SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 333-35021
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TELETRAC, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 48-1172403
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
2323 Grand Street, Suite 1100, Kansas City, Missouri 64108
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(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number, Including Area Code (816) 474-0055
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Not Applicable
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities and 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
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As of November 13, 1998, Teletrac, Inc. had outstanding
249,000 shares of Class A Common Stock and 190,476.19 shares
of Series A Redeemable Convertible Participating Preferred
Stock.
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TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, September 30,
1997 1998
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 41,480,737 $ 3,918,878
Accounts receivable, less allowances of $612,639 and $484,402 4,018,874 4,978,079
Inventories 5,441,695 13,397,445
Prepaid expenses and other 5,519,652 3,276,544
Short-term portion of restricted investments 5,920,833 2,450,000
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Total current assets 62,381,791 28,020,946
RESTRICTED CASH 1,750,000 --
RESTRICTED INVESTMENTS, HELD TO MATURITY 34,942,381 25,630,759
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$3,616,207 and $7,215,911 26,963,180 35,528,179
LICENSES AND OTHER, net of accumulated amortization of
$322,635 and $568,798 6,324,380 6,660,841
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Total assets $132,361,732 $95,840,725
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 3,362,390 $ 1,487,423
Current portion of long-term obligations 727,624 1,202,986
Accrued interest 5,920,833 2,450,000
Accrued expenses 1,214,455 2,034,141
Refrequency liability 3,076,871 592,756
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Total current liabilities 14,302,173 7,767,306
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SENIOR NOTES, 14% due 8/1/2007 98,253,377 98,353,262
OTHER LONG-TERM OBLIGATIONS 2,072,142 2,849,362
PREFERRED STOCK, redeemable cumulative, 15% dividend, 190,477
shares authorized and 190,476.19 shares issued and outstanding 38,290,000 42,002,500
PREFERRED STOCK, undesignated, 190,477 shares authorized, none
issued or outstanding -- --
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STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, Class A, $.01 par value, 507,934 shares authorized and
249,000 issued and outstanding 2,490 2,490
Common stock, Class B, $.01 par value, 70,000 shares authorized and
none issued or outstanding -- --
Paid-in-capital 23,772,610 20,060,110
Accumulated deficit (44,331,060) (75,194,305)
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Total stockholders' deficit (20,555,960) (55,131,705)
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Total liabilities and stockholders' deficit $132,361,732 $95,840,725
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The accompanying notes are an integral part of these
condensed consolidated financial statements.
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TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
1997 1998 1997 1998
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<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service Revenue $ 9,126,606 $ 12,941,488 $ 3,345,370 $ 4,598,232
Equipment Revenue 9,561,330 7,803,095 3,972,642 2,620,054
------------ ------------ ----------- ------------
Total operating revenues 18,687,936 20,744,583 7,318,012 7,218,286
OPERATING EXPENSES:
Cost of service revenue 2,105,904 2,946,986 739,303 1,113,220
Cost of equipment revenue 6,930,474 5,959,283 3,095,012 2,042,224
Selling, general and administrative 18,579,564 22,270,248 5,712,687 7,861,840
Engineering 5,243,877 6,743,495 1,863,860 2,411,011
Research & development costs 2,873,084 1,091,440 833,038 321,057
Refrequency costs -- 390,000 -- --
Depreciation and amortization 1,754,243 3,871,767 755,008 1,611,696
------------ ------------ ----------- ------------
LOSS FROM OPERATIONS (18,799,210) (22,528,636) (5,680,896) (8,142,762)
------------ ------------ ----------- ------------
OTHER EXPENSE (INCOME):
Interest expense 2,527,979 10,783,664 2,441,545 3,667,994
Interest and other income (1,250,586) (2,449,055) (845,800) (686,524)
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LOSS BEFORE INCOME TAXES (20,076,603) (30,863,245) (7,276,641) (11,124,232)
PROVISION FOR INCOME TAXES -- -- -- --
NET LOSS $(20,076,603) $(30,863,245) $(7,276,641) $(11,124,232)
------------ ------------ ----------- ------------
PREFERRED DIVIDENDS 3,712,500 3,712,500 1,237,500 1,237,500
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LOSS APPLICABLE TO
COMMON STOCK $(23,789,103) $(34,575,745) $(8,514,141) $(12,361,732)
============ ============ =========== ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
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TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
1997 1998
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OPERATING ACTIVITIES:
Net Loss $ (20,076,603) $ (30,863,245)
Adjustments to reconcile net loss to
net cash used in operating activities -
Depreciation and amortization 1,754,243 3,871,767
Accretion of discount on senior notes 117,333 99,885
Loss on assets disposed/sold -- 25,909
Changes in working capital and other
assets and liabilities, net of
