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 June 30, 2000
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 43-1172403
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
3220 Executive Ridge Dr. #100, Vista, CA 92083
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(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number, Including Area Code (760) 597-0510
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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 | |
--- ---
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13
or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court. Yes |X| No | |
--- ---
As of August 1, 2000, Teletrac, Inc. had outstanding
10,000,000 shares of Common Stock, $.01 par value per share.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,077,054 $ 1,270,065
Accounts receivable, less allowances of
$1,075,321 and $1,874,717 at 2000 and 1999 3,230,033 2,752,173
Inventories (note 3) 3,380,680 4,411,507
Prepaid expenses and other current assets 899,402 936,691
------------ ------------
Total current assets 8,587,169 9,370,436
PROPERTY AND EQUIPMENT, net 7,037,549 7,740,758
INVENTORIES, LONG-TERM 2,977,650 2,977,650
OTHER ASSETS, net of accumulated amortization of
$14,355 and $4,830 at 2000 and 1999 634,514 380,190
ACCOUNTS RECEIVABLE LEASING 1,368,742 2,404,249
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Total assets $ 20,605,624 $ 22,873,283
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 960,766 $ 1,009,529
Accrued expenses 2,316,719 2,562,014
Current portion of long-term obligations 134,819 3,118,733
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Total current liabilities 3,412,304 6,690,276
LONG-TERM OBLIGATIONS 16,020,650 15,425,695
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Total liabilities 19,432,954 22,115,971
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 10,000,000 shares authorized and 249,000 issued 100,000 100,000
Warrants, 3,000,000 shares to purchase 3,000,000 shares of common stock;
800,000 shares to purchase 800,000 shares of common stock 468,000 468,000
Additional Paid-in-capital 1,795,512 1,795,512
Accumulated deficit (1,190,842) (1,606,200)
------------ ------------
Total stockholders' equity 1,172,670 757,312
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Total liabilities and stockholders' equity $ 20,605,624 $ 22,873,283
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated balance sheets.
<PAGE>
TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
New Company Predecessor New Company Predecessor
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service revenue $ 11,108,915 $ 10,435,817 $ 5,544,429 $ 5,088,380
Equipment revenue 3,221,575 4,680,879 1,654,988 2,143,063
Other revenue 213,126 2,778,667 157,346 208,412
------------ ------------ ------------ ------------
TOTAL OPERATING REVENUES 14,543,616 17,895,363 7,356,763 7,439,855
OPERATING EXPENSES:
Cost of service revenue 1,513,190 1,756,897 774,510 856,895
Cost of equipment revenue 2,277,625 3,206,907 1,180,554 1,235,689
Selling, general and administrative 9,098,782 12,396,969 4,541,038 5,143,178
Engineering 2,106,386 3,449,161 971,854 1,383,038
Research & development costs 3,711 593 1,045 (139,075)
Depreciation and amortization 717,721 3,091,680 365,047 1,527,737
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,173,799) (6,006,844) (477,285) (2,567,607)
OTHER EXPENSE (INCOME):
Interest expense 1,180,641 7,748,731 521,217 3,882,359
Gain on disposal (2,524,838) -- (2,523,983) --
Interest and other income (244,960) (644,997) (232,254) (309,409)
------------ ------------ ------------ ------------
EARNINGS BEFORE REOGANIZATION COSTS 415,358 (13,110,578) 1,757,735 (6,140,557)
REORGANIZATION COSTS -- 1,039,664 -- 1,039,664
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 415,358 $(14,150,242) $ 1,757,735 $(7,180,221)
============ ============ ============ ============
PREFERRED STOCK DIVIDENDS -- 3,553,366 -- 1,776,682
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCK $ 415,358 $(17,703,608) $ 1,757,735 $(8,956,903)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE>
TELETRAC, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(unaudited)
<TABLE>
<CAPTION>
NEW COMPANY PREDECESSOR
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2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES:
Net Income (loss) $ 415,358 $(14,150,242)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 717,721 3,091,679
Accretion of discount on senior notes -- 196,853
(Gain)/Loss on assets sold (2,524,838) 16,715
Changes in working capital and other assets and -- 60,394
liabilities
(Increase)decrease in trade receivables 307,649 (277,103)
(Increase)decrease in inventory 1,030,827 1,490,766
(Increase)decrease in prepaids and other 37,287 (24,877)
(Increase)decrease in current liabilities (3,568,827) (138,427)
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Total changes in working capital and other assets and liabilities (2,193,064) 1,050,359
Refrequency liability -- (58,184)
Accrued interest 1,039,257 --
------------ ------------
Total adjustments (2,960,924) 4,357,816
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Cash used in operating activities (2,545,566) (9,792,426)
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INVESTING ACTIVITIES:
Proceeds from sale of assets 3,600,855 5,100
Acquisition of property and equipment (830,869) (1,055,688)
Acquisition of other intangible assets (263,985) (687,065)
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Cash provided by (used in) investing activities 2,506,001 (1,737,653)
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FINANCING ACTIVITIES:
Restricted investments -- 6,756,158
Payments on capital leases (153,446) (390,648)
Debtor-in-possession financing -- 600,000
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Cash used by financing activities (153,446) 6,965,510
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NET DECREASE IN CASH AND CASH EQUIVALENTS (193,011) (4,564,569)
CASH AND CASH EQUIVALENTS, beginning of period 1,270,065 5,953,505
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,077,054 $ 1,388,936
============ ============
SUPPLEMENTAL DISCLOSURE -
Interest paid (net of amounts capitalized) $ 1,147,590 $ 7,494,602
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
<PAGE>
TELETRAC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------ Paid-in Accumulated Total
Par $.01 Warrants Capital (Deficit) Stockholders' Equity
-------- -------- ------- --------- --------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 $ 100,000 $ 468,000 $ 1,795,512 $(1,606,200) $ 757,312
Net Income -- -- -- 415,358 415,358
----------- ----------- ----------- ----------- ------------
BALANCE, June 30, 2000 $ 100,000 $ 468,000 $ 1,795,512 $(1,190,842) $ 1,172,670
=========== =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS:
Teletrac, Inc., a Delaware corporation, through its wholly-owned subsidiary,
Teletrac License, Inc. (collectively, the "Company"), controls licenses issued
by the Federal Communications Commission (FCC) to construct and operate radio
location networks for the purpose of locating, tracking and communicating with
commercial fleet and consumer vehicles as a result of its acquisition of
AirTouch Teletrac. As of June 30, 2000, the Company operated in twelve
metropolitan markets: Los Angeles, Chicago, Detroit, Dallas, Miami, Houston,
Orlando, San Francisco, San Diego, Sacramento, Washington D.C./Baltimore and New
York. The Company also uses its proprietary location systems to provide vehicle
location and stolen vehicle recovery services to consumers in its Los Angeles
market. 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 in each vehicle of a vehicle location unit ("VLU") or a
"VLU+" in the case of a CDPD/GPS application. 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 Enterprise Edition(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 or network server, which is connected to
the Company's Network Control Center. Fleet Director Enterprise Edition (R) can
be complemented with the Company's data communication units, which allow two-way
messaging between the fleet dispatcher and drivers directly from the Fleet
Director Enterprise Edition(R) screen. Even though the Company has sold its
networks in Washington D.C., New York, Miami and Orlando, it has maintained
ownership of the customers on those networks.
On September 15, 1999, the Company's Plan of Reorganization was confirmed by the
United States Bankruptcy Court and it was effective on September 29, 1999 (the
"Reorganization"). As a result of the Reorganization, the recording of the
restructuring transaction and the implementation of Fresh Start Accounting, the
Company's results of operations after September 30, 1999 (the cutoff date used
for financial reporting purposes) are not comparable to results reported in
prior periods.
NOTE 2 - ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 consolidated
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 services the commercial market for use in fleet management and the
consumer market for individual vehicle tracking. The commercial systems include
VLUs, computer hardware, and vehicle tracking software. On January 1, 1997, the
Company changed revenue recognition on sales of commercial systems from
recognition upon shipment of the system to recognition of revenue upon
installation of the system, which more appropriately matches customer acceptance
and payment. The commercial service fee revenues are recognized monthly as the
services are provided. The VLUs for the consumer market are sold along with
monthly service contracts. Service revenues for the consumer market may be paid
in advance and are recognized monthly as earned.
<PAGE>
NOTE 3 - INVENTORIES
Inventories consisted of the following at June 30, 2000 (unaudited) and December
31, 1999
June 30, 2000 December 31, 1999
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Vehicle Location Units ("VLU") $ 4,442,892 $ 5,538,409
Messaging Units 965,741 944,686
Computers & Software 333,755 328,016
Other Inventory 696,714 658,818
Less: Inventory Reserves (80,772) (80,772)
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Total Inventory 6,358,330 7,389,157
Less: Long Term Inventory 2,977,650 2,977,650
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Current Portion $ 3,380,680 $ 4,411,507
============= =============
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consisted of
the following at June 30, 2000 (unaudited) and December 31, 1999
June 30, 2000 December 31, 1999
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System Equipment $ 5,280,526 $ 5,803,006
Automobiles 87,086 118,015
Furniture & Fixtures 660,742 666,875
Computer Equipment 1,438,261 1,371,956
Leasehold Improvements 90,480 101,005
Construction in Progress 415,115 2,501
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Total Property & Equipment 7,972,210 8,063,359
Accumulated Depreciation (934,661) (322,602)
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Net Property & Equipment $ 7,037,549 $ 7,740,758
============= =============
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137 ("SFAS No. 137"), an amendment of SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and for hedging activities. SFAS No. 137 is effective for fiscal years beginning
after June 15, 2000. The Company does not believe the adoption of SFAS No. 137
will have a material effect on the Company's consolidated results of operations
or financial condition.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"), effective
the fourth quarter of 2000 for the Company, which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements. SAB
101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition policies.
Management believes that their revenue recognition policies comply with the
applicable provisions of SAB 101.
<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-1.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenues. Total revenues for the three months ended June 30, 2000 and for
the three months ended June 30, 1999 were $7.4 million.
Equipment revenues decreased to $1.7 million for the three months ended
June 30, 2000 from $2.1 million for the three months ended June 30, 1999,
principally due to fewer installations during the period offset by higher
average revenue per application. The reduction in number of installations was
primarily due to a sharp reduction in direct sales personnel. Gross commercial
installations decreased to 2,848 vehicle applications for the three months ended
June 30, 2000 from 3,580 vehicle applications for the three months ended June
30, 1999.
Service revenues increased to $5.5 million for the three months ended June
30, 2000 from $5.1 million for the three months ended June 30, 1999, an increase
of 8%, primarily due to an increase in the average commercial service revenue
per vehicle application to $32.72 in June 2000 from $29.14 in June 1999. Total
commercial vehicle applications in service at June 30, 2000 were 53,331 as
compared to 55,445 on June 30, 1999.
Cost of Revenues. Cost of revenues includes the direct cost of providing
service (network telephone, billing, roadside assistance and bad debt expense).
Cost of revenues decreased to $774,510 for the three months ended June 30, 2000
from $856,895 for the three months ended June 30, 1999.
Cost of Equipment. Cost of equipment for the three months ended June 30,
2000 and for the three months ended June 30, 1999 was $1.2 million.
Research and Development, Engineering, Selling, General and Administrative
Expenses. Research and development, engineering, selling, general and
administrative expenses decreased by $0.9 million, to $5.5 million for the three
months ended June 30, 2000 from $6.4 million for the three months ended June 30,
1999. The Company has reduced expenses through significant reductions in
personnel along with the shutting down of the San Francisco/Sacramento network
and sale of the New York, Washington DC, Miami and Orlando networks.
Depreciation and Amortization. Depreciation and Amortization decreased for
the three months ended June 30, 2000 to $365,047 from $1.5 million for the three
months ended June 30, 1999, primarily due to lower asset valuation on the
Reorganized Company in comparison to the Predecessor Company.
Operating Losses. Operating losses incurred by the Company were $477,285
for the three months ended June 30, 2000, as compared to $2.6 million for the
three months ended June 30, 1999, for the reasons discussed above.
Interest Expense. Interest expense was $521,217 for the three months ended
June 30, 2000 and $3.9 million for the three months ended June 30, 1999.
<PAGE>
Net Income/Loss. For the reasons discussed above and a gain on the sale of
the Miami and Orlando networks of $2.5 million, net income was $1.8 million for
three months ended June 30, 2000 as compared to a net loss of $7.2 million for
three months ended June 30, 1999. No tax benefit has been recognized for any
period due to the uncertainty of net operating loss carry-forward utilization.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues. Total revenues for the six months ended June 30, 2000 were $14.5
million, compared to $17.9 million for the six months ended June 30, 1999.
Equipment revenues decreased to $3.2 million for the six months ended June
30, 2000 from $4.7 million for the six months ended June 30, 1999, principally
due to fewer sales. The reduction in number of sales was primarily due to a
sharp reduction in direct sales personnel. Gross commercial installations
decreased to 5,791 vehicle applications for the six months ended June 30, 2000
from 7,294 vehicle applications for the six months ended June 30, 1999.
Service revenues increased to $11.1 million for the six months ended June
30, 2000 from $10.4 million for the six months ended June 30, 1999, an increase
of 7%, primarily due to an increase in the average commercial service revenue
per vehicle application to $32.72 in June 2000 from $29.14 in June 1999. Total
commercial vehicle applications in service at June 30, 2000 were 53,331 as
compared to 55,445 on June 30, 1999.
Other revenues for the six months ended June 30, 2000 was $213,126 as
compared to $2.8 million for the six months ended June 30, 1999. In 1999, the
Company licensed its proprietary location and messaging solution to an affiliate
of Ituran Location and Control LTD, Teletrac's Israeli licensee. The agreement
permits Ituran's affiliate to market and operate Teletrac's proprietary
technology in Latin and South America and certain countries in Eastern Europe.
In addition to the initial licensing fee, the agreement includes provisions for
future royalty payments. As part of the consideration of the licensing
agreement, Ituran and Teletrac agreed to the elimination of future royalty
payments due to Teletrac for Israel.
Cost of Revenues. Cost of revenues includes the direct cost of providing
service (network telephone, billing, roadside assistance and bad debt expense).
Cost of revenues decreased to $1.5 million for the six months ended June 30,
2000 from 1.8 million for the six months ended June 30, 1999.
Cost of Equipment. Cost of equipment decreased to $2.3 million for the six
months ended June 30, 2000 from $3.2 million for the six months ended June 30,
1999.
Research and Development, Engineering, Selling, General and Administrative
Expenses. Research and development, engineering, selling, general and
administrative expenses decreased by $4.6 million, to $11.2 million for the six
months ended June 30, 2000 from $15.8 million for the six months ended June 30,
1999. The Company has reduced expenses through significant reductions in
personnel along with the shutting down of the San Francisco/Sacramento network
and sale of the New York, Washington DC, Miami, and Orlando networks.
Depreciation and Amortization. Depreciation and Amortization decreased for
the six months ended June 30, 2000 to $717,721 from $3.1 million for the six
months ended June 30, 1999, primarily due to lower asset valuation on the
Reorganized Company in comparison to the Predecessor Company.
Operating Losses. Operating losses incurred by the Company were $1.2
million for the six months ended June 30, 2000, as compared to $6.0 million for
the six months ended June 30, 1999, for the reasons discussed above.
<PAGE>
Interest Expense. Interest expense was $1.2 million for the six months
ended June 30, 2000 as compared to $7.7 million for the six months ended June
30, 1999 and was primarily related to the senior note in 2000 and the high yield
bonds in 1999.
Net Income/Loss. For the reasons discussed above and a gain on the sale of
the Miami and Orlando networks of $2.5 million, net income was $415,358 for six
months ended June 30, 2000 as compared to a net loss of $14.2 million for six
months ended June 30, 1999. No tax benefit has been recognized for any period
due to the uncertainty of net operating loss carry-forward utilization.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures were $830,869 for the six months ended June 30, 2000,
primarily for development of internal software applications. The Company
currently expects that its aggregate capital expenditures will be less than $2.0
million for 2000. These capital expenditures will consist primarily of costs
associated with internal software development, the maintenance of existing
markets, and other capital improvements.
As part of the Reorganization, the Company granted an option to Ituran USA
to purchase the networks in Miami and Orlando. The option was exercised by
Ituran USA and that transaction closed on May 8, 2000. The proceeds from the
sale were approximately $3.6 million and were used to pay back the $3 million
Senior Secured Note.
The Company believes, based on its business plan, that it has sufficient
capital in both the short and long-term to meet its business objectives, using
both the available cash and the Company's positive working capital position.
However, there is no assurance that the Company will not need additional capital
in the future.
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.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The parties are in the process of negotiating a settlement of the
litigation in Bankruptcy Court involving the Company, Milgo Solutions f/k/a
Raycal-Datacom, Inc. and Newcourt Leasing, Inc. There have been no other
material developments in legal proceedings reported in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
Number Description
------- -----------
27 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
------------------------------
Name: Alan B. Howe
Title: Chief Financial Officer
Date: August 11, 2000
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
27 Financial Data Schedule
