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 May 31, 2003
------------
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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MINORPLANET SYSTEMS USA, 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
--------------
- --------------------------------------------------------------------------------
(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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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 July 14, 2003
- ---------------------------- ----------------------------------
Common Stock, $.01 par value 48,349,161
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
Form 10-Q
INDEX
<Table>
<Caption>
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at May 31, 2003
and August 31, 2002 3
Consolidated Statements of Operations for the three and
nine months ended May 31, 2003 and 2002 4
Consolidated Statements of Cash Flows for the nine
months ended May 31, 2003 and 2002 5
Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended May 31, 2003 6
Notes to Consolidated Financial Statements 7-13
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-16
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 17
Item 4 Controls and Procedures 17
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 17
Signatures 18
Certifications 19-20
</Table>
2
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<Table>
<Caption>
ASSETS
(Unaudited)
May 31, August 31,
2003 2002
----------- ----------
Current assets:
Cash and cash equivalents $ 6,397 $ 10,413
Short-term investments -- 7,677
Accounts receivable, net 4,688 7,699
Inventories 2,526 1,581
Deferred product costs - current portion 2,271 6,149
Other current assets 1,218 2,779
--------- ---------
Total current assets 17,100 36,298
Network, equipment and software, net 4,409 6,425
Deferred product costs - non-current portion 2,072 1,496
License rights, net 34,139 36,100
Other assets, net 1,514 1,084
--------- ---------
Total assets $ 59,234 $ 81,403
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,258 $ 2,875
Telecommunications costs payable 2,164 3,268
Accrued interest payable 411 903
Deferred product revenues - current portion 3,855 8,054
Deferred service revenues - current portion 656 6,872
Other current liabilities 6,222 5,989
--------- ---------
Total current liabilities 14,566 27,961
Deferred product revenues - non-current portion 5,231 2,791
Senior notes and other notes payable 14,295 14,254
Other non-current liabilities 1,829 979
--------- ---------
Total liabilities 35,921 45,985
--------- ---------
Commitments and contingencies
Stockholders' equity:
Common Stock 484 484
Preferred Stock - Series E -- --
Additional paid-in capital 218,509 218,509
Accumulated deficit (195,118) (183,013)
Treasury stock (562) (562)
--------- ---------
Total stockholders' equity 23,313 35,418
--------- ---------
Total liabilities and stockholders' equity $ 59,234 $ 81,403
========= =========
</Table>
See accompanying notes to consolidated financial statements.
3
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
<Table>
<Caption>
Three months ended Nine months ended
May 31, May 31,
---------------------- ----------------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenues:
Product $ 682 $ 1,509 $ 1,858 $ 9,303
Ratable product 2,679 2,485 8,028 6,789
Service 7,531 11,445 26,679 33,963
-------- -------- -------- --------
Total revenues 10,892 15,439 36,565 50,055
-------- -------- -------- --------
Cost of revenues:
Product 521 1,330 1,599 7,462
Ratable product 1,865 2,003 5,758 5,613
Service 3,922 6,292 13,830 18,117
Inventory write-down to net realizable value -- -- -- 4,693
-------- -------- -------- --------
Total cost of revenues 6,308 9,625 21,187 35,885
-------- -------- -------- --------
Gross profit 4,584 5,814 15,378 14,170
-------- -------- -------- --------
Expenses:
General and administrative 2,080 2,894 7,117 8,990
Customer service 1,137 1,186 3,122 4,074
Sales and marketing 2,222 3,541 10,014 7,037
Engineering 456 488 1,359 1,952
Network services center -- 82 -- 967
Depreciation and amortization 1,428 1,604 4,341 5,571
-------- -------- -------- --------
7,323 9,795 25,953 28,591
-------- -------- -------- --------
Operating loss (2,739) (3,981) (10,575) (14,421)
Interest income 94 246 347 382
Interest expense (530) (532) (1,588) (1,595)
Other expense (53) (183) (289) (183)
-------- -------- -------- --------
Loss before income taxes (3,228) (4,450) (12,105) (15,817)
Income tax provision -- -- -- --
-------- -------- -------- --------
Net loss $ (3,228) $ (4,450) $(12,105) $(15,817)
======== ======== ======== ========
Basic and diluted loss per share:
-------- -------- -------- --------
Net loss per share $ (0.07) $ (0.09) $ (0.25) $ (0.33)
======== ======== ======== ========
Weighted average number of shares outstanding:
Basic and diluted 48,349 48,236 48,349 48,112
======== ======== ======== ========
</Table>
See accompanying notes to consolidated financial statements.
4
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<Table>
<Caption>
Nine months ended
May 31,
----------------------
2003 2002
-------- --------
Cash flows from operating activities:
Net loss $(12,105) $(15,817)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 2,380 3,608
Net book value of equipment retired 176 --
Amortization of license rights 1,961 1,963
Amortization of discount on notes payable 45 44
Provision for bad debts 994 737
Non-cash compensation -- 532
Amortization of deferred service revenues (6,216) (2,394)
Inventory write-down to net realizable value -- 4,693
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,862 4,682
(Increase) decrease in inventory (945) 1,594
Decrease in deferred product costs 3,302 2,479
Increase in other assets (364) (1,643)
Decrease in accounts payable (1,617) (1,753)
Decrease in deferred product revenues (1,759) (2,063)
(Decrease) increase in accrued expenses and other liabilities (562) 2,009
-------- --------
Net cash used in operating activities (11,848) (1,329)
-------- --------
Cash flows from investing activities:
Net proceeds from sale of assets -- 2,740
Additions to network, equipment and software (416) (527)
Purchases of short-term investments (5,496) (11,754)
Redemptions of short-term investments 13,173 9,850
-------- --------
Net cash provided by investing activities 7,261 309
-------- --------
Cash flows from financing activities:
Common stock repurchased -- (15)
Proceeds from exercise of stock options -- 457
Proceeds from sale of service contract 650 3,260
Payments on capital leases (79) (29)
-------- --------
Net cash provided by financing activities 571 3,673
-------- --------
-------- --------
(Decrease) increase in cash and cash equivalents (4,016) 2,653
-------- --------
Cash and cash equivalents, beginning of period 10,413 9,814
-------- --------
Cash and cash equivalents, end of period $ 6,397 $ 12,467
======== ========
Supplemental cash flow information:
Interest paid $ 1,985 $ 1,978
======== ========
Non-cash investing and financing activities:
Purchases of assets through capital leases $ 124 $ 224
======== ========
Note receivable received as proceeds from sale of assets and service contract $ -- $ 12,000
======== ========
Receivable held in escrow received as proceeds from sale of assets and service contract $ -- $ 1,000
======== ========
</Table>
See accompanying notes to consolidated financial statements.
