As filed with the Securities and Exchange Commission on April 29, 1998
Registration No. 333- _______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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.)
6440 Lusk Boulevard, Suite D201
San Diego, California 92121
(619) 587-1981
(Address and telephone number of registrant's principal executive offices)
Michael Silverman, Chairman of the Board
BOATRACS, Inc.
6440 Lusk Boulevard, Suite D201
San Diego, California 92121
(619) 587-1981
(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 3,924,200 $3.75 $14,715,750 $4341.17
par value shares
(1) The number of share of Common Stock set forth includes
125,000 shares available for purchase by certain Selling
Shareholders pursuant to warrants 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.
PROSPECTUS
5,370,070 Shares
BOATRACS, INC.
Common Stock
__________________________
This Prospectus relates to 5,370,070 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" or "BOATRACS"). The Shares are held
by or issuable to certain shareholders of the Company
(collectively, the "Selling Shareholders"). See "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."
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 April ___, 1998.
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-____________. 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.,
6440 Lusk Boulevard, Suite D201, San Diego, California, 92121,
(619) 587-1981.
____________________________________
OmniTRACS is a registered trademark of QUALCOMM Incorporated.
BOATRACS is a trademark of BOATRACS, Inc.
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. ("BOATRACS" or 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 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.
The Company earns revenue primarily from four 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; and (d) installation and training fees.
BOATRACS' 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.
BOATRACS has entered into a letter of intent to acquire Enerdyne
Technologies, Inc., a privately held corporation located in
Santee, California. Enerdyne sells video compression equipment
for military and commercial applications. See "Risk Factor --
Risks Associated with Potential Acquisition of Enerdyne, Inc."
and "Business -- Acquisition of Enerdyne Technologies, Inc."
The Offering
Common Stock offered by the Selling Shareholders 5,370,070 shares (1)
Common Stock outstanding 15,871,377 shares
(1) Includes 125,000 shares available for purchase by certain
Selling Shareholders pursuant to warrants 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.
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
information and related notes thereto, and other financial
information included herein.
Year Ended December 31
1997 1996 1995
Consolidated Statement of
Operations Data:
Communication systems $2,457 $1,428 $1,299
revenues
Data transmission and 2,791 2,073 1,368
messaging revenues
Loss from operations (292) (963) (678)
Net loss (255) (905) (653)
Net loss per share $(0.02) $(0.07) $(0.06)
Weighted average common and 13,535 12,597 11,277
common equivalent shares
outstanding
December 31
Consolidated Balance Sheet Data: 1997 1996
Working capital $22 $271
Total assets 3,036 1,581
Long-term liabilities --- ---
Shareholders' equity 1,387 600
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 incurred a net loss of
$254,887 for the year ended December 31, 1997, and net losses of
$905,438 and $653,136 for the years ended December 31, 1996 and
1995, respectively. 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 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. The Company is implementing a number of strategies to
expand into selected markets, but there can be 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, and its Chief Financial Officer,
Curt McLeland. 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
business is the License and Distribution Agreement between
QUALCOMM and the Company pursuant to which the Company has
distribution rights in the United States for marine application
of the OmniTRACS system of satellite-based communications and
tracking systems manufactured by QUALCOMM. QUALCOMM is the sole
supplier of the equipment sold by the Company and provides
certain services that are essential to the Company's business.
Should QUALCOMM decide to discontinue its satellite
communications business or the manufacture of such equipment,
the Company would be unable to continue its operations. 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.
In Europe, the Company relies on EUTELSAT's satellites, and in
Canada the Company relies on Canada Satellite Communications,
Inc. ("CANCOM"), a Canadian company and QUALCOMM's service
provider in Canada, for contracted satellite capacity. There
can be no assurance that the transponders used in Europe and
Canada 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 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.
Risks Associated with Potential Acquisition of Enerdyne, Inc.
The Company has entered into a letter of intent to acquire
Enerdyne Technologies, Inc. ("Enerdyne"). The letter of intent
is subject to final documentation, and certain material economic
terms of the transaction have yet to be agreed upon.
Accordingly, there can be no assurance that this acquisition will
proceed. See "Business -- Acquisition of Enerdyne, Inc." If the
acquisition does proceed, it will likely result in substantial
dilution to existing shareholders.
If the acquisition does proceed, the integration of BOATRACS' 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.
BOATRACS and Enerdyne have entered into the letter of intent with
the expectation that the combination of the companies will result
in beneficial synergies. There can be no assurance that if the
acquisition is consummated, these synergies will be achieved.
Additionally, there can be no assurance that the results of
operations and financial condition of BOATRACS 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.
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. Except the transaction with Enerdyne,
no such opportunities are currently under consideration. 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 Potential Acquisition of Enerdyne, Inc."
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
BOATRACS will be responsible for securing the necessary
regulatory approvals, licenses and permits and/or renewals
thereof for maritime operations from the local governments. The
Company and such local service providers may be less prominent
in such international markets than local competitors and may
have less opportunity to influence regulatory and standards
policies. In countries in which the Company contracts with
distributors of other communications systems, the Company may
apply to the local governments for applicable approvals. No
assurance can be given that the Company will be able to obtain
the required approvals, 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 beneficially own in the aggregate approximately 60%
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 include American
Mobile Satellite Corporation. 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, provides 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 approval.
EUTELSAT, a European organization, has lobbied the International
Maritime Organization 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 OmniTRACS 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 can be 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.
In addition, the Company 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. See "Business --
Competition."
Dependence on Significant Customers. The Company's primary
source of customers is the commercial marine industry. Two
customers, Kirby Corporation and Tidewater Marine, each
represented more than 10% 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.
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 subsidiary, Boatracs (Europe) B.V., 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. 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. See "Business -- Market
Expansion."
Uncertainty of Government Regulation and Renewal of Licenses.
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 MCTs for a term of
10 years. There can be no assurance that QUALCOMM's current
license will continue to be renewed. In the event of non-
renewal or revocation of QUALCOMM's license by the FCC, the
License and Distribution Agreement between QUALCOMM and the
Company may be terminated and the Company may be unable to
continue its United States operations.
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 potential 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 Effects Due to Shares Eligible for Future Sale.
In addition to the 5,370,070 shares of Common Stock offered
hereby, as of April 30, 1998, 3,736,013 shares were eligible for
unrestricted sale in the public market and an additional
6,765,294 shares 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."
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 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
1997 1996 1995
(in thousands, except per
share data)
Statement of Operations Data
Revenues:
Communication systems $2,457 $1,428 $1,299
Data transmission and 2,791 2,073 1,368
messaging
Total 5,248 3,501 2,667
Operating Expenses:
Communication systems 1,616 913 901
Data transmission and 1,419 1,090 833
messaging
Selling, general and 2,505 2,461 1,611
administrative expenses
Total 5,540 4,464 3,345
Loss from operations (292) (963) (678)
Other income 37 58 25
Net loss $(255) $(905) $(653)
Net loss per share $(.02) $(.07) $(.06)
Weighted average common shares 13,535 12,597 11,277
outstanding
December 31,
(in thousands)
1997 1996
Balance Sheet Data:
Working capital (deficit) $22 $271
Total assets 3,036 1,581
Long-term liabilities --- ---
Shareholders' equity (deficit)(1) 1,387 600
_________________________________
(1) No cash dividends were declared or paid during the periods
presented.
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 four 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; and (d) 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
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. Goodwill in the amount of $845,000 was recorded in
the acquisition and will be amortized over ten years.
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.
Results of Operations
The following table sets forth for the periods indicated the
relative percentages that certain income and expense items bear
to total revenues:
Year Ended December 31,
1997 1996 1995
% % %
Revenues
Communications systems 47 41 49
Data transmission and messaging 53 59 51
Total 100 100 100
Operating expenses:
Communications systems 31 26 34
Data transmission and messaging 27 31 31
Selling, general and 48 71 60
administrative expenses
Total 106 128 125
Loss from operations (6) (28) (25)
Other income 1 2 1
Net loss (5) (26) (24)
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 BOATRACS 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 BOATRACS 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
Through December 31, 1997, the Company funded its operations
primarily through revenues generated from operations, private
loans and private placements of Common Stock. The Company's
cash balance at December 31, 1997 was $392,712, an increase of
$289,568, or 281%, over the December 31, 1996 cash balance of
$103,144. At December 31, 1997, working capital was $21,976, a
decrease of $249,031 from the working capital of $271,007 at
December 31, 1996. The decrease in working capital was due to
investment balances being used for working capital and increases
in accounts payable. Cash of $135,015 was used in operating
activities, cash of $702,954 was used in investing activities,
and cash of $857,507 was provided by financing activities during
1997. Cash used in investing activities included the proceeds
from maturity of investment securities and goodwill purchased
through acquisition. Cash provided by financing activities
included payments received on note receivable issued for common
stock and common stock issued in acquisition.
There were no investment securities at December 31, 1997, a
decrease of $425,852, compared to the prior year balance of
$425,852, due to use of some funds in operations and excess
funds being invested in cash equivalents. Accounts receivable
net of an allowance for uncollectible amounts increased $379,764
to $937,010 due primarily to higher messaging billings during
the year and the acquisition of MED. Prepaid expenses and other
assets were $107,435 at December 31, 1997, an increase of
$33,725, or 46%, compared to the prior period, due primarily to
increased prepaid insurance, deposits and interest receivable.
Inventory at December 31, 1997 was $234,092, compared to $92,118
in the prior year, an increase of $141,974 due primarily to
units held for future sales in Europe and the United States.
Property, net of accumulated depreciation, was $223,863 at
December 31, 1997, compared to $120,731 in the prior year, an
increase of $103,132, or 85%, due primarily to the purchase of
additional computer equipment and office furniture. Notes
receivable increased to $310,463 at December 31, 1997, from
$208,463 at December 31, 1996, an increase of $102,000, or 49%,
due to the increase of a loan to a Canadian distributor, which
is expected to continue to increase during 1998. Goodwill in
the amount of $845,000 was recorded in the acquisition of MED.
Accounts payable were $1,133,997 at December 31, 1997, an
increase of $404,074, or 55% compared to a balance of $729,923
in the prior year due to higher vendor payables owing to
QUALCOMM resulting primarily from increased messaging costs.
Accrued expenses were $265,276 at December 31, 1997, an increase
of $198,533, or 297%, compared to a balance of $66,743 at the
prior year due to increased accruals including the Company's
European subsidiary and MED. Acquisition costs payable in the
amount of $250,000 payable in December, 1998, relates to the
purchase of MED. A short-term margin loan was paid off at
December 31, 1997, compared to a balance of $139,268 at December
31, 1996, reflecting borrowings against investment securities.
Deferred compensation, net of borrowings, was paid off at
December 31, 1997, compared to $45,129 at December 31, 1996. The
borrowings had been offset against deferred compensation in
accordance with the amended terms of the note.
The Company anticipates that any future funding requirements
will be satisfied through potential public and private
financings. The known resources of liquidity of the Company,
coupled with the projections for revenue, are expected to cover
the Company's cash needs until at least the end of 1998.
The Company anticipates making capital expenditures in excess of
$100,000 (other than cash for acquisitions) during 1998
primarily on computer and office equipment. This amount
excludes any capital expenditures which may result from the
acquisition of Enerdyne (see "Risk Factors - Risks Associated
with potential Acquisition of Enerdyne, Inc.").
The Company has entered into a letter of intent to acquire
Enerdyne Technologies Inc ("Enerdyne"). Currently, consummation
of the acquisition of Enerdyne is subject to the satisfaction of
certain conditions and the final approval of both parties. No
assurances that the acquisition will proceed can be made. If the
acquisition does proceed, it will require the Company to raise
substantial amounts of capital to pay the purchase price of the
acquisition. 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 Company currently contemplates that a large
percentage of the capital necessary to pay the purchase price
will be raised through traditional debt financing sources.
Additionally, it is contemplated that a portion of the
consideration to be paid to Enerdyne will include issuance of
additional Common Stock. Such issuance will result in dilution
to existing shareholders.
Acquisition of Enerdyne and other acquisitions and expansion of
the Company's business may require a commitment of substantial
funds. To the extent that the net proceeds of recent private
financing activities and internally generated funds are
insufficient to fund the Company's operating requirements, it
may be necessary for the Company to seek additional funding,
either through collaborative arrangements or through public or
private financing. There can be no assurance that additional
financing will be available on acceptable terms or at all. If
additional funds are raised by issuing equity securities,
dilution to the existing shareholders may result. If adequate
funds are not available, the Company's business would be
adversely affected.
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. 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
BOATRACS' 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 certain 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
subsidiary BOATRACS (Europe) B.V. ("BOATRACS (Europe)") 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 center provides
personal message relaying services to individual vessels and
backup services to fleets of vessels.
The Company derives revenue primarily from four 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. Installation and training fees.
BOATRACS' 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. 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 BOATRACS' customers. The Company
has built software tools for both the vessel and the office
enabling the integration of this information. Confidentiality of
data transmission is an added concern of commercial maritime
fleet operators. For example, scallop fishermen need to be able
to communicate to shore about their catches and from boat to boat
without informing competitors. Towboat dispatchers need to keep
communications about customers confidential. Two-way radio and
cellular phone service provide mobility but 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, BOATRACS
believes that it has developed cost-effective, reliable and user-
friendly solutions for many of the communications, vessel
tracking and near "real time" data transfer needs of commercial
vessel operators.
Effective November 1, 1997, the Company purchased certain assets
as a going concern of MED Associates, Inc. ("MED"), a Mississippi
based provider of software applications and service solutions to
the commercial work boat industry and oil companies.
The Company has entered into a letter of intent to acquire
Enerdyne Technologies, Inc. ("Enerdyne"), a privately held
company located in Santee, California. Enerdyne sells video
compression equipment for military and commercial applications.
There can be no assurance that the acquisition will be
consummated. If the transaction is contemplated, the Company
anticipates the purchase price will be paid by a combination of
cash and stock.
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 BOATRACS 24-hour network center also
in San Diego or to OceanTrac Systems Limited in Yarmouth, Canada.
Messages that go to BOATRACS 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 mobile units. The 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 9-meter dish located on the QUALCOMM premises. A backup NMF
and dish are maintained by QUALCOMM in Las Vegas, Nevada.
Connections to the QUALCOMM NMF are supported through existing
lease-line and dial-up services. 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 GE aboard
an existing satellite under a "protected lease" which guarantees
transponders will be available to QUALCOMM through one of GE'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 BOATRACS 24-hour Network Center 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 San Diego Network Center 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
Canadian distributor, OceanTrac Systems Limited provides services
to Canadian vessels from a network center in Nova Scotia, Canada.
Computers communicate to the QUALCOMM NMF by modem to monitor
customer accounts on the system. BOATRACS 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.
BOATRACS 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. 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 BOATRACS' customers use only the
basic MCT, BOATRACS offers optional products that interface with
the basic unit. 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.
BOATRACS Network Center
BOATRACS operates a 24-hour Network Center from its San Diego,
California-based offices and a Network Center in Leiden, The
Netherlands, where messages are forwarded to vessels and land-
based connections. In addition, OceanTrac Systems Limited, the
Company's representative in Canada, operates a Network Center in
Nova Scotia. After initial set-up costs are incurred, the
network facility will be a virtually fixed cost operation with
the potential to handle hundreds of additional units at a small
incremental cost.
In San Diego, the BOATRACS' Network Center is linked via a
dedicated telephone line for data transfers via modem directly to
QUALCOMM's NMF in San Diego, where message transmissions to and
from the vessels are formatted and processed. The network center
also has a dedicated line to a local internet service provider
for internal internet use as well as value-added messaging
services for vessels.
Network Management Facilities
One component of the Network Management Facility is an earth
station for communication with the MCTs via satellite. All
individual messages originating from either the NMF or the
vessels are automatically acknowledged electronically upon
receipt and checked for accuracy of transmission by the system.
If not received correctly, the messages are automatically
retransmitted. Since all messages and position reports are
transmitted in data format, they can be stored for later
retrieval and viewing.
In the Office
Generally, a customer with less than four units uses the
Company's 24-hour network service only. Typically, a customer
who has more than four BOATRACS units elects to establish an in-
house base station. The base station provides the customer with
an in-house communications link and vessel-tracking capability.
The base station is comprised of a computer and BOATRACS or third
party communications software containing a mapping function
whereby a customer can follow the progress of its fleet on a
detailed computer map. Communications are conducted via modem
directly between the customer's base station and the NMF
maintained by QUALCOMM for satellite transmission to the
customer's vessels.
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 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
purchase at a nominal cost one share for every dollar such
earnings fall short of the target.
MED 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 BOATRACS customers in the
work boat industry facilitates more timely customer service
solutions to those customers.
Dependence upon Significant Customers
The Company's primary source of customers is the commercial
marine industry. Two customers, Tidewater Inc. and Kirby
Corporation, each represented more than 10% 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, MED derives significant portions of its revenues from
Tidewater Inc. (45% of MED's total revenues for the last two
months of 1997).
The major customers may change yearly as they are calculated on
total revenues including sales of communications systems.
Purchases of communication systems by a customer may not occur
yearly and there can be no assurance that such customers will
make significant purchases of the Company's products in the
future. The only relationship between the Company and any of the
above customers is that the Company sells to each customer
communication systems and messaging services. In addition, MED
provides software solutions to certain customers of the Company.
Agreements
Agreements with QUALCOMM
The Company has distribution rights for the OmniTRACS System in
the United States for marine application under a License and
Distribution Agreement dated June 13, 1990, as amended from time
to time (the "Distribution Agreement") with QUALCOMM. The
Distribution Agreement has an initial term of five years with
three options to extend for five years each (provided that
BOATRACS is in full compliance with the terms of the Distribution
Agreement) for a total of twenty years through 2010. The first
option to extend has been exercised by the Company. The
Distribution Agreement calls for the negotiation in good faith of
a new agreement upon the expiration of the last option.
Under the Distribution Agreement, the Company has certain
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, BOATRACS is required to sell a
certain minimum number of MCTs in order to maintain the
exclusivity of its distribution rights, commencing with 480 MCTs
in the aggregate by December 31, 1996. 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 BOATRACS desires to sell its business, QUALCOMM has a right of
first refusal under the Distribution Agreement to purchase the
business of BOATRACS on the terms of the sale to the proposed
transferee.
QUALCOMM's obligation to provide messaging services pursuant to
the Distribution Agreement 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
BOATRACS six months prior notice. If QUALCOMM elects to
terminate the Distribution Agreement, QUALCOMM must take
reasonable and necessary steps to enable BOATRACS to continue to
provide messaging services to its end users. BOATRACS may
terminate the Distribution Agreement under certain circumstances
if new technology for a system comparable to the BOATRACS System
is developed by certain entities other than QUALCOMM.
The Company also entered into a license agreement with QUALCOMM
(the "License Agreement") pursuant to which QUALCOMM will pay the
Company a per copy royalty for the right to use, sublicense and
distribute certain interface software developed and owned by the
Company as an enhancement to QUALCOMM's OmniTRACS System. The
License Agreement term commenced in March, 1995 and will
terminate upon the termination of the Distribution Agreement
between the Company and QUALCOMM.
During March, 1995, the Company issued 1,112,265 shares of Common
Stock to QUALCOMM for $737,000. The purchase price of the shares
will be paid by a reduction in the price of certain products and
services currently provided by QUALCOMM to the Company and, upon
satisfaction of certain conditions, the conversion of a certain
non-exclusive territory to an exclusive territory, under the
License 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
December 31, 1997, a total of $550,079 in discounts were earned.
Sub-Service Provider Agreement with ALCATEL QUALCOMM
In March, 1997, the Company's wholly-owned subsidiary BOATRACS
(Europe) 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) 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
BOATRACS operates in the United States.
Agreement with OCEANTRAC SYSTEMS LIMITED
In September, 1996, the company entered into an agreement with
Oceantrac Systems Limited ("SYSTEMS"), providing for the
establishment of Oceantrac Incorporated, a Canadian subsidiary of
SYSTEMS ("OCEANTRAC"). Under the terms of the agreement,
OCEANTRAC will act as the sole representative of SYSTEMS for
marketing, distribution and sale of the BOATRACS System (as
defined in such agreement) 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. BOATRACS holds
an option to acquire a majority of the issued and outstanding
shares of the capital stock of OCEANTRAC.
Regulation
Domestic Operations
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 MCTs for a term of 10 years. There can
be no assurance that QUALCOMM's current license will continue to
be renewed.
International Operations
BOATRACS 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 BOATRACS 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.
BOATRACS, though its BOATRACS (Europe) 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
BOATRACS continues to develop new software products to complement
the BOATRACS product line. This software is sold to BOATRACS'
customers under BOATRACS' proprietary names.
The Company is seeking strategic alliances with companies that
have a proven product or service in the marine market. In
addition, BOATRACS 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. BOATRACS
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 BOATRACS' present services.
ORBCOMM estimates the system will be operational during late 1998
or 1999.
Market Expansion
The Company believes that there is a sizable market in the United
States and abroad for its products and has developed a strategy
to expand into selected markets by providing innovative solutions
to customer needs. The following are descriptions of certain
areas of potential market expansion being explored by the
Company. There can be no assurances that any of the Company's
market expansion efforts will be successful.
Proposed United States Fishing Regulations
As a result of the critical level of various fishing resources,
the National Marine Fisheries Service ("NMFS"), a division of the
United States Department of Commerce, is managing the population
of specific marine species through recently imposed (but not
enforced) regulations of the domestic scallop and ground fishing
fleets. These regulations impose restrictions on the number of
days and locations that certain vessels can fish. Compliance
with these regulations requires a certified tracking device to
monitor on a 24-hour basis the position of vessels licensed to
catch a regulated species. On March 11, 1998, The BOATRACS
System was certified by NMFS. The Company believes that the sales
potential in the domestic scallop and ground fishing industries
are still difficult to forecast. It is anticipated that as fish
stocks dwindle, the number of licensed fishing vessels also
declines, but the Company anticipates an increase in sales of
MCTs due to NMFS regulation. Additionally, the currently
contemplated implementation of satellite transponders onboard
fishing vessels may be overruled by emergency measures,
alternative management schemes, or acts of Congress which could
close certain fisheries in total or in part. BOATRACS has
installed more than 160 units on fishing vessels that could fall
within the proposed regulations calling for certified tracking
devices.
International Distribution of the BOATRACS System
Numerous Ku-band satellites currently provide coverage in regions
outside the United States, including Japan, Europe, Canada,
Mexico and regions of the former Soviet Union. Additionally,
QUALCOMM uses a C-Band satellite to provide coverage in Brazil.
As a result, the Company believes that a significant opportunity
exists for utilization of the BOATRACS System outside of the
United States. Because the Company's business is currently
dependent upon services provided by QUALCOMM through its
OmniTRACS operations, the Company's primary strategy is to expand
its services to selected areas of the world where the OmniTRACS
service has been established. The Company's operations in such
areas would be conducted pursuant to agreements to be negotiated
between the Company and QUALCOMM's local OmniTRACS service
providers. In countries in which no OmniTRACS service provider
is operating, the Company may seek to enter into agreements with
providers of other communications services, if available.
Canada. In September, 1996, the Company entered into an
agreement with Oceantrac Systems Limited ("SYSTEMS") providing
for the establishment of Oceantrac Incorporated, a Canadian
subsidiary of Systems ("OCEANTRAC"). Under the terms of the
agreement, OCEANTRAC will act as the sole representative of
SYSTEMS for marketing, distribution and sale of the BOATRACS
System and any related business in the territory granted under
the license from the Company including the provinces of Ontario,
Quebec, New Brunswick, Prince Edward Island, Nova Scotia,
Newfoundland and Labrador. See "Business - Agreements."
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 OceanTrac Systems Limited
to forward information to RCC Halifax and to assist in resolving
SAR cases.
Europe. BOATRACS (Europe) 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 the
Company's BOATRACS (Europe) subsidiary 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) 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
BOATRACS could provide to the maritime industry in certain areas
of Europe.
BOATRACS intends to focus on three key market sectors in Europe:
fishing, coastal and inland towing. BOATRACS (Europe) 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,
BOATRACS hopes to establish a profitable market in the European
marine industry.
Additional Overseas Expansion. The Company has been asked by
various entities to commence activities in Asia and South
America. Expansion in these areas will depend on available
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 BOATRACS with introductions to the
marine market. However, with few exceptions, BOATRACS has not had
success from the dealer and manufacturers' representative system
of distribution. Except in the New England fishing market, most
of the selling and distributing has been generated by the San
Diego office 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
BOATRACS 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.
The following is an overview of certain products and services
that compete with BOATRACS products and services:
Alternative Satellite Service Providers. Several competing
entities provide satellite-based mobile voice and data systems in
marine markets. INMARSAT, an international consortium, provides
maritime voice, facsimile and data services nearly worldwide
using capacity on a combination of owned and leased satellites.
American Mobile Satellite Corporation currently offers data
communications and vessel tracking using its newly launched L-
band satellite, and a voice-based system. ARGOS provides one-way
(ship to shore) communications and position reporting in many
parts of the world. When ARGOS operates on the Japanese ADEOS2
satellite 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.
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.
Proprietary Information
The Company relies on a combination of copyrights, trade secrets,
trademarks and proprietary information to maintain and enhance
its competitive position. According to reports filed with the
Commission, QUALCOMM has been granted United States patents and
has patent applications pending in the United States with respect
to the OmniTRACS System. QUALCOMM has also reported that it
actively pursues patent protection in other countries of
interest, which protection may or may not cover OmniTRACS
products.
Employees
At April 15, 1998, the Company had 27 full-time and 5 part-time
employees.
Facilities
The Company conducts its operations from a leased 8,300 square
foot facility in San Diego, California. The lease expires in
September, 1998. BOATRACS (Europe) operates from a leased
facility in Leiden, The Netherlands, the lease for which expires
in December, 2001.
The Company has entered into a lease for a 12,780 square foot
facility to be occupied by the Company with effect for 54 months
commencing in June, 1998. The premises are located in San Diego,
California.
Legal Matters
The Company is not currently involved in any material legal
proceedings.
MANAGEMENT
The executive officers and directors of the Company and their
ages as of April 15, 1997 are as follows:
Name Age Position
Michael Silverman 53 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
Julius Trump 54 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.
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. Trump became a director of the Company in June, 1997. He has
served as Chairman or Co-Chairman of The Trump Group (a private
investment group) for more than five years. In addition, Mr.
Trump served as Chairman of the Board and Chief Executive Officer
of CSK Auto Corporation (a retailer of automotive parts and
accessories) for more than five years prior to his resignation in
January, 1997, and continues to serve as a director of CSK Auto
Corporation.
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
Associates, Inc. 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 Technlogy
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.
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 Mr. 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 Associates, Inc.
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 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 $100,000 last year, and the fiscal year value of
unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of
Securities Value of
Shares Underlying Unexercised In-
Acquire Value Unexercised The-Money
Name d on Realize Options at FY- Options at FY-
Exercis d ($) End (#) End ($)
e (#) 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
Non-employee directors of the Company receive $500 for each Board
meeting they attend. Directors are reimbursed for certain
expenses in connection with attendance at Board and committee
meetings. Non-employee directors participate in the 1996 Stock
Option Plan. Non-employee directors Messrs. Bateman, Kane and
Maizel have each received 10,000 options at an exercise price of
$1.00 per share and 10,000 options at an exercise price of $1.25
per share. Mr. Lynn and Mr. Trump received 10,000 options at an
exercise price of $1.19 per share. Messrs. Bateman and Lynn
received 10,000 warrants each exercisable at $2.44 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 Incorporated, which owns 1,112,265 shares (7%) 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 is 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 is payable in five semi-annual installments of
$420,241, and will 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. Subsequent installments will remain at $420,241. See
also "Executive Compensation."
Effective November 1, 1997, the Company purchased 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 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.
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 March 31, 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 7%
6455 Lusk Boulevard
San Diego, CA 92121
Michael Silverman 3,954,317 25
Jon Gilbert 3,836,800 (2) 24
Annette Friskopp 447,931 3
Giles Bateman 679,825 4
Luis Maizel 104,921 (3) *
Mitchell Lynn 137,500 (4) *
Julius Trump 90,000 (5) *
Daniel Negroni 15,000 *
Charles Drobny, Jr. 308,000 (6) 2
Curt McLeland 0 *
Peter Carides 0 *
All Directors and Executive 9,574,294 60%
Officers as a group (10
persons) (7)
(1) The address for all directors and executive officers is 6440
Lusk Boulevard, Suite D-201, San Diego, California, 92121.
(2) Includes 236,800 shares held in a Family Trust of which Mr.
Gilbert is a trustee. Also includes 1,840,252 which are not
vested and cannot be sold. 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) Represents shares indirectly owned by a Trust of which Mr.
Trump or members of his family may become beneficial owners.
Mr. Trump disclaims beneficial ownership of such shares.
(6) 300,000 of the shares represent restricted stock granted
under an agreement. These shares are subject to repurchase
under certain conditions.
(7) Includes shares issuable upon the exercise of options within
sixty days of March 23, 1997, as follows: Ms. Friskopp,
70,000 shares; Mr. Bateman, 16,000 shares; Mr. Lynn, 10,000
shares, and Mr. Maizel, 6,000 shares. These options are
also included in the total shares shown above for the
individuals.
* 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
Total 5,370,070
_________________________
(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 are not vested and cannot
be sold. Provided Mr. Gilbert makes scheduled payments under
a promissory note, 390,253 Shares will vest October 15, 1998,
and 483,333 Shares will vest on each of April 15, 1999,
October 15, 1999 and April 15, 2000. 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 expires on October 31, 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 is a director of the Company.
(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.
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 April 29, 1998, there were 15,871,377 shares of Common
Stock outstanding held by approximately 300 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 April 29, 1998, the Company had 15,871,377 shares of Common
Stock outstanding. Of these, approximately 9,106,083, 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 6,765,294 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
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 April 21, l998, the closing high and low bid price of the
common stock, as reported on the OTC Bulletin Board, was $3.625.
As of March 31, 1998, the Company had approximately 300 holders
of record of its Common Stock. In addition, approximately 3.4
million shares are held in street name accounts. 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 Stockholders' Equity (Deficit) for
the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7 through F-13
(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.
DELOITTE & TOUCHE LLP
/S/ DELOITTE & TOUCHE LLP
San Diego, California
February 20, 1998
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
9
TOTAL $ 3,036,492 $1,581,264
See notes to consolidated financial
statements.
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.
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 852,607 127,801 337,897
Accrued interest payable 5,421
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)
Goodwill purchased through
acquisition (845,000)
Net cash (used in) provided
by investing activities (702,954) 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 2
Common stock issued in acquisition 420,000
Net cash provided by
financing activities 857,507 119,179 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 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 STOCK RECEIVABLE TOTAL
ACCUMULATED FOR STOCKHOLDER'S
SHARES AMOUNT DEFICIT COMMON STOCK EQUITY
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 1,112,285 737,000 $(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 24,600 24,600 24,600
WITH
SERVICES
RENDERED
PAYMENTS
RECEIVED
ON NOTE 183,557 183,557
RECEIVABLE
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 4,667 4,792 4,792
EXERCISE
OF STOCK
OPTIONS
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 234,501 234,501
RECEIVABLE
ISSUANCE
COSTS IN
CONNECTION
WITH (6,473) (6,473)
COMMON STOCK
ISSUED
NET LOSS (254,887) (254,887)
BALANCE
DECEMBER 31,
1997 15,806,977 $6,949,244 $(3,444,198) $(2,117,836) $1,387,219
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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. 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.
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-Forma
1997 1997 1997
Total Revenues $5,247,541 $877,309 $6,124,850
Net (Loss) Income from $(292,039) $798,369 506,330
Operations
Net (Loss) Income $(254,887) $78,940 $(175,947)
Weighted Average Shares 13,785,296
EPS $(0.01)
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 depreciation 148,734 105,919
$223,863 $120,731
Goodwill $845,000
Less Amortization 14,083
$830,917
Deferred Compensation -
Officer (Note 8) $369,230
Less Note Receivable -
Officer (Note 4) 324,101
$ 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:
Years 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. 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
of Price
Shares per Share
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 Weighted Number
Average
Range of Remaining Weighted
Average Contractual Average
Exercise Number Life Exercise
Prices Outstanding Price Exercisable Exercise 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 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
representation must not be 5,370,070 SHARES
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 or a solicitation of
an offer to buy any security BOATRACS, INC.
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 would be
unlawful. Neither the Common Stock
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 information herein is
correct as of any time Prospectus
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 11
Dividend Policy 11
Selected Financial Data 12
Management's Discussion and
Analysis of Financial
Condition
And Results of Operations 13
Business 17
Management 27
Certain Transactions 31
Principal Shareholders 32
Selling Shareholders 34
Description of Capital Stock 35
Shares Eligible for Future Sale 36
Market Information 36
Plan of Distribution 37
Legal Matters 38
Experts 38
Index to Financial Statements F-1
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 $4,600
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 $27,700
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 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. The number of shares pledged
will decrease as the note is paid. 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, 1998 the Company issued 10,000 shares to Torrey Pines
Securities in connection with a Warrant to Purchase Common Stock
at $1.50 per share.
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
29th day of April, 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 the April 29, 1998
Michael Silverman Board
/S/ JON S. GILBERT President and April 29, 1998
Jon S. Gilbert Chief
Executive
Officer
/S/ ANNETTE FRISKOPP Executive Vice April 29, 1998
Annette Friskopp President and
Director
/S/ CURT MCLELAND Chief Financial April 29, 1998
Curt McLeland Officer and
Chief
Accounting
Officer
/S/ GILES BATEMAN Director April 29, 1998
Giles Bateman
/S/ LUIS MAIZEL Director April 29, 1998
Luis Maizel
/S/ MITCHELL LYNN Director April 29, 1998
Mitchell Lynn
/S/ JULIUS TRUMP Director April 29, 1998
Julius Trump
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.
21 Subsidiaries of the Registrant. Filed herewith.
23 Independent Auditors' Consent. Filed herewith.
* Portion of this exhibit redacted pursuant to a confidential
treatment request
EXHIBIT 5
SOLOMON WARD SEIDENWURM & SMITH, LLP LETTERHEAD
April 29, 1998
BOATRACS, Inc.
6440 Lusk Boulevard, Suite D-201
San Diego, CA 92121
Re: 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 74,600 shares of common stock, no par
value (the "Shares"), of BOATRACS, Inc. (the "Company") held
be certain shareholders of the Company, pursuant to a
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)
For the Year Ended
December 31,
1997 1996 1995
Net Earnings (Loss) <$254> <$905> <653>
Basic Weighted average common
shares outstanding* 13,535 12,597 11,277
Net Loss per share <$.02> <$.07> <$.06>
* Common stock equivalents are considered anti-dilutive and
therefore are not included in the diluted computation.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Boatracs (Europe) B.V.
EXHIBIT 23
DELOITTE & TOUCHE, LLP LETTERHEAD
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of
BOATRACS, Inc. on 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
April 29, 1998
