SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ....... to .......
Commission File Number: 0-17995
CUSTOMTRACKS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
TEXAS 75-2216818
(State of Incorporation) (I.R.S. Employer
identification number)
13355 NOEL ROAD
SUITE 1555
DALLAS, TEXAS 75240-6604
(Address of Principal Executive Offices)
(972) 702-7055
(Registrant's Telephone Number, Including Area Code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT OCTOBER 31, 1998
COMMON STOCK, PAR VALUE $.01 PER SHARE 14,902,609
INDEX
PART I-FINANCIAL INFORMATION
Page
Number
------
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets at September 30, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
PART II-OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. OTHER INFORMATION 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
2
CUSTOMTRACKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, 1998 December 31, 1997
------------------ -----------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 23,357 $ 15,163
Short-term marketable securities 16,053 1,010
Accounts receivable, net of allowance for doubtful
accounts of $757,000 in 1998 and $1,113,000 in 1997 14,935 31,559
Due from sale of businesses 1,884 --
Inventories 3,844 11,759
Prepaid expenses 436 801
------------ -----------
Total current assets 60,509 60,292
Property and equipment, at cost 7,826 28,907
Accumulated depreciation (4,997) (16,164)
------------ -----------
2,829 12,743
Intangible assets, net 3,423 6,746
Other assets 601 5,742
------------ -----------
$ 67,362 $ 85,523
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,861 $ 6,167
Accrued expenses 6,957 13,832
Deferred revenues 1,961 1,828
------------ -----------
Total current liabilities 11,779 21,827
Contingencies
Stockholders' equity:
Preferred stock, $1 par value, 10,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value, 30,000,000 shares
authorized; 17,194,509 issued, 14,902,609
outstanding in 1998 and 17,024,563 issued, 16,944,563
outstanding in 1997 172 170
Additional paid-in capital 86,998 86,045
Treasury stock, at cost (11,314) (393)
Accumulated deficit (20,273) (22,126)
------------ -----------
Total stockholders' equity 55,583 63,696
------------ -----------
$ 67,362 $ 85,523
============ ===========
See accompanying notes.
3
CUSTOMTRACKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
-------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ----------
Sales $ 15,936 $ 30,185 $ 76,024 $ 83,215
Operating costs and expenses :
Cost of sales 8,953 19,363 43,774 52,511
Research and development 446 3,008 4,818 8,780
Marketing, general and administrative 5,776 9,603 24,892 31,726
-------- -------- -------- ---------
15,175 31,974 73,484 93,017
-------- -------- -------- ---------
Operating income (loss) 761 (1,789) 2,540 (9,802)
Investment income 582 159 1,154 894
Interest expense -- -- -- (65)
Loss from sale of businesses, net -- -- (1,561) --
-------- -------- -------- ---------
Income (loss) before income taxes 1,343 (1,630) 2,133 (8,973)
Provision for income taxes 76 37 280 2,713
-------- -------- -------- ---------
Net income (loss) $ 1,267 $ (1,667) $ 1,853 $ (11,686)
======== ======== ======== =========
Basic and diluted earnings (loss) per share $ 0.08 $ (0.11) $ 0.11 $ (0.79)
======== ======== ======== =========
Shares used in computing earnings (loss) per share:
Basic 14,903 14,723 16,134 14,723
======== ======== ======== =========
Diluted 14,951 14,723 16,157 14,723
======== ======== ======== =========
See accompanying notes.