5
MINORPLANET SYSTEMS USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except share information)
<Table>
<Caption>
Preferred Stock Common Stock Additional
------------------------ ----------------------- Paid-in
Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- ----------
Stockholders' equity at August 31, 2002 1 $ -- 48,424,960 $ 484 $ 218,509
Net loss
---------- ---------- ---------- ---------- ----------
Stockholders' equity at May 31, 2003 1 $ -- 48,424,960 $ 484 $ 218,509
========== ========== ========== ========== ==========
<Caption>
Treasury Stock
----------------------- Accumulated
Shares Amount Deficit Total
---------- ---------- ---------- ----------
Stockholders' equity at August 31, 2002 75,799 $ (562) $ (183,013) $ 35,418
Net loss (12,105) (12,105)
---------- ---------- ---------- ----------
Stockholders' equity at May 31, 2003 75,799 $ (562) $ (195,118) $ 23,313
========== ========== ========== ==========
</Table>
See accompanying notes to consolidated financial statements.
6
MINORPLANET SYSTEMS USA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS OVERVIEW
Minorplanet Systems USA, Inc., a Delaware corporation (the "Company"),
develops and implements mobile communications solutions for service vehicle
fleets, long-haul truck fleets, and other mobile-asset fleets, including
integrated voice, data and position location services. As a result of the
completion of the transactions contemplated by the Stock Purchase and Exchange
Agreement by and among the Company, Minorplanet Systems PLC, a United Kingdom
public limited company ("Minorplanet UK"), and Mackay Shields LLC, dated
February 14, 2001, the Company commenced marketing the Vehicle Management
Information(TM) ("VMI") product licensed from Minorplanet Limited, the
operating subsidiary of Minorplanet UK, into the automatic vehicle location
("AVL") market in the United States during the last half of the calendar year
2001. The Company currently markets and sells the VMI product in Dallas, Texas;
Houston, Texas; Atlanta, Georgia; Los Angeles, California; and Austin, Texas.
VMI is designed to maximize the productivity of a mobile workforce as well as
reduce vehicle mileage and fuel-related expenses. The VMI technology consists
of: (i) a data control unit ("DCU") that continually monitors and records a
vehicle's position, speed and distance traveled; (ii) a command and control
center ("CCC") which receives and stores in a database information downloaded
from the DCU's; and (iii) software used for communication, messaging and
detailed reporting. VMI uses satellite-based Global Positioning System ("GPS")
location technology to acquire a vehicle location on a minute-by-minute basis
and a global system for mobile communications ("GSM") based cellular network to
transmit data between the DCU's and the CCC. GSM is a digital technology
developed in Europe and has been adapted for North America. GSM is the most
widely used wireless digital standard in the world. The VMI application is
intended to be targeted to small and medium sized fleets in the metro
marketplace, which the Company believes represents a total U.S. market of
approximately 20 million vehicles.
VMI provides minute-by-minute visibility into the activities of a
mobile workforce via an extensive reporting system that provides real-time and
exception-based reporting. Real-time reports provide information regarding a
vehicle's location, idling, stop time, speed and distance traveled. With
real-time reporting, the user can view when an employee starts or finishes work,
job site arrival times and site visit locations. In addition, exception reports
allow the user to set various parameters within which vehicles must operate, and
the system will report exceptions including speeding, extended stops,
unscheduled stops, route deviations, visits to barred locations and excessive
idling.
The initial application for the Company's wireless enhanced services,
HighwayMaster Series 5000 ("Series 5000"), was developed for 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. ("SBC Companies"), pursuant to the service
vehicle contract (the "Service Vehicle Contract" or "Contract"). During the
fourth calendar quarter of 1999, the Company entered the mobile asset tracking
market with the introduction of its trailer-tracking product, TrackWare(R).
During the first calendar quarter of 2001, the Company began marketing and
selling 20/20V(TM), a low-cost tracking product designed for small and medium
sized fleets in the transportation marketplace.
On March 15, 2002, the Company completed the sale to Aether Systems,
Inc. ("Aether") of certain assets and licenses related to the Company's
long-haul trucking and asset-tracking businesses pursuant to the Asset Purchase
Agreement effective as of March 15, 2002, by and between the Company and Aether
(the "Sale"). Under the terms of the Sale, the Company sold to Aether assets and
related license rights to its Platinum Service software solution, 20/20V(TM),
and TrackWare(R) asset and trailer-tracking products. In addition, the Company
and Aether agreed to form a strategic relationship with respect to the Company's
long-haul customer products, pursuant to which the Company assigned to Aether
all service revenues generated post-closing from its Series 5000 customer base.
Aether, in turn, agreed to reimburse the Company for the network and airtime
service costs related to providing the Series 5000 service. The two companies
also agreed to work jointly in the adaptation of the VMI product technology for
the potential distribution of VMI by Aether to the long-haul-trucking market.
7
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements presented herein
include those of Minorplanet Systems USA Inc. and its wholly-owned subsidiaries:
HighwayMaster of Canada, LLC, Caren (292) Limited and Minorplanet Systems USA
Limited. All significant intercompany accounts and transactions have been
eliminated in consolidation. The unaudited consolidated financial statements
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 accounting principles generally accepted in the United States of
America. These consolidated financial statements should be read in conjunction
with the Company's audited financial statements for the eight-month transition
period ended August 31, 2002. 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 in accordance with accounting principles generally accepted in
the United States of America. The results for any interim period are not
necessarily indicative of the results for the entire fiscal year.
3. CHANGE IN FISCAL YEAR END
On May 21, 2002, the Company's Board of Directors approved changing the
Company's fiscal year end to August 31. Accordingly, the Company is presenting
unaudited financial statements for the three and nine-month periods ended May
31, 2003, as well as comparable unaudited financial statements for the three and
nine-month periods ended May 31, 2002, in this Form 10-Q.
4. REVENUE RECOGNITION
The Company recognizes revenue from its long haul trucking Series 5000
mobile units, Trackware, and 20/20V products under the provisions of Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). Under SAB 101, initial sale proceeds received under multiple-element
sales arrangements which require the Company to deliver products or services
over a period of time and which are not determined by the Company to meet
certain criteria are deferred. These criteria include requirements for a
separate earnings process, fair value determinations, and that the delivery of
future products or services under the arrangement are not required for the
delivered items to serve their intended purpose. Sales proceeds related to
delivered products that are deferred are recognized over the greater of the
contract life or the estimated life of the customer relationship. The Company
has estimated such periods to range from three to ten years. The Company's
estimate of the life of a customer relationship is determined based upon the
Company's historical experience with its customers together with the Company's
estimate of the remaining life of the applicable product offering. Sales
proceeds recognized under this method are portrayed in the accompanying
Consolidated Statement of Operations as "Ratable Product Revenues." The related
deferred revenue is classified as a current and long term liability on the
balance sheet under the captions "Deferred product revenues - current portion"
and "Deferred product revenues - non-current portion." If the customer
relationship is terminated prior to the end of the estimated customer
relationship period, such deferred sales proceeds are recognized as revenue in
the period of termination. The Company periodically reviews its estimates of the
customer relationship period as compared to historical results and adjusts its
estimates prospectively. Under sales arrangements, which meet the three criteria
described above, revenues are recognized upon shipment of the products or upon
customer acceptance of the delivered products if terms of the sales arrangement
give the customer the right of acceptance. Sales arrangements recognized upon
delivery and acceptance relate primarily to products delivered under the Service
Vehicle Contract.
The VMI product includes both hardware and software components. Due to
the interdependency of the functionality of these components, revenue
recognition is governed by SAB 101 and Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"). Under SAB 101, initial sale proceeds received
under multiple-element sales arrangements which require the Company to deliver
products or services over a period of time and which are not determined by the
Company to meet certain criteria are deferred. Currently, the Company resells
wireless airtime to customers of its VMI products over the contract term.
Therefore, in accordance with SAB 101, the Company defers VMI product revenues
and recognizes this revenue ratably over the longer of the term of the customer
contract or the estimated life of the customer relationship. Such terms range
from one to five years. In addition, the Company has also deferred revenue
consistent with the provisions of SOP 97-2. All VMI product sales proceeds are
recognized under this method and are portrayed in the accompanying Consolidated
Statement of Operations as "Ratable product revenues." The related deferred
revenue is classified as a current and long term liability on the balance sheet
under the captions "Deferred product revenues - current portion" and "Deferred
product revenues non-current portion."
8
Service revenue generally commences upon product installation and
customer acceptance, and is recognized ratably over the period such services are
provided.
As a result of the Sale to Aether, the Company recorded deferred
service revenues totaling $12.2 million in March of 2002, which reflected the
estimated fair value of services to be provided to Aether net of cash
reimbursements from Aether under the terms of the agreement. The deferred
service revenue is being recognized, based on the number of active network
service subscriber units, over the term of the agreement with Aether that
expires in September of 2003.
5. LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating losses since inception
and has limited financial resources to support itself until such time that it is
able to generate positive cash flow from operations. Net cash used in operating
activities during the nine months ended May 31, 2003 was $11.8 million.
Operating cash expenditures were primarily attributable to the ongoing VMI
operations.
The Company has been unable to achieve the projected sales volumes
under its current sales model. Management is actively working to revise the
current sales model to achieve the volumes necessary for positive cash flow and
eventual profitability. However, in order to continue as a going concern and
ultimately achieve a profitable level of operations, the Company believes it
will need additional capital resources. To that end, the Company is actively
seeking additional funding to sustain normal operations for the next twelve
months. The Company may obtain the funds in the form of stock issuance, debt
securities, or a combination of the two. The sale of additional equity or
convertible debt securities could result in additional dilution to existing
stockholders. If additional funds are raised through debt securities, holders of
these securities could obtain certain rights and preferences senior to holders
of the Company's common stock, as well as restrict the Company's operations. If
additional working capital is required, there can be no assurance that
additional financing will be available or available on commercially acceptable
terms, which in either case, the Company may be required to reduce the scope of
its operations, which could negatively impact its financial condition and
operating results. The financial statements do not include any adjustments
relating to the recoverability of the recorded assets or the classification of
the liabilities that might be necessary should the Company be unable to continue
as a going concern.
The Company believes the acquisition of the VMI license rights will
provide the Company significant marketing potential of the licensed VMI
technology, enhancing future results of operations and reducing the need for
capital resources to develop similar technology. Also, as a result of the Sale
to Aether of certain assets and licenses related to the Company's long-haul
trucking and asset-tracking businesses, Aether is contractually obligated to
continue to reimburse the Company for the network and airtime service costs
related to providing service for Series 5000 units as long as such units remain
active on the Company's network.
As of May 31, 2003, the Company had approximately 34,000 units in
service with the SBC Companies, under the Service Vehicle Contract, which
accounted for approximately 60% of the Company's installed base. In February
2003, the Company signed a one-year extension of this contract to provide mobile
location and communication services to SBC service vehicles through January 30,
2004.
Critical success factors in management's plans to achieve positive cash flow
from operations include:
o Ability to raise additional capital resources.
o Significant market acceptance of the VMI product line in the U.S.
Management believes the market for products such as VMI represents a
total potential of approximately 20 million vehicles. Currently,
management believes this market is approximately five percent
penetrated with asset tracking and vehicle information management
solutions.
o Maintain and expand the Company's direct sales channel. New
salespersons will require training and time to become productive. In
addition, there is significant competition for qualified salespersons,
and the Company must continue to offer attractive compensation plans
and opportunities to attract qualified salespersons.
o Maintain and expand indirect distribution channels.
o Securing and maintaining adequate third party leasing sources for
customers who purchase VMI.
9
6. COMMITMENTS AND CONTINGENCIES
Product Warranty Guarantees
The Company provides a limited warranty on all VMI product sales, at no
additional cost to the customer, that provides for replacement of defective
parts during the contract term, typically ranging from one to five years. The
Company also provides limited two-year warranties to replace defective parts on
units sold to the SBC Companies under the Service Vehicle Contract. The Company
establishes an estimated liability for expected future warranty commitments
based on a review of historical warranty expenditures associated with these
products and other similar products. Changes in the Company's product warranty
liability, which is included in "Other current liabilities" and "Other
non-current liabilities" in the accompanying Consolidated Balance Sheets, are
summarized below (in thousands).
<Table>
<Caption>
For the Nine For the Nine
Months Ended Months Ended
May 31, 2003 May 31, 2002
Warranty product liability at beginning of period $ 490 $ 548
Accruals for product warranties issued 292 1,729
Product replacements (142) (1,131)
Adjustments to pre-existing warranty estimates (109) 558
------------ ------------
Warranty product liability at end of period $ 531 $ 1,704
============ ============
</Table>
Compromise Settlement Agreement
During the first calendar quarter of 2001, the outsource manufacturer
(the "Vendor") that supplied substantially all of the Company's finished goods
inventory asserted a claim for reimbursement for excess and obsolete inventory
purchased in its capacity as the manufacturer of the Company's products. This
claim was disputed by the Company. 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 claims and
counterclaims ultimately led to each of the parties filing litigation against
the other. The Vendor and the Company executed a Compromise Settlement Agreement
on October 9, 2001. The Company recorded a provision of $2.1 million during 2001
as its estimate of the cost to be incurred to settle this litigation, of which
$0.5 million had been paid as of May 31, 2003. The remaining $1.6 million
provision is included in "Other current liabilities" on the Company's
accompanying Consolidated Balance Sheets.
On April 4, 2003, the Company and the Vendor entered into an amendment
to the Compromise Settlement Agreement pursuant to which the Company agreed to
issue purchase orders to the Vendor for the manufacture of 6,000 VMI data
control units in lieu of and in full and final settlement of the Company's
obligation to make the final $1.6 million payment to the Vendor under the
Compromise Settlement Agreement. Specifically, the Company will issue to the
Vendor twelve separate purchase orders for the manufacture of a total of 6,000
VMI data control units to be delivered over a twelve-month period. In addition
to the agreed upon unit price of the data control units, the Company agreed to
pay a $275 surcharge per unit which will compensate the Vendor for the remaining
$1.6 million payable under the Compromise Settlement Agreement. The Company will
take delivery of the initial lot of 500 units within 30 days of the Company's
approval of the Vendor's first production article with an additional 500 units
being delivered to the Company on the first day of each month thereafter until
all 6,000 units have been delivered. Payment for each 500 unit lot is due upon
receipt of each shipment. As of May 31, 2003, the Company had not approved the
Vendor's first production article.
7. RELATED PARTY TRANSACTIONS
Minorplanet UK owns 62 percent of the Company's outstanding common
stock and thus controls the Company. Transactions with Minorplanet UK and its
operating subsidiaries are summarized below (in thousands).
<Table>
<Caption>
For the three months For the nine months
ended May 31, ended May 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Research and development costs $ 250 $ 250 $ 750 $ 750
Contract service expenses $ 160 $ 600 $ 2,620 $ 600
------------ ------------ ------------ ------------
$ 410 $ 850 $ 3,370 $ 1,350
============ ============ ============ ============
</Table>
10
<Table>
<Caption>
As of May 31, As of August 31,
2003 2002
------------- ----------------
Other current assets $ -- $ 794
Other current liabilities $ 1,329 $ 248
Other non-current liabilities $ 1,760 $ 880
</Table>
The Company currently pays Minorplanet Limited an annual fee of $1.0
million to aid in funding research and development of future products covered by
the license rights. The fee is to be evaluated and may be increased by
Minorplanet UK based on actual research and development costs incurred by
Minorplanet UK. The research and development costs in the above table represent
the annual $1.0 million fee pro-rated for the three and nine months ended May
31, 2003 and 2002, respectively.
On September 26, 2002, the Company entered into a letter addendum to
the exclusive license and distribution agreement with Minorplanet Limited to
provide executive and non-executive sales and marketing consulting services for
the six-month period from August 23, 2002 to February 22, 2003. Under terms of
the agreement, the Company is not required to pay the executive consulting fees
incurred during this six-month period totaling $1,760,000 unless and until the
Company has filed a Form 10-K reporting net income and positive cash flow for
the previous 12-month period. As of May 31, 2003 and August 31, 2002, contingent
liabilities for $1,760,000 and $880,000, respectively, payable to Minorplanet
Limited were included on the Company's Consolidated Balance Sheets under "Other
non-current liabilities." The associated deferred asset in the amount of
$794,000, which was net of $86,000 amortization, was reflected in "Other current
assets" on the Company's Consolidated Balance Sheets as of August 31, 2002. This
deferred asset was subsequently amortized to expense during the three months
ended November 30, 2002 and is included in contract services expenses in the
above table.
Other current liabilities in the above table primarily include the
unpaid portion of the non-executive sales and marketing contract services and
research and development costs as of May 31, 2003 and August 31, 2002.
8. STOCK BASED COMPENSATION
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its stock option plans. Accordingly, compensation expense would
be recorded at the date of grant only if the current market price of the
underlying stock exceeded the exercise price. Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair value-based
method of accounting for stock-based employee compensation plans. As allowed by
SFAS 123, the Company has elected to continue to apply the intrinsic-value based
method of accounting described above, and has adopted the disclosure
requirements of SFAS 123. In accordance with the provisions of SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure," pro forma
net income and earnings per share disclosures, as if the Company recorded
compensation expense based on the fair value of stock-based awards, are
presented below (in thousands, except per share data):
<Table>
<Caption>
Three months ended Nine months ended
May 31, May 31,
-------------------- --------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net loss, as reported $ (3,228) $ (4,450) $(12,105) $(15,817)
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (180) (309) (515) (982)
-------- -------- -------- --------
Net loss, pro forma $ (3,408) $ (4,759) $(12,620) $(16,799)
======== ======== ======== ========
Net loss per share - basic and diluted As reported $ (0.07) $ (0.09) $ (0.25) $ (0.33)
Pro-forma $ (0.07) $ (0.10) $ (0.26) $ (0.35)
</Table>
11
Effective March 15, 2002, two of the Company's executives resigned
their employment with the Company in connection with the Sale to Aether
consummated on March 15, 2002. As part of their separation agreements, vesting
was accelerated on a portion of previously unvested stock options resulting in
the recording of $0.5 million in compensation expense which is reflected in the
Company's financial statements.
9. SEGMENT REPORTING
The Company's reportable segments offer different products and/or
services. Each segment also requires different technology and marketing
strategies. The Company's two reportable segments are VMI and Network Service
Center Systems ("NSC Systems").
During the last half of the 2001 calendar year, the Company commenced
marketing the VMI product licensed from Minorplanet Limited into the AVL
marketplace in the United States. VMI is designed to maximize the productivity
of a mobile workforce as well as reduce vehicle mileage and fuel related
expenses. The VMI technology consists of: (i) a data control unit that
continually monitors and records a vehicle's position, speed and distance
traveled; (ii) a command and control center which receives and stores in a
database information downloaded from the DCU's; and (iii) software used for
communication, messaging and detailed reporting. VMI uses the satellite-based
global positioning system to acquire a vehicle location on a minute-by-minute
basis and a global system for mobile communications based cellular network to
transmit data between the DCU's and the CCC. The VMI application is targeted to
small and medium-sized fleets in the metro marketplace, which the Company
believes represents a total U.S. market of approximately 20 million vehicles.
Through its NSC Systems segment, 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. Prior to the
Sale to Aether, the Company also provided mobile asset tracking solutions with
its trailer-tracking products, TrackWare(R) and 20/20V(TM). Pursuant to the
terms of the Sale, these products continue to use the Company's Network Service
Center to relay voice and messages between the mobile units and the customer's
dispatchers.
On March 15, 2002, the Company completed the Sale to Aether of certain
NSC Systems assets and licenses related to the Company's long-haul trucking and
asset-tracking businesses pursuant to an Asset Purchase Agreement effective as
of March 15, 2002, by and between the Company and Aether.
Operating expenses are allocated to each segment based on management's
estimate of the utilization of financial resources by each segment. The
following tables set forth segment financial information (in thousands).
