1
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 March 31, 2001
--------------
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
-------
@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 May 4, 2001
- ------------------------------------- ----------------------------------
Common Stock, $.01 par value 25,326,829
Common Stock, Class B, $.01 par value 1,000
2
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
Form 10-Q
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 2001
and December 31, 2000 3
Consolidated Statements of Operations for the
three months ended March 31, 2001 and 2000 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 2001 and 2000 5
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the three months ended March 31, 2001 6
Notes to Consolidated Financial Statements 7-10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-12
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5 Other Information 13
Item 6 Exhibits and Reports on Form 8-K 13
Signatures 14
2
3
PART I - FINANCIAL INFORMATION
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
ASSETS
March 31, December 31,
2001 2000
--------- ------------
Current assets:
Cash and short-term investments $ 11,173 $ 20,641
Accounts receivable, net 9,427 12,738
Inventories 10,598 13,216
Deferred product costs - current portion 5,988 7,406
Other current assets 1,971 1,759
--------- ---------
Total current assets 39,157 55,760
Network, equipment and software, net 12,107 12,851
Deferred product costs - non-current portion 9,562 9,770
Other assets, net 2,488 2,663
--------- ---------
Total assets $ 63,314 $ 81,044
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,932 $ 7,992
Telecommunications costs payable 4,999 5,358
Accrued interest payable 2,969 3,784
Deferred product revenues - current portion 7,221 8,975
Other current liabilities 4,743 8,826
--------- ---------
Total current liabilities 22,864 34,935
Deferred product revenues - non-current portion 11,790 11,966
Senior notes payable 92,583 92,484
--------- ---------
Total liabilities 127,237 139,385
--------- ---------
Commitments and contingencies (Note 10)
Stockholders' equity (deficit):
Common Stock 256 256
Common Stock - Class B -- --
Additional paid-in capital 149,996 149,996
Accumulated deficit (213,628) (208,046)
Treasury stock (547) (547)
--------- ---------
Total stockholders' equity (deficit) (63,923) (58,341)
--------- ---------
Total liabilities and stockholders' equity (deficit) $ 63,314 $ 81,044
========= =========
See accompanying notes to consolidated financial statements.
3
4
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share)
Three months ended
March 31,
----------------------
2001 2000
-------- --------
Revenues:
Product $ 7,552 $ 1,054
Ratable product 2,529 3,025
Service 12,355 12,233
-------- --------
Total revenues 22,436 16,312
-------- --------
Cost of revenues:
Product 6,084 844
Ratable product 2,092 2,420
Service 6,620 7,104
-------- --------
Total cost of revenues 14,796 10,368
-------- --------
Gross profit 7,640 5,944
-------- --------
Expenses:
General and administrative 3,393 2,594
Customer service 2,001 1,684
Sales and marketing 1,159 1,097
Engineering 1,516 581
Network services center 409 352
Depreciation and amortization 1,585 1,429
-------- --------
10,063 7,737
-------- --------
Operating loss (2,423) (1,793)
Interest income 183 527
Interest expense (3,342) (3,342)
Other income -- 142
-------- --------
Loss before income taxes and cumulative effect of accounting change (5,582) (4,466)
Income tax provision -- --
-------- --------
Loss before cumulative effect of accounting change (5,582) (4,466)
Cumulative effect of accounting change -- (5,206)
-------- --------
Net loss $ (5,582) $ (9,672)
======== ========
Basic and diluted loss per share:
Loss before cumulative effect of accounting change $ (0.22) $ (0.18)
Cumulative effect of accounting change -- (0.20)
-------- --------
Net loss $ (0.22) $ (0.38)
======== ========
Weighted average number of shares outstanding:
Basic and diluted 25,327 25,189
======== ========
See accompanying notes to consolidated financial statements.