4
CUSTOMTRACKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months
Ended September 30
------------------------
1998 1997
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 1,853 $ (11,686)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 2,844 3,831
Loss from sale of businesses, net 1,561 --
Stock based compensation 516 --
Deferred income taxes -- 3,404
Change in assets and liabilities:
Accounts receivable (2,327) (5,369)
Inventories (1,650) 43
Prepaid expenses 120 538
Intangibles and other assets 242 832
Accounts payable and accrued expenses (1,411) 2,395
Deferred income 133 (554)
---------- ---------
Net cash provided (used) by operating activities 1,881 (6,566)
Cash flows from investing activities:
Purchases of property and equipment (2,089) (1,559)
Proceeds from sale of TSG business, net of
cash conveyed 20,847 --
Proceeds from sale of Cotag business unit 2,636 --
Purchase of Cardkey Systems -- (1,868)
Purchases of marketable securities (16,053) (4,916)
Sales and maturities of marketable securities 1,010 10,854
Increase in other assets (397) (1,132)
Other (52) (66)
---------- ---------
Net cash provided by investing activities 5,902 1,313
Cash flows from financing activities:
Proceeds from issuance of common stock 340 --
Other 49 69
---------- ---------
Net cash provided by financing activities 389 69
Effect of exchange rate changes on cash and cash equivalents 22 147
---------- ---------
Increase (decrease) in cash and cash equivalents 8,194 (5,037)
Cash and cash equivalents, beginning of period 15,163 5,296
---------- ---------
Cash and cash equivalents, end of period $ 23,357 $ 259
========== =========
See accompanying notes.
5
CUSTOMTRACKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements, which should be read in conjunction
with the audited consolidated financial statements included in the Company's
1997 Annual Report to Shareholders on Form 10-K, are unaudited but have been
prepared in the ordinary course of business for the purpose of providing
information with respect to the interim periods. The Condensed Consolidated
Balance Sheet at December 31, 1997 was derived from the audited Consolidated
Balance Sheet at that date which is not presented herein. Management of the
Company believes that all adjustments necessary for a fair presentation for such
periods have been included and are of a normal recurring nature except for the
special charges as explained in Notes 3, 4 and 5. The results of operations for
the nine-month period ended September 30, 1998 are not necessarily indicative of
the results to be expected for the full year.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130") effective for years beginning after December 15, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of financial statements. The differences between net
income and comprehensive income were not significant for the three-month and
nine-month periods ended September 30, 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is required to be adopted in years beginning
after June 15, 1999. Because the Company does not currently use derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on earnings or the financial position of the Company.
Basic earnings per share is computed based on the weighted average number of
shares of common stock outstanding. Diluted earnings per share includes the
effect of dilutive employee stock options.
2. INVENTORIES
Inventories consist of the following:
September 30, 1998 December 31, 1997
------------------ -----------------
Raw materials $1,533,000 $ 4,956,000
Work in process 627,000 3,107,000
Finished goods 1,684,000 3,696,000
---------- -----------
$3,844,000 $11,759,000
========== ===========
3. DISPOSITION OF BUSINESSES
Transportation Systems Group
On June 11, 1998, the Company sold its Transportation Systems Group to
UNOVA, Inc. ("UNOVA"), effective as of May 31, 1998, for approximately
$33,250,000 and recorded a gain of $1,139,000 from the transaction. As
consideration for the sale, the Company received approximately $22,250,000 in
cash and 2,2ll,900 unregistered shares of the Company's Common Stock that were
previously purchased by UNOVA in late 1997 valued at approximately $11,000,000.
Included in UNOVA's purchase were the Company's manufacturing and technology
facility in Albuquerque, New Mexico, the Company's radio frequency
identification technologies and other intellectual properties, the brand name
Amtech, and all current operations associated with the transportation business.
6
Cotag International
On July 7, 1998, the Company sold the net assets of its Cotag International
("Cotag") business unit to Metric Gruppen AB ("Metric") of Solna, Sweden,
effective as of June 30, 1998, for approximately $4,400,000 and recorded a
second quarter 1998 loss of $2,700,000 from the transaction, including a
$2,800,000 write-off of intangible assets. The Company received approximately
$2,700,000 in July 1998 with the remaining $1,700,000 to be received by January
1999. The Company may receive up to an estimated additional $1,400,000,
depending on the level and mix of Cotag revenues achieved in 1998 and 1999.
Included in Metric's purchase is the brand name and intellectual property
underlying Cotag's hands-free proximity technology, Cotag's manufacturing
facility in Cambridge, England, and the ongoing business of the unit.