<Table>
<Caption>
Three Months Ended May 31, 2003 Three Months Ended May 31, 2002
NSC Systems VMI Consolidated NSC Systems VMI Consolidated
----------- ---------- ------------ ----------- ---------- ------------
Revenues $ 9,366 $ 1,526 $ 10,892 $ 15,200 $ 239 $ 15,439
Operating income (loss) 2,738 (5,477) (2,739) 3,006 (6,987) (3,981)
Interest expense 530 -- 530 532 -- 532
Interest income 20 74 94 183 63 246
Depreciation and amortization 721 707 1,428 933 671 1,604
Net income (loss) 2,228 (5,456) (3,228) 2,474 (6,924) (4,450)
Total assets 14,896 44,338 59,234 49,829 42,319 92,148
Capital expenditures -- 52 52 28 130 158
Other significant non-cash items:
Note receivable received as proceeds from sale
of assets and service contract -- -- -- 12,000 -- 12,000
Receivable held in escrow received as proceeds
from sale of assets and service contract -- -- -- 1,000 -- 1,000
Purchases of assets through capital leases -- -- -- 224 -- 224
</Table>
12
<Table>
<Caption>
Nine Months Ended May 31, 2003 Nine Months Ended May 31, 2002
NSC Systems VMI Consolidated NSC Systems VMI Consolidated
----------- --------- ------------ ----------- --------- ------------
Revenues $ 32,949 $ 3,616 $ 36,565 $ 49,668 $ 387 $ 50,055
Operating income (loss) 9,831 (20,406) (10,575) (520) (13,901) (14,421)
Interest expense 1,588 -- 1,588 1,595 -- 1,595
Interest income 105 242 347 318 64 382
Depreciation and amortization 2,222 2,119 4,341 3,583 1,988 5,571
Net income (loss) 8,237 (20,342) (12,105) (1,980) (13,837) (15,817)
Total assets 14,896 44,338 59,234 49,829 42,319 92,148
Capital expenditures 227 189 416 235 292 527
Other significant non-cash items:
Note receivable received as proceeds from sale
of assets and service contract -- -- -- 12,000 -- 12,000
Receivable held in escrow received as proceeds
from sale of assets and service contract -- -- -- 1,000 -- 1,000
Purchase of assets through capital leases 124 -- 124 224 -- 224
</Table>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
As a result of the completion of the transactions contemplated by the
Stock Purchase and Exchange Agreement by and among the Company, Minorplanet
Systems PLC, a United Kingdom public limited company ("Minorplanet UK"), and
Mackay Shields LLC, dated February 14, 2001, the Company commenced marketing the
Vehicle Management Information(TM) ("VMI") product licensed from Minorplanet
Limited, the operating subsidiary of Minorplanet UK, into the automatic vehicle
location ("AVL") market in the United States during the last half of 2001. VMI
is designed to maximize the productivity of a mobile workforce as well as reduce
vehicle mileage and fuel related expenses. The VMI technology consists of: (i) a
data control unit ("DCU") that continually monitors and records a vehicle's
position, speed and distance traveled; (ii) a command and control center ("CCC")
which receives and stores in a database information downloaded from the DCU's;
and (iii) software used for communication, messaging and detailed reporting. VMI
uses satellite-based Global Positioning System ("GPS") location technology to
acquire a vehicle location on a minute-by-minute basis and a global system for
mobile communications ("GSM") based cellular network to transmit data between
the DCU's and the CCC. GSM is a digital technology developed in Europe and has
been adapted for North America. GSM is the most widely used wireless digital
standard in the world. The VMI application is intended to be targeted to small
and medium sized fleets in the metro marketplace, which the Company believes
represents a total U.S. market of approximately 20 million vehicles.
VMI provides minute-by-minute visibility into the activities of a
mobile workforce via an extensive reporting system that provides real-time and
exception-based reporting. Real-time reports provide information regarding a
vehicle's location, idling, stop time, speed and distance traveled. With
real-time reporting, the user can view when an employee starts or finishes work,
job site arrival times and site visit locations. In addition, exception reports
allow the user to set various parameters within which vehicles must operate, and
the system will report exceptions including speeding, extended stops,
unscheduled stops, route deviations, visits to barred locations and excessive
idling.
Through its NSC Systems segment, 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. ("SBC Companies"), pursuant to the service vehicle contract
(the "Service Vehicle Contract" or "Contract"). Prior to the sale to Aether
Systems Inc. of certain assets and licenses, the Company also provided mobile
asset tracking solutions with its trailer-tracking products, TrackWare(R) and
20/20V(TM).
On March 15, 2002, the Company completed the sale to Aether Systems,
Inc. ("Aether") of certain assets and licenses related to the Company's
long-haul trucking and asset-tracking businesses pursuant to an Asset Purchase
13
Agreement effective as of March 15, 2002, by and between the Company and Aether
(the "Sale"). Under the terms of the Sale, the Company sold to Aether assets and
related license rights to its Platinum Service software solution, 20/20V(TM),
and TrackWare(R) asset and trailer-tracking products. In addition, the Company
and Aether agreed to form a strategic relationship with respect to the Company's
long-haul customer products, pursuant to which the Company assigned to Aether
all service revenues generated post-closing from its HighwayMaster Series 5000
("Series 5000") customer base. Aether, in turn, agreed to reimburse the Company
for the network and airtime service costs related to providing the Series 5000
service. Hereinafter, Series 5000 units for which the Company provides network
services are referred to as network services subscribers. The two companies also
agreed to work jointly in the adaptation of the VMI product technology for the
potential distribution of VMI by Aether to the long-haul-trucking market.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 31, 2003, COMPARED TO THREE MONTHS ENDED MAY 31, 2002
Total revenues for the three months ended May 31, 2003 decreased to
$10.9 million from $15.4 million during the three months ended May 31, 2002
primarily due to a reduction in NSC Systems service and product revenues. NSC
Systems service revenues decreased from $11.4 million during the three months
ended May 31, 2002 to $7.2 million during the three months ended May 31, 2003.
The decrease in NSC Systems service revenue was primarily attributable to a 47%
reduction in the number of NSC Systems network services subscriber units from
29,380 at May 31, 2002 to 15,672 as of May 31, 2003. This decrease in network
services subscriber units was anticipated after the Sale to Aether as many of
these units have converted to Aether's network. NSC Systems product revenue,
including ratable product revenue, decreased from $3.8 million during the three
months ended May 31, 2002 to $2.2 million during the three months ended May 31,
2003. The decrease in NSC Systems product revenue was primarily due to lower
sales under the Service Vehicle Contract with SBC and lower ratable revenue
recognition associated with the smaller network services subscriber base. There
were also no new product sales to network services subscriber customers during
the three months ended May 31, 2003 due to the Sale to Aether in March of 2002.
The decrease in NSC Systems revenue was partially offset by an increase
in VMI revenue. VMI revenue increased from $0.2 million during the three months
ended May 31, 2002 to $1.5 million during the three months ended May 31, 2003.
The Company began marketing the VMI product in the Dallas, Texas and Houston,
Texas markets during the last half of the calendar year 2001, the Atlanta,
Georgia market in January of 2002, and the Los Angeles, California and Austin,
Texas markets beginning in July of 2002. In accordance with the Company's
revenue recognition policies, VMI revenue and the associated cost of sales are
deferred under Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" and Statement of Position 97-2, "Software Revenue
Recognition," and recognized over the greater of the contract life or the
estimated life of the customer relationship. Thus, the increase in VMI revenue
during the three months ended May 31, 2003 is primarily due to the ratable
recognition of previously deferred revenue associated with the growing VMI
installed base. As of May 31, 2003, total VMI deferred product revenue reflected
on the Company's balance sheet, net of amortization, was $7.6 million.
