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UNITED STATES
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, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from ________ to _________
Commission file number 0-26140
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@TRACK COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 51-0352879
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1155 Kas Drive, Suite 100, Richardson, Texas 75081
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 301-2000
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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 registrant's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding as of
Title of each class October 23, 2000
- -------------------------------------- ----------------------------------
Common Stock, $.01 par value 25,326,829
Common Stock - Class B, $.01 par value 1,000
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@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
Form 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 2000
and December 31, 1999 1
Consolidated Statements of Operations for the
three months and nine months ended September 30,
2000 and 1999 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 3
Consolidated Statement of Changes in Stockholders'
Equity (Deficit) for the nine months ended
September 30, 2000 4
Notes to Consolidated Financial Statements 5-7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults Upon Senior Securities 12
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
Signatures 13
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PART I - FINANCIAL INFORMATION
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
September 30, December 31,
2000 1999
------------- -------------
ASSETS
Current assets:
Cash and short-term investments $ 21,303 $ 17,768
Accounts receivable, net 14,246 13,341
Inventories 11,871 9,292
Pledged securities -- 12,705
Other current assets 2,019 2,588
------------- -------------
Total current assets 49,439 55,694
Network, equipment and software, net 13,290 15,703
Other assets, net 2,369 2,676
------------- -------------
Total assets $ 65,098 $ 74,073
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 10,541 $ 2,431
Telecommunications costs payable 4,279 4,462
Accrued interest payable 541 3,784
Other current liabilities 6,395 9,357
------------- -------------
Total current liabilities 21,756 20,034
Senior notes payable 92,386 92,090
------------- -------------
Total liabilities 114,142 112,124
------------- -------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred Stock -- --
Common Stock 256 255
Common Stock - Class B -- --
Additional paid-in capital 149,996 149,742
Accumulated deficit (198,749) (187,501)
Treasury stock (547) (547)
------------- -------------
Total stockholders' equity (deficit) (49,044) (38,051)
------------- -------------
Total liabilities and stockholders' equity (deficit) $ 65,098 $ 74,073
============= =============
See accompanying notes to consolidated financial statements.
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@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share)
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenues:
Product $ 16,214 $ 16,321 $ 28,252 $ 39,857
Service 11,744 12,783 35,939 39,526
---------- ---------- ---------- ----------
Total revenues 27,958 29,104 64,191 79,383
---------- ---------- ---------- ----------
Cost of revenues:
Product (Note 6) 11,343 15,212 19,434 32,910
Service (Note 6) 7,362 8,425 21,376 18,401
---------- ---------- ---------- ----------
Total cost of revenues 18,705 23,637 40,810 51,311
---------- ---------- ---------- ----------
Gross profit 9,253 5,467 23,381 28,072
---------- ---------- ---------- ----------
Expenses:
General and administrative 2,883 4,065 8,736 11,125
Customer service 1,855 1,881 5,419 5,705
Sales and marketing 1,199 941 3,546 3,026
Engineering 1,158 767 2,732 2,140
Network services center 433 315 1,102 1,121
Severance and AutoLink termination cost -- (189) -- (189)
Depreciation and amortization 1,490 1,678 4,365 4,937
---------- ---------- ---------- ----------
9,018 9,458 25,900 27,865
---------- ---------- ---------- ----------
Operating income (loss) 235 (3,991) (2,519) 207
Interest income 262 262 1,155 1,677
Interest expense (3,342) (3,342) (10,026) (10,080)
Other income (Note 6) -- 915 142 2,618
---------- ---------- ---------- ----------
Loss before income taxes (2,845) (6,156) (11,248) (5,578)
Income tax provision -- -- -- --
---------- ---------- ---------- ----------
Net loss $ (2,845) $ (6,156) $ (11,248) $ (5,578)
========== ========== ========== ==========
Per share:
Basic and diluted loss $ (0.11) $ (0.25) $ (0.44) $ (0.22)
========== ========== ========== ==========
Weighted average number of shares outstanding:
Basic and diluted 25,327 24,987 25,279 24,967
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Nine months ended
September 30,
----------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $ (11,248) $ (5,578)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 4,365 4,937
Amortization of discount on notes payable 296 295
Provision for bad debts 915 3,003
Increase in accounts receivable (1,820) (2,543)
(Increase) decrease in inventory (2,579) 9,137
Increase (decrease) in accounts payable 8,110 (8,964)
(Decrease) in accrued expenses and other current liabilities (6,388) (10,634)
Net book value of equipment retired -- 1,854
Other 534 (1,751)
------------ ------------
Net cash used in operating activities (7,815) (10,244)
------------ ------------
Cash flows from investing activities:
Additions to network and equipment (962) (2,335)
Additions to capitalized software (648) (566)
Decrease in pledged securities 12,705 12,277
Decrease in short-term investments 12,601 2,715
------------ ------------
Net cash provided by investing activities 23,696 12,091
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 255 105
------------ ------------
Net cash provided by financing activities 255 105
------------ ------------
Increase in cash and cash equivalents 16,136 1,952
Cash and cash equivalents, beginning of period 5,167 16,461
------------ ------------
Cash and cash equivalents, end of period 21,303 18,413
Short-term investments -- 6,993
------------ ------------
Cash and short-term investments $ 21,303 $ 25,406
============ ============
Supplemental cash flow information:
Interest paid $ 12,974 $ 12,974
============ ============
See accompanying notes to consolidated financial statements.