4. SPECIAL OPERATING AND INCOME TAX CHARGES
In July 1997, the Company announced that it would withdraw from the
wireless LAN terminal market and seek buyers for its Interactive Data Group
("IDG"). Operating results include charges of $1,650,000 in the three months
and $3,725,000 in the nine months ended September 30, 1997 for employee
severance costs, winding up of operating activities and to reduce the assets of
the IDG to their estimated net realizable values. Allocation of the charges to
operating costs and expenses for the three months ended September 30, 1997 are
$800,000 in cost of sales, $200,000 in research and development expense and
$750,000 in marketing, general and administrative expense, offset by $100,000 in
sales. Allocation of the charges to operating costs and expenses for the nine
months ended September 30, 1997 are $1,800,000 in cost of sales, $300,000 in
research and development expense and $1,725,000 in marketing, general and
administrative expense, offset by $100,000 in sales. The IDG was sold in late
1997.
In the second quarter of 1997, in light of continued operating losses, the
Company determined that future taxable income in the U.S. was uncertain. As a
result, the provision for income taxes in the nine months ended September 30,
1997 includes $4,680,000, representing the effect of establishing a valuation
allowance for U.S. deferred tax assets, in accordance with the requirements of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes."
5. MANAGEMENT CHANGE
On February 28, 1998, Mr. David P. Cook replaced the chairman, president
and chief executive officer of the Company. The provisions of the former
executive's severance agreement and various stock options resulted in a charge
in the first quarter 1998 of approximately $1,000,000, including a cash payment
of approximately $650,000, which is included in marketing, general and
administrative expenses for the nine month period ended September 30, 1998.
As previously disclosed, the Company and Mr. Cook have entered into certain
employment and option arrangements. The employment arrangement provides for a
three year term, beginning April 29, 1998. Mr. Cook will receive no salary
under the employment arrangement, although, as consideration for entering into
the employment arrangement, Mr. Cook received an option to acquire 4,254,627
shares of the Company's Common Stock. The option exercise price is $7.00 per
share, which was twice the closing price of the Company's Common Stock on April
28, 1998. The options have a five year term, vest quarterly over two years, and
are subject to accelerated vesting upon the occurrence of specified events.
7
6. NEW BUSINESS
Upon the completion of the sale of the balance of its Electronic Security
Group (see Note 7), the Company will have exited the electronic identification
business, its remaining revenue-generating business. As previously announced,
the Company has entered the digital data distribution business, with a focus in
the music arena. In connection with its entry into the digital data distribution
business, the Company acquired Petabyte Corporation ("Petabyte"), a start-up
enterprise founded by Mr. Cook, the Company's current chairman and chief
executive officer. In consideration of the sale of Petabyte, the Company has
paid Mr. Cook $200,000 and has agreed to pay Mr. Cook four annual payments of
$200,000 each. The Company has the right to transfer the Petabyte enterprise to
Mr. Cook in consideration of the cancellation of any annual payments not yet
due. The Company is pursuing digital music content rights and, additionally, is
evaluating other music-related Internet business opportunities.
The Company has engaged the services of a law firm to assist in obtaining
exclusive or non-exclusive rights, or both, to certain music content rights. In
exchange for these services, a wholly-owned subsidiary of the Company has agreed
to issue options to acquire approximately 5% of the subsidiary's common stock,
which is convertible into Common Stock of the Company. The number of Common
Stock shares into which these options are convertible is based on a formula that
is dependent upon the value of the subsidiary, which is imputed from the market
value of the Company's Common Stock after subtracting the value of the Company's
other assets. The options vest over a two year period or may accelerate
depending upon the results of obtaining the exclusive or non-exclusive rights.
The Company may terminate the engagement at any time and, in most circumstances,
any options not vested would expire.
7. SUBSEQUENT EVENT
In November 1998, the Company signed a definitive agreement to sell the
balance of its Electronic Security Group ("ESG"), comprised of Cardkey European
Holdings Limited, Cardkey Systems Inc. and related entities, to Johnson
Controls, Inc., in an all-cash transaction valued at approximately $41,000,000,
with the final amount depending on the book value of the ESG's net assets. The
sale of the ESG is estimated to result in a fourth quarter net gain of
approximately $21,000,000 to $23,000,000, after accounting for the net book
value of the assets to be sold, the tax effects of the transaction and the
associated transaction costs. The transaction is scheduled to close by early
December, with an effective date of November 30, 1998, and is subject to the
approval of the companies' boards of directors and normal governmental
clearances.