acquisition and refrequency (3,610,634) (7,727,269)
Restricted cash (500,042) 1,750,000
Refrequency liability (3,426,282) (2,483,974)
Accrued interest on senior notes 2,245,833 (3,470,833)
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Total adjustments (3,419,549) (7,934,515)
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Cash used in operating activities (23,496,152) (38,797,760)
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INVESTING ACTIVITIES:
Proceeds from sale of assets -- 21,947
Acquisition of property and equipment (8,564,327) (10,296,179)
Acquisition of other intangible assets (62,002) (580,371)
Acquistion of Airtouch Teletrac (1,000,000) --
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Cash used in investing activities (9,626,329) (10,854,603)
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FINANCING ACTIVITIES:
Proceeds from issuance of
senior notes and warrants, net 100,607,766 --
Restricted investments (40,285,811) 12,782,455
Cost of credit facility (815,523) (2,253)
Payments on capital leases (289,947) (689,698)
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Cash provided by financing activities 59,216,485 12,090,504
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NET CHANGE IN CASH 26,094,004 (37,561,859)
CASH AND CASH EQUIVALENTS, beginning of period 27,639,168 41,480,737
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CASH AND CASH EQUIVALENTS, end of period $ 53,733,172 $ 3,918,878
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SUPPLEMENTAL DISCLOSURES
Interest (net of amounts capitalized) $ 282,146 $ 14,451,658
The accompanying notes are an integral part of these
condensed consolidated financial statements.
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TELETRAC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
Common Stock Paid-in Accumulated
Class A Class B Capital Deficit
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<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 2,490 $ -- $ 23,772,610 $(44,331,060)
Net loss -- -- -- (30,863,245)
Preferred stock dividends -- -- (3,712,500) --
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BALANCE, September 30, 1998 $ 2,490 $ -- $ 20,060,110 $(75,194,305)
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The accompanying notes are an integral part of these
condensed consolidated financial statements.
</TABLE>
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TELETRAC, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - COMPANY OVERVIEW
The Company is a leading provider of vehicle location and fleet management
services, including associated two-way digital wireless messaging, to commercial
fleet operators. The Company has developed a proprietary land-based location
technology that provides customers with a low-cost, accurate and reliable
real-time method of locating vehicles in selected metropolitan areas. The
Company's system is designed to enable customers to better manage their mobile
workforce, provide security for their property and personnel and communicate
more effectively with mobile workers.
The Company offers a range of fleet management solutions, depending on the
customer's budget and location and messaging needs. All of these solutions
involve the installation of a Vehicle Location Unit ("VLU") in each vehicle. The
VLU is a radio transceiver that receives and transmits signals used to determine
a vehicle's location. In addition to the VLU, commercial fleet customers
generally purchase software or location services from the Company. The Company's
primary product for commercial fleets is Fleet Director(R), a proprietary
software application that permits simultaneous location of all fleet vehicles on
a real-time 24-hour-a-day basis through a digitized map displayed on the
customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director(R) can be complemented with the Company's messaging
units, which allow two-way messaging between the fleet dispatcher and drivers
directly from the Fleet Director(R) screen. In the first quarter of 1998, the
Company introduced Winfleet(TM), a Microsoft Windows(R)-based application
similar to Fleet Director(R) that will not require a dedicated computer.
As of September 30, 1998, the Company operated in eleven metropolitan markets:
Los Angeles, Chicago, Detroit, Dallas, Miami, Houston, Orlando, San Francisco,
San Diego, Sacramento and Washington D.C. / Baltimore. The Company also uses its
proprietary location systems to provide vehicle location and stolen vehicle
recovery services to consumers in its Los Angeles and Miami markets.
The Company's revenues are derived from sales and installation of its VLU's,
messaging units, proprietary software and charges for its services.
NOTE 2 - BASIS OF PRESENTATION
The condensed consolidated interim financial statements of Teletrac, Inc. and
its wholly owned subsidiary Teletrac License, Inc. ("Teletrac" or the "Company")
included herein have been prepared by the Company without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"Commission") and reflect all adjustments that are, in the opinion of
management, necessary to fairly present the financial position, results of
operations, and cash flows for the interim periods. Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. Management
believes that the disclosures made are adequate to make the information
presented not misleading. The results for interim periods are not necessarily
indicative of the results for the full year. The interim financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's audited consolidated financial statements for the
year ended December 31, 1997 filed on Form 10-K.
