the agreement.
In connection with the Restricted Stock Purchase Agreement
between the Company and Jon Gilbert described below under
"Certain Transactions," in the event that the Board of Directors
terminates the employment of Mr. Gilbert without cause, Mr.
Gilbert may require the Company to repurchase up to 1,840,252
shares of Common Stock for a price equal to the outstanding
principal and interest due under the Promissory Note entered into
in connection with the transaction.
In connection with the Company's purchase of MED in November,
1997, the Company entered into a four-year employment agreement
with Charles Drobny, Jr., MED's founder. Under the terms of the
employment agreement, Mr. Drobny will be paid base compensation
of $150,000 for two years commencing November 1, 1997 and
$180,000 for the following two years. Mr. Drobny may receive, at
his election, up to $30,000 per year in the form of shares of the
Company's Common Stock for the first two years, and up to $60,000
per year in the form of shares of common stock for the second two
years.
The Company entered into an Addendum to Stock Issuance/Employment
Agreement effective January 21, 1991, and amended July, 1995,
whereby Annette Friskopp's salary from April to December, 1995
was $108,000 and after December, 1995 increased to $120,000 per
annum. In addition, beginning January, 1995, she became entitled
to a bonus for each unit sold to an end user. In addition, the
agreement granted Ms. Friskopp an option to acquire 100,000
additional shares of Common Stock, which has been treated as
being a grant pursuant to the Company's 1996 Stock Option Plan at
a price equal to the fair market value of such shares on the date
of grant. In December, 1996 Ms. Friskopp was awarded an option
to purchase 150,000 shares of Common Stock at an exercise price
of $1.125 per share. The options will vest 20% annually over
five years. Although Ms. Friskopp retains her current positions,
the foregoing agreements were terminated effective December 31,
1997.
The following table sets forth the information concerning
individual grants of stock options and appreciation rights during
the last fiscal year to the Company's Chief Executive Officer and
the executive officers of the Company who earned more than or
were paid on the basis of more than $100,000 last year.
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Percent of
Number of Total
Securities Options
Underlying Granted to Exercise or
Name Options Employees Base Price Expiration
in Fiscal Granted (#)
Year
($/Share)
Michael --- --- --- ---
Silverman
Jon Gilbert --- --- --- ---
Annette --- --- --- ---
Friskopp
Daniel Negroni 100,000 85% $1.25 2004
Charles --- --- --- ---
Drobny, Jr.
The following table sets forth the information concerning each
exercise of stock options during the last fiscal year by each of
Company's Chief Executive Officer and the executive officers of
the Company who earned more than or were paid on the basis of
more than $100,000 last year, and the fiscal year value of
unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of
Securities Value of
Shares Underlying Unexercised In-
Acquired Value Unexercised The-Money
Name on Realized Options at FY- Options at FY-
Exercise ($) End (#) End ($)
(#) Exercisable/ Exercisable/
Unexercisable Unexercisable
Michael --- --- --- ---
Silverman
Jon Gilbert --- --- --- ---
Annette --- --- 50,000/200,000 $68,125/272,500
Friskopp
Daniel Negroni --- --- 0/100,000 $0/118,750
Charles --- --- --- ---
Drobny, Jr.
Compensation Committee Interlock and Insider Participation
During fiscal year 1997, Michael Silverman, an officer of the
Company, served on the Compensation Committee and participated in
Board deliberations concerning executive officer compensation.
Director Compensation
Through May, 1998, non-employee directors of the Company each
received $500 for each Board meeting they attended. Non-employee
directors currently receive stock options to purchase Common
Stock as compensation for Board meetings. Non-employee
directors, Messrs. Bateman and Maizel, have each received options
to purchase 10,000 shares of Common Stock at an exercise price of
$1.00 per share and options to purchase 10,000 shares of Common
Stock at an exercise price of $1.25 per share. Mr. Lynn and Mr.
Trump received options to purchase 10,000 shares of Common Stock
at an exercise price of $1.19 per share. Messrs. Bateman and
Lynn received 10,000 Common Stock purchase warrants, each
exercisable at $2.44 per share. Messrs. Bateman, Maizel and Lynn
each received options to purchase 25,000 shares of Common Stock
each exercisable at $4.63 per share.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who
beneficially own more than 10% of the Company's stock, to file
initial reports of ownership and reports of changes in ownership
with the Securities and Exchange Commission. Executive officers,
directors and greater than 10% beneficial owners are required by
applicable regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished
to the Company and information involving securities transactions
of which the Company is aware, the Company believes that during
the fiscal year ending December 31, 1997, all Section 16(a)
filing requirements applicable to its executive officers,
directors and greater than 10% beneficial shareholders were
complied with.
CERTAIN TRANSACTIONS
The Company has a number of contractual relationships with
QUALCOMM, which owns 1,112,265 shares (5.9%) of the outstanding
Common Stock.
The Company entered into a License Agreement and Distribution
Agreement dated June 13, 1990, which grants the Company certain
exclusive rights to distribute QUALCOMM's OmniTRACS System for
marine applications in the coastal waters of the United States
and the Atlantic and Pacific Oceans. This agreement has been
amended from time to time. The agreement has an initial term of
five years and three five-year extensions. The Company exercised
its first extension in 1995, which will continue until 2000. See
"Business -- Agreements."
The Company also entered into a License Agreement with QUALCOMM
in March, 1995, which requires QUALCOMM to pay to the Company a
per copy royalty for certain interface software developed and
owned by the Company as an enhancement to the OmniTRACS System.
The License Agreement terminates upon termination of the License
and Distribution Agreement. See "Business -- Agreements."
In March, 1997, the Company's wholly owned subsidiary Boatracs
(Europe) B.V. signed a five year Sub-Service Provider Agreement
with ALCATEL QUALCOMM, a French joint venture company of the
ALCATEL Group and QUALCOMM. The agreement appoints Boatracs
(Europe) to be the maritime distributor of the OmniTRACS system
in certain European countries under a similar basis that BOATRACS
operates in the United States. See "Business -- Agreements."
During 1995, the Company entered into a note receivable agreement
with Michael Silverman, then the Company's President and Chief
Executive Office, under which the Company agreed to advance up to
$369,230. Advances were secured by an agreed upon offset to Mr.
Silverman's deferred compensation. The advances bore interest at
5.5% and were due on demand. Mr. Silverman's deferred
compensation and the note were fully repaid on December 31, 1997,
in accordance with the note receivable agreement.
In October, 1997, the Company entered into a Restricted Stock
Purchase Agreement with Jon Gilbert, the Company's current
President and Chief Executive Officer, and a related Promissory
Note and Pledge Agreement. Under the Restricted Stock Purchase
Agreement, Mr. Gilbert purchased 2,900,000 shares of Common Stock
for $2,320,000 ($.80 per share). Mr. Gilbert paid $389,085 in
cash and the remaining $l,930,915 by a promissory note bearing
interest at a rate of 5.77%. The promissory note was secured by
a pledge of 2,416,665 of the purchased shares and shares are
proportionately released from pledge as the note is partially
paid. The note was payable in five semi-annual installments of
$420,241, and was to be paid in full on April 15, 2000. Mr.
Gilbert prepaid approximately $80,000 of the note with his first
semi-annual installment, and the note was modified to decrease
his next semi-annual installment due October 15, 1998, to
$338,519. During June 1998, the note and accrued interest was
purchased by an outside party at a discount of $44,274 which was
recorded as a deduction to the common stock originally issued.
See also "Executive Compensation."
Effective November 1, 1997, the Company purchased certain assets
and liabilities of MED for $500,000 cash, and 300,000 shares of
Common Stock. The stock payment is subject to an option in favor
of the Company which is exercisable if MED does not achieve a
certain target earnings level for the 1998 fiscal year, whereby
the Company may repurchase for a nominal price one share of such
stock for every dollar by which MED earnings fall short of the
target. Charles Drobny, Jr., MED's founder, became Vice
President, Application Development of the Company.
On July 7, 1998 the Company purchased Enerdyne, a provider of
versatile, high performance digital video compression products to
the government and commercial markets. Enerdyne is located in
Santee, California. The acquisition price of $22.6 million was
paid for by a combination of cash, Common Stock and notes
payable. Goodwill in the amount of $2.7 million was recorded and
will be amortized over ten years. The two shareholders of
Enerdyne signed employment contracts with the Company as follows:
Scott Boden has been engaged for a two year term as Enerdyne's
Chief Technology Officer and Irene Shinsato has been engaged for
a one year term as President of Enerdyne. Both will receive an
annual salary of $120,000 and both received a stock option to
purchase 500,000 shares of the Company's Common Stock at $2.00
per share with a vesting term conforming to the term of their
employment contracts.
Effective July 1, 1998 the Company exercised its option to
acquire Oceantrac and certain assets of Systems, with whom it has
had a joint venture agreement since 1996, to provide services to
the Company in certain Canadian areas. The acquisition
consideration of approximately $506,000 was effected through the
exercise of a stock option and warrant agreement pursuant to a
joint venture agreement and conversion of a note receivable in
the amount of approximately $433,000. Intangibles of $433,000
were recorded and will be amortized over ten years.
Most of the foregoing transactions were entered into with the
respective related parties prior to each becoming a related
party, and were the result of arm's length negotiations.
Agreements between the Company and QUALCOMM continue to be
negotiated on an arm's length basis between the parties. To the
extent any of the foregoing transactions were determined without
arm's length negotiations, the Company believes that they were
entered into on terms no less favorable to the Company than could
have been obtained from independent third parties.
