Annual Report — [x] Reg. S-K Item 405 — Form 10-K
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1: 10-K405 Form 10-K for Fiscal Year End December 31, 2001 65 417K
2: EX-23.1 Consent of Arthur Andersen LLP 1 5K
3: EX-99.0 Receipt of Representation From Arthur Andersen LLP 1 6K
10-K405 — Form 10-K for Fiscal Year End December 31, 2001
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-26140
@TRACK COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 51-0352879
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1155 KAS DRIVE, SUITE 100
RICHARDSON, TEXAS 75081
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code) (972) 301-2000
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of each Class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the common equity held by non-affiliates
of the Registrant as of March 20, 2002 was $21,015,683.*
The number of shares outstanding of Registrant's Common Stock was 48,059,394 as
of March 20, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement to be filed with
the Securities and Exchange Commission within 120 days after December 31, 2001
(the "Proxy Statement") are incorporated by reference into Part III of the Form
10-K.
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*Excludes the Common Stock held by executive officers, directors and by
stockholders whose ownership exceeds 5% of the Common Stock outstanding at March
20, 2002. Exclusion of such shares should not be construed to indicate that any
such person possesses the power, direct or indirect, to direct or cause the
direction of the management or policies of the Registrant or that such person is
controlled by or under common control with the Registrant.
@Track Communications, Inc.
FORM 10-K
For the Fiscal Year Ended December 31, 2001
INDEX
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Page
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PART I
ITEM 1. BUSINESS...................................................................................... 1
ITEM 2. PROPERTIES.................................................................................... 18
ITEM 3. LEGAL PROCEEDINGS............................................................................. 18
ITEM 4. SUBMISSIONS OF MATTERS TO VOTE OF SECURITY HOLDERS............................................ 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................................................... 19
ITEM 6. SELECTED FINANCIAL DATA....................................................................... 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................................................... 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................... 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................... 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................................................... 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................ 28
ITEM 11. EXECUTIVE COMPENSATION........................................................................ 28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................................................ 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................ 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K................................................................................... 29
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PART I
ITEM 1. BUSINESS
GENERAL
The following discussion is qualified in its entirety by the more
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Annual Report on Form 10-K. Stockholders should
carefully consider the information presented under "Risk Factors" below.
HISTORICAL BACKGROUND
@Track Communications, Inc., a Delaware Corporation (the "Company" or
"@Track"), develops and implements mobile communications solutions for long-haul
truck fleets, service vehicle fleets and other mobile-asset fleets, including
integrated voice, data and position location services. The Company provides
mobile communications services through a wireless enhanced services network,
which utilizes patented technology developed and owned by the Company, to
integrate various transmission, long-distance, switching, tracking and other
services provided through contracts with certain telecommunications companies
and 66 cellular carriers. The Company's communications network covers 98% of the
available cellular service areas in the United States and 100% of the available
A-side coverage in Canada. A-side coverage refers to a type of license awarded
by the FCC to provide cellular service in a specific area. See "Infrastructure
and Operations - Wireless Infrastructure" on page 8 for a more detailed
description of A-side coverage. Call processing and related functions for the
Company's network are provided through the Company's Network Services Center
(the "NSC"). The Company holds 40 United States and 9 foreign patents that cover
certain key features of its network that are used in locating and communicating
with vehicles using the existing cellular infrastructure.
The Company was organized on April 24, 1992 as By-Word Joint Venture
L.P., a Delaware limited partnership with one general partner, By-Word
Technologies, Inc. and one limited partner, the FBR Eighteen Corporation
("FBR"). FBR was wholly owned by the Eighteen Wheeler Corporation ("Eighteen
Wheeler"). On April 27, 1992, By-Word Joint Venture L. P. changed its name to
HighwayMaster, L. P.
On February 4, 1994, HighwayMaster, L. P. was recapitalized, resulting
in the creation of HM Holding Corporation with Eighteen Wheeler becoming a
wholly owned subsidiary of HM Holding Corporation. FBR and HighwayMaster, L. P.
were merged with and into Eighteen Wheeler, and the name of the surviving
corporation was changed to HighwayMaster Corporation. By virtue of the merger,
HighwayMaster Corporation became the successor in interest to HighwayMaster, L.
P. In February 1995, HM Holding Corporation changed its name to HighwayMaster
Communications, Inc.
On December 31, 1999, the Company's wholly owned subsidiary,
HighwayMaster Corporation, a Delaware corporation, merged with and into the
Company. Following the consummation of the merger, the Company was the sole
surviving and operating entity. The merger was undertaken primarily to eliminate
an unnecessary corporate layer, and thus, reduce administrative expenses
associated with maintaining the separate existence of HighwayMaster Corporation.
When the merger became effective, all assets, obligations and liabilities of
HighwayMaster Corporation became the assets, obligations and liabilities of the
Company by operation of law. In connection with the merger, the Company obtained
consents to the assignment of third party contracts from HighwayMaster
Corporation to the Company, and other consents deemed necessary or advisable by
the Company.
Effective April 10, 2000, the Company amended its Certificate of
Incorporation to change its corporate name to @Track Communications, Inc.
On June 5, 2001, the Company effected a 1-for-5 reverse stock split
that was approved by the shareholders at the annual meeting.
On June 21, 2001, the Company consummated the stock issuance
transactions approved by the Company's stockholders at the annual meeting on
June 4, 2001. As a result of the closing of transactions contemplated by that
certain Stock Purchase and Exchange Agreement by and among the Company,
Minorplanet Systems PLC, a United Kingdom public limited company
("Minorplanet"), and Mackay Shields LLC, dated February 14, 2001 (the "Purchase
Agreement"), the Company issued 30,000,000 shares of its common stock (post
reverse stock split) in a
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change of control transaction to Minorplanet, which is now the majority
stockholder of the Company. In exchange for this stock issuance, Minorplanet
paid the Company $10,000,000 in cash and transferred to the Company all of the
shares of its wholly-owned subsidiaries, Minorplanet Limited and its
wholly-owned subsidiary, Mislex(302) Limited, now known as, Minorplanet Systems
USA Limited, which holds an exclusive, royalty-free, 99-year license to market,
sale and operate Minorplanet's vehicle management information technology in the
United States, Canada and Mexico. Minorplanet now beneficially owns
approximately 62.4% of the outstanding shares of the Company's common stock (on
a non-fully diluted basis), which is now the sole voting security of the
Company.
On March 15, 2002, @Track completed the sale to Aether Systems, Inc.
("Aether") of certain assets and licenses related to @Track's long-haul trucking
and asset-tracking businesses pursuant to this Asset Purchase Agreement
effective as of March 15, 2002, by and between @Track and Aether (the "Sale").
Under the terms of the Asset Purchase Agreement, @Track 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,
@Track and Aether agreed to form a strategic relationship with respect to
@Track's long-haul customer products, pursuant to which @Track will assign to
Aether all service revenues generated post-closing from its HighwayMaster Series
5000 ("HM5000") customer base. Aether, in turn, has agreed to reimburse @Track
for the network and airtime service costs related to providing the HM5000
service. The two companies have also agreed to work jointly in the adaptation of
the Minorplanet Vehicle Management Information technology (VMI(TM))("VMI") for
the potential distribution of VMI by Aether to the long-haul-trucking market.
As consideration for the Sale, @Track received $3 million in cash, of
which $1 million will be held in escrow and released to @Track over a 12-month
period. @Track also received a note for $12 million payable, at the option of
Aether, in either cash or convertible preferred stock in three equal
installments of $4 million on April 14, May 14, and June 14, 2002. The preferred
stock may then be converted to common stock using a prescribed formula that
compensates for fluctuations in the stock price so that @Track will be able to
convert and sell in the open market Aether common stock equal to $12 million.
The consideration for the Sale was determined through arms length negotiation
between @Track and Aether. See the Form 8-K filed by the Company on March 27,
2002 which is incorporated by reference herein and Footnote No. 20 to
Consolidated Financial Statements attached hereto.
PRODUCTS AND SERVICES
The Company's products and services can be classified into three major
categories: truck fleet mobile communications, service-vehicle management and
mobile asset tracking. Approximately 58% and 42% of the Company's total revenues
were derived from the truck fleet mobile communications and service-vehicle
management categories, respectively, during the year ended December 31, 2001.
Revenues from the mobile asset tracking category were insignificant during 2001.
TRUCK FLEET MOBILE COMMUNICATIONS
The initial application for the Company's wireless enhanced services
network has been developed for, and is currently being marketed and sold to,
companies that operate mobile fleets in the long-haul trucking market. The
Company provides long-haul trucking customers with a total communications
solution HM 5000 that combines voice and data communications services with
satellite-based Global Positioning System ("GPS") location technology. The
Company also provides engine monitoring, scanning, mapping and dispatch
management applications. The Series 5000 solutions enable trucking companies of
all sizes to maximize their efficiency as they manage trucks that are often
dispersed across the country.
The HM 5000 mobile communications and information system from @Track is
fully integrated with the AS/400, UNIX, and Windows(R) fleet management software
solutions from 18 key industry suppliers. Integration partners include Creative
Systems, Innovative Transportation Systems (ITS), Maddocks Systems' TruckMate(R)
for Windows, ProMiles, TMW Truck Systems and Tom McLeod LoadMaster(TM) Software.
Full system integration provides an end-to-end mobile communications and
information system solution by combining the on-road communications, data
collection and tracking capabilities of the HM 5000 with vendor dispatch
software, enabling fleet operators to improve customer service, manage their
dispatch operations more effectively and, ultimately, increase revenue miles per
truck.
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@Track also maintains value-added assembly line installation programs
with seven major heavy truck original equipment manufacturers for the HM 5000
mobile communications and information system. Prewire programs, designed to
preinstall system cabling and mounting brackets at the factory, exist with
Freightliner, International, Kenworth, Mack, Peterbilt, Sterling and Volvo. Full
system installations are also available through Freightliner, Mack and Sterling.
Each of these programs enables fleets to reduce their "new vehicle receipt -to-
new vehicle revenue generation" cycle times by reducing new vehicle 'make-ready'
times.
In addition to the hardware device and network connectivity, @Track
also operates a national network of service and repair centers. The home office
in Richardson, Texas also houses representatives providing Level I and II
technical support to its customers.
@Track also offers a complete end-to-end service bureau solution for
long-haul trucking customers with its Platinum Service. The data center, located
in Joplin, Missouri, integrates mobile platform data with business functions
including general ledger, accounts payable, EDI, customer service, driver
management, route optimization, and fuel processing. Benefits of the platform
include providing all of the aforementioned services on a single database, the
ability to support multiple business units, and extensive reporting
capabilities.
@Track also possesses the capability to support the largest premier
companies in this market, such as Wal-Mart and Contract Freighters, Inc., with a
solution implementation capability that allows for necessary customization that
large customers require.
As noted on page 2, @Track completed the Sale to Aether of certain
assets and licenses related to @Track's long-haul trucking and asset-tracking
businesses on March 15, 2002. Under the terms of the March 15, 2002 Sale, @Track
and Aether agreed to form a strategic relationship with respect to @Track's
long-haul customer products, pursuant to which @Track will assign to Aether all
service revenues generated post-closing from its HM5000 customer base. Aether,
in turn, has agreed to reimburse @Track for the network and airtime service
costs related to providing the HM5000 service. See the Form 8-K filed by the
Company on March 27, 2002 for more information on the Sale which is incorporated
by reference herein and Footnote No. 20 to Consolidated Financial Statements
attached hereto.
SERVICE VEHICLE MANAGEMENT
Series 5005S
@Track's initial product application was modified to assist the member
companies of SBC Communications, Inc. (the "SBC Companies") in maximizing the
productivity of their service vehicle fleets. The units installed are Series
5005S Mobile Units and are based on the Series 5000 platform with customized
proprietary hardware and software. Integral to this development effort was the
ability to interface with the GSM/digital network.
In addition to fleet monitoring and voice and data communications
capabilities, the Series 5005S mobile units feature alarm-monitoring
functionality. This product feature provides the driver the ability to summon
emergency assistance by pressing a panic alarm button on a key fob when away
from, but in close proximity to, the service vehicle. The panic alarm signal is
intelligently routed to a third party alarm-monitoring center under contract
with @Track that confirms the validity of the alarm with the technician and then
summons the appropriate safety agency. The GPS data is also transmitted to the
monitoring center to pinpoint the location of the vehicle for the most efficient
dispatch of the safety personnel.
As of December 31, 2001, the SBC Companies have purchased and installed
approximately 39,500 Series 5005S mobile units. The Company currently
anticipates installation of approximately 1,500 additional units during 2002.
The Series 5005S mobile units were not part of the March 15, 2002 Sale.
Minorplanet Vehicle Management Information (VMI(TM))
On June 21, 2001, the Company acquired an exclusive, royalty-free,
99-year license to market, sale and operate Minorplanet's VMI technology in the
United States, Canada and Mexico.
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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 GPS to acquire a vehicle location on a
minute-by-minute basis and a GSM 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.
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 VMI system also enables text messages to be sent from the CCC to
any mobile phone. Employees can also send messages using free text and
preformatted forms on their mobile phones.
MOBILE ASSET TRACKING
TrackWare(R)
The Company entered the mobile-asset-tracking market in October 1999
with the introduction of its trailer-tracking product, TrackWare. The TrackWare
product combines the technologies of GPS and control channel messaging to report
location details and specific trailer events, such as connection and
non-connection to a tractor, loaded/unloaded and door open/close status of a
trailer. The TrackWare Remote Unit ("TrackWare Unit") comes equipped with a GPS
satellite receiver, a Cellemetry(R)-enabled cellular transceiver,
microprocessor, antenna, battery and cables. The term Cellemetry-enabled
receiver refers to the analog wireless transceiver utilized by the Company's
TrackWare product which utilizes the Cellemetry network owned and operated by
Cellemetry LLC to send short data messages over the overhead control channel of
the existing analog wireless infrastructure. The Company's analog wireless
transceiver in its TrackWare unit utilizes the Cellemetry network via a Service
Agreement with Cellemetry LLC which includes a license to use the Cellemetry
technology. Cellemetry is a federally registered trademark of Cellemetry LLC.
We believe that TrackWare offers the dry-van trailer market a cost
effective, reliable way to track a fleet of trailers that may be in various
locations all over the country, and trucking companies now have a powerful tool
available to them that we expect may increase the utilization of their trailers,
resulting in lower trailer operation and management expenses and higher trailer
revenue miles. A dry-van trailer is a transportation industry term of art
referring to a type of trailer pulled by Class 8 over-the-road tractor (commonly
referred to as 18-Wheelers) in which only dry goods are transported as opposed
to perishable goods which require refrigeration.
TrackWare is being marketed to trucking companies, which the Company
believes represent a potential market of approximately 2.5 million dry-van
trailers currently operating in the U.S. This translates into approximately
three trailers for every tractor. At any point in time, the Company believes the
location of 10-15 percent of these trailers is unknown to the companies who own
them. As a result, the Company believes that between $5.0-$7.5 billion in
dry-van assets are idle, delivering no value to their owners. The Company
expects TrackWare to provide the visibility to trucking company asset managers
that will enable them to better utilize their trailer fleets. Users of TrackWare
may access the tracking and sensor information via the Internet.
20/20V(TM)
In March of 2001, the Company announced the launch of 20/20V, a low
cost tracking solution designed for small fleets in the transportation
marketplace. 20/20V uses the Cellemetry data network to communicate location
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information at predetermined intervals. Users of the 20/20V application may
access location based information via the Internet.
The March 15, 2002 Sale of certain assets included assets related to
the 20/20V and TrackWare product lines. Accordingly, @Track will no longer
distribute and sell these product lines as part of its business. See the Form
8-K filed by the Company on March 27, 2002 which is incorporated by reference
herein and Footnote No. 20 to Consolidated Financial Statements attached hereto
for more information on this transaction.
COMPETITION
TRUCK MOBILE COMMUNICATIONS
Qualcomm, Inc. ranks number one in the truck mobile communications
market with substantially greater than 50% of the market share. We believe that
@Track and Aether rank second and third in the marketplace with a market share
of approximately 8% and 5%, respectively. Both Qualcomm and Aether have
significantly greater financial and other resources than the Company.
o QUALCOMM - As Qualcomm launched its mobile communications product several
years before @Track, Qualcomm was able to capture the number one position
in the marketplace. Today, Qualcomm equipment is installed in 37 of the top
40 truckload carriers. Qualcomm continues to aggressively target and market
to the transportation marketplace.
o AETHER - Motient has been in the marketplace for several years using
satellite and Ardis networks as a foundation for its products. Motient's
MobileMax and Mobile Messaging Service were sold to Aether Systems in 2000.
Aether is aggressively developing and implementing wireless solutions
targeting the transportation and logistics industries. As noted, on March
15, 2002, Aether also purchased certain assets from @Track relating to
@Track's long haul trucking and asset tracking business.
o TERION - Terion's products and services utilize both digital cellular and
FM radio transmission to send data. Terion products utilize 8-12 foot-high
frequency towers distributed throughout the United States to transmit
return data. In January 2002, Terion filed for protection under Chapter 11
of the U.S. Bankruptcy Code and announced the discontinuance of its in-cab
mobile communications product.
o PEOPLENET COMMUNICATIONS, INC. - PeopleNet offers an analog cellular-based
solution that includes positioning, messaging and voice. The Company
believes that PeopleNet has approximately 20,000 units in service.
SERVICE VEHICLE MANAGEMENT
@Track believes that it currently possesses the largest single customer
in the service vehicle category with the SBC Companies. At December 31, 2001,
the Company had approximately 39,500 units in service with the SBC Companies.
The initial three-year term of the service contract with the SBC Companies
expired on December 31, 2001. The Company subsequently renewed its service
contract with the SBC Companies for a one-year term which will expire on
December 31, 2002. The renewed service contract provides for a one-year
extension beyond the initial term at the option of the SBC Companies.
@Track believes that its primary competitors in this market include:
o TELETRAC - Teletrac is currently managing the transition of customers from
their private radio network to AT&T Wireless' proprietary Cellular Digital
Packet Data ("CDPD") network. The Company believes that Teletrac currently
has approximately 60,000 units in service.
o @ROAD - @Road currently sells an Internet-based solution using AT&T
Wireless' proprietary CDPD network and the Nextel network. The Company
believes that @Road currently has approximately 60,000 units in service.
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o OTHER REGIONAL COMPETITORS - There are numerous smaller regional companies
vying for a local presence.
A third party study of the service vehicle market conducted by the
Strategis Group noted that this market consists of over 26 million vehicles and
is currently less than 5% penetrated. The Company believes that this market is
highly fragmented. Based on a market size of 26 million vehicles, Teletrac,
@Track and @Road would each have less than one-half of one percent of the market
share.
MOBILE ASSET TRACKING
Dry-van trailers are the first target market for @Track and several
other competitors. The Company believes that this market is in its infancy with
very few units installed by any competitor to-date.
@Track believes that its primary competitors in this market include:
o QUALCOMM, INC. - Qualcomm announced commercial launch into this market
in January 2001. Qualcomm tested an untethered tracking product with
several of its current customers during 2001. In the third quarter of
2001, Qualcomm discontinued testing of their untethered tracking
product and pulled the product from the market.
o TERION -In January of 2000, Terion introduced a mobile unit which
utilizes the existing analog network to send data over a voice
channel. In January 2002, Terion filed for protection under Chapter 11
of the U.S. Bankruptcy Code and plans to restructure its business to
focus exclusively on its mobile asset tracking product.
o AIRINC - Airinc initially targeted the refrigerated van market with a
high-end product which utilized the Orbcomm LEO satellite
constellation. The Company believes that Airinc is currently in the
process of transitioning from the Orbcomm LEO satellite product to a
TMI satellite product. Airinc has recently expanded its focus to
target the dry-van market segment.
INDUSTRY SEGMENTS
The Company considers its operations to be classified into one industry
segment: Cellular and Other Wireless Communications.
EMPLOYEES
At December 31, 2001, the Company had 258 employees. The Company's
employees are not represented by a collective bargaining agreement.
INFRASTRUCTURE AND OPERATIONS
Networks. The Company uses wireless data and/or voice technologies,
combined with GPS satellite technology, for all of its products. The Company's
strategy is to select and use wireless networks that provide the "best fit" for
each product and application or specific customer need.