8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
At the beginning of 1998, the Company was organized into two market
oriented groups. The Electronic Security Group ("ESG"), which focuses on
products and services for electronic access control applications, includes
Cardkey European Holdings Limited, Cardkey Systems Inc. and related entities.
The Transportation Systems Group ("TSG"), which included Amtech Systems
Corporation, Amtech World Corporation and Amtech International S.A., developed
and provided high-frequency radio frequency identification solutions to the
transportation markets. These markets included electronic toll and traffic
management ("ETTM"), rail, airport, parking and access control, intermodal and
motor freight.
The Interactive Data Group ("IDG") business, consisting of WaveNet, Inc.
and WaveNet International, Inc. was sold in November 1997.
On June 11, 1998, the Company sold its Transportation Systems Group to
UNOVA, Inc. ("UNOVA"), effective as of May 31, 1998, for approximately
$33,250,000 and recorded a gain of $1,139,000 from the transaction. As
consideration for the sale, the Company received approximately $22,250,000 in
cash and 2,2ll,900 unregistered shares of the Company's Common Stock that were
previously purchased by UNOVA in late 1997 valued at approximately $11,000,000.
Included in UNOVA's purchase were the Company's manufacturing and technology
facility in Albuquerque, New Mexico, the Company's radio frequency
identification technologies and other intellectual properties, the brand name
Amtech, and all current operations associated with the transportation business.
On July 7, 1998, the Company sold the net assets of its Cotag International
("Cotag") business unit (formerly included in the ESG) to Metric Gruppen AB
("Metric") of Solna, Sweden, effective as of June 30, 1998, for approximately
$4,400,000 and recorded a second quarter 1998 loss of $2,700,000 from the
transaction, including a $2,800,000 write-off of intangible assets. The Company
received approximately $2,700,000 in July 1998 with the remaining $1,700,000 to
be received by January 1999. The Company may receive up to an estimated
additional $1,400,000, depending on the level and mix of Cotag revenues achieved
in 1998 and 1999. Included in Metric's purchase is the brand name and
intellectual property underlying Cotag's hands-free proximity technology,
Cotag's manufacturing facility in Cambridge, England, and the ongoing business
of the unit.
In November 1998, the Company signed a definitive agreement to sell the
balance of the ESG to Johnson Controls, Inc., in an all-cash transaction valued
at approximately $41,000,000, with the final amount depending on the book value
of the ESG's net assets. The sale of the ESG is estimated to result in a fourth
quarter net gain of approximately $21,000,000 to $23,000,000, after accounting
for the net book value of the assets to be sold, the tax effects of the
transaction and the associated transaction costs. The transaction is scheduled
to close by early December, with an effective date of November 30, 1998, and is
subject to the approval of the companies' boards of directors and normal
governmental clearances.
Upon the completion of the sale of the balance of the ESG, the Company
will have exited the electronic identification business, its remaining revenue-
generating business. As previously announced, the Company has entered the
digital data distribution business, with a focus in the music arena. In
connection with its entry into the digital data distribution business, the
Company acquired Petabyte Corporation ("Petabyte"), a start-up enterprise
founded by Mr. Cook, the Company's current chairman and chief executive
officer. In consideration of the sale of Petabyte, the Company has paid Mr. Cook
$200,000 and has agreed to pay Mr. Cook four annual payments of $200,000 each.
The Company has the right to transfer the Petabyte enterprise to Mr. Cook in
consideration of the cancellation of any annual payments not yet due. The
Company is pursuing digital music content rights and, additionally, is
evaluating other music-related Internet business opportunities.
The sales of TSG, Cotag and IDG impact the comparability of the Company's
1998 results with those of 1997.