4
5
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three months ended
March 31,
----------------------
2001 2000
-------- --------
Cash flows from operating activities:
Net loss $ (5,582) $ (9,672)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 1,585 1,429
Amortization of discount on notes payable 99 99
Provision for bad debts 515 223
Decrease in accounts receivable 2,796 2,240
(Increase) decrease in inventory 2,618 (625)
(Increase) decrease in deferred product costs 1,626 (23,544)
Increase (decrease) in accounts payable (5,060) 296
Increase (decrease) in deferred product revenues (1,930) 28,423
(Decrease) in accrued expenses and other current liabilities (5,257) (3,344)
Other (150) (610)
-------- --------
Net cash used in operating activities (8,740) (5,085)
-------- --------
Cash flows from investing activities:
Additions to network, equipment and software (728) (366)
Decrease in pledged securities -- 6,343
Decrease in short-term investments -- 9,561
-------- --------
Net cash provided by (used in) investing activities (728) 15,538
-------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options -- 246
-------- --------
Net cash provided by financing activities -- 246
-------- --------
Increase (decrease) in cash and cash equivalents (9,468) 10,699
Cash and cash equivalents, beginning of period 20,641 5,167
-------- --------
Cash and cash equivalents, end of period 11,173 15,866
Short-term investments -- 3,040
-------- --------
Cash and short-term investments $ 11,173 $ 18,906
======== ========
Supplemental cash flow information:
Interest paid $ 4,054 $ 6,487
======== ========
See accompanying notes to consolidated financial statements.
5
6
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(in thousands, except share information)
Common Stock Common Stock - Class B Additional
------------------ ---------------------- Paid-in
Shares Amount Shares Amount Capital
---------- ------ ------ ------ ----------
Stockholders' equity (deficit) at December 31, 2000 25,638,826 $ 256 1,000 $ -- $ 149,996
Net loss
---------- ----- ----- ------ ---------
Stockholders' equity (deficit) at March 31, 2001 25,638,826 $ 256 1,000 $ -- $ 149,996
========== ===== ===== ====== =========
Treasury Stock
---------------- Accumulated
Shares Amount Deficit Total
------- ------ ----------- ---------
Stockholders' equity (deficit) at December 31, 2000 311,997 $ (547) $ (208,046) $ (58,341)
Net loss (5,582) (5,582)
------- ------ ---------- ---------
Stockholders' equity (deficit) at March 31, 2001 311,997 $ (547) $ (213,628) $ (63,923)
======= ====== ========== =========
See accompanying notes to consolidated financial statements.
6
7
@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., pursuant to the service vehicle contract (the "Service Vehicle
Contract" or "Contract"). 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 months ended March 31, 2000 or
2001.
2. BASIS OF PRESENTATION
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, 2000. The accompanying consolidated financial
statements reflect all adjustments (all of which are of a normal
recurring nature), 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. PENDING DEBT AND EQUITY TRANSACTIONS
On February 14, 2001, the Company executed a stock purchase
and exchange agreement (the "Agreement") with Minorplanet Systems PLC
("Minorplanet"), a leading worldwide producer and distributor of
telemetric-based vehicle management information systems (VMI(TM)), and
with the majority holder of the Company's Senior Notes.
Under the terms of the Agreement, Minorplanet is to acquire 10
million shares of the Company's common stock for $10 million and
receive an additional 140 million shares of the Company's common stock
in exchange for an exclusive ninety-nine year license to market,
distribute and operate Minorplanet's VMI technologies in the United
States, Canada and Mexico. Additionally, a majority in interest of the
Company's 13 3/4% Senior Notes due 2005, which parties in the aggregate
hold approximately 75 percent of the Senior Notes, have agreed to (i)
exchange their Senior Notes for approximately 56.2 million shares of
the Company's common stock, (ii) accept payment of all interest on the
Senior Notes accrued through December 15, 2000 and (iii) waive payment
of the balance of any interest accrued from December 16, 2000 through
April 30, 2001. Under the terms of the Agreement, the majority in
interest of the Company's 13 3/4% Senior Notes accrue interest at the
coupon rate for the period from May 1, 2001 through the closing date of
the contemplated transactions.