PRINCIPAL SHAREHOLDERS
Set forth below is certain information concerning the ownership
of the Company's Common Stock as of September 1, 1998 by (i) all
persons known to the Company to be beneficial owners of more than
5% of the outstanding Common Stock, (ii) each director of the
Company, (iii) each executive officer of the Company, and (iv)
all executive officers and directors of the Company as a group.
Except as otherwise indicated, and subject to applicable
community property and similar laws, the persons named have sole
voting and investment power with respect to the securities owned
by them.
Number of Shares Percent of
Name and Address of Beneficially Outstanding
Shareholder (1) Owned Shares
QUALCOMM Incorporated 1,112,265 6%
6455 Lusk Boulevard
San Diego, CA 92121
Michael Silverman 3,948,317 21
Jon Gilbert 3,836,800 (2) 20
Annette Friskopp 447,931 2
Giles Bateman 679,825 4
Luis Maizel 104,921 (3) *
Mitchell Lynn 139,500 (4) *
Daniel Negroni 35,000 *
Charles Drobny, Jr. 308,000 (5) 2
Curt McLeland 0 *
Peter Carides 0 *
Scott Boden 1,709,575 (7) 9
Irene Shinsato` 1,709,575 (7) 9
All Directors and Executive 9,326,294 67%
Officers as a group
(12 persons) (6)
(1) The address for all directors and executive officers is
10675 Sorrento Valley Road, Suite 200, San Diego,
California, 92121.
(2) Includes 236,800 shares held in a Family Trust of which Mr.
Gilbert is a trustee. Does not include a total of 20,000
shares held by Mr. Gilberts's children for which Mr. Gilbert
disclaims beneficial ownership.
(3) Includes 83,600 shares held by the Maizel Family Trust of
which Mr. Maizel is a trustee and 15,321 shares held in a
Retirement Plan for which Mr. Maizel is a trustee.
(4) Includes 30,000 shares held in trust for children which Mr.
Lynn disclaims beneficial ownership of. The number also
includes 50,000 options issued under a Non-Circumvention
Agreement dated January 9, 1996 at $1.50 per share.
(5) 300,000 of the shares represent restricted stock granted
under an agreement. These shares are subject to repurchase
under certain conditions.
(6) Includes shares issuable upon the exercise of options or
warrants within sixty days of August 1, 1998, as follows:
Ms. Friskopp, 70,000 shares; Mr. Bateman, 16,000 shares;
Mr. Lynn, 12,000 shares, Mr. Negroni 20,000 shares, and Mr.
Maizel, 6,000 shares. These options are also included in
the total shares shown above for the individuals.
(7) Represents 1,465,350 shares which were issued to prior
shareholders of Enerdyne as part of the purchase price.
These shares are not currently tradable and are part of this
registration statement. Also includes warrants to purchase
244,225 shares at $2.00 per share which are included in this
registration statement.
* Less than 1%
SELLING SHAREHOLDERS
The following table sets forth the number of Shares of Common
Stock beneficially owned by each of the Selling Shareholders.
Except as otherwise specified below, all Shares owned by the
Selling Shareholders are being registered. Except as otherwise
specified below, each of the Selling Shareholders has sole voting
and investment power with respect to the Shares, subject to
applicable community property and similar laws.
Name of Selling Shareholder Shares
QUALCOMM Incorporated 1,112,265
International Project Management 24,600
The Gilbert Family Trust (1) 144,200
Jon Gilbert (2) 3,690,000
Jennifer Gilbert (3) 10,000
Karly Gilbert (3) 10,000
Pamela & Jack Saxton 3,000
R. A. Payn 6,667
John Griffiths 2,333
Lang Morris 2,000
Burt R. Bondy Pension Plan & Trust, dated 10/9/84 60,000
E. M. Trust, dated 12/18/84 10,000
Esrock Living Trust 8,000
Jonathan Schewitz 15,339
Penelope Smith 6,666
Torrey Pines Securities (4) 25,000
Mitchell Lynn (5) 60,000
Norman Smith 15,000
Norman Solomon 5,000
Bank Insinger De Beuford N.V. 40,000
Julius Trump (6) 80,000
Richard Coates (7) 30,000
Giles Bateman (8) 10,000
Irene Shinsato (9) 2,209,575
Scott Boden (10) 2,209,575
Sol Price (11) 25,000
Gary Shields (12) 40,425
Carl Fredericks (13) 40,425
Glenn S. Nickerson 2,500
Job A.Crocker 1,250
Gaspesie Telecommunications 1,250
Total 9,900,070
_________________________
(1)Mr. Jon Gilbert, President, Chief Executive Officer and a
director of the Company is a trustee of the Gilbert Family
Trust. The Trust holds 236,800 shares, of which only 144,200
are being offered by this Prospectus.
(2)Includes 1,840,252 Shares which can only be sold under Rule
144. See "Certain Transactions" and "Management --Executive
Compensation."
(3)Jennifer and Karly Gilbert are children of Mr. Jon Gilbert.
Mr. Gilbert disclaims beneficial ownership of the Shares.
(4)Represents Shares issuable upon exercise of a warrant dated
October 31, 1995 to purchase 25,000 shares at $1.50 each.
The warrant was exercised in May, 1998.
(5)Represents Shares issuable upon exercise of options for
50,000 shares at $1.50 per share and exercise of warrants for
10,000 shares at $2.44 per share.
(6)Mr. Trump was a director of the Company. He resigned from
the Board in May, 1998.
(7)Represents Shares issuable under a warrant agreement at $1.50
per share.
(8)Represents Shares issuable under a warrant agreement at $2.44
per share.
(9)Includes 1,465,350 Shares issued as part of acquisition of
Enerdyne, warrants to purchase 244,225 shares and stock
options to purchase 500,000 shares of common stock.
(10) Includes 1,465,350 Shares issued as part of acquisition
of Enerdyne, warrants to purchase 244,225 shares and stock
options to purchase 500,000 shares of common stock.
(11) Represents Shares issuable upon exercise of a warrant
dated June 25, 1998.
(12) Represents 34,650 Shares issued for financial services
in connection with the purchase of Enerdyne and 5,775 Shares
issuable upon exercise of a warrant
(13) Represents 34,650 Shares issued for financial services in
connection with the purchase of Enerdyne and 5,775 Shares
issuable upon exercise of a warrant.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of
100,000,000 shares of common stock, no par value ("Common
Stock"), and 1,000,000 shares of Preferred Stock, no par value
("Preferred Stock").
Common Stock
As of September 1, 1998, there were 18,886,377 shares of Common
Stock outstanding held by approximately 310 holders of record.
The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the
shareholders, except that holders of Common Stock are entitled to
cumulative voting rights with respect to the election of
directors. In cumulative voting, the holders of Common Stock are
entitled to cast for each share held the number of votes equal to
the number of directors to be elected. Subject to preferences
that may be applicable to any shares of Preferred Stock issued in
the future, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding
up of the Company, holders of the Common Stock are entitled to
share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then
outstanding Preferred Stock. Holders of Common Stock have no
preemptive rights and no right to convert their Common Stock into
any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding
shares of Common Stock are fully paid and nonassessable.
Preferred Stock
The Board of Directors is authorized, subject to any limitations
prescribed by law, without further shareholder approval, to issue
from time to time up to 1,000,000 shares of Preferred Stock in
one or more series. Each such series of Preferred Stock will
have such number of shares, designations, rights, preferences,
privileges and restrictions as may be determined by the Board of
Directors, which may include, among others, dividend rights,
voting rights, redemption and sinking fund provisions,
liquidation preferences and conversion rights, which in any case,
could be superior to the rights associated with the Common Stock.
The purpose of authorizing the Board of Directors to issue
Preferred Stock and to determine its rights and preferences is to
eliminate delays associated with a shareholder vote on specific
issuances. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions
and other corporate purposes, could make it more difficult for a
third party to acquire, or could discourage a third party from
attempting to acquire, a majority of the outstanding voting stock
of the Company. The Company has no present plans to issue any
shares of Preferred Stock.
Limitation of Liability and Indemnification
Pursuant to provisions of the California Corporations Code,
Article V of the Company's Amended and Restated Articles of
Incorporation provides that the liability of the Company's
directors for monetary damages shall be eliminated to the fullest
extent permissible under California law.
Article VI of the Company's Amended and Restated Bylaws
authorizes the Company to indemnify its directors, officers,
employees and agents in certain circumstances against expenses,
judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with a proceeding arising out
of such person's service in such capacity, if that person acted
in good faith and in a manner that that person reasonably
believed to be in the best interests of the Company and, in the
case of a criminal proceeding, had no reason to believe was
unlawful. The Company is required to indemnify a director,
officer, employee or agent of the Company against expenses
actually and reasonably incurred in the event such person is
successful on the merits in the defense of any such claim.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act") may be
permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Transfer Agent and Registrar
Chase Mellon Shareholder Services is the transfer agent and
registrar for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 1, 1998, the Company had 18,886,377 shares of
Common Stock outstanding. Of these, approximately 13,396,883,
including all of the Shares offered by this Prospectus, will be
immediately eligible for resale in the public market without
restriction under the Securities Act, except that any shares held
by "affiliates" of the Company, as that term is defined in Rule
144 adopted under the Securities Act ("Affiliates"), may
generally only be resold in compliance with the applicable
provisions of Rule 144. Substantially all of the remaining
5,489,494 shares of Common Stock are held by directors and
executive officers of the Company and will be subject to the
volume limitations discussed below and certain other limitations.