Total gross profit margin of 42% for the three months ended May 31,
2003 increased from 38% during the three months ended May 31, 2002. The
improvement in gross profit margin was primarily due to higher ratable product
margins on VMI sales and lower airtime costs within the NSC Systems segment.
Total operating expenses decreased to $7.3 million during the three
months ended May 31, 2003 from $9.8 million during the same period in 2002.
Sales and marketing costs for the three months ending May 31, 2003 decreased to
$2.2 million from $3.5 million during the three months ended May 31, 2002. This
decrease is primarily due to a reduction in sales and marketing consulting
services provided by Minorplanet UK, personnel reductions, and lower recruiting
costs. General and administrative expenses decreased from $2.9 million during
the three months ended May 31, 2002 to $2.1 million during the three months
ended May 31, 2003 primarily due to a reduction in contract labor expenditures,
lower bad debt expense, and personnel reductions. Customer service and
engineering departmental expenses for the three months ended May 31, 2003 were
relatively consistent with the same period during the prior year.
Operating losses improved to $2.7 million during the three months ended
May 31, 2003 from $4.0 million during the three months ended May 31, 2002. A
$1.2 million decrease in gross profit margin, associated with the decrease in
NSC Systems revenue discussed above, was offset by a $2.5 million decrease in
operating expenses. The Company's NSC Systems segment reported operating income
of $2.7 million for the three months ended May 31, 2003, which was offset by the
$5.4 million VMI segment operating loss.
14
RESULTS OF OPERATIONS
NINE MONTHS ENDED MAY 31, 2003, COMPARED TO NINE MONTHS ENDED MAY 31, 2002
Total revenues decreased from $50.1 million during the nine months
ended May 31, 2002 to $36.6 million during the nine months ended May 31, 2003
primarily due to lower product and service revenues within the NSC Systems
segment. NSC Systems product revenues, including ratable product revenue,
decreased from $15.8 million during the nine months ended May 31, 2002 to $7.2
million during the nine months ended May 31, 2003. The decrease in NSC Systems
product revenue was primarily due to lower sales under the Service Vehicle
Contract with SBC and a reduction in network services subscriber product revenue
due to the Sale to Aether in March of 2002. NSC Systems service revenue
decreased from $33.8 million during the nine months ended May 31, 2002 to $25.8
million during the nine months ended May 31, 2003 primarily due to an
anticipated reduction in network services subscriber units after the Sale to
Aether in March of 2002. Many of these units have converted to Aether's network.
VMI revenue increased from $0.4 million during the nine months ended
May 31, 2002 to $3.6 million during the nine months ended May 31, 2003. VMI unit
sales for the nine-month period ended May 31, 2003 increased by approximately
87% in comparison to the nine months ended May 31, 2002. As discussed above, the
Company's revenue recognition policies require deferral of VMI revenues and the
associated cost of sales and recognition over the greater of the contract life
or the estimated life of the customer relationship. Therefore, the increase in
VMI revenue during the nine months ended May 31, 2003 is primarily due to the
ratable recognition of previously deferred revenue associated with the growing
VMI installed base.
Total gross profit margin increased to $15.4 million during the nine
months ended May 31, 2003 from $14.2 million during the nine months ended May
31, 2002 and gross profit percentage improved from 28% to 42% for the same
periods, respectively. During December of 2001, the Company recorded a $4.7
million write-down of inventory to net realizable value due to excess inventory
associated with certain circuit boards used in the manufacture of the Trackware
and 20/20V product lines within the NSC Systems segment. Excluding this
inventory write-down, gross profit margin would have been 38% during the nine
months ended May 31, 2002. The improvement in gross margin, excluding the
inventory write-down, during the nine months ended May 31, 2003 was primarily
due to higher ratable product margins associated with VMI product sales, lower
warranty costs on units installed under the Service Vehicle Contract with SBC,
and improved margins on maintenance services under the Service Vehicle Contract
with SBC. The Company provided most of the SBC maintenance service work using
internal resources during the nine months ended May 31, 2003 rather than
outsourcing much of this service to third party vendors as was done during the
same period last year.
Total operating expenses for the nine months ended May 31, 2003 were
$26.0 million versus $28.6 million during the nine months ended May 31, 2002.
Sales and marketing costs increased to $10.0 million during the nine months
ended May 31, 2003 from $7.0 million during the same period last year. This
increase is primarily due to higher sales consulting costs and other ongoing
expenditures related to the VMI product launch including the hiring of new sales
personnel and the opening of new sales and operations offices in Houston,
Atlanta, and Los Angeles. On September 26, 2002, the Company entered into a
letter addendum to the exclusive license and distribution agreement with
Minorplanet Limited to provide executive and non-executive sales and marketing
consulting services for the six-month period from August 23, 2002 to February
22, 2003. During the nine months ended May 31, 2003, total sales and marketing
consulting service expenses incurred under this agreement were approximately
$2.6 million. However, under terms of the agreement, the Company is not required
to pay the $1.8 million executive consulting fees incurred during the six months
ended February 28, 2003 until the Company has filed a Form 10-K reporting net
income and positive cash flow for the previous twelve-month period.
The increase in sales and marketing costs during the nine months ended
May 31, 2003 was offset by reductions in operating expenses across all other
departments. Contributing to these departmental expense decreases were personnel
reductions associated with the Sale to Aether and cost-reduction plans.
Depreciation and amortization expense decreased by $1.2 million during the nine
months ended May 31,2003 in comparison to the same period during 2002 primarily
due to several network service center assets becoming fully depreciated. After
the Sale to Aether in March of 2002, all costs of operating the NSC were
included in cost of revenues in order to properly match these expenses with the
associated revenues generated from providing the network and airtime services to
Aether. Total NSC operating costs charged to cost of sales during the nine
months ended May 31, 2003 and the nine months ended May 31, 2002 were $1.8
million and $0.5 million, respectively.
Operating losses improved to $10.6 million during the nine months ended
May 31, 2003 from $14.4 million
15
during the nine months ended May 31, 2002. Excluding the $4.7 million inventory
write-down during December of 2001, operating losses would have been $9.7
million during the nine months ended May 31, 2002. Thus, the effective increase
in operating losses during the nine months ended May 31, 2003 is primarily due
to lower NSC Systems sales under the Service Vehicle Contract and the increase
in sales and marketing costs discussed above. Operating income for the NSC
Systems segment was $9.8 million for the nine months ended May 31, 2003, which
was offset by the $20.4 million VMI segment operating loss. During the nine
months ended May 31, 2002, the Service Vehicle Contract was responsible for the
majority of new product sales. Product shipments under that contract were
minimal during the nine months ended May 31, 2003 and are expected to be minimal
during the remainder of the 2003 fiscal year. Thus, the Company's financial
condition and results of operations are heavily dependent upon the Company's
ability to market and sell the VMI products.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred significant operating losses since inception
and has limited financial resources to support itself until such time that it is
able to generate positive cash flow from operations. Net cash used in operating
activities during the nine months ended May 31, 2003 was $11.8 million.