RESULTS OF OPERATIONS
Sales for the three months and nine months ended September 30, 1998
decreased $14,249,000 or 47% and $7,191,000 or 9%, respectively, from the
comparable periods in 1997 primarily due to the disposition of the TSG and
Cotag. Sales for the ESG decreased from $16,951,000 in the third quarter of 1997
to $15,936,000 for the comparable period in 1998 primarily due to the sale of
Cotag, and increased from $47,652,000 in the first nine months of 1997 to
$50,151,000 for the comparable period in 1998 primarily in its U.S.-based
operations. The TSG's sales in the third quarter of 1997 were $13,122,000, and
decreased from $35,092,000 in the first nine months of 1997 to $25,873,000 for
the comparable period in 1998.
9
Gross profit as a percentage of sales increased from 36% in 1997 to 44% in
1998 for the three month periods and from 37% in 1997 to 42% in 1998 for the
nine month periods. The increase in the three month and nine month periods is
primarily due to provisions in 1997 of $800,000 and $1,800,000, respectively, to
adjust certain IDG assets to their estimated net realizable values. Also
effecting the increase in the nine month period is an increase in TSG's gross
profit margin from 32% in 1997 to 39% in 1998. This increase is due in part to
improved gross profit margins on systems integration services work in the first
half of 1998, although revenues of $3,000,000 from the Florida Department of
Transportation electronic toll collection contract had no gross profit margin as
expected. Additionally, the TSG gross profit margin in 1998 increased as a
result of lower manufacturing costs due to higher sales volumes of Company-
manufactured products. The ESG's gross profit margin was 44% and 42% for the
three month and nine month periods in 1998, respectively, as compared to 42% in
both of the 1997 periods.
Research and development for the three months and nine months ended
September 30, 1998 decreased $2,562,000 or 85% and $3,962,000 or 45% from the
comparable periods in 1997, primarily due to the dispositions of the IDG in
November 1997, the TSG effective May 1998 and the Cotag business unit effective
June 1998. IDG expenditures were $194,000 and $899,000 for the three month and
nine month periods in 1997. The TSG expenditures were $2,018,000 in 1997 for the
three month period and decreased from $5,193,000 in 1997 to $2,688,000 in 1998
for the nine month periods. The ESG expenditures decreased from $796,000 in 1997
to $446,000 in 1998 for the three month periods and from $2,688,000 in 1997 to
$2,130,000 in 1998 for the nine month periods.
Marketing, general and administrative expenses for the three months and
nine months ended September 30, 1998 decreased $3,827,000 or 40% and $6,834,000
or 22% from the comparable periods in 1997, primarily due to the dispositions of
the IDG in November 1997, the TSG effective May 1998 and the Cotag business unit
effective June 1998. IDG expenditures were $786,000 and $3,143,000 for the three
month and nine month periods in 1997, including provisions of $750,000 and
$1,725,000, respectively, for employee severance costs, winding-up of operating
activities and adjusting certain assets to their estimated net realizable
values. TSG expenditures were $2,746,000 in 1997 for the three month period and
decreased from $9,420,000 in 1997 to $4,938,000 in 1998 for the nine month
periods. These expenditure reductions were partially offset during the nine
month period in 1998 by an expense charge of approximately $1,000,000 pursuant
to the provisions of the Company's former chairman, president and chief
executive officer's severance agreement and various stock options.
Investment income for the three months and nine months ended September 30,
1998 increased from $159,000 to $582,000 and increased from $894,000 to
$1,154,000, respectively. The increase for both periods is attributable to the
increase in invested cash and short-term marketable securities resulting from
the sale of the TSG and Cotag.
The income tax provision of $76,000 and $280,000 for the three months and
nine months ended September 30, 1998 consists primarily of state and foreign
income taxes. The Company has net operating loss carryforwards available in the
U.S. to offset a portion of its current tax expense. In the second quarter of
1997, in light of continued operating losses, the Company determined that future
taxable income in the U.S. was uncertain. As a result, the provision for income
taxes in the nine months ended September 30, 1997 includes $4,680,000,
representing the effect of establishing a valuation allowance for U.S. deferred
tax assets, in accordance with the requirements of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes."