In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated under this Rule with those of
others) whose restricted securities (as that term is defined in
Rule 144) have been fully paid for and meet the Rule's one-year
holding period provisions, including Affiliates of the Company,
may sell restricted securities in broker's transactions or
directly to market makers, provided the number of shares sold by
such person in any three-month period is not in excess of the
greater of 1% of the total number of shares of Common Stock then
outstanding or the average weekly trading volume for the four
calendar week period immediately prior to each such sale. The
Rule provides further that after restricted securities have been
fully paid for and meet the Rule's two-year holding period
provisions, such securities may be sold by persons who are not
Affiliates of the Company without regard to volume or manner of
sale limitations; however, in general, securities held by
Affiliates of the Company must continue, even after the two-year
holding period, to be sold in broker's transactions or directly
to market makers in such securities, subject to the volume
limitations described above. The foregoing is a brief summary of
certain provisions of Rule 144 and is not intended to be a
complete description thereof.
To date there has been a limited public trading market for the
Common Stock of the Company, and no prediction can be made as to
the effect, if any, that market sales of shares of Common Stock
or the availability of shares for sale will have on the market
price of the Common Stock prevailing from time to time.
Nevertheless, sales of significant numbers of shares of the
Common Stock in the public market could adversely affect the
market price of the Common Stock and could impair the Company's
future ability to raise capital through an offering of its equity
securities.
MARKET INFORMATION
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 forth high and
low bid quotations for the Common Stock as provided by the
National Association of Securities Dealers, Inc.:
High Bid Low Bid
Quarter Ended
Through August 31, $4.81 $3.34
1998
June 30, 1998 4.94 3.25
March 31, 1998 4.00 2.06
December 31, 1997 2.75 1.00
September 30, 1997 1.56 .94
June 30, 1997 1.50 .50
March 31, 1997 1.81 1.00
December 31, 1996 1.50 .63
September 30, 1996 1.50 .75
June 30, 1996 2.00 .75
March 31, 1996 .94 .75
On September 1, l998, the closing price of the Common Stock, as
reported on the OTC Bulletin Board, was $3.75. As of September
1, 1998, the Company had approximately 310 holders of record of
its Common Stock. The Company has not paid any dividends since
its reorganization 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.
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold by the Selling Shareholders
or by pledgees, donees, transferees or other successors in
interest (collectively with the Selling Shareholders, the
"Sellers") acting as principals for their own accounts. The
Company will not receive any of the proceeds of this offering.
The Sellers, directly or through brokers, dealers, underwriters,
agents or market makers, may sell some or all of the Shares. Any
broker, dealer, underwriter, agent or market maker participating
in a transaction involving the Shares may receive a commission
from the Sellers. Usual and customary commissions may be paid by
the Sellers. The broker, dealer, underwriter or market maker may
agree to sell a specified number of the Shares at a stipulated
price per Share and, to the extent that such person is unable to
do so acting as an agent for the Sellers, to purchase as
principal any of the Shares remaining unsold at a price per Share
required to fulfill the person's commitment to the Sellers.
A broker, dealer, underwriter or market maker who acquires the
Shares from the Sellers as a principal for its own account may
thereafter resell such Shares from time to time in transactions
(which may involve block or cross transactions and which may also
involve sales to or through another broker, dealer, underwriter,
agent or market maker, including transactions of the nature
described above) in the over-the-counter market, in negotiated
transactions or otherwise, at market prices prevailing at the
time of the sale or at negotiated prices. In connection with
such resales, the broker, dealer, underwriter, agent or market
maker may pay commissions to or receive commissions from the
purchasers of the Shares. The Sellers also may sell some or all
of the Shares directly to purchasers without the assistance of a
broker, dealer, underwriter, agent or market maker and without
the payment of any commissions.
The Company is bearing all of the costs relating to the
registration of the Shares (other than any fees and expenses of
counsel for the Selling Shareholders). Any commissions,
discounts or other fees payable to a broker, dealer, underwriter,
agent or market maker in connection with the sale of any of the
Shares will be borne by the Sellers. Any commissions paid or any
discounts or concessions allowed to any broker, dealer,
underwriter, agent or market maker and, if any such broker,
dealer, underwriter, agent or market maker purchases any of the
Shares as principal, any profits received on the resale of such
Shares, may be deemed to be underwriting commissions or discounts
under the Securities Act.
Pursuant to the registration rights granted to QUALCOMM in
connection with QUALCOMM's acquisition of Shares, the Company has
agreed to indemnify QUALCOMM and any person who controls QUALCOMM
against certain liabilities and expenses arising out of, based
upon or relating to information set forth in this Prospectus, and
the Registration Statement of which this Prospectus is a part,
including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby has
been passed upon for the Company by Solomon Ward Seidenwurm &
Smith, LLP, San Diego, California.
EXPERTS
The financial statements of the Company as of December 31, 1996
and 1997, and for each of the three years in the period ended
December 31, 1997 included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon
the report of such firm given upon their authority as experts in
accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1997
and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 through F-14
<PAGE>
DELOITTE & TOUCHE LLP LETTERHEAD
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Boatracs, Inc.:
We have audited the accompanying consolidated balance sheets of
Boatracs, Inc. (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1997. 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 consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally
accepted accounting principles.
February 20, 1998
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
CURRENT ASSETS:
Cash $392,712 $103,144
Investment securities 425,852
Accounts receivable - net 937,010 557,246
Inventories 234,092 92,118
Prepaid expenses and other assets 107,435 73,710
Total current assets 1,671,249 1,252,070
PROPERTY, at cost 223,863 120,731
NOTES RECEIVABLE 310,463 208,463
GOODWILL 830,917
TOTAL $ 3,036,492 $1,581,264
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,133,997 $729,923
Accrued expenses 265,276 66,743
Acquisition cost payable 250,000
Short-term margin loan on securities 139,268
Deferred compensation - net 45,129
Total current liabilities $ 1,649,273 $981,063
COMMITMENTS (Notes 5 and 9)
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, 15,806,977 and
12,602,310 shares issued and
outstanding in 1997 and 1996,
respectively 6,949,244 4,210,925
Notes receivable for common stock
issued (2,117,836) (421,422)
Accumulated deficit (3,444,189)(3,189,302)
Total stockholders' equity 1,387,219 600,201
TOTAL $3,036,492 1,581,264
See notes to consolidated financial
statements.
<PAGE>
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,1997, 1996 AND 1995
1997 1996 1995
REVENUES:
Communications systems $ 2,456,638 $ 1,427,822 $ 1,299,330
Data transmission &
messaging 2,790,903 2,073,360 1,367,354
Total revenues 5,247,541 3,501,182 2,666,684
COSTS AND EXPENSES:
Communications systems 1,615,929 913,064 900,980
Data transmission &
messaging 1,418,461 1,089,719 833,148
Selling, general and
administrative 2,505,190 2,461,018 1,610,861
Total costs and
expenses 5,539,580 4,463,801 3,344,989
LOSS FROM OPERATIONS (292,039) (962,619) (678,305)
INTEREST INCOME 39,212 60,117 41,318
INTEREST EXPENSE (2,060) (2,936) (16,149)
NET LOSS $ (254,887) $ (905,438) $ (653,136)
NET LOSS PER SHARE $(0.02) $ (.07) $ (.06)
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 13,535,433 12,597,471 11,277,245
See notes to consolidated
financial statements.
<PAGE>
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
OPERATING ACTIVITIES:
Net loss $(254,887) $(905,438) $(653,136)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss on disposal of assets 15,907
Depreciation and amortization 76,851 44,420 32,890
Net accretion of discount on
investment securities (42,204) (27,505)
Provision for bad debts 18,297
Changes in assets and liabilities:
Accounts receivable (379,764) (149,754) (233,397)
Inventories (141,974) (59,809) (20,778)
Prepaid expenses and other
assets (33,725) (57,085) (6,333)
Accounts and acquisition costs
payable and accrued expenses 852,607 103,201 337,897
Accrued interest payable 5,421
Consulting service expense paid 24,600
for by stock issuance
Net cash provided by (used
in) operating activities 135,015 (1,042,069) (546,644)
INVESTING ACTIVITIES:
Purchase of investment securities (2,825,799) (2,096,344)
Proceeds from maturities of
investment securities 425,852 3,907,000 659,000
Issuance of notes receivable (102,000) (114,143) (205,775)
Capital expenditures (181,806) (92,752) (66,549)
Net cash paid for acquisition (425,000)
Net cash (used in) provided
by investing activities (282,954) 874,306 (1,709,668)
FINANCING ACTIVITIES:
Payments received on note receivable
issued for common stock 234,501 183,557 132,021
Proceeds from short-term margin loan (139,268) 139,268
Repayment of net deferred
compensation (45,129) (203,646) (160,026)
Net proceeds from issuance of common
stock 387,403 1,904,292
Net cash provided by
financing activities 437,507 119,179 1,876,287
NET INCREASE (DECREASE) IN CASH 289,568 (48,584) (380,025)
CASH AT BEGINNING OF YEAR 103,144 151,728 531,753
_______ _______ _______
CASH AT END OF YEAR $ 392,712 $ 103,144 $ 151,728
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 2,936 $ 10,416
===== ======
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING
AND FINANCING ACTIVITIES:
Common stock issued for acquisition $ 420,000
Common stock issued for services =======
rendered $ 24,600
Common stock issued for note ======
receivable $1,930,915 $ 737,000
Conversion of escrow deposit to ========= =======
equity $ 50,000
=======
See notes to consolidated financial
statements.
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
NOTE
COMMON RECEIVABLE TOTAL
STOCK FOR STOCKHOLDER'S
COMMON EQUITY
ACCUMULATED STOCK
SHARES AMOUNT DEFICIT ISSUED (DEFICIT)
BALANCE,
JANUARY 1,
1995 9,500,000 $1,379,412 $(1,630,728) $(251,316)
COMMON STOCK
ISSUED IN
CONNECTION WITH:
MERGER 510,386 (50,000) (50,000)
LONG-TERM DEBT
AND ACCRUED
INTEREST
CONVERSION 179,684 215,621 215,621
NOTE RECEIVABLE 1,112,265 737,000 $(737,000)
STOCK SALE 1,275,375 1,904,292 1,904,292
PAYMENTS
RECEIVED
ON NOTE
RECEIVABLE 132,021 132,021
NET LOSS (653,136) (653,136)
BALANCE,
DECEMBER 31,
1995 12,577,710 4,186,325 (2,283,864) (604,979) 1,297,482
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
COMMON STOCK
ISSUED THROUGH
EXERCISE OF
STOCK OPTIONS 4,667 4,792 4,792
COMMON STOCK
ISSUED THROUGH
RESTRICTED
STOCK PURCHASE
AGREEMENT 2,900,000 2,320,000 2,320,000
RECEIVABLE
ISSUED IN
CONNECTION
WITH RESTRICTED
STOCK PURCHASE
AGREEMENT (1,930,915) (1,930,915)
COMMON STOCK
ISSUED
THROUGH
ACQUISITION 300,000 420,000 420,000
PAYMENTS
RECEIVED ON
NOTE
RECEIVABLE 234,501 234,501
ISSUANCE
COSTS IN
CONNECTION
WITH
COMMON
STOCK ISSUED (6,473) (6,473)
NET LOSS (254,887) (254,887)
BALANCE
DECEMBER 31,
1997 15,806,977 $ 6,949,244 $(3,444,189)$(2,117,836) $1,387,219
========== ========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
<PAGE>
BOATRACS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - BOATRACS, Inc. and its wholly
owned subsidiary BOATRACS (Europe) B.V. (collectively called
the "Company") is primarily engaged in the business of
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 9). Under the agreement, the Company
sells mobile communications terminals and software for use on
board marine vessels and by marine dispatchers. In addition,
the Company also provides 24-hour data transmission and
messaging services. Effective November 1, 1997, the Company
purchased certain assets of MED Associates, Inc. ("MED") for
$500,000 cash and 300,000 shares of common stock valued at
$1.40 per share. The stock payment is subject to an option
in favor of the Company exercisable if MED does not achieve a
certain earnings level for the year ending December 31, 1998.
The 300,000 shares delivered under the Purchase Agreement
will be decreased one share for every dollar such earnings
are not achieved. Goodwill in the amount of $845,000 was
recorded and will be amortized over ten years. MED is a
Mississippi based provider of software applications and
service solutions to the commercial workboat industry and to
oil companies.
Principles of Consolidation - The accompanying consolidated
financial statements include the accounts of the Company.
All significant intercompany balances have been eliminated in
consolidation.
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 thereafter, and an accelerated method for assets
purchased prior to 1996 over the estimated useful lives of
the assets (generally 3-5 years). Goodwill is amortized over
10 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.
Significant Customers - Major customers individually
accounted for 18%, 12% and 9% of 1997 sales, 26%, 15% and 8%
of 1996 sales, and 23%, 18% and 12% of 1995 sales. In
addition, MED derives significant business from the same
customers as the Company. In November and December, 1997,
MED derived 45% of its total business from the Company's
largest customer. Accounts receivable from these customers
aggregated (including the MED receivables) $437,077 and
$300,413 at December 31, 1997 and December 31, 1996
respectively. The Company has not historically experienced
any significant losses on its accounts receivable. Revenues
from European customers accounted for 12% of revenues in
1997. No European revenues were earned in 1996 and 1995.
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 is calculated using
the weighted average number of shares outstanding during each
year. In February, 1997, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share" (EPS). This
statement requires the presentation of earnings per share to
reflect both "Basic EPS" and "Diluted EPS" on the face of the
income statement. Common stock equivalents would have an
anti-dilutive effect on the net loss, and therefore diluted
EPS is not presented.
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 1996 and 1995
financial statements have been reclassified to conform to the
1997 presentation.
2. Acquisition - On November 1, 1997, the Company purchased
certain assets and liabilities of MED Associates, Inc.
("MED") for $500,000 cash, and 300,000 shares of restricted
common stock valued at $1.40 per share. The stock is subject
to an option by the Company to purchase all of the issued
stock if a certain earnings level for the fiscal year ending
December 31, 1998, is not met and will be decreased one share
for every dollar such earnings are not achieved. Goodwill in
the amount of $845,000 was recorded and will be amortized
over ten years.
MED is a Mississippi-based provider of software applications
and service solutions to the marine industry. The
acquisition was accounted for as a purchase. Accordingly,
the assets and liabilities of MED are included in the
consolidated balance sheet as of December 31, 1997. The
results of MED's operations from the date of the acquisition
to December 31, 1997 were not significant.
In 1996, the operations of MED were immaterial and
therefore proforma numbers are not shown for that period.
The following pro-forma results are not necessarily
indicative of what actually would have occurred if the
acquisition had been completed as of the beginning of the
fiscal year, nor are they necessarily indicative of future
consolidated results.
Boatracs MED Pro- Pro-
Forma Forma
Adjustments
1997 1997 1997
Total Revenues $ 5,247,541 $ 877,309 $6,124,850
Net (Loss) Income
from Operations $ (292,039) $ 78,940 $(70,417) $ (283,516)
Net (Loss) Income $ (254,887) $ 78,940 $(70,417) $ (246,364)
Weighted Average 13,785,296
Shares
EPS $ (0.02)
3.BALANCE SHEET DETAILS
1997 1996
Accounts Receivable $949,874 $570,780
Less Allowance for doubtful 12,864 13,534
accounts -------- -------
$937,010 $557,246
Property - at cost
Computers and equipment $372,597 $226,650
Less accumulated 148,734 105,919
depreciation ------- -------
$223,863 $120,731
Goodwill $845,000
Less Amortization 14,083
-------
$830,917
Deferred Compensation - $369,230
Officer (Note 8)
Less Note Receivable - Officer 324,101
(Note 4) -------
$ 45,129
-------
Depreciation expense was $62,768, $44,420, and $24,334 for
the years ended December 31, 1997, 1996, 1995 respectively.
Amortization expense for the year ended December 31, 1997 was
$14,083.
4. 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 $310,463 and $208,463 at
December 31, 1997 and 1996, respectively. The note has been
classified as long-term based upon the Company's intent not
to request payment prior to January 1, 1999.
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.
5. LEASES
Facility Leases - The Company leases its facilities under
seven non-cancelable operating leases, which expire through
September 2001. Rent expense was approximately $57,894,
$51,900, and $31,900 for the years ended December 31, 1997,
1996 and 1995, respectively. In addition, MED's rent expense
was $1,500 for the months of November and December, 1997.
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, 1997 and
December 31, 1996 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, 1997 are summarized as follows:
Year Ending December 31,
1998 $ 95,527
1999 47,580
2000 26,436
2001 26,436
-------
Total $195,979
=======
6. INCOME TAXES
The Company elected C Corporation status effective October
1994. Due to a valuation allowance provided for deferred
income tax assets for the years ended December 31, 1997, 1996
and 1995 and the period from October 1, 1994 to December 31,
1994, the Company's effective income tax rate is 0%.
The tax effects of significant items comprising the Company's
deferred income tax assets were approximately as follows:
Deferred income tax assets: 1997 1996
Net operating loss carryforwards $830,000 $634,000
Deferred employee compensation 0 160,000
Tax credits 49,000 12,000
Allowance for uncollectible accounts 6,000 6,000
Deferred income 16,000 1,000
State income taxes 400 500
Other reserves
15,000 6,000
------- -------
Total deferred income tax assets 916,400 819,500
Less valuation allowance (916,400)(819,500)
------- -------
Net deferred income tax assets $ 0 $ 0
======== ========
At December 31, 1997, the Company had unused net operating
loss carryforwards of approximately $2,187,000 for Federal
income tax purposes which expire at various dates from 2005
to 2012. The Company has unused net operating loss carry
forwards of approximately $978,000 for state income tax
purposes which expire at various dates from 1999 to 2002.
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.
7. 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 9) 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 9). The transaction was recorded as a
note receivable for common stock issued which is reduced as
discounts are earned. Through December 31, 1997, a total of
$550,079 in discounts was earned.
In October, 1997, the company issued 2,900,000 shares of
common stock to an officer/director of the company. The
shares were issued at a discounted rate of $.80 per share
based on the restrictions of the agreement. In connection
with the shares, the Company received a promissory note in
the amount of $1,930,915 bearing 5.77% interest. The note
requires payments of $420,240 on April 15 and October 15 of
each year commencing in 1998 with the final payment due on
April 15, 2000. The note has been recorded as a reduction of
equity on the balance sheet.
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. There is no expiration date on the agreement,
however the agreement may be terminated by the company at
will.
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.
During May, 1997, the Company filed a registration statement
on Form SB-2 that provides for registration of 5,490,956
shares on behalf of selling stockholders. The Company did
not receive any proceeds from these transactions.
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 per Share
Shares
Outstanding, January 1, 1996 0
Granted 730,500 $1.00 - $1.81
Cancelled (21,000) $1.00 - $1.81
------
Outstanding, December 31, 1996 709,500 $1.00 - $1.81
Granted 167,500 $1.19 - $1.25
Cancelled (208,934) $1.00 - $1.18
Exercised (4,667) $1.00 - $1.13
-------
Outstanding, December 31, 1997 663,399 $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, 1997 and 1996 would have been increased by
approximately $73,327 and $33,200, or $0.01 per share for
each of the two years respectively.