Certain reclassifications have been made to the prior period consolidated
financial statements to conform with the current presentation.
NOTE 3 - INVENTORIES
Inventories consisted of the following at December 31, 1997 and September 30,
1998 (unaudited):
December 31, 1997 September 30, 1998
Vehicle Location Units ("VLU")
$ 3,497,538 $ 9,758,198
Messaging Units 920,270 2,063,041
Computers & Software 313,141 452,157
Other Inventory 710,746 1,124,049
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Total Inventory $ 5,441,695 $13,397,445
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The Company received 41,012 VLU's and 12,550 messaging units valued at
approximately $10.3 million during the first nine months of 1998.
NOTE 4 - LETTER OF CREDIT
In January 1998, the $1,750,000 Letter of Credit, established between Teletrac
and Tadiran held at Toronto Dominion, was replaced with a joint $2,500,000
Letter of Credit pledged on the Revolver Line of Credit with Banque Paribas and
Fleet National Bank. In September 1998, the Letter of Credit was reduced to
$455,000. The funds previously accounted for as "Restricted Cash" on the Balance
Sheet were refunded and deposited into the Company's operating cash.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consisted of
the following at December 31, 1997 and September 30, 1998 (unaudited):
December 31, 1997 September 30, 1998
System Equipment $12,692,730 $21,587,449
Automobiles 502,370 565,723
Furniture & Fixtures 1,711,089 2,260,041
Computer Equipment 3,836,349 5,588,210
Leasehold Improvements 383,911 499,173
Construction in Progress 11,452,938 12,243,494
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Total Property & Equipment $30,579,387 $42,744,090
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Accumulated Depreciation ($3,616,207) ($7,215,911)
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Net Property & Equipment $26,963,180 $35,528,179
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NOTE 6 - OTHER LONG-TERM OBLIGATIONS
The Company entered into capital lease agreements with five separate vendors
valued at $1,942,000 during the first nine months of 1998. The assets included
under the lease agreements will be utilized in the construction and operation of
the metropolitan markets the Company has and will commence business in during
the remainder of 1998.
NOTE 7 - SUBSEQUENT EVENT
On October 21, 1998, 132,506.76 shares of $0.01 par value Series B
Redeemable Convertible Participating preferred stock (Series B) were issued the
Company's corporate parent, Teletrac Holdings, Inc. ("Holdings"), for net cash
proceeds of approximately $10 million. The proceeds of such offering were
contributed to the Company. The Series B preferred shares entitle holders to
receive cumulative, compounding dividends at the rate of 5% percent per annum.
Dividends accrue on a daily basis from the issuance date and are payable as
declared by the board of directors. Holders are entitled to voting rights,
preference on liquidation, voluntary conversion into common stock at a defined
conversion price, and automatic conversion into common stock after either a
qualified public stock offering or a certain non-qualified public stock offering
as defined. Prior to February 1, 2008, at the election of the holders of a
majority of the outstanding Series B preferred stock, Holdings is obligated
to redeem the Series B preferred stock at a cash price equal to the liquidation
preference amount of $75 per share plus cumulative unpaid dividends. On or after
February 1, 2008, the redemption price will be equal to the greater of the
liquidation preference amount or the fair market value of the Series B preferred
stock.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, the "Risk Factors" set forth in the
Company's Registration Statement on Form S-4.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
OPERATING REVENUES. Total operating revenues for the three months ended
September 30, 1998 were $7.2 million, compared to $7.3 million for the three
months ended September 30, 1997.
Service revenues, which include revenues from both sold units and
rental units, increased to $4.6 million for the three months ended September 30,
1998 from $3.3 million for the three months ended September 30, 1997, an
increase of 39%, primarily due to an increase in the number of commercial units
in service, to 82,125 at September 30, 1998 from 61,369 at September 30, 1997.
Also, the average commercial service revenue per unit increased to $17.53 in
September 1998 from $16.93 in September 1997 as a result of an increase in both
ancillary services and monthly airtime rates.