The March 15, 2002 Sale to Aether of certain assets and related license
rights included the Company's Platinum Service software solution, 20/20V(TM),
and TrackWare(R) asset and trailer-tracking products. In addition, @Track and
Aether agreed to form a strategic relationship with respect to @Track's
long-haul customer products, pursuant to which @Track will assign to Aether all
service revenues generated post-closing from its HighwayMaster Series 5000
(HM5000) customer base. Aether, in turn, has agreed to reimburse @Track for the
network and airtime service costs related to providing the HM5000 service. The
Sale did not include @Track's NSC.
Series 5000 Mobile Units. These units use circuit-switched analog
cellular technology for transmitting location, as well as other information, to
the Company's Network Services Center ("NSC"). The NSC then routes the data to
the appropriate destination, which may be a customer's dispatcher workstation
for data or any other telephone for voice communication. In addition, these
units take advantage of the Company's patented Advanced Cellular Transmission
Technology ("ACTT"). ACTT is a one-way data communication technology from the
mobile unit back to the NSC. ACTT takes advantage of unused fields in the
cellular control channel to provide very short
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data bursts suitable for providing status updates of vehicle location
information. The primary benefit of ACTT is reduced cost to the customer and the
Company. The Company believes that analog cellular technology provides the best
ubiquitous coverage for over-the-road vehicles that travel across the United
States. As digital technologies further penetrate existing cellular
infrastructure, digital cellular networks may become a viable alternative for
over-the-road vehicles.
Series 5005S Mobile Units. For service vehicles, as part of the
Company's "best fit" strategy, these units also may be integrated with a global
system for mobile communications ("GSM") telephone utilizing the 1900 MHz
frequency, where required. GSM is a digital technology developed in Europe and
has been adapted for North America. GSM is the most widely used digital standard
in the world. Since service vehicles primarily operate in urban areas, these
digital networks provide appropriate coverage.
VMI. The VMI technology uses a GSM digital network. Currently, there
are three major carriers providing GSM coverage in the United States;
Voicestream, Cingular and AT&T Wireless, providing coverage in the major
metropolitan areas in the United States. These carriers have announced joint
arrangements to continue to expand GSM coverage in the United States, including
interoperability among the three carriers. The Company believes the coverage,
bandwidth and price of the GSM network is best suited for the VMI technology.
TrackWare and 20/20V Product. The TrackWare Remote Unit and 20/20V unit
use proprietary overhead control channel technology to provide short two-way
data messages on a national basis. This network is provided by a third party
provider, Cellemetry LLC, and the Company's NSC which has been adapted to
integrate with the Cellemetry network.
Network Services Center. The Company's NSC provides switching services
among each Series 5000 and 5005S Mobile Unit (hereinafter collectively referred
to as "Mobile Unit" or "Mobile Units"), the nationwide network of cellular
providers, the customer's dispatcher workstation and the nationwide landline
telephone network. The NSC is capable of processing, storing and transmitting
data and provides a gateway for the Cellemetry network to enable transmission of
data to customers. Additionally, voice communications are routed from each
Series 5000 Mobile Unit through @Track's nationwide enhanced-services network to
the NSC, which automatically completes the call through the public telephone
network to the end user. Voice communications from the customer's dispatcher or
personal calls for the driver are routed through a toll-free telephone number to
the NSC, which completes the call through the appropriate wireless cellular
system for the region in which the truck is operating. Data packets from the
host or a Mobile Unit are stored in the NSC, and then transmitted in
cost-effective batches. Time-critical information, as configured by the
customer, is immediately transmitted to the receiving party. The NSC records
data from each transmission, generates a call record and processes the
information into customer billing records.
Call Routing. Each time a Mobile Unit travels into a new cellular
metropolitan statistical area ("MSA") or rural statistical area ("RSA"), it
automatically registers with the cellular carrier under contract with the
Company. The cellular carrier routes the message to Telecommunications Services
Incorporated, formerly GTE-TSI ("TSI"). Pursuant to a contract with the Company,
TSI provides the NSC with call delivery information utilized by the NSC to
deliver calls to the Mobile Unit as it travels through a new MSA or RSA.
Navigation Technology. GPS technology allows customers to identify the
location of any asset at any time via satellite. GPS is operated by the United
States government and broadcasts navigational information from a network of
dedicated satellites orbiting the earth. GPS navigational receivers interpret
signals from multiple satellites to determine the receiver's geographical
coordinates, elevation and velocity. GPS navigational signals can be received
worldwide, without adaptation of the receiver unit to foreign standards. @Track
believes that the network of GPS navigational satellites will be maintained by
the United States Defense Department in an operational status for the
foreseeable future. Although stand-alone GPS units are available for purchase by
any consumer at relatively low cost, the Company believes that raw navigational
information is of little use in tracking assets unless the GPS receiver is
integrated with a computer system, such as the Company's mobile communication
units, to record routes traveled relative to mapped roadways or to transmit
position reports to a central dispatcher.
@Track believes that its use of government-operated GPS satellites
differs substantially from competitors' use of satellites for two-way
communications. GPS satellites send one-way signals to mobile receivers,
allowing the Company's products to plot their geographical coordinates. GPS
satellites are not capable of two-way
7
communication, and no charges are assessed to users of the GPS services. For
two-way mobile communications, the Company relies exclusively on terrestrial
wireless systems. The Company's primary competitor utilizes leased or owned
communication satellites for two-way data communications, incurring costs
associated with ownership or leasing of satellite communication capacity.
Wireless Infrastructure. The Federal Communications Commission ("FCC")
has provided for a two-operator duopoly in each cellular market. Only two
licenses were awarded to provide cellular service in any specific cellular MSA
or RSA. One of the two licenses in each market was initially awarded to a
company or group that was affiliated with a local landline telephone carrier in
the market (the "Wireline" or "B-Side" license) and the other license in each
market was initially awarded to a company, individual or group not affiliated
with any landline telephone carrier (the "Non-Wireline" or "A-Side" license).
However, once a license was awarded, the license holder could sell the license
to another qualified entity, including the sale of "B-Side" licenses to groups
not affiliated with the landline telephone carrier, and the sale of "A-Side"
licenses to a landline telephone carrier. @Track's system utilizes both the
A-Side and B-Side carriers in its coverage areas, and has agreements with both
A-Side and B-Side carriers in approximately 75% of its markets, allowing system
redundancy and greater flexibility. In addition to cellular licenses, the FCC
has issued up to six licenses in each market for the 1.9 megahertz ("PCS")
spectrum. PCS is generally available in certain metropolitan markets and
surrounding areas.
A number of cellular carriers are in the process of upgrading from
existing analog cellular systems to enhanced systems utilizing digital
technology. However, the Company believes that the large number of analog
telephones already owned by cellular subscribers will ensure that cellular
telephone operators continue to offer services to existing analog users
concurrently with digital users over an extended phase-in period that exceeds
the expected useful life of the current analog Mobile Units.
STRATEGIC SERVICE ALLIANCES OF THE COMPANY
Wireless Carriers. The Company has established a network for the United
States that offers mobile communication coverage in 98% of the available
wireless service areas in the United States (which covers approximately 95% of
the United States interstate highway system) and 100% of the A-Side coverage in
Canada. The Company has agreements in place with 66 wireless carriers, including
all the regional Bell operating companies, AT&T Wireless Inc. and Rogers Cantel,
Inc., in 706 markets in the United States and Canada. The Company has entered
into contracts with both A-side and B-side carriers in approximately 75% of
United States wireless coverage regions. In most cases, current terms of
contracts between the Company and each of its cellular carriers are generally
for one year, with automatic one-year successive renewal terms unless either
party elects to terminate the contract upon 30-day notice prior to the end of
the term. The Company has recently executed new contracts with certain of its
wireless carriers that are substantially similar to the existing contracts
except that they provide for an initial three-year term. The Company's
agreements with wireless carriers provide that the Company will not be required
to reimburse carriers for fraudulent usage unless the carriers have fully
implemented the Company's protocol. Although the Company's protocol has been
effective in preventing fraud to date, there can be no assurance that this will
be the case in the future.
Certain of the Company's contracts with wireless carriers only permit
the Company to utilize their cellular networks to provide mobile communications
services to vehicles engaged in long-haul transportation and certain
recreational uses so long as such vehicles travel outside of their home areas
for specified periods of time.
TSI. TSI provides clearinghouse functions to the cellular industry,
creating the data link between a foreign network and a traveling vehicle's home
cellular service area, performing credit checking functions and facilitating
roamer incoming call delivery functions. The Company's contract with TSI covers
certain functions that are critical to the Company's ability to instantly
deliver calls nationwide. It covers an initial term that began on May 3, 1999
and ends on April 15, 2004. Following the expiration of the initial term, either
party to the agreement may terminate the agreement for convenience upon six
months prior written notice. See the "Risk Factor" on page 13 relating to the
TSI agreement.
Tekelec. Tekelec, formerly IEX Corp., designed, tested and constructed
the NSC. The NSC constitutes a critical link in providing certain enhanced call
processing and data management services and is necessary for the Company to
receive, store and route voice and data transmissions to and from its customers.
The Company
8
currently has a three-year software maintenance and support agreement with
Tekelec that expires on December 31, 2003. See the "Risk Factors" on page 13
relating to the NSC.
Cingular Wireless LLC. On March 30, 1999, the Company and Southwestern
Bell Mobile Systems, Inc., now known as Cingular Wireless LLC ("Cingular"),
executed an Administrative Carrier Agreement with an initial term of three years
that automatically renews for five additional consecutive one-year terms under
which Cingular provides to the Company clearinghouse services and cellular
service. See the "Risk Factor" on page 14 regarding risks associated with this
relationship.
Alarm Monitoring Services. On May 25, 2000, the Company and Criticom
International Corporation ("CIC") entered into a Monitoring Services Agreement
with an initial term of three years that automatically renews for successive
two-year terms pursuant to which CIC provides certain panic alarm monitoring
services for the Company in connection with the Company's obligations to the SBC
Companies. See the "Risk Factor" on page 13 relating to the CIC relationship.
Key Suppliers. The Company does not manufacture or assemble its
products. The Company purchases its VMI products from manufacturers retained by
Minorplanet Systems PLC as per the Exclusive Distribution and License Agreement
entered into on June 21, 2001 with Minorplanet. The Company also subcontracts
for the manufacture of its other products from various suppliers.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company has obtained 40 United States patents and 9 foreign patents
and has applied for additional United States and foreign patents. In general,
the Company's existing patents cover the Company's innovative and novel
utilization of the existing wireless infrastructure as well as the particular
operational features and functionality of the Company's products and services.
The Company's software is also protected under patents, federal and state trade
secret law and federal copyright law. See the "Risk Factor" on page 16 relating
to risks associated with the Company's intellectual property.
RESEARCH AND DEVELOPMENT
The Company now relies on Minorplanet for research and development for
new products and services. Pursuant to the Exclusive License and Distribution
Agreement with Minorplanet, the Company is charged $1 million per year to
Minorplanet for research and development. This charge is subject to review and
increase annually. See the "Risk Factor" on page 15 regarding research and
development reliance.
REGULATION
The Company's products and services are subject to various regulations
promulgated by the FCC that apply to the wireless communications industry
generally. The Company's Mobile Units and its TrackWare(R) Units must meet
certain radio frequency emission standards so as to avoid interfering with other
devices. The Company relies on the manufacturer of the cellular transceiver
components of the Mobile Units and the TrackWare(R) Units to carry out
appropriate testing and regulatory compliance procedures regarding the radio
emissions of the cellular transceiver component.
The FCC also controls several other aspects of the wireless industry
that affect the Company's ability to provide services. The FCC controls the
amount of radio spectrum available to cellular carriers, which could eventually
limit growth in cellular carrier capacity.
The FCC also regulates telecommunications service providers or common
carriers, requiring approval for entry into the marketplace and regulating the
service rates offered through tariff filing requirements. Additionally, most
state regulatory commissions regulate rate and entry for telecommunications
service providers. In order to encourage growth within the information services
segment of the telecommunications industry, the FCC issued an order creating the
enhanced services exemption from regulation. In general, providers of enhanced
services are not subject to regulation by the FCC or the various state
regulatory agencies. Services qualify as enhanced services if data is
transmitted between the provider and customer so that the customer is able to
interact with or manipulate the data regardless of whether the services provided
include telecommunications transmission components, such as wireless or long
distance services. The Company believes that the services it provides to its
customers in connection with the Mobile Units and TrackWare(TM) Units qualify as
enhanced services and are exempt from both FCC and state
9
regulation. Alternatively, the Company believes that its services may be
characterized as a private network not offered to the public at large but
offered to specific group of users, which management believes should also serve
to exempt the Company from FCC and state regulation.
The wireless telecommunications industry currently is experiencing
significant regulatory changes that may require a re-examination of laws and
regulations applicable to the Company's operations. The Company's services may
be characterized by the FCC as Commercial Mobile Radio Services ("CMRS"). If the
Company's services are classified as CMRS, the Company may be subject to FCC
regulation as a telecommunications service provider. However, the FCC has
decided to forbear from most regulation of the CMRS marketplace, including
regulation of the rates and terms of entry for interstate services offered by
CMRS providers. In addition, the U.S. Congress has preempted state regulation of
CMRS entry and rates. FCC decisions thus far have enhanced the development of
CMRS, including requiring local telephone companies to offer interconnection and
access to their networks to CMRS providers and to establish reciprocal
compensation arrangements with CMRS providers for the transportation and
termination of calls at prices that are cost-based and reasonable.
If any services offered by the Company are determined to be
telecommunications services by the FCC, the revenues generated from these
services would be subject to the required contribution to the federal universal
service fund. At this time, revenues generated from the Company's services that
meet the definition of enhanced services are not subject to FCC-mandated
universal service fund contribution. However, based on a conservative
interpretation, the Company has reported certain revenues generated by the
personal calling plan service offered by the Company as a telecommunications
service for purposes of federal universal service fund contribution filings.
Various states have instituted their own universal service fund mechanisms which
may or may not follow the federal statutes in exempting revenues generated by
enhanced services. The Company cannot predict the impact of any future
requirements to contribute to state and federal universal service mechanisms.
See the "Risk Factor" on page 14 relating regarding these risks.
Long-distance providers face regulatory schemes similar to cellular
carriers, with greater state involvement in requiring posting of bonds as
security against customer deposits and in other matters. The Company believes
current long-distance regulations apply to those companies providing
long-distance services directly to its customers, without long-distance
regulatory involvement by the Company.
RECAPITALIZATION TRANSACTION
On June 21, 2001, the Company consummated the stock issuance
transactions approved by the Company's stockholders at the annual meeting on
June 4, 2001. As a result of the closing of transactions contemplated by the
Purchase Agreement, the Company issued 30,000,000 shares of the its common
stock (post reverse stock split) in a change of control transaction to
Minorplanet, which is now the majority stockholder of the Company. In exchange
for this stock issuance, Minorplanet paid the Company $10,000,000 in cash and
transferred to the Company all of the shares of its wholly-owned subsidiary,
Minorplanet Limited, which holds an exclusive, royalty-free, 99-year license to
market, sale and operate Minorplanet's vehicle management information technology
in the United States, Canada and Mexico. Minorplanet raised the $10,000,000 cash
proceeds from a private placement of its shares in the United Kingdom.
Minorplanet now beneficially owns approximately 62.4% of the outstanding shares
of the Company's common stock (on a non-fully diluted basis), which is now the
sole voting security of the Company.
Also, the Company issued 12,670,497 shares of its common stock (valued
at $1.60 per share) to holders of its Senior Notes due 2005 ("Senior Notes"), in
exchange for the cancellation of Senior Notes with an aggregate principal amount
of $80,022,000 (the "Exchange Offer"). The total principal amount of Senior
Notes that remains outstanding is $14,333,000. The foregoing stock issuance
transactions are hereinafter collectively referred to as the "Recapitalization."
As a result of the Recapitalization, the Company significantly reduced its
indebtedness and related interest expense. In addition, the Company acquired the
VMI technology and commenced distribution of Minorplanet's VMI product in the
United States.
Pursuant to the Purchase Agreement, the Company appointed two
additional directors to the Company's board of directors that were designated by
Minorplanet: Messrs. Robert Kelly and Andrew Tillman. The Purchase Agreement
provides that Minorplanet has the right to designate two of the seven directors
in the future (the "Investor Directors"), and to maintain proportionate
representation on the board of directors and its committees. However, given
Minorplanet's current ownership, it has the right to elect all seven directors
if it decides to do so in the future.
10
In addition, the Purchase Agreement also provides that so long as Minorplanet
has the right to designate Investor Directors (i.e., it owns at least 5% of the
outstanding common stock of the Company), none of the following actions may be
taken unless approved by all of the Investor Directors:
o any capital expenditure by the Company that is not contemplated in any
current annual budget which exceeds $200,000;
o the hiring and firing of any Company officer or senior executive
reporting to the chief executive officer who has an annual salary of
$130,000 or more, or entering into employment agreements with these
individuals or amendments to existing agreements;
o the direct or indirect redemption, purchase or making of any payments
with respect to stock appreciation rights and similar types of stock
plans;
o the sale, lease or transfer of any assets of the Company representing
5% or more of the Company's consolidated assets, or the merger,
consolidation, recapitalization, reclassification or other changes to
the capital stock of the Company; except as required under law, the
taking or instituting of bankruptcy or similar proceedings;
o the issuance, purchase, acquisition or redemption of any capital stock
or any notes or debt convertible into equity;
o the acquisition of another entity;
o the entering into any agreement or contract which commits the Company
to pay more than $200,000;
o the amendment of the Company's Certificate of Incorporation or Bylaws
that would adversely affect holders of the Company's common stock or
Minorplanet's rights under the Purchase Agreement;
o the exiting of, or entering into a different line of business;
o the incurrence of any indebtedness or liability or the making of any
loan except in the ordinary course of business;
o the placing of any lien on the Company's assets or properties; or
o the adoption or implementation of any anti-takeover provision that
would adversely affect Minorplanet.
ASSET SALE
On March 15, 2002, @Track completed the Sale to Aether of certain
assets and licenses related to @Track's long-haul trucking and asset-tracking
businesses whereby @Track 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, @Track and Aether agreed to form a
strategic relationship with respect to @Track's long-haul customer products,
pursuant to which @Track will assign to Aether all service revenues generated
post-closing from its HighwayMaster Series 5000 (HM5000) customer base. Aether,
in turn, has agreed to reimburse @Track for the network and airtime service
costs related to providing the HM5000 service. The two companies have also
agreed to work jointly in the adaptation of the Minorplanet's VMI technology for
the potential distribution of VMI by Aether to the long-haul-trucking market.
As consideration for the Sale, @Track received $3 million in cash, of
which $1 million will be held in escrow and released to @Track over a 12-month
period. @Track also received a note for $12 million payable, at the option of
Aether, in either cash or convertible preferred stock in three equal
installments of $4 million on April 14, May 14, and June 14, 2002. The preferred
stock may then be converted to common stock using a prescribed formula that
compensates for fluctuations in the stock price so that @Track will be able to
convert and sell in the open market Aether common stock equal to $12 million.
The consideration for the Sale was determined through arms length negotiation
between @Track and Aether. See the Form 8-K filed by the Company on March 27,
2002 which is
11
incorporated by reference herein and Footnote No. 20 to Consolidated Financial
Statements attached hereto for additional information regarding the Sale and
related transactions.
APPOINTMENT OF NEW DIRECTOR
At the March 22, 2002 meeting of the Company's board of directors, upon
nomination by the nominating committee of the board of directors, the Company's
board of directors approved an increase in the size of the board of directors to
eight (8) members, and appointed Michael Beverley as a director to the Company's
board of directors.
RISK FACTORS
Forward-Looking Statements.
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), 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.
In some cases, you can identify these forward-looking statements by words such
as, "anticipate," "believe," "estimate," "expect," "may," "could," "intend,"
"predict," "potential" 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 risk factor
section, as well as those discussed elsewhere in this Form 10-K or in the
documents incorporated herein by reference.
The Company has operated at a significant loss in recent periods and we
anticipate that such losses may continue in the near future.
The Company has incurred significant operating losses since inception
and has limited financial resources to support it until such time that it is
able to generate positive cash flow from operations. As a result of the
Recapitalization, the Company has reduced its Senior Notes due in 2005 in the
principal amount of $80,022,000 and its related annual cash outflow for interest
service by $11,002,000, which will extend its financial viability. In addition,
the Company believes the acquisition of the License Rights will provide the
Company significant marketing potential of the licensed tracking VMI technology,
enhancing future results of operations and reducing the need for capital
resources to develop similar tracking technology. In addition, as a result of
the transaction between the Company and Aether, for the sale of certain assets
and licenses related to @Track's long-haul trucking and asset-tracking
businesses, the Company will receive cash proceeds of approximately $15,000,000.
Moreover, Aether has agreed to reimburse @Track for the network and airtime
service costs related to providing the HM5000 service (see Footnote No. 20 to
Consolidated Financial Statements attached hereto). The critical success factor
in Management's plans to achieve positive cash flow from operations is to
achieve significant market acceptance of the VMI product line.
Based on projected operating results, the Company believes its existing
capital resources will be sufficient to fund its currently anticipated operating
needs and capital expenditure requirements for the next 18 months assuming it
can achieve the critical success factor outlined above. However, the Company's
future cash flow from operations and operating requirements may vary depending
on a number of factors, including acceptance in the marketplace of the Company's
products, the level of competition, general economic conditions and other
factors beyond the Company's control.
We expect such losses to continue in the near future as the Company
continues with its expansion plans for the VMI product line.
A natural disaster, terrorist attack or similar event could significantly hinder
the delivery of the Company's services to its customers due to the lack of an
effective remote back-up communications system.
Currently, the Company's disaster recovery systems focus on internal
redundancy and diverse routing around and within the NSC operated by the
Company. The Company does not currently have access to a remote
12
back-up complex that would enable it to continue to provide mobile
communications services to customers in the event of a natural disaster or other
occurrence that rendered the NSC unavailable. Accordingly, the Company's
business is subject to the risk that such a disaster, terrorist attack or other
occurrence could hinder or prevent the Company from continuing to provide
services to some or all of its customers. See "Business -- Infrastructure and
Operations."
If the Company's sole provider of software maintenance and support for the
Company's NSC becomes unable to provide such services, the Company's future
business and financial condition could be adversely affected.
The Company operates and maintains the NSC that was previously operated
and maintained by Tekelec. The Company has limited experience maintaining and
supporting the NSC and its software and hardware systems. The Company currently
has limited internal abilities to provide software maintenance and support for
the NSC and must rely primarily on the third party services provided by Tekelec
pursuant to a three-year term software maintenance and support agreement entered
into by the Company with Tekelec on December 28, 2000. If the Company is unable
to renew the software maintenance and support agreement with Tekelec, and any
significant performance or other operational problems occur with the NSC, the
Company may be unable to resolve such issues and such failure may have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business - Infrastructure and Operations."
If the Company's sole provider of alarm-monitoring services for SBC becomes
unable to provide such services in support of the Company's SBC Contract, the
Company's costs to obtain this service could increase, or the Company may be
forced to expend funds to develop this service itself.
The Company relies on CIC as its sole provider of certain alarm
monitoring services to the SBC Companies as required by the SBC Contract. The
contract has an initial term of three years and automatically renews for
successive two-year terms unless terminated by either party on 120 days notice.
While the Company has no reason to believe that this contract will not be
renewed by CIC, it is possible that CIC could fail to renew the contract in an
attempt to renegotiate higher rates to be paid by the Company. If the Company is
unable to renew its Monitoring Services Agreement with CIC or renew it with
rates similar to the current rates paid by the Company under the contract, the
Company may be required to develop its own alarm monitoring center, including
obtaining the required licenses, or execute an agreement with another alarm
monitoring services provider, which agreement may not be available on
commercially acceptable terms. As the Company has limited resources, it may be
unable to develop its own monitoring services center. This could have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company relies on cellular service agreements to deliver its vehicle
tracking services that have fairly short terms, and the failure by the Company
to renew or replace these agreements as they expire could increase the cost to
the Company of delivering its services.
The Company utilizes the existing cellular telephone infrastructure,
with certain enhancements, as the wireless segment of the @Track network. In
most cases, current terms of contracts between the Company and each of its
cellular carriers are for one year, with automatic one-year successive renewal
terms, unless either party elects to terminate the contract upon 30 days notice
prior to the end of the term. The Company has executed new contracts with
certain of its cellular carriers that are substantially similar to the existing
contracts, except that they provide for an initial three-year term. In order to
continue to provide mobile communications services to its customers, the Company
must continue to renew its agreements with individual cellular carriers. A
failure on the part of the Company to renew or replace its contracts with
cellular carriers at rates similar to those charged to its competitors could
have a material adverse effect on its business, financial condition and results
of operations.
As the Company heavily relies on TSI to provide essential clearinghouse
services, its inability to renew its agreements with TSI could force the Company
to make costly design changes to the @Track network.
TSI provides clearinghouse functions to the cellular industry, creating
the data link between a foreign network and a traveling vehicle's home cellular
service area, performing credit checking functions and facilitating roamer
incoming call delivery functions. The Company's contract with TSI covers certain
functions that are critical to the Company's ability to instantly deliver calls
nationwide. It covers an initial term that began on May 3, 1999 and ends on
April 15, 2004. Following the expiration of the initial term, either party to
the agreement may terminate
13
this agreement for convenience upon six months prior written notice. A failure
in the TSI network could have a material adverse effect on the Company's
business, financial condition and results of operations.
As the Company relies on Cingular for various cellular clearinghouse services,
its inability to renew its agreement with Cingular could significantly increase
the Company's cost of obtaining this necessary service.
On March 30, 1999, the Company and Southwestern Bell Mobile Systems,
Inc., now known as Cingular Wireless, executed an Administrative Carrier
Agreement whereby Cingular provides clearinghouse services to the Company,
including the direct payment of the Company's cellular service providers for
cellular airtime through the cellular clearinghouse process. The Agreement
provides for an initial term of three years that automatically renews for five
additional consecutive one-year terms. While the Company has no reason to
believe that Cingular will not renew the Agreement, it is possible that Cingular
will attempt to renegotiate higher rates for the services which it provides at
the time of renewal. If the Company is unable to negotiate commercial reasonable
rate increases, the Company's service margins could be reduced substantially. If
the Company is unable to renew because it cannot reach agreement on commercially
reasonable rate increases, the failure to renew this contract and continue
existing arrangements for payment to the Company's cellular service providers
could require the Company to post security deposits or provide other financial
assurances, which could have a material adverse effect on its business,
financial condition or results of operations. Cingular also provides the
Company's customers with analog cellular service as per a Cellular Service
Agreement originally entered into on June 7, 1993 and last amended on May 7,
1999 for a three year term with automatic renewal for successive one year terms
unless either party provides a minimum of 90 days written notice of intent to
terminate. See "Business -- Infrastructure and Operations."
If the Company's services are deemed to be certain telecommunication services
due to FCC and other state regulations, the Company would have to begin paying
into state and federal universal service contribution funds.
If any services offered by the Company are determined to be
telecommunications services by the FCC, the revenues generated from these
services would be subject to the required contribution to the federal universal
service fund. At this time, revenues generated from the Company's services that
meet the definition of enhanced services are not subject to FCC mandated
universal service fund contribution. However, based on a conservative
interpretation, the Company has reported certain revenues generated by the
personal calling plan service offered by the Company as a telecommunications
service for purposes of federal universal service fund contribution filings.
Various states have instituted their own universal service fund mechanisms that
may or may not follow the federal statutes in exempting revenues generated by
enhanced services. The Company cannot predict the impact of any requirement to
contribute to state and federal universal service mechanisms.
Long-distance providers face regulatory schemes similar to cellular
carriers, with greater state involvement in requiring posting of bonds as
security against customer deposits and in other matters. The Company believes
current long-distance regulations apply to the companies providing long-distance
services directly to Company customers, without long-distance regulatory
involvement by the Company. The reclassification of the Company's services as
long distance services could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company depends heavily on its key personnel, and the loss of one or more of
these individuals could have a material adverse effect on the Company.
The Company is dependent on the efforts of:
o Jana Bell, President and Chief Executive Officer;
o W. Michael Smith, Executive Vice President and Chief Financial Officer;
o Todd Felker, Senior Vice President - Sales & Marketing;
o J. Raymond Bilbao, Senior Vice President, General Counsel and Secretary;
o David Bagley; Vice President - Network Operations;
o Ron Thompson, Vice President - Operations; and
o a group of employees with technical knowledge regarding the Company's
systems.
14
The Company has one-year term employment agreements with Ms. Bell, and
Messrs. Smith, Felker, and Bilbao. The initial one-year term of these employment
agreements expires on June 21, 2002. The loss of services of one or more of
these individuals could materially and adversely affect the business of the
Company and its future prospects. The Company does not maintain key-man life
insurance on any of the Company's officers or employees. The Company's future
success will also depend on its ability to attract and retain additional
management and technical personnel required in connection with the growth and
development of its business.
The Company is dependent on third parties for its research and development
associated with the VMI products.
The Company is dependent on third party research and development to
provide modifications, upgrades and new product versions for the VMI product.
The timeliness and quality of these development efforts are not in the direct
control of the Company. The failure of the third party to provide timely and
quality changes to the VMI product could have material adverse effect on the
Company's business, financial condition and results of operations.
The Company's current business plan contemplates significant expansion, which
the Company may be unable to manage.
To the extent that the Company is successful in implementing its
business strategy, the Company may experience periods of rapid expansion in the
future. In order to manage growth effectively in the complex environment in
which it operates, the Company will need to maintain and improve its operating
and financial systems and expand, train and manage its employee base. In
addition, the Company must carefully manage production and inventory levels to
meet product demand and facilitate new product introductions. Inaccuracies in
demand forecasts could result in insufficient or excessive inventories and
disproportionate overhead expenses. The Company must also expand the capacity of
its sales, distribution and installation networks in order to achieve continued
growth in its existing and future markets. In general, the failure to manage
growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
Most of the Company's sales are derived from a few customers, the loss of one or
more of which could significantly reduce the Company's sales and revenue.
The SBC Companies, Wal-Mart Stores East, Inc. and its affiliated
companies, and Contract Freighters, Inc. collectively account for approximately
66% of the Company's installed base network services subscribers as of December
31, 2001. The term of the Company's contract with the SBC Companies expires on
December 31, 2002 while the term of the Company's contract with Wal-Mart expires
on June 14, 2003. The term of the Company's contract with Contract Freighters,
Inc. expires on June 30, 2003. While the Company expects to renew such
contracts, there can be no assurances that the Company will be able to renew
such contract on commercially reasonable terms or at all. The loss of SBC, or
any event, occurrence or development which adversely affects the relationship
between the Company and SBC, could have a material adverse effect upon the
Company's business, financial condition and results of operations.
The March 15, 2002 Sale of certain assets to Aether included the
transfer of assets and related license rights to its Platinum Service software
solution, 20/20V(TM), and TrackWare(R) asset and trailer-tracking products. In
addition, @Track and Aether agreed to form a strategic relationship with respect
to @Track's long-haul customer products, pursuant to which @Track will assign to
Aether all service revenues generated post-closing from its HM5000 customer base
including the revenue generated from the Company's contracts with Wal-Mart
Stores East, Inc., its affiliated companies and Contract Freighters, Inc.
Aether, in turn, has agreed to reimburse @Track for the network and airtime
service costs related to providing the HM5000 service. The two companies have
also agreed to work jointly in the adaptation of the Minorplanet's VMI
technology for the potential distribution of VMI by Aether to the
long-haul-trucking market. See the Form 8-K filed by the Company on March 27,
2002 which is incorporated by reference herein and Footnote No. 20 to
Consolidated Financial Statements attached hereto.
Substantial product liability claims could have a material adverse effect on the
Company by creating additional costs to the Company to pay and/or settle these
claims.
Testing, manufacturing and use of the Company's products entail the
risk of product liability. Although management believes its Mobile Units offer
safety advantages over conventional cellular telephones, it is possible that
operation of the product may give rise to product liability claims. Product
liability claims present a risk of
15
protracted litigation, substantial money damages, attorney's fees, costs and
expenses, and diversion of management attention. In addition, as the Company
expands its business to include the provision of alarm monitoring services in
connection with the SBC Contract, the Company is exposed to an increased risk of
litigation regarding various safety, performance and other matters. Product
liability claims that exceed policy limits applicable to the Company's liability
insurance or that are excluded from the policy coverage could have a material
adverse effect on the business or financial condition of the Company.
The Company does not expect to pay dividends in the foreseeable future.
The Company has never paid cash dividends on its Common Stock and has
no plans to do so in the foreseeable future. The Company intends to retain
earnings, if any, to develop and expand its business.
The price of the Company's common stock is volatile.
Historically, the market prices for securities of emerging companies in
the telecommunications industry have been highly volatile. Future announcements
concerning the Company or its competitors, including results of technological
innovations, new commercial products, financial transactions, government
regulations, proprietary rights or product or patent litigation, may have a
significant impact on the market price of the Company's common stock. The
Company's stock price has been highly volatile in recent periods.
The Company may not be able to adequately protect its patents and other
proprietary technology, and its rights may be challenged by others.
The Company's services are highly dependent upon its technology and the
scope and limitations of its proprietary rights therein. In order to protect its
technology, the Company relies on a combination of patents, copyrights and trade
secret laws, as well as certain customer licensing agreements, employee and
third-party confidentiality and non-disclosure agreements, and other similar
arrangements. If the Company's assertion of proprietary rights is held to be
invalid or if another party's use of the Company's technology were to occur to
any substantial degree, the Company's business, financial condition and results
of operations could be materially adversely affected.
The patents and other intellectual property rights of the Company
cannot prevent competitors from developing competing systems using other
terrestrial wireless communications systems or using the cellular system through
a different method. While the Company believes that the nature and scope of the
Company's communications system, including the Company's strategic business and
technological relationships, would be difficult for a competitor to duplicate,
there can be no assurance that a competitor would consider these hindrances to
be material in light of the market potential. A competitor could invest time and
resources in an attempt to duplicate certain key features of the Company's
products and services, which could result in increased competition and have a
material adverse effect on the Company's business.
Several of the Company's competitors have obtained and can be expected
to obtain patents that cover products or services directly or indirectly related
to those offered by the Company. There can be no assurance that the Company is
aware of all patents containing claims that may pose a risk of infringement by
its products or services. In addition, patent applications in the United States
are confidential until a patent is issued and, accordingly, the Company cannot
evaluate the extent to which its products or services may infringe on future
patent rights held by others. In general, if it were determined that any of the
Company's products, services or planned enhancements infringed valid patent
rights held by others, the Company would be required to obtain licenses (which
might require the payment of royalties) to develop and market such products,
services or enhancements from the holders of the patents, to redesign such
products or services to avoid infringement, or cease marketing such products or
services or developing such enhancements. In such event, the Company also might
be required to pay past royalties or other damages. There can be no assurance
that the Company would be able to obtain licenses on commercially reasonable
terms, or that it would be able to design and incorporate alternative
technologies, without a material adverse effect on its business, financial
condition and results of operations.
The failure of wireless carriers to offer circuit switched data on GSM networks
may require the Company to retrofit its installed base of VMI units with VMI
units which utilize GSM/GPRS.
16
The Company's VMI product currently utilizes circuit-switched data on
existing GSM networks to transmit data messages. Several major U.S. wireless
carriers have indicated that they may cease to support circuit switched data on
their GSM networks but will require users to utilize General Packet Radio
Services ("GPRS") to transmit data messages on their GSM networks. Minorplanet
Systems PLC, the supplier of the Company's VMI product, is currently developing
a VMI product which utilizes GPRS instead of circuit switched data. The Company
anticipates that the GPRS version of the VMI product will be commercially
available in late 2002. If the U.S. wireless carriers fail to continue to
support circuit-switched data on their GSM networks and/or the Company fails to
obtain a GPRS-enabled VMI unit, such failures could have a material adverse
effect on its business, financial condition and results of operations.
The Company faces significant competition in the automatic vehicle location
marketplace.
The Company's vehicle management information product faces significant
competition from several other suppliers of similar products, some of which may
have greater financial and technological resources. The Company can provide no
assurance that its products will compete successfully with the products of its
competitors or that we will adapt to changes in the business, regulatory or
technological environment as successfully as the Company's competitors.
The Company may be unable to take advantage of the potential benefits of its
relationship with Minorplanet.
The success of the Company's business strategy depends upon the Company
successfully achieving infrastructure, product and development synergies derived
from the Company's application of the vehicle management information technology
and from the mutual leveraging by Minorplanet and the Company of our respective
core competencies. The Company can provide no assurance that the Company's new
vehicle management information products will gain market acceptance. The Company
can also provide no assurance that we can effectively utilize the prior
experience of Minorplanet in marketing to small and medium-sized companies that
manage service vehicle fleets, nor can we ensure that we will successfully
leverage the development experience and resources of Minorplanet. Finally, we
can provide no assurance that any access to GE Fleet Capital Services obtained
through the Company's relationship with Minorplanet will produce any contractual
or other relationship with GE Fleet Capital Services or their customers in a
manner beneficial to us. The factors that may affect the Company's ability to
successfully take advantage of the Company's potential synergies with
Minorplanet include:
o the ability of the Company's management to leverage the design and
development competencies of Minorplanet to ensure that the vehicle
management information technology has the features and functionality
to allow it to compete successfully in the Company's targeted markets;
o the ability of the Company's management to successfully deploy
products based on the vehicle management information technology that
deliver the functions and benefits sought by the Company's customers;
and
o the ability of the Company's management to combine their experiences
with the management of Minorplanet and design a strategy for
successfully penetrating the U.S. small and medium-sized service fleet
market.
If the Company is unable to take advantage of the potential benefits
derived from the Company's relationship with Minorplanet, its business,
financial condition and results of operations could be materially adversely
affected.
A small number of the Company's stockholders own a substantial amount of the
Company's shares of common stock, and if such stockholders were to sell those
shares in the public market within a short period of time, the price of the
Company's common stock on the Nasdaq SmallCap Market could drop significantly.
Minorplanet currently holds 30,000,000 shares of the Company's common
stock (approximately 62.4% of the Company's outstanding shares on a fully
diluted basis), 2,700,000 shares of which are eligible for resale under this
prospectus, and the selling stockholders other than Minorplanet collectively
hold 12,670,497 shares of the Company's common stock (approximately 26.4% of the
Company's outstanding shares on a fully diluted basis), of which 12,593,745
shares are eligible for resale under this prospectus upon the expiration of
certain lock-up restrictions. On December 18, 2001, 3,167,624 of these shares
were released from such restrictions. On March 18, 2002, an additional 3,167,624
shares were released, and on June 16, 2002, the balance of these shares will be
released. In addition, other stockholders also own substantial amounts of shares
of the Company's common stock.
17
Sales of a large number of shares of the Company's common stock or even the
availability of a substantial number of shares for sale could have the effect of
reducing the price per share of the Company's common stock on the Nasdaq
SmallCap Market, especially given that the Company's common stock is thinly
traded on that market.
ITEM 2. PROPERTIES
REAL PROPERTY AND LEASES
The Company does not own any real property. The Company leases
approximately 73,400 square feet of office space for its corporate headquarters
in Richardson, Texas, of which approximately 18,600 square feet is sub-leased to
another company. In addition, the Company leases approximately 25,000 square
feet of warehouse and office space in Plano, Texas.
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
In the first quarter of 2001, K*TEC Electronics Corporation ("K*TEC"),
the outsource manufacturer that supplies substantially all of the Company's
finished goods inventory asserted a claim against the Company for reimbursement
for excess and obsolete inventory purchased in its capacity for use in the
manufacture of the Company's products. Following review of the claim, the
Company believed that it had meritorious defenses to the alleged claim and
vigorously denied liability. In April 2001, K*TEC refused to ship products,
placing the Company on "credit hold," refused to ship finished goods unless the
Company prepaid for such finished goods, refused to ship finished goods unless
the Company paid the excess inventory balance, refused to manufacture goods, and
refused to process goods received under Return Merchandise Authorizations
("RMA's"). K*TEC also refused to return to the Company certain test equipment
and RMA equipment owned by the Company.
On May 18, 2001, the Company filed an Original Petition styled and
numbered @Track Communications, Inc, f/k/a HighwayMaster Corporation v. K-TEC
Electronics Corporation, Cause No. 01-04173 in the B44th District Court of
Dallas County, Texas seeking recovery against K*TEC for breach of contract,
breach of bailment and conversion, replevin, and also seeking a declaratory
judgment, an accounting, attorney's fees and costs of court (the "Dallas
Lawsuit").
On June 21, 2001 K*TEC filed an Original Petition styled and numbered
K*Tec Electronics Corporation, L.P. doing business as K*Tec Electronics v.
@Track Communications, Inc. formerly known as HighwayMaster Corporation, Cause
No. 01CV-119321 in the 268th District Court of Fort Bend County, Texas seeking
recovery against the Company for sworn account, breach of contract, promissory
estoppel, quasi-estoppel, equitable estoppel, quantum meruit, negligent
misrepresentation, attorney's fees and costs of court (the "Fort Bend Lawsuit").
On July 10, 2001, the Company and K*TEC reached agreement on all
material terms of settlement of the lawsuits subject to the execution of a
definitive settlement document. As per the settlement, the Company will continue
to utilize K*TEC as a manufacturer. On October 9, 2001, the Company and K*TEC
executed a Compromise Settlement Agreement. In accordance with the Compromise
Settlement Agreement, the parties have filed an Agreed Order Dismissing with
Prejudice both the Dallas Lawsuit and the Fort Bend Lawsuit. The $2.1 million
reserve for loss recorded in the Company's financial statements at December 31,
2001, reflects the Company's current estimate of the cost to be incurred to
resolve this matter.
The Company is involved in various claims and lawsuits incidental to
its business, primarily collections lawsuits in which the Company is seeking
payment of amounts owed to it by customers. In connection with the Company's
efforts to collect payments from a small number of former customers, such former
customers have on occasion alleged breaches of contractual obligations under
service agreements with the Company. The Company does not believe that these
claims and lawsuits will have a material adverse affect on the Company's
business, financial condition and results of operations.
18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the year 2001 covered by this report through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock was initially offered to the public on June
22, 1995, and was quoted on the Nasdaq National Market ("Nasdaq NMS") through
close of business on February 1, 1999, after which time it began trading on the
Nasdaq SmallCap Market ("Nasdaq SmallCap") under the symbol "HWYM." The
Company's common stock currently trades under the symbol "ATRK." The following
table sets forth the range of high and low trading prices on the Nasdaq SmallCap
Market, as applicable, for the Common Stock for the periods indicated. Such
price quotations represent inter-dealer prices without retail markup, markdown
or commission and may not necessarily represent actual transactions.
[Download Table]
BID PRICES
--------------------------
HIGH LOW
-------- --------
2000
First Quarter $ 11.80 $ 0.03
Second Quarter $ 6.00 $ 1.72
Third Quarter $ 2.41 $ 0.75
Fourth Quarter $ 1.69 $ 0.03
2001
First Quarter $ 1.31 $ 0.38
Second Quarter $ 1.90 $ 0.32
Third Quarter $ 1.79 $ 0.93
Fourth Quarter $ 1.65 $ 0.84
The prices of the Company's Common Stock for the second, third, and
fourth quarters of 2001 reflect a 1-for-5 reverse stock split which the Company
effected during the second quarter of 2001.
There were 94 registered holders of common stock and an estimated 3,800
broker/dealers who beneficially hold common stock on behalf of shareholders as
of March 20, 2002. The last sales price for the Company's Common Stock as
reported on March 20, 2001 was $3.09. The Company did not pay dividends on its
Common Stock for the year ended December 31, 2001 and has no plans to do so in
the foreseeable future.
On September 18, 1998, the SEC declared effective the Company's
registration statement on Form S-3 which was filed to register warrants and
warrant shares as required pursuant to the Warrant Registration Rights Agreement
entered into as part of the Company's 1997 Debt Offering. Under the terms of the
Warrant Registration Rights Agreement, the Company is obligated to use its best
efforts to keep the Registration Statement continuously effective until the
earlier of (i) the expiration of the warrants or (ii) the time when all warrants
have been exercised; provided, however, that during any consecutive 365-day
period, the Company may suspend the effectiveness of the registration statement
on up to two occasions for a period of not more than 45 consecutive days in
connection with a possible acquisition, business combination or other
development affecting the Company if the board of directors determines that
disclosure thereof would not be in the best interests of the Company. The
Company will not receive any proceeds from the sale of the warrants by the
selling warrant holders. To the extent that any warrants are exercised, the
Company will receive the exercise price for the warrant shares. During 2001, no
warrants were sold and no warrant shares were exercised.
19
The holders of the Company's common stock that acquired their shares
pursuant to the Purchase Agreement or the Exchange Offer transactions the
Company completed on June 21, 2001 are entitled to certain registration rights
pursuant to a registration rights agreement the Company also entered into with
these stockholders. Pursuant to this registration rights agreement, 15,293,745
shares of the Company's common stock (2,700,000 shares of which were owned by
Minorplanet) were registered for resale under a Form S-3 registration statement
that was declared effective with the SEC on October 23, 2001. On up to three
separate occasions, but no more than twice in any twelve-month period, the
holders of at least ten percent (10%) of the Company's shares that were
registered are entitled to request that the Company undertake an underwritten
offering of such shares if the proposed offering has anticipated aggregate
proceeds in excess of $10,000,000 at the time of the request. The Company is
required to keep this Form S-3 registration statement effective until any
holders entitled to sell shares of the Company's common stock under it are
otherwise entitled to sell such shares without restriction pursuant to Rule 144
under the Securities Act.
In addition to the registration rights described above, pursuant to
this registration rights agreement the holders of at least fifteen percent (15%)
of the then outstanding common stock issued pursuant to the Purchase Agreement
and Exchange Offer transactions are entitled to require the Company, on up to
five separate occasions, but no more than twice in any twelve-month period, to
register shares of the Company's common stock for resale if the proposed
offering has anticipated aggregate proceeds in excess of $10,000,000 at the time
the registration request is made. Also, subject to certain limitations, all of
these stockholders that are deemed to be parties to this registration rights
agreement are generally entitled to include such shares (a piggyback right) in
any transaction in which we sell our common stock to the public. The foregoing
registration rights are subject to limitations as to amount by the underwriters
of any offering and to black-out periods in which the Company's management may
delay an offering for a limited period of time.
Under the terms of the Purchase Agreement and a Lockup Agreement
executed by the exchanging noteholders in connection with the June 21, 2001
Exchange Offer, all of the selling stockholders (except for Minorplanet) have
agreed to certain contractual lock-up restrictions regarding the resale of the
shares they acquired in the Exchange Offer. These selling stockholders are
currently permitted to sell up to 50% of their respective shares that were
acquired in the Exchange Offer. On June 16, 2002, such stockholders will be free
to resell all of their shares subject to compliance with applicable securities
laws.
In connection with the closing of the transactions contemplated by the
Purchase Agreement, the stockholders approved Amendment Number 2 to the
Company's 1994 Amended and Restated Stock Option Plan (the "Plan") which
increased the number of shares of the Company's common stock available for
issuance (on a post reverse stock split basis) to 5,100,000 shares. Accordingly,
on October 10, 2001, the Company filed a Form S-8 registration statement
covering an additional 4,729,737 shares that may be issued under the Plan.
Sales of Unregistered Common Stock
On June 21, 2001, the Company made the following issuances of
unregistered shares of its common stock:
1. 30,000,000 shares of common stock were issued to Minorplanet in
connection with the closing of the transactions contemplated by the Purchase
Agreement.
2. 12,670,497 shares were issued to various former holders of the
Company's Senior Notes who exchanged their Senior Notes for shares of the
Company's common stock at an exchange rate of 158.97 shares (on a post reverse
stock split basis) per $1,000 of principal amount of Senior Notes surrendered in
the Exchange Offer which was conducted in connection with the transactions
contemplated by the Purchase Agreement.
None of the foregoing transactions involved any underwriters or any
underwriting discounts or commissions, and the Company believes that all of such
issuances were exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) of the Securities Act, based upon, among other things,
representations and warranties received from all such recipients of the
Company's common stock.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
The selected financial data set forth for each of the years 1997, 1998,
1999, 2000 and 2001 have been derived from audited financial statements,
including the balance sheets at December 31, 2001 and 2000 and the related
statements of operations, of cash flows and of changes in stockholders' equity
(deficit) for each of the three years in the period ended December 31, 2001 and
notes thereto appearing elsewhere herein. As a result of the adoption of SEC
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," as a cumulative effect change in accounting principle in 2000,
results for 2000 are not comparable to prior years.
21
[Enlarge/Download Table]
Year ended December 31, 2001 2000 1999 1998 1997
------------ ------------ ------------ ------------ ------------
(In thousands, except per share and operating data)
STATEMENT OF OPERATIONS DATA
Revenues:
Product $ 19,658 $ 41,971 $ 43,018 $ 16,950 $ 27,187
Ratable product 9,864 12,093 -- -- --
Service 47,958 48,066 52,655 46,463 27,445
------------ ------------ ------------ ------------ ------------
Total revenues 77,480 102,130 95,673 63,413 54,632
------------ ------------ ------------ ------------ ------------
Cost of revenues:
Product 15,239 30,031 34,752 13,222 22,133
Ratable product 8,236 10,006 -- -- --
Service 26,563 30,636 26,724 32,419 21,397
Provision for inventory reserve 4,693 -- -- -- --
Provision for settlement of litigation 2,100 -- -- -- --
------------ ------------ ------------ ------------ ------------
Total cost of revenues 56,831 70,673 61,476 45,641 43,530
------------ ------------ ------------ ------------ ------------
Gross profit 20,649 31,457 34,197 17,772 11,102
------------ ------------ ------------ ------------ ------------
Expenses:
General and administrative 12,482 12,478 14,706 22,875 11,872
Customer service 7,036 7,146 7,770 10,604 11,493
Sales and marketing 4,570 4,980 4,091 7,372 7,723
Engineering 5,166 4,345 2,685 5,399 4,604
Network services center 1,753 1,512 1,437 1,992 1,416
Severance and AutoLink termination costs -- -- (189) 5,357 --
Depreciation and amortization 7,438 5,907 6,551 5,829 2,684
------------ ------------ ------------ ------------ ------------
38,445 36,368 37,051 59,428 39,792
------------ ------------ ------------ ------------ ------------
Operating loss (17,796) (4,911) (2,854) (41,656) (28,690)
Interest income 501 1,371 2,037 4,827 2,500
Interest expense (7,355) (13,368) (13,422) (17,099) (4,857)
Other income (expense) -- 1,569 2,715 -- --
------------ ------------ ------------ ------------ ------------
Loss before income taxes, extraordinary item and
cumulative effect of accounting change (24,650) (15,339) (11,524) (53,928) (31,047)
Income tax provision -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item and
cumulative effect of accounting change (24,650) (15,339) (11,524) (53,928) (31,047)
Extraordinary item 59,461 -- -- 18,867 --
Cumulative effect of accounting change -- (5,206) -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 34,811 $ (20,545) $ (11,524) $ (35,061) $ (31,047)
============ ============ ============ ============ ============
Basic income (loss) per share:
Loss before extraordinary item and cumulative
effect of accounting change $ (0.88) $ (3.03) $ (2.31) $ (10.83) $ (6.24)
Extraordinary item 2.13 -- -- 3.79 --
Cumulative effect of accounting change -- (1.03) -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 1.25 $ (4.06) $ (2.31) $ (7.04) $ (6.24)
============ ============ ============ ============ ============
Diluted income (loss) per share:
Loss before extraordinary item and cumulative
effect of accounting change $ (0.87) $ (3.03) $ (2.31) $ (10.83) $ (6.24)
Extraordinary item 2.09 -- -- 3.79 --
Cumulative effect of accounting change -- (1.03) -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 1.23 $ (4.06) $ (2.31) $ (7.04) $ (6.24)
============ ============ ============ ============ ============
Weighted average number of shares outstanding
Basic 27,928 5,058 4,995 4,980 4,973
Diluted 28,406 5,058 4,995 4,980 4,973
OTHER FINANCIAL AND OPERATING DATA (unaudited)
Units installed at December 31, 70,932 67,336 50,825 47,657 33,122
Average monthly service revenue per unit ("ARPU") $ 57.80 $ 70.08 $ 82.54 $ 99.56 $ 85.54
22
[Enlarge/Download Table]
December 31, 2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA
Cash and short-term investments $ 14,889 $ 20,641 $ 17,768 $ 26,169 $ 46,486
Working capital 12,486 20,825 35,660 29,143 64,729
Network, equipment and software, net 8,583 12,851 15,703 20,649 15,482
Total assets 87,597 81,044 74,073 103,126 146,473
Notes payable 14,109 92,484 92,090 91,697 120,956
Stockholders' equity (deficit) 44,179 (58,341) (38,051) (26,791) 8,270
Capital expenditures $ 1,587 $ 2,600 $ 3,103 $ 10,520 $ 9,499
ITEM 7. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
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. There were no
significant revenues from TrackWare during 2000 or 2001. During the third
quarter of 2001, the Company commenced marketing the VMI product licensed from
Minorplanet into the automatic vehicle location ("AVL") marketplace in the
United States.
On June 4, 2001, the 1,000 shares of Class B Common Stock were
converted into 320,000 shares of Common Stock at the option of the sole holder
of those shares. On June 5, 2001, the Company effected a reverse stock split in
the ratio of one (1) share of post-split common stock for every five (5) shares
of pre-split common stock and amended the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock from 50,000,000
shares to 100,000,000 shares. All references to Common Stock and all per share
references for periods prior to the stock split have been restated to reflect
the 1- for -5 reverse stock split.
In addition, the Company created a new class of Series E Preferred
Stock and on June 5, 2001 issued one (1) share of Series E Preferred Stock. The
Series E Preferred Stock has a liquidation preference of $1,000 per share and is
entitled to the payment of annual dividends at the rate of 7% per share. The
Series E Preferred Stock does not have any voting, conversion or preemptive
rights.
On June 21, 2001, the Company consummated the stock issuance
transactions approved by the Company's stockholders at the annual meeting on
June 4, 2001. As a result of the closing of transactions contemplated by the
Purchase Agreement, the Company issued 30,000,000 shares of its common stock in
a change of control transaction to Minorplanet, which is now the majority
stockholder of the Company. In exchange for this stock issuance, Minorplanet
paid the Company $10,000,000 in cash and transferred to the Company all of the
shares of its wholly-owned subsidiary, Minorplanet Limited, which holds an
exclusive, royalty-free, 99-year license to market, sell and operate
Minorplanet's VMI technology in the United States, Canada and Mexico. As a
result of this transaction, Minorplanet beneficially owns approximately 62.4% of
the outstanding shares of the Company's common stock (on a non-fully diluted
basis), which is now the sole voting security of the Company. The "License
Rights" acquired are valued in the accompanying Consolidated Balance Sheet as an
asset purchase at an amount which reflects the fair value of the common stock
issued by the Company based on the market price of the Company's common stock on
23
the date of consummation of the transaction ($1.60 per share on June 21, 2001),
plus the incremental direct costs incurred in effecting the transaction.
Also, the Company issued 12,670,497 shares of its common stock (valued
at $1.60 per share) to holders of its Senior Notes, in exchange for the
cancellation of Senior Notes with an aggregate principal amount of $80,022,000
in the Exchange Offer. The total principal amount of Senior Notes that remains
outstanding is $14,333,000. As a result of this Exchange Offer, the Company
recognized a $59,461,000 gain, net of $995,000 of Federal income taxes and
$3,067,000 in the aggregate amount of unamortized debt discount and issuance
costs, and including $3,773,000 of waived accrued interest payable, which is
reflected as an extraordinary item in the accompanying Consolidated Statements
of Operations.
The foregoing stock issuance transactions are hereinafter collectively
referred to as the "Recapitalization." As a result of the Recapitalization, the
Company significantly reduced its indebtedness and related interest expense. In
addition, the Company acquired the VMI technology and commenced distribution of
Minorplanet's VMI product in the United States.
The Company earns revenues from service contracts and from related
products sold to customers (for which title generally passes on shipment). In
accordance with previously existing generally accepted accounting principles,
the Company generally recognized revenues from product sales and licensing of
product software at the time the mobile units were shipped to customers. During
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.
The Company sells mobile communications systems and related enhanced
mobile communications and management information services that are provided
through the Company's proprietary network. With respect to the Series 5000
mobile units sold to the Company's long-haul trucking customers, these units
function only when used in conjunction with the Company's proprietary network.
Accordingly, in accordance with these new interpretations, the Company changed
its product revenue recognition policy for sales to long-haul trucking
customers, to defer product revenue previously recognized upon shipment and
instead recognize such revenue ratably over the longer of the term of the
service contract or the estimated life of the customer relationship. Such terms
range from three to ten years. The product costs associated with these revenues
are also deferred and amortized over such period. The product revenues and
related costs are portrayed in the accompanying Consolidated Statements of
Operations as "Ratable Product Revenues" and "Ratable Product Costs,"
respectively.
Product revenues from sales of mobile units pursuant to the service
contract with SBC Companies, are recognized currently, after a brief acceptance
period, because these mobile units have different functionality that permit
their use on other than the Company's proprietary network.
As a result of the change in accounting principle described above, for
which restatement of prior years is not permitted, the Company's 2001 and 2000
revenues and cost of revenues are not directly comparable to prior years.
On March 15, 2002, @Track completed the Sale to Aether of certain
assets including the transfer of assets and related license rights to its
Platinum Service software solution, 20/20V(TM), and TrackWare(R) asset and
trailer-tracking products. In addition, @Track and Aether agreed to form a
strategic relationship with respect to @Track's long-haul customer products,
pursuant to which @Track will assign to Aether all service revenues generated
post-closing from its HM5000 customer base. Aether, in turn, has agreed to
reimburse @Track for the network and airtime service costs related to providing
the HM5000 service.
As consideration for the Sale, @Track received $3 million in cash, of
which $1 million will be held in escrow and released to @Track over a 12-month
period. @Track also received a note for $12 million payable, at the option of
Aether, in either cash or convertible preferred stock in three equal
installments of $4 million on April 14, May 14, and June 14, 2002. The preferred
stock may then be converted to common stock using a prescribed formula that
compensates for fluctuations in the stock price so that @Track will be able to
convert and sell in the open market Aether common stock equal to $12 million.
The consideration for the Sale was determined through arms length negotiation
between @Track and Aether. See the Form 8-K filed by the Company on March 27,
2002 which is incorporated by reference herein and Footnote No. 20 to
Consolidated Financial Statements attached hereto.
24
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000
Total revenues decreased 24.1% to $77.5 million in 2001, from $102.1
million in 2000. Product revenues decreased 45.5% to $29.5 million in 2001, from
$54.1 million in 2000, primarily due to a decrease in unit sales for the Service
Vehicle Contract. Ratable Product Revenues decreased 18.2% to $9.9 million in
2001, from $12.1 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 2000. Service revenues were $47.9 million in 2001 compared to $48.1
million in 2000. While the average installed base of mobile units increased
17.0% from 2000 to 2001, the average monthly revenue per mobile unit decreased
17.5% to $57.80 in 2001 from $70.08 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 70,932 at December 31, 2001 from 67,336 at December 31, 2000. The increase in
the installed base is attributable to the Service Vehicle Contract.
Gross profit margin decreased from $31.5 million in 2000 to $20.6
million in 2001. Service gross profit margin was 44.6% in 2001 compared to 36.3%
in 2000. The increase in service gross profit margin is primarily the result of
rate reductions obtained from cellular carriers and other telecommunications
providers and modifications to the Company's NSC.
Product gross profit margin was 22.5% in 2001 compared to 28.4% in
2000. The decrease in product gross margin is primarily attributable to
inventory reserves taken to reflect TrackWare finished goods inventory at its
estimated fair market value.
For 2001, the Company recorded an inventory reserve of $4.7 million for
excess inventory associated with certain circuit boards used in the manufacture
of the TrackWare and 20/20V product lines. The TrackWare product line is
designed to more efficiently utilize trailer assets. Due to the current economic
downturn, trucking companies currently have an excess of trailers in their
fleets; thus, utilization of these assets is not currently an issue for many
trucking companies, and management believes that significant demand for the
TrackWare product will not occur in the near term. In addition, the Company
announced the launch of 20/20V in March of 2001; however, by December of 2001,
the Company had not incurred any significant sales from this product. As
described in Note 14 to the Consolidated Financial Statements, the Company has
settled the litigation with it's outsource manufacturer for reimbursement for
excess and obsolete inventory. The Company has recorded a provision of $2.1
million as its current estimate of the cost to be incurred as a result of this
settlement.
Operating expenses increased 5.8% to $38.4 million in 2001 from $36.4
million in 2000. This increase is primarily due to additional amortization
expense of $1.4 million associated with the Minorplanet "License Rights,"
severance payments to terminated employees, and an increase in research and
development costs. Personnel reductions were made as a consequence of the
Recapitalization described in Note 2 to the Consolidated Financial Statements,
and the subsequent cancellation of various technology initiatives. Operating
expenses in 2001 include approximately $0.6 million of severance payments to
terminated employees as a result of these personnel reductions. As described in
Note 11, as part of the Recapitalization, the Company agreed to pay an annual
fee of $1.0 million to Minorplanet to aid in funding research and development of
future products. During 2001, operating expenses included $0.5 million for these
research and development charges.
Operating loss increased $12.9 million from 2000 to 2001. This increase
is the combined effect of the $24.5 million decrease in ratable product revenue
and product revenue, the $4.7 million Trackware inventory reserve, the
$2.1 million provision for settlement of litigation and the $2.0 million
increase in operating expenses discussed above. The Company's ability to
generate operating income is significantly influenced by the gross margin
related to product revenues. The decrease in the Service Vehicle Contract unit
sales during 2001 significantly reduced gross profit margin. During 2001, the
Service Vehicle Contract was responsible for the majority of product revenues.
Product shipments under that contract are expected to be lower during 2002. The
Company's financial condition and results of operations are heavily dependent
upon the Company's ability to market and sell the VMI products. The Company
introduced the VMI product during the third quarter of 2001, thus, revenues and
gross margin from that product did not contribute significantly to 2001 results.
25
Interest expense decreased to $7.4 million in 2001 from $13.4 million
in 2000, due to the $80.0 million reduction in Senior Notes payable as a result
of the Recapitalization.
The extraordinary gain in 2001 of $59.5 million, net of Federal income
taxes, reflects the difference between the fair value of the common stock issued
in exchange for $80.0 million principal amount of Senior Notes retired, together
with accrued interest thereon, net of expenses associated with the Exchange
Offer. See Note 2 to the Consolidated Financial Statements.
YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999
Total revenues increased 6.7% to $102.1 million in 2000 from $95.7
million in 1999. Comparison of product revenues year over year is not meaningful
because of the accounting principle change discussed under "General" above.
Product revenues in 2000 include only Service Vehicle Contract revenues while
1999 includes all revenues from the sale of mobile units. "Ratable Product
Revenue" in 2000 reflects the current year recognition of revenues from units
shipped in prior years. In accordance with the new accounting principle for
product revenue mandated in 2000, such revenues are deferred upon product
shipment and recognized ratably over the greater of the term of the service
agreement or the estimated life of the customer relationship. Service revenues
decreased 8.7% from $52.7 million in 1999 to $48.1 million in 2000, due
primarily to lower average monthly revenue per mobile unit. While the average
installed base of mobile units increased 7.9% from 1999 to 2000, the average
monthly revenue per mobile unit decreased 15.1% to $70.08 in 2000 from $82.54 in
1999, primarily due to the increasing proportion of service vehicles in the
installed base and reduced personal calling revenue. Average revenue for service
vehicles is significantly less than that of long-haul trucking because of
different product functionality. The installed base of mobile units increased to
67,336 at December 31, 2000 from 50,825 at December 31, 1999. The increase in
the installed base reflects additional units installed under the Service Vehicle
Contract more than offsetting a reduction in the installed base for long-haul
trucking. The reduction in the installed base for long-haul trucking is
primarily due to one customer, with an aggregate installed based of
approximately 2,000 units, that was deinstalled due to its inability to pay
amounts owed to the Company.
Service gross profit margin was 36.3% in 2000 compared to 49.2% in
1999. As more fully described in Note 7 to the accompanying consolidated
financial statements, during 1999 the Company recorded $4.4 million of credits
due from cellular carriers related to prior years. Excluding the effect of these
credits, the 1999 service gross profit margin would have been 40.9%. The
decrease in service gross profit margin from 40.9% in 1999 to 36.3% in 2000 is
primarily the result of (i) the significant increase during 2000 of repair and
maintenance activity and (ii) the negative impact in 2000 of a temporary
increase in long-distance airtime rates during the transition period to a new
contract.
Product gross profit margin, excluding "Ratable Product" was 28.4% in
2000, compared to 19.2% in 1999, which includes a $3.5 million warranty
provision that is discussed in more detail in Note 7 to the accompanying
consolidated financial statements. Excluding the effect of this $3.5 million
charge, 1999 margin would have been 27.4%.
Operating expenses decreased 1.8% to $36.4 million in 2000 from $37.1
million in 1999. This decrease is primarily due to a $2.8 million decrease in
bad debt expense, offset by a $0.4 increase in advertising expense primarily
related to TrackWare, and increased research and development expenditures of
approximately $2.0 million. Bad debt expense in 1999 was unusually high as a
result of $1.2 million of bad debt provisions recorded for former customers. Bad
debt expense in 2000 was unusually low as a result of adjustments approximating
$1.1 made to reduce the reserve for bad debts in recognition of the improved
credit profile of the customer base; included in this adjustment is the reversal
of approximately $0.5 million of reserve provided in 1999 for a specific
customer.
Interest income was $1.4 million in 2000, compared to $2.0 million in
1999, reflecting the lower average outstanding balances during 2000 in cash,
short-term investments, and pledged securities.
Other income in 2000 primarily consists of the proceeds from the
settlement of litigation, net of related expenses. Other income in 1999 reflects
the gain from the settlement of a customer contract, and the proceeds from
settlement of litigation, net of related expenses.
26
Operating loss in 2000 was $4.9 million compared to $2.9 million in
1999. The 1999 operating loss includes the benefit of $4.4 million of
non-recurring credits. Absent the benefit of these credits, the 1999 operating
loss would have been $7.3 million. The Company's ability to generate operating
income is significantly influenced by the gross margin related to product
revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Recapitalization resulted in a $10 million cash infusion to the
Company. The exchanging note holders agreed to waive payment of interest on the
Senior Notes that accrued from December 16, 2000 through April 30, 2001.
However, the Company was required to pay the interest that accrued from May 1,
2001 though the closing date, June 21, 2001. After payment of accrued interest
on the Senior Notes that were exchanged for common stock, and expenses and
income taxes associated with the Recapitalization, the net cash proceeds to the
Company were $5.9 million.
The Company has incurred significant operating losses since inception
and has limited financial resources to support it until such time that it is
able to generate positive cash flow from operations. As a result of the
Recapitalization, the Company has reduced the amount of its Senior Notes
outstanding in the principal amount of $80,022,000 and has reduced its related
annual cash outflow for interest service by $11,002,000, which should extend its
financial viability. In addition, the Company believes the acquisition of the
License Rights will provide the Company significant marketing potential of the
licensed tracking VMI technology, enhancing future results of operations and
reducing the need for capital resources to develop similar tracking technology.
In addition, as a result of the Sale transaction between the Company and Aether,
for the sale of certain assets and licenses related to @Track's long-haul
trucking and asset-tracking businesses, the Company will receive cash proceeds
of approximately $15,000,000, with $2,000,000 received on March 15, 2002,
another $1,000,000 to be released from escrow over the next year, and the
remaining $12,000,000 to be received as soon as possible as the Company
liquidates the shares of Aether common stock it receives at the rate of 35,000
shares per trading day. Moreover, Aether has agreed to reimburse @Track for the
network and airtime service costs related to providing the HM5000 service. The
critical success factor in Management's plans to achieve positive cash flow from
operations is to achieve significant market acceptance of the VMI product line.
Based on projected operating results, the Company believes its existing
capital resources will be sufficient to fund its currently anticipated operating
needs and capital expenditure requirements for the next 18 months assuming it
can achieve the critical success factor outlined above. However, the Company's
future cash flow from operations and operating requirements may vary depending
on a number of factors, including acceptance in the marketplace of the Company's
products, the level of competition, general economic conditions and other
factors beyond the Company's control.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk
associated with its cash and short-term investments. The Company's Senior Notes
payable are at a fixed rate and, thus, are not exposed to interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, Schedule II - Valuation and
Qualifying Accounts, and reports of independent public accountants, are included
on pages F-1 through F-19 and pages S-1 through S-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding Directors and Executive Officers is incorporated
by reference to the section entitled "Election of Directors" in the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission within 120 days after December 31, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Proxy Statement, to be filed within 120 days after December 31, 2001, under
the heading "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Proxy Statement under the heading "Security Ownership of Certain Beneficial
Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the Proxy Statement, to be filed within 120 days after December 31, 2001, under
the heading "Certain Transactions."
28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
[Enlarge/Download Table]
Page Number
(a) Documents filed as part of the report:
(1) Report of Independent Public Accountants.........................................................F-1
Consolidated Balance Sheets as of December 31, 2001 and 2000.....................................F-2
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000 and 1999........................................................F-3
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999........................................................F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the Years Ended December 31, 2001, 2000 and 1999 ...................................F-5
Notes to Consolidated Financial Statements.......................................................F-6
(2) Financial Statement Schedules
Reports of Independent Public Accountants on Financial Statement Schedule .......................S-1
Schedule II-Valuation and Qualifying Accounts ...................................................S-2
Financial statement schedules other than those listed above have been omitted
because they are either not required, not applicable or the information is
otherwise included.
INDEX TO EXHIBITS
[Download Table]
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 - Stock Purchase and Exchange Agreement by and between the
Company, Minorplanet Systems PLC and Mackay Shields LLC, dated
February 14, 2001.(29)
2.2 - Asset Purchase Agreement by and between the Company and Aether
Systems, Inc. dated March 15, 2002.(29)
3.1 - Restated Certificate of Incorporation of the Company.(28)
3.2 - Second Amended and Restated By-Laws of the Company.(28)
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").(12)
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.(12)
4.5 - Registration Rights Agreement dated September 23, 1997, by and
among the Company, HighwayMaster Corporation, Bear, Stearns &
Co. Inc. and Smith Barney Inc.(12)
4.6 - Warrant Agreement dated September 23, 1997, by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
29
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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 - Registration Rights Agreement by and between the Company,
Minorplanet Systems PLC and Mackay Shields LLC, dated as of
June 21, 2001.(31)
10.2 - Exclusive License and Distribution Agreement by and between
Minorplanet Limited, an (@Track subsidiary) and Mislex (302)
Limited, dated June 21, 2001.(28)
10.3 Amended and Restated 1994 Stock Option Plan of the Company,
dated February 4, 1994.(1)(5)(6)
10.4 - Amendment No. 1 to the Amended and Restated 1994 Stock Option
Plan.(32)
10.5 - Amendment No. 2 to the Amended and Restated 1994 Stock Option
Plan.(33)
10.6 - Stock Option Agreement, dated June 22, 1998, by and between
the Company and John Stupka.(16)
10.7 - Product Development Agreement, dated December 21, 1995,
between HighwayMaster Corporation and IEX Corporation.(3)(4)
10.8 - Software Transfer Agreement, dated April 25, 1997, between
HighwayMaster Corporation and Burlington Motor Carriers,
Inc.(9)(10)
10.9 - Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc.(15)
10.10 - September 18, 1998 Amended and Restated Stock Option Agreement
of May 29, 1998 by and between the Company and Jana Ahlfinger
Bell.(16)
10.11 - Stock Option Agreement, dated August 12, 1998, by and between
the Company and Jana Ahlfinger Bell.(16)
10.12 - Stock Option Agreement, dated September 18, 1998, by and
between the Company and Jana Ahlfinger Bell.(16)
10.13 - September 18, 1998 Amended and Restated Stock Option Agreement
of April 25, 1997, by and between the Company and Robert
LaMere.(16)
10.14 - September 18, 1998 Amended and Restated Stock Option Agreement
of June 3, 1998, by and between the Company and Todd A.
Felker.(16)
10.15 - Stock Option Agreement dated November 24, 1998, by and between
the Company and Michael Smith.(16)
10.16 - 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)
10.17 - Administrative Carrier Agreement entered into between
HighwayMaster Corporation and Southwestern Bell Mobile
Systems, Inc. on March 30, 1999.(17)(18)
10.18 - Addendum to Agreement entered into between HighwayMaster
Corporation and International Telecommunications Data Systems,
Inc. on February 4, 1999.(17)(18)
10.19 - Second Addendum to Agreement entered into between
HighwayMaster Corporation and International Telecommunications
Data Systems, Inc. on February 4, 1999.(17)(18)
10.20 - Stock Option Agreement dated June 24, 1999, by and between the
Company and J. Raymond Bilbao.(19)
10.21 - Stock Option Agreement dated June 24, 1999, by and between the
Company and Marshall Lamm.(19)
10.22 - Fleet-on-Track Services Agreement entered into between GTE
Telecommunications Services Incorporated and HighwayMaster
Corporation on May 3, 1999.(19)(20)
10.23 - Stock Option Agreement dated September 3, 1999, by and between
the Company and J. Raymond Bilbao.(21)
10.24 - Stock Option Agreement dated September 3, 1999, by and between
the Company and Todd Felker.(21)
10.25 - Stock Option Agreement dated September 3, 1999, by and between
the Company and C. Marshall Lamm.(21)
30
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10.26 - Stock Option Agreement dated September 3, 1999, by and between
the Company and W. Michael Smith.(21)
10.27 - Stock Option Agreement dated September 3, 1999, by and between
the Company and Robert W. LaMere.(21)
10.28 - Limited Liability Company Agreement of HighwayMaster of
Canada, LLC executed March 3, 2000.(22)
10.29 - Monitoring Services Agreement dated May 25, 2000, by and
between the Company and Criticom International
Corporation.(23)(24)
10.30 - Commercial Lease Agreement dated April 26, 2000 by and between
the Company and 10th Street Business Park, Ltd.(24)
10.31 - Stock Option Agreement dated July 18, 2001, by and between the
Company and Jana A. Bell.(27)
10.32 - Stock Option Agreement dated June 21, 2001, by and between the
Company and Jana A. Bell.(27)
10.33 - Stock Option Agreement dated July 18, 2001, by and between the
Company and J. Raymond Bilbao.(27)
10.34 - Stock Option Agreement dated June 21, 2001, by and between the
Company and J. Raymond Bilbao.(27)
10.35 - Stock Option Agreement dated July 18, 2001, by and between the
Company and Todd A. Felker.(27)
10.36 - Stock Option Agreement dated June 21, 2001, by and between the
Company and Todd A. Felker.(27)
10.37 - Stock Option Agreement dated July 18, 2001, by and between the
Company and Robert W. LaMere.(27)
10.38 - Stock Option Agreement dated June 21, 2001, by and between the
Company and Robert W. LaMere.(27)
10.39 - Stock Option Agreement dated July 18, 2001, by and between the
Company and Marshall Lamm.(27)
10.40 - Stock Option Agreement dated June 21, 2001, by and between the
Company and Marshall Lamm.(27)
10.41 - Stock Option Agreement dated July 18, 2001, by and between the
Company and W. Michael Smith.(27)
10.42 - Stock Option Agreement dated June 21, 2001, by and between the
Company and W. Michael Smith.(27)
10.43 - Employment Agreement, dated June 21, 2001, between Jana A.
Bell and the Company.(28)
10.44 - Employment Agreement, dated June 21, 2001, between J. Raymond
Bilbao and the Company.(28)
10.45 - Employment Agreement, dated June 21, 2001, between W. Michael
Smith and the Company.(28)
10.46 - Employment Agreement, dated June 21, 2001, between Todd A.
Felker and the Company.(28)
23.1 - Consent of Arthur Andersen LLP.(34)
99.0 - Receipt of representation from Arthur Andersen, LLP.(34)
----------
(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.
31
(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) [Footnote intentionally omitted.]
(8) [Footnote intentionally omitted.]
(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) [Footnote intentionally omitted.]
(12) Filed in connection with the Company's Registration Statement on Form S-4,
as amended (No. 333-38361).
(13) [Footnote intentionally omitted.]
(14) [Footnote intentionally omitted.]
(15) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended September 30, 1998.
(16) Filed in connection with the Company's Form 10-K fiscal year ended December
31, 1998.
(17) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended March 31, 1999.
(18) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued June 22, 1999 in connection
with the Company's Form 10-Q Quarterly Report for the quarterly period
ended March 31, 1999.
(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 Order Granting
Application for Confidential Treatment issued June 20, 2001 in connection
with the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.
(26) Filed in connection with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.
(27) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended September 30, 2001.
(28) Filed in connection with the Company's Current Report on Form 8-K filed
with the SEC on June 29, 2001.
(29) Filed as Appendix A to the Company's Definitive Proxy Statement on Schedule
14A filed with the SEC on May 11, 2001.
32
(30) Filed in connection with the Company's Current Report on Form 8-K filed
with the SEC on March 27, 2002.
(31) Filed in connection with the Company's Form S-3 Registration Statement
filed with the SEC on October 10, 2001 (File No. 333-71340).
(32) Incorporated by reference to Exhibit A to the proxy statement contained in
the Company's Definitive Schedule 14A filed with the SEC on April 25, 2000.
(33) 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.
(34) Filed herewith.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 29, 2002
@TRACK COMMUNICATIONS, INC.
By: /S/JANA AHLFINGER BELL
--------------------------------------
Jana Ahlfinger Bell,
President and Chief Executive Officer
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K for the fiscal year ended December 31, 2001, has
been signed below by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
[Enlarge/Download Table]
Signature Title Date
/s/ Jana Ahlfinger Bell President, Chief Executive Officer, and
------------------------------ Director (Principal Executive Officer) March 29, 2002
Jana Ahlfinger Bell
/s/ W. Michael Smith Executive Vice President and
------------------------------ Chief Financial Officer
W. Michael Smith (Principal Financial and Accounting
Officer) March 29, 2002
/s/ Michael Beverley Director March 29, 2002
------------------------------
Michael Beverley
/s/ Stephen L. Greaves Director March 29, 2002
------------------------------
Stephen L. Greaves
/s/ Gerry C. Quinn Director March 29, 2002
------------------------------
Gerry C. Quinn
/s/ John T. Stupka Director March 29, 2002
------------------------------
John T. Stupka
/s/ Dr. William P. Osborne Director March 29, 2002
------------------------------
Dr. William P. Osborne
/s/ Andrew Tillman Director March 29, 2002
------------------------------
Andrew Tillman
/s/ Robert Kelly Director March 29, 2002
------------------------------
Robert Kelly
35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
@Track Communications, Inc.:
We have audited the accompanying consolidated balance sheets of @Track
Communications, Inc. (a Delaware corporation) and subsidiaries (the "Company")
as of December 31, 2001 and 2000, and the related consolidated statements of
operations, cash flows and stockholders' equity (deficit) for the years ended
2001, 2000 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of @Track Communications, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for the years ended 2001, 2000 and 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 15, 2002
F-1
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
[Enlarge/Download Table]
December 31, December 31,
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and short-term investments $ 14,889 $ 20,641
Accounts receivable, net of allowance for doubtful accounts
of $3,554 and $7,305, respectively 11,470 12,738
Inventories, net of reserves of $9,756 and $1,199 respectively 2,913 13,216
Deferred product costs - current portion 6,183 7,406
Other current assets 592 1,759
------------ ------------
Total current assets 36,047 55,760
Network, equipment and software, net of accumulated depreciation
and amortization of $20,240 and $19,295, respectively 8,583 12,851
Deferred product costs - non-current portion 4,516 9,770
License rights, net of accumulated amortization of $1,368 37,848 --
Other assets, net of accumulated amortization
of $292 and $1,469 respectively 603 2,663
------------ ------------
Total assets $ 87,597 $ 81,044
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,517 $ 7,992
Telecommunications costs payable 3,584 5,358
Accrued interest payable 575 3,784
Deferred product revenues - current portion 7,588 8,975
Other current liabilities (Note 14) 9,297 8,826
------------ ------------
Total current liabilities 23,561 34,935
Deferred product revenues - non-current portion 5,748 11,966
Senior notes payable, net of unamortized discount
of $224 and $1,871 respectively 14,109 92,484
------------ ------------
Total liabilities 43,418 139,385
------------ ------------
Commitments and contingencies (Note 18)
Stockholders' equity (deficit):
Common stock, $0.01 par value, 100,000,000 shares authorized; 48,118,253 and
5,127,756 shares issued; 48,042,454 and 5,065,357
shares outstanding at December 31, 2001 and 2000, respectively 481 51
Common stock - Class B, $0.01 par value, 1,000 shares authorized;
1,000 and 1,000 shares issued; 0 and 1,000 shares outstanding
at December 31, 2001 and 2000, respectively -- --
Preferred Stock - Series E, $0.01 par value, 20,000 shares authorized;
1 and 0 shares issued and outstanding at December 31, 2001
and 2000, respectively -- --
Additional paid-in capital 217,495 150,201
Accumulated deficit (173,235) (208,046)
Treasury stock, 75,799 and 62,399 shares at December 31, 2001
and 2000, respectively, at cost (562) (547)
------------ ------------
Total stockholders' equity (deficit) 44,179 (58,341)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 87,597 $ 81,044
============ ============
See accompanying notes to financial statements.