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@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(in thousands, except share information)
Preferred Stock Common Stock Common Stock - Class B
------------------------ ------------------------ -----------------------
Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ---------- ---------- ----------
Stockholders' equity (deficit) at December 31, 1999 1,000 $ -- 25,432,210 $ 255 -- $ --
Exercise of stock options 206,616 1 -- --
Conversion of Series D Preferred Stock to
Class B Common Stock (1,000) -- 1,000 --
Net loss
---------- ---------- ---------- ---------- ---------- ----------
Stockholders' equity (deficit) at September 30, 2000 -- $ -- 25,638,826 $ 256 1,000 $ --
========== ========== ========== ========== ========== ==========
Additional Treasury Stock
Paid-in ----------------------- Accumulated
Capital Shares Amount Deficit Total
---------- ---------- ---------- ---------- ----------
Stockholders' equity (deficit) at December 31, 1999 $ 149,742 311,997 $ (547) $ (187,501) $ (38,051)
Exercise of stock options 254 255
Conversion of Series D Preferred Stock to
Class B Common Stock
Net loss (11,248) (11,248)
---------- ---------- ---------- ---------- ----------
Stockholders' equity (deficit) at September 30, 2000 $ 149,996 311,997 $ (547) $ (198,749) $ (49,044)
========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS OVERVIEW
The Company develops and implements mobile communications
solutions, including integrated voice, data and position location
services. The initial application for the Company's wireless enhanced
services has been developed for, and is marketed and sold to, companies
that operate in the long-haul trucking market. The Company provides
long-haul trucking companies with a comprehensive package of mobile
communications and management information services, thereby enabling
its trucking customers to effectively monitor the operations and
improve the performance of their fleets. The initial product
application was customized and has been sold to and installed in the
service vehicle fleets of the member companies of SBC Communications,
Inc. During the fourth quarter of 1999, the Company entered the mobile
asset tracking market with the introduction of its trailer-tracking
product, Trackware. Trackware is currently being tested by prospective
customers. There were no significant revenues from Trackware during the
three and nine months ended September 30, 2000.
2. BASIS OF PRESENTATION
Effective April 10, 2000, HighwayMaster Communications, Inc.
changed its corporate name to @Track Communications, Inc. The
consolidated financial statements include those of @Track
Communications, Inc. and its wholly owned subsidiary, HighwayMaster of
Canada, LLC.
The unaudited consolidated financial statements presented
herein have been prepared in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all footnote disclosures required by generally accepted accounting
principles. These consolidated financial statements should be read in
conjunction with the Company's audited financial statements for the
year ended December 31, 1999. The accompanying consolidated financial
statements reflect all adjustments (all of which are of a normal
recurring nature except as described in Note 6) which are, in the
opinion of management, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for
the interim periods. The results for any interim period are not
necessarily indicative of the results for the entire year.
3. EARNINGS PER SHARE
Earnings per share for the three and nine months ended
September 30, 1999 and 2000 is computed using the weighted average
number of shares outstanding during the respective periods.
4. INVENTORIES
September 30, December 31,
2000 1999
-------------- --------------
Complete systems $ 1,523,000 $ 6,576,000
Component parts 5,067,000 2,302,000
Equipment shipped not yet accepted 5,280,000 414,000
-------------- --------------
$ 11,871,000 $ 9,292,000
============== ==============
5. CONVERSION OF SERIES D PREFERRED STOCK TO CLASS B COMMON STOCK
Pursuant to the purchase agreement by and between the Company
as Issuer and Southwestern Bell Wireless Holdings, Inc. n/k/a Cingular
Wireless., a subsidiary of SBC Communications, Inc., ("SBC") as
Investor, dated September 27, 1996, certain events are triggered with
respect to the Company's Series D Preferred Stock owned by SBC upon the
occurrence of "Regulatory Relief." Effective July 11, 2000, SBC
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received final approval from the Federal Communications Commission to
provide long distance service in the State of Texas, and, accordingly,
"Regulatory Relief" occurred, as confirmed by SBC on September 18,
2000. As a result of the occurrence of "Regulatory Relief", the 1,000
shares of Series D Preferred Stock automatically converted into 1,000
shares of Class B Common Stock.
Each outstanding share of Class B Common Stock is convertible
into 1,600 shares of Common Stock at the option of SBC. The Class B
Common Stock is entitled to receive dividends and liquidating
distributions in an amount equal to the dividends and liquidating
distributions payable on or in respect of the number of shares of
Common Stock into which such shares of Class B Common Stock are then
convertible. The holders of Common Stock and Class B Common Stock
generally have identical voting rights, with the holders of Class B
Common Stock being entitled to a number of votes equal to the number of
shares of Common Stock into which the shares of Class B Common Stock
held by them are then convertible. In addition, the holders of Class B
Common Stock will be entitled to elect one director of the Company (or
two directors if SBC and its affiliates beneficially own at least 20%
of the outstanding shares of Common Stock on a fully diluted basis) and
will have the right to approve certain actions on the part of the
Company.