Equipment revenues decreased to $2.6 million for the three months ended
September 30, 1998 from $4.0 million for the three months ended September 30,
1997, principally due to the introduction of the Company's rental program in the
first quarter of 1998. Gross commercial sales (installations) decreased to 7,626
units for the three months ended September 30, 1998 from 8,141 units for the
three months ended September 30, 1997. Equipment revenues in future periods may
continue to decline relative to the number of new units going into service due
to the equipment rental program in which units are rented rather than sold.
Equipment rental revenues, which are included in total equipment
revenues, increased to $192,962 for the three months ended September 30, 1998
from $0 for the three months ended September 30, 1997. The total number of
rental units in service at September 30, 1998 was 3,847.
COST OF SERVICE REVENUES. Cost of service revenues includes the direct
cost of providing service (network telephone, billing, roadside assistance and
bad debt expense). Cost of service revenues increased to $1.1 million for the
three months ended September 30, 1998 from $0.7 million for the three months
ended September 30, 1997. Cost of service revenues increased primarily in
network telephone costs from new market build-out.
COST OF EQUIPMENT REVENUES. Cost of equipment revenues includes the
direct cost of equipment provided to customers, installation and other direct
ancillary equipment. Cost of equipment revenues decreased to $2.0 million for
the three months ended September 30, 1998 from $3.1 million for the three months
ended September 30, 1997. Cost of equipment revenues decreased primarily as a
result of the Company's rental program.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling, general
and administrative expenses increased by $2.2 million, to $10.6 million for the
three months ended September 30, 1998 from $8.4 million for the three months
ended September 30, 1997 related to the Company's expansion. The Company
expensed $0.3 million in the three months ended September 30, 1998 relating to
research and development, compared with $0.8 million for the same period in
1997.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization increased
for the three months ended September 30, 1998 to $1.6 million from $0.8 million
for the three months ended September 30, 1997, primarily due to depreciation on
additional assets related to the new market build-out and additional
infrastructure in existing markets.
OPERATING LOSSES. Operating losses incurred by the Company were $8.1
million for the three months ended September 30, 1998, as compared to $5.7
million for the three months ended September 30, 1997, for the reasons discussed
above.
INTEREST EXPENSE. Interest expense was $3.7 million for the three
months ended September 30, 1998 verses $2.4 million, and primarily relates to
the senior notes.
NET LOSS. For the reasons discussed above net loss increased to $11.1
million for three months ended September 30, 1998 from $7.3 million for three
months ended September 30, 1997. No tax benefit has been recognized for any
period due to the uncertainty of net operating loss carry-forward utilization.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
OPERATING REVENUES. Total operating revenues for the nine months ended
September 30, 1998 were $20.7 million, compared to $18.7 million for the nine
months ended September 30, 1997, an increase of 11%.
Service revenues, which include revenues from both sold units and
rental units, increased to $12.9 million for the nine months ended September 30,
1998 from $9.1 million for the nine months ended September 30, 1997, an increase
of 42%, primarily due to an increase in the number of commercial units in
service, to 82,125 at September 30, 1998 from 61,369 at September 30, 1997.
Also, the average commercial service revenue per unit increased to $17.53 in
September 1998 from $16.93 in September 1997 as a result of an increase in both
ancillary services and monthly airtime rates.
Equipment revenues decreased to $7.8 million for the nine months ended
September 30, 1998 from $9.6 million for the nine months ended September 30,
1997, principally due to the introduction of the Company's rental program in the
first quarter of 1998. Gross commercial sales (installations) increased to
25,927 units for the nine months ended September 30, 1998 from 23,371 units for
the nine months ended September 30, 1997. Equipment revenues in future periods
may continue to decline relative to the number of new units going into service
because of the equipment rental program in which units are rented rather than
sold.
Equipment rental revenues, which are included in total equipment
revenues, increased to $349,611 for the nine months ended September 30, 1998
from $0 for the nine months ended September 30, 1997. The total number of rental
units in service at September 30, 1998 was 3,847.
COST OF SERVICE REVENUES. Cost of service revenues includes the direct
cost of providing service (network telephone, billing, roadside assistance and
bad debt expense). Cost of service revenues increased to $2.9 million for the
nine months ended September 30, 1998 from $2.1 million for the nine months ended
September 30, 1997. Cost of service revenues increased primarily in network
telephone costs from new market build-out.
