Close today at 1.00, up 1/16 on 48k...some background from recently filed 10-k:
Introduction
Datamarine International, Inc. and its subsidiaries ("we" or the "Company")
manufacture radio communications and navigation instrumentation products.
Presently, the Company's primary operations are in a single industry
segment, namely electronics. The Company also owns and manages specialized
mobile radio ("SMR") licenses in the 220 MHz radio service, although
revenues from such operations to date have been immaterial.
Datamarine International, Inc. was incorporated in Massachusetts on April
23, 1969. All of the Company's product development and manufacturing
facilities are at its Mountlake Terrace, Washington location. The Company
has sales and service facilities on the East and West coasts of the United
States and in Chatswood, NSW, Australia. Marine communication products,
branded SEA, and marine instrumentation products, branded Datamarine, are
sold worldwide through approximately 500 dealers in the United States and
approximately 20 foreign countries.
Sales of narrowband communications products for the land mobile radio market
are made through the Company's wholly-owned subsidiary, SEA, Inc. ("SEA"),
to business users nationwide. SEA has developed and marketed narrowband
radio equipment since 1984 and began selling its current line of narrowband
equipment for use in the 220 MHz band in 1993.
On October 19,1992, the Federal Communications Commission ("FCC") conducted
a lottery which led to the issuance of approximately 3,500 Phase I licenses
for a new land mobile service in the 220-222 MHz band. The FCC adopted
challenging technical parameters for the equipment to be used in the 220 MHz
radio service. By establishing these parameters the FCC intended to
encourage the development of new spectrum-efficient technologies for land
mobile applications. This service is mandated to use narrowband
technologies which will result in a fivefold increase in the number of
communications channels as compared to conventional technologies. SEA was
the first manufacturer to receive FCC type acceptance for 220 MHz radio
equipment. SEA shipped its first 220 MHz radios in 1993.
As of September 30, 1996 ownership of Phase I licenses for locations which
had not met regulatory build-out requirements reverted to the Federal
government. The Federal Communications Commission ("FCC") conducted an
auction of Phase II licenses which commenced in September 1998 and concluded
in October 1998. The auction was for licenses covering "Economic Areas",
"Regions" and "Nationwide" areas as defined by the FCC. We expect
the recently auctioned Phase II licenses to increase demand for our higher
margin 220 MHz base station products.
During fiscal 1995 Narrowband Network Systems, Inc. ("NNS") was incorporated
in the state of Washington as a subsidiary of SEA, and SEA owns 97.5% of
NNS's outstanding stock. NNS was formed to participate in the business of
providing SMR services. NNS has entered into both "Management Agreements"
and "Operator Agreements" with the holders of 220 MHz licenses granted by
the FCC related to SMR services in approximately 47 market areas across the
United States. Management Agreements require NNS to construct, develop and
operate SMR systems in certain markets. Operator Agreements require NNS to
provide licenses, system facilities and "SMR Operators" in certain markets.
The Management Agreements typically allow NNS to acquire the license
holder's interest in exchange for a percentage of gross receipts from the
system and a percentage of any profit realized by NNS upon the system's
ultimate disposition. The Operator Agreements typically give NNS a
contractual percentage of system revenue based on the level of support
provided to each system. The Company has met all regulatory build-out
requirements related to its licenses. Because NNS has only limited
operations, revenues and associated cash expenses have been immaterial since
inception.
In connection with the preparation of its Consolidated Financial Statements
for 1999, the Company implemented a recently issued accounting standard
which calls for information regarding the Company's operations to be
reported by segments. The Company is organized into three primary operating
segments according to its primary product categories: "Land Mobile
Communications", "Marine Communications" and "Marine Instrumentation", and a
less significant but separately identifiable segment referred to as
"Narrowband Operations." Information regarding net sales, operating profit
and identifiable assets for each segment can be found under the heading
"Results of Operations" in Item 7 -"Management's Discussion and Analysis of
Financial Condition and Results of Operations", and in the "Notes to
Consolidated Financial Statements." Certain reclassifications have been made
to the prior years' financial statements in order to conform to the 1999
presentation, with no impact on previously reported net loss or stockholders'
equity.
Products and Marketing
Land Mobile Communications - The Company's narrowband land mobile radio
system products have been type accepted by the FCC for use in the 220 MHz
radio service. These products consist of hand held, mobile and base station
components, utilizing the narrowband technology, an enhanced form of single
sideband that is ideal for the 5 KHz channel width used in the 220 MHz radio
service, and were developed for sale to business users of private land
mobile radio services. The narrowband technology helps solve the problem of
frequency congestion by allowing five narrowband channels to be operated
within the same spectrum as would presently be utilized by one 25 KHz FM
channel.
Marine Communications - The SEA marine communications products are high
performance radios used on commercial vessels, fishing vessels and ocean-
going yachts. The product line currently consists of 28 products with
suggested list prices between $765 and $40,000. The SEA products include
HF/SSB and VHF/FM radios, Satcom C, Weather fax, Emergency distress radio
beacons (EPIRBS), Search and rescue transponders (SARTS) and Global Maritime
Distress and Safety Systems (GMDSS).
Marine Instrumentation - Marine instrumentation products are sold primarily
to the recreational boating market. The products are well established in
the marketplace with up-to-date instruments for each type of pleasure craft:
small boats and yachts; sail and power; inshore and offshore. The Datamarine
product line currently consists of 28 products sold under the DART, LINK,
Corinthian and ChartLINK names, with suggested list prices between $400 and
$6,000. The Datamarine products include depth sounders, knotmeters and water
temperature instruments, wind speed and direction instruments, integrated
instruments, and electronic chart plotters.
International Sales
Foreign sales accounted for approximately 17% of our sales in fiscal 1999
and 5% of our sales in fiscal 1998. The increase in foreign sales resulted
from two factors. Prior to 1999, narrowband products were sold only
domestically so foreign sales represented only marine revenues. During 1999
the Company made its first sales of land mobile products in Mexico and we
expect to continue selling land mobile products in Mexico. Foreign revenues
from marine products were unusually high because many of the Company's GMDSS
products were sold outside the United States. We do not expect export sales
of GMDSS products to continue at the 1999 rate.
Competition and Markets
Datamarine and its subsidiary, SEA, are generally considered to be leading
suppliers of marine instruments and radio communication products to the
marine markets. Approximately 20 electronics manufacturers have competing
models in their product lines and are considered competitors. SEA has at
this time one competitor supplying narrowband equipment for the 220 MHz
radio service. Approximately 25 competitors offer alternative FM land
mobile products for use in other radio services and could become competitive
suppliers of equipment in the 220 MHz radio service market.
Several of the Company's competitors in the various markets have
substantially greater financial, technical and marketing resources.
The Company's business does not depend on any single customer, the loss of
whom would have a materially adverse impact on the Company's business. No
portion of the Company's business is subject to renegotiation of profits or
termination of contracts or sub-contracts at the election of the government.
The markets for the Company's products are generally not considered to be
seasonal.
Sales order backlogs stood at $1,900,000 at October 2, 1999, compared to
$963,000 at October 3, 1998. Of the total October 2, 1999 backlog, land
mobile products represented $1,429,000, marine communications products
represented $421,000 and marine instrumentation products represented
$50,000.
Orders for the Company's land mobile repeater systems represented
approximately 82% of the land mobile product backlog. Deliveries of
repeater systems can occur over an extended time period and are subject to
some uncertainty, thus the Company does not consider the repeater backlog to
be firm. |