As contemplated by the Agreement, the Company also intends to
begin an exchange offer to the remaining holders of the Senior Notes,
offering to exchange Senior Notes for the Company's common stock on
substantially the same terms as that agreed to by the majority
noteholder. Assuming conversion of all of the Senior Notes to common
stock, the holders thereof would hold common stock representing
approximately 29 percent of the Company, and Minorplanet would hold
approximately 58 percent.
7
8
Consummation of the transaction is subject to a number of
conditions including, but not limited to, approval by Company's common
stockholders, approval by the Company's Class B common stockholder
which was obtained on April 10, 2001, the Company's continued listing
on The Nasdaq Small Cap Market, and other contractual, governmental and
regulatory approvals.
In the event these transactions are consummated as
contemplated, the Company will have significantly reduced its
indebtedness and related interest expense. In addition, the Company
will shortly thereafter commence distribution of the Minorplanet
product in the United States. The Company currently believes that
consummation of these transactions will substantially mitigate the
uncertainties described in Note 5 to the consolidated financial
statements. Consummation of this transaction is also a condition of the
Company maintaining its listing on the Nasdaq Small Cap Market. See
Note 4.
4. NON-COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS
The Company's common stock is conditionally listed on the
Nasdaq Small Cap Market via an exception from the net tangible assets,
market capitalization, net income and minimum bid price requirements
granted by the Nasdaq Stock Market, Inc. ("Nasdaq"). This exception
will expire on July 2, 2001.
In order for the Company to maintain an unconditional Nasdaq
listing, the Company must satisfy certain conditions set forth in a
determination letter from the Nasdaq Listings Qualification Panel (the
"Panel") dated April 30, 2001. Among these conditions is the closing of
the pending debt and equity transactions described in Note 3.
There are a number of minimum requirements for continued
listing on the Nasdaq Small Cap Market, which include both quantitative
and qualitative requirements. The Company currently expects to meet
these continued listing requirements and the conditional listing
requirements set forth in the April 30, 2001 written determination by
the Panel. However, there can be no assurances that the Company will be
able to maintain its listing on the Nasdaq SmallCap Market and the
failure of the Company to maintain its listing on the Nasdaq SmallCap
Market may have a material adverse effect on the business, financial
conditions and results of operations of the Company.
5. FUTURE OPERATIONS AND GOING CONCERN UNCERTAINTY
The consolidated financial statements of the Company have been
prepared on the basis of accounting principles applicable to a going
concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The
Company has incurred significant operating losses since inception and
has a stockholders' deficit of approximately $63.9 million at March 31,
2001. Effective March 15, 2001, the Company's semi-annual cash interest
payments on its 13.75% Senior Notes, which were issued in September
1997, were funded from cash flow from operations. Interest payments due
on the Senior Notes through September 15, 2000, had previously been
funded through an escrow arrangement created upon closing of the Senior
Notes. The Company made its March 15, 2001 interest payment, but absent
the pending equity and debt transactions described in Note 3 to the
Consolidated Financial Statements (which are contingent upon a number
of factors also described in Note 3), the Company has limited financial
resources available to support its ongoing operations, fund its product
development program to develop and market new competitive tracking
technology and pay its obligations as they become due, including the
maturities of the Senior Notes and associated interest payments.
The factors noted in the above paragraph raise substantial
doubt concerning the ability of the Company to continue as a going
concern. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going
concern. The ability of the Company to continue as a going concern is
dependent upon the ongoing support of its stockholders, creditors, and
certain key customers, the consummation of the pending equity and debt
transactions (or the closing of similar debt or equity transactions),
and/or its ability to successfully develop and market its tracking
products and technology at economically feasible levels in the highly
competitive and rapidly changing telecommunications industry.