Under FASB 123, the fair value of the options granted during
1997 is estimated as approximately $208,000 on the date of
grant using the Black-Scholes option-pricing model with the
following assumptions: no dividend yield, expected volatility
of 277%, risk-free interest rate of 5.5%, and expected life
of 5.5 years.
The following table summarizes information as of December 31,
1997 concerning currently outstanding and exercisable
options:
Options Outstanding Options Exercisable
Weighted
Average
Range of Remainin Weighted Weighted Weighted
Average Number g Average Number Average
Exercise Outstandi Contract Exercise Exercisab Exercise
Prices ng ual Life Price le Price
$1.00 - 663,399 5.5 $1.12 123,179 $1.10
$1.81
8. RELATED PARTY TRANSACTIONS
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 were secured
by an agreed upon offset to related deferred compensation.
The advances bore interest at 5.5% and were due on demand.
The note was fully repaid at December 31, 1997. Advances
under the agreement totaled $310,000 at December 31, 1996,
plus accrued interest. Terms of the note receivable
agreement allowed satisfaction of the balance as an offset to
related deferred compensation.
On October 15, 1997, Company received a promissory note
from an officer, director and shareholder of the Company in
the amount of $1,930,915 and a rate of 5.77%. The note was
issued in connection with a Restricted Stock Purchase
Agreement of the same date for a total of 2,900,000 shares of
the Company's stock (see Note 7). The shares were issued at
a discounted rate of $.80 per share based on the restrictions
of the agreement. The note will be repaid in semi annual
installments with the final payment on April 15, 2000.
9. 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
applications. During 1996, the Company reached certain sales
goals and became the exclusive distributor in previously 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. The Company met this
requirement in 1997.
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.
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.
Sub-service Provider Agreement - During 1997, the Company
entered into a Sub-Service Provider Agreement with ALCATEL
Qualcomm, a French company, whereby the Company was appointed
to be the maritime distributor under a similar basis that it
operates in the United States by providing maritime satellite-
based communications and tracking of vessels to certain
countries in Europe.
10. 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 1997 and 1996, the Company did not elect to
contribute to the Plan.
No person has been authorized
to give any information or to
make any representation in
connection with this offering
other than those contained in
this Prospectus and, if given
or made, such information or 9,900,070 SHARES
representation must not be
relied upon as having been
authorized by the Company,
the Selling Shareholders or
any other person. This
Prospectus does not
constitute an offer to sell BOATRACS, INC.
or a solicitation of an offer
to buy any security other
than the securities to which
it relates, or an offer to or
a solicitation of any person
in any jurisdiction where
such an offer or solicitation Common Stock
would be unlawful. Neither
the delivery of this
Prospectus nor any sale made
hereunder shall, under any
circumstance, create any
implication that there has
been no change in the affairs _____________
of the Company since the date
hereof or that the Prospectus
information herein is correct _____________
as of any time subsequent to
the date hereof.
__________________
Table of Contents
Page
Available Information 2
Prospectus Summary 3
Summary Consolidated Financial
Information 5
Risk Factors 6
Use of Proceeds 14
Dividend Policy 14
Selected Financial Data 16
Management's Discussion and
Analysis of Financial
Condition And Results
of Operations 17
Business 23
Management 40
Certain Transactions 47
Principal Shareholders 49
Selling Shareholders 51
Description of Capital Stock 52
Shares Eligible for Future
Sale 54
Market Information 55
Plan of Distribution 55
Legal Matters 56
Experts 56
Index to Financial Statements F-1
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 23. Indemnification of Directors and Officers.
Pursuant to provisions of the California Corporations Code,
Article V of the Company's Amended and Restated Articles of
Incorporation provides that the liability of the Company's
directors for monetary damages shall be eliminated to the fullest
extent permissible under California law.
Article VI of the Company's Amended and Restated Bylaws
authorizes the Company to indemnify its directors and officers in
certain circumstances against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in
connection with a proceeding arising out of such person's service
in such capacity, if that person acted in good faith and in a
manner that that person reasonably believed to be in the best
interests of the Company and, in the case of a criminal
proceeding, had no reason to believe was unlawful. The Company
is required to indemnify a director or officer of the Company
against expenses actually and reasonably incurred in the event
such person is successful on the merits in the defense of any
such claim. The indemnification provided by Article VI is not
exclusive of any other rights to which such director or officer
seeking indemnification may be entitled under any bylaw,
agreement, vote of shareholders or disinterested directors or
otherwise, with respect to action in his or her official capacity
and with respect to action in another capacity while holding such
office, to the extent such additional rights to indemnification
are authorized in the Company's Amended and Restated Articles of
Incorporation.
In addition, employment agreements between the Company and
certain executive officers of the Company provide that such
executive officers shall each be indemnified against all
liabilities, damages, costs, expenses, attorneys' fees and claims
(each, a "Claim"), and all costs, expenses and attorneys' fees
incurred in the defense of any such Claim, arising from certain
circumstances relating to such executive officer's employment,
except to the extent caused by such executive officer's negligent
act, willful misconduct or breach under such agreement. The
Company is required to defend at its sole cost any action or
proceeding brought against such executive officer by reason of
any such Claims upon notice from the executive officer.
Item 24. Other Expenses of Issuance and Distribution.
The estimated expenses of this offering are as follows:
To Be Paid By Company
SEC Registration Fee $9,408
Blue Sky Qualification Fees and Expenses 2,500
Printing and Engraving Expenses 100
Legal Fees and Expenses 10,000
Accounting Fees and Expenses 10,000
Transfer Agent and Register Fees 500
Total $32,508
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the following securities, which were
not registered under the Securities Act of 1933, as amended (the
"Act"), were issued by the entities indicated:
In June, 1995, the Company issued 179,684 shares of Common Stock
to Giles Bateman, a director, upon conversion of Mr. Bateman's
promissory note which had been issued by Old BOATRACS in July of
1994.
In October, 1995, the Company issued an aggregate of 1,275,375
shares of Common Stock in a private placement transaction to
Giant Trading, Louis Gonda, Norman Kane, Tom Bernard, Norman
Sarkin, Zane Feldman, Bank Insinger De Beuford N.V., Clariden
Bank and Peter Sieradzki in consideration of $1.58 per share.
The Company paid aggregate commissions of $118,000 to Integro
Securities B.V. and Shippers Establishment in connection with
their services as placement agents in the transaction.
In January, 1996, the Company issued options for the purchase of
50,000 shares of Common Stock to Richard Coates, a consultant, at
an exercise price of $1.50 per share.
In March, 1996, the Company issued 24,600 shares of Common Stock
to International Project Management, a consultant of the Company,
in consideration of services rendered.
In April, 1997, the Company issued a warrant to purchase 30,000
shares of Common Stock to Richard Coates, a consultant of the
Company, at an exercise price of $1.50 per share.
In October, 1997, the Company issued 2,900,000 shares of Common
Stock to Jon Gilbert, the President, Chief Executive Officer and
Director of the Company pursuant to a Restricted Stock Purchase
Agreement. The purchase price was $0.80 per share, payable in
cash and by promissory note. The note was secured by a pledge of
2,416,645 shares of Common Stock and the note was repaid in June,
1998. See "Management -- Executive Compensation" and "Certain
Transactions."
In December, 1997, the Company issued 300,000 shares of common
stock to MED Associates, Inc. in connection with the purchase of
certain assets and liabilities of that company. See "Business -
Purchase of MED Associates, Inc."
In March, 1998, the Company issued warrants to purchase 10,000
shares of Common Stock at $2.44 per share to each of Giles
Bateman and Mitchell Lynn, both directors of the Company. The
warrants are exercisable until March, 2005.
In April and May, 1998 the Company issued 25,000 shares to Torrey
Pines Securities in connection with a Warrant to Purchase Common
Stock at $1.50 per share.
On July 7, 1998 the Company acquired Enerdyne for $22.6 million
in a combination of cash, stock and notes. A total of 3,000,000
shares were issued, 2,930,700 of which to the former shareholders
of Enerdyne and the remainder to the financial advisors.
On June 24, 1998, the Company issued a warrant to purchase 25,000
shares of common stock at $4.44 per share to Sol Price in
connection with a purchase of a promissory note from a director
and an officer of the Company.
Effective July 1, 1998, the Company agreed to issue 5,000 shares
of Common Stock valued at $4.75 per share in connection with the
acquisition of the assets of Oceantracs Systems.
With regard to the transactions described above, unless otherwise
noted, it is believed that such transactions are exempt from
registration under the Act pursuant to Section 4(2) thereof or
Regulation D promulgated thereunder. Unless otherwise noted, no
underwriters were involved, nor was any commission or fee paid by
the Company in connection with any of the transactions described
above.
Item 27. Exhibits.
See Exhibit Index.
Item 28. Undertakings
(1) The undersigned Registrant hereby undertakes:
(a) to file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement:
(i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of the
registration statement (or the most recent post-
effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in
the information set forth in the registration
statement; and
(iii) to include any additional or changed material
information on the plan of distribution.
(b) that, for the purposes of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof;
(c) file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering;
(2) Insofar as indemnification for liabilities arising under
the Securities Act of 1933, as amended (the "Act") may be
permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California on the
22th day of September, 1998.
BOATRACS, INC.
By: /S/ MICHAEL SILVERMAN
Michael Silverman,
Chairman
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
/S/ MICHAEL SILVERMAN Chairman of September 22, 1998
Michael Silverman the Board
/S/ JON S. GILBERT President and September 22, 1998
Jon S. Gilbert Chief
Executive
Officer
/S/ ANNETTE FRISKOPP Executive September 22, 1998
Annette Friskopp Vice
President and
Director
/S/ CURT MCLELAND Chief September 22, 1998
Curt McLeland Financial
Officer and
Chief
Accounting
Officer
/S/ GILES BATEMAN Director September 22, 1998
Giles Bateman
/S/ LUIS MAIZEL Director September 22, 1998
Luis Maizel
/S/ MITCHELL LYNN Director September 22, 1998
Mitchell Lynn
/S/ SCOTT BODEN Director September 22, 1998
Scott Boden
EXHIBIT INDEX
Exhibits Description
2.1 Plan of Reorganization by Merger. Incorporated by
reference to Exhibit 2 to the Company's Form 8-K
dated January 12, 1995.
2.2 Second Amended Plan of Reorganization of First
National Corporation. Incorporated by reference to
Exhibit A to the Company's Form 8-K dated January 9,
1995.
2.3 Bankruptcy court order confirming Second Amended
Plan of Reorganization. Incorporated by reference to
Exhibit B to the Company's Form 8-K dated January 9,
1995.
3.1 Amended and Restated Articles of Incorporation.
Incorporated by reference to Exhibit 3.1 to the
Company's Form 8-K dated January 12, 1995.
3.2 Amended and Restated Bylaws. Incorporated by
reference to Exhibit 3.2 to the Company's Form 8-K
dated January 12, 1995.
3.3 Amendment of the Bylaws, Article III, Section 2.
Incorporated by reference to Exhibit 3 to the
Company's Form 10-QSB filed with the Commission on
May 14, 1996.
4.1 Form of the Company's Common Stock Certificate.
Incorporated by reference to Exhibit 4.1 to the
Company's Form S-1, SEC File No. 33-91284, filed
with the Commission on May 4, 1995.
5 Opinion and Consent of Solomon Ward Seidenwurm &
Smith, LLP. Filed herewith.
10.1* License and Distribution Agreement dated June 13,
1990, between QUALCOMM Incorporated and the Company,
as amended. Incorporated by reference to Exhibit
10.1 to the Company's Amendment No. 3 to Form S-1,
SEC File No. 33-91284, filed with the Commission on
July 6, 1995.
10.2* License Agreement dated March 31, 1995, between
QUALCOMM Incorporated and the Company. Incorporated
by reference to Exhibit 10.2 to the Company's Form S-
1, SEC File No. 33-91284, filed with the Commission
on May 4, 1995.
10.3 Subscription Agreement between and QUALCOMM
Incorporated and the Company as of March 31, 1995.
Incorporated by reference to Exhibit 4.3 to the
Company's Form S-1, SEC File No. 33-91284, filed
with the Commission on May 4, 1995.
10.4 Warrant Agreement between the Company and Torrey
Pines Securities dated October 31, 1995.
Incorporated by reference to Exhibit 4.6 to the
Company's Form 10-KSB filed with the Commission on
March 28, 1996.
10.5 Employment Agreement between the Company and Michael
Silverman. Incorporated by reference to Exhibit 10.3
of the Company's Form S-1, SEC File No. 33-91284,
filed with the Commission on May 4, 1995.
10.6* Agreement entered into between the Company and
Oceantrac Systems Limited and Oceantrac
Incorporated. Incorporated by reference to Exhibit
10.8 to the Company's Form 10-QSB filed with the
Commission November 13, 1996.
10.7 BOATRACS, Inc. Amended 1996 Stock Option Plan. Filed
herewith.
10.8 Restricted Stock Purchase Agreement between the
Company and Jon Gilbert dated October 15, 1997.
Incorporated by reference to Exhibit 10.10 to the
Company's Form 10-QSB filed with the Commission on
November 14, 1997.
10.9 Pledge Agreement between the Company and Jon Gilbert
dated October 15, 1997. Incorporated by reference to
Exhibit 10.11 to the Company's Form 10-QSB filed
with the Commission on November 14, 1997.
10.10 Promissory Note between the Company and Jon Gilbert
dated October 15, 1997. Incorporated by reference to
Exhibit 10.12 to the Company's Form 10-QSB filed
with the Commission on November 14, 1997.
10.11 Asset Purchase Agreement among the Company, MED
Associates, Inc., Charles J. Drobny, Jr. and
Pamela M. Drobny dated as of November 1, 1997.
Incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K filed with the Commission on
January 14, 1998.
10.12 First Amendment to Asset Purchase Agreement among
the Company, MED Associates, Inc., Charles J.
Drobny, Jr. and Pamela M. Drobny dated as of
November 1, 1997. Incorporated by reference to
Exhibit 2.2 to the Company's Form 8-K/A filed with
the Commission on March 31, 1998.
10.13 Employment Agreement between the Company and Charles
Drobny, Jr. effective November 1, 1997. Incorporated
by reference to Exhibit 10.13 to the Company's Form
10-KSB/A filed with the Commission on March 31,
1998.
11 Statement regarding computation of net loss per
share. Filed herewith.
13 Form 10QSB for the second quarter ended June 30,
1998 filed on August 12, 1998, incorporated by
reference herein.
21 Subsidiaries of the Registrant. Filed herewith.
23 Independent Auditors' Consent. Filed herewith.
99 Form 8KA, Amendment No. 1 dated July 7, 1998 filed
on August 14, 1998, incorporated by reference
herein.
* Portion of this exhibit redacted pursuant to a confidential
treatment request
EXHIBIT 5
SOLOMON WARD SEIDENWURM & SMITH, LLP LETTERHEAD
September 22, 1998
BOATRACS, Inc.
10675 Sorrento Valley Road, Suite 200
San Diego, CA 92121
Re: Pre-Effective Amendment No. 1 to Registration Statement on
Form SB-2
Gentlemen:
We are delivering this opinion and consent to you in connection
with the registration under the Securities Act of 1933, as
amended, of 9,900,070 shares of common stock, no par value (the
"Shares"), of BOATRACS, Inc. (the "Company") held be certain
shareholders of the Company, pursuant to Pre-Effective Amendment
No. 1 to Registration Statement on Form SB-2 (the "Registration
Statement").
We have examined such documents and have reviewed such questions
of law as we have considered necessary and appropriate for the
purposes of this opinion and, based thereon, we advise you that,
in our opinion, the Shares are duly authorized, validly issued
and fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to
the above-referenced Registration Statement and to the reference
to this firm as set forth under the caption "Legal Matters" in
the Prospectus constituting part of the Registration Statement.
Very truly yours,
SOLOMON WARD SEIDENWURM & SMITH, LLP
By: /s/ Norman L. Smith
Norman L. Smith
EXHIBIT 10.7
BOATRACS, Inc. 1996 Stock Option Plan
Dated: February 8, 1996
BOATRACS, INC.
1996 STOCK OPTION PLAN
(as amended March 20, 1998)
1. Purposes of the Plan.
The Boatracs, Inc. 1996 Stock Option Plan (the "Plan") is
intended to promote the interests of Boatracs, Inc., a California
corporation (the "Company"), by providing a method whereby
(i) employees of the Company (or its parent or subsidiary
corporations) responsible for the management, growth and
financial success of the Company (or its parent or subsidiary
corporations), and (ii) non-employees who provide valuable
services to the Company (or its parent or subsidiary
corporations), as determined by the Plan Administrator, may be
offered incentives and rewards which will encourage them to
acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Company and continue to render
services to the Company (or its parent or subsidiary
corporations).
2. Administration of the Plan.
(a) The Plan shall be administered by the Company's Board of
Directors (the "Board") or, to the extent provided by the
Board, a committee (the "Committee") appointed by the Board,
which shall consist of not less than two non-employee directors
(as such term is defined in Rule 16b-3, or any successor rule,
under the Securities Exchange Act of 1934), who shall serve at
the pleasure of the Board; provided, however, that the Plan may
be administered by the Board. For purposes of the Plan, the term
"Plan Administrator" shall mean the Board, or if the Board
delegates responsibility for any matter to the Committee. The
Board may alter the Plan administration so that the Plan
administration is structured to comply with the rules governing a
discretionary plan under Rule 16b-3.
(b) Subject to the provisions of the Plan, the Plan
Administrator shall have full power and authority to select the
Optionees (as defined in Section 3) to be granted the options
under the Plan, and to determine (i) whether each granted option
is to be an incentive stock option ("Incentive Stock Option")
which satisfies the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code") or
a non-statutory Stock Option not intended to meet such
requirements, (ii) the number of shares to be subject to such
option; (iii) the exercise prices of such shares, (iv) the terms
of exercise, (v) the expiration dates and (vi) all other terms
and conditions upon which such option may be exercised. The Plan
Administrator shall have the full power and authority (subject to
the provisions of the Plan) to establish such rules and
regulations as it may deem appropriate for the proper
administration of the Plan and to make such determinations under,
and issue such interpretations of, the Plan and any outstanding
option as it may deem necessary or advisable. Decisions of the
Plan Administrator shall be final and binding on all parties who
have an interest in the Plan or any outstanding option. No
person acting under this subsection shall be held liable for any
action or determination made in good faith with respect to the
Plan or any option granted under the Plan.
(c) The Company shall indemnify and hold harmless each
Committee member and each director of the Company, and the estate
and heirs of such Committee member or director, against all
claims, liabilities, expenses, penalties, damages or other
pecuniary losses, including legal fees, which such Committee
member or director, his or her estate or heirs may suffer as a
result of his or her responsibilities, obligations or duties in
connection with the Plan, to the extent that insurance, if any,
does not cover the payment of such items.
3. Eligibility for Option Grants.
The persons eligible to receive option grants pursuant to the
Plan ("Optionees") are as follows:
(a) Employees of the Company (or its parent or subsidiary
corporations) who render services which contribute to the success
and growth of the Company (or its parent or subsidiary
corporations) or which may reasonably be anticipated to
contribute to the future success and growth of the Company (or
its parent or subsidiary corporations); and
(b) Non-employees who provide valuable services to the Company
(or its parent or subsidiary corporations).
4. Stock Subject to the Plan.
(a) The stock issuable under the Plan shall be shares of the
Company's authorized but unissued or reacquired common stock (the
"Common Stock"). The aggregate number of shares which may be
issued under the Plan shall not exceed 2,000,000 shares of Common
Stock. The total number of shares issuable under the Plan shall
be subject to adjustment from time to time in accordance with the
provisions of this Section 4.
(b) Should an option be terminated for any reason without being
exercised or surrendered in whole or in part, the shares subject
to the portion of the option not so exercised or
surrendered shall be available for subsequent option grants under
the Plan.
(c) In the event that the outstanding shares of Common Stock
issuable under the Plan as a class are increased or decreased, or
changed into or exchanged for a different number or kind of
shares or securities, as a result of any Corporate Transactions
(as defined in Section 7), stock splits, stock dividends, or
the like affecting the outstanding Common Stock as a class,
then appropriate adjustments shall be made to the aggregate
number of shares issuable under the Plan and to the number of
shares and price per share of the Common Stock subject to each
outstanding option, in order to prevent the dilution or
enlargement of benefits under such outstanding options.
5. Terms and Conditions of Options.
Options granted pursuant to the Plan shall be authorized by
action of the Plan Administrator and may, at the Plan
Administrator's discretion, be either Incentive Stock Options or
non-statutory Stock Options. Individuals who are not employees
of the Company or its parent or subsidiary corporations may only
be granted non-statutory Stock Options. Each granted option
shall be evidenced by one or more written instruments in a form
approved by the Plan Administrator; provided, however, that each
such instrument shall comply with and incorporate the terms and
conditions specified in this Section 5.
(a) Option Price.
(1) The option price per share (the "Option Price"), (a) with
respect to a non-qualified Stock Option, shall be between
eighty-five percent (85%) and one hundred percent (100%) of the
fair market value of a share of Common Stock on the date of the
option grant, as determined by the Company on a case by case
basis and (b) with respect to an Incentive Stock Option, shall,
subject to subsection (a)(2) below, be one hundred percent (100%)
of the fair market value of a share of Common Stock on the date
of the option grant.
(2) 10% Shareholder. If any Optionee under the Plan is on the
date of grant of an Incentive Stock Option the owner of stock (as
determined under Section 424(d) of the Internal Revenue Code)
possessing ten percent (10%) or more of the total combined voting
power of all classes of stock of the Company or any one of its
parent or subsidiary corporations (a "10% Shareholder"), then the
option price per share acquired pursuant to exercise of an
Incentive Stock Option shall not be less than one hundred and ten
percent (110%) of the fair market value of a share of Common
Stock on the date of the option grant.
(3) The option price shall become immediately due upon exercise
of the option and shall, subject to the provisions of the
instrument evidencing the grant, be payable in one of the
alternative forms specified below:
(i) full payment in cash or cash equivalents; or
(ii) Full payment in shares of Common Stock having a fair market
value on the Exercise Date (as defined below) in an amount equal
to the option price; or
(iii) a combination of shares of Common Stock valued at fair
market value on the Exercise Date and cash or cash equivalents,
equal in the aggregate to the option price; or
(iv) any other form of consideration as the Plan Administrator
may approve.
For purposes of this Section 5(a)(3), the Exercise Date shall be
the first date on which the Company shall have received both
written notice of the exercise of the option and payment of the
option price for the purchased shares of Common Stock.
(4) For all valuation purposes under the Plan, the fair market
value of a share of Common Stock shall be determined in
accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-
counter market, the fair market value shall be the mean between
the highest bid and lowest asked prices (or, if such information
is available, the closing selling price) of one share of Common
Stock in the over-the-counter market, as such prices are reported
by the National Association of Securities Dealers through its
NASDAQ system or any successor system, on the date of the option
grant or Exercise Date, as the case may be. If there are no
reported bid and asked prices (or closing selling price) for the
Common Stock on the date in question, then the mean between the
highest bid price and lowest asked price (or the closing selling
price) on the last preceding date for which such quotations exist
shall be determinative of fair market value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the fair market value shall
be the closing selling price of one share of Common Stock on the
date in question on the stock exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of
Common Stock on such exchange on the date in question, then the
fair market value shall be the closing selling price on the
exchange on the last preceding date for which such quotation
exists.
(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-
the-counter market, then the fair market value shall be
determined by the Plan Administrator in accordance with Section
260.140.50 of the California Code of Regulations or any successor
rule.
(b) Option Period.
The term of each option shall commence on the date of grant of
the option and shall be seven (7) years, except that if an
Incentive Stock Option is granted to an Optionee who, immediately
before the grant of the Incentive Stock Option, owns stock
representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or its parent
or subsidiary corporations, the exercise period specified in the
option agreement for which the Incentive Stock Option thereunder
is granted, shall not exceed five years from the date of grant.
Subject to other provisions of the Plan, (a) each Incentive Stock
Option shall be exercisable during its term as to twenty percent
(20%) of the Incentive Stock Option shares during the twelve (12)
months beginning on the first anniversary of the date of grant,
and twenty percent (20%) thereafter during each of the four (4)
next successive twelve (12) month periods, and (b) each non-
qualified Stock Option shall be exercisable over a five (5) year
term, as determined by the Company on a case by case basis,
provided, however, that each non-qualified Stock Option shall be
exercisable at a rate of at least twenty percent (20%) per year
over five (5) years from the date the non-qualified Stock Option
is granted. Additionally, if an Optionee shall not in any period
purchase all of the option shares which the Optionee is entitled
to purchase in such period, then the Optionee may purchase all or
any part of such shares subject to this Agreement at any time
after the end of such period and prior to the expiration of the
option.
(c) Effect of Termination.
(1) Subject to the other provisions of the Plan, should an
Optionee cease to be a service provider to the Company ("Service
Provider"), or employee or director, for any reason (including
death or permanent disability as defined in Section 105(d)(4) of
the Internal Revenue Code), then any option or options granted
under the Plan to such Optionee and outstanding on the Cessation
Date (as defined below) shall remain exercisable for a period not
to exceed six (6) months from the date of such cessation of
Service Provider, employee or director, status (the "Cessation
Date"), the specific amount of time to be determined at the time
of granting the option; provided, however, that under no
circumstances shall such options be exercisable after the
expiration date of the option term specified in the instrument
evidencing the option grant. Notwithstanding the foregoing,
such shorter period of exercisability following the Cessation
Date, as determined by the Company at the time of original
grant, shall in no event be less than: (i) six (6)
months in the event that employment termination is due to the
death or disability of the Optionee and (ii) thirty (30) days in
the event that employment termination is due to any other reason.
Each such option shall, during such six (6) month or shorter
period, be exercisable to the extent of the number of shares (if
any) for which the option is exercisable on the Cessation Date
(the "Vested Shares"), and to the extent that on the Cessation
Date the number of shares (if any) for which the option is not
exercisable will become exercisable within the following year,
the Optionee may exercise the option for a percentage of such
shares based on the following fraction: the numerator shall be
the number of days from the last anniversary date of the grant of
the option to the Cessation Date and the denominator shall be the
number of days from the last anniversary date of the grant of the
option to the next anniversary date of the grant of the option.
Upon the expiration of such six (6) month or shorter period or
(if earlier) upon the expiration of the option term, the option
shall terminate and cease to be exercisable.
(2) Notwithstanding subsection (c)(1) above, the Plan
Administrator shall have complete discretion, exercisable either
at the time the option is granted or at the Cessation Date to
provide that options held by such Optionee may be exercised not
only with respect to Vested Shares as of the Cessation Date, but
also with respect to one or more subsequent installments of
shares for which the option would otherwise have become
exercisable had such cessation of Service Provider status not
occurred.
(3) For purposes of the Plan, the Optionee shall be deemed
to be a Service Provider of the Company for so long as the
Optionee renders periodic services to the Company or one or more
of its parent or subsidiary corporations.
(d) No Employment or Service Contract. Nothing in the Plan
shall confer upon the Optionee any right to continue in the
service of the Company (or any parent or subsidiary corporation
of the Company employing or retaining the Optionee) for any
period of specific duration or interfere with or otherwise
restrict in any way the rights of the Company (or any parent or
subsidiary corporation of the Company employing or retaining
Optionee) or the Optionee, to terminate the service provider
status of Optionee at any time for any reason or no reason
whatsoever, with or without cause.
(e) Shareholder Rights. An Optionee shall have none of the
rights of a shareholder with respect to any shares covered by the
option until such individual shall have duly exercised the
option and paid the option price.
6. Exercise of Options.
(a) Each Option may be exercised in whole or in part (but not
as to fractional shares) by delivering it for surrender or
endorsement to the Company, attention of the Corporate Secretary,
at the Company's principal office, together with payment of the
Exercise Price and an executed Notice and Agreement of Exercise
in the form prescribed by the Company.