F-2
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share)
[Enlarge/Download Table]
Year ended December 31,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
Revenues (Notes 5 and 6):
Product $ 19,658 $ 41,971 $ 43,018
Ratable product 9,864 12,093 --
Service 47,958 48,066 52,655
------------ ------------ ------------
Total revenues 77,480 102,130 95,673
------------ ------------ ------------
Cost of revenues (Notes 5 and 7):
Product 15,239 30,031 34,752
Ratable product 8,236 10,006 --
Service 26,563 30,636 26,724
Provision for inventory reserve (Note 10) 4,693 -- --
Provision for settlement of litigation (Note 14) 2,100 -- --
------------ ------------ ------------
Total cost of revenues 56,831 70,673 61,476
------------ ------------ ------------
Gross profit 20,649 31,457 34,197
------------ ------------ ------------
Expenses:
General and administrative 12,482 12,478 14,706
Customer service 7,036 7,146 7,770
Sales and marketing 4,570 4,980 4,091
Engineering 5,166 4,345 2,685
Network services center 1,753 1,512 1,437
Severance and AutoLink(R)termination cost -- -- (189)
Depreciation and amortization 7,438 5,907 6,551
------------ ------------ ------------
38,445 36,368 37,051
------------ ------------ ------------
Operating loss (17,796) (4,911) (2,854)
Interest income 501 1,371 2,037
Interest expense (7,355) (13,368) (13,422)
Other income and expense (Note 7) -- 1,569 2,715
------------ ------------ ------------
Loss before income taxes, extraordinary item and
cumulative effect of accounting change (24,650) (15,339) (11,524)
Income tax provision -- -- --
------------ ------------ ------------
Loss before extraordinary item and
cumulative effect of accounting change (24,650) (15,339) (11,524)
Extraordinary item (Note 2) 59,461 -- --
Cumulative effect of accounting change -- (5,206) --
------------ ------------ ------------
Net income (loss) $ 34,811 $ (20,545) $ (11,524)
============ ============ ============
Basic income (loss) per share:
Loss before extraordinary item and cumulative
effect of accounting change $ (0.88) $ (3.03) $ (2.31)
Extraordinary item 2.13 -- --
Cumulative effect of accounting change -- (1.03) --
------------ ------------ ------------
Net income (loss) $ 1.25 $ (4.06) $ (2.31)
============ ============ ============
Diluted income (loss) per share:
Loss before extraordinary item and cumulative
effect of accounting change $ (0.87) $ (3.03) $ (2.31)
Extraordinary item 2.09 -- --
Cumulative effect of accounting change -- (1.03) --
------------ ------------ ------------
Net income (loss) $ 1.23 $ (4.06) $ (2.31)
============ ============ ============
Weighted average number of shares outstanding
Basic 27,928 5,058 4,995
============ ============ ============
Diluted 28,406 5,058 4,995
============ ============ ============
See accompanying notes to financial statements.
F-3
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
[Enlarge/Download Table]
Year ended December 31,
--------------------------------
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income (loss) $ 34,811 $(20,545) $(11,524)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization 6,070 5,907 6,551
Amortization of discount on notes payable 219 394 393
Amortization of license rights 1,368 -- --
Extraordinary item - non-cash portion (56,682) -- --
Provision for inventory reserve 4,693 -- --
Provision for bad debts 1,056 1,477 4,294
(Increase) decrease in accounts receivable 212 (874) (3,050)
(Increase) decrease in inventory 5,610 (3,924) 3,629
(Increase) decrease in deferred product costs 6,477 (17,176) --
Increase (decrease) in accounts payable (5,475) 5,561 (8,931)
Increase (decrease) in deferred product revenues (7,605) 20,941 --
Increase (decrease) in accrued expenses and other current liabilities (4,512) 365 (9,255)
Net book value of equipment retired -- -- 1,950
Other 1,373 387 (1,702)
-------- -------- --------
Net cash used in operating activities (12,385) (7,487) (17,645)
-------- -------- --------
Cash flows from investing activities:
Additions to network, equipment, and software, net (1,587) (2,600) (3,103)
Liquidation of pledged securities -- 12,705 12,083
(Increase) decrease in short-term investments (4,134) 12,601 (2,893)
Purchase of license rights (1,215) -- --
-------- -------- --------
Net cash (used in) provided by investing activities (6,936) 22,706 6,087
-------- -------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options -- 255 264
Proceeds from issuance of common stock 9,450 -- --
Common stock repurchased (15) -- --
-------- -------- --------
Net cash provided by financing activities 9,435 255 264
-------- -------- --------
Increase (decrease) in cash and cash equivalents (9,886) 15,474 (11,294)
Cash and cash equivalents, beginning of year 20,641 5,167 16,461
-------- -------- --------
Cash and cash equivalents, end of year 10,755 20,641 5,167
Short-term investments 4,134 -- 12,601
-------- -------- --------
Cash and short-term investments $ 14,889 $ 20,641 $ 17,768
======== ======== ========
Supplemental cash flow information:
Interest paid $ 6,539 $ 12,974 $ 12,974
======== ======== ========
Taxes paid $ 995 $ -- $ --
======== ======== ========
Non-cash investing and financing activities:
Fair value of License Rights acquired in exchange for 28,000,000 shares
of common stock $ 38,000 $ -- $ --
======== ======== ========
Fair Value of Senior Notes exchanged for 12,670,497 shares of common stock $ 20,273 $ -- $ --
======== ======== ========
See accompanying notes to financial statements.
F-4
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share information)
[Enlarge/Download Table]
Preferred Stock Common Stock
---------------------------- ----------------------------
Shares Amount Shares Amount
------------ ------------ ------------ ------------
Stockholders' equity (deficit) at December 31, 1998 1,000 -- 5,042,188 51
Exercise of stock options 44,245 --
Net loss for year
------------ ------------ ------------ ------------
Stockholders' equity (deficit) at December 31, 1999 1,000 -- 5,086,433 51
Exercise of stock options 41,323 --
Conversion of Series D Preferred Stock to
Class B Common Stock (1,000) --
Net loss for year
------------ ------------ ------------ ------------
Stockholders' equity (deficit) at December 31, 2000 -- $ -- 5,127,756 $ 51
Conversion of Class B Common to Common 320,000 3
Issuance of Series E Preferred Stock 1 --
Common Stock issued to Minorplanet 30,000,000 300
Common Stock issued in Note Exchange 12,670,497 127
Common Stock repurchased
Net income
------------ ------------ ------------ ------------
Stockholders' equity (deficit) at December 31, 2001 1 $ -- $ 48,118,253 $ 481
============ ============ ============ ============
Additional Treasury Stock
Common Stock - Class B Paid-in ---------------------------
Shares Amount Capital Shares Amount
------------ ------------ ------------ ------------ ------------
Stockholders' equity (deficit) at December 31, 1998 -- -- 149,682 62,399 (547)
Exercise of stock options 264
Net loss for year
------------ ------------ ------------ ------------ ------------
Stockholders' equity (deficit) at December 31, 1999 -- -- 149,946 62,399 (547)
Exercise of stock options 255
Conversion of Series D Preferred Stock to
Class B Common Stock 1,000 --
Net loss for year
------------ ------------ ------------ ------------ ------------
Stockholders' equity (deficit) at December 31, 2000 1,000 $ -- $ 150,201 62,399 $ (547)
Conversion of Class B Common to Common (1,000) (3)
Issuance of Series E Preferred Stock -- 1
Common Stock issued to Minorplanet 47,625
Common Stock issued in Note Exchange 19,671
Common Stock repurchased 13,400 (15)
Net income
------------ ------------ ------------ ------------ ------------
Stockholders' equity (deficit) at December 31, 2001 -- $ -- $ 217,495 75,799 $ (562)
============ ============ ============ ============ ============
Accumulated
Deficit Total
------------ ------------
Stockholders' equity (deficit) at December 31, 1998 (175,977) (26,791)
Exercise of stock options 264
Net loss for year (11,524) (11,524)
------------ ------------
Stockholders' equity (deficit) at December 31, 1999 (187,501) (38,051)
Exercise of stock options 255
Conversion of Series D Preferred Stock to --
Class B Common Stock --
Net loss for year (20,545) (20,545)
------------ ------------
Stockholders' equity (deficit) at December 31, 2000 $ (208,046) $ (58,341)
Conversion of Class B Common to Common --
Issuance of Series E Preferred Stock 1
Common Stock issued to Minorplanet 47,925
Common Stock issued in Note Exchange 19,798
Common Stock repurchased (15)
Net income 34,811 34,811
------------ ------------
Stockholders' equity (deficit) at December 31, 2001 $ (173,235) $ 44,179
============ ============
See accompanying notes to financial statements.
F-5
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
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. There were no
significant revenues from Trackware during 2000 or 2001. During the first
quarter of 2001, the Company began marketing and selling 20/20V, a low-cost
tracking product designed for small and medium sized fleets in the
transportation marketplace. There were no significant revenues from 20/20V
during 2001. During the third quarter of 2001, the Company commenced marketing
the Vehicle Management Information ("VMI") product licensed from Minorplanet
Systems PLC into the automatic vehicle location ("AVL") marketplace in the
United States.
On March 15, 2002, @Track completed the sale to Aether Systems, Inc.
("Aether") of certain assets and licenses related to @Track's long-haul trucking
and asset-tracking businesses pursuant to an Asset Purchase Agreement effective
as of March 15, 2002, by and between @Track and Aether. Under the terms of the
Asset Purchase Agreement, @Track 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, @Track and Aether agreed to
form a strategic relationship with respect to @Track's long-haul customer
products, pursuant to which @Track will assign to Aether all service revenues
generated post-closing from its HighwayMaster Series 5000 (HM5000) customer
base. Aether, in turn, has agreed to reimburse @Track for the network and
airtime service costs related to providing the HM5000 service. The two companies
have also agreed to work jointly in the adaptation of the Minorplanet Vehicle
Management Information (VMI(TM)) technology for the potential distribution of
VMI by Aether to the long-haul-trucking market (See Note 20).
2. STOCK SPLIT AND RECAPITALIZATION
On June 4, 2001, the 1,000 shares of Class B Common Stock were
converted into 320,000 shares of Common Stock at the option of the sole holder
of the shares. On June 5, 2001, the Company effected a reverse stock split in
the ratio of one (1) share of post-split common stock for every five (5) shares
of pre-split common stock and amended the Company's Certificate of Incorporation
to increase the number of authorized shares of common stock from 50,000,000
shares to 100,000,000 shares. All references to Common Stock and all per share
references for periods prior to the stock split have been restated to reflect
the one for five reverse stock split.
In addition, the Company created a new class of Series E Preferred
Stock and on June 5, 2001 issued one (1) share of Series E Preferred Stock. The
Series E Preferred Stock has a liquidation preference of $1,000 per share and is
entitled to the payment of annual dividends at the rate of 7% per share. The
Series E Preferred Stock does not have any voting, conversion or preemptive
rights.
On June 21, 2001, the Company consummated the stock issuance
transactions approved by the Company's stockholders at the annual meeting on
June 4, 2001. As a result of the closing of transactions contemplated by that
certain Stock Purchase and Exchange Agreement by and among the Company,
Minorplanet Systems PLC, a United Kingdom public limited company
("Minorplanet"), and Mackay Shields LLC ("MacKay"), dated February 14, 2001 (the
"Purchase Agreement"), the Company issued 30,000,000 shares of its common stock
in a change of control transaction to Minorplanet, which is now the majority
stockholder of the Company. In exchange for this stock issuance, Minorplanet
paid the Company $10,000,000 in cash and transferred to the Company all of the
shares of its wholly-owned subsidiary, Minorplanet Limited, which holds an
exclusive, royalty-free, 99-year license to market, sell and operate
Minorplanet's VMI technology in the United States, Canada and Mexico. As a
result of this transaction, Minorplanet beneficially owns approximately 62.4% of
the outstanding shares of the Company's common stock (on a non-fully diluted
basis), which is now the sole voting security of the Company. The "License
Rights" acquired are valued in the accompanying Consolidated Balance Sheet as an
asset purchase at an amount
F-6
which reflects the fair value of the common stock issued by the Company based on
the market price of the Company's common stock on the date of consummation of
the transaction ($1.60 per share on June 21, 2001), plus the incremental direct
costs incurred in effecting the transaction.
Also, the Company issued 12,670,497 shares of its common stock (valued
at $1.60 per share) to holders of its Senior Notes due 2005 ("Senior Notes") in
exchange for the cancellation of Senior Notes with an aggregate principal amount
of $80,022,000 (the "Exchange Offer"). The total principal amount of Senior
Notes that remains outstanding is $14,333,000. As a result of this Exchange
Offer, the Company recognized a $59,461,000 gain, net of $995,000 of Federal
income taxes and $3,067,000 in the aggregate amount of unamortized debt discount
and issuance costs, and including $3,773,000 of waived accrued interest payable,
which is reflected as an extraordinary item in the accompanying Consolidated
Statements of Operations.
The foregoing transactions are hereinafter collectively referred to as
the "Recapitalization." As a result of the Recapitalization, the Company
significantly reduced its indebtedness and related interest expense. In
addition, the Company acquired the VMI technology and commenced distribution of
Minorplanet's VMI product in the United States.
3. NON-COMPLIANCE WITH NASDAQ LISTING REQUIREMENTS
In December, 2000, the Company was notified by letter from the Nasdaq
Stock Market, Inc. ("Nasdaq"), that it was no longer in compliance with the net
tangible assets, market capitalization, net income and minimum bid price
requirements for continued listing on the Nasdaq Small Cap Market, and therefore
Nasdaq was commencing delisting proceedings. From February 12, 2001 through
completion of the recapitalization, the Company's common stock was conditionally
listed on the Nasdaq Small Cap Market via an exception from these requirements
granted by Nasdaq. As a result of the completion of the Recapitalization
described in Note 2, on August 3, 2001, the Nasdaq Listing Qualifications Panel
issued an order ending the delisting proceedings against the Company.
4. FUTURE OPERATIONS
The Company has incurred significant operating losses since inception
and has limited financial resources to support it until such time that it is
able to generate positive cash flow from operations. As a result of the
Recapitalization, the Company has reduced the amount of it's Senior Notes
outstanding in the principal amount of $80,022,000 and has reduced its related
annual cash outflow for interest service by $11,002,000, which will extend its
financial viability. In addition, the Company believes the acquisition of the
License Rights should provide the Company significant marketing potential of the
licensed tracking VMI technology, enhancing future results of operations and
reducing the need for capital resources to develop similar tracking technology.
In addition, as a result of the Sale transaction between the Company and Aether,
for the sale of certain assets and licenses related to @Track's long-haul
trucking and asset-tracking businesses, the Company will receive cash proceeds
of approximately $15,000,000, with $2,000,000 received on March 15, 2002,
another $1,000,000 to be released from escrow over the next year, and the
remaining $12,000,000 to be received as soon as possible as the Company
liquidates the shares of Aether common stock it receives at the rate of 35,000
shares per trading day. The inability of @Track to liquidate the Aether Common
Stock due to market conditions or otherwise could have a material adverse effect
on @Track's cash position. Moreover, Aether has agreed to reimburse @Track for
the network and airtime service costs related to providing the HM5000 service
(see Footnote No. 20). The critical success factor in management's plans to
achieve positive cash flow from operations is to achieve significant market
acceptance of the VMI product line.
Based on projected operating results, the Company believes its existing
capital resources will be sufficient to fund its currently anticipated operating
needs and capital expenditure requirements for the next 18 months assuming it
can achieve the critical success factor outlined above. However, the Company's
future cash flow from operations and operating requirements may vary depending
on a number of factors, including acceptance in the marketplace of the Company's
products, the level of competition, general economic conditions and other
factors beyond the Company's control.
5. CHANGE IN ACCOUNTING PRINCIPLE
The Company earns revenues from service contracts, and from related
products sold to customers (for which title generally passes on shipment).
F-7
Prior to 2000, the Company recognized revenues from product sales at the time
the mobile units were shipped to customers, or upon customer acceptance of the
product if acceptance was required by the sales contract. During 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 during the fourth quarter of 2000, effective January 1,
2000.
The Company sells mobile communications systems and related enhanced
mobile communications and management information services that are provided
through the Company's proprietary network. With respect to the Series 5000
mobile units sold to the Company's long-haul trucking customers, these units
function only when used in conjunction with the Company's proprietary network.
Accordingly, in accordance with SAB 101, the Company has changed its product
revenue recognition policy for sales to long-haul trucking customers, to defer
product revenue previously recognized upon shipment and instead recognize such
revenue ratably over the longer of the term of the service contract or the
estimated life of the customer relationship. Such terms range from three to ten
years. Product costs are also deferred and amortized over such period. The
product revenues and related costs are portrayed in the accompanying
Consolidated Statements of Operations as "Ratable Product Revenues" and "Ratable
Product Costs," respectively.
The effect of the adoption of SAB 101 in 2000 was to increase income
before extraordinary item by approximately $1,441,000 or $0.30 per share. SAB
101 has been adopted as the cumulative effect of a change in accounting
principle, effective January 1, 2000. The cumulative effect of the change as of
such date resulted in an increase to the net loss recognized in 2000 of
approximately $5,206,000. This has been reported as "Cumulative effect of
accounting change" in the accompanying Consolidated Statement of Operations for
the year ended December 31, 2000.
Pro forma amounts assuming the new revenue recognition method is applied
retroactively are as follows:
[Enlarge/Download Table]
1999
----------------------------
As Reported Pro forma
------------ ------------
Loss before extraordinary item $ (11,524) $ (12,293)
Basic and diluted loss per share before extraordinary item $ (2.31) $ (2.46)
Net loss $ (11,524) $ (12,293)
Basic and diluted net loss per share $ (2.31) $ (2.46)
6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Effective April 10, 2000, HighwayMaster Communications, Inc. changed
its corporate name to @Track Communications, Inc. The consolidated financial
statements include those of @Track Communications, Inc., 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.
Estimates Inherent in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company recognizes revenue under the provisions of SAB 101. Under
SAB 101, initial sale proceeds received under multiple-element sales
arrangements which require the Company to deliver products or services over
F-8
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 life of the estimated 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." 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 will periodically review its estimates of the customer relationship
period as compared to historical results and adjust its estimates prospectively.
Sales arrangements for which revenues are deferred pursuant to SAB 101 relate
primarily to the Company's sales of its mobile units to long-haul trucking,
Trackware, 20/20V, and VMI products.
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 gives
the customer right of acceptance. Sales arrangements recognized under this
method relate primarily to products delivered under the Service Vehicle
Contract. Pending acceptance, mobile units shipped under the Contract are
reflected in inventory as "equipment shipped not yet accepted."
Service revenue generally commences upon product installation and is
recognized ratably over the period such services are provided.
Prior to 2000, revenues from product sales and licensing of product
software were generally recognized at the time the mobile units were shipped to
customers unless the sales arrangement required specific product acceptance by
the customer, in which case revenues were recognized upon the receipt by the
Company of such acceptance.
Shipping and Handling Fees and Costs
The Company records amounts billed to customers for shipping and
handling and related costs incurred for shipping and handling as components of
"Product Revenues" and "Cost of Product Revenues" respectively.
Deferred Product Costs
The Company defers certain product costs (generally consisting of the
direct cost of product sold, installation, activation and warranty) for its
sales contracts determined to require deferral accounting under the provisions
of SAB 101. Such costs are recognized over the longer of the term of the service
contract or the estimated life of the customer relationship and are portrayed in
the accompanying Consolidated Statements of Operations as "Ratable Product
Costs." Such terms range from three to ten years. If the customer relationship
is terminated prior to the end of the estimated customer relationship period,
such costs are recognized in the period of termination. The Company will
periodically review its estimates of the customer relationship period as
compared to historical results and adjust its estimates prospectively.
Financial Instruments
The Company considers all liquid interest-bearing investments with a
maturity of three months or less at the date of purchase to be cash equivalents.
Short-term investments mature between three months and one year from the
purchase date. All cash and short-term investments are classified as available
for sale. Cost approximates market for all classifications of cash and
short-term investments; realized and unrealized gains and losses were not
material.
F-9
The carrying amount of cash and short-term investments, accounts
receivable, accounts payable and accrued liabilities approximates fair value
because of their short-term maturity.
Business and Credit Concentrations
Accounts receivable generated from equipment sales are generally
secured by the respective mobile units shipped to the customer. Allowances have
been provided for amounts that may eventually become uncollectible and to
provide for any disputed charges. During 2001, 2000 and 1999, one customer
accounted for approximately 41%, 47%, and 38% respectively, of total revenues.
The Company's bad debt expense as a percent of total revenues was 1.4%,
1.4% and 4.5% in 2001, 2000, and 1999, respectively. This trend is primarily due
to changes in the Company's operating policies since 1998 and the general
improvement in the creditworthiness of the customer base as a result of the
significant sales to one customer noted above.
Inventories
Inventories consist primarily of component parts and finished products
that are valued at the lower of cost or market. Cost is determined using the
first-in, first-out (FIFO) method. The Company records a provision for excess
and obsolete inventory based on a usage formula for component parts and specific
identification criteria for finished goods.
Network, Equipment and Software
Network, equipment and software are stated at cost and are depreciated
on a straight-line basis over the estimated useful lives of the various classes
of assets, which generally range from three to five years. Maintenance and
repairs are charged to operations, while renewals or betterments are
capitalized.
Research and Development Costs
The Company expenses research and development costs as incurred. During
2001, 2000 and 1999, the Company expensed $3,091,000, $2,181,000 and $1,241,000,
respectively, in research and development costs for new products that is
reflected in "Engineering Expenses" in the Consolidated Statements of
Operations. The 2001 amount included $525,000 paid to a related party.
Capitalized Software Costs
Software development costs that meet certain capitalization
requirements are capitalized. Such costs consist of software development costs
for products to be sold or leased, as well as the cost of software acquired for
internal use. Additions to capitalized software during 2001, 2000 and 1999 were
$672,000, $1,019,000 and $774,000, respectively.
Advertising Costs
Advertising costs are expensed as incurred. During 2001, 2000 and 1999,
the Company expensed $633,000, $962,000 and $554,000, respectively, in
advertising costs that are reflected in "Sales and Marketing Expenses" in the
Consolidated Statements of Operations.
Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109,
"Accounting For Income Taxes." Deferred income taxes are calculated using an
asset and liability approach wherein deferred taxes are provided for the tax
effects of basis differences for assets and liabilities arising from differing
treatments for financial and income tax reporting purposes. Valuation allowances
against deferred tax assets are provided where appropriate.
F-10
Earnings Per Share
The Company computes earnings per share in accordance SFAS No. 128,
"Earnings Per Share." Net income (loss) per basic share was computed by dividing
net income (loss) by the weighted average number of shares outstanding during
the respective periods. Diluted earnings per share has been presented for the
twelve months ended December 31, 2001, to reflect the weighted average shares
outstanding assuming the issuance of common stock upon exercise of potentially
dilutive stock options. Diluted earnings per share is computed using the
"Treasury Stock Method." The Company's potentially dilutive securities have been
excluded from the weighted average number of shares outstanding for the other
periods presented, since their effect would be anti-dilutive.
Earnings per share amounts for all periods presented have been restated
to reflect the reverse stock split effected June 5, 2001, as described in Note
2.
Reporting Comprehensive Income
The accompanying consolidated financial statements do not include any
items of other comprehensive income.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards Nos. 141 and 142, "Business
Combinations" and "Goodwill and Other Intangible Assets," respectively. Adoption
of these statements will have no material impact on the financial position of
the Company.
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The impact of this new
accounting standard will have no material impact on the financial position of
the Company.
In August 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses the
accounting treatment for the impairment or disposal of long-lived assets. The
impact of this new accounting standard will have no material impact on the
financial position of the Company.
7. UNUSUAL ITEMS
"Other Income" in 2000 primarily consists of the proceeds from the
settlement of litigation, net of related expenses.
During 1999, the Company recorded the benefit of credits due from
cellular carriers related to 1997 and 1998 based on a settlement agreement
reached on May 3, 1999, with GTE Wireless, Inc. and GTE Telecommunications
Incorporated. These credits had not been previously recognized because of
significant uncertainty as to their ultimate collectibility, due to a dispute
among the parties as to who was responsible for securing the collection of the
credits. This uncertainty was resolved as a result of the settlement agreement.
The effect of these credits was to increase income by $4,533,000, of which
$4,389,000 is reflected as a reduction in "Cost of Service Revenue" in the
accompanying Consolidated Statements of Operations.
During 1997, the Company entered into a contract with a customer for a
new generation of mobile unit. Pending delivery of the contracted units, the
customer installed current-generation mobile units. In 1999, the Company and the
customer negotiated a settlement agreement, the terms of which included
termination of the contract and the return of approximately 2,900 mobile units
to the Company that had been installed by the customer. Pending delivery of the
contracted units, the proceeds from the purchase price for these units had been
recorded as deferred revenue. "Other Income" in 1999 includes a gain of
approximately $800,000 related to this settlement, which amount represents the
sum of (1) the previously deferred purchase price, the fair value of the mobile
units returned, and cash received from the customer, reduced by (2) the net book
value of the mobile units that had been installed.
F-11
The remaining balance of "Other Income" in 1999 primarily consists of
the proceeds from the settlement of litigation, net of related expenses.
During 1999, the earning process was culminated and the
Company recognized product revenues of $29.7 million on the mobile units
delivered under the Service Vehicle Contract. Included in 1999 "Cost of Product
Revenues" in the accompanying Consolidated Statements of Operations is a
warranty provision of $3.5 million, that is the estimated cost to be incurred to
repair a defective subcomponent in the mobile units.
8. SEVERANCE AND AUTOLINK(R) TERMINATION COSTS
During the third quarter of 1998, the Company announced that it was
halting the development of its AutoLink(R) service. As a consequence, the
Company recorded a charge of $2,431,000 to recognize asset impairments and
record estimated amounts to be incurred to extinguish contractual obligations
associated with the AutoLink(R) program.
During 1998, the Company recorded $2,926,000 in severance costs related
to two reorganizations. Severance costs of $445,000 relate to a reduction in the
number of employees, announced in the second quarter of 1998, primarily
reflecting the elimination of redundancies that had been necessary as a result
of having customers served by both the AT&T Complex and the NSC. During the
third quarter of 1998, the Company announced a number of key management and
structural changes designed to more closely align the Company's expenditures
with its revenues. As a result of this announcement and the AutoLink(R)
announcement, the Company reduced its workforce by approximately 25% and
recorded charges of $2,481,000 for obligations under employment contracts and
severance payments to terminated employees. The following is a summary of
activity relating to Severance and AutoLink(R) termination costs payable:
[Download Table]
Balance at December 31, 1997 $ --
1998 Activity:
Accrued Severance and AutoLink termination costs $ 5,357,000
Cash payments for severance and contractual obligations (2,895,000)
Asset write-offs (434,000)
------------
Balance at December 31, 1998 2,028,000
1999 Activity:
Cash payments for severance and contractual obligations (1,839,000)
Restored to income (189,000)
------------
Balance at December 31, 1999 $ --
------------
9. CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments consist of the following:
[Download Table]
December 31, 2001 2000
------------ ------------
Cash and commercial paper $ 4,854,000 $ 11,196,000
Money market accounts 5,901,000 9,445,000
------------ ------------
Cash and cash equivalents 10,755,000 20,641,000
------------ ------------
U.S. Government and agency notes and bonds 1,295,000 --
Commercial paper 2,839,000 --
------------ ------------
Short-term investments 4,134,000 --
------------ ------------
Total cash and short-term investments $ 14,889,000 $ 20,641,000
------------ ------------
F-12
10. INVENTORIES
Inventories consist of the following:
[Download Table]
December 31, 2001 2000
------------ ------------
Complete systems $ 1,403,000 $ 3,240,000
Component parts 1,510,000 5,919,000
Equipment shipped not yet accepted -- 4,057,000
------------ ------------
$ 2,913,000 $ 13,216,000
============ ============
For 2001, the Company recorded an inventory reserve of $4.7 million for
excess inventory associated with certain circuit boards used in the manufacture
of the Trackware and 20/20V product lines. The Trackware product line is
designed to more efficiently utilize trailer assets. Due to the current economic
downturn, trucking companies currently have an excess of trailers in their
fleets; thus, utilization of these assets is not currently an issue for many
trucking companies, and management believes that significant demand for the
Trackware product will not increase in the near term. In addition, the Company
announced the launch of 20/20V in March of 2001; however, by December of 2001,
the Company had not incurred any significant sales from this product.
11. LICENSE RIGHTS
As part of the Recapitalization, the Company received a 99-year
exclusive license right to market, sell and operate Minorplanet's VMI technology
in the United States, Canada and Mexico. The license covers rights to existing
technologies of Minorplanet as well as any future developments. In addition, the
Company agreed to pay an annual fee of $1,000,000 to aid in funding research and
development of future products covered by the license rights. Based on the
Company's evaluation of the useful life of the existing technology, probability
of future developments to bring new products to market and projected cash flows
from these products, the license rights are being amortized over a 15-year life.
As of December 31, 2001, the unamortized value of the license rights was
$37,848,000, which is net of $1,368,000 accumulated amortization. Amortization
of the license rights charged to expense during 2001 was $1,368,000.
12. NETWORK, EQUIPMENT AND SOFTWARE
Network, equipment and software consist of the following:
[Download Table]
December 31, 2001 2000
------------ ------------
Network service center $ 15,506,000 $ 15,031,000
Computers and office equipment 5,275,000 7,308,000
Machinery and equipment 2,016,000 3,123,000
Software 6,026,000 6,684,000
------------ ------------
28,823,000 32,146,000
Less: accumulated depreciation and amortization (20,240,000) (19,295,000)
------------ ------------
$ 8,583,000 $ 12,851,000
============ ============
Total depreciation and amortization expense charged to operations
during 2001, 2000 and 1999 was $5,854,000, $5,455,000 and $6,099,000,
respectively.
As of December 31, 2001 and 2000, the unamortized portion of software
costs was $1,752,000 and $2,144,000, respectively. Amortization of such costs
charged to expense during 2001, 2000 and 1999 was $1,568,000, $1,191,000 and
$1,487,000, respectively.
13. OTHER ASSETS
Other assets consist primarily of debt issue costs related to the
issuance of the Senior Notes, net of accumulated amortization. Such costs are
amortized over the term of the related debt.
F-13
14. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
[Download Table]
December 31, 2001 2000
------------ ------------
Accrued warranty costs $ 626,000 $ 1,469,000
Unearned revenue 1,615,000 --
Provision for settlement of litigation 1,581,000 --
Other 5,475,000 7,357,000
------------ ------------
$ 9,297,000 $ 8,826,000
============ ============
During the first quarter of 2001, the outsource manufacturer (the
"vendor") that supplies substantially all of the Company's finished goods
inventory asserted a claim for reimbursement for excess and obsolete inventory
purchased in its capacity for use in the manufacture 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 ultimate liability in connection with this settlement
will not be known until December 31, 2002. Based on information currently
available, the Company recorded a provision of $2.1 million as its estimate of
the cost to be incurred to settle this litigation, of which $0.5 million had
been utilized as of December 31, 2001. As part of the settlement, the Company
will continue to use K-Tec as a manufacturer.
15. SENIOR NOTES
On September 23, 1997, the Company issued 125,000 Units comprised of
$125,000,000 of 13.75% Senior Notes due September 15, 2005 and warrants to
purchase 820,750 shares of common stock at $9.625 per share. Of the gross
proceeds, $120,814,000 was allocated to the Senior Notes and $4,186,000 was
allocated to the warrants. Interest is payable on the Senior Notes semi-annually
on March 15 and September 15. The Company used a portion of the proceeds from
the issuance of the Units to purchase a portfolio of U. S. Government securities
that provided funds sufficient to pay in full when due the scheduled interest
payments on the Senior Notes through September 15, 2000. The Indenture for the
Senior Notes contains certain covenants that, among other things, limit the
ability of the Company to incur additional indebtedness, pay dividends or make
other distributions, repurchase any capital stock or subordinated indebtedness,
make certain investments, create certain liens, enter into certain transactions
with affiliates, sell assets, enter into certain mergers and consolidations, or
enter into sale and leaseback transactions.
The Senior Notes are redeemable at any time on or after September 15,
2001 at redemption prices declining annually from 110.313% of principal amount
in 2001 to 100.000% of principal amount in 2004, plus accrued and unpaid
interest. Prior to September 15, 2001, the Company may redeem up to 35% in the
aggregate principal amount of the Senior Notes at a redemption price of 113.75%
of the principal amount thereof, plus accrued and unpaid interest with the net
proceeds of a qualifying equity offering (as defined).
As part of the Recapitalization, the Company closed an Exchange Offer
to the holders of the Senior Notes. The Company issued approximately 12,670,000
shares of its common stock to holders of its Senior Notes who accepted the
Exchange Offer, in exchange for the cancellation of Senior Notes with an
aggregate principal amount of $80,022,000. The total principal amount of Senior
Notes that remains outstanding is $14,333,000. Prior to the consummation of the
Exchange Offer, the majority holder consented to, and the Company entered into,
the First Supplemental Indenture to the Indenture dated September 23, 1997,
which eliminated many of the restrictive covenants contained in the Indenture.
At December 31, 2001, the $14,333,000 of Senior Notes outstanding was
recorded at the accreted value of $14,109,000. The Senior Notes have an
effective interest rate of 14.1%.
F-14
The fair value of the Senior Notes is less than their carrying amount
at December 31, 2001 and 2000. The principal amount of the Senior Notes is
$1,000 per individual Senior Note. The Senior Notes are publicly traded but
purchases and sales of the Senior Notes are infrequent. At December 31, 2001,
the market value per individual Senior Note approximated $350.
16. INCOME TAXES
Deferred taxes are provided for those items reported in different
periods for income tax and financial reporting purposes. The net deferred tax
asset has been fully reserved because of uncertainty regarding the Company's
ability to recognize the benefit of the asset in future years. The tax effects
of the temporary differences that give rise to significant portions of the
deferred tax assets are as follows:
[Download Table]
2001 2000
------------ ------------
Deferred tax assets
Step-up of tax basis in assets $ -- $ 1,390,000
Research and development credit -- 205,000
Recapitalization costs -- 167,000
Deferred Revenue 897,000 1,280,000
Allowance for doubtful accounts 1,208,000 2,484,000
Accrued interest -- 332,000
Other accrued liabilities 1,078,000 1,360,000
Inventory reserves 3,317,000 408,000
Intangible assets 952,000
Net operating loss carryforwards 49,297,000 62,177,000
Alternative minimum tax credit 839,000 --
------------ ------------
Gross deferred tax assets 57,588,000 69,803,000
Valuation allowance (55,910,000) (67,256,000)
------------ ------------
Net deferred tax assets 1,678,000 2,547,000
Deferred tax liability
Depreciation (1,678,000) (2,160,000)
Other -- (387,000)
------------ ------------
Net deferred tax asset $ -- $ --
============ ============
There was a net decrease in the valuation allowance of $11,346,000
during 2001. The loss from continuing operations of $24,650,000 resulted in an
increase to the valuation allowance of $8,458,000. However, the extraordinary
gain resulted in the release of $19,804,000 from the valuation allowance.
The provision for income taxes is different than the amount computed
using the applicable statutory federal income tax rate with the difference
summarized below:
[Download Table]
2001 2000 1999
------------ ------------ ------------
Income tax at Federal statutory rate $ (8,381,000) $ (6,985,000) $ (3,918,000)
Valuation allowance 8,458,000 6,851,000 3,904,000
Other (77,000) 134,000 14,000
------------ ------------ ------------
Provision for income taxes $ -- $ -- $ --
============ ============ ============
At December 31, 2001, the Company had net operating loss carryforwards
aggregating approximately $145.0 million, that expire in various years between
2008 and 2020. The utilization of these net operating losses will be limited
pursuant to IRC Section 382 and will cause some amount of the carryforwards to
expire unutilized. In addition the Company has $839,000 of alternative minimum
tax credits that will carry forward indefinitely.
F-15
17. STOCKHOLDERS' EQUITY INSTRUMENTS AND RELATED MATTERS
Common Stock
On June 5, 2001, the Company effected a reverse stock split in the
ratio of one (1) share of post-split common stock for every five (5) shares of
pre-split common stock and amended the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock from 50,000,000 shares
to 100,000,000 shares, par value $0.01. As of December 31, 2001, 48,118,253 and
48,042,454 shares of common stock were issued and outstanding respectively.
Series E Preferred Stock
On June 5, 2001, the Company authorized the issuance of 20,000 shares
of Series E Preferred Stock, par value $0.01, and issued one share of Series E
Preferred Stock. The Series E Preferred Stock has a liquidation preference of
$1,000 per share and is entitled to the payment of annual dividends at the rate
of 7% per share. The Series E Preferred Stock does not have any voting,
conversion or preemptive rights. One share of Series E Preferred Stock was
issued and outstanding at December 31,2001.
Conversion of Series D Preferred Stock to Series B Common Stock
Southwestern Bell Wireless Holdings, Inc., now known as Cingular
Wireless, LLC, a joint venture in which SBC Communications Inc., ("SBC") is a
lead venturer, owned all of the outstanding shares of Series D Participating
Convertible Preferred Stock ("Series D Preferred Stock").
Pursuant to the purchase agreement by and between the Company as Issuer
and SBC as Investor, dated September 27, 1996, certain events are triggered with
respect to the Company's Series D Preferred Stock owned by SBC upon the
occurrence of "Regulatory Relief." Effective July 11, 2000, SBC received final
approval from the Federal Communications Commission to provide long distance
service in the State of Texas, and, accordingly, "Regulatory Relief" occurred,
as confirmed by SBC on September 18, 2000. As a result of the occurrence of
"Regulatory Relief", the 1,000 shares of Series D Preferred Stock automatically
converted into 1,000 shares of Class B Common Stock.
Each outstanding share of Class B Common Stock is convertible into 320
shares of Common Stock at the option of SBC. The Class B Common Stock is
entitled to receive dividends and liquidating distributions in an amount equal
to the dividends and liquidating distributions payable on or in respect of the
number of shares of Common Stock into which such shares of Class B Common Stock
are then convertible. The holders of Common Stock and Class B Common Stock
generally have identical voting rights, with the holders of Class B Common Stock
being entitled to a number of votes equal to the number of shares of Common
Stock into which the shares of Class B Common Stock held by them are then
convertible. In addition, the holders of Class B Common Stock will be entitled
to elect one director of the Company (or two directors if SBC and its affiliates
beneficially own at least 20% of the outstanding shares of Common Stock on a
fully diluted basis) and will have the right to approve certain actions on the
part of the Company. In the third quarter of 2001, SBC converted its Class B
Common Stock to 320,000 shares of common stock.