8
9
As discussed in Note 3, the Company has pending equity and
debt transactions that the Company believes, if consummated, will
provide adequate financial resources to support the Company until it is
able to achieve a successful level of operations. The Company also
believes acquisition of the licensing rights associated with the
pending equity transaction will provide the Company significant
marketing potential of the licensed tracking technology, enhancing
future results of operations and reducing the need for capital
resources to develop similar tracking technology. There is no
assurance, however, that the Company will be able to close the pending
debt and equity transactions or that such financial resources provided
by the pending transactions, if closed, will be sufficient to support
the Company until it reaches a successful level of operations. There is
also no assurance that the Company would be able to successfully
develop a market for the acquired licensed tracking technology to
achieve a successful level of future operations. If the Company is
unable to close the pending equity and debt transactions, it is likely
that it will be unable to maintain its current Nasdaq listing (see Note
4). If the Company cannot maintain its Nasdaq listing, its ability to
obtain the required levels of equity or debt financing from other
sources to support its operations and fund payments of its obligations
as they become due will be significantly reduced, and it may have a
material adverse effect on the business, financial condition and
results of operations of the Company.
6. EARNINGS PER SHARE
The Company computes earnings per share in accordance SFAS No.
128, "Earnings Per Share." Net loss per share was computed by dividing
the net loss by the weighted average number of shares outstanding
during the year. The Company's potentially dilutive securities,
consisting of the Class B Common Stock, options and warrants, have been
excluded from the weighted average number of shares outstanding since
their effect would be anti-dilutive.
7. INVENTORIES
March 31, December 31,
2001 2000
--------- ------------
Complete systems $ 3,377 $ 3,240
Component parts 6,763 5,919
Equipment shipped not yet accepted 458 4,057
------- -------
$10,598 $13,216
======= =======
8. CHANGE IN ACCOUNTING PRINCIPLE
During the fourth quarter of 2000, as a result of new
interpretations of generally accepted accounting principles by the
Securities and Exchange Commission (the "SEC"), through issuance of SEC
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), the Company was required to change its
accounting policy for product revenue recognition, effective January 1,
2000. The March 31, 2000 consolidated financial statements have been
restated to reflect the adoption of this new accounting principle.
9
10
9. RELATED PARTY TRANSACTIONS
Certain affiliates of one of the Company's shareholders,
Cingular Wireless, LLC, a joint venture in which SBC Communications,
Inc. ("SBC") is a lead venturer are both customers and vendors. The
Company sells mobile communication units and provides services pursuant
to the Service Vehicle Contract. Additionally, one affiliated company
serves as "administrative carrier" and provides clearinghouse services,
and other affiliated companies are among the cellular carriers with
whom the Company purchases airtime in connection with the Company's
provision of its services. Transactions with these affiliated companies
of SBC during the three months ended March 31, 2000 and 2001, are
summarized below.
Three months ended March 31, 2001 2000
--------- -------
Revenues $ 10,405 $ 2,454
As of: March 31, December 31,
2001 2000
--------- ------------
Accounts receivable $ 5,047 $ 5,858
Accounts payable $ 350 $ 403
10. COMMITMENTS AND CONTINGENCIES
The outsource manufacturer (the "vendor") that supplies
substantially all of the Company's finished goods inventory has
asserted a claim of approximately $4.0 million for reimbursement for
excess and obsolete inventory. The Company believes that it has
meritorious defenses to this alleged claim and is vigorously denying
liability. The evaluation of this alleged claim is in its early stages
and, accordingly, it is currently not possible to assess whether the
likelihood of an unfavorable outcome to the Company is possible,
probable or remote. Therefore, no provision has been made in the
consolidated financial statements for this claim. As a result of this
dispute, beginning in April 2001, the vendor ceased to perform on its
contract to provide finished goods inventory and certain other services
to the Company. The Company is currently in discussion with alternative
manufacturers to resume production. The Company currently believes that
any delay in production as a result of this dispute will be minimal
and will not have a material effect on its results of operations or
financial condition.