(b) Exercise of each Option is conditioned upon the agreement of
the Optionee to the terms and conditions of this Plan and of
such Option as evidenced by the Optionee's execution and delivery
of a Notice and Agreement of Exercise in a form to be determined
by the Committee in its discretion. Such Notice and Agreement
of Exercise shall set forth the agreement of the Optionee
that: (a) no Option Shares will be sold or otherwise distributed
in violation of the Securities Act of 1933 (the "Securities
Act") or any other applicable federal or state securities
laws, (b) each Option Share certificate may be imprinted
with legends reflecting any applicable federal and state
securities law restrictions and conditions, (c) the Company may
comply with said securities law restrictions and issue "stop
transfer" instructions to its Transfer Agent and Registrar
without liability, (d) each Optionee will timely file all reports
required under federal securities laws, and (e) each Optionee
will report all sales of Option Shares to the Company in writing
on a form prescribed by the Company.
(c) No Option shall be exercisable unless and until any
applicable registration or qualification requirements of federal
and state securities laws, and all other legal requirements, have
been fully complied with. The Company will use reasonable efforts
to maintain the effectiveness of a Registration Statement under
the Securities Act for the issuance of Options and shares
acquired thereunder, but there may be times when no such
Registration Statement will be currently effective. The exercise
of Options may be temporarily suspended without liability to the
Company during times when no such Registration Statement is
currently effective, or during times when, in the reasonable
opinion of the Committee, such suspension is necessary to
preclude violation of any requirements of applicable law or
regulatory bodies having jurisdiction over the Company. If any
Option would expire for any reason except the end of its term
during such a suspension, then if exercise of such Option is duly
tendered before its expiration, such Option shall be exercisable
and exercised (unless the attempted exercise is withdrawn) as of
the first day after the end of such suspension. The Company
shall have no obligation to file any Registration Statement
covering resales of Option Shares.
(d) Withholding Taxes. The Company shall have the right at
the time of exercise of any Stock Option to make adequate
provision for any federal, state, local, or foreign taxes which
it believes are or may be required by law to be withheld with
respect to such exercise.
(e) Dollar Limitation. The aggregate fair market value
(determined as of the respective date or dates of grant) of the
Common Stock for which one or more options granted to any
Employee under the Plan (or any other option plan of the Company
or its parent or subsidiary corporations) may for the first time
become exercisable as Incentive Stock Options during any one
calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). In the event that Section 422 of the
Internal Revenue Code is amended to alter the limitation set
forth therein so that following such amendment such limitation
shall differ from the $100,000 limitation set forth above, the
dollar limitation of this Section 6(e) shall be automatically
adjusted accordingly. To the extent the Employee holds two or
more such options which become exercisable for the first time in
the same calendar year, the foregoing limitation on the
exercisability thereof as Incentive Stock Options shall be
applied on the basis of the order in which such options are
granted, and any Incentive Stock Options subject to the
limitations of this Section 6(e) shall be treated as non-
qualified Stock Options subject to the applicable terms and
conditions of the Plan.
7. Corporate Transactions.
(a) In the event of any of the following transactions (a
"Corporate Transaction"):
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose
of which is to change the State of the Company's
incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, or
(iii) any reverse merger in which the Company is the
surviving entity but in which fifty percent (50%) or more of the
Company's outstanding voting stock is transferred to holders
different from those who held the stock immediately prior to such
merger, then each outstanding option which is not to be assumed
by the successor corporation or parent thereof (or to be replaced
with a comparable option to purchase shares of the capital stock
of such successor corporation or parent thereof) automatically
shall be accelerated so that each such option, immediately
prior to the specified effective date for such Corporate
Transaction, shall become fully exercisable with respect to
the total number of shares of Common Stock purchasable under
such option. Any such accelerated options not exercised as of
the consummation of the Corporate Transaction shall
terminate and cease to be exercisable, unless assumed by the
successor corporation or parent thereof (or replaced with a
comparable option to purchase shares of the capital stock of such
successor corporation or parent thereof).
(b) In connection with any Corporate Transaction, the
exercisability of any accelerated options under the Plan as an
Incentive Stock Option shall remain subject to the applicable
dollar limitation of Section 6(e).
(c) The Plan Administrator shall have the right and power at
any time to waive in whole or in part, absolutely or
conditionally, any right of the Company contained in any
instrument or option agreement evidencing any options granted
under the Plan.
(d) The grant of options under the Plan shall in no way affect
the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to
merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
8. Amendment of the Plan.
(a) The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects
whatsoever; provided, however, that no such amendment or
modification shall, without the consent of the holders, adversely
affect rights and obligations with respect to options at the time
outstanding under the Plan; and provided further, that the Board
shall not, without the approval of the shareholders of the
Company where required by law.
(b) The provisions of this Plan pertaining to Incentive Stock
Options are intended to comply with all requirements of the
Internal Revenue Code pertaining to qualification of such
incentive stock options as Incentive Stock Options under the
Internal Revenue Code and all provisions of the Plan with respect
thereto shall be construed in a manner consistent therewith.
9. Effective Date and Term of Plan.
(a) The Plan shall become effective when adopted by the Board,
but no option granted under the Plan shall become exercisable
unless and until the Plan shall have been approved by the
shareholders of the Company. If such shareholder approval is not
obtained within twelve (12) months after the date of the
Board's adoption of the Plan, then all options previously granted
under the Plan shall terminate and no further options shall be
granted. Subject to such limitation, the Plan Administrator may
grant options under the Plan at any time after the Plan effective
date and before the date fixed herein for termination of the
Plan.
(b) Unless sooner terminated in accordance with the
provisions hereof, the Plan shall terminate upon the earlier of
(i) the expiration of the eight (8) year period measured from the
date of the Board's adoption of the Plan or (ii) the date on
which all shares available for issuance under the Plan shall have
been issued or canceled pursuant to the exercise or surrender of
options granted under the Plan.
10. Regulatory Approvals.
The implementation of the Plan, the granting of any option
under the Plan, and the issuance of Common Stock upon the
exercise or surrender of any such option, shall be subject to the
procurement by the Company of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the
options granted under the Plan and the Common Stock issued
pursuant to the Plan.
11. Requests for Information.
For additional information about the Plan or the Plan
Administrator, please direct all such requests to the Chief
Financial Officer of Boatracs, Inc., 6440 Lusk Boulevard,
Suite D201, San Diego, CA 92121, telephone number (619) 587-1981.
12. Financial Reports.
The Company shall deliver financial and other information
regarding the Company, on an annual or other periodic basis, to
each individual holding an outstanding option under the Plan, to
the extent the Company is required to provide such information
pursuant to Section 260.140.46 (or any successor thereto) of the
Rules of the California Corporations Commissioner.
13. Successors in Interest.
The Company shall not assign or delegate to any other person
this Plan or any rights or obligations under this Plan. Subject
to any restriction on transferability contained in this Plan,
this Plan shall be binding upon and shall inure to the benefit of
the successors-in-interest and assigns of each party to this
Plan. Nothing in this Paragraph shall create any rights
enforceable by any person not a party to this Plan, except for
the rights of the successors-in-interest and assigns of each
party to this Plan, unless such rights are expressly granted in
this Plan to other specifically identified persons.
14. Governing Law.
This Plan shall be construed in accordance with, and governed
by, the laws of the State of California.
15. Attorney's Fees.
In the event any litigation, arbitration, mediation, or other
proceeding ("Proceeding") is initiated by any party(ies) against
any other party(ies) to enforce, interpret or otherwise obtain
judicial or quasi-judicial relief in connection with this Plan
the prevailing party(ies) in such Proceeding shall be entitled to
recover from the unsuccessful party(ies) all costs, expenses, and
actual attorney's and expert witness fees relating to or arising
out of (a) such Proceeding (whether or not such Proceeding
proceeds to judgment), and (b) any post-judgment or post-award
proceeding including without limitation one to enforce any
judgment or award resulting from any such Proceeding. Any such
judgment or award shall contain a specific provision for the
recovery of all such subsequently incurred costs, expenses, and
actual attorney's and expert witness fees.
16. Prior Understandings.
This Plan contains the entire agreement between the parties
with respect to the subject matter of the Plan, is intended as a
final expression with respect to such terms as are included in
the Plan, and supersedes all negotiations, stipulations,
understandings, agreements, representations and warranties, if
any, with respect to such subject matter, which precede or
accompany the execution of the Plan.
17. Arbitration.
All disputes pertaining to this Plan shall be resolved by the
American Arbitration Association pursuant to its rules in San
Diego, California.
18. Option Non-Transferable; Exceptions
This option shall be neither transferable nor assignable by
Optionee other than by will or by the laws of descent and
distribution and may be exercised, during Optionee's lifetime,
only by Optionee.
EXHIBIT 11
STATEMENT RE: BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
(in thousands, except earnings (loss) per share data)
Year Ended Six Months
December 31, Ended
1997 1996 1995 6/30/98 6/30/97
Net earnings (Loss) ($254) ($905) ($653) $38 ($186)
Basic earnings (loss) per ($.02) ($.07) ($.06) $00 ($.01)
common share
Diluted earnings per NA NA NA $00 NA
common share
Weighted average common 13,535 12,597 11,277 15,854 12,602
shares outstanding
Weighted average common NA NA NA 16,902 NA
shares outstanding
assuming dilution
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Boatracs (Europe) B.V.
Enerdyne Technologies, Inc.
Oceantrac, Inc.
EXHIBIT 23
DELOITTE & TOUCHE, LLP LETTERHEAD
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of BOATRACS,
Inc. on Pre Effective Amendment No. 1 to Form SB-2 of our report
dated February 20, 1998, appearing in the Prospectus, which is
part of this Registration Statement, and to the reference to us
under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
/S/ DELOITTE & TOUCHE LLP
San Diego, California
September 22, 1998