SBC held warrants that entitled SBC to purchase (i) 600,000 shares of
Common Stock at an exercise price of $70.00 per share and (ii) 400,000 shares of
Common Stock at an exercise price of $90.00 per share. The warrants expired
unexercised on September 27, 2001.
Incentive Plan and Other
Pursuant to a 1994 Stock Option Plan, as amended (the "Plan"), options
may be granted to employees for the purchase of an aggregate of up to 5,100,000
shares of the Company's common stock. The Plan requires that the exercise price
for each stock option be not less than 100% of the fair market value of common
stock at the time the option is granted. Both nonqualified stock options and
incentive stock options, as defined by the Internal Revenue Code, may be granted
under the Plan. Generally, options granted under the Plan vest 20% on the date
of grant and 20% on each of the following four anniversary dates of the date of
grants and expire six years from the date of grant.
F-16
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for the Plan. Accordingly,
no compensation cost has been recognized for options issued under the Plan. Had
compensation cost been determined based on the fair value of the options as of
the grant dates for awards under the Plan consistent with the method provided by
SFAS No 123, "Accounting for Stock-Based Compensation," the Company's net income
(loss) and net income (loss) per share would have been adjusted to the pro forma
amounts indicated below:
[Enlarge/Download Table]
For the Year Ended December 31,
-----------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Net income (loss) As Reported $ 34,811,000 $ (20,545,000) $ (11,524,000)
Pro Forma $ 32,093,000 $ (21,188,000) $ (12,222,000)
Net income (loss) per share - Basic As reported 1.25 (4.06) (2.31)
Pro-forma 1.15 (4.20) (2.45)
Net income (loss) per share - Diluted As reported 1.23 (4.06) (2.31)
Pro-forma 1.13 (4.20) (2.45)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during the years as follows:
[Download Table]
For the Year Ended December 31,
------------------------------------------
2001 2000 1999
---------- ---------- ----------
Dividend -- -- --
Expected volatility 97.31% 92.31% 83.83%
Risk free rate of return 5.20% 5.89% 6.05%
Expected life in years 6.0 6.0 6.0
A summary of the status of the Company's Plan as of December 31, 2001,
2000 and 1999, and changes during the years ended on those dates, is presented
below:
[Enlarge/Download Table]
2001 2000 1999
-------------------------- -------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at beginning of year 330,924 $ 1.38 341,464 $ 1.36 389,318 $ 3.50
Granted 3,670,316 1.61 63,900 1.51 158,048 1.60
Exercised -- -- (41,323) 1.23 (44,245) 1.19
Forfeited (195,411) 1.48 (33,117) 1.58 (161,657) 6.82
========== ========== ========== ========== ========== ==========
Outstanding at end of year 3,805,829 $ 1.59 330,924 $ 1.38 341,464 $ 1.36
========== ========== ========== ========== ========== ==========
Options exercisable at end of year 283,212 $ 1.46 153,189 $ 1.32 112,075 $ 1.29
========== ========== ========== ========== ========== ==========
Weighted average fair value of
options granted during the year -- $ 1.28 -- $ 1.18 -- $ 1.60
========== ========== ========== ========== ========== ==========
The following table summarizes information about stock options
outstanding under the Plan at December 31, 2001:
[Enlarge/Download Table]
Options Outstanding Options Exercisable
----------------------------------------------------------- ------------------------------------
Number of Weighted Average Weighted Average Number of Weighted Average
Range of Option Price Options Remaining Life Exercise Price Options Exercise Price
--------------------- --------------- ------------------- ---------------- --------------- ---------------
$1.00 to $1.19 85,306 2.4 $ 1.09 84,102 $ 1.08
$1.41 to $1.78 3,707,723 5.4 1.60 188,070 1.59
$2.03 to $2.19 12,800 3.4 2.14 11,040 2.15
--------------- ------------------- ---------------- --------------- ---------------
3,805,829 5.3 $ 1.59 283,212 $ 1.46
=============== =================== ================ =============== ===============
F-17
A director of the Company holds options granted outside of the Plan to
purchase 760 shares of common stock of the Company at a price of $2.50 per
share. All of these options are exercisable at December 31, 2001.
Warrants for the purchase of 1,600 shares of common stock at a price of
$5.63 per share were granted during 2000. All of these warrants are exercisable
at December 31, 2001.
Retirement Plan
The Company sponsors a 401(k) Retirement Investment Profit-Sharing Plan
covering substantially all employees. In order to attract and retain employees,
during 2000, the Company amended the Plan to include a mandatory employer
matching. Matching contributions during 2001 and 2000 were $236,000 and $220,000
respectively. The Company did not make matching contributions to the Plan in
1999.
18. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain office facilities and furniture and
equipment under non-cancelable operating leases, with expirations through 2008.
The future minimum lease payments associated with such leases were as follows as
of December 31, 2001:
[Download Table]
2002 $ 1,515,000
2003 1,388,000
2004 1,387,000
2005 1,185,000
2006 1,083,000
Thereafter 1,895,000
-----------
$ 8,453,000
===========
During 2001, 2000 and 1999, total rent expense charged to operating
expenses was approximately $1,423,000, $1,322,000 and $1,413,000, respectively.
19. RELATED PARTY TRANSACTIONS
As a result of the Recapitalization, Minorplanet Systems PLC holds in
excess of 50 percent of the Company's outstanding common stock and thus controls
the Company. As a result of this control, Minorplanet Systems PLC is a related
party. Transactions with Minorplanet Systems PLC are summarized below.
[Download Table]
Year ended December 31, 2001
----------------
Purchases $ 525
[Download Table]
As of December 31, 2001
----------------
Accounts receivable $ 14
Accounts payable $ 525
Prior to the consummation of the Recapitalization, SBC Wireless LLC was
considered a related party by virtue of the control provisions afforded by the
shareholder agreement executed upon its purchase of the Company's common stock.
As a result of the Recapitalization, such control provisions were eliminated,
and SBC Wireless LLC is no longer a related party.
Certain affiliates of SBC Wireless LLC, which is wholly owned by
Cingular Wireless, LLC, a joint venture in which SBC Communications, Inc.
("SBC") is a lead venturer, serve as customers of and vendors to the Company.
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
F-18
other affiliated companies of SBC are among the cellular carriers with whom the
Company purchases airtime in connection with the Company's provision of its
services. Sales to these affiliated companies of SBC for the twelve months ended
December 31, 1999, the twelve months ending December 31, 2000, and the six
months ended June 30, 2001, the periods when it was a related party, are
summarized below.
[Download Table]
2001 2000 1999
--------------- --------------- ---------------
Revenues $ 15,331,000 $ 47,713,000 $ 35,878,000
20. SUBSEQUENT EVENT
On March 15, 2002, @Track completed the sale to Aether Systems, Inc.
("Aether") of certain assets and licenses related to @Track's long-haul trucking
and asset-tracking businesses pursuant to an Asset Purchase Agreement effective
as of March 15, 2002, by and between @Track and Aether. Under the terms of the
Asset Purchase Agreement, @Track 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, @Track and Aether agreed to
form a strategic relationship with respect to @Track's long-haul customer
products, pursuant to which @Track will assign to Aether all service revenues
generated post-closing from its HighwayMaster Series 5000 (HM5000) customer
base. Aether, in turn, has agreed to reimburse @Track for the network and
airtime service costs related to providing the HM5000 service. The two companies
have also agreed to work jointly in the adaptation of the Minorplanet Vehicle
Management Information (VMI(TM)) technology for the potential distribution of
VMI by Aether to the long-haul-trucking market.
As consideration for the Sale, @Track received $3 million in cash, of
which $1 million will be held in escrow and released to @Track over a 12-month
period. @Track also received a note for $12 million payable, at the option of
Aether, in either cash or convertible preferred stock in three equal
installments of $4 million on April 14, May 14, and June 14, 2002. The preferred
stock may then be converted to common stock using a prescribed formula that
compensates for fluctuations in the stock price so that @Track will be able to
convert and sell in the open market Aether common stock equal to $12 million.
The consideration for the Sale was determined through arms length negotiation
between @Track and Aether.
F-19
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations for 2001 and 2000 are as follows (in
thousands, except per share amounts):
[Enlarge/Download Table]
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
2001
Total revenues $ 22,436 $ 17,212 $ 19,472 $ 18,360
Gross profit 7,640 4,475 6,646 1,888
Operating income (loss) (2,423) (5,874) (1,996) (7,503)
Loss before extraordinary item (5,582) (8,699) (2,406) (7,963)
Extraordinary item -- 59,461 -- --
Net income (loss) (5,582) 50,762 (2,406) (7,963)
Basic Income (Loss) per share:
Before extraordinary item $ (1.10) $ (0.88) $ (0.05) $ (0.17)
Extraordinary item $ -- $ 6.03 $ -- $ --
Basic income (loss) $ (1.10) $ 5.15 $ (0.05) $ (0.17)
Diluted Income (Loss) per share:
Before extraordinary item $ (1.10) $ (0.87) $ (0.05) $ (0.17)
Extraordinary item $ -- $ 5.93 $ -- $ --
Diluted income (loss) $ (1.10) $ 5.06 $ (0.05) $ (0.17)
Weighted average shares outstanding:
Basic 5,065 9,849 48,056 48,047
Diluted 5,065 10,031 48,056 48,047
2000
Total revenues $ 16,312 $ 26,257 $ 29,780 $ 29,781
Gross profit 5,944 8,955 9,461 7,097
Operating income (loss) (1,793) (27) 492 (3,583)
Loss before cumulative effect of accounting change (4,466) (3,003) (2,588) (5,282)
Cumulative effect of accounting change (5,206) -- -- --
Net loss (9,672) (3,003) (2,588) (5,282)
Loss per share:
Before cumulative effect $ (0.89) $ (0.59) $ (0.51) $ (1.04)
Cumulative effect of accounting change $ (1.03) -- -- --
Basic and diluted loss $ (1.92) $ (0.59) $ (0.51) $ (1.04)
Weighted average shares outstanding 5,038 5,064 5,065 5,065
F-20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENTS SCHEDULE
To the Board of Directors and Stockholders of
@Track Communications, Inc.
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in @Track
Communication's annual report to stockholders in this Form 10-K and have issued
our report thereon dated March 15, 2002. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule of
Valuation and Qualifying Accounts is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 15, 2002
S-1
SCHEDULE II
@TRACK COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
[Enlarge/Download Table]
Additions
Balance at Charged to
Beginning of Costs and Balance at
Description Period Expenses Deductions Other End of Period
------------------------------------------ ------------ ------------ ------------ ------------ -------------
Year ended December 31,1999
Allowance for doubtful accounts
Accounts receivable 9,528,000 4,294,000 (6,374,000) -- 7,448,000
Inventory reserves 1,307,000 245,000 (719,000) -- 833,000
Warranty reserve 384,000 3,914,000 (365,000) -- 3,933,000
Severance and AutoLink
termination costs payable 2,028,000 (189,000) (1,839,000) -- --
Valuation allowance against
deferred tax asset 56,501,000 3,904,000 -- -- 60,405,000
Year ended December 31, 2000
Allowance for doubtful accounts
Accounts receivable 7,448,000 1,477,000 (1,620,000) -- 7,305,000
Inventory reserves 833,000 749,000 (383,000) -- 1,199,000
Warranty reserve 3,933,000 1,208,000 (3,672,000) -- 1,469,000
Valuation allowance against
deferred tax asset 60,405,000 6,851,000 -- -- 67,256,000
Year ended December 31, 2001
Allowance for doubtful accounts
Accounts receivable 7,305,000 1,056,000 (4,807,000) -- 3,554,000
Inventory reserves 1,199,000 9,263,000 (706,000) -- 9,756,000
Warranty reserve 1,469,000 1,406,000 (2,249,000) -- 626,000
Provision for settlement of litigation -- 2,100,000 (519,000) -- 1,581,000
Valuation allowance against
deferred tax asset 67,256,000 8,458,000 (19,804,000) -- 55,910,000
S-2
INDEX TO EXHIBITS
[Download Table]
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 - Stock Purchase and Exchange Agreement by and between the
Company, Minorplanet Systems PLC and Mackay Shields LLC, dated
February 14, 2001.(29)
2.2 - Asset Purchase Agreement by and between the Company and Aether
Systems, Inc. dated March 15, 2002.(29)
3.1 - Restated Certificate of Incorporation of the Company.(28)
3.2 - Second Amended and Restated By-Laws of the Company.(28)
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").(12)
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.(12)
4.5 - Registration Rights Agreement dated September 23, 1997, by and
among the Company, HighwayMaster Corporation, Bear, Stearns &
Co. Inc. and Smith Barney Inc.(12)
4.6 - Warrant Agreement dated September 23, 1997, by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
[Download Table]
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 - Registration Rights Agreement by and between the Company,
Minorplanet Systems PLC and Mackay Shields LLC, dated as of
June 21, 2001.(31)
10.2 - Exclusive License and Distribution Agreement by and between
Minorplanet Limited, an (@Track subsidiary) and Mislex (302)
Limited, dated June 21, 2001.(28)
10.3 Amended and Restated 1994 Stock Option Plan of the Company,
dated February 4, 1994.(1)(5)(6)
10.4 - Amendment No. 1 to the Amended and Restated 1994 Stock Option
Plan.(32)
10.5 - Amendment No. 2 to the Amended and Restated 1994 Stock Option
Plan.(33)
10.6 - Stock Option Agreement, dated June 22, 1998, by and between
the Company and John Stupka.(16)
10.7 - Product Development Agreement, dated December 21, 1995,
between HighwayMaster Corporation and IEX Corporation.(3)(4)
10.8 - Software Transfer Agreement, dated April 25, 1997, between
HighwayMaster Corporation and Burlington Motor Carriers,
Inc.(9)(10)
10.9 - Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc.(15)
10.10 - September 18, 1998 Amended and Restated Stock Option Agreement
of May 29, 1998 by and between the Company and Jana Ahlfinger
Bell.(16)
10.11 - Stock Option Agreement, dated August 12, 1998, by and between
the Company and Jana Ahlfinger Bell.(16)
10.12 - Stock Option Agreement, dated September 18, 1998, by and
between the Company and Jana Ahlfinger Bell.(16)
10.13 - September 18, 1998 Amended and Restated Stock Option Agreement
of April 25, 1997, by and between the Company and Robert
LaMere.(16)
10.14 - September 18, 1998 Amended and Restated Stock Option Agreement
of June 3, 1998, by and between the Company and Todd A.
Felker.(16)
10.15 - Stock Option Agreement dated November 24, 1998, by and between
the Company and Michael Smith.(16)
10.16 - 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)
10.17 - Administrative Carrier Agreement entered into between
HighwayMaster Corporation and Southwestern Bell Mobile
Systems, Inc. on March 30, 1999.(17)(18)
10.18 - Addendum to Agreement entered into between HighwayMaster
Corporation and International Telecommunications Data Systems,
Inc. on February 4, 1999.(17)(18)
10.19 - Second Addendum to Agreement entered into between
HighwayMaster Corporation and International Telecommunications
Data Systems, Inc. on February 4, 1999.(17)(18)
10.20 - Stock Option Agreement dated June 24, 1999, by and between the
Company and J. Raymond Bilbao.(19)
10.21 - Stock Option Agreement dated June 24, 1999, by and between the
Company and Marshall Lamm.(19)
10.22 - Fleet-on-Track Services Agreement entered into between GTE
Telecommunications Services Incorporated and HighwayMaster
Corporation on May 3, 1999.(19)(20)
10.23 - Stock Option Agreement dated September 3, 1999, by and between
the Company and J. Raymond Bilbao.(21)
10.24 - Stock Option Agreement dated September 3, 1999, by and between
the Company and Todd Felker.(21)
10.25 - Stock Option Agreement dated September 3, 1999, by and between
the Company and C. Marshall Lamm.(21)
[Download Table]
10.26 - Stock Option Agreement dated September 3, 1999, by and between
the Company and W. Michael Smith.(21)
10.27 - Stock Option Agreement dated September 3, 1999, by and between
the Company and Robert W. LaMere.(21)
10.28 - Limited Liability Company Agreement of HighwayMaster of
Canada, LLC executed March 3, 2000.(22)
10.29 - Monitoring Services Agreement dated May 25, 2000, by and
between the Company and Criticom International
Corporation.(23)(24)
10.30 - Commercial Lease Agreement dated April 26, 2000 by and between
the Company and 10th Street Business Park, Ltd.(24)
10.31 - Stock Option Agreement dated July 18, 2001, by and between the
Company and Jana A. Bell.(27)
10.32 - Stock Option Agreement dated June 21, 2001, by and between the
Company and Jana A. Bell.(27)
10.33 - Stock Option Agreement dated July 18, 2001, by and between the
Company and J. Raymond Bilbao.(27)
10.34 - Stock Option Agreement dated June 21, 2001, by and between the
Company and J. Raymond Bilbao.(27)
10.35 - Stock Option Agreement dated July 18, 2001, by and between the
Company and Todd A. Felker.(27)
10.36 - Stock Option Agreement dated June 21, 2001, by and between the
Company and Todd A. Felker.(27)
10.37 - Stock Option Agreement dated July 18, 2001, by and between the
Company and Robert W. LaMere.(27)
10.38 - Stock Option Agreement dated June 21, 2001, by and between the
Company and Robert W. LaMere.(27)
10.39 - Stock Option Agreement dated July 18, 2001, by and between the
Company and Marshall Lamm.(27)
10.40 - Stock Option Agreement dated June 21, 2001, by and between the
Company and Marshall Lamm.(27)
10.41 - Stock Option Agreement dated July 18, 2001, by and between the
Company and W. Michael Smith.(27)
10.42 - Stock Option Agreement dated June 21, 2001, by and between the
Company and W. Michael Smith.(27)
10.43 - Employment Agreement, dated June 21, 2001, between Jana A.
Bell and the Company.(28)
10.44 - Employment Agreement, dated June 21, 2001, between J. Raymond
Bilbao and the Company.(28)
10.45 - Employment Agreement, dated June 21, 2001, between W. Michael
Smith and the Company.(28)
10.46 - Employment Agreement, dated June 21, 2001, between Todd A.
Felker and the Company.(28)
23.1 - Consent of Arthur Andersen LLP.(34)
99.0 - Receipt of representation from Arthur Andersen, LLP.(34)
----------
(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) [Footnote intentionally omitted.]
(8) [Footnote intentionally omitted.]
(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) [Footnote intentionally omitted.]
(12) Filed in connection with the Company's Registration Statement on Form S-4,
as amended (No. 333-38361).
(13) [Footnote intentionally omitted.]
(14) [Footnote intentionally omitted.]
(15) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended September 30, 1998.
(16) Filed in connection with the Company's Form 10-K fiscal year ended December
31, 1998.
(17) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended March 31, 1999.
(18) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued June 22, 1999 in connection
with the Company's Form 10-Q Quarterly Report for the quarterly period
ended March 31, 1999.
(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 Order Granting
Application for Confidential Treatment issued June 20, 2001 in connection
with the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.
(26) Filed in connection with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.
(27) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended September 30, 2001.
(28) Filed in connection with the Company's Current Report on Form 8-K filed
with the SEC on June 29, 2001.
(29) Filed as Appendix A to the Company's Definitive Proxy Statement on Schedule
14A filed with the SEC on May 11, 2001.
(30) Filed in connection with the Company's Current Report on Form 8-K filed
with the SEC on March 27, 2002.
(31) Filed in connection with the Company's Form S-3 Registration Statement
filed with the SEC on October 10, 2001 (File No. 333-71340).
(32) Incorporated by reference to Exhibit A to the proxy statement contained in
the Company's Definitive Schedule 14A filed with the SEC on April 25, 2000.
(33) 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.
(34) Filed herewith.
Dates Referenced Herein and Documents Incorporated by Reference
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