10
11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001, Compared to Three Months Ended March
31, 2000
Total revenues increased 37.5% to $22.4 million in 2001, from $16.3
million in 2000. Product revenues increased to $7.6 million in 2001, from $1.1
million in 2000 due to significant sales related to the Service Vehicle
Contract. Ratable Product Revenues decreased 16.4% to $2.5 million in 2001, from
$3.0 million in 2000. This decrease is due to the fact that Ratable Product
Revenues in 2000 include the recognition of all previously deferred revenues
related to a significant customer for whom service was terminated during the
quarter ended March 31, 2000. Service revenues were $12.4 million in 2001
compared to $12.2 million in 2000, an increase of 1.0%. While the average
installed base of mobile units increased 35.3% from 2000 to 2001, the average
monthly revenue per mobile unit decreased 25.4% to $58.58 in 2001 from $78.58 in
2000, primarily due to the increasing proportion of service vehicles in the
installed base. 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 68,415 at March 31, 2001 from 49,514
at March 31, 2000. The increase in the installed base is primarily attributable
to the Service Vehicle Contract.
Service gross profit margin was 46.4% in 2001 compared to 41.9% in
2000. The increase in service gross profit margin is primarily the result of
rate reductions obtained from cellular carriers and other telecommunications
providers.
Product gross profit margin was 19.4% in 2001 compared to 19.9% in
2000. During 2001, the Company began receiving significant quantities of
TrackWare finished goods inventory, the carrying amount of which was written
down by approximately $0.6 million to estimated market value. Excluding the
effect of the write-down from cost to market, product gross profit margin would
have been 27.6%. The improvement in product gross profit margin from 19.9% to
27.6% is primarily due to the gross margin on the Service Vehicle Contract for
which there was essentially no revenues recorded in the quarter ended March 31,
2000. The Company has completed the receipt of the initial version of TrackWare
units for which cost was in excess of market value. The Company has made
substantial modifications to the design of the Trackware unit to reduce future
production costs and does not currently expect any additional TrackWare related
cost to market write-downs in subsequent periods.
Operating expenses increased 30.1% to $10.1 million in 2001 from $7.7
million in 2000. This increase is primarily due to expenditures related to an
increase in the number of employees and independent contractors. Such increases
relate primarily to increasing the resources for (1) development and maintenance
of the Company's information systems, (2) enhancing the network capabilities for
the Company's products and services, and (3) research and development
activities. Also contributing to the increase was the fact that bad debt expense
in 2000 was unusually low as a result of an adjustment approximating $0.5
million made to reduce the reserve for bad debts related to a specific customer.
Such adjustment was recorded at which time the Company and the former customer
reached a settlement agreement, which ensured collection of the account.
Operating loss in 2001 was $2.4 million compared to $1.8 million in
2000. The $1.7 million increase in gross profit margin was offset by a $2.3
million increase in operating expenses. Excluding the benefit of the adjustment
to the reserve for bad debts in 2000, the operating loss for both periods would
be essentially the same. The Company's ability to generate operating income is
significantly influenced by the gross margin related to product revenues. The
Service Vehicle Contract is responsible for the majority of such revenues and
product shipments under that contract are expected to be completed during 2001.
The Company's financial condition and results of operations are heavily
dependent upon the Company's ability to develop and market new products and
services. Therefore, the Company believes that its 2001 revenues will likely not
increase relative to 2000. As discussed in Note 3 to the Consolidated Financial
Statements, the Company has pending equity and debt transactions, which the
Company believes, if consummated, will provide adequate financial resources to
support the Company until it is able to achieve a successful level of
operations.
11
12
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating losses since inception
and has a stockholders' deficit of approximately $63.9 million at March 31,
2001. Effective March 15, 2001, the Company's semi-annual cash interest payments
on its 13.75% Senior Notes, which were issued in September 1997, were funded
from cash flow from operations. Interest payments due on the Senior Notes
through September 15, 2000, had previously been funded through an escrow
arrangement created upon closing of the Senior Notes. The Company made its March
15, 2001 interest payment, but absent the pending equity and debt transactions
described in Note 3 to the Consolidated Financial Statements (which are
contingent upon a number of factors also described in Note 3), the Company has
limited financial resources available to support its ongoing operations, fund
its product development program to develop and market new competitive tracking
technology and pay its obligations as they become due, including the maturities
of the Senior Notes and associated interest payments.