As a result of the foregoing, the Company experienced net income of
$1,267,000 and $1,853,000 for the three months and nine months ended September
30, 1998 as compared to a net loss of $1,667,000 and $11,686,000 for the same
periods in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's principal source of liquidity is its
net working capital position of $48,730,000 including cash and short-term
marketable securities of $39,410,000. After the sale of the ESG, as currently
anticipated, the Company should have approximately $80,000,000 in cash or
equivalents. Pending the utilization of funds in new businesses, the Company
plans to invest its cash in short-term high-grade commercial paper and U.S.
government and agency securities.
10
THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Upon completion of
the sale of the balance of its Electronic Security Group, the Company will have
exited its remaining revenue-generating business. Management believes that the
Year 2000 Issue will not have a material impact on the Company.
BUSINESS CONSIDERATIONS
Successful development of a start-up enterprise, particularly Internet
related businesses, can be difficult and costly; there are no assurances of
ultimate success and a start-up enterprise involves risks and uncertainties,
including the following: (1) There are no assurances that the Company will be
able to successfully develop its targeted businesses, that it will be able to
compete effectively against similar or alternative digital data distribution
businesses, that it will gain market acceptance, that it will not be made
obsolete by further technological development, that it will be able to provide
or attract the necessary capital, or that it will not encounter other, and even
unanticipated, risks. (2) Use of the Internet by consumers, while growing, is
still at an early stage of development, and market acceptance of the Internet as
a medium for entertainment, commerce and information is still subject to a high
level of uncertainty. (3) The Company may decide to exit the digital data
distribution business at any time.
11
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on August 31, 1998.
At this meeting, the shareholders elected as directors of the Company, David P.
Cook, Michael E. Keane, James S. Marston, Jack L. Martin, Antonio R. Sanchez,
Jr., and Dr. Ben G. Streetman. The tabulation of votes with respect to the
election of directors is as follows:
Nominee Shares For Shares Withheld
------- ---------- ---------------
David P. Cook 12,463,111 182,995
Michael E. Keane 12,464,366 181,740
James S. Marston 12,462,236 183,870
Jack L. Martin 12,451,992 194,114
Antonio R. Sanchez, Jr. 12,411,019 235,087
Dr. Ben G. Streetman 12,451,699 194,407
The shareholders voted to amend the Company's Articles of Incorporation
to change the Company's name from Amtech Corporation to CustomTracks
Corporation. The tabulation of the votes with respect to the Company's name
change is as follows:
For 12,454,041
Against 152,122
Abstain 39,943
ITEM 5. OTHER INFORMATION
See Note 7, "SUBSEQUENT EVENT," to Condensed Consolidatd Financial
Statements regarding the pending sale of the balance of the Electronic Security
Group.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following is a list of exhibits filed as part of this
Quarterly Report on Form 10-Q.
DESCRIPTION OF EXHIBITS
-----------------------
* 3.1 Articles of Amendment to Articles of Incorporation of
Amtech Corporation d/b/a AMTC Corporation, dated August
31, 1998.
* 3.2 Restated Bylaws of CustomTracks Corporation, dated August
31, 1998.
*10.1 CustomTracks Corporation 1990 Stock Option Plan (Amended
and Restated as of August 1998).
*27.1 Financial Data Schedule.
*99.1 CustomTracks Corporation Press Release, dated November 9,
1998, pertaining to the proposed sale of Cardkey Systems.
(b) The Registrant filed Form 8-K on July 21, 1998 to report the July
7, 1998 sale of its Cotag International unit, which was effective
June 30, 1998, to Metric Gruppen AB. The report included a pro
forma condensed consolidated balance sheet as of March 31, 1998
and pro forma condensed consolidated statements of operations for
the year ended December 31, 1997 and the three months ended March
31, 1998.
- --------------------------------------------------------------------------------
*Filed herewith.
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CUSTOMTRACKS CORPORATION
(Registrant)
Date: November 16, 1998 By: /s/Steve M. York
----------------
Steve M. York
Senior Vice President, Chief Financial
Officer, and Treasurer
(Principal Financial Officer and
Duly Authorized Officer)
13