COST OF EQUIPMENT REVENUES. Cost of equipment revenues includes the
direct cost of equipment provided to customers, installation and other direct
ancillary equipment. Cost of equipment revenues decreased to $6.0 million for
the nine months ended September 30, 1998 from $6.9 million for the nine months
ended September 30, 1997. Cost of equipment revenues decreased primarily as a
result of the Company's rental program.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling, general
and administrative expenses increased by $3.4 million, to $30.1 million for the
nine months ended September 30, 1998 from $26.7 million for the nine months
ended September 30, 1997 related to the Company's expansion. The Company
expensed $1.1 million in the nine months ended September 30, 1998 relating to
research and development, compared with $2.9 million for the same period in
1997.
REFREQUENCY COSTS. Refrequency costs accrued for the nine months ended
September 30, 1998 was $0.4 million. The accrual, which was recorded during the
second quarter ended June 30, 1998, reflects a change in estimate for the total
refrequency liability.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
for the nine months ended September 30, 1998 to $3.9 million from $1.8 million
for the nine months ended September 30, 1997, primarily due to depreciation on
additional assets related to the new market build-out and additional
infrastructure in existing markets.
OPERATING LOSSES. Operating losses incurred by the Company were $22.5
million for the nine months ended September 30, 1998, as compared to $18.8
million for the nine months ended September 30, 1997, for the reasons discussed
above.
INTEREST EXPENSE. Interest expense was $10.8 million for the nine
months ended September 30, 1998 verses $2.5 million, and primarily relates to
the senior notes.
NET LOSS. For the reasons discussed above net loss increased to $30.9
million for nine months ended September 30, 1998 from $20.1 million for nine
months ended September 30, 1997. No tax benefit has been recognized for any
period due to the uncertainty of net operating loss carry-forward utilization.
YEAR 2000 EFFORT
The Company has performed internal testing and evaluation on all products,
services and internal computer hardware and software utilized by the Company in
providing services to customers to ensure compliance with the Year 2000 issue.
This testing has included both information technology systems and
non-information technology systems such as microcontrollers utilized in the
Company's vehicle location units. Based upon the results of this internal
testing, management has determined that the Year 2000 issue will not have a
material impact on the Company's business, results of operations or financial
condition.
Current customers have been notified, in writing, that the Company's current
software and hardware products are Year 2000 compliant. A previous version of
Fleet Director (R), which is currently utilized by few customers, is not Year
2000 compliant. For customers utilizing this version, an upgrade to the most
current version of Fleet Director, which is Year 2000 compliant, is being
provided to affected customers at no charge. The overall impact of the free
software upgrade is not material to the overall results of operations or
financial condition of the Company. Also, as a general service, Customers have
been notified in the same letter that each personal computer utilized by the
customer, while not a product or liability of the Company, should be tested to
ensure it is Year 2000 compliant.
As part of its Year 2000 plan, the Company is seeking confirmation from certain
material vendors and telecommunications service and equipment providers
("Primary Vendors") that they are, or developing and implementing plans to
become, Year 2000 compliant. Confirmations received to date from its Primary
Vendors have indicated that such respondents are in the process of implementing
remediation procedures to ensure Year 2000 compliance. In addition, the Company
is currently developing a contingency plan related to the Year 2000 issue,
should a potential business interruption occur on January 1, 2000 or thereafter.
Although the Company expects its system as a whole to be Year 2000 compliant, on
or before December 31, 1999, it cannot predict the outcome or the success of its
Year 2000 compliance programs of the Primary Vendors, nor can it predict the
impact on its financial condition or results of operations, if any, in the event
that such Year 2000 compliance programs of its Primary Vendors are not
successful.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures were $10.3 million for the nine months ended
September 30, 1998, primarily for the build-out of the Company's networks in new
markets. The Company currently expects that its aggregate capital expenditures
(excluding the acquisition of spectrum rights) will be $16.9 million for both
1998 and 1999 combined. These capital expenditures will consist primarily of
costs associated with the opening of new markets in 1998. In addition, the
Company's capital expenditure plans include network design and development, the
maintenance of existing markets, supporting the Company's rental program, and
other capital improvements.
The Company received 41,012 Vehicle Location Units ("VLU") and 12,550
messaging units valued at approximately $10.3 million during the first nine
months of 1998. The delivery and payment schedule has been adjusted to allow for
a reduction of the inventory to improve working capital.
At September 30, 1998, the Company was not in compliance with certain
covenants under its revolving credit facilities ("the Revolvers") with Banque
Paribas and Fleet National Bank. Such covenants were established based on
projections that included consumer unit sales that did not materialize, based on
the Company's strategic decision to focus on its core commercial fleet
management business and not pursue opportunities in the commercial markets. The
covenant non-compliance was waived at September 30, 1998 and the Company had
made no draws against the revolvers through that date. The Company and the banks
are currently in dialogue regarding the terms of the Revolvers, and until such
time as this dialogue is concluded the Company has no availability under the
Revolvers.
On October 21, 1998, 132,506.76 shares of $0.01 par value Series B
Redeemable Convertible Participating preferred stock ("Series B") were issued by
the Company's corporate parent, Teletrac Holdings, Inc. ("Holdings") to certain
of its existing stockholders for net cash proceeds of approximately $10 million.
The proceeds of such offering were contributed to the Company. They entitle
holders to receive cumulative, compounding dividends at the rate of 5% percent
per annum. The proceeds are to support on-going working capital needs of the
Company. The Company estimates that, including the proceeds of the sale of such
securities, current cash resources are sufficient to cover its needs through the
end of the first quarter of 1999. Holdings is authorized to issue up to an
aggregate 400,000 shares of Series B preferred stock, and is currently in the
process of seeking additional equity investments from existing investors and
other potential investors. There can be no assurance that Holdings will succeed
in seeking additional capital, either in the form of additional investment in
Series B Preferred Stock or otherwise. If Holdings or the Company fails to
secure additional capital or alternate sources of liquidity before the end of
the first quarter of 1999, the Company's ability to continue its current
operations will be in question.
Although the unaudited financial statements for the nine months ended
September 30, 1998 have not been audited by Arthur Andersen LLP, they have
informed the Company that if the conditions described above continue to exist at
the time of their audit of the financial statements for the year ended December
31, 1998, their report on those statements will include an explanatory fourth
paragraph because of substantial doubt about going concern.
INFLATION
The Company believes that to date inflation has not had a material
effect on its results of operations. Although inflation may in the future effect
the cost of VLU and messaging units sold by the Company, the Company expects
that technology and engineering improvements are likely to offset any
foreseeable cost increases.
Item 3. Quantitive and Qualitative
Disclosures About Market Risks
Not applicable.
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information.
On October 21, 1998, 132,506.76 shares of $0.01 par value Series B
Redeemable Convertible Participating preferred stock ("Series B") were issued by
the Company's corporate parent, Teletrac Holdings, Inc. ("Holdings") to certain
of its existing stockholders for net cash proceeds of approximately $10 million.
The proceeds of such offering were contributed to the Company. They entitle
holders to receive cumulative, compounding dividends at the rate of 5% percent
per annum. The proceeds are to support on-going working capital needs of the
Company. The Company estimates that, including the proceeds of the sale of such
securities, current cash resources are sufficient to cover its needs through the
end of the first quarter of 1999. Holdings is authorized to issue up to an
aggregate 400,000 shares of Series B preferred stock, and is currently in the
process of seeking additional equity investments from existing investors and
other potential investors. There can be no assurance that Holdings will succeed
in seeking additional capital, either in the form of additional investment in
Series B Preferred Stock or otherwise. If Holdings or the Company fails to
secure additional capital or alternate sources of liquidity before the end of
the first quarter of 1999, the Company's ability to continue its current
operations will be in question.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial data schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TELETRAC, INC.
By: /s/ Alan B. Howe
Alan B. Howe
Vice President of
Finance and Corporate
Development and on
behalf of the Registrant
November 16, 1998
<PAGE>
Exhibit Index
27.1 Financial data schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,918,878
<SECURITIES> 0
<RECEIVABLES> 5,462,481
<ALLOWANCES> 484,402
<INVENTORY> 13,397,445
<CURRENT-ASSETS> 28,020,946
<PP&E> 42,744,090
<DEPRECIATION> 7,215,911
<TOTAL-ASSETS> 95,840,725
<CURRENT-LIABILITIES> 7,767,306
<BONDS> 101,202,624
42,002,500
0
<COMMON> 2,490
<OTHER-SE> 20,060,110
<TOTAL-LIABILITY-AND-EQUITY> 95,840,725
<SALES> 7,453,484
<TOTAL-REVENUES> 20,744,583
<CGS> 5,959,283
<TOTAL-COSTS> 31,176,517
<OTHER-EXPENSES> 12,096,702
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,783,664
<INCOME-PRETAX> (30,863,245)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,863,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,863,245)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