Operating cash expenditures were primarily attributable to the ongoing VMI
operations.
The Company has been unable to achieve the projected sales volumes
under its current sales model. Management is actively working to revise the
current sales model to achieve the volumes necessary for positive cash flow and
eventual profitability. However, in order to continue as a going concern and
ultimately achieve a profitable level of operations, the Company believes it
will need additional capital resources. To that end, the Company is actively
seeking additional funding to sustain normal operations for the next twelve
months. The Company may obtain the funds in the form of stock issuance, debt
securities, or a combination of the two. The sale of additional equity or
convertible debt securities could result in additional dilution to existing
stockholders. If additional funds are raised through debt securities, holders of
these securities could obtain certain rights and preferences senior to holders
of the Company's common stock, as well as restrict the Company's operations. If
additional working capital is required, there can be no assurance that
additional financing will be available or available on commercially acceptable
terms, which in either case, the Company may be required to reduce the scope of
its operations, which could negatively impact its financial condition and
operating results. The financial statements do not include any adjustments
relating to the recoverability of the recorded assets or the classification of
the liabilities that might be necessary should the Company be unable to continue
as a going concern.
The Company believes the acquisition of the VMI license rights will
provide the Company significant marketing potential of the licensed VMI
technology, enhancing future results of operations and reducing the need for
capital resources to develop similar technology. Also, as a result of the Sale
to Aether of certain assets and licenses related to the Company's long-haul
trucking and asset-tracking businesses, Aether is contractually obligated to
continue to reimburse the Company for the network and airtime service costs
related to providing service for Series 5000 units as long as such units remain
active on the Company's network.
As of May 31, 2003, the Company had approximately 34,000 units in
service with the SBC Companies, under the Service Vehicle Contract, which
accounted for approximately 60% of the Company's installed base. In February
2003, the Company signed a one-year extension of this contract to provide mobile
location and communication services to SBC service vehicles through January 30,
2004.
Critical success factors in management's plans to achieve positive cash flow
from operations include:
o Ability to raise additional capital resources.
o Significant market acceptance of the VMI product line in the U.S.
Management believes the market for products such as VMI represents a
total potential of approximately 20 million vehicles. Currently,
management believes this market is approximately five percent
penetrated with asset tracking and vehicle information management
solutions.
o Maintain and expand the Company's direct sales channel. New
salespersons will require training and time to become productive. In
addition, there is significant competition for qualified salespersons,
and the Company must continue to offer attractive compensation plans
and opportunities to attract qualified salespersons.
o Maintain and expand indirect distribution channels.
o Securing and maintaining adequate third party leasing sources for
customers who purchase VMI.
16
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 due to the short-term nature
of these investments. The Company's 13-3/4% Senior Notes due September 15, 2005
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 Transition Report on Form 10-K for the eight-month
period ended August 31, 2002.
ITEM 4: CONTROLS AND PROCEDURES
(a) EVALUATION OF CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures, which it has
designed to ensure that material information related to the Company, including
its consolidated subsidiaries, is made known to the Company's disclosure
committee on a regular basis. Within 90 days prior to the filing of this report,
under the supervision and with the participation of the Company's management,
including the Company's principal executive officer and principal financial and
accounting officer, an evaluation of the effectiveness of the Company's
disclosure controls and procedures was performed. Based on this evaluation, the
principal executive officer and principal financial and accounting officer have
both concluded that the Company's disclosure controls and procedures are
effective to ensure that material information is recorded, processed, summarized
and reported by management of the Company on a timely basis in order to comply
with the Company's public disclosure obligations under the relevant federal
securities laws and the SEC rules promulgated thereunder.
(b) CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or
in other factors, including any corrective actions with regard to significant
deficiencies and material weaknesses, that could significantly affect these
controls subsequent to the date of the Company's evaluation.
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See the Index to Exhibits.
(b) Reports on Form 8-K -
(1) On April 17, 2003, the Company filed a Current Report
on Form 8-K reporting under Items 7, 9, and 12 the
Company's press release dated April 14, 2003
announcing earnings for the Company's second fiscal
quarter ended February 28, 2003.
(2) On July 8, 2003, the Company filed a Current Report
on Form 8-K reporting under Items 5 and 7 the
Company's press release announcing the resignations
of Robert Kelly and Michael Abrahams as directors.
17
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.
MINORPLANET SYSTEMS USA, INC.
Date: July 14, 2003
By: /s/ W. Michael Smith
----------------------------
W. Michael Smith
Chief Operating Officer
(Principal Executive Officer)
By: /s/ Robert Gray
----------------------------
Robert Gray
Chief Accounting Officer
(Principal Financial &
Accounting Officer)
18
CERTIFICATION
I, W. Michael Smith, certify that:
1. I have reviewed this quarterly report of Form 10-Q of Minorplanet
Systems USA, Inc.;
2. Based upon my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based upon my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in the Exchange Act Rules 13a-14 and 15d-14), for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
upon our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions);
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date July 14, 2003
By /s/ W. Michael Smith
----------------------------------------------
W. Michael Smith, Chief Operating Officer
(Principal Executive Officer)
19
CERTIFICATION
I, Robert Gray, certify that:
2. I have reviewed this quarterly report of Form 10-Q of Minorplanet
Systems USA, Inc.;
3. Based upon my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
4. Based upon my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
5. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in the Exchange Act Rules 13a-14 and 15d-14), for the registrant
and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
upon our evaluation as of the Evaluation Date;
6. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions);
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
7. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date July 14, 2003
By /s/ Robert Gray
--------------------------------------------
Robert Gray, Chief Accounting Officer
(Principal Financial and Accounting Officer)
20
INDEX TO EXHIBITS
<Table>
<Caption>
EXHIBIT
NUMBER TITLE
------- -----
2.1 - Stock Purchase and Exchange Agreement by and between the
Company, Minorplanet Systems PLC and Mackay Shields LLC, dated
February 14, 2001. (21)
2.2 - Asset Purchase Agreement by and between the Company and Aether
Systems, Inc. dated March 15, 2002. (22)
3.1 - Restated Certificate of Incorporation of the Company, as
amended. (29)
3.2 - Second Amended and Restated By-Laws of the Company.(20)
