Satellite Security (SSCY) - Description of business

Symbol:	SSCY
Type:	NASDAQ
State location:	CA
State of Inc:	NV
Phone:	877-437-4199
Web Site:	www.satsecurity.com
Business Address:	6779 MESA RIDGE ROAD, SUITE 100 SAN DIEGO CA 92121 877-437-4199
Mailing Address:	6779 MESA RIDGE ROAD, SUITE 100 SAN DIEGO CA 92121

Background: Incorporation and Merger
The Company was originally incorporated under the laws of the State of Nevada on April 8, 1998.
The Company and Satellite Security Systems, Inc., a California corporation (“Satellite”), entered into an Agreement and Plan of Merger dated December 9, 2005 (the “Merger Agreement”). On December 31, 2005, pursuant to the terms of the Merger Agreement, Satellite merged with and into a wholly owned subsidiary of the Company (the “Merger”) whereby the Company issued one share of its common stock in exchange for each 3.12 shares of Satellite outstanding. Holders of the 32,979,813 outstanding shares of the Company’s common stock continued to hold their stock following the Merger and there were no monetary assets exchanged to these holders.
Prior to the Merger, the Company’s principal asset was the ownership of a 70% interest in the common stock of Orbtech Holdings, Inc. (“Orbtech”) a South African company. On October 21, 2005, the Company entered into an agreement with Buytron, Inc. (“Buytron”), a company that was formed for the purpose of holding shares of common stock of the Company. One of the principal shareholders of Buytron is also an owner of Orbtech. In conjunction with the agreement, the shares of common stock of the Company which were owned by Buytron were distributed to the shareholders of Buytron. Under the terms of the agreement, the Company eliminated a portion of its control in Orbtech by reducing the number of its ownership shares in exchange for the cancellation of certain shares of Company common stock that the principal shareholder of Buytron owned. The result of this transaction was that the Company reduced its ownership percentage in Orbtech from approximately 70% to approximately 42.5% (from a consolidated entity to an equity investment accounted for as such), and 4,146,759 shares of common stock of the Company previously owned by a Buytron shareholder were cancelled.
As of December 31, 2005, the Company’s 42.5% share of the book value of Orbtech was approximately $40,000. Based on the fact that Orbtech has incurred significant losses from operations for the current and past years, management recorded a 100 percent impairment of its equity position, thereby writing off the entire carrying amount of its investment, with the Company effectively remaining a public shell.
As a result of these transactions, the Merger of Satellite into the Company has been accounted for as a “reverse merger” into a shell company. Accordingly, the information on the historical financial statements below reflect the operations of Satellite, except for the statement of shareholders’ deficiency, which has been converted into the shares of the Company.