The factors noted in the above paragraph raise substantial doubt
concerning the ability of the Company to continue as a going concern. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern. The ability of the Company to continue as a going
concern is dependent upon the ongoing support of its stockholders, creditors and
certain key customers, the consummation of the pending equity and debt
transactions (or the closing of similar debt or equity transactions) and its
ability to successfully develop and market its tracking products and technology
at economically feasible levels in the highly competitive and rapidly changing
telecommunications industry.
As discussed in Note 3 to the Consolidated Financial Statements, the
Company has pending equity and debt transactions, which the Company believes, if
consummated, will provide adequate financial resources to support the Company
until it is able to achieve a successful level of operations. The Company also
believes acquisition of the licensing rights associated with the pending equity
transaction will provide the Company significant marketing potential of the
licensed tracking technology, enhancing future results of operations and
reducing the need for capital resources to develop similar tracking technology.
There is no assurance, however, that the Company will be able to close the
pending debt and equity transactions or that such financial resources provided
by the pending transactions, if closed, will be sufficient to support the
Company until it reaches a successful level of operations. There is also no
assurance that the Company would be able to successfully develop a market for
the acquired licensed tracking technology to achieve a successful level of
future operations. If the Company is unable to close the pending equity and debt
transactions, it is likely that it will be unable to maintain its current Nasdaq
listing (see Note 4 to the Consolidated Financial Statements). If the Company
cannot maintain its Nasdaq listing, its ability to obtain the required levels of
equity or debt financing from other sources to support its operations and fund
payments of its obligations as they become due will be significantly reduced,
and it may have a material adverse effect on the business, financial condition
and results of operations of the Company. In the event the Company is unable to
support its operations and fund payments of its obligations as they become due,
it may be necessary for the Company to seek protection under Chapter 11 of the
United States Bankruptcy Code.
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
are at a fixed rate and, thus, are not exposed to interest rate risk.
FORWARD LOOKING STATEMENTS
This report on Form 10-Q contains 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, that are based upon
management's current beliefs and projections, as well as assumptions made by and
information currently available to management. When used in this Form 10-Q, the
words "anticipate," "believe," "estimate," "expect" and similar expressions are
intended to identify forward-looking statements. Any statement or conclusion
concerning future events is a forward-looking statement, and should not be
interpreted as a promise or conclusion that the event will occur. The Company's
actual operating results or the actual occurrence of any such event could differ
materially from those projected in the forward-looking statements. Factors that
could cause or contribute to such differences include those discussed in this
report, and the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
12
13
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
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 -
On January 16, 2001, the Company filed a current report on
Form 8-K reporting the Company's execution of Letters of
Understanding with Minorplanet Systems PLC and the holder of a
majority in interest of the Company's 13 3/4% Senior Notes
due 2005.
13
14
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: May 10, 2001
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)
14
15
INDEX TO EXHIBITS
EXHIBIT
NUMBER TITLE
- ------- -----
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)
16
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)
10.38 - Second Addendum to Agreement entered into between HighwayMaster
17
Corporation and International Telecommunications 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)
10.64 - Investor Relations Services Agreement, dated March 31, 2000, by
and between
18
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)
10.69 - Special Customer Arrangement for MCI WORLDCOM On-Net Services
dated October 23, 2000 by and between the Company and MCI
WORLDCOM.(25)(26)
- ----------
(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.
19
(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.
(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 Order Granting
Application for Confidential Treatment issued December 5, 2000 in
connection with the Company's Form 10 -Q Quarterly Report for the
quarterly period ended June 30, 2000.
(24) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 2000.
(25) Certain confidential portions deleted pursuant to Application for
Confidential Treatment filed on February 27, 2001.
(26) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000.