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, 1999
Commission file number 333-35017
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TELETRAC HOLDINGS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 43-1789886
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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
---------------------------------
(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 August 13, 1999, Teletrac Holdings, Inc. had
outstanding 249,000 shares of Class A Common Stock,
167,387.19 shares of Series A Redeemable Convertible
Participating Preferred Stock, 23,088 shares of Series A1
Redeemable Convertible Participating Preferred Stock and
132,506.76 shares of Series B Participating Convertible
Preferred Stock.
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
(TELETRAC, INC., DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $5,953,505 $1,388,936
Accounts receivable, less allowances of $983,154 and
$706,154 at 1998 and 1999 4,608,619 4,885,722
Inventories (note 3) 8,319,016 6,828,251
Prepaid expenses and other current assets 1,483,843 1,788,720
Short-term portion of restricted investments 6,125,000 6,125,000
------------------ ---------------
Total current assets 26,489,983 21,016,629
------------------ ---------------
RESTRICTED INVESTMENTS, HELD TO MATURITY 22,023,208 15,267,050
PROPERTY AND EQUIPMENT, net of accumulated depreciation of 19,135,386 17,156,664
$7,126,336 and $9,912,210 (note 4)
INVENTORIES, LONG-TERM 3,435,700 3,435,700
OTHER ASSETS, net of accumulated amortization of $468,141
and $630,754 at 1998 and 1999 6,312,294 6,556,749
------------------ ---------------
Total assets $77,396,571 $63,432,792
================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
LIABILITIES NOT SUBJECT TO COMPROMISE
Current Liabilities:
Accounts payable - trade $86,358
Accrued expenses 1,046,737
Short-term borrowings (note 5) 603,667
------------------ ---------------
Total current liabilities 1,736,762
LIABILITIES SUBJECT TO COMPROMISE
Trade and other claims 12,045,965 10,651,270
Senior notes, 14% due 8/1/2007 98,445,776 98,642,629
Long-term obligations (note 6) 2,769,638 2,417,181
------------------ ---------------
Total liabilities subject to compromise 113,261,379 111,711,080
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Total liabilities 113,261,379 113,447,842
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STOCKHOLDERS' DEFICIT:
PREFERRED STOCK, Series A and A-1, redeemable cummulative,
15% dividend, 190,477 shares authorized and 190,476.19
shares issued and outstanding 44,033,500 47,336,013
PREFERRED STOCK, Series B, convertible participating, 5% dividend,
400,000 shares authorized and 132,506.76 shares issued and outstanding 10,034,181 10,285,036
PREFERRED STOCK, undesignated, 567,338 shares authorized, none issued
or outstanding
PREFERRED STOCK, redeemable, 400,000 shares authorized, none issued
or outstanding
Common stock, Class A, $.01 par value, 1,000,000 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
Warrants, 105,000 units to purchase 57,071 shares of Class A common stock 7,039,954 7,039,954
Additional Paid-in-capital 10,775,955 7,222,587
Accumulated deficit (107,750,888) (121,901,130)
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Total stockholders' deficit (35,864,808) (50,015,050)
------------------ ---------------
Total liabilities and stockholders' deficit $77,396,571 $63,432,792
================== ===============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
(TELETRAC, INC., DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended June 30, Ended June 30,
1998 1999 1998 1999
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service revenue $8,343,256 $10,435,817 $4,393,560 $5,088,380
Equipment revenue 5,183,041 4,680,879 2,454,685 2,143,063
Other revenue - 2,778,667 - 208,412
--------------- --------------- --------------- ---------------
Total operating revenues 13,526,297 17,895,363 6,848,245 7,439,855
OPERATING EXPENSES:
Cost of service revenues 1,833,767 1,756,897 936,495 856,895
Cost of equipment revenue 3,917,058 3,206,907 1,809,610 1,235,689
Selling, general and administrative 14,408,408 12,396,969 7,937,447 5,143,178
Engineering 4,332,484 3,449,161 2,263,813 1,383,038
Research & development costs 770,383 593 377,357 (139,075)
Refrequency costs 390,000 - 390,000 0
Depreciation and amortization 2,260,070 3,091,680 1,111,060 1,527,737
--------------- --------------- --------------- ---------------
LOSS FROM OPERATIONS (14,385,873) (6,006,844) (7,977,537) (2,567,607)
--------------- --------------- --------------- ---------------
OTHER EXPENSE (INCOME):
Interest expense 7,115,669 7,748,731 3,622,121 3,882,359
Interest and other income (1,762,530) (644,997) (818,146) (309,409)
--------------- --------------- --------------- ---------------
EARNINGS BEFORE REORGANIZATION COSTS (19,739,012) (13,110,578) (10,781,512) (6,140,557)
REORGANIZATION COSTS - 1,039,664 - 1,039,664
--------------- --------------- --------------- ---------------
LOSS BEFORE INCOME TAXES ($19,739,012) ($14,150,242) ($10,781,512) ($7,180,221)
PROVISION FOR INCOME TAXES - - - -
--------------- --------------- --------------- ---------------
NET LOSS (19,739,012) (14,150,242) (10,781,512) (7,180,221)
=============== =============== =============== ===============
PREFERRED STOCK DIVIDENDS 2,475,000 3,553,366 1,237,500 1,776,682
--------------- --------------- --------------- ---------------
NET LOSS APPLICABLE TO COMMON STOCK (22,214,012) (17,703,608) (12,019,012) (8,956,903)
=============== =============== =============== ===============
</TABLE>
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
(TELETRAC, INC., DEBTOR-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For The
Six Months Ended June 30,
1998 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (19,739,012) $ (14,150,242)
Adjustments to reconcile net loss to net cash used in
operating activities -
Depreciation and amortization 2,260,070 3,091,679
Accretion of discount on senior notes 9,566 196,853
(Gain)/Loss on assets disposed/sold 34,952 16,715
Loss on assets from restructuring -- 60,394
Changes in working capital and other assets and
liabilities (7,538,760) 1,050,359
Restricted cash 1,750,000 --
Refrequency liability (2,057,829) (58,184)
Accrued interest 204,167 --
------------------- --------------------
Total adjustments (5,337,834) 4,357,816
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Cash used in operating activities (25,076,846) (9,792,426)
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INVESTING ACTIVITIES:
Proceeds from sale of assets 15,506 5,100
Acquisition of property and equipment (6,937,070) (1,055,688)
Acquisition of other intangible assets (238,192) (687,065)
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Cash used in investing activities (7,159,756) (1,737,653)
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FINANCING ACTIVITIES:
Cost of credit facility (2,253) --
Restricted investments 6,009,857 6,756,158
Payments on capital leases (401,256) (390,648)
Debtor-in-possession financing -- 600,000
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Cash provided by financing activities 5,606,348 6,965,510
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NET DECREASE IN CASH AND CASH EQUIVALENTS (26,630,254) (4,564,569)
CASH AND CASH EQUIVALENTS, beginning of period 41,480,737 5,953,505
------------------- --------------------
CASH AND CASH EQUIVALENTS, end of period $ 14,850,483 $ 1,388,936
=================== ====================
SUPPLEMENTAL DISCLOSURE -
Interest (net of amounts capitalized) $ 7,106,104 $ 7,494,602
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
(TELETRAC, INC., DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Paid-in Accumulated
Series A and A-1 Series B Class A Class B Warrants Capital Deficit
---------------- -------- ------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ 44,033,500 $ 10,034,181 $ 2,490 $ - $ 7,039,954 $ 10,775,955 $ (107,750,888)
Net loss - - - - (14,150,242)
Preferred stock dividends 3,302,513 250,855 - - - (3,553,368) -
------------ ------------ ------- --- ----------- ----------- --------------
BALANCE, June 30, 1999 $ 47,336,013 $ 10,285,036 $ 2,490 $ - $ 7,039,954 $ 7,222,587 $ (121,901,130)
============ ============ ======= === =========== =========== ==============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - COMPANY OVERVIEW
The Company, through its wholly-owned subsidiary, Teletrac, Inc. ("Teletrac"),
is a leading provider of vehicle location and fleet management services,
including associated two-way digital wireless messaging, to commercial fleet
operators. Teletrac 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. Teletrac's system is
designed to enable customers to better manage their mobile workforce, to provide
security for their property and personnel and to help them communicate more
effectively with mobile workers.
On June 9, 1999, Teletrac filed a Voluntary Petition pursuant to Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware (the "Bankruptcy Court"). In addition, on July 13, 1999 Teletrac
sold its network in New York and Washington, D.C. to Ituran - USA, Inc., a
Delaware Corporation ("Ituran USA"). Pursuant to an Agreement dated June 9, 1999
by and among Teletrac, Ituran-USA and the parties thereto, Ituran-USA also has
an option to purchase Teletrac's Miami network. Teletrac continues to service
the customers in the New York and Washington, D.C. networks and pays Ituran a
fee to use such networks. The San Francisco and Sacramento networks have been
shut down. Customers on the San Francisco and Sacramento networks have the
opportunity to migrate to a new product utilizing the CDPD networks in those
areas. Approximately one-third of the customers elected that choice. All other
markets and networks have been uneffected by the reorganization.
Teletrac has filed a proposed Chapter 11 Plan of Reorganization dated August 4,
1999 (the "Plan") and an accompanying Disclosure Statement dated August 4, 1999
with the Bankruptcy Court. Pursuant to an order of the Bankruptcy Court dated
August 5, 1999, the Bankruptcy Court approved the Disclosure Statement, and the
Disclosure Statement and Plan are expected to be mailed to creditors for voting
on the Plan on or about August 16, 1999. A hearing on confirmation of the Plan
has been scheduled for September 15, 1999. There can be no assurance that the
Plan will be confirmed by the Bankruptcy Court. The Plan and Disclosure
Statement are on file with and may be obtained from the Clerk of the Bankruptcy
Court.
Under Chapter 11, certain claims against Teletrac in existence prior to the
filing of the petitions for relief under the federal bankruptcy laws are stayed
while Teletrac continues business operations as Debtor-in-possession. These
claims are reflected in the June 30, 1999 (unaudited) balance sheet as
"liabilities subject to compromise." Additional claims (liabilities subject to
compromise) may arise subsequent to the filing date as a result of the rejection
of executory contracts, including leases, and from the determination by the
court (or agreed to by parties in interest) of allowed claims for contingencies
and other disputed amounts. Claims secured against Teletrac's assets ("secured
claims") also are stayed, although the holders of such claims have the right to
move the court for relief from the stay. Secured claims are secured primarily by
liens on the Company's property, plant and equipment. In June, 1999, Teletrac
received approval from the Bankruptcy Court to pay or otherwise honor certain of
its prepetition obligations, including employee wages.
Teletrac 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 Enterprise Edition
(Registered), 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 Teletrac's network. Fleet Director Enterprise Edition(Registered)
can be complemented with the Teletrac's messaging units, which allow two-way
messaging between the fleet dispatcher and drivers directly from the Fleet
Director Enterprise Edition(Registered) screen.
As of June 30, 1999, Teletrac operated in twelve metropolitan markets: Los
Angeles, Chicago, Detroit, Dallas, Miami, Houston, Orlando, San Francisco, San
Diego, Sacramento, New York and Washington D.C. Teletrac also uses its
proprietary location systems to provide vehicle location and stolen vehicle
recovery services to consumers in its Los Angeles and Miami markets.
Teletrac'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 Holdings,
Inc. and its wholly owned subsidiary Teletrac 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, 1998 filed on Form 10-K.
NOTE 3 -- INVENTORIES
Inventories consisted of the following at December 31, 1998 and June 30, 1999:
December 31, 1998 June 30, 1999
(Unaudited)
Vehicle Location Units ("VLU") $ 8,178,316 $7,461,642
Messaging Units 1,920,656 1,511,752
Computers & Software 207,882 347,523
Other Inventory 1,447,862 943,034
---------- -------
Total Inventory 11,754,716 10,263,951
Less: Long Term Inventory 3,435,700 3,435,700
--------- ---------
Current Portion $ 8,319,016 $6,828,251
=========== ==========
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consisted of
the following at December 31, 1998 and June 30, 1999:
December 31, 1998 June 30, 1999
(unaudited)
System Equipment $16,867,532 $17,236,194
Automobiles 528,666 525,662
Furniture & Fixtures 2,439,229 2,516,925
Computer Equipment 5,343,246 5,502,525
Leasehold Improvements 243,961 243,962
Construction in Progress 839,088 1,043,606
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Total Property & Equipment $26,261,722 $27,068,874
=========== ===========
Accumulated Depreciation (7,126,336) ( 9,912,210)
----------- ------------
Net Property & Equipment $19,135,386 $17,156,664
=========== ============
NOTE 5 -- SHORT-TERM BORROWINGS
The Bankruptcy Court has approved debtor-in-possession financing (the "DIP
Loan") for Teletrac in the amount of $1,000,000 and as of August 13, 1999
Teletrac has received $600,000 of such loan.
NOTE 6 -- OTHER LONG-TERM OBLIGATIONS
Teletrac entered into capital lease agreement with one lessor valued at $22,000
during the first quarter of 1999. The assets included under the lease agreement
will be utilized in the sales and administrative operations.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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, 1999 Compared to Three Months Ended June 30, 1998
Revenues. Total revenues for the three months ended June 30, 1999 were $7.4
million, compared to $6.8 million for the three months ended June 30, 1998.
Equipment revenues decreased to $2.1 million for the three months ended
June 30, 1999 from $2.5 million for the three months ended June 30, 1998,
principally due to fewer sales during the period offset by higher average
revenue per application. The reduction in number of sales was primarily due to a
sharp reduction in direct sales personnel. Gross commercial installations
decreased to 3,580 vehicle applications for the three months ended June 30, 1999
from 5,939 vehicle applications for the three months ended June 30, 1998.
Service revenues increased to $5.1 million for the three months ended June
30, 1999 from $4.4 million for the three months ended June 30, 1998, an increase
of 16%, primarily due to an increase in the average commercial service revenue
per vehicle application to $29.14 in June 1999 from $23.74 in June 1998. Total
commercial vehicle applications in service at June 30, 1999 were 55,445 as
compared to 55,446 on June 30, 1998.
Rental revenues increased to $239,843 for the three months ended June 30,
1999 from $108,433 for the three months ended June 30, 1998. The rental program
had not been utilized in the quarter ended June 30, 1999 due to limited funds
available to the Company to support such a program.
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 $856,895 for the three months ended June 30, 1999 from
$936,495 million for the three months ended June 30, 1998. Future cost of
revenues should decline due to the Company's shutting down the San Francisco/
Sacramento networks along with the sale of the New York and Washington DC
markets to Ituran-USA.
Cost of Equipment. Cost of equipment decreased to $1.2 million for the
three months ended June 30, 1999 from $1.8 million for the three months ended
June 30, 1998.
Research and Development, Engineering, Selling, General and Administrative
Expenses. Research and development, engineering, selling, general and
administrative expenses decreased by $4.2 million, to $6.4 million for the three
months ended June 30, 1999 from $10.6 million for the three months ended June
30, 1998. 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 and Washington DC networks.
Depreciation and Amortization. Depreciation and Amortization increased for
the three months ended June 30, 1999 to $1.5 million from $1.1 million for the
three months ended June 30, 1998, primarily due to depreciation on additional
assets related to additional infrastructure in existing markets.
Operating Losses. Operating losses incurred by the Company were $2.6
million for the three months ended June 30, 1999, as compared to $8.0 million
for the three months ended June 30, 1998, for the reasons discussed above.
Interest Expense. Interest expense was $3.9 million for the three months
ended June 30, 1999 and was primarily related to the high yield bonds.
Reorganization Costs. Reorganization costs were $1.0 million for the three
months ended June 30, 1999. The costs were for the reorganization and Chapter 11
filing.
Net Loss. For the reasons discussed above and interest income of $0.3
million, net loss decreased to $7.2 million for three months ended June 30, 1999
from $10.8 million for three months ended June 30, 1998. 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, 1999 Compared to Six Months Ended June 30, 1998
Revenues. Total revenues for the six months ended June 30, 1999 were $17.9
million, compared to $13.5 million for the six months ended June 30, 1998, an
increase of 33%.
Equipment revenues decreased to $4.7 million for the six months ended June
30, 1999 from $5.2 million for the six months ended June 30, 1998, principally
due to fewer sales during the period offset by higher average revenue per
application. The reduction in number of sales was primarily due to a sharp
reduction in direct sales personnel. Gross commercial installations decreased to
7,294 vehicle applications for the six months ended June 30, 1999 from 10,864
vehicle applications for the six months ended June 30, 1998.
Service revenues increased to $10.4 million for the six months ended June
30, 1999 from $8.3 million for the six months ended June 30, 1998, an increase
of 25%, primarily due to an increase in the average commercial service revenue
per vehicle application to $29.14 in June 1999 from $23.74 in June 1998. Total
commercial vehicle applications in service at June 30, 1999 were 55,445 as
compared to 55,446 on June 30, 1998.
Rental revenues increased to $683,001 for the six months ended June 30,
1999 from $156,649 for the six months ended June 30, 1998. The rental program
had not been utilized during the six months ended June 30, 1999 due to limited
funds available to the Company to support such a program.
Other revenues for the six months ended June 30, 1999 was $2.8 million. The
Company licensed its proprietary location and messaging solution to an affiliate
of Ituran Location and Control LTD ("Ituran"), a corporation existing under the
laws of Israel and the parent of Ituran-USA, such affiliate is 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 remained flat at $1.8 million for the six months ended June 30,
1999 and for the six months ended June 30, 1998.
Cost of Equipment. Cost of equipment decreased to $3.2 million for the six
months ended June 30, 1999 from $3.9 million for the six months ended June 30,
1998.
Research and Development, Engineering, Selling, General and Administrative
Expenses. Research and development, engineering, selling, general and
administrative expenses decreased by $3.7 million, to $15.8 million for the six
months ended June 30, 1999 from $19.5 million for the six months ended June 30,
1998. 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 and Washington DC networks.
Depreciation and Amortization. Depreciation and Amortization increased for
the six months ended June 30, 1999 to $3.1 million from $2.3 million for the six
months ended June 30, 1998, 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 $6.0
million for the six months ended June 30, 1999, as compared to $14.4 million for
the six months ended June 30, 1998, for the reasons discussed above.
Interest Expense. Interest expense was $7.7 million for the six months
ended June 30, 1999 and was primarily related to the high yield bonds.
Reorganization Costs. Reorganization costs were $1.0 million for the six
months ended June 30, 1999. The costs were for the reorganization and Chapter 11
filing.
Net Loss. For the reasons discussed above and interest income of $0.6
million, net loss decreased to $14.2 million for six months ended June 30, 1999
from $19.7 million for six months ended June 30, 1998. 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 $1.1 million for the six months ended June 30,
1999, primarily for additional infrastructure in the Company's existing markets.
The Company currently expects that its aggregate capital expenditures will be
$2.2 million for both 1999 and 2000 combined. These capital expenditures will
consist primarily of costs associated with the infrastructure of it's existing
markets.
Teletrac filed its voluntary petition pursuant to Chapter 11 of the U.S.
Bankruptcy Code on June 9, 1999. The Bankruptcy Court has approved
debtor-in-possession financing (the "DIP Loan") for Teletrac in the amount of $1
million, and as of August 13, 1999 Teletrac has received $600,000 of such loan.
The Chapter 11 Plan contemplates that the DIