As filed with the Securities and Exchange Commission on April 26, 1999
Registration No. 333-51283
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE EFFECTIVE AMENDMENT NO. 4
FORM SB-2/A
REGISTRATION STATEMENT
Under the Securities Act of 1933
BOATRACS, INC.
(Exact name of registrant as specified in its charter)
California 5060 33-0644381
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number)Identification No.)
10675 Sorrento Valley Road, Suite 200
San Diego, California 92121
(619) 657-0100
(Address and telephone number of registrant's principal executive offices
Michael Silverman, Chairman of the Board
BOATRACS, Inc.
10675 Sorrento Valley Road, Suite 200
San Diego, California 92121
(619) 657-0100
(Name, address and telephone number of agent for service)
It is requested that copies of communications be sent to:
Norman L. Smith, Esq.
Solomon Ward Seidenwurm & Smith
401 B Street, Suite 1200
San Diego, California 92101
(619) 231-0303
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after this Registration Statement becomes effective, which time is to be
determined by the Selling Securityholders. All of the Securities offered hereby
are offered for the account of the Selling Securityholders.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<PAGE>
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 10,154,865 $3.75 $3.75 $9,602.80(3)
par value shares
(1) The number of shares of Common Stock set forth includes 1,977,000 shares
available for purchase by certain Selling Shareholders pursuant to warrants and
options issued by the Registrant.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating
the registration fee.
(3) Calculation is based upon 9,900,070 shares @ $3.75 per share plus an
additional 254,795 shares @ $2.75 per share.
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 1,310,265 shares of the
Company's Common Stock previously registered on Form S-1, Commission File No
33-91284, and Form SB-2, Commission File No. 333-26253.
<PAGE>
PROSPECTUS
10,154,865 Shares
BOATRACS, INC.
Common Stock
This Prospectus relates to 10,154,865 shares (the "Shares") of common stock, no
par value (the "Common Stock"), of BOATRACS, Inc., a California corporation
formerly known as First National Corporation (the "Company"). The Shares are
held by or issuable to certain shareholders of the Company (collectively, the
"Selling Shareholders"). See "Selling Shareholders." The Shares represent
approximately 49% of the outstanding Common Stock of the Company (including
1,977,000 Shares issuable upon exercise of the options and warrants set forth in
the table of Selling Shareholders).
The Company will not receive any proceeds from the sale of Shares by the Selling
Shareholders. All expenses incurred in connection with this offering are being
borne by the Company, other than any commissions or discounts paid or allowed by
the Selling Shareholders to underwriters, dealers, brokers or agents.
The Selling Shareholders have not advised the Company of any specific plans for
the distribution of the Shares, but it is anticipated that the Shares may be
sold from time to time in transactions (which may include block transactions) in
the over-the-counter market at the market prices then prevailing. Sales of the
Shares may also be made through negotiated transactions or otherwise. The
Selling Shareholders and the brokers and dealers through which the sales of the
Shares may be made may be deemed to be "underwriters" within the meaning set
forth in the Securities Act of 1933, as amended, and their commissions and
discounts and other compensation may be regarded as underwriters' compensation.
See "Plan of Distribution."
The Company's Common Stock is quoted on the OTC Bulletin Board under the symbol
"BTRK." The closing price per share of Common Stock as of April 20, 1999 was
$2.25.
For a discussion of certain factors relating to an investment in the Common
Stock, see "Risk Factors" beginning on page 8.
----------------------------
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 , 1999.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). These reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and should also be
available for inspection and copying at the Commission's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, the Commission maintains a Web Site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding the Company.
The Company has filed with the Commission Registration Statements on Forms S-1
and Form SB-2 (the "Registration Statements") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the shares of Common Stock
offered hereby. The Commission file numbers for the Registration Statements are
33-91284, 333-26253 and 333-51283. This Prospectus does not contain all of the
information set forth in the Registration Statements or the exhibits thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document filed or incorporated by reference as an exhibit to the
Registration Statements are not necessarily complete, and each such statement is
qualified in its entirety by reference to the copy of such contract or other
document filed as an exhibit to the Registration Statements. For further
information, reference is hereby made to the Registration Statement and exhibits
thereto, copies of which may be inspected in the manner described above. The
Company will provide to any person receiving this Prospectus a copy of the
Registration Statements and the exhibits thereto without charge upon a request
directed to Boatracs, Inc., 10675 Sorrento Valley Road, Suite 200, San Diego,
California, 92121, (619) 657-0100.
- ------------------------------------
OmniTRACS is a registered trademark of QUALCOMM Incorporated. BOATRACS is a
trademark of BOATRACS, Inc.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing later in this Prospectus. Each
prospective investor is urged to carefully read this Prospectus in its entirety,
including but not limited to the Risk Factors.
Certain statements contained in this Prospectus regarding matters that are not
historical facts are forward-looking statements relating to future events or
future financial performance of the Company. Because such forward-looking
statements include risks and uncertainties, actual results may differ materially
from those expressed in or implied by such forward-looking statements. Factors
that could cause actual results to differ materially include, but are not
limited to, those discussed under "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business," as
well as those discussed elsewhere in this Prospectus.
The Company
The Company has two main business units:
1. BOATRACS, Inc. ("BOATRACS") and
2. Enerdyne Technologies, Inc. ("ENERDYNE"), a wholly owned
subsidiary.
BOATRACS
BOATRACS' objectives include providing reliable and cost effective data
communications systems for commercial marine applications. To achieve this
objective, BOATRACS currently offers several satellite-based communications and
tracking systems (the "Boatracs System") and integrated software solutions. In
addition, BOATRACS or its wholly owned subsidiaries, BOATRACS (Europe) B.V. and
Oceantracs, Ltd., offer similar services in Europe and Canada, respectively.
ENERDYNE
On July 7, 1998, the Company acquired ENERDYNE, which was a privately held
company located in Santee, California. ENERDYNE develops, builds and sells
digital video compression equipment for the aerospace, military, intelligent
transportation, government and commercial markets.
ENERDYNE was formed in 1983 and initially focused on the development of
proprietary solutions and protocol with the precision necessary to provide
motion joint photographers expert group ("MJPEG") based real-time video
compression technology for the United States military. ENERDYNE continues to
develop innovative solutions delivering real-time compressed video for use in
unique applications such as the downlink of multiple video signals from Space
Shuttle Columbia flights, video transmission solutions for remotely controlled
cranes, tanks and personnel carriers and unmanned airborne vehicles ("UAV").
ENERDYNE products have broad applications for other video surveillance markets.
ENERDYNE has had success providing solutions for applications in intelligent
transportation systems ("ITS") and has developed a reputation for its traffic
surveillance products.
The Offering
ommon Stock offered by the Selling Shareholders.......10,154,865 shares (1)
Common Stock outstanding...............................18,852,508 shares
(1)......Includes 1,977,000 shares available for purchase by certain Selling
Shareholders pursuant to warrants and options issued by the Company.
OTC Bulletin Board symbol............................................BTRK
Risk Factors
The Shares offered by this Prospectus are highly speculative and involve a high
degree of risk and should be purchased only by investors who can afford the loss
of their entire investment. See "Risk Factors" beginning on page 8.
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
The following tables show summary consolidated financial information and other
equity information of the Company. The summary financial information is derived
from the financial statements of the Company, and should be read in conjunction
with and is qualified in its entirety by the more detailed financial information
and related notes thereto, and other financial information included herein.
Year Ended December 31
1998 1997 1996
---- ---- ----
Consolidated Statement of Operations Data:
Communication systems revenues $4,033 $2,413 $1,385
Data transmission and messaging revenues 3,881 2,791 2,073
Video Compression 2,259
Income (loss) from operations 333 (292) (963)
Net income (loss) 389 (255) (905)
Basic earnings (loss) per common share $0.02 $(0.02) $(0.07)
Dilutive earnings per common share $0.02 NA NA
Weighted average common shares outstanding 17,333 13,535 12,597
Weighted average of common shares
outstanding assuming dilution 18,358 NA NA
<PAGE>
December 31,
Consolidated Balance Sheet Data: 1998 1997
---- ----
Working capital...................................... $(205) $ 22
Total assets......................................... 33,070 3,036
Long-term liabilities............................... 14,734 ---
Shareholders' equity................................. 14,472 1,387
RISK FACTORS
An investment in the Common Stock offered hereby is speculative in nature and
involves a high degree of risk. In addition to the other information in this
Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Common Stock
offered by this Prospectus.
The Company wishes to caution investors that the following risk factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results in the
future to differ materially from those expressed in any forward-looking
statements made by, or on behalf, of the Company.
History of Operating Losses. The Company realized net income of $389,091 for the
year ended December 31, 1998 and net losses of $254,887 and $905,438 the years
ended December 31, 1997 and 1996 respectively. At December 31, 1998, the Company
had an accumulated deficit of $3,055,098. There can be no assurance that the
Company will sustain profitability in the future. See "Selected Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Need to Develop Markets. The scope of the market for the Company's primary
products and services is the commercial maritime industry. The Company estimates
that its share of the maritime communications market to be very small. The
Company believes that in order to achieve and sustain profitability, it will
need to expand the distribution of its products and services into additional
markets such as the market for video compression products serviced by its
recently acquired subsidiary, Enerdyne Technologies, Inc. ("Enerdyne"). The
Company is implementing a number of strategies to expand into selected markets;
however, there is no assurance that any of these efforts will be successful. See
"Business -- Market Expansion."
Potential Fluctuation in Operating Results. The Company's quarterly operating
results have varied significantly as a result of a number of factors, including
varying levels of sales and the timing of increased expenses to support the
Company's growth. The Company expects that its operating results will fluctuate
in the future as a result of these and other factors including possible
acquisitions and strategic relationships and the level of competition. There can
be no assurance that the Company will be able to achieve and sustain a level of
profitability on a quarter-to-quarter basis. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--Market
Expansion."
Dependence on Key Management. The Company's success will continue to depend to a
significant extent upon its Chairman Michael Silverman, its President Jon
Gilbert, its Vice Presidents Daniel Negroni and Charles Drobny, its Chief
Financial Officer John O'Bryant, its Managing Director of Boatracs (Europe)
B.V., Peter Carides, its Chief Technology Officer of ENERDYNE Scott Boden who is
also a Director of the Company, and its President of ENERDYNE, Irene Shinsato.
Irene Shinsato, Scott Boden and Charles Drobny have all entered into
non-competition agreements with the Company. Daniel Negroni and Jon Gilbert are
also subject to agreements precluding the use of Company information. The
Company does not maintain key man life insurance on any officer or on its
Chairman. The loss of the services of any of these individuals could have a
material adverse effect upon the Company's business. There can be no assurance
that the Company will be able to retain its existing personnel or to attract
additional qualified employees in the future. See "Management."
Dependence on QUALCOMM. The foundation of the Company's maritime communications
business is the License and Distribution Agreement between QUALCOMM and the
Company pursuant to which the Company has exclusive distribution rights in the
United States for marine application of the OmniTRACS system of satellite-based
communications and tracking systems manufactured by QUALCOMM. QUALCOMM is the
sole supplier of the core communications equipment sold by the Company and
provides certain services that are essential to the Company's business. Should
QUALCOMM decide to discontinue its satellite communications business or the
manufacture of such equipment, the Company would be unable to continue its core
communications business. While the Company has an agreement with QUALCOMM for
the products and services provided by it, QUALCOMM has the right to terminate
this Agreement under certain circumstances. In addition, any manufacturing delay
or difficulty in procuring components experienced by QUALCOMM resulting in a
shortage of available OmniTRACS units could have a material adverse impact on
the Company's business and financial results. Under the License and Distribution
Agreement, QUALCOMM retains all ownership rights to the OmniTRACS software and
all updates, upgrades, improvements or modifications thereto, whether made by
QUALCOMM or the Company. See "Business -- Agreements with QUALCOMM."
Dependence on Third Party Satellite Providers. The Company is dependent upon
QUALCOMM's OmniTRACS system which currently operates on leased Ku-band satellite
transponders in the areas where the Company is active. The Company has been
informed that in the United States QUALCOMM's satellite transponder lease and
the position reporting satellite transponder lease run through the year 2001.
QUALCOMM has represented to the Company that it believes any additional required
transponder capacity will be available on acceptable terms. However, there can
be no assurance that the satellite transponders leased by QUALCOMM will continue
to function or that future transponder capacity will be available on acceptable
terms when needed. Any failure by QUALCOMM to maintain adequate satellite
capacity would have a material adverse effect on the Company's business and
financial results.
The Company does not have direct contracts with satellite providers. In Europe,
the Company relies on its service supplier, ALCATEL QUALCOMM, which in turn has
a relationship with EUTELSAT, the satellite provider. In Canada, the Company
relies on its service provider, CANCOM Mobile, which has relationships with
Canadian satellite providers. In the United States, the Company relies on its
service provider, QUALCOMM, who in turn has a relationship with satellite
providers in the United States. The Company is not privy to the details of their
service providers' contracts with satellite providers. There can be no assurance
that the transponders used in Europe, Canada and the United States will continue
to function or that future transponder capacity will be available on acceptable
terms as needed. Any failure by the providers to maintain adequate satellite
capacity would have a material adverse effect on the Company's business and
financial results.
Dependence on Telephone Systems. The messaging service provided by the Company
involves data transfers via standard telephone lines. The Company's operations
rely upon the availability of stable telephone connections between the Company
and QUALCOMM's Network Management Facility and between the Company, its
customers, the Internet and QUALCOMM's Network Management Facility. See
"Business -- The BOATRACS System." Any system failure or natural disaster that
resulted in an interruption of stable telephone service would have a material
adverse effect on the Company's business and financial results.
Dependence on Proprietary Technology. According to reports filed with the
Commission, QUALCOMM has been granted United States patents and has patent
applications pending in the United States with respect to its OmniTRACS system,
which is distributed by the Company for marine applications. QUALCOMM has also
reported that it actively pursues patent protection in other countries of
interest, which protection may or may not cover OmniTRACS products. There can be
no assurance that the pending patent applications will be granted, that
QUALCOMM's patents or copyrights will provide adequate protection, or that
competitors will not independently develop or patent technologies that are
substantially equivalent or superior to the OmniTRACS System. From time to time,
certain companies may assert exclusive patent, copyright and other intellectual
property rights to technologies which are important to the industry or to the
products distributed by the Company. If QUALCOMM is unable to license protected
technology used in its products, or if the OmniTRACS product were found to
infringe on protected technology, QUALCOMM could be prohibited from marketing
such products. In such circumstances, the Company would be unable to continue
its operations. The Company's subsidiary, ENERDYNE, holds a patent in the United
States for its Adaptive Digital Video System. Should Enerdyne's competitors
develop or patent technologies that are substantially equivalent or superior to
Enerdyne's patent, Enerdyne's position in the market could be compromised.
Dependence on the Internet. The Company relies upon the Internet for a
significant amount of its general business correspondence, for certain messaging
services provided to customers, and for delivery of fishing vessel data to the
United States Government. Any failure, natural disaster, or significant delay of
the Internet that resulted in an interruption of the stable Internet service
would have a material adverse effect on the Company's business and financial
results.
Risks Associated with Acquisition of Enerdyne. The Company concluded the
acquisition of Enerdyne on July 7, 1998. See "Business -Acquisition of
Enerdyne." The acquisition resulted in substantial dilution to existing
shareholders.
The integration of the Company's and Enerdyne's operations will require
substantial capital funding and the dedication of management resources that may
temporarily detract attention from the day-to-day operations of the combined
company. The combination of the two companies will also require coordination of
their research and development and sales and marketing efforts. The difficulties
of combining the two companies may be increased by the necessity of coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining two different corporate cultures. The process
of combining the two organizations may cause an interruption of, or a loss of
momentum in, the activities of either or both of the companies' businesses,
which could have an adverse effect on the revenue, operating results and cash
flow of the combined company, at least in the near term. There can be no
assurance that the combined entity will be able to retain its key technical and
management personnel or that the combined entity will realize any of the
anticipated benefits of the merger. Failure to effectively accomplish the
integration of the two companies' operations could have an adverse effect on the
combined company's results of operations and financial condition.
The Company acquired Enerdyne with the expectation that the combination of the
companies will result in beneficial synergies. There can be no assurance that
these synergies will be achieved. Additionally, there can be no assurance that
the results of operations, financial condition and cash flow of the Company and
Enerdyne as a combined company after the merger will be as strong as the results
of such companies had they continued to operate independently.
Enerdyne has relied heavily on the transportation and governmental markets for
its revenues. Military and other governmental spending cuts could impact
profits. Enerdyne relies on continuing technological innovation, including
innovations which are internally generated and technology developed by third
parties. Competing technologies could impact revenues and profit margins as well
as provide incentive for more competition. Devoting resources to internally
generated technological innovation would require devotion of engineering, sales
and marketing resources which might result in a shift in focus from existing
product lines and markets. Technological innovation may also lead to
obsolescence of components used in Enerdyne's products or create compatibility
problems with existing units.
Risks Associated with Other Acquisitions. In connection with the Company's plan
to expand into new markets, the Company may acquire existing companies and
convert or integrate such companies' existing operations and products with the
Company's operations and products. If the Company does enter into any such
acquisition transactions, the shareholders of the Company may not have the
ability to review the financial statements of the acquisition candidate or to
vote on the acquisition. Any such acquisition could substantially dilute the
ownership interest of the existing shareholders. The Company may compete for
acquisition and expansion opportunities with companies that have significantly
greater financial and other resources. There can be no assurance that the
Company will be able to locate or acquire suitable acquisition candidates, or
that any operations that are acquired can be effectively and profitably
integrated into the Company's existing operations. Additionally, although
acquisitions will be designed to increase the Company's long-term profitability,
they may negatively impact the Company's operating results, particularly during
the periods immediately following an acquisition as a result of factors similar
to those described in the risk factor entitled "Risks Associated with
Acquisition of Enerdyne." and "Business -Market Expansion."
Need for Foreign Regulatory Approvals. In countries in which the Company
contracts with QUALCOMM's local OmniTRACS service provider, the Company believes
that such service provider or the Company will be responsible for securing the
necessary regulatory approvals, licenses and permits and/or renewals thereof for
maritime operations from the local governments and authorities. The Company and
such local service providers may be less prominent in such international markets
than local competitors and may have less opportunity to influence regulatory and
standards policies. In countries in which the Company contracts with
distributors of other communications systems, the Company may apply to the local
governments for applicable approvals. No assurance can be given that the Company
will be able to obtain the required approvals, licenses and permits and/or
renewals thereof. Changes in the regulation of QUALCOMM's OmniTRACS system, or
the inability to obtain foreign regulatory approvals, licenses and permits
and/or renewals thereof, could have a material adverse effect on the Company's
operating results and its ability to expand its business in the future.
Control by Management Shareholders. Officers and directors of the Company and
its subsidiaries beneficially own in the aggregate (excluding options and
warrants exercisable within 60 days) approximately 64% of the issued and
outstanding Common Stock of the Company. As a result, such management
shareholders have the power to exercise majority control of the Company, with
the ability to approve fundamental corporate transactions and to control the
election of the Board of Directors. See "Management" and "Principal
Shareholders."
Competition. The mobile communications industry is highly competitive. The
industry includes major domestic and international companies, many of which have
financial, technical, marketing, sales, distribution and other resources
substantially greater than those of the Company. Several competing entities
provide satellite-based mobile voice and data systems in marine markets. The
Company's primary competitors to the Company's core communications business
include American Mobile Satellite Corporation and Globe Wireless, Inc. The
Company's competitors are aggressively pricing their products and will likely
continue to do so in the future. In addition, these competitors are offering new
value-added products and services similar to those developed or being developed
by the Company or QUALCOMM. Emergence of new competitors, particularly those
offering lower cost products, enhancements, additional features and Low-Earth
Orbit ("LEO") satellite communications systems, may impact margins and intensify
competition in new markets.
The Company also faces competition abroad from numerous suppliers of equipment
and services. One of the Company's competitors, INMARSAT Service Providers,
provide maritime voice, facsimile and data services nearly worldwide using
capacity on a combination of owned and leased satellites. INMARSAT is approved
to provide Global Marine Distress Safety System ("GMDSS") notices and
communications. GMDSS requires shipping vessels of a certain nature and size
that operate certain routes to have a GMDSS approved communications system by
February, 1999. The Company's OmniTRACS system cannot become GMDSS approved
because the system's coverage is not global. The Company is at a disadvantage
without such approvals when attempting to sell to certain shipping, fishing,
workboat and towing companies.
The Company also competes with other mobile communications systems both
domestically and abroad, including radio and cellular telephone. All of these
competitors are aggressively pricing their products and services and the Company
expects continuing pricing pressures.
The Company recently became an Inmarsat Service Provider and Agent. Even as an
Inmarsat Service Provider and Agent of Inmarsat services, the Company will
continue to compete against other Inmarsat providers. See "Risks of Offering New
Services."
Enerdyne competes with a limited number of companies in its current market, each
of which provides one or more products offered by Enerdyne and some of which
have access to greater financial resources. Enerdyne faces increased domestic
competition, and as technological innovation becomes more available, it is
possible that foreign competition could increase. There is no assurance that
Enerdyne will continue to be competitive in its existing and prospective
markets. See "Business -- Competition."
Dependence on Significant Customers. A material source of the Company's
communications business is the commercial marine industry. Two customers,
Tidewater Inc. and Ingram Barge Company represented 24% and 10%, respectively,
of the Company's total sales in 1998. Since the Company acquired ENERDYNE in
July 1998, ENERDYNE has relied on two customers: L-3 Communications Systems and
The Naval Warfare Center which represented 19% and 16%, respectively, of
ENERDYNE's revenues. The loss of any one of these customers would have a
material adverse effect on the Company's financial position and results of
operations. Moreover, purchases of communication and video compression 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 1999 or
in the future.
BOATRACS has many customers in the oil industry in the United States. Currently,
the oil industry is depressed. There is no assurance that BOATRACS customers in
this industry will be able to withstand the recession in the industry. Customers
may be forced to terminate messaging and software services with BOATRACS and the
BOATRACS Gulfport division which could have a material adverse effect on
BOATRACS' business and financial results.
Sales Cycle. The sales cycle of BOATRACS and ENERDYNE is not even throughout the
year. The sales process takes a considerable amount of time for both companies
to close a sale. ENERDYNE's customers are often governmental departments and the
sales cycle is often slow to complete. In addition, the sales staff may spend
considerable time on sales leads which do not come to fruition.
No Assurance of Public Market; Potential Volatility of Stock Price. Subsequent
to the reorganization of the Company in January, 1995, there has been only a
limited public trading market for the Common Stock. Price and volume quotations
are currently reported on the OTC Bulletin Board, but there can be no assurance
that an active trading market will develop or be sustained. The market price of
the Common Stock could be subject to significant fluctuations in response to
operating results and other factors, many of which are not within the control of
the Company. In addition, in recent years the stock market in general, and the
market for shares of small capitalization stocks in particular, have experienced
extreme price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of affected companies. These
fluctuations, as well as general economic and market conditions, may adversely
affect the market price of the Common Stock.
Risks Associated with "Penny Stocks." The Company's Common Stock currently meets
the definition of a "penny stock" under Commission regulations. Accordingly, any
broker engaging in a transaction in the Common Stock is required to provide any
potential purchaser of the Common Stock with a risk disclosure document,
disclosure of market quotations, if any, disclosure of the compensation of the
broker-dealer and salesperson in connection with such a transaction and monthly
account statements showing the market value of the Common Stock held in such
customer's accounts. The bid and offer quotation and compensation information
must be provided prior to effecting the transaction and must be contained on the
customer's confirmation, and further, the broker must make a special written
suitability determination for other than established customers and receive the
purchaser's agreement to a transaction prior to consummating the transaction.
Brokers are generally less willing to engage in transactions in "penny stocks"
because of these rules. This can make it more difficult for holders of the
Common Stock to dispose of their shares.
Effects of Possible Issuance of Preferred Stock. The Company's Amended and
Restated Articles of Incorporation authorize the issuance of preferred stock in
the future without further shareholder approval and upon such terms and
conditions, and having such rights, privileges and preferences, as the Board of
Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The Company has no present
plans to issue any shares of preferred stock. Any issuance of preferred stock
could make it more difficult for a third party to acquire, or could discourage a
third party from acquiring, a majority of the outstanding voting stock of the
Company. See "Description of Capital Stock."
Risks of International Business. The Company, through its wholly-owned
subsidiaries, Boatracs (Europe) B.V., Oceantrac, Inc., and Enerdyne is currently
expanding its operations abroad. The Company has limited experience in managing
foreign operations. International expansion efforts are likely to strain the
Company's management, financial and other resources. Any failure of the Company
to expand in an efficient manner or to manage its dispersed organization could
have a material adverse impact on the Company's business and financial results.
Other risks that will be faced by the Company in its international business
include costly regulatory requirements; unexpected changes in regulatory
requirements; application of foreign law; fluctuations in currency exchange
rates (which could materially and adversely affect the Company's results of
operation and, in addition, may have an adverse effect on demand for the
Company's products abroad); tariffs or other barriers; difficulties in staffing
and managing foreign operations; political and economic instability;
difficulties in accounts receivable collection; extended payment terms; and
potentially negative tax consequences. Additionally, Enerdyne's products and
technology as well as products and technologies developed by Enerdyne could be
subject to restrictions on sales to certain foreign countries by the United
States Government. These factors could have an adverse impact on the Company's
business and financial results in the future or require the Company to modify
its current business practices.
Risks of Offering New Services. The Company recently became an INMARSAT Provider
and an Agent of British Telecom's INMARSAT services. The Company has limited
experience in reselling Inmarsat services. Such expansion of service and product
offerings could strain the resources and possibly deteriorate the Company's
reputation with customers, and could have a material adverse impact on the
Company's core communications business. See "Business -- Market Expansion."
Uncertainty of Government Regulation and Renewal of Licenses. The Company's
products are subject to various FCC regulations in the U.S. These regulations
require that the Company's products meet certain radio frequency emission
standards and not cause unallowable interference to other services. QUALCOMM
filed an application with the FCC for a standard experimental license with a
two-year term, which was granted effective August 18, 1995. In addition,
QUALCOMM pursued a Petition for Rulemaking which it filed with the FCC in 1992
to amend the Table of Frequency Allocations permitting non-experimental use of
the frequencies utilized by the OmniTRACS system in the United States coastal
waters. Effective January 3, 1997, this license was granted to QUALCOMM, which
added marine capability to use with the OmniTRACS system for up to 100,000
mobile communication terminals for a term of 10 years. There can be no assurance
that QUALCOMM's current license will continue to be renewed. In the event of
non-renewal or revocation of QUALCOMM's license by the FCC, the License and
Distribution Agreement between QUALCOMM and the Company may be terminated and
the Company may be unable to continue its United States operations.
Effect of QUALCOMM's Right to Purchase the Company's Business. Pursuant to the
License and Distribution Agreement between QUALCOMM and the Company, if the
Company desires to sell its business, QUALCOMM has a right of first refusal to
purchase the Company's business on the terms of the sale to the proposed
transferee. QUALCOMM's right of first refusal could adversely affect the ability
of the Company to sell its business to a third party purchaser. See "Business --
Agreements with QUALCOMM."
Substantial Future Capital Needs; No Funding Commitments. Expansion of the
Company's business, the acquisition of Enerdyne and other potential
acquisitions, may require a commitment of substantial funds. To the extent that
the internally generated funds and its line of credit 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. Other than a $750,000 line of credit with a local
bank, the Company has no current commitments or arrangements with respect to, or
readily available sources of, additional funding. There can be no assurance that
additional financing will be available on acceptable terms, or at all. If
additional funds are raised by issuing equity securities, dilution to the
existing shareholders will likely result. If adequate funds are not available,
the Company's business would be adversely affected.
Decrease in Licensed Fishing Vessels. Fishing vessels constitute a portion of
the Company's existing and potential customers. Fishing resources are in decline
in many areas of the world, resulting in a decline in the number of licensed
fishing vessels. Significant declines in the number of such vessels could have a
material adverse impact on the Company's operating results and its ability to
expand in the future.
Possible Adverse Risk on Existing Shares Due to Offering of Shares. The
10,154,865 shares offered hereby represent approximately 49% of the outstanding
shares of the Company's Common Stock assuming the exercise of certain stock
options and warrants in the amount of 1,977,000 shares. The possibility that
substantial amounts of these shares may be sold in the public market may
adversely affect prevailing market prices for the securities and could impair
the Company's ability to raise needed capital through the sale of equity
securities. See "Shares Eligible for Future Sale."
Possible Adverse Effects Due to Shares Eligible for Future Sale. In addition to
the 10,154,865 shares offered hereby, as of March 23, 1999, 3,696,080 shares of
Common Stock were eligible for unrestricted sale in the public market and an
additional 5,001,563 shares of Common Stock were eligible for sale in the public
market subject to Rule 144 under the Securities Act of 1933, as amended. Rule
144 may impose volume limitations and certain other restrictions on the sale of
restricted securities and securities held by "affiliates" of the Company. It is
not possible to predict the effect, if any, that sales of shares of Common Stock
or even the availability of such shares for such sale will have on the market
price of the Common Stock. The possibility that substantial amounts of the
Company's Common Stock may be sold in the public market may adversely affect
prevailing market prices for the securities and could impair the Company's
ability to raise capital through the sale of equity securities. See "Shares
Eligible for Future Sale."
Year 2000 Issues. In the operation of its business, the Company uses commercial
computer software primarily purchased from or provided by independent software
vendors. After an analysis of the Company's exposure to the impact of "year 2000
issues" (i.e. issues that may arise resulting from computer programs that use
only the last two, rather than all four, digits of the year), the Company
believes that such commercial software is already substantially year 2000
compliant, and that completion of year 2000 compliance should not have a
material impact on the Company's business, operations or financial condition;
however, the Company is still assessing the impact of this year 2000 issue.
The Company has performed an internal analysis and is in the process of
finalizing a specific written plan to address the year 2000 issues for both
internally developed products and products developed and manufactured by
Qualcomm. Qualcomm has assured the Company that all the products supplied to
BOATRACS, Inc. during the course of the relationship and going forward will be
upgraded to ensure compliance with Year 2000 standards. This assurance will be
at no charge to the Company or customers but the Company may be required to
exchange certain chip sets of our customers at minimal cost.
For internally developed products, the upgrade process is in final testing phase
and will be completed by the end of the current fiscal year. Development costs
associated with the upgrade have been included in operations as incurred. The
Company has spent a total of $15,000 to date and anticipates that the total cost
to complete the conversion will be approximately $25,000 and will be included in
operations as incurred.
The Company does not have a contingency plan, however management is continuing
to evaluate and assess the impact of the year 2000 issue and will report when
the assessment is complete.
The Company is not in a position to evaluate the extent (if any) to which any
year 2000 issues that may affect the economy generally or any suppliers or
others with whom the Company does business in particular would also be likely to
affect the Company. Failure of one or more of the supplier's computer products
to be year 2000 compliant would have a material effect on the Company's
business.
USE OF PROCEEDS
All proceeds from the Shares offered by this Prospectus will be earned by the
respective Selling Shareholders. The Company will not receive any of the
proceeds from this offering.
DIVIDEND POLICY
The Company has not paid any dividends since its reorganization in January,
1995, and the predecessor BOATRACS company did not pay any dividends prior to
the reorganization. The Company intends to retain earnings, if any, to finance
the development and expansion of its business. Accordingly, the Company does not
intend to pay cash dividends in the foreseeable future on its Common Stock.
Holders of the Company's Common Stock are entitled to dividends when, as and if
declared by the Board of Directors, in its discretion, out of funds legally
available for payment of the dividends. Cash dividends, if any, that may be paid
in the future to holders of Common Stock will be payable when, as and if
declared by the Board of Directors of the Company, based on the Board's
assessment of the financial condition of the Company, its earnings, need for
funds, capital requirements and other factors, including any applicable laws. In
addition, any financing which the Company may obtain in the future may contain
provisions restricting the Company's ability to pay dividends. The Company is
not currently a party to any agreement restricting the payment of dividends.
<PAGE>
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, 1998, 1997 and 1996 and the balance sheet data at December 31, 1998 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
------------------------------------------
1998 1997 1996
(in thousands, except per share data)
Statement of Operations Data
Revenues:
Communication systems $4,033 $2,413 $1,385
Data transmission and messaging 3,881 2,791 2,073
Video compression 2,259
Total 10,173 5,204 3,458
Operating Expenses:
Communication systems 2,460 1,572 870
Data transmission and messaging 1,893 1,419 1,090
Video compression 732
Selling, general and
administrative expenses 4,755 2,505 2,461
Total 9,840 5,496 4,421
Income (loss) from operations 333 (292) (963)
Other income (expense) (366) 37 58
Income tax benefit 422
Net income (loss) $389 $(255) $(905)
==== ====== ======
Basic earnings (loss) per share $.02 $(.02) $(.07)
Dilutive earnings per common share $.02 NA NA
Weighted average common shares
outstanding 17,333 13,535 12,597
Weighted average of common shares
assuming dilution 18,358 N/A N/A
================================================= ============= =============
December 31, (in 000's)
1998 1997
---- ----
Balance Sheet Data:
Working capital $(205) $22
Total assets 33,070 3,036
Long-term liabilities 14,734 ---
Shareholders' equity (1) 14,472 1,387
- ---------------------------------
(1) No cash dividends were declared or paid during the periods presented.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "Selected Financial Data"
and the Company's financial statements and notes thereto appearing elsewhere
in this Prospectus.
Overview
The Company has two main business units:
1. BOATRACS, Inc. ("BOATRACS"), and
2. ENERDYNE, a wholly owned subsidiary.
BOATRACS
Effective November 1, 1997, the Company acquired certain assets of MED
Associates Inc. ("BOATRACS Gulfport") for $500,000 cash and 300,000 shares of
Common Stock valued at $1.40 per share. The acquisition agreement was amended
in December, 1998 resulting in a reduction of notes payable to $30,000 from
$250,000 and the common stock issued to 240,000 shares from 300,000. The
assets and liabilities of BOATRACS Gulfport are reflected on the consolidated
balance sheets as of December 31, 1998 and December 31, 1997. The results of
BOATRACS Gulfport's operations from the date of the acquisition to December
31, 1997 were not significant. Goodwill in the amount of $845,000 was
originally recorded in the acquisition and adjusted to $541,000 and is
amortized over ten years.
Effective July 1, 1998, the Company acquired all of the outstanding shares of
OceanTrac Inc., a Canadian corporation ("OceanTrac"). The acquisition was
effected by the exercise of the Company's rights under a Joint Venture
Agreement entered into among the Company, OceanTrac and OceanTrac Systems
Limited, a Nova Scotia corporation ("Systems") during 1996. In addition, the
Company purchased all of the assets of Systems for consideration of 5,000
shares of the Company's Common Stock. The acquisition of OceanTrac and
Systems resulted in recording of intangibles in the amount of approximately
$388,000 which will be amortized by the Company over ten years. OceanTrac
will continue to act as the Company's appointed distributor of the OmniTRACS
system and related Company products.
ENERDYNE
On July 7, 1998, the Company acquired ENERDYNE by means of a merger with a
wholly owned subsidiary of the Company. ENERDYNE is a provider of versatile,
high performance digital video compression products to the government and
commercial markets. ENERDYNE, formed in 1983, is located in Santee,
California. The acquisition price of $22.6 million was paid for by a
combination of cash, common stock and notes payable. Patents in the amount of
$18 million and goodwill in the amount of $10.5 million were recorded and
each will be amortized over sixteen years. The two shareholders of ENERDYNE
signed employment contracts with the Company for one and two years,
respectively, and one shareholder was elected to the Board of Directors in
September 1998.
A First Amendment to the Agreement and Plan of Reorganization ("the
Amendment") in connection with the Enerdyne acquisition was executed
effective July 7, 1998. The Amendment increased the number of compensatory
option shares and exercise price subject to a specific paydown on the
acquisition notes payable to the selling shareholders. On December 29, 1998,
bank financing was obtained to effect the compensatory contingency per the
Amendment and the options were revised to 663,500 at an exercise price of
$2.65 per share in accordance with the calculations and provisions in the
Amendment.
The acquisitions of BOATRACS Gulfport, ENERDYNE and OceanTrac represent the
Company's continuing efforts to diversify its operations. The Company intends
to continue to evaluate other acquisition opportunities.
The Company earns revenue primarily from four sources: (a) sales of satellite
based communications equipment and software, and additional complementary
and/or modified equipment created or procured by BOATRACS for marine
application; (b) data transmission and messaging charges; (c) software
license fees and charges for custom software development solutions and (d)
development and sales of video compression products.
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 as incurred. The
Company recognizes revenues from the sale of video compression units which do
not entail significant customer modification upon shipment to customers, and
on the percentage of completion method for products requiring significant
customer modification or the development of new technology.
Results of Operations
The following table sets forth for the periods indicated the relative
percentages that certain income and expense items bear to total revenues:
Year Ended December 31,
---------------------------------------
1998 1997 1996
% % %
Revenues
Communications systems 40 46 40
Data transmission and messaging 38 54 60
Video compression 22
Total 100 100 100
Operating expenses:
Communications systems 24 31 25
Data transmission and messaging 19 27 32
Video compression 7
Selling, general and
administrative expenses 47 48 71
Total 97 106 128
(Loss) income from operations 3 (6) (28)
Other income (expense) (4) 1 2
Income tax benefit 4
Net (loss) income 4 (5) (26)
Years ended December 31, 1998 and 1997
Total revenues for the twelve months ended December 31, 1998 were $10,173,320
an increase of $4,969,404 or 95.5% as compared to
total revenues of $5,203,916 for the prior year ended December 31, 1997.
Communications systems revenues which consist of revenues from the sale of
BOATRACS systems, related software and revenues of BOATRACS Gulfport were
$4,033,264 or 39.7% of total revenues, an increase of $1,620,251 or 67.2%
compared to $2,413,013 or 46.4% of total revenues for the year ended December
31,1997. The increase in communication systems revenues compared to the same
period in the prior year, primarily reflects increased sales of communication
units to vessels in the United States in the amount of $1,075,196 or 86.5%.
Software revenues from BOATRACS Gulfport, which was purchased effective
November, 1997, increased by $1,026,606, compared to the revenues for two
months of the prior year. The increase was partially offset by a decrease in
communication sales in Europe and Canada in the amount of $468,705 or 66%
during 1998. Data transmission and messaging revenues were $3,881,244 or
38.2% of total revenues, an increase of $1,090,341 or 39.1% compared to
$2,790,903 or 53.6% of total revenues in the prior year. The increase in
revenues reflects an overall increase in data transmission and messaging
services provided by BOATRACS as a result of growth in the number of BOATRACS
systems installed on vessels. Video compression revenues, which are revenues
from ENERDYNE, which the company acquired in July, 1998, were $2,258,812 or
22.2% of total revenues.
Communication systems expenses were $2,460,359 or 61.0% of communications
systems revenues for the year ended December 31, 1998, an increase of
$888,055 or 56.5% compared to $1,572,304 which represented 65.2% of
communications systems revenues in the prior year. The dollar increase in
expenses primarily reflects the increase in sales of BOATRACS systems and
software expenses of BOATRACS Gulfport. Gross margin for communication
systems increased 4% to 39% from 35% in the prior year. The increase in the
margin is primarily due to a decrease in the cost of units from the
manufacturer during the second half of the year. Included in the margin is
the BOATRACS Gulfport margin for software of 22% during 1998. Data
transmission and messaging expenses were $1,892,893 or 49% of data
transmission and messaging revenues for the year ended December 31, 1998, an
increase of $474,432 or 33.5% compared to $1,418,461 or 51% of data
transmission and messaging revenues for the prior year. The dollar increase
in costs reflects increased data transmission and messaging services rendered
due to increased BOATRACS systems installed on vessels. The data transmission
and messaging margin was relatively unchanged at 51% in 1998 compared to 49%
in 1997. The Company received a reduction on costs from the service provider
during the second half of 1998. This reduction was partially offset by lower
messaging margins in Canada and Europe.
Selling, general and administrative expenses for the year ended December 31,
1998 were $4,755,523 or 46.8% of total revenues, an increase of $2,250,333 or
89.8% compared to $2,505,190 or 48.1% of total revenues in the prior year.
The increased dollar amount is primarily attributable to increases in
operating expenses in connection with three acquisitions, which the Company
has entered into since November 1, 1997. Accounting and legal expenses
increased by a total of $163,406 primarily due to additional Securities and
Exchange Commission filings in connection with the acquisition of ENERDYNE
and BOATRACS Gulfport during 1998. Salary expense increased to $2,012,371
from $858,917, an increase of $1,153,454 or 134% primarily as a result of
additional employees due to acquisitions. Office rent was $217,157 compared
to $57,894 in the prior year, an increase of $159,263 or 275% due to
additional offices and a new corporate office which the Company relocated to
in July, 1998. Insurance expense was $141,482 compared to total insurance
expense of $100,425 in the prior year, an increase of $41,057 or 41%
primarily due to the additional subsidiaries. Amortization expense for the
year ended December 31, 1998 was $966,429 due to the amortization of goodwill
recorded as a result of the acquisition of BOATRACS Gulfport, ENERDYNE and
Oceantrac, also amortization of a patent acquired in the acquisition of
ENERDYNE. Depreciation expense was $216,967 compared to $62,768 in the prior
year, an increase of $154,199 or 246% due to the acquisition of the
subsidiaries assets and new assets acquired in connection with the corporate
office relocation. The increase in expenses were offset by a reduction in
consulting expense in the amount of $105,015 or 30% and an decrease in
shareholder relations in the amount of $72,024 or 67%.
Earnings before interest, taxes, depreciation and amortization for the year
ended December 31, 1998 were $1,518,334 compared to a negative $229,271 for
the same period of the prior year.
Interest income of $47,423 for the year ended December 31, 1998 relates to
interest earned on cash balances. This represents an increase of $8,211 or
21% compared to interest income of $39,212 in the prior year. Interest
expense was $413,335 for the year ended December 31, 1998, an increase of
$411,275 compared to the prior year. Interest expense in 1998 relates to
interest paid or accrued on notes payable issued in connection with the
purchase of Enerdyne.
The income tax benefit recorded in the amount of $422,210 for the year ended
December 31, 1998 represents the amortization of a temporary tax difference
on the life of the Enerdyne patent.
Years ended December 31, 1997 and 1996
Total revenues for the year ended December 31, 1997 were $5,203,916,
an increase of $1,745,852 or 50% as compared to total revenues of
$3,458,064 for the year ended December 31, 1996.
Communications systems revenues, which consists principally of revenues from
the sale of BOATRACS equipment and related software, were $2,413,013 or 46%
of total revenues, an increase of $1,028,309 or 74% 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 system revenues
also includes two months revenue of a software applications provider which
the Company purchased effective November, 1997.
Data transmission and messaging revenues, which consist of fees for messaging
services provided to BOATRACS units installed on vessels, were $2,790,903 or
54% of total revenues, an increase of $717,543 or 35% compared to $2,073,360
or 60% of total revenues in 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.
Communications systems expenses were $1,572,304 or 65% of communications
systems revenues for 1996, an increase of $702,358 or 81%, compared to
$869,946 which represented 63% 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 the recently
purchased software applications provider. Without these 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 margin on messaging
services due to the continuing increase in revenues over the relatively fixed
costs of providing this service, and increasing 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 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 BOATRACS
Gulfport. In addition, selling, general and administrative expenses include
two months amortization of goodwill on the purchase of BOATRACS Gulfport 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.
Interest expense in 1997 was $2,060 or .04% of total revenues, a decrease of
$876 or 30% compared to $2,936 which was .08% of total revenues in the prior
year. Interest income was $39,212 or .7% of total revenues a decrease of
$20,905 or 35% compared to $60,117 or 2% in the prior year due to lower
investment balances during 1997.
As a result of the factors described above, net loss was $254,887 for
1997 compared to $905,438 for 1996, a decreased loss of $650,551 or 72%.
Liquidity and Capital Resources
The Company's cash balance at December 31, 1998 was $416,361, an increase of
$23,649, or 6% over the December 31, 1997 cash balance of $392,712. At
December 31, 1998, working capital was a negative $182,858, a decrease of
$204,834 from the working capital of $21,976 at December 31, 1997. Cash of
$101,639 was used in operating activities, cash of $1,846,694 was used in
investing activities, and cash of $1,971,982 was provided by financing
activities during 1998.
The Company's liquidity was affected by $2 million paid for the acquisition
of ENERDYNE, partially financed by the collection of a $2 million receivable
for stock, issued during the year ended December 31, 1998 to a Company
director and officer. As partial consideration for the acquisition of
ENERDYNE, the Company issued $10,000,000 of notes payable of which $8,000,000
were due and payable in July, 1999 carrying an interest rate of 8.5%. The
other note in the amount of $2,000,000 is a subordinated promissory note with
specified minimum annual payments and any remaining amounts payable June 31,
2002 and bearing interest at 8.5% per annum.
On December 29, 1998, the Company signed a promissory note with a bank in the
amount of $4,250,000 and used the proceeds to pay down the $8,000,000 note.
The interest rate on the promissory note is 7.75% per annum and will be paid
over five years in monthly payments of $70,833.
Accounts receivable net of an allowance for uncollectible amounts increased
$1,383,394 to $2,320,404 at year-end from $937,010 at December 31, 1997 due
primarily to the acquisitions made during 1998. In addition, there were
significant increases in inventories in the amount of $450,645 and prepaid
expenses in the amount of $151,944 due to the acquisitions made during 1998.
Property, net of accumulated depreciation, was $738,337 at December 31, 1998,
an increase of $514,474 due primarily to the acquisitions completed during
1998 and the relocation of the corporate office. Notes receivable were
eliminated during 1998 from a balance of $310,463 at December 31, 1997 due to
the acquisition of Oceantracs, Ltd. Goodwill, net of amortization, increased
by $10,361,216 due to the acquisition of ENERDYNE in the amount of
$10,342,000 and the acquisition of Oceantracs, Ltd. In addition, goodwill
recorded in 1997 was reduced by $304,000 in December 1998, in connection with
the acquisition of BOATRACS Gulfport.
Accounts payable were $1,068,347 at December 31, 1998, a decrease of $87,764
or 8% compared to a balance of $1,156,111 in the prior year primarily due to
a reclassification of certain accruals to accrued expenses . Accrued expenses
increased by $821,831 or 338% to $1,064,993 due primarily to additional
payroll accruals, additional accruals due to the newly acquired subsidiaries
and reclassifications between accounts payable and accrued expenses.
Acquisition costs payable was reduced by $250,000 due to a payment being made
in the amount of $30,000 and remainder of the balance being reclassified
reducing goodwill. Short-term portion of notes payable in the amount of
$1,730,399 relates to the promissory note to a bank entered into in December
1998 and notes owing to the previous owners of ENERDYNE.
Any future funding requirements will be satisfied through potential public
and private financing. The known resources of liquidity of the Company,
coupled with the projections for revenue, are expected to cover the Company's
cash needs until at least the end of 1999.
The Company anticipates making capital expenditures in excess of $200,000
during 1999. To date the Company has financed its working capital needs
through private loans, the issuance of stock and cash generated from
operations. Expansion of the Company's business may require a commitment of
substantial funds. To the extent that the net proceeds of recent private
financing activities and internally generated funds are insufficient to fund
the Company's operating requirements, it may be necessary for the Company to
seek additional funding, either through collaborative arrangements or through
public or private financing. There can be no assurance that additional
financing will be available on acceptable terms or at all. If additional
funds are raised by issuing equity securities, dilution to the existing
shareholders may result. If adequate funds are not available, the Company's
business would be adversely affected.
Year 2000 Issues
In the operation of its business, the Company uses commercial computer
software primarily purchased from or provided by independent software
vendors. After an analysis of the Company's exposure to the impact of "year
2000 issues" (i.e. issues that may arise resulting from computer programs
that use only the last two, rather than all four, digits of the year), the
Company believes that such commercial software is already substantially year
2000 compliant, and that completion of year 2000 compliance should not have a
material impact on the Company's business, operations or financial condition;
however, the Company is still assessing the impact of this year 2000 issue.
The Company has performed an internal analysis and is in the process of
finalizing a specific written plan to address the year 2000 issues for both
internally developed products and products developed and manufactured by
Qualcomm. Qualcomm has assured the Company that all the products supplied to
BOATRACS, Inc. during the course of the relationship and going forward will
be upgraded to ensure compliance with Year 2000 standards. This assurance
will be at no charge to the company or customers but the Company may be
required to exchange certain chip sets of our customers at minimal cost.
For internally developed products, the upgrade process is in final testing
phase and will be completed by the end of the current fiscal year.
Development costs associated with the upgrade have been included in
operations as incurred. The Company has spent a total of $15,000 to date and
anticipates that the total cost to complete the conversion will be
approximately $25,000 and will be included in operations as incurred.
The Company does not have a contingency plan, however management is
continuing to assess the impact of the year 2000 issue and will
report when the assessment is complete.
The Company is not in a position to evaluate the extent (if any) to which any
year 2000 issues that may affect the economy generally or any suppliers or
others with whom the Company does business in particular would also affect
the Company. Failure of one or more of the supplier's computer products to be
year 2000 compliant would have a material effect on the Company's business.
BUSINESS
BOATRACS
BOATRACS' objectives include providing reliable and cost effective data
communications systems for commercial marine applications. To achieve this
objective, BOATRACS currently offers several satellite-based communications
and tracking systems (the "Boatracs System") and integrated software
solutions. In addition, BOATRACS or its wholly owned subsidiaries, BOATRACS
(Europe) B.V. and Oceantracs, Ltd., offer similar services in Europe and
Canada, respectively.
BOATRACS' customer base 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 office
computer systems is very important to the Company's customers. The Company's
software includes tools for both the vessel and the office enabling the
integration of this information. The Company also maintains a 24-hour network
center providing personal message relaying services to its customers with
fleets of vessels and to individual vessels.
In order to meet industry demands, in November 1997, BOATRACS purchased
certain assets of BOATRACS Gulfport as a going concern. BOATRACS Gulfport is
a Mississippi based provider of software applications and service solutions
to the commercial maritime industry and oil companies.
ENERDYNE
On July 7, 1998, the Company acquired ENERDYNE, which was a privately held
company located in Santee, California. ENERDYNE develops, builds and sells
digital video compression equipment for the aerospace, military, intelligent
transportation, government and commercial markets.
ENERDYNE was formed in 1983 and initially focused on the development of
proprietary solutions and protocol with the precision necessary to provide
motion joint photographers expert group ("MJPEG") based real-time video
compression technology for the United States military. ENERDYNE continues to
develop innovative solutions delivering real-time compressed video for use in
unique applications such as the downlink of multiple video signals from Space
Shuttle Columbia flights, video transmission solutions for remotely
controlled cranes, tanks and personnel carriers and unmanned airborne
vehicles ("UAV"). ENERDYNE products have broad applications for other video
surveillance markets. ENERDYNE has had success providing solutions for ITS
applications and has developed a reputation for its traffic surveillance
products.
ENERDYNE's proprietary technology is based on digitizing the real-time video
from the camera and transfer of the signal using its patented protocol
between its encoder and decoder hardware which is built in its own facility.
In its basic form the encoder takes an analog signal from a video source,
digitizes it, and then compresses it for transmission. ENERDYNE's products
use several compression methods including Joint Photographic Experts Group
("JPEG").
The advantages of digital data with video is that it is easily multiplexed,
can be encrypted and transmitted over many digital mediums. The transmission
quality is not affected by the number of repeaters. Compression of the
digital video allows a lower bandwidth utilization and therefore, can reduce
costs.
The Company derives revenue primarily from four sources:
BOATRACS:
1. Sales of satellite based communications equipment and
software, and additional complementary and/or modified
equipment created or procured by the Company for maritime
application.
2. Data transmission and messaging charges.
3. Software license fees and charges for custom software
development solutions.
ENERDYNE:
4. Development and sales of video compression products.
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").
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. 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 BOATRACS Systems
The BOATRACS System was adapted and enhanced by the Company for marine
application predicated on the OMNITRACS System developed by QUALCOMM,
Incorporated. 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, 1998, the Company had installed approximately 1700 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 in most areas of the continental United States, Canada and parts of
Europe or world-wide if using other satellite providers. 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 in most cases.
Messaging and positioning information are forwarded from the vessel, via
Ku-band satellite, to the QUALCOMM Network Management Facility ("NMF") in San
Diego, California, or similar facilities in Europe, and then onto base
stations at the customers' offices or to the Company's 24-hour network center
("BNC") also in San Diego. Messages that go to the Company can be relayed by
fax or e-mail, or by an operator via phone or fax. The BOATRACS System is
capable of sending or receiving digital (text) messages or files to or from a
vessel. In San Diego, the BNC is linked via a dedicated telephone line for
data transfers via modem directly to QUALCOMM's NMF in San Diego, where
message transmissions to and from the vessels are formatted and processed.
The BNC also has a dedicated line to a local internet service provider for
internal internet use as well as value-added messaging services for vessels
and other satellite providers.
The BNC provides message relaying and stand-by backup services for fleets and
individual vessels using the system in the United States, Europe and Canada.
Computers communicate to the QUALCOMM NMF by modem to monitor customer
accounts on the system. Operators relay satellite messages between vessels
and their families or business associates on shore and from shore-based
personnel to vessels. Other custom services are also available. The BNC also
provides enhanced communication services to the customers, including the
relay of E-mail messaging, broadcast of weather, distribution of data
relating to customer's positioning and emergency back-up services.
The Company charges its customers for the transmission of each message and
for the transmission of each character within a message. There is also a
monthly connection fee for the MCT to be on-line and for hourly position
reports. The charges are subject to certain volume discounts. Additional
charges are assessed for certain services provided by the network centers.
On the Vessel
The MCT consists of three basic components: the Communications Unit, the
Keyboard/Display Unit and the Outdoor Unit and sells in a range of
approximately $5,000 to $6,000 dependent on features and volume discounts.
The design of the unit allows for both ease of installation and efficient use
of normally limited space. Software menus and simple wording on the
Keyboard/Display Unit facilitate easy use of the system to send and receive
messages. Although many of the Company's customers use only the basic MCT,
optional products that interface with the basic unit are also offered.
Customers also have the option of using personal computer and BOATRACS'
WINDOWS BOATCOMM User Interface Software ("WBUI") instead of the
Keyboard/Display Unit. The WBUI allows for the same features as the Keyboard
Display Unit with the added benefits of using a full screen and being able to
send/receive computer files of any type.
Many of the Company's customers also use marine application software programs
developed by BOATRACS' Gulfport division. Such application software enables
onboard users to enter business information into forms that are saved to a
local database and are transmitted to the shore station as files.
In the Office
Generally, a customer with less than four units only uses the BNC. Typically,
a customer who has more than four BOATRACS System units elects to establish
an in-house base station. The base station provides the customer with an
in-house communications link and vessel-tracking capability. The base station
is comprised of a computer and either the Company's or third party
communications software containing a mapping function enabling a customer to
follow the progress of its fleet on a detailed computer map. Communications
are conducted via modem directly between the customer's base station and the
NMF maintained by QUALCOMM for satellite transmission to the customer's
vessels. Some customers also have custom marine application software, which
was developed by BOATRACS' Gulfport. This application software stores data
files received from the vessels and enables management, dispatchers, and
others to retrieve reports to manage their fleet of vessels and to provide
data to their customers.
Based upon reports from customers, the Company believes that its marine
industry customers typically experience increased worker productivity, asset
utilization and dispatching efficiency while saving communications costs.
Many customers enter into a three to five-year contract with the Company,
establishing a fixed rate to be paid for messaging services used by the
customer during the contract term.
BOATRACS Gulfport
Effective November 1, 1997, the Company purchased certain assets of BOATRACS
Gulfport for cash, and Common Stock. BOATRACS Gulfport is a developer of
external application software services to the marine industry for use in
connection with the BOATRACS System and other communication systems. The
external application software can enhance the customer's use of operational
data sent through the BOATRACS System. Additionally, their proximity to
existing and future Company customers in the work boat industry facilitates
more timely customer service solutions to those customers.
BOATRACS' Gulfport provides custom developed software applications to
offshore and some inland boat and barge companies. The BOATRACS Gulfport
services include systems design, development, implementation, training and
onboard installation. Their relationships with key large customers often lead
to serial consulting assignments whereby one project leads to another. Some
customers outsource a significant amount of their information technology
needs to BOATRACS Gulfport. The ability of BOATRACS Gulfport to provide
solutions for customers has enhanced the ability of the Company to sell MCTs
to vessel operators.
ENERDYNE
The Company acquired ENERDYNE on July 7, 1998 by means of a merger into a
wholly owned subsidiary of the Company. ENERDYNE sells video compression
equipment for aerospace, military and commercial applications. The
acquisition was funded through the issuance of the Company's common stock
warrants, notes payable and the payment of cash.
ENERDYNE develops and builds video products that enable the realization of
high performance digital video compression solutions. ENERDYNE's patented
technology provides the Company with an unique market position in video
encoders, decoders and multiplexing equipment used in airborne and ground
based digital video systems. Primary markets for these products include
Defense, Intelligent Transportation Systems, Surveillance and Aerospace. The
average selling price of the ENERDYNE products range from $1,950 to $23,500
depending on the model and options selected. A multiplexer combining audio,
data and alarms may be used in conjunction with some equipment. ENERDYNE has
focused, and the Company will continue to focus, on developing very high
quality products that have long life cycles and require minimal modification.
ENERDYNE designs, develops and manufactures its products at its location in
Santee, California. Products range from rack mounted industrial equipment to
miniaturized and ruggedized environmentally protected units. The products are
designed to contain interfaces with data channels, including wire, microwave
and fiber optic. ENERDYNE's customers include various United States and state
government agencies including the Navy, Air Force, Army and NASA, Department
of Transportation in various jurisdictions and the Department of Defense.
Dependence upon Significant Customers
A material source of BOATRACS customers' core communications business is the
commercial marine industry. Two customers, Tidewater Inc. and Ingram Barge
Company represented 24% and 10%, respectively, of the Company's total sales
in 1998. The loss of either one of these customers could have a material
adverse effect on the Company.
For the period since the Company acquired ENERDYNE in July 1998, ENERDYNE has
relied on two customers: L-3 Communications Systems and The Naval Warfare
Center which represented 19% and 16%, respectively, of ENERDYNE's revenues.
The major customers may change yearly as they are calculated on total
revenues including sales of communications systems, video transmission
products and other products. Purchases of communication systems and video
transmission products by a customer may not occur yearly and there can be no
assurance that such customers will make significant purchases of products in
the future. No relationship exists between the Company and any of the above
customers except normal business relationships. In addition, the BOATRACS
Gulfport division provides software solutions to communication customers of
the Company.
Agreements
Agreements with QUALCOMM
The Company has exclusive distribution rights for the OmniTRACS System in the
United States for marine application within defined coastal waters of the United
States in the Atlantic and Pacific Oceans under a License and Distribution
Agreement dated June 13, 1990, as amended from time to time (the "Distribution
Agreement") with QUALCOMM. The Distribution Agreement had an initial term of
five years with three options to extend for five years each (provided that the
Company is in full compliance with the terms of the Distribution Agreement) for
a total of twenty years through 2010. The first option to extend has been
exercised by the Company. The Distribution Agreement calls for the negotiation
in good faith of a new agreement upon the expiration of the last option.
Under the Distribution Agreement, the Company has exclusive rights to provide
messaging services to end users of such products for marine application.
Under the Distribution Agreement, the Company is required to sell a certain
minimum number of MCTs in order to maintain the exclusivity of its distribution
rights. 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 minimum sales were met for the years ended December 31, 1998,
1997 and 1996.
QUALCOMM is responsible for the manufacture and warranty repair of all of the
OmniTRACS units supplied by it subject to the terms of the Distribution
Agreement. Warranties for a specified period are passed on to the Company's
customers. Extended warranties may be purchased at an additional cost.
If the Company desires to sell its core maritime communications business,
QUALCOMM has a right of first refusal under the Distribution Agreement to
purchase the Company's maritime business on the terms of the sale to the
proposed transferee.
QUALCOMM's obligation to provide messaging services pursuant to the Distribution
Agreement was contingent upon, among other things, receiving a permanent license
from the Federal Communication Commission ("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.
During March, 1995, the Company issued 1,112,265 shares of Common Stock to
QUALCOMM for $737,000. The purchase price of the shares was 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 was reduced as discounts are earned. By
June 30, 1998, a total of $737,000 in discounts had been earned reducing the
note receivable balance to zero.
Sub-Service Provider Agreement with ALCATEL QUALCOMM
In March, 1997, BOATRACS' wholly-owned subsidiary BOATRACS (Europe) B.V. signed
a five year Sub-Service Provider Agreement with ALCATEL QUALCOMM, a French
company, which is a joint venture company between the ALCATEL Group and
QUALCOMM. The agreement appoints BOATRACS (Europe) B.V. to be the maritime
distributor and to provide maritime satellite-based communications and tracking
of vessels to certain countries in Europe on a similar basis upon which the
Company operates in the United States.
Service Provider Agreement with Iceland Telecom
In July 1998, BOATRACS (Europe) B.V. entered into a Service Provider Agreement
with Iceland Telecom, an Icelandic company, which is the EUTELSAT signatory for
Iceland. The Agreement appoints BOATRACS (Europe) B.V. to be the maritime
service provider of the EUTELTRACS service for Iceland and its territorial
waters.
Agreements with British Telecom
In July, 1998, the Company entered into agreements with British Telecom to
become an Inmarsat provider.
Regulation
Domestic Operations
The Company's products are subject to various FCC regulations in the U.S. These
regulations require that the Company's communications products meet certain
radio frequency emission standards and not cause unallowable interference to
other services. QUALCOMM filed an application with the FCC for a standard
experimental license with a two-year term, which was granted effective August
18, 1995. In addition, QUALCOMM pursued a Petition for Rulemaking which it filed
with the FCC in 1992 to amend the Table of Frequency Allocations permitting
non-experimental use of the frequencies utilized by the OmniTRACS system in the
United States coastal waters. Effective January 3, 1997, this license was
granted to QUALCOMM, which added marine capability to use with the OmniTRACS
system for up to 100,000 MCTs for a term of 10 years. There can be no assurance
that QUALCOMM's current license will continue to be renewed.
International Operations
The Company intends to continue its expansion into additional international
markets. In countries which QUALCOMM has an affiliated OmniTRACS service
provider, the Company believes that such affiliate or the Company will attempt
to secure the necessary regulatory approvals, licenses and/or permits and
renewals thereof for maritime applications from the local governmental
authorities for the affiliate or the Company. In countries in which no QUALCOMM
affiliate is operating, the Company will apply to the local governmental
authority for applicable approvals, licenses and/or permits and renewals
thereof. No assurance can be given that the Company will be able to obtain the
required approvals, licenses and/or permits and renewals thereof. The Company,
though its BOATRACS (Europe) B.V. subsidiary, maintains a sales and customer
support office Leiden, The Netherlands. Currently the Company has MCTs installed
on vessels in a number of countries in Europe.
Additional Products
ENERDYNE continues to develop new video compression and related products to
complement the Company's product lines. The products are sold to ENERDYNE's
customers under ENERDYNE respective proprietary names.
The Company is seeking strategic alliances with companies that have proven
products or service in markets requiring video. In addition, the Company uses
its commercially reasonable best efforts to stay abreast of new products and
services that can complement its existing product and service offerings and
seeks to build additional strategic relationships with companies that are
developing new solutions for the respective businesses including: (i) interfaces
and marine related products that require communications between a vessel and the
shore and (ii) new video compression relationships. The Company continues to
explore ways to economically enhance these relationships by acquiring either
sales and distribution rights to, or direct ownership of, the products
developed. The Company believes that these efforts have the potential to result
in significant growth in increased sales of products and messaging volume.
In March, 1998, BOATRACS 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 when such
services become commercially available. The LEO system, if it proves successful,
will complement the Company's present services. ORBCOMM estimates the system
will be completely operational during 1999.
The Company is also an Inmarsat provider. As an Inmarsat provider and Agent of
Inmarsat services, the Company will be able to provide global coverage to
customers. See - "Risks of Offering New Services."
Market Expansion
The Company believes that there is a sizable market in the United States and
abroad for its products and has developed strategies to expand into selected
markets by providing innovative solutions to customer needs. There can be no
assurance that any of the Company's market expansion efforts will be successful.
ENERDYNE's products specifically address four segments of the video compression
market: Defense, ITS, Surveillance and Aerospace. ENERDYNE plans to explore and
to develop new products for new markets that are large and expanding.
The Company believes that there are increased opportunities for ENERDYNE's
products in the ITS market. Uses of video compression products include highway
surveillance/monitoring, wide area detection, ramp monitoring, toll evasion
verification, emergency medical services and toll booth security. The Company is
informed and believes that the United States government has appropriated $218
billion via the Transportation Equity Act over the next five years, a portion of
which will be dedicated to ITS. There also appears to be opportunities overseas
for the ENERDYNE technology. It is anticipated that market expansion will be in
government, military and private industries working with transportation
management systems. The potential end user will be a federal, state or local
governmental agency responsible for traffic management in their jurisdiction.
There can be no assurance that the Company's beliefs are accurate.
Sales and Distribution
BOATRACS
Since its inception, the Company has employed an internal direct sales force and
has engaged sales representatives to place the Company's products with marine
electronics dealers, which sell to the end user. In addition, the Company is
continually seeking relationships with third-party distributors, which can
provide sales and service support for its products. The Company believes that
such arrangements have the potential to result in sales in areas where it is not
cost-effective to have a full-time salesperson. In the New England and Atlantic
fishing markets the Company has agreements with ten dealers.
ENERDYNE
ENERDYNE typically sells its product directly to customers through direct sales
and marketing employees. In addition the Company uses manufacturer's
representatives and also sells to system integrators who then package these
products with others to achieve a universal solution for a customer.
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. BOATRACS believes that it is currently competitive with respect to
each of these factors. However, BOATRACS competitors are aggressively pricing
their products and will likely continue to do so in the future. In addition,
competitors are offering new value-added products and services similar to those
developed or being developed by the Company or QUALCOMM. Emergence of new
competitors, particularly those offering lower cost products, enhancements,
additional features and Low-Earth Orbit (LEO) satellite communications systems,
may impact margins and intensify competition in new markets. Two LEO systems
offer voice: IRIDIUM which is now commercially available and GLOBALSTAR which is
scheduled to be available in the near future. Due to their long-term unproven
capabilities, the Company cannot predict how their products and services will
compete directly against the BOATRACS existing products and services. The
Company is exploring ways to compete and/or offer these new generation of
products and services. However, the new competition could have a material impact
upon the BOATRACS business.
The following is an overview of certain products and services that compete with
BOATRACS' communications products and services:
Alternative Satellite Service Providers. Several competing entities provide
satellite-based mobile voice and data systems in marine markets. INMARSAT, an
international consortium, provides maritime voice, facsimile and data services
nearly worldwide using capacity on a combination of owned and leased satellites.
American Mobile Satellite Corporation currently offers data communications and
vessel tracking using its newly launched L-band satellite, and a voice-based
system. ARGOS provides one-way (ship to shore) communications and position
reporting in many parts of the world. When ARGOS operates on the Japanese ADEOS2
satellite it will offer two-way communication. INMARSAT is approved to provide
Global Marine Distress Safety System ("GMDSS") notices and communications. GMDSS
requires shipping vessels of a certain nature and size that operates 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.
Radio. Although radios are required for most vessels, many small businesses rely
exclusively on radios for their communication needs throughout the marine
industry. Radio can be used to communicate with a marine operator, who can in
turn place a long distance telephone call for the radio user. Typically, the
cost of the marine operator together with the long distance telephone charges
can be significant. Radio is not dependable in inclement weather, lacks
confidentiality, and does not always provide a clear signal.
H F Radio. At least one competitor, Globe Wireless, Inc., now operates a network
of H F radio stations that allow for email capabilities and transfer of data
files. Globe Wireless, Inc., states that its system operates "much like a
digital cellular network except it is worldwide". Globe Wireless, Inc. competes
directly with the Company. They have also advertised the ability to deliver
software system solutions for its customers. The Company is uncertain whether H
F radio is as dependable as satellite communications.
Cellular phone. Cellular phone provides clear, easy to use communication to many
boats including pleasure boats and commercial shipping, workboat and towing
operators. Although a cellular system provides a clear hook-up and a reliable
service, it is currently 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.
ENERDYNE
Video Compression Products. ENERDYNE competes with a number of companies in its
current markets each of which provides one or more products offered by the
Company and some of which have access to greater financial resources. The
following are significant competitors to the ENERDYNE products and services:
L-3 Communications Corp. - L-3 Communications Corp was formed in 1997 by
Lockheed Martin, Lehman Brothers Capital Partners III and ex-Loral Corporation
management. The Conic Division of this company provides numerous components and
products for the military and aerospace markets including video
compression/expansion systems and encryption/decryption modules. L-3
Communications is also a major customer of ENERDYNE, purchasing video
compression products and integrating them with L-3 Communication products for
sale in the defense and aerospace industries.
Aydin Corporation - Aydin Corporation produces a line of data acquisition
products including airborne and ground systems for gathering, processing,
formatting, and transmitting information related to satellites, spacecraft,
aircraft and missiles. Their products include a line of rugged airborne and
ground station telemetry products capable of capturing and transmitting digital
video.
Delta Information Systems ("Delta") - Delta produces a number of video related
products including encoders and decoders. Certain Delta products are purchased
by Aydin Corporation and integrated into the systems of Aydin Corporation and
are sold to the Department of Defense.
Tektronix, Inc. - Tektronix Inc. is a global electronics company that
offers numerous products to the computer, aerospace and communications
industry. It produces video transmission products for the conferencing,
surveillance, intelligent highway/traffic markets including video encoders
and decoders.
Canadian Marconi Company ("CMC") - CMC produces electronics products for the
avionics, communications, transportation and specialized electronics industries
including video capture, transmission and display product which are marketed to
government agencies for surveillance and highway monitoring.
Odetics - Odetics is a supplier of communications equipment for television
broadcast, video security, telecommunications and intelligent transportation
system market. Through its subsidiary, Odetics, ITS, the Vantage Video Detection
System, a single camera product is sold providing cost effective video detection
for a variety of temporary or permanent one-camera applications. The Vantage
Plus is a multicamera intersection control with modular design enabling one-six
camera applications. Both systems offer accurate vehicle detection during all
weather and lighting conditions using motion stabilization techniques for top
performance even in high wind conditions. They also send surveillance quality
video images to remote viewing locations over existing communication path
enabling users to view live traffic operations.
Fiber Options - Fiber options develops, manufactures and markets fiber optic
systems for transmitting video, audio and data used for surveillance, broadcast
and professional video, industrial controls and transportation.
Racal Data Group - Racal Data Group develops, manufactures and services
communication network solutions. They provide secure and managed access to
multimedia information networks and enables the customers to transition to
Integrated Services Digital Network, Frame Relay, and Asynchronous Transfer
Mode.
Adpro of Australia - Adpro of Australia's division Vision Systems markets a
range of video based products for the security and surveillance market. Their
products include:
Remote video transmission product - allowing more of the site to be
secured and managed from a central monitoring station
via the telephone network.
High performance video intrusion detection - these are detectors that
connect to a standard video camera and alert an operator when an
intrusion is occurring.
Video framestore - these capture a series of images around the time of
the alarm.
Passive infrared detection - these are long ranging passive infrared
detectors for outdoor environments.
Proprietary Information
The Company relies on a combination of copyrights, trade secrets, trademarks and
proprietary information to maintain and enhance its competitive position.
According to reports filed with the Commission, QUALCOMM has been granted United
States patents and has patent applications pending in the United States with
respect to the OmniTRACS System. QUALCOMM has also reported that it actively
pursues patent protection in other countries of interest, which protection may
or may not cover OmniTRACS products.
Enerdyne currently holds one patent in the United States, Patent Number 5633686
for an Adaptive Digital Video System. The patent covers a system in which a
decoder at a receiving station for a digitally encoded signal is able to
automatically adapt to varying formats and operating modes. The method is
independent of the particular video format or compression scheme employed, and
functions with any transmission medium and bandwidth. The patent was filed on
September 14, 1994 and issued on May 27, 1997. Enerdyne currently has two
trademarks: ADVS(R) (Adaptive Video Standard) and Passlink(TM).
Employees
At February 28, 1999, the Company and its subsidiaries had 60 full-time and
eight part-time employees.
Facilities
The Company conducts its operations from a leased 12,700 square foot facility in
San Diego, California. The lease expires in December, 2002. The Company also
leases a 9,800 square foot building in Santee, California for its Enerdyne
subsidiary which expires in July 1999, and a 2,507 square foot facility in
Gulfport, Mississippi which expires in January, 2000. BOATRACS (Europe) B.V.
operates from a facility in Leiden, The Netherlands, pursuant to a lease
expiring in December, 2001.
Legal Matters
The Company is not aware of any current or pending legal proceedings to which
the Company is a party.
MANAGEMENT
The executive officers and directors of the Company and their ages as of March
31, 1999 are as follows:
Name Age Position
Michael Silverman 54 Chairman, Director
Jon Gilbert 55 President, Chief Executive Officer,
Director
Giles Bateman 54 Director
Luis Maizel 48 Director
Mitchell Lynn 50 Director
Daniel Negroni 33 Vice President, Sales and
Marketing
Charles Drobny, Jr. 48 Vice President, Application
Development
John O'Bryant 53 Chief Financial Officer
Peter Carides 33 Director of Boatracs Operations
International
Managing Director, Boatracs
(Europe) B.V.
Scott Boden 38 Director, Chief Technology
Officer, Enerdyne Technologies, Inc.
Irene Shinsato 43 President, Enerdyne Technologies, Inc.
Mr. Silverman formed BOATRACS, Inc. in 1990 ("Old BOATRACS") and served as
its Chairman, Chief Executive Officer, President and adirector 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 position
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 withMaintenance Warehouse
the previous 12 years and held several executive positions, including the
title of Chief Executive Officer. Mr. Gilbert earned a Bachelor of Scienc
Degree from UCLA. In addition to being a Certified Public Accountant, he hold
a Masters in Accounting Degree.
Mr. Bateman was elected a director of Old BOATRACS in 1994 and became a
director of the Company upon the Merger. Since 1991, Mr. Bateman has served
as a director of Comp USA, a superstore computer retailer, and has served as
that company's chairman since 1993. Mr. Bateman was a co-founder of The
Price Company and served as chief financial officer and a director of that
company from 1976 to 1991 and as vice chairman from 1986 to 1991. Mr. Bateman
holds a Bachelor of Arts Degree in Jurisprudence, from Oxford University,
England, and a Master of Business Administration from Harvard Business School.
Mr. Maizel became a director of the Company in October, 1995. For more than the
past five years, Mr. Maizel has been president of LM Advisors and LM Capital
Management, both money management firms, and a board member of several financial
and commercial corporations in the U.S. and Mexico. He was born and raised in
Mexico City, holds a Bachelor of Science Degree in Mechanical Electrical
Engineering, a Master of Science in Industrial Engineering from the National
University of Mexico and an Master of Business Administration from Harvard
Business School where he also was a faculty member.
Mr. Lynn became a director of the Company in June, 1997. He is also President
and Managing Director of Combined Resources International, a manufacturer of
picture frames and other items. Mr. Lynn was President of The Price Company, a
San Diego based warehouse club retailer from 1990-1993 and later senior
executive vice president of Price/Costco until he resigned in 1994. He is a
California Certified Public Accountant and holds Bachelor of Arts Degree in
Economics and a Master of Business Administration from UCLA.
Mr. Negroni joined the Company in October, 1997 as Vice President of Business
Development and Domestic Sales. In January 1999, Mr. Negroni became Vice
President, Sales and Marketing of Boatracs' subsidiary ENERDYNE. 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 the assets of BOATRACS Gulfport, a
Company founded by Mr. Drobny 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. Carides joined the Company in March, 1998 as Managing Director of the
Company's wholly owned subsidiary, Boatracs (Europe) B.V. He became Director of
Boatracs Operations International in January 1999. Prior to joining the Company
Mr. Carides had four years technical and eight years of management
responsibilities in Hong Kong. He held the position of Executive Director with
Brightpoint China Ltd. from July, 1996 to early 1998 with SafKong Holdings Ltd.,
from 1993 to early 1998 and with Technology Resources International Ltd. from
1994 through 1996.
Mr. Boden was elected as a director on September 2, 1998. Scott Boden
founded Enerdyne in 1984 and was Enerdyne's CEO and Chief Technology Officer
until July, 1998 when the Company purchased Enerdyne. Prior to founding
Enerdyne, Mr. Boden was a designer of video products for Cinematronics Inc.
Mr. Boden attended San Diego State University. Mr. Boden remains Chief
Technology Officer of Enerdyne.
Irene Shinsato has served as President of Enerdyne since 1993. Prior to
joining Enerdyne, Ms. Shinsato owned a public accounting practice, Irene
Shinsato CPA, for nine years and was previously with Price Waterhouse. Ms.
Shinsato has a BS from San Diego State University and is a Certified Public
Accountant.
John O'Bryant joined the Company as Chief Financial Officer in April 1999. Prior
to joining the Company, Mr. O'Bryant was Controller of APW zero cases, a
division of Applied Power, Inc, based in Butler, Wisconsin. Previously he was
Vice President, Controller of Cooper Vision Surgical in Irvine, California. He
is a Certified Public Accountant and holds a Bachelor of Science degree in
Accounting from San Diego State University.
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, 1998, the Board held six meetings where all
directors were present except Ms. Friskopp who missed three meetings and Mr.
Maizel who missed one meeting. The Company presently has a Compensation
Committee of the Board consisting of Mitchell Lynn, Chairman, and Giles Bateman.
The Compensation Committee's primary function is to establish compensation for
employees and effect promotions. The Audit Committee, consisting of Giles
Bateman, Chairman, Mitchell Lynn and Luis Maizel, advises the Board as to the
selection of the Company's independent accountants, reviews with the independent
accountants the accounting principles and practices followed by the Company and
the adequacy thereof, approves the Company's annual audit and financial results
and any material change thereto and makes recommendations to the Board regarding
such matters. The Board does not have a standing Nominating Committee. During
1998, the Compensation Committee met eight times and the Audit Committee met
three times.
<PAGE>
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
underlying
Principal Position Year Salary Bonus Options
Michael Silverman 1998 $115,368(1) $0
Chairman, Director 1997 $103,291 $0
1996 $100,000 $0
Jon Gilbert 1998 $120,000 $0
President, Chief 1997 $26,154(2) $0
Executive
Officer, Director
Annette Friskopp 1998 $135,921 50,000
Executive Vice 1997 $130,769 $49,350 250,000
President, 1996 $124,961 $31,800
Director
Daniel Negroni 1998 $116,128 $60,000 4,000
Vice President 1997 $19,885(2) 100,000
Sales and Marketing
Charles Drobny, Jr. 1998 $145,934(3) $0
Vice President, 1997 $25,000
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 following the
acquisition of BOATRACS Gulfport. 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 BOATRACS Gulfport in November,
1997, the Company entered into a four-year employment agreement with Charles
Drobny, Jr. Under the terms of the employment agreement, Mr. Drobny will be paid
base compensation of $150,000 for two years commencing November 1, 1997 and
$180,000 for the following two years. Mr. Drobny may receive, at his election,
up to $30,000 per year in the form of shares of the Company's Common Stock for
the first two years, and up to $60,000 per year in the form of shares of common
stock for the second two years.
The Company entered into an Addendum to Stock Issuance/Employment Agreement
effective January 21, 1991, and amended July, 1995, whereby Annette Friskopp's
salary from April to December, 1995 was $108,000 and after December, 1995
increased to $120,000 per annum. In addition, beginning January, 1995, she
became entitled to a bonus for each unit sold to an end user. In addition, the
agreement granted Ms. Friskopp an option to acquire 100,000 additional shares of
Common Stock, which has been treated as being a grant pursuant to the Company's
1996 Stock Option Plan at a price equal to the fair market value of such shares
on the date of grant. In December, 1996 Ms. Friskopp was awarded an option to
purchase 150,000 shares of Common Stock at an exercise price of $1.125 per
share. The options will vest 20% annually over five years. Although Ms. Friskopp
retained her current positions, the foregoing agreements were terminated
effective December 31, 1997. Ms. Friskopp resigned as an officer and director of
the Company in January 1999.
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 $100,000 last year.
OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Percent of
Number of Total Exercise
Securities Options or Base
Underlying Granted Price
Options to Employees Granted
in Fiscal (#) Expiration
Name Year ($/Share)
Michael Silverman --- --- --- ---
Jon Gilbert --- --- --- ---
Annette Friskopp 15,000 2% $2.38 2005
35,000 5% $2.94 2005
Daniel Negroni 4,000 1% $2.38 2005
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 $100,000 last year, and the fiscal year value of
unexercised options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of
Securities
Underlying
Unexercised
Options Value of Unexercised
Shares at FY-End(#) In-the-Money Options
Acquired on Value Exercisable/ at FY-End ($)
Name Exercise Realized Unexercisable Exercisable/
(#) ($) Unexercisable
Michael Silverman --- --- --- ---
Jon Gilbert --- --- --- ---
Annette Friskopp --- N/A 100,000/200,000 $117,500/176,250
Daniel Negroni --- --- 20,000/84,000 $20,000/80,000
Charles Drobny, Jr. --- --- --- ---
<PAGE>
Compensation Committee Interlock and Insider Participation
During fiscal year 1998, Michael Silverman and Jon Gilbert, officers and
directors of the Company, attended Compensation Committee meetings concerning
executive officer compensation.
Director Compensation
Through May 1998, non-employee directors of the Company received $500 for each
Board meeting they attended. Non-employee directors currently receive stock
options to purchase Common Stock as compensation for Board meetings.
Non-employee directors Messrs. Bateman and Maizel have received 10,000 options
at an exercise price of $1.00 each in April, 1996 and options to purchase 10,000
shares at an exercise price of $1.25 per share in February 1997. Mr. Lynn
received 10,000 options at an exercise price of $1.19 per share in June 1997.
Messrs. Bateman and Lynn received 10,000 Common Stock Purchase Warrants, each
exercisable at $2.44 per share in March 1998. Messrs. Bateman, Maizel and Lynn
each received options to purchase 25,000 shares of Common Stock each exercisable
at $4.63 per share in May 1998.
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, 1998, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial shareholders were complied with.
Certain Transactions
The Company has a number of contractual relationships with QUALCOMM, which owns
1,112,265 shares (6%) 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 2,416,665 of the purchased shares. The note was
payable in four semi-annual installments of $420,241, with all remaining
principal and accrued interest due April 15, 2000. During June 1998 the note and
accrued interest was purchased by an outside party at a discount of $44,274
which was recorded as a deduction to the Common Stock originally issued. See
also "Executive Compensation."
Effective November 1, 1997, the Company purchased certain assets of BOATRACS
Gulfport for $500,000 cash, and 300,000 shares of Common Stock. The stock
payment was subject to an option in favor of the Company exercisable if BOATRACS
Gulfport did 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 BOATRACS Gulfport earnings fall short of the
target. In December, 1998, the agreement was amended and the cash payable still
outstanding in the amount of $250,000 was reduced to $30,000. In addition, the
shares to be issued were reduced to 240,000. Charles J. Drobny, Jr., founder of
BOATRACS Gulfport became Vice President of Applications Development of the
Company at the time of the acquisition.
On July 7, 1998, the Company acquired ENERDYNE by means of a merger with a
wholly owned subsidiary of the Company. ENERDYNE is a provider of versatile,
high performance digital video compression products to the government and
commercial markets. ENERDYNE, formed in 1983, is located in Santee, California.
The acquisition price of $22.6 million was paid for by a combination of cash,
common stock and notes payable. Patents in the amount of $18 million and
goodwill in the amount of $10.5 million were recorded and each will be amortized
over sixteen years. The two shareholders of ENERDYNE signed employment contracts
with the Company for one and two years, respectively, and one shareholder was
elected to the Board of Directors in September 1998.
A First Amendment to the Agreement and Plan of Reorganization in connection with
the Enerdyne Acquisition was executed effective July 7, 1998. The Amendment
increased the number of compensatory option shares and exercise price subject to
a specific paydown on he acquisition notes payable to the selling shareholders.
On December 29, 1998 bank financing was obtained to effect the compensatory
contingency per the Amendment and the options were revised to 663,500 at an
exercise price of $2.65 per share in accordance with the calculations and
provisions in the Amendment.
Effective July 1, 1998 the Company exercised its option to acquire Oceantrac and
certain assets of Systems, with whom it has had a joint venture agreement since
1996, to provide services to the Company in certain Canadian areas. The
acquisition consideration of approximately $506,000 was effected through the
exercise of a stock option and warrant agreement pursuant to a joint venture
agreement and conversion of a note receivable in the amount of approximately
$433,000. Intangibles of $388,000 were recorded and will be amortized over ten
years.
Most of the foregoing transactions were entered into with the respective related
parties prior to each becoming a related party, and were the result of arm's
length negotiations. Agreements between the Company and QUALCOMM continue to be
negotiated on an arm's length basis between the parties. To the extent any of
the foregoing transactions were determined without arm's length negotiations,
the Company believes that they were entered into on terms no less favorable to
the Company than could have been obtained from independent third parties.
PRINCIPAL SHAREHOLDERS
Set forth below is certain information concerning the ownership of the Company's
Common Stock as of March 23, 1999 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 Percent of
Shares Beneficially Outstanding
Name and Address of Shareholder (1) Owned Shares
QUALCOMM Incorporated 1,112,265 6%
6455 Lusk Boulevard
San Diego, CA 92121
Michael Silverman 3,908,317 20
Jon Gilbert 3,786,800 (2) 19
Annette Friskopp 507,931 (8) 3
Giles Bateman 688,158 6
Luis Maizel 113,254 (3) *
Mitchell Lynn 137,833 (4) *
Daniel Negroni 35,800 *
Charles Drobny, Jr. 247,000 (6) 1
Peter Carides 20,000 (7) *
Scott Boden 1,709,575 (5) 9
Irene Shinsato 1,709,575 (5) 9
All Directors and Executive
Officers as a group (12 12,864,243 66%
persons) (7)
(1) The address for all directors and executive officers is 10675
Sorrento Valley Road, Suite 200, San Diego, California, 92121.
(2) Includes 622,053 shares held in a Family Trust of which Mr.Gilbert
is a trustee. Does not include a total of 58,800 shares held by Mr.
Gilberts'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 20,000 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 1,465,350 shares which were issued to prior shareholders of
Enerdyne as part of the purchase price. These shares are not currently
tradable and are part of this registration statement. Also includes
244,225 warrants at $2.00 per share which are included in this
registration statement.
(6) 240,000 of the shares represent restricted stock granted under an
agreement.
(7) Includes shares issuable upon the exercise of options or warrants
within sixty days of March 23 1999, as follows: Mr. Bateman 24,333
shares, Mr. Lynn, 20,333 shares, Ms. Friskopp 130,000 shares, Mr.
Maizel 14,333 shares, Mr. Negroni 20,800 shares, and Mr. Carides 20,000
shares. These options are also included in the total shares shown above
for the individuals.
(8) Ms. Friskopp was a director in 1998. She resigned in January 1999.
* Less than 1%
<PAGE>
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,
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
Jon Gilbert (1) 3,786,800
Jennifer Gilbert (3) 29,400
Karly Gilbert (3) 29,400
Gary and Ann Gilbert (2) 10,000
Rick and Marilyn Gilbert (2) 10,000
Cathy Gilbert (2) 10,000
Charles and Amanda Minsky 10,000
Larry and Megan Minsky 10,000
John and Julie Kerner 2,000
Pamela & Jack Saxton 3,000
Torrey Pines Securities (4) 25,000
Mitchell Lynn (5) 60,000
Norman Smith 15,000
Norman Solomon 5,000
Bank Insinger De Beuford N.V. 40,000
Julius Trump (6) 80,000
Richard Coates (7) 30,000
Giles Bateman (8) 10,000
Irene Shinsato (9) 2,373,075
Scott Boden (10) 2,373,075
Sol Price (11) 25,000
Gary Shields (12) 40,425
Carl Fredericks (13) 40,425
Glenn S. Nickerson 2,500
Job A.Crocker 1,250
Gaspesie Telecommunications 1,250
Daniel and Linda Weissberg 10,000
Eleanor and Joseph Weissberg 10,000
------
Total 10,154,865
- -------------------------
(1) Mr. Jon Gilbert, President, Chief Executive Officer and a
director of the Company is a trustee of the Gilbert Family Trust
which holds 622,053 of the above shares.
(2) Relatives of Mr. Jon Gilbert who disclaims beneficial ownership
of these shares
(3) Jennifer and Karly Gilbert are children of Mr. Jon Gilbert. Mr.Gilbert
disclaims beneficial ownership of the Shares.
(4) Represents Shares issuable upon exercise of a warrant dated October
31, 1995 to purchase 25,000 shares at $1.50 each. The warrant was
exercised in May, 1998.
(5) Represents Shares issuable upon exercise of options for 50,000 share
at $1.50 per share and exercise of warrants for 10,000 shares at $2.44
per share.
(6) Mr. Trump was a director of the Company. He resigned from the Board in
May,1998.
(7) Represents Shares issuable under a warrant agreement at $1.50 per
share. (8) Represents Shares issuable under a warrant agreement at
$2.44 per share.
(9) Includes 1,465,350 Shares issued as part of acquisition of Enerdyne,
warrants to purchase 244,225 shares and stock options to purchase
663,500 shares of common stock.
(10) Includes 1,465,350 Shares issued as part of acquisition of Enerdyne,
warrants to purchase 244,225 shares and stock options to purchase
663,500 shares of common stock.
(11) Represents Shares issuable upon exercise of a warrant dated June 25,1998.
(12) Represents 34,650 Shares issued for financial services in connection
with the purchase of Enerdyne and 5,775 Shares issuable upon exercise
of a warrant.
(13) Represents 34,650 Shares issued for financial services in connection
with the purchase of Enerdyne and 5,775 Shares issuable upon exercise
of a warrant.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares of
common stock, no par value ("Common Stock"), and 1,000,000 shares of Preferred
Stock, no par value ("Preferred Stock").
Common Stock
As of March 31, 1999, there were 18,852,508 shares of Common Stock outstanding
held by approximately 310 holders of record.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders, except that
holders of Common Stock are entitled to cumulative voting rights with respect to
the election of directors. In cumulative voting, the holders of Common Stock are
entitled to cast for each share held the number of votes equal to the number of
directors to be elected. Subject to preferences that may be applicable to any
shares of Preferred Stock issued in the future, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, holders of the
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities and the liquidation preference of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to convert
their Common Stock into any other securities. There are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and nonassessable.
Preferred Stock
The Board of Directors is authorized, subject to any limitations prescribed by
law, without further shareholder approval, to issue from time to time up to
1,000,000 shares of Preferred Stock in one or more series. Each such series of
Preferred Stock will have such number of shares, designations, rights,
preferences, privileges and restrictions as may be determined by the Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences and conversion
rights, which in any case, could be superior to the rights associated with the
Common Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock and
to determine its rights and preferences is to eliminate delays associated with a
shareholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
Limitation of Liability and Indemnification
Pursuant to provisions of the California Corporations Code, Article V of the
Company's Amended and Restated Articles of Incorporation provides that the
liability of the Company's directors for monetary damages shall be eliminated to
the fullest extent permissible under California law.
Article VI of the Company's Amended and Restated Bylaws authorizes the Company
to indemnify its directors, officers, employees and agents in certain
circumstances against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with a proceeding arising out of
such person's service in such capacity, if that person acted in good faith and
in a manner that that person reasonably believed to be in the best interests of
the Company and, in the case of a criminal proceeding, had no reason to believe
was unlawful. The Company is required to indemnify a director, officer, employee
or agent of the Company against expenses actually and reasonably incurred in the
event such person is successful on the merits in the defense of any such claim.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Transfer Agent and Registrar
Chase Mellon Shareholder Services is the transfer agent and registrar for the
Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 15, 1998, the Company had 18,852,508 shares of Common Stock
outstanding. Of these, approximately 13,850,945, including all of the Shares
offered by this Prospectus, will be immediately eligible for resale in the
public market without restriction under the Securities Act, except that any
shares held by "affiliates" of the Company, as that term is defined in Rule 144
adopted under the Securities Act ("Affiliates"), may generally only be resold in
compliance with the applicable provisions of Rule 144. Substantially all of the
remaining 5,001,563 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.
<PAGE>
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, 1999 2.66 1.81
December 31, 1998 3.13 1.75
September 30, 1998 4.81 2.63
June 30, 1998 4.94 3.25
March 31, 1998 4.00 2.06
December 31, 1997 2.75 1.00
September 30, 1997 1.56 .94
June 30, 1997 1.50 .50
March 31, 1997 1.81 1.00
December 31, 1996 1.50 .63
September 30, 1996 1.50 .75
June 30, 1996 2.00 .75
March 31, 1996 .94 .75
On April 20, 1999, the closing price of the Common Stock, as reported on the OTC
Bulletin Board, was $2.25. As of March 23, 1999, the Company had approximately
310 holders of record of its Common Stock. The Company has not paid any
dividends since its reorganization and does not currently intend to declare any
dividends.
The quotations set forth above represent inter-dealer prices without retail
mark-up, mark-down or commission, and may not necessarily represent actual
transactions. The existence of quotations for the Common Stock should not be
deemed to imply that there is an established public trading market for the
Company's Common Stock.
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold by the Selling Shareholders or by
pledgees, donees, transferees or other successors in interest (collectively with
the Selling Shareholders, the "Sellers") acting as principals for their own
accounts. The Company will not receive any of the proceeds of this offering.
The Sellers, directly or through brokers, dealers, underwriters, agents or
market makers, may sell some or all of the Shares. Any broker, dealer,
underwriter, agent or market maker participating in a transaction involving the
Shares may receive a commission from the Sellers. Usual and customary
commissions may be paid by the Sellers. The broker, dealer, underwriter or
market maker may agree to sell a specified number of the Shares at a stipulated
price per Share and, to the extent that such person is unable to do so acting as
an agent for the Sellers, to purchase as principal any of the Shares remaining
unsold at a price per Share required to fulfill the person's commitment to the
Sellers.
A broker, dealer, underwriter or market maker who acquires the Shares from the
Sellers as a principal for its own account may thereafter resell such Shares
from time to time in transactions (which may involve block or cross transactions
and which may also involve sales to or through another broker, dealer,
underwriter, agent or market maker, including transactions of the nature
described above) in the over-the-counter market, in negotiated transactions or
otherwise, at market prices prevailing at the time of the sale or at negotiated
prices. In connection with such resales, the broker, dealer, underwriter, agent
or market maker may pay commissions to or receive commissions from the
purchasers of the Shares. The Sellers also may sell some or all of the Shares
directly to purchasers without the assistance of a broker, dealer, underwriter,
agent or market maker and without the payment of any commissions.
The Company is bearing all of the costs relating to the registration of the
Shares (other than any fees and expenses of counsel for the Selling
Shareholders). Any commissions, discounts or other fees payable to a broker,
dealer, underwriter, agent or market maker in connection with the sale of any of
the Shares will be borne by the Sellers. Any commissions paid or any discounts
or concessions allowed to any broker, dealer, underwriter, agent or market maker
and, if any such broker, dealer, underwriter, agent or market maker purchases
any of the Shares as principal, any profits received on the resale of such
Shares, may be deemed to be underwriting commissions or discounts under the
Securities Act.
Pursuant to the registration rights granted to QUALCOMM in connection with
QUALCOMM's acquisition of Shares, the Company has agreed to indemnify QUALCOMM
and any person who controls QUALCOMM against certain liabilities and expenses
arising out of, based upon or relating to information set forth in this
Prospectus, and the Registration Statement of which this Prospectus is a part,
including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby has been passed upon
for the Company by Solomon Ward Seidenwurm & Smith, LLP, San Diego, California.
EXPERTS
The financial statements of the Company as of December 31, 1998 and 1997, and
for each of the three years in the period ended December 31, 1998 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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............ F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996.................................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996..................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1998, 1997 and 1996......................... F-6
Notes to Consolidated Financial Statements.............. F-7 through F-17
<PAGE>
(DELOITTE & TOUCHE LLP)
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, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. 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, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
February 26, 1999
San Diego, California
<PAGE>
BOATRACS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------
ASSETS 1998 1997
CURRENT ASSETS:
Cash $ 416,361 $ 392,712
Accounts receivable - net 2,320,404 937,010
Inventories 684,737 234,092
Prepaid expenses and other assets 259,379 107,435
------------------ -----------------
Total current assets 3,680,881 1,671,249
PROPERTY - net 738,337 223,863
PATENT - net 17,459,135
GOODWILL - net 11,192,133 830,917
NOTES RECEIVABLE 310,463
------------------ -----------------
TOTAL $ 33,070,486 $ 3,036,492
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,068,347 $ 1,156,111
Accrued expenses 1,064,993 243,162
Acquisition cost payable 250,000
Current portion of notes payable 1,730,399
------------------ -----------------
Total current liabilities 3,863,739 1,649,273
NOTES PAYABLE 8,094,778
DEFERRED TAX LIABILITY 6,639,584
COMMITMENTS (Notes 5 and 10)
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,
18,834,032 and 15,806,977 shares
issued and outstanding in 1998
and 1997, respectively 17,527,48 6,949,244
Notes receivable for common
stock issued (2,117,836)
Accumulated deficit (3,055,098) (3,444,189)
------------------ -----------------
Total stockholders' equity 14,472,385 1,387,219
------------------ -----------------
TOTAL $ 33,070,486 $ 3,036,492
================== =================
See notes to consolidated financial statements.
<PAGE>
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
REVENUES:
Communications systems $4,033,264 $2,413,013 $1,384,704
Data transmission and
messaging 3,881,244 2,790,903 2,073,360
Video compression 2,258,812
------------- ------------- ------------
Total revenues 10,173,320 5,203,916 3,458,064
------------- ------------- ------------
COSTS AND EXPENSES:
Communications systems 2,460,359 1,572,304 869,946
Data transmission and
messaging 1,892,893 1,418,461 1,089,719
Video compression 731,752
Selling, general and
administrative 4,755,523 2,505,190 2,461,018
-------------- ------------- ------------
Total costs and expenses 9,840,527 5,495,955 4,420,683
-------------- ------------- ------------
INCOME (LOSS) FROM OPERATIONS 332,793 (292,039) (962,619)
INTEREST INCOME 47,423 39,212 60,117
INTEREST EXPENSE (413,335) (2,060) (2,936)
-------------- -------------- -------------
LOSS BEFORE TAXES (33,119) (254,887) (905,438)
INCOME TAX BENEFIT 422,210
-------------- --------------- -------------
NET INCOME (LOSS) $ 389,091 $ (254,887) $ (905,438)
============== =============== =============
BASIC EARNINGS PER COMMON
SHARE $0.02 $ (0.02) $ (0.07)
DILUTED EARNINGS PER COMMON SHARE $0.02 n/a n/a
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 17,333,426 13,535,433 12,597,471
Dilutive effect of:
Employee stock options 737,557 n/a n/a
Warrants 286,651 n/a n/a
Weighted average common shares
outstanding, assuming dilution 18,357,634
See notes to consolidated financial statements
<PAGE>
BOATRACS, INC.
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31,
1998, 1997, AND 1996
- --------------------------------------------------------------------------------
Note
Common Stock Receivable Total
Accumulated for Common Stock
Shares Amount Deficit Stock holders"
BALANCE, JANUARY 1, Equity
1996 12,577,710 $4,186,325 $(2,283,864) ($604,979) $1,297,482
Common stock
issued in
connection
with services
rendered 24,600 24,600 24,600
Payments received
on note receivable 183,557 183,557
Net loss (905,438) (905,438)
----------- ------------ ----------- ------------ ---------
BALANCE,
DECEMBER 31, 1996 12,602,310 4,210,925 (3,189,302) (421,422) (600,201)
Common stock
issued through
Exercise of stock
options 4,667 4,792 4,792
Common stock
issued through
Restricted Stock
Purchase
Agreement 2,900,000 2,320,000 (1,930,915) 389,085
Common stock
issued in connection
with acquisition 300,000 420,000 420,000
Payments received
on note receivable 234,501 234,501
Issuance costs in
connection with
Common stock issued (6,473) (6,473)
Net loss (254,887) (254,887)
---------- --------- ---------- -------- -----------
BALANCE DECEMBER
31, 1997 15,806,977 6,949,244 (3,444,189)(2,117,836) 1,387,219
Common stock issued
through exercise
of stock option
and warrants 82,055 103,243 103,243
Discounted payments
received on note
Receivable for
common stock (44,274) 2,117,836 2,073,562
Common stock
issued for
acquisitions 2,945,000 10,519,270 10,519,270
Net income 389,091 389,091
BALANCE ---------- ---------- --------- ------ -----------
DECEMBER 31,
1998 18,834,032 $17,527,483 (3,055,098) $0 $14,472,385
========== ========== ========= ======= ===========
See notes to consolidated financial Statements.
<PAGE>
BOATRACS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
OPERATING ACTIVITIES:
Net income (loss) $ 389,091 $ (254,887) $ (905,438)
Adjustments to reconcile
net loss to net cash used in operating
activities:
Deferred tax benefit (422,210)
Loss on disposal of assets 15,907
Depreciation and amortization 1,183,396 76,851 44,420
Net accretion of discount
on investment securities (42,204)
Provision for bad debts 68,651
Consulting service
expense paid with common stock 24,600
Changes in assets and
liabilities:
Accounts receivable, net (1,452,045) (379,764) (149,754)
Inventories (450,645) (141,974) (59,809)
Prepaid expenses and
other assets (151,944) (33,725) (57,085)
Accounts and acquisition
costs payable and
accrued expenses 734,067 852,607 103,201
------------- ----------- ----------
Net cash (used in) provided
by operating activities (101,639) 135,015 (1,042,069)
------------- ------------ -----------
INVESTING ACTIVITIES:
Net cash paid in acquisitions (1,458,691) (425,000)
Purchase of investment securities (2,825,799)
Proceeds from maturities of
investment securities 425,852 3,907,000
Issuance of notes receivable (102,000) (114,143)
Capital expenditures (388,003) (181,806) (92,752)
------------ ------------ ------------
Net cash (used in) provided
by investing activities (1,846,694) (282,954) 874,306
------------ ----------- ------------
FINANCING ACTIVITIES:
Proceeds from note receivable
issued for common stock 2,073,562 234,501 183,557
Proceeds from short-term margin loan (139,268) 139,268
Repayment of net deferred compensation (45,129) (203,646)
Cash received for stock options
and warrants exercised 103,243
Payment of notes payable (204,823)
Net proceeds from issuance
of common stock 387,403
------------ ------------ -----------
Net cash provided by
financing activities 1,971,982 437,507 119,179
------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH 23,649 289,568 (48,584)
CASH AT BEGINNING OF YEAR 392,712 103,144 151,728
------------ ------------ ------------
$ 416,361 $ 392,712 $ 103,144
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 413,335 $ 2,936
SUPPLEMENTAL DISCLOSURES
OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Issuance of notes payable $ 10,000,000
Common stock issued
for acquisition $ 10,558,996 $ 420,000
Common stock issued for
services rendered $ 24,600
Discount on redemption of note
receivable for common stock $ 44,274
Reclassification of evaluation
inventory units to property $ 88,372
Common stock issued for note receivable $ 1,930,915
See notes to consolidated financial statements.
BOATRACS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - BOATRACS, Inc. and its wholly owned subsidiaries
Enerdyne Technologies, Inc. ("Enerdyne"), OceanTrac, Inc. and BOATRACS
(Europe) B.V. (collectively called the "Company") is 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
10) and is also a provider of video compression products to the government
and commercial markets. Under the QUALCOMM 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. MED Associates, Inc.
("Gulfport") which was acquired by the Company in November 1997 is a
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 Boatracs, Inc. and its wholly owned
subsidiaries. All significant intercompany balances have been eliminated
in consolidation.
Investment Securities - Investment securities represented U.S. Treasury
securities that the Company held to maturity, which were reported at
amortized cost.
Inventories - Inventories, comprising of raw materials, work in process
and furnished goods, are carried at the lower of average cost or market.
Property, Patent and Goodwill - Property is recorded at cost. Depreciation
is provided under the straight-line method over the estimated useful lives
of the assets (generally 3-5 years). Goodwill is amortized over 10 and 16
years, and the Company's patent is amortized over 16 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. Sales of standard video compression units, which do not entail
significant customer modifications, are recognized upon shipment of
products to customers. Revenues related to contracts involving significant
customer modifications or the development of new technologies are
accounted for using the percentage-of-completion as costs are incurred.
Products are subject to a right of return for one year. Actual return
experience has not been significant.
Significant Customers - For the Company's communications, data
transmission and software revenues, major customers individually accounted
for 24%, 10% and 8% of 1998 sales, 18%, 12% and 9% of 1997 sales, and 26%,
12% and 8% of 1996 sales. Accounts receivable from these customers
aggregated $387,432 and $437,077 at December 31, 1998 and December 31,
1997 respectively. Enerdyne's major video compression customers
individually accounted for 19%, 16% and 10% of sales since acquisition
date in 1998. Accounts receivable from these customers aggregated $270,994
at December 31, 1998. The Company and Enerdyne have not historically
experienced any losses on their accounts receivable.
Stock-Based Compensation - Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," encourages, but does
require companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to
account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, " Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of
the quoted market price of the Company's stock at the date of the grant
over the exercise price.
Net Income (Loss) Per Share - Net income (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. In the years ending December 31, 1997 and 1996, common
stock equivalents had an anti-dilutive effect on the net loss, and
therefore diluted EPS is not presented.
Segment Information - In 1998, the FASB issued SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information". Accordingly, the
Company has disclosed all applicable results of operations by segment and
geographic details as proscribed.
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 1997 and 1996 financial
statements have been reclassified to conform to the 1998 presentation.
2. ACQUISITIONS
Enerdyne Technologies, Inc. - On July 7, 1998, the Company purchased
Enerdyne Technologies, Inc. ("Enerdyne"), a provider of versatile, high
performance digital video compression products to the government and
commercial markets. Enerdyne, formed in 1984, is located in Santee,
California. The acquisition price of $22.6 million was paid for by a
combination of cash, common stock and notes payable. Patents in the amount
of $18 million and goodwill in the amount of $10.5 million were recorded
and will each be amortized over 16 years. The two selling shareholders of
Enerdyne signed employment contracts with the Company for one and two
years, respectively, and one selling shareholder was elected to the Board
of Directors in September, 1998.
A First Amendment to the Agreement and Plan of Reorganization
("Amendment") in connection with the Enerdyne Acquisition was executed
effective July 7, 1998. The Amendment increased the number of compensatory
option shares and exercise price subject to a specific paydown on the
acquisition notes payable to the selling shareholders. On December 29,
1998 bank financing was obtained to effect the compensatory contingency
per the Amendment (see Notes Payable - Note 6) and the options were
revised to 663,500 at an exercise price of $2.65 in accordance with the
calculations and provisions in the Amendment.
The following summarized unaudited pro forma financial information assumes
the acquisition had occurred on January 1 of each year:
PROFORMA INFORMATION, (Unaudited) 1998 1997
--------------------
----------- ----------
Net sales $5,657,842 $12,421,000
Net income $ 295,086 $ 1,184,000
Basic earnings (loss) per share $.02 $.08
Diluted earnings per common share $.01 $.07
Weighted average common shares
outstanding 18,870,412 16,535,000
Weighted average common shares
outstanding, 20,309,195 16,677,000
assuming dilution
OceanTrac Inc. - Effective July 1, 1998, the Company acquired all of the
outstanding shares in OceanTrac Inc., a Canadian corporation
("OceanTrac"). The acquisition was effected by the exercise of the
Company's rights under a 1996 Joint Venture Agreement entered into among
the Company, OceanTrac and OceanTrac Systems Limited, a Nova Scotia
corporation ("Systems"). In addition, the Company purchased all of the
assets of Systems for consideration of 5,000 shares of the Company's
Common Stock valued at $4.75 per share and foregiveness of notes totaling
$310,463. The acquisition of OceanTrac and Systems resulted in recording
of intangibles in the amount of approximately $388,000 which will be
amortized by the Company over ten years.
MED Associates, Inc. - Effective November 1, 1997, the Company purchased
certain assets and liabilities of MED Associates, Inc. ("Gulfport") for
$500,000 cash, and 300,000 shares of restricted common stock valued at
$1.40 per share. Goodwill in the original amount of $845,000 was recorded
and is amortized over ten years.
On December 30, 1998 the Agreement with Gulfport was amended to reduce the
shares of restricted stock to 240,000 and cash that was payable in
December 1998 to $30,000. Accordingly, goodwill was reduced by $304,000.
Gulfport 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 Gulfport are
included in the consolidated balance sheet as of December 31, 1997. The
results of Gulfport's operations from the date of the acquisition to
December 31, 1997 were not significant.
3. BALANCE SHEET DETAILS
1998 1997
----------------- ----------------
Accounts receivable $ 2,384,604 $ 949,874
Less allowance for
doubtful accounts 64,200 12,864
--------------- ----------------
$ 2,320,404 $ 937,010
----------------- ----------------
Inventory:
Raw materials $ 364,889
Work in progress 214,155
Finished goods 105,693 $234,092
----------------- ----------------
Total $ 684,737 $234,092
----------------- ----------------
Property - at cost:
Computers and equipment $ 835,320 $ 334,942
Furniture and fixtures 211,905
Leasehold improvements 55,390 37,655
----------------- ----------------
1,102,615 372,597
Less accumulated depreciation 364,278 148,734
----------------- ----------------
$ 738,337 $ 223,863
----------------- ----------------
Goodwill $11,633,203 $ 845,000
Less amortization 441,070 14,083
----------------- ----------------
$11,192,133 $ 830,917
----------------- ----------------
Patent $18,000,000
Less amortization 540,865
-----------------
$17,459,135
-----------------
Depreciation expense was $216,967, and $62,768 and $44,420 for the years
ended December 31, 1998, 1997, 1996 respectively. Amortization expense was
$966,429 and $14,083 for the years ended December 31, 1998 and 1997
respectively.
4. NOTES RECEIVABLE
Canadian Company - The Company had a note receivable agreement with a
Canadian company. Outstanding advances on the note bore interest at 9.0%
and were due on demand. Advances on the note totaled $310,463 at December
31, 1997. In July 1998, the Company acquired 100% of the Canadian Company
(see Note 2 -Acquisitions).
5. LEASES
Facility Leases - The corporate office leases its facilities under a
non-cancelable operating lease that expires December 2002. The Company
relocated to this facility in July 1998. The Company's leases have rent
escalation terms based on the Consumer Price Index, which will affect
future minimum lease payments. The Company also leases a 9,800 square foot
building in Santee, California for its Enerdyne subsidiary, which expires
in July 1999, and a 2,507 square foot facility in Gulfport, Mississippi,
which expires in January 2000. Boatracs (Europe) B.V., operates a facility
in Leiden, The Netherlands pursuant to a lease expiring in December 2001.
Total rent expense was $217,157, $57,894 and $51,900 for the years ended
December 31, 1998, 1997 and 1996 respectively.
Future minimum lease payments at December 31, 1998 are summarized as
follows:
Year Ending December 31,
1999 $ 388,388
2000 226,318
2001 224,556
2002 189,865
Total $1,029,127
6. NOTES PAYABLE
In connection with the acquisition of Enerdyne on July 7, 1998 (see Note 2
- Acquisitions), the Company issued two notes payable in the total amount
of $10,000,000 to or on behalf of the previous owners. Notes in the amount
of $8,000,000 are senior promissory notes payable on July 7, 1999 and
bearing interest at 8.5% per annum. The other notes are subordinated
promissory notes in the amount of $2,000,000 with specified minimum annual
payments and any remaining amounts payable June 30, 2002 and bearing
interest at 8.5% per annum.
On December 29, 1998, the Company entered into a five year loan agreement
with a bank for $4,250,000 at a variable interest rate based on the
lender's prime rate. The initial rate at December 29, 1998 was 7.75%. The
proceeds were used to pay a portion of the $8,000,000 loan to the previous
Enerdyne owners. The loan is collaterized by the stock of the Company's
subsidiaries (Boatracs Europe, OceanTrac, Inc. and Enerdyne Technologies,
Inc.), as well as the Company's inventory, accounts, equipment, fixtures
and other goods. The terms for the remaining balances on the notes were
amended so that they expire on January 1, 2004.
On December 29, 1998, the Company entered into a line of credit agreement
with the bank to borrow up to $750,000 at an interest rate equal to the
lender's prime rate which was 7.75% on December 29, 1998. The agreement
expires on December 29, 2000. At December 31, 1998 there were no
borrowings on the line of credit.
Balance at
December 31, 1998
-----------------
Promissory note payable to bank $ 4,250,000
Senior promissory notes 3,575,177
Subordinated promissory note 2,000,000
----------------
9,825,177
Current portion 1,730,399
-----------------
Long term portion $ 8,094,778
-----------------
Future minimum debt payments are summarized as follows:
Year ending December 31,
1999 $1,730,399
2000 1,964,687
2001 2,154,937
2002 2,217,248
2003 1,685,066
Thereafter 72,840
-----------------
Total $9,825,177
-----------------
Future minimum debt payments are subject to acceleration under certain
conditions.
7. INCOME TAXES
Due to a valuation allowance provided for deferred income tax assets for
the years ended December 31, 1997 and 1996, there was no income tax expense
or benefit and the Company's effective income tax rate was 0%.
The tax effects of significant temporary differences that comprise deferred
tax balances are as follows:
December 31 December 31,
1998 1997
---------------- ----------------
Deferred assets/(liabilities)
Net operating loss carryforward $568,000 $830,000
Income tax credits 105,000 49,000
Allowance for uncollectible account 28,000 6,000
Deferred income 8,000 16,000
State taxes 5,000 400
Patent (6,984,000)
Other 12,000 15,000
---------------- ----------------
Net deferred assets/(liabilities) (6,258,000) 916,400
Valuation allowance (388,000) (916,400)
---------------- ----------------
Total deferred tax amount $(6,646,000) 0
---------------- ----------------
The provision for income taxes consists of the following:
Income/(expense)
. Fiscal 1998
----------------------
Current:
Federal $173,939
State 3,497
----------------------
Total current 177,436
----------------------
Deferred:
Federal 127,726
State 117,048
----------------------
Total deferred 244,774
----------------------
Total Provision $422,210
----------------------
At December 31, 1998, the Company had unused net operating loss
carryforwards of approximately $449,000 for Federal income tax purposes
which expire at various dates from 2005 to 2012 and $320,000 for state
income tax purposes which expire at various dates from 1999 to 2002.
A reconciliation of the statutory federal income tax rate with the
Company's effective income tax is as follows:
Fiscal Fiscal Fiscal
1998 1997 1996
--------------- -------------- ----------------
Statutory federal rate (34%) (34%) (34%)
State income taxes
Net of federal income
tax benefit (245%)
Change in valuation
allowance (1293%) 36% 34%
R & D credit (82%) (6%)
Goodwill 321%
Other 28% 4%
--------------- -------------- ---------------
Effective tax rates (1305%) 0% 0%
=============== ============== ===============
8. STOCKHOLDERS' EQUITY
Note Receivable Issued for Common Stock - During March 1995, the Company
issued 1,112,265 shares of common stock to Qualcomm (see Note 9 - Related
Party Transactions) for $737,000. The purchase price of the shares was
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 a license and distribution agreement (see
Note 10 - License and Distribution Agreement). The transaction was
recorded as a note receivable for common stock issued which is reduced as
discounts are earned. Through December 31, 1998, a total of $737,000 in
discounts had been earned and the balance of the note receivable
eliminated.
In October 1997, the company issued 2,900,000 shares of common stock to an
individual who subsequently became an officer/director of the company, at
a discounted rate of $0.80 per share pursuant to the terms of the
Restricted Stock Purchase Agreement. In connection with the shares, the
Company received a promissory note in the amount of $1,930,915 bearing
5.77% interest. The note required 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 had been recorded as a reduction of equity on the
balance sheet. During 1998, the note and accrued interest were purchased
by an outside party at a discount of $44,274, which was recorded as a
reduction of the common stock originally issued.
In July 1998, the Company issued a total of 3,000,000 shares of common
stock to the selling shareholders and their investment bankers of Enerdyne
valued at $3.17 pursuant to an Agreement and Plan of Reorganization.
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. In 1998, the warrants were exercised.
In April 1998, the Company issued 30,000 warrants to a consultant, at an
exercise price of $1.50 per share.
In June 1998, the Company issued warrants to purchase 25,000 shares of
common stock at $4.44 per share to a third party in connection with a
purchase of a promissory note from a director and officer of the Company.
In July 1998, the Company issued warrants to purchase 500,000
shares of common stock at $2.00 per share to the selling
shareholders of Enerdyne and their investment bankers.
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.
In July, 1998, the Company issued options to purchase 1,000,000 shares of
common stock to the two selling shareholders of Enerdyne at $2.00 per
share. Pursuant to an amendment to the agreement, the options were
adjusted to a total of 1,327,000 options at $2.65 each.
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 this transaction.
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 this
transaction.
During April 1998, the Company filed a registration statement on Form SB-2
that provides for registration of 9,900,070 shares on behalf of selling
shareholders. The Company did not receive any proceeds from this
transaction. The registration statement, which is not yet effective, has
been refiled for final acceptance by the Commission.
Stock Option Plan - Under the amended 1996 Stock Option Plan ("the Plan"),
the Company may grant incentive and non-qualified options to purchase up
to 2,000,000 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 Shares Price 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
Granted 767,300 $2.00 - $4.63
Cancelled (87,669) $1.13 - $3.75
Exercised (57,531) $1.00 - $2.38
-----------------------
Outstanding, December 31,
1998 1,285,499
-----------------------
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 income for the period ended December 31,
1998 would have been reduced by approximately $541,000 and the Company's
net loss for the years ended December 31, 1997 and 1996 would have been
increased by $73,000 and $33,000 for each of the two years, respectively.
Under FASB 123, the fair value of the options granted during 1998 is
estimated as approximately $2,258,000 on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: no
dividend yield, expected volatility of 236%, risk-free interest rate of
5.1%, and an expected average life of 6.7 years.
The following table summarizes information as of December 31, 1998
concerning currently outstanding and exercisable options:
Options Outstanding Options Exercisable
--------------------------------------------------------------------------
Weighted Average Weighted Number
Range of Average Number Remaining Number Average
Exercise Prices Outstanding Contractual Exercise Exerc- Exercise
Life Price isable Price
---------------- ---------- -------- --------- -------- --------
$1.00-$2.50 931,500 5.2 $1.53 212,200 $1.10
$2.51-$5.00 354,000 6.4 $3.59 0 n/a
9. RELATED PARTY TRANSACTIONS
On October 15, 1997, Company received a promissory note from an individual
who subsequently became an officer, director and shareholder of the
Company in the amount of $1,930,915 bearing 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
8 - Note Receivable Issued for Common Stock). The shares were issued at a
discounted rate of $0.80 per share based on the restrictions of the
agreement. The note called for semi annual installments with the final
payment on April 15, 2000. During June 1998, the note and accrued interest
were purchased by an outside party at a discount of $44,274, which was
recorded as a reeduction of the common stock originally issued.
10. LICENSE AND DISTRIBUTION AGREEMENT
During 1990, the Company entered into a license and distribution
agreement, as amended through June 25, 1997, 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 1998, 1997 and
1996.
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 will provide maritime satellite-based communications
and tracking of vessels to certain countries in Europe.
11. 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
were able to contribute up to 15% of their salary, not to exceed $9,500
annually. A discretionary contribution is determined each year by the
Company. In 1998 and 1997, the Company did not elect to contribute to the
Plan, and the Plan was terminated in 1998.
12. GEOGRAPHIC AND BUSINESS SEGMENT INFORMATION
The Company operates what management believes to be two reportable
business segments: Communications and Video Compression. The Company's
reportable segments are strategic business units that offer different
products and services. They are managed separately based on fundamental
differences in their operations.
The Communications segment consists of the operations of Boatracs, Inc.,
Boatracs (Europe) B.V. and Oceantracs, Inc., as well as the operations of
MED. The Communications segment has exclusive distribution rights in the
United States for marine application of the OmniTRACS system of
satellite-based communication and tracking systems manufactured by
QUALCOMM. In addition, the Company's wholly owned subsidiaries, Boatracs
(Europe) B.V. and Oceantracs, Inc. have agreements with QUALCOMM'S
authorized service providers in Europe and Canade for marine distribution
of OmniTRACS in parts of Europe and Canada. MED is a provider of software
applications and service solutions to the commercial work boat and
petroleum industries, including customers of Boatracs.
The Video Compression segment consists of the operations of Enerdyne which
the Company acquired in July 1998 (see Note 2 Acquisitions). Enerdyne is a
provider of versatile, high performance digital video compression products
to the government and commercial markets.
In 1997 and 1996 there was only one segment, communications.
Information by industry segment for the year ended December 31, 1998 is
set forth below.
Video
Communications Compression Consolidated
--------------- ------------ -------------
Revenues $ 7,914,508 $ 2,258,812 $ 10,173,320
Income from operations $186,233 $146,560 $332,793
Interest revenue $43,040 $4,383 $47,423
Interest expense $413,335 $413,335
Depreciation and
amortization $272,816 $910,580 $1,183,396
Total assets $ 3,844,938 $29,225,548 $33,070,486
The Company has two foreign subsidiaries: Boatracs (Europe) B.V. and
Oceantracs Inc. Boatracs (Europe) B.V. is located in The Netherlands
and provides communication services to the European market. Oceantra
Inc. provides communication services in Eastern Canada. In addition,
Enerdyne has limited foreign sales. The following table presents
revenues and long lived assets (excluding goodwill) for each of the
geographical areas in which the Company operates:
1998 1997 1996
-------------------- ----------------- -----------------
Long- Long- Long-
Lived Lived Lived
Revenues Assets Revenues Assets Revenues Assets
-------- -------- ---------- ------ --------- ------
United States $9,503,838 $18,087,961 $4,402,055 $159,934 $3,489,868 $100,232
International 669,482 109,511 845,486 63,929 11,314 20,499
---------- ---------- -------- --------- --------- --------
Total $10,173,320 $18,197,472 $5,247,54 $223,863 $3,501,182 $120,731
---------- ---------- -------- --------- --------- --------
<PAGE>
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 relied upon as having been
authorized by the Company, the Selling
Shareholders or any other
person. This Prospectus does not
constitute an 10,154,865 SHARES
offer to sell or a solicitation of an offer to buy
any security other than the securities to which it
relates, or an offer to or a solicitation of any
person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the
delivery of this Prospectus nor any sale made
hereunder shall, under any circumstance, create BOATRACS, INC.
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
subsequent to the date hereof.
------------------
TABLE OF CONTENTS
Common Stock
Page
Available Information 4
Prospectus Summary 5
Summary Consolidated Financial
Information 7
Risk Factors 8
Use of Proceeds 16 _____________
Dividend Policy 16
Selected Financial Data 18 Prospectus
Management's Discussion and _____________
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 23. Indemnification of Directors and Officers.
Pursuant to provisions of the California Corporations Code, Article V of the
Company's Amended and Restated Articles of Incorporation provides that the
liability of the Company's directors for monetary damages shall be eliminated to
the fullest extent permissible under California law.
Article VI of the Company's Amended and Restated Bylaws authorizes the Company
to indemnify its directors and officers in certain circumstances against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with a proceeding arising out of such person's
service in such capacity, if that person acted in good faith and in a manner
that that person reasonably believed to be in the best interests of the Company
and, in the case of a criminal proceeding, had no reason to believe was
unlawful. The Company is required to indemnify a director or officer of the
Company against expenses actually and reasonably incurred in the event such
person is successful on the merits in the defense of any such claim. The
indemnification provided by Article VI is not exclusive of any other rights to
which such director or officer seeking indemnification may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors or otherwise,
with respect to action in his or her official capacity and with respect to
action in another capacity while holding such office, to the extent such
additional rights to indemnification are authorized in the Company's Amended and
Restated Articles of Incorporation.
In addition, employment agreements between the Company and certain executive
officers of the Company provide that such executive officers shall each be
indemnified against all liabilities, damages, costs, expenses, attorneys' fees
and claims (each, a "Claim"), and all costs, expenses and attorneys' fees
incurred in the defense of any such Claim, arising from certain circumstances
relating to such executive officer's employment, except to the extent caused by
such executive officer's negligent act, willful misconduct or breach under such
agreement. The Company is required to defend at its sole cost any action or
proceeding brought against such executive officer by reason of any such Claims
upon notice from the executive officer.
Item 24. Other Expenses of Issuance and Distribution.
The estimated expenses of this offering are as follows:
To Be Paid By Company
SEC Registration Fee $9,603
Blue Sky Qualification Fees and Expenses............................... 2,500
Printing and Engraving Expenses................................. ..... 100
Legal Fees and Expenses.............................................. 25,000
Accounting Fees and Expenses......................................... 25,000
Transfer Agent and Register Fees....................................... 500
Total........................................................$62,703
Item 26. Recent Sales of Unregistered Securities.
During the past three years, the following securities, which were not registered
under the Securities Act of 1933, as amended (the "Act"), were issued by the
entities indicated:
In June, 1995, the Company issued 179,684 shares of Common Stock to Giles
Bateman, a director, upon conversion of Mr. Bateman's promissory note which had
been issued by Old BOATRACS in July of 1994.
In October, 1995, the Company issued an aggregate of 1,275,375 shares of Common
Stock in a private placement transaction to Giant Trading, Louis Gonda, Norman
Kane, Tom Bernard, Norman Sarkin, Zane Feldman, Bank Insinger De Beuford N.V.,
Clariden Bank and Peter Sieradzki in consideration of $1.58 per share. The
Company paid aggregate commissions of $118,000 to Integro Securities B.V. and
Shippers Establishment in connection with their services as placement agents in
the transaction.
In January, 1996, the Company issued options for the purchase of 50,000 shares
of Common Stock to Richard Coates, a consultant, at an exercise price of $1.50
per share.
In March, 1996, the Company issued 24,600 shares of Common Stock to
International Project Management, a consultant of the Company, in consideration
of services rendered.
In April, 1997, the Company issued a warrant to purchase 30,000 shares of Common
Stock to Richard Coates, a consultant of the Company, at an exercise price of
$1.50 per share.
In October, 1997, the Company issued 2,900,000 shares of Common Stock to Jon
Gilbert, the President, Chief Executive Officer and Director of the Company
pursuant to a Restricted Stock Purchase Agreement. The purchase price was $0.80
per share, payable in cash and by promissory note. The note was secured by a
pledge of 2,416,645 shares of Common Stock and the note was repaid in June,
1998.
See "Management -- Executive Compensation" and "Certain Transactions."
In December, 1997, the Company issued 300,000 shares of common stock to BOATRACS
Gulfport in connection with the purchase of certain assets and liabilities of
that company. Pursuant to an amendment to the agreement, in December 1998 the
shares were reduced to 240,000. See "Business - Purchase of BOATRACS Gulfport".
In March, 1998, the Company issued warrants to purchase 10,000 shares of Common
Stock at $2.44 per share to each of Giles Bateman and Mitchell Lynn, both
directors of the Company. The warrants are exercisable until March, 2005.
In April and May, 1998, the Company issued 25,000 shares to Torrey Pines
Securities in connection with a Warrant to Purchase Common
Stock at $1.50 per share.
On July 7, 1998, the Company acquired Enerdyne for $22.6 million in a
combination of cash, stock and notes. A total of 3,000,000 shares were issued,
2,930,700 of which to the former shareholders of Enerdyne and the remainder to
the financial advisors.
On June 24, 1998, the Company issued a warrant to purchase 25,000 shares of
common stock at $4.44 per share to Sol Price in connection with a purchase of a
promissory note from a director and an officer of the Company.
Effective July 1, 1998, the Company agreed to issue 5,000 shares of Common
Stock valued at $4.75 per share in connection with the
acquisition of the assets of Oceantracs Ltd.
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.
<PAGE>
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 26th day of April, 1999.
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 Board April 26, 1999
Michael Silverman
/S/ JON S. GILBERT President and Chief April 26, 1999
Jon S. Gilbert Executive Officer
/S/ JOHN O'BRYANT Chief Financial Officer April 26, 1999
John O'Bryant and Chief Accounting
Officer
/S/ GILES BATEMAN Director April 26, 1999
Giles Bateman
/S/ LUIS MAIZEL Director April 26, 1999
Luis Maizel
/S/ MITCHELL LYNN Director April 26, 1999
Mitchell Lynn
/S/ SCOTT BODEN Director April 26, 1999
Scott Boden
<PAGE>
>
EXHIBIT INDEX
Exhibits Description
2 Plan of Reorganization by Merger (1)
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Amended and Restated Bylaws (1)
3.3 Amendment of the Bylaws, Article III, Section 2 (7)
4.1 Form of the Company's Common Stock Certificate (2)
10.1* License and Distribution Agreement dated June 13, 1990,
by and between QUALCOMM and the Company, as amended (3)
10.2* License Agreement dated March 31, 1995, between the
Company and QUALCOMM (2)
10.3 Employment Agreement--Michael Silverman (2)
10.7 Addendum to Stock Issuance/Employment Agreement
between the Company and Annette Friskopp dated July 1, 1995 (4)
10.8* Agreement entered into between BOATRACS, Inc. and Oceantrac
Systems
Limited and Oceantrac Incorporated, effective September 1996 (6)
10.9 BOATRACS, Inc. Amended 1996 Stock Option Plan (8)
10.10 Restricted Stock Purchase Agreement between Boatracs, Inc. and
Jon Gilbert dated October 15, 1997 (9)
10.11 Pledge Agreement between Boatracs, Inc. and Jon Gilbert dated
October 15, 1997 (9)
10.12 Promissory Note between Boatracs, Inc. and Jon Gilbert dated
October 15, 1997 (9)
10.13 Employment Agreement between Boatracs, Inc. and Charles Drobny,
Jr. effective November 1, 1997. (10)
10.14 Agreement and Plan of Reorganization dated July 7, 1998 by and
between Boatracs, Inc., Enerdyne Technologies, Inc.,
Boatracs Acquisition, Inc., Scott T. Boden and Irene Shinsato (11)
10.15 Employment Agreement dated July 7, 1998 between Scott T. Boden
and Enerdyne Technologies, Inc. (11)
10.16 Option Agreement dated July 7, 1998 between Scott T. Boden and
Boatracs, Inc. (13)
10.17 Employment Agreement dated July 7, 1998 between Irene Shinsato
and Enerdyne Technologies, Inc. (11)
10.18 Option Agreement dated July 7, 1998 between Irene Shinsato
and Boatracs, Inc. (13)
10.19 Financial Statements of Enerdyne Technologies, Inc. (12)
10.20 First Amendment to Agreement and Plan of Reorganization between
Boatracs, Inc, Boatracs Acquisition, Inc., Enerdyne
Technologies, Inc., Scott T. Boden, Irene Shinsato, Jon Gilbert
and Michael Silverman (13)
10.21 Financial Statements of Med Associates, Inc. (14)
10.22 Loan Agreement effective December 29, 1998 between Boatracs,
Inc. and Enerdyne
(Borrower) and First National Bank (Lender) (15)
10.23 Promissory Note in the amount of $4,250,000 dated December
29, 1998, between Boatracs, Inc.: ET. AL. (Borrower) and
First National Bank (Lender) (15)
10.24 Promissory Note in the amount of $750,000 dated December 29, 1998
between Boatracs, Inc.: ET. AL. (Borrower) and First
National Bank (Lender) (15)
10.25 Commercial Pledge and Security Agreement between Boatracs,
Inc.:ET. AL. (Borrower), Boatracs, Inc. (Grantor) and First
National Bank (Lender) (15)
10.26 Commercial Security Agreement between Boatracs, Inc.: ET. AL.
(Borrower), Enerdyne Technologies, Inc. (Grantor) and
First National Bank (Lender) (15)
10.27 Commercial Security Agreement between Boatracs, Inc.: ET.AL.
Borrower), Boatracs, Inc. (Grantor) and First National
Bank (Lender) (15)
10.28 Commercial Security Agreement between Boatracs, Inc.: ET.
AL. (Borrower), Boatracs (Europe) B.V. and Oceantracs
Incorporated (Grantor) and First National Bank (Lender) (15)
10.29 Collateral Assignment, Patent Mortgage and Security Agreement as
of December 29, 1998 between Enerdyne Technologies, Inc., a
California corporation (Grantor) and First National Bank, a
national banking association (Grantee) (15)
10.30 Boatracs, Inc. 1996 Stock Option Plan (as amended March 24, 1997
and March 20, 1998) (16)
11 Statement regarding computation of net loss per share (filed herewith)
21 Subsidiaries of the Registrant (filed herewith)
23.1 Independent Auditors consent (filed herewith)
---------------------------
(1) Incorporated by reference to the exhibit of the same number to the
Company's Current Report on Form 8-K dated January 12, 1995.
(2) Incorporated by reference to the exhibit of the same number to the
Company's Form S-1, SEC File No. 33-91284, filed with the SEC on May
4, 1995.
(3) Incorporated by reference to the exhibit of the same number to the
Company's Amendment No. 3 to Form S-1, SEC File No.
33-91284, filed with the SEC on July 6, 1995.
(4) Incorporated by reference to the exhibit of the same number to the
Company's Form S-1, SEC file No. 33-98810 filed with the SEC on
October 31, 1995.
(5) Incorporated by reference to the exhibit of the same number to the
Company's Form 10-K filed with the SEC on March 1996.
(6) Incorporated by reference to the exhibit of the same number to the
Company's Form 10-QSB filed with the SEC November 1996.
(7) Incorporated by reference to the Company's Form 10-QSB filed with the
SEC in May, 1996.
(8) Incorporated by reference to the Company's Form S-8 filed with the SEC
on June 20, 1997.
(9) Incorporate by reference to the company's Form 10-QSB filed with the SEC
on 11/14/97.
(10) Incorporated by reference to the Company's Form 8-KA filed
with the SEC on March 31, 1998.
(11) Incorporated by reference to the Company's Form 8-K filed with the
SEC on July 21, 1998.
(12) Incorporated by reference to the Company's Form 8-K/A, Amendment No.
1, filed with the SEC on August 14, 1998.
(13) Incorporated by reference to the Company's Form 8-K/A, Amendment No.
2, filed with the SEC on November 18, 1998.
(14) Incorporated by reference to the Company's Form 8-K/1, Amendment No. 1,
filed with the SEC on March 31, 1998.
(15) Incorporated by reference to the Company's Form 10K-SB for the year
ended December 31, 1998 filed with the SEC on March 30, 1999
(16) Incorporated by reference to the Company's definitive Proxy Statement
filed with the SEC on April 1,1999.
*Confidential treatment requested
<PAGE>
EXHIBIT 5
SOLOMON WARD SEIDENWURM & SMITH, LLP LETTERHEAD
April 26 1999
BOATRACS, Inc.
10675 Sorrento Valley Road, Suite 200
San Diego, CA 92121
Re:......Pre-Effective Amendment No. 4 to Registration Statement on Form SB-2/A
Gentlemen:
We are delivering this opinion and consent to you in connection with the
registration under the Securities Act of 1933, as amended, of 10,154,865 shares
of common stock, no par value (the "Shares"), of BOATRACS, Inc. (the "Company")
held be certain shareholders of the Company, pursuant to Pre-Effective Amendment
No. 4 to Registration Statement on Form SB-2/A (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
San Diego, California
EXHIBIT 11
STATEMENT RE: BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
(in thousands, except earnings (loss) per share data)
Year Ended December 31,
----------------------------------------------------
1998 1997 1996
------------- ------------ -------------------
Net income (loss) $ 389 ($ 255) ($ 905)
Basic earnings (loss)
per common share $ .02 ($ .02) ($ .07)
Diluted earnings per
common share $ .02 n/a n/a
Weighted average common
shares outstanding 17,333 13,535 12,597
Weighted average common
shares outstanding 18,358 n/a n/a
assuming dilution
* 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.
Enerdyne Technologies, Inc.
Oceantrac, Inc.
EXHIBIT 23.1
DELOITTE & TOUCHE, LLP LETTERHEAD
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of BOATRACS, Inc. on Pre
Effective Amendment No. 4 to Form SB-2/A of our report dated February 26, 1999,
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 26, 1999