4.1 - Specimen of certificate representing Common Stock, $.01 par
value, of the Company.(1)
4.2 - Indenture dated September 23, 1997 by and among the Company,
HighwayMaster Corporation and Texas Commerce Bank, National
Association (the "Indenture").(8)
4.3 - First Supplemental Indenture, dated June 20, 2001, to the
Indenture. (28)
4.4 - Pledge Agreement dated September 23, 1997, by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(8)
4.5 - Registration Rights Agreement dated September 23, 1997, by and
among the Company, HighwayMaster Corporation, Bear, Stearns &
Co. Inc. and Smith Barney Inc.(8)
4.9 - Warrant Registration Rights Agreement dated September 23, 1997,
by and among the Company, Bear, Stearns & Co. Inc. and Smith
Barney, Inc. (8)
10.1 - Registration Rights Agreement by and between the Company,
Minorplanet Systems PLC and Mackay Shields LLC, dated as of June
21, 2001. (23)
10.2 - Exclusive License and Distribution Agreement by and between
Minorplanet Limited, (an @Track subsidiary) and Mislex (302)
Limited, dated June 21, 2001 (20)
10.3 Amended and Restated 1994 Stock Option Plan of the Company,
dated February 4, 1994. (1) (4) (5)
10.4 - Amendment No. 1 to the Amended and Restated 1994 Stock Option
Plan. (24)
10.5 - Amendment No. 2 to the Amended and Restated 1994 Stock Option
Plan. (25)
10.6 - Amendment No. 3 to the Amended and Restated 1994 Stock Option
Plan.(30)
10.7 - Stock Option Agreement, dated June 22, 1998, by and between the
Company and John Stupka. (10)
10.8 - Product Development Agreement, dated December 21, 1995, between
HighwayMaster Corporation and IEX Corporation.(2)(3)
10.9 - Software Transfer Agreement, dated April 25, 1997, between
HighwayMaster Corporation and Burlington Motor Carriers,
Inc.(6)(7)
10.10 - Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc.(9)
10.11 - Stock Option Agreement dated November 24, 1998, by and between
the Company and Michael Smith. (10)
10.12 - Agreement No. 980427 between Southwestern Bell Telephone
Company, Pacific Bell, Nevada Bell, Southern New England
Telephone and HighwayMaster Corporation executed on January 13,
1999. (11)(12)
10.13 - Administrative Carrier Agreement entered into between
HighwayMaster Corporation and Southwestern Bell Mobile Systems,
Inc. on March 30, 1999. (11)(12)
10.14 - Addendum to Agreement entered into between HighwayMaster
Corporation and International Telecommunications Data Systems,
Inc. on February 4, 1999. (11)(12)
10.15 - Second Addendum to Agreement entered into between HighwayMaster
Corporation and International Telecommunications Data Systems,
Inc. on February 4, 1999. (11)(12)
</Table>
<Table>
10.16 - Stock Option Agreement dated June 24, 1999, by and between the
Company and J. Raymond Bilbao. (13)
10.17 - Fleet-on-Track Services Agreement entered into between GTE
Telecommunications Services Incorporated and HighwayMaster
Corporation on May 3, 1999. (13)(14)
10.18 - Stock Option Agreement dated September 3, 1999, by and between
the Company and J. Raymond Bilbao. (15)
10.19 - Stock Option Agreement dated September 3, 1999, by and between
the Company and W. Michael Smith. (15)
10.20 - Limited Liability Company Agreement of HighwayMaster of Canada,
LLC executed March 3, 2000. (16)
10.21 - Monitoring Services Agreement dated May 25, 2000, by and between
the Company and Criticom International Corporation. (17) (18)
10.22 - Commercial Lease Agreement dated April 26, 2000 by and between
the Company and 10th Street Business Park, Ltd. (18)
10.23 - Stock Option Agreement dated July 18, 2001, by and between the
Company and J. Raymond Bilbao (19)
10.24 - Stock Option Agreement dated June 21, 2001, by and between the
Company and J. Raymond Bilbao (19)
10.25 - Stock Option Agreement dated July 18, 2001, by and between the
Company and W. Michael Smith (19)
10.26 - Stock Option Agreement dated June 21, 2001, by and between the
Company and W. Michael Smith (19)
10.27 - Employment Agreement, dated June 21, 2001, between J. Raymond
Bilbao and the Company (20)
10.28 - Employment Agreement, dated June 21, 2001, between W. Michael
Smith and the Company (20)
10.29 - Agreement No. 980427-03, dated January 31, 2002 between SBC
Ameritech, SBC Pacific Bell, SBC Southern New England Telephone,
SBC Southwestern Bell Telephone, L.P. and the Company (27) (28)
10.30 Agreement and General Release Between the Company and Todd A.
Felker dated October 8, 2002 (31)
10.31 Agreement and Mutual Release Between the Company and Jana A.
Bell dated September 24, 2002 (31)
10.32 Addendum dated September 26, 2002 to Exclusive Licence and
Distribution Agreement (32)
11.0 Statement Regarding Computation of Per Share Earnings (33)
16.1 - Letter from Arthur Andersen to the SEC (Omitted pursuant to Item
304T of Regulation S-K)
99.1 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by W.
Michael Smith, Chief Operating Officer (Principal Executive
Officer) (33)
99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by
Robert Gray, Chief Accounting Officer (Principal Financial and
Accounting Officer) (33)
</Table>
- ----------
(1) Filed in connection with the Company's Registration Statement on Form
S-1, as amended (No. 33-91486), effective June 22, 1995.
(2) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
(3) 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.
(4) Indicates management or compensatory plan or arrangement required to be
identified pursuant to Item 14(a)(4).
(5) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1996.
(6) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 1997.
(7) 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.
(8) Filed in connection with the Company's Registration Statement on Form
S-4, as amended (No. 333-38361).
(9) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 1998.
(10) Filed in connection with the Company's Form 10-K fiscal year ended
December 31, 1998.
(11) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 1999.
(12) 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.
(13) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1999.
(14) 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.
(15) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 1999.
(16) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 2000.
(17) 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.
(18) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 2000.
(19) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 2001.
(20) Filed in connection with the Company's Current Report on Form 8-K filed
with the SEC on June 29, 2001.
(21) Filed as Appendix A to the Company's Definitive Proxy Statement on
Schedule 14A filed with the SEC on May 11, 2001.
(22) Filed in connection with the Company's Current Report on Form 8-K filed
with the SEC on March 27, 2002. Certain confidential portions deleted
pursuant to Order Granting Application for Confidential Treatment
issued in connection with the Company's Current Report on Form 8-K
filed with the SEC on March 27, 2002.
(23) Filed in connection with the Company's Form S-3 Registration Statement
filed with the SEC on October 10, 2001 (File No. 333-71340).
(24) Incorporated by reference to Exhibit A to the proxy statement contained
in the Company's Definitive Schedule 14A with the SEC on April 25,
2000.
(25) Incorporated by reference to Exhibit F to the proxy statement contained
in the Company's Definitive Schedule 14A filed with the SEC on May 11,
2001.
(26) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001.
(27) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 2002.
(28) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential
Treatment issued in connection with the Company's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 2002.
(29) Incorporated by reference to Exhibit A to the information statement
contained in the Company's Definitive Schedule 14C filed with the SEC
on June 27, 2002.
(30) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 2002.
(31) Filed in connection with the Company's Form 10-K Transition Report for
the eight-month period ended August 31, 2002.
(32) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended November 30, 2002.
(33) Filed herewith.