Company’s Business
The Company is primarily engaged in providing asset tracking services, through use of the Global Positioning System (“GPS”) and various communications platforms, for asset security and logistic control. The Company’s solutions generally involve the sale of a GPS tracking device and subsequent monitoring of that device. The Company’s solutions can be integrated with almost any type of asset that is fixed or mobile. This includes human beings, such as soldiers in training or combat and/or land and sea vehicles, such fleets of trucks, weapons systems, shipping containers, automobiles and the like. Through this ability to communicate with a remote asset, the Company is able to monitor location (GPS), status (e.g. engine on/off, door open/close) and sensor information such as an RFID Smart-Card passing by the Company’s units RFID sensor. Smart-Card information tied to the GPS data produced by the GlobalGuard™ unit allows the Company to monitor inventory locations, or student activity to and from school, for example.
The Company’s products have the potential for broad-scale applications for law enforcement, homeland security, fleet tracking and management, utility applications and fixed point monitoring. We have initially focused the Company’s solutions on services for law enforcement, and we have several programs currently under way with Federal, state and local law enforcement agencies. These programs allow law enforcement officials to utilize the Company’s solutions to track suspects or convicted felons (e.g., sexual predators) covertly. In addition to covert tracking and monitoring solutions, the Company offers a “Bait Car” solution for law enforcement to deploy in aiding the fight against auto theft. A car with an integrated tracking device can be left unattended and the Company can notify law enforcement in the event the vehicle moves. We have since taken the processes and procedures we learned in working with law enforcement and applied that knowledge to the Company’s newest market, school transportation and student safety.
The Company generates one time revenues through direct and OEM sales of its GPS tracking devices which it markets under the name GlobalGuard™. The Company then supplies stealth and covert systems with two-way communications capabilities linked to a Monitoring and Support Center (the “MSC”) with trained staff on duty 24 hours a day, seven days a week. The monitoring services are provided under the terms of service contracts which provide monthly recovering revenue to the Company. Typically these contracts have a initial period of one to five years. After the initial contract period, the term automatically renews annually on an ever-green basis until terminated by one of the parties.
The Company’s recurring revenue stream is based on customer options for monitoring and control functions. Users pay to monitor the movements of vehicles in a fleet, for example, or to take specific control actions (for example: remotely initiating operation of an emergency standby generator). This model provides the customer with predictable budgeting and low startup costs.
PRODUCTS
The Company’s flagship product, GlobalGuard™, integrates GPS into a communications portal package using Motorola’s ReFLEX technology to transmit via the two-way pager infrastructure that stretches across North America and throughout Europe, Asia, and in other areas around the world.
GlobalGuard™ 877 Units
The GlobalGuard™ unit is a black-box that is a state-of-the-art 8-channel vehicle tracking and security system. The GlobalGuard™ system integrates the US Government’s GPS satellite network that provides worldwide geolocation information and Motorola’s state of the art nation-wide ReFLEX technology as the system’s primary communications network. GlobalGuard™ is accurate to better than the five-meters @ 80 mph, a requirement for many Automated Vehicle Location (“AVL”) applications and the clients that use them. The GlobalGuard™ units are able to view up to eight GPS satellites for accurate location and tracking. The GlobalGuard™ unit provides continuous operation in temperatures of 20-150 degrees Fahrenheit while mounted within a vehicle.

GlobalGuard™ is built around the ReFLEX technology acting as a transceiver that reports remote data. Transmissions can be at specified time intervals, triggered by events, or on demand. The GlobalGuard™ transmission data rate is 256 kbps at 940 MHz. In order to ensure these units do not interfere with the batteries on the vehicles, the GlobalGuard™ unit is made to transmit at low power rates that require a ground “repeater” station or tower to receive the signal and then relay the signal via satellite to the pager carrier’s Network Operating Center (the “NOC”) and back to the MSC. Due to a unique “simulcast” feature applicable only to ReFLEX networks, the GlobalGuard™ needs only one land-based repeater/transmitter to serve as a reflecting point for the Company’s signal. There are thousands of these repeater/transmitters throughout North America; each is able to cover a large region. All of these repeater/transmitters are maintained and operated by the respective satellite carrier and serve a valued purpose in maintaining communications sustainability even in emergency conditions as has been experienced with 9/11, the Northeast energy blackout, and hurricane Katrina.
The Company also has the ability to adapt its core technology to other applications because of the synergistic features of its GPS and communication devices with various products already offered by the Company’s strategic partners. Such applications can by tied to the Company’s GlobalGuard™ units for a variety of needs, for example, by law enforcement agencies to track shipments of illegal cargo and movement of persons in vehicles throughout the United States. We have also adapted the Company’s Global Guard ™ product to smart-card technology, which is currently integrated for continued use by hazardous material carriers and school bus and student transportation carriers, addressing security concerns by remotely authenticating and tracking the use of vehicles and drivers while also providing accountability of inventory or students being transported.
The Monitoring and Support Center
The ground station Monitoring and Support Center (MSC) is the heartbeat behind the Company’s remote monitoring system. The MSC houses the computer equipment needed to interact with the GlobalGuard™ units in the field, and serves as the operations center for the Company’s employees that monitor the MSC. The MSC provides Internet connectivity for the software packages that the Company’s clients use to monitor their equipment or statistical data. Through the use of the ReFLEX network, first responders, law enforcement, military or government agencies can obtain information, such as the status of assets containing the GlobalGuard™ units, and the status of supporting assets in the area, including GPS positions sent to and from a central monitoring center. The data that can be sent to and from a central monitoring center or “command station” can create a real time picture for the local authorities to help them understand what critical response units are doing and where they are deployed. The Internet connectivity at the MSC is monitored internally to assure continual service to the Company’s clients. We have installed redundant systems to ensure the highest amount of system availability for all clients. The MSC has redundant data servers as well as back-up power for continuous operations.
The MSC precisely plots the transponder’s position location information on digital maps and, using the Company’s Virtual Perimeter technology (Patent Pending), is able to determine whether a relevant asset is where it is supposed to be in terms of both time and geography. If the asset is outside of its predefined limits, then the Virtual Perimeter program will alert the MSC team and immediately send messages to the owner and/or law enforcement authorities as prescribed.
Unlike most services that enable unidirectional data flow, the GlobalGuard™ system allows information to flow both directions. Accordingly, the MSC not only receives information from the field, but can also send commands to the remote transponder. For example, a vehicle’s speed can be transmitted to the MSC in addition to its location. If the speed becomes excessive or moves outside its pre-established geographic virtual perimeter (e.g. stolen), then the MSC can transmit one command to alert authorities and a second command back to the vehicle to disable the vehicle in a controlled manner. The potential applications for the GlobalGuard™ system are numerous and are already being applied for security and compliance activities across many industries.

The Company’s solutions require no new computer or network hardware to be installed at client spaces to support the monitoring function. All GlobalGuard™ ES servers (“GGES”) and databases are maintained in the MSC. GGES is a software tool that facilitates the viewing of an entire fleet simultaneously (both in graphical and tabular form).
A client’s data will be available via computer monitors using a standard web browser interface with standard windowing functionality. The only required change in a program participant’s IT environment is the installation of GGES client software on pre-designated staff member desktops. All reporting from GGES is done in HTML/XML which is Open Data Base Connectivity (ODBC) compliant and can be exported into Excel as a .CSV file type. GGES is compatible with Microsoft Windows 2000 and Windows XP.
The Company’s Services
The Company has developed proprietary software designed to simplify the user experience and support the rapid development of additional value added services. Clients can easily access their account from any location using a PC, laptop, or PDA via a secure Internet connection.
Using the GGES software, we have the option of viewing current vehicle/asset locations or vehicle movements over a period of time. GGES also supports the Company’s customer service goals allowing us to answer frequent questions regarding an assets location, such as, “which vehicle is nearest a given geographic point or address at any moment in time?”
The GGES software includes the Internet-based capability to view the location or route history of each individual AVL-equipped vehicle by an authorized GGES system user working at any Internet-connected computer. The GGES mapping software display offers extensive detail giving the user complete zoom-in or out functionality to view the level of detail necessary to maintain situational awareness of client vehicles dispersed throughout a given region.
For added convenience, customers can access their information by calling the Company’s MSC toll-free number, twenty-four hours a day, seven days a week. Some of the services the Company currently provides include:

• Virtual Perimeter: The Virtual Perimeter is one of the Company’s leading services. It is a patent pending “geo-fencing” application that allows the customer to create zones where a vehicle’s (or other asset’s) location may be monitored for boundary crossing. Boundaries aren’t just geographic. Other boundaries that can be “fenced” include date and time boundaries and telematics activity.
• Routing: GlobalGuard™ leverages various geospacial, census and tiger data components (i.e., mapping technologies) to manage and indicate the vehicle’s movement within urban areas and to track directions of travel, as well as providing turn-by-turn directions to the driver if needed.
• Watchdog: Watchdog is the Company’s patent pending, enhanced security feature that allows the customer to program the GlobalGuard™ unit, remotely through the MSC or through GGES, to automatically and instantly alert the customer when a vehicle or asset leaves its assigned area. This is a favorite application of law enforcement; “bait cars” are often left unattended, and when a car thief strikes, the police are automatically notified.
• Automated Notification of Events (Threshold Alarming). Beyond the Watchdog service, the MSC can analyze incoming data and send notifications or updates to customers in various automated formats so that customers have complete control over the analysis of the data and resulting actions. Automated event activities can be customized by customer preference.
• Reporting. We will continually add reporting features based on customer needs and various integration efforts that are underway. Such reports include daily driver reports, summary activity reports of events, and variations of the current student accountability reports. The Company has built into GGES software the modular control of adding and activating these reports for the Company’s clients as they come

online. Essentially, the Company offers its clients the ability to pay for additional reporting features. The Company can activate the additional reports selected by the customer instantly without the customer having to download new software or additional upgrades.
SALES AND MARKETING
The Company’s sales and marketing objective is to achieve market penetration through vertical marketing and targeted sales activities. We currently market and sell the Company’s solutions through several sales channels, including the following:

• Strategic sales force. We currently have two sales employees focused on marketing and selling the Company’s solutions to enterprise or OEM accounts. Enterprise accounts are targeted to prospects with greater than 1,000 mobile resources. The sales process with enterprise accounts often requires many months of activity which is a competitive process and requires a pilot test of the Company’s solutions. This sales force is conducted out of the Company’s headquarters in San Diego, California.
• Major account sales force. We have one employee focused on marketing and selling the Company’s solutions to major accounts. Major accounts are defined as customers with 101 to 1,000 mobile resources. This is conducted out of the Company’s headquarters in San Diego, California.
• Inside sales force. We have one employee focused on marketing and selling the Company’s solutions to s customers and selling additional solutions to existing customers. This is conducted out of the Company’s headquarters in San Diego, California.
• Agent/OEM sales force. We have one sales employee who manages a network of sales agents derived from the Company’s OEM or strategic partners. This OEM agent is focused on marketing and selling the Company’s solutions through already established sales channels and distribution networks. This Company employee acts as a conduit for sales/marketing support for OEM partner agents while presenting or negotiating deals. The Company’s employees also act as project managers when supporting the Company’s OEM or strategic partners in writing and submitting proposals that are large responses to requests’ for proposals (RFP’s) throughout the country. Participants in the agent sales program are compensated for the sales of the Company’s solutions by the OEM partner not by the Company. The Company’s marketing department is engaged in a variety of activities, such as awareness and lead generation programs, development of collateral and sales tools, trade shows, and co-marketing with third parties.
The Company expensed $382,452 and $591,636 on sales and marketing activities in 2005 and 2004 respectively. As of December 31, 2005, the Company’s sales and marketing team consisted of 5 employees. The Company’s agent/OEM sales force supports 52 OEM and strategic partner distributors each of which has between 3-10 sales agents.
CUSTOMERS
We market and sell the Company’s solutions to a broad range of customers in the United States and Canada. The number of mobile resources enabled with the Company’s solutions on a subscription basis has grown from 1,800 as of January 1, 2005, to approximately 2,400 as of December 31, 2005. We categorize customers into small, medium or large-sized customer groups by reference to the total number of subscribers to the Company’s services. Small-sized customers have 5 or fewer subscribers, medium-sized customers have 6 to 100 subscribers or user licenses, and large-sized customers have more than 100 subscribers. Currently, we have customers in the following industries:

•     School Districts
•     Law Enforcement
•     Hazardous Materials Transportation
•     Air Quality Boards
•     Commercial Fleet/Field Service
•     Retail Consumer Vehicle Tracking
•     Utility/Fixed Point Applications

In 2005, three customers accounted for 31.6% 19.1% and 10.7% of revenues, respectively. No other customer accounted for more than 10% of our revenues during the period. In 2004, these same customers accounted for 0%, 39.8% and 12.2% of revenues respectively. For 2006 we expect that revenues from these customers to be consistent with prior levels, but to decrease as a percentage of revenues as the Company moves to diversify its customer base.
COMPETITION
We face strong competition for the Company’s solutions, and this competition is expected to increase in the future.
We face competition from a number of different business productivity solution providers, including:

• Solutions developed internally by the Company’s prospective customers’ information technology staffs, particularly by large companies;
• Discrete means of communication with mobile workers, such as pagers, two-way radios, hand-held devices and wireless telephones;
• Solutions targeted at specific vertical markets, such as services offered by Qualcomm Incorporated that monitor assets in the long-haul transportation sector;
• Solutions designed to help companies schedule and route their mobile workers; and
• Solutions offered by smaller market entrants. Many of the Company’s existing and potential competitors have substantially greater financial, technical, marketing and distribution resources than we do. Additionally, many of these companies have greater name recognition and more established relationships with the Company’s target customers. Furthermore, these competitors may be able to adopt more aggressive pricing policies and offer customers more attractive terms than we can. If we are unable to compete successfully, the Company’s business may suffer and the Company’s sales cycles could lengthen, resulting in a loss of market share or revenues.
We compete primarily on the basis of functionality, integration capability, deployment expertise, ease of use, quality, price, service availability, customer service and corporate financial strength. As the demand for remote asset monitoring solutions increases, the quality, functionality and breadth of competing products and services will likely improve and new competitors will likely enter the Company’s market. In addition, the widespread adoption of industry standards and the deployment of high-speed wireless data networks may make it easier for new market entrants or existing competitors to improve their existing products and services, to offer some or all of the products and services we offer or may offer in the future, or to offer new products and services that we do not currently offer. We also do not know to what extent network infrastructure developers and wireless network operators will seek to provide integrated wireless communications, GPS, software applications, transaction processing, and Internet solutions, including access devices developed internally or through captive suppliers.
RESEARCH AND DEVELOPMENT
The Company’s research and development efforts focus on development of new, feature-rich versions of its existing product lines, and evaluating anticipated future generations of products within the Company’s area of business. Research and Development expenses for the years ended December 31, 2005 and 2004 were $319,953 and $210,167 respectively.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 2005, the Company employed a total of 23 full-time and 3 part-time person(s), consisting of 5 in sales and marketing, 3 in research and development, 10 in operations, and 8 in finance,

administration and other capacities. We have never had a work stoppage. None of the Company’s employees are represented by a labor organization, and we consider the Company’s relations with the Company’s employees to be good.
INTELLECTUAL PROPERTY
We rely on a combination of patent, trade secret, trademark and copyright laws, nondisclosure agreements and other contractual restrictions to protect the Company’s proprietary technology.
As of December 31, 2005, we have 4 process patent applications under review, which cover various aspects of the Company’s hosted solutions and elements of the Company’s licensed software solutions. We intend to continue to file patent applications where we believe there is a strategic, technological or business justification. No patents have been issued at this time and no assurances can be given that any patents will issue from the Company’s existing applications, or if they do issue, that they will be adequate to protect the Company’s business interest. Such intangible asset costs have been written off the Company’s books, as realization of such intellectual property benefits is unknown at this time.
As part of the Company’s confidentiality procedures, we generally enter into nondisclosure agreements with the Company’s employees, consultants, distributors and corporate alliances and limit access to and distribution of the Company’s software, documentation and other proprietary information. If a third party were to breach the confidentiality provisions or other obligations in one or more of the Company’s agreements or to misappropriate or infringe the Company’s intellectual property or the intellectual property licensed to us by third parties, the Company’s business could be seriously harmed. Third parties may independently discover or invent competing technologies or reverse engineer the Company’s trade secrets, software or other technology. Furthermore, laws in some foreign countries may not protect the Company’s proprietary rights to the same extent as the laws of the United States. Therefore, the measures we take to protect the Company’s proprietary rights may not be adequate.
Third parties may claim that the Company’s current or future products or services infringe their proprietary rights or assert other claims against us. As the number of entrants into the Company’s market increases, the possibility of an intellectual property or other claim against us grows. Any intellectual property or other claim, with or without merit, would be time-consuming and expensive to litigate or settle and could divert management attention from focusing on the Company’s core business. As a result of such a dispute, we may have to pay damages, incur substantial legal fees, develop costly non-infringing technology, if possible, or enter into license agreements, which may not be available on terms acceptable to us, if at all. Any of these results would increase the Company’s expenses and could decrease the functionality of the Company’s solutions, which would make the Company’s solutions less attractive to the Company’s current or potential customers. We have agreed in some of the Company’s agreements, and may agree in the future, to indemnify other parties for any expenses or liabilities resulting from claimed infringements of the proprietary rights of third parties.