6. UNUSUAL ITEMS
During the nine months ended September 30, 1999, the Company
recorded the benefit of credits due from cellular carriers related to
1997 and 1998 based on a settlement agreement reached with GTE
Wireless, Inc. and GTE Telecommunications Incorporated. These credits
had not been previously recognized because of significant uncertainty
as to their ultimate collectibility. The effect of these credits was to
increase income by $4,533,000, of which $4,389,000 is reflected as a
reduction in "cost of service revenue" in the accompanying Consolidated
Statements of Operations.
During 1997, the Company entered into a contract with a
customer for a new generation of mobile unit. Pending delivery of the
contracted units, the customer installed current-generation mobile
units. In 1999, the Company and the customer negotiated a settlement
agreement, the terms of which included termination of the contract and
the return of approximately 2,900 mobile units to the Company that had
been installed by the customer. "Other income" for the nine months
ended September 30, 1999 includes a gain of approximately $750,000
related to this settlement.
Also included in other income for the nine months ended
September 30, 1999 is the benefit from the settlement of the litigation
with AT&T Corp., representing the proceeds from the settlement, net of
related expenses, of which a portion was recorded in the first quarter
of 1999, with the remainder being recorded in the third quarter of
1999. The additional gain recorded during the third quarter of 1999
represents contingent consideration, the realization of which was
uncertain as of March 31, 1999. This uncertainty was resolved during
the third quarter, and, accordingly, the additional gain was recognized
as of September 30, 1999.
During the nine months ended September 30, 1999, the earning
process was culminated and the Company recognized revenues of $28.1
million on the mobile units delivered under the Service Vehicle
Contract entered into during the third quarter of 1998 with the member
companies of SBC Communications, Inc. Included in "cost of product
revenues" in the accompanying Consolidated Statements of Operations for
the three months and nine months ended September 30, 1999, is a
warranty provision of $3.5 million, that is the estimated cost to be
incurred to remediate a defective subcomponent in the mobile units.
7. RECLASSIFICATION
The Company provides post-sale support and maintenance on the
installed base of mobile units. Historically, revenues and cost of
revenues related to support and maintenance activities have been
reported as a component of "product revenues" and "cost of product
revenues," respectively. The level of this activity has increased
significantly as a result of the Company's Service Vehicle Contract, at
a net cost to the Company. The Company believes the net cost of this
activity directly relates to the realization of the recurring stream of
"service revenue." Accordingly, beginning in the first quarter of 2000,
the Company has classified the revenues and cost of revenues related to
support and maintenance activities with "service revenues" and "cost of
service revenues," respectively. The effect of this reclassification is
to reduce gross service margin for the three and nine months ended
September 30, 2000 to 37.3% and 40.5%, respectively, as compared to
48.5%
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and 49.4%, respectively, based on the former classification. Amounts
for 1999 have been reclassified for consistent presentation.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition," which must be adopted by December 31, 2000. The Company
is currently assessing the impact of SAB 101.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended September 30, 2000, Compared to Three Months Ended
September 30, 1999
Total revenues decreased 3.9% from $29.1 million in 1999 to $28.0
million in 2000. Product revenues were $16.2 million in 2000, compared to $16.3
million in 1999, reflecting an increased average sales price per unit in 2000
essentially offsetting an 8.1% decrease in units sold. Service revenues
decreased 8.1% from $12.8 million in 1999 to $11.7 million in 2000, primarily
due to lower average monthly revenue per mobile unit. While the average
installed base of mobile units increased 8.7% from 1999 to 2000, the average
monthly revenue per mobile unit decreased 16.0% to $66.05 in 2000 from $78.64 in
1999, due to the increasing proportion of service vehicles in the installed base
and reduced personal calling revenue. Average revenue for service vehicles is
significantly less than that of long-haul trucking because of different product
functionality. The installed base of mobile units increased to 60,716 at
September 30, 2000 from 52,424 at September 30, 1999. The increase in the
installed base reflects additional units installed under the Service Vehicle
Contract more than offsetting a reduction in the installed base for long-haul
trucking. The reduction in the installed base for long-haul trucking is
primarily due to two customers, with an aggregate installed based of
approximately 3,000 units, that were deinstalled due to their inability to pay
amounts owed to the Company.
Service gross profit margin increased to 37.3% in 2000, compared to
34.1% in 1999. Service gross profit margin is influenced by a number of
variables, including (i) the mix of mobile units in the installed base, (ii) the
level of post-sale support and maintenance activity, (iii) the amount of airtime
costs incurred that are not billable to customers, and (iv) contractual
arrangements with wireless carriers and customers. Accordingly, this fluctuation
in margin is not unusual.
Product gross profit margin was 30.0% in 2000, compared to 6.8% in
1999. The Company recorded a $3.5 million warranty provision in 1999 that is
discussed in more detail in Note 6 to the accompanying consolidated financial
statements. Excluding the effect of this $3.5 million charge, 1999 product gross
profit margin would have been 28.2%. The improvement from 28.2% to 30.0% is
primarily as a result of reducing the net cost of installations.
Operating expenses decreased 4.7% to $9.0 million in 2000 from $9.5
million in 1999. This decrease is primarily due to a $1.6 million decrease in
bad debt expense. Bad debt expense in 1999 was unusually high as a result of the
bankruptcy of a former customer. Bad debt expense in 2000 was unusually low as a
result of adjustments made to reduce the reserve for bad debts in recognition of
the improved credit profile of the customer base.
Other income in 1999 reflects the additional gain from the settlement
of litigation with AT&T Corp. as more fully described in Note 6 to the
accompanying consolidated financial statements.
Nine Months Ended September 30, 2000, Compared to Nine Months Ended
September 30, 1999
Total revenues decreased 19.1% from $79.4 million in 1999 to $64.2
million in 2000. Product revenues decreased 29.1% from $39.9 million in 1999 to
$28.3 million in 2000, primarily due to a 35.8% decrease in mobile units
revenued. This decrease is primarily due to 1999 mobile units revenued being
unusually high, since it was during the nine months ended September 30, 1999
that revenues were initially recognized on installations occurring from
September 1998 through September 1999 under the Service Vehicle Contract.
Service revenues decreased 9.1% from $39.5 million in 1999 to $35.9 million in
2000, due primarily to lower average monthly revenue per mobile unit. While the
average installed base of mobile units increased 7.9% from 1999 to 2000, the
average monthly revenue per mobile unit decreased 11.5% to $73.13 in 2000 from
$82.65 in 1999, primarily due to the increasing proportion of service vehicles
in the installed base and reduced personal calling revenue. Average revenue for
service vehicles is significantly less than that of long-haul trucking because
of different product functionality. The installed base of mobile units increased
to 60,716 at September 30, 2000 from 52,424 at September 30, 1999. The increase
in the installed base reflects additional units installed under the Service
Vehicle Contract more than offsetting a reduction in the installed base for
long-haul trucking. The reduction in the installed base for long-haul trucking
is primarily due to two customers, with an aggregate installed based of
approximately 3,000 units, that were deinstalled due to their inability to pay
amounts owed to the Company.
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Service gross profit margin was 40.5% in 2000 compared to 53.4% in
1999. As more fully described in Note 6 to the accompanying consolidated
financial statements, during 1999 the Company recorded $4.4 million of credits
due from cellular carriers related to prior years. Excluding the effect of these
credits, the 1999 service gross profit margin would have been 42.3%. The
decrease in service gross profit margin from 42.3% in 1999 to 40.5% in 2000 is
primarily the result of the significant increase during 2000 of post-sale
support and maintenance activity.
Product gross profit margin was 31.2% in 2000, compared to 17.4% in
1999. The Company recorded a $3.5 million warranty provision in 1999 that is
discussed in more detail in Note 6 to the accompanying consolidated financial
statements. Excluding the effect of this $3.5 million charge, 1999 product gross
profit margin would have been 26.2%. The improvement from 26.2% to 31.2% is
primarily as a result of reducing the net cost of installations.
Operating expenses decreased 7.1% to $25.9 million in 2000 from $27.9
million in 1999. This decrease is primarily due to a $2.1 million decrease in
bad debt expense. Bad debt expense in 1999 was unusually high as a result of the
bankruptcy of a former customer. Bad debt expense in 2000 was unusually low as a
result of adjustments made to reduce the reserve for bad debts in recognition of
the improved credit profile of the customer base.
Interest income was $1.2 million in 2000, compared to $1.7 million in
1999, reflecting the lower average outstanding balances during 2000 in cash and
short-term investments.
Other income in 1999 reflects the gain from the settlement of a
customer contract, and the proceeds from the settlement of the litigation with
AT&T Corp., net of related expenses, as more fully described in Note 6 to the
accompanying consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company"s cash and short-term investments balance at September 30,
2000 was $21.3 million, compared to $17.8 million at December 31, 1999, an
increase of $3.5 million. Offsetting this increase is an $8.1 million increase
in accounts payable, due to timing of cash disbursements. The increases in both
cash and accounts payable are expected to partially reverse during the fourth
quarter. Based on projected operating results, the Company believes its existing
capital resources will be sufficient to fund its currently anticipated operating
needs and capital expenditure requirements for the next 12 months. However, the
Company's future cash flow from operations and operating requirements may vary
depending on a number of factors, including the rate of installation of mobile
units, the level of competition, success of new products, general economic
conditions and other factors beyond the Company's control.
The Company has incurred significant operating losses since inception
and has a stockholders' deficit of approximately $49.0 million at September 30,
2000. The Company must significantly increase its product sales and service
revenue, while decreasing its operating expenses, to achieve profitability. The
Company's ability to achieve profitable operations may be affected by the
difficulties and delays frequently encountered in the development and marketing
of telecommunication products and services, the competitive environment in which
the Company operates, the Company's dependence upon certain key customers, and
other risks and uncertainties. Although the Company believes it will be able to
successfully mitigate these risks, there is no assurance that the Company ever
will be able to achieve profitability.
Beginning March 15, 2001, the Company will be required to fund the
interest payment on its 13 3/4% Senior Notes from cash generated from
operations, or obtain an alternative means of repayment. Prior to March 15,
2001, interest payments on the Senior Notes were provided for through a
portfolio of U. S. Government securities held in escrow. If the Company is
unable to service the Senior Notes through cash generated from operations, the
Company would be required to obtain additional financial resources to fund such
interest payments or seek to restructure the terms of the Senior Notes. Although
the Company believes that it will be able to fund such interest payments, there
is no assurance that the Company's future operations will generate sufficient
positive cash flow for this purpose or that the Company would be able to obtain
additional financial resources or restructure the terms of the Senior Notes on
terms acceptable to the Company.
The Company's ability to generate positive cash flow from operations is
dependent upon the continued retention of certain key customers. The Company's
ability to retain key long-haul trucking customers is dependent upon its ability
to develop next-generation products and services with lower transmission costs
and additional features and functionality. The loss of any such customer would
reduce the Company's ability to generate sufficient cash flow to fund the
interest payments on the Senior Notes beginning March 15, 2001.
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The future success of the Company is dependent upon its ability to
profitably develop and market its current and next-generation products and
services in the highly competitive and rapidly changing automatic vehicle
location industry and the support of its creditors, stockholders and customers.
The Company's capital resources may be insufficient to fund its
operating needs, capital expenditures and debt service requirements in the long
term. The Company believes that, in order to address its long-term capital
requirements, it will need to take steps to: (i) increase the installed base of
mobile units in service and improve the efficiency of its operations to reduce
or eliminate its operating losses; or (ii) restructure the terms of the Senior
Notes and obtain additional sources of debt or equity financing. The Company's
ability to obtain additional debt financing is materially restricted under the
terms of the Indenture governing the Senior Notes. There can be no assurance
that the Company would be able to either restructure the Senior Notes or obtain
additional debt or equity financing on satisfactory terms, if at all.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk
associated with its cash and short-term investments. The Company's Senior Notes
payable are at a fixed rate and, thus, are not exposed to interest rate risk.
FORWARD LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report, including without
limitation, certain statements in this Item 2 under the captions "---Results of
Operations" and "---Liquidity and Capital Resources," may constitute forward
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. There can be no
assurances that the Company will be able to maintain gross service margins and
revenues, reduce operating costs, achieve sustained operational profitability,
restructure the Senior Notes, or obtain additional debt or equity financing on
satisfactory terms, if at all. Important factors that could cause actual
results to differ materially from the Company's expectations ("cautionary
statements") are disclosed in this report and the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 (under the caption "Business ---
Risk Factors" and elsewhere). All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements.
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@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities -- Effective July 11, 2000, SBC Communications,
Inc. ("SBC") received final approval from the Federal Communications
Commission to provide long distance service in the State of Texas.
SBC previously received the approval of the Texas Public Utilities
Commission and the United States Justice Department to provide long
distance service in Texas. Pursuant to the Purchase Agreement by and
between the Company as Issuer and Southwestern Bell Wireless
Holdings, Inc. n/k/a Cingular Wireless ("SBC") as Investor, dated
September 27, 1996 (the "Purchase Agreement"), certain events are
triggered with respect to SBC's Series D Participating Convertible
Preferred Stock upon the occurrence of "Regulatory Relief."
"Regulatory Relief" is defined in the Purchase Agreement as the date
that SBC Communications, Inc. or its Affiliates in their sole
judgment, have obtained all the necessary federal and state
regulatory approvals to provide landline, interLATA long distance
service pursuant to the Communications Act of 1934, as amended by the
Telecommunications Act of 1996
On July 13, 2000, the Company provided written notice to SBC
requesting confirmation as to whether SBC had determined that it had
received Regulatory Relief. On September 18, 2000, the Company
received written confirmation from SBC that it had received
Regulatory Relief.
Accordingly, SBC's 1,000 shares of Series D Participating Convertible
Preferred Stock has converted to 1,000 shares of Class B Common
Stock, with each share of Class B Common Stock having the voting
power of 1,600 shares of Common Stock; (2) SBC's right to a
non-voting board delegate has terminated; and (3) the Company and SBC
are required to enter into an agreement in substantially the same
form as the Voice and Data Agreement attached to the Purchase
Agreement for the provision of long distance service by SBC.
Additionally, SBC as the sole holder of Class B Common Stock shall
have the following rights: (1) SBC has the right to elect a voting
Board Member; (2) SBC has the right to elect two Board members if SBC
owns more than 20% of the outstanding common stock of the Company,
including the Common Stock issuable upon conversion of Class B Common
Stock or other convertible securities or the exercise of warrants or
options, but excluding the warrants issued to SBC as part of the
Purchase Agreement and options, warrants, rights and obligations
issued by any other person or entity other than the Company; (3) SBC
has the right to dividends and distributions from the Company in the
same amount as if SBC's 1,000 shares of Class B Common Stock were
equal to 1,600,000 shares of Common Stock (as adjusted for stock
dividends or stock splits occurring after September 27, 1996); (4)
SBC has the right to appoint at least one director to the
Compensation Committee and the Nominating Committee of the Board of
Directors of the Company; (5) SBC has the right to convert each share
of their Class B Common Stock into 1,600 shares of Common Stock; and
(6) SBC has the right to approve: (i) any annual budget or business
plan of the Company; (ii) the issuance of any equity securities
(other than employee stock options); (iii) the Company incurring any
debt greater than $5,000,000; (iv) the hiring or termination of the
Company's chief executive officer, chief operating officer or chief
financial officer; (v) the Company's entering into any line of
business other than its existing line of business; (vi) the Company's
exiting its existing line of business or disposing of assets (other
than assets sold in the ordinary course of business) in any year with
a value in excess of $500,000; (vii) the adoption of any
anti-takeover provision; (viii) the taking of any corporate action
which would reduce the number of common shares issuable upon the
conversion of Class B Common Shares below 1,600 shares of Common
Stock per share of Class B Common Stock.
Additionally, as per the Company's September 27, 1996 Amended and
Restated Stockholders' Agreement, if following the receipt of
Regulatory Relief, SBC does not hold any Class B Common Stock but
owns at least 1,600,000 shares of Common Stock including Common Stock
issuable upon conversion of outstanding securities or upon exercise
of outstanding options, warrants, rights or obligations (but
excluding the warrants issued to SBC as part of the Purchase
Agreement and options, warrants, rights and obligations issued by any
other person or entity other than the Company) on a Fully Diluted
Basis, SBC shall retain only the following approval rights previously
held as a Class B Common Stock Holder: (i) the right to approve any
annual
11
14
budget or business plan of the Company; (ii) the right to approve the
issuance of any equity securities (other than employee stock
options); (iii) the right to approve the Company incurring any debt
greater than $5,000,000; (iv) the right to approve the hiring or
termination of the Company's chief executive officer, chief operating
officer or chief financial officer; (v) the right to approve the
Company's entering into any line of business other than its existing
line of business; (vi) the right to approve the Company's exiting its
existing line of business or disposing of assets (other than assets
sold in the ordinary course of business) in any year with a value in
excess of $500,000; (vii) the adoption of any anti-takeover
provision; and (viii) the right to approve the taking of any
corporate action which would reduce the number of Common Shares held
by SBC to fewer than 1,600,000.
"On a Fully Diluted Basis" means taking into account the number of
shares of Common Stock which are issued and outstanding plus: (a) the
number of shares of Common Stock issuable upon conversion of any
outstanding Class B Common Stock; and (b) the number of shares of
Common Stock issuable pursuant to outstanding options, warrants,
rights or obligations to purchase or subscribe for shares of Common
Stock or securities of the Company which are exchangeable or
exercisable into shares of Common Stock of the Company. However,
excluded from the term "on a Fully Diluted Basis" are (a) the
warrants issued to SBC as part of the Purchase Agreement; (b) any
options, warrants, rights or obligations to acquire Common Stock of
the Company issued by any person or entity other than the Company;
and (c) the number of shares of Common Stock issuable pursuant to
options granted to employees of the Company to acquire Common Stock
of the Company.
Item 3. Defaults Upon Senior Securities -- None.
Item 4. Submission of Matters to a Vote of Security Holders -- None
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See the Index to Exhibits.
(b) Reports on Form 8-K - None
12
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
@TRACK COMMUNICATIONS, INC.
Date: November 1, 2000
By: /s/ Jana Ahlfinger Bell
-------------------------------------------
Jana Ahlfinger Bell
President and Chief Executive Officer
By: /s/ W. Michael Smith
-------------------------------------------
W. Michael Smith
Executive Vice President and Chief Financial
Officer (Principal Financial Officer)
13
16
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 - Certificate of Incorporation of the Company, as amended.(1)(9)
3.2 - Amended and Restated By-Laws of the Company.(13)
4.1 - Specimen of certificate representing Common Stock, $.01 par
value, of the Company.(1)
4.2 - Warrant Certificate, dated September 27, 1996, issued to
SBW.(7)
4.3 - Recapitalization Agreement, dated September 27, 1996, by and
among the Company, the Erin Mills Stockholders, the Carlyle
Stockholders and the other persons named therein.(7)
4.4 - Amended and Restated Stockholders Agreement, dated September
27, 1996, by and among the Company, SBW, the Erin Mills
Stockholders, the Carlyle Stockholders, the By-Word
Stockholders and the other persons named therein.(7)
4.5 - Indenture dated September 23, 1997 by and among the Company,
HighwayMaster Corporation and Texas Commerce Bank, National
Association.(12)
4.6 - Pledge Agreement dated September 23, 1997, by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.7 - Registration Rights Agreement dated September 23, 1997, by and
among the Company, HighwayMaster Corporation, Bear, Stearns &
Co. Inc. and Smith Barney Inc.(12)
4.8 - Warrant Agreement dated September 23, 1997, by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.9 - Warrant Registration Rights Agreement dated September 23,
1997, by and among the Company, Bear, Stearns & Co. Inc. and
Smith Barney, Inc.(12)
10.1 - License Agreement, dated April 23, 1992, by and between Voice
Control Systems and the Company (as successor to By-Word
Technologies, Inc.)(1)
10.2 - Second Amendment to Employment Agreement, dated September 1,
1998, by and between HighwayMaster Corporation and William C.
Saunders. (16)
10.3 - Agreement and General Release, dated September 30, 1998, by
and between HighwayMaster Corporation and William C. Kennedy,
Jr.(15)
10.4 - Release of HighwayMaster Communications, Inc. and
HighwayMaster Corporation by William C. Saunders, dated
December 15, 1998. (16)
10.5 - Release of William C. Saunders by HighwayMaster
Communications, Inc. and HighwayMaster Corporation, dated
December 15, 1998. (16)
10.6 - Amended and Restated 1994 Stock Option Plan of the Company,
dated February 4, 1994, as amended.(1)(5)(6)
10.7 - Purchase Agreement, dated September 27, 1996, between the
Company and SBW.(7)
10.8 - Mobile Communications (Voice and Data) Services Agreement,
dated as of July 15, 1993, between the Company and EDS
Personal Communications Corporation.(1)(2)
10.9 - Stock Option Agreement, dated June 22, 1998, by and between
the Company and John Stupka. (16)
10.10 - Services Agreement, dated March 20, 1996, between the Company
and GTE-Mobile Communications Service Corporation.(3)(4)
10.11 - Acknowledgment by William C. Saunders dated December 15, 1998.
(16)
10.12 - Amendment dated November 16, 1995 to that certain Mobile
Communications (Voice and Data) Services Agreement, dated as
of July 15, 1993, between the Company and EDS Personal
Communications Corporation.(3)(4)
10.13 - Mutual Separation and Release, dated December 22, 1998, by
and between HighwayMaster Corporation and Gordon D. Quick.
(16)
17
10.14 - Product Development Agreement, dated December 21, 1995, between
HighwayMaster Corporation and IEX Corporation.(3)(4)
10.15 - Technical Services Agreement, dated September 27, 1996, between
HighwayMaster Corporation and Southwestern Bell Wireless
Holdings, Inc.(7)
10.16 - Letter Agreement, dated February 19, 1996, between
HighwayMaster Corporation and IEX Corporation.(3)
10.17 - Form of Adoption Agreement, Regional Prototype Cash or Deferred
Profit-Sharing Plan and Trust Sponsored by McKay Hochman Co.,
Inc., relating to the HighwayMaster Corporation 401(k) Plan.
(1)
10.18 - February 27, 1997 Addendum to Original Employment Letter, dated
September 19, 1997 by and between the HighwayMaster Corporation
and Robert LaMere. (16)
10.19 - Software Transfer Agreement, dated April 25, 1997, between
HighwayMaster Corporation and Burlington Motor Carriers,
Inc.(9)(10)
10.20 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and Todd A. Felker. (16)
10.21 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and William McCausland.(16)
10.22 - Employment Agreement, dated May 29, 1998, by and between
HighwayMaster Corporation and Jana Ahlfinger Bell. (14)
10.23 - Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc.(15)
10.24 - First Amendment to Employment Agreement, dated September 15,
1998, by and between HighwayMaster Corporation and Jana A.
Bell. (16)
10.25 - Employment Agreement, dated November 24, 1998, by and between
HighwayMaster Corporation and Michael Smith. (16)
10.26 - September 18, 1998 Amended and Restated Stock Option Agreement
of May 29, 1998 by and between the Company and Jana Ahlfinger
Bell. (16)
10.27 - Stock Option Agreement, dated August 12, 1998, by and between
the Company and Jana Ahlfinger Bell. (16)
10.28 - Stock Option Agreement, dated September 18, 1998, by and
between the Company and Jana Ahlfinger Bell. (16)
10.29 - September 18, 1998 Amended and Restated Stock Option Agreement
of February 29, 1996, by and between the Company and William H.
McCausland. (16)
10.30 - Stock Option Agreement, dated September 18, 1998, by and
between the Company and William H. McCausland. (16)
10.31 - September 18, 1998 Amended and Restated Stock Option Agreement
of April 25, 1997, by and between the Company and Robert
LaMere. (16)
10.32 - September 18, 1998 Amended and Restated Stock Option Agreement
of June 3, 1998, by and between the Company and Todd A. Felker
(16)
10.33 - Stock Option Agreement dated November 24, 1998, by and between
the Company and Michael Smith. (16)
10.34 - Stock Option Agreement, dated April 4, 1995, by and between the
Company and Terry Parker. (16)
10.35 - Agreement No. 980427 between Southwestern Bell Telephone
Company, Pacific Bell, Nevada Bell, Southern New England
Telephone and HighwayMaster Corporation executed on January 13,
1999 (17)(18)
10.36 - Administrative Carrier Agreement entered into between
HighwayMaster Corporation and Southwestern Bell Mobile Systems,
Inc. on March 30, 1999 (17)(18)
10.37 - Addendum to Agreement entered into between HighwayMaster
Corporation and International Telecommunications Data Systems,
Inc. on February 4, 1999 (17)(18)
18
10.38 - Second Addendum to Agreement entered into between
HighwayMaster Corporation and International Telecommunication
Data Systems, Inc. on February 4, 1999 (17)(18)
10.39 - Manufacturing and Equipment Purchase Agreement entered
into between HighwayMaster Corporation and Wireless Link
Corporation on March 9, 1999 (17)(18)
10.40 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.41 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.42 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.43 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 7, 1999 (17)(18)
10.44 - Stock Option Agreement dated June 24, 1999, by and between the
Company and J. Raymond Bilbao (19)
10.45 - Stock Option Agreement dated June 24, 1999, by and between the
Company and Marshall Lamm (19)
10.46 - Stock Option Agreement dated June 14, 1999, by and between the
Company and Marc A. Bringman (19)
10.47 - Transition Agreement entered into between GTE Wireless
Services Corporation and HighwayMaster Corporation on April 30,
1999 (19)(20)
10.48 - Fleet-on-Track Services Agreement entered into between GTE
Telecommunications Services Incorporated and HighwayMaster
Corporation on May 3, 1999 (19)(20)
10.49 - Confidential Memorandum of Understanding entered into between
Criticom International Corp. and HighwayMaster Corporation on
April 16, 1999 (19)(20)
10.50 - Stock Option Agreement dated September 3, 1999, by and between
the Company and J. Raymond Bilbao (21)
10.51 - Stock Option Agreement dated September 3, 1999, by and between
the Company and Todd Felker (21)
10.52 - Stock Option Agreement dated September 3, 1999, by and between
the Company and C. Marshall Lamm (21)
10.53 - Stock Option Agreement dated September 3, 1999, by and between
the Company and William H. McCausland (21)
10.54 - Stock Option Agreement dated September 3, 1999, by and between
the Company and Pierre H. Parent (21)
10.55 - Stock Option Agreement dated September 3, 1999, by and between
the Company and W. Michael Smith (21)
10.56 - Stock Option Agreement dated September 3, 1999, by and
between the Company and Robert W. LaMere (21)
10.57 - Stock Option Agreement dated September 3, 1999 by and between
the Company and Stephen P. Tacke (21)
10.58 - Employment Agreement, dated March 13, 2000, by and between the
Company and W. Michael Smith. (22)
10.59 - Employment Agreement, dated March 13, 2000, by and between the
Company and J. Raymond Bilbao. (22)
10.60 - Employment Agreement, dated March 13, 2000, by and between the
Company and Todd A. Felker. (22)
10.61 - Employment Agreement, dated March 13, 2000, by and between the
Company and Marshall Lamm. (22)
10.62 - Employment Agreement, dated March 13, 2000, by and between the
Company and Pierre Parent. (22)
10.63 - Limited Liability Company Agreement of HighwayMaster of Canada,
LLC executed March 3, 2000. (22)
19
10.64 - Investor Relations Services Agreement, dated March 31, 2000, by
and between the Company and N.D. Hamilton Associates, Inc. (22)
10.65 - Employment Agreement, dated May 31, 2000, by and between the
Company and Jana A. Bell (24)
10.66 - Employment Agreement, dated June 6, 2000, by and between the
Company and Robert W. LaMere (24)
10.67 - Monitoring Services Agreement dated May 25, 2000, by and
between the Company and Criticom International Corporation (23)
(24)
10.68 - Commercial Lease Agreement dated April 26, 2000 by and
between the Company and 10th Street Business Park, Ltd. (24)
27 - Financial Data Schedule (25)
- ----------
(1) Filed in connection with the Company's Registration Statement on Form
S-1, as amended (No. 33-91486), effective June 22, 1995.
(2) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued in connection with
Registration Statement on Form S-1 (No. 33-91486) effective June 22,
1995.
(3) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
(4) Certain confidential portions deleted pursuant to Application for
Confidential Treatment filed in connection with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(5) Indicates management or compensatory plan or arrangement required to be
identified pursuant to Item 14(a)(4).
(6) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1996.
(7) Filed in connection with the Company's Current Report on Form 8-K filed
on October 7, 1996.
(8) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
(9) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 1997.
(10) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued in connection with the
Company's Form 10-Q Quarterly Report for the quarterly period ended
March 31, 1997.
(11) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1997.
(12) Filed in connection with the Company's Registration Statement on Form
S-4, as amended (No. 333-38361).
(13) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
(14) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1998.
(15) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 1998.
(16) Filed in connection with the Company's Form 10-K fiscal year ended
December 31, 1998.
(17) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 1999.
(18) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued June 22, 1999 in
connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended March 31, 1999.
20
(19) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1999.
(20) Certain confidential portions deleted pursuant to letter granting
application for confidential treatment issued October 10, 1999 in
connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1999.
(21) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 1999.
(22) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 2000.
(23) Certain confidential portions deleted pursuant to Application for
Confidential Treatment filed on August 16, 2000.
(24) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 2000.
(25) Filed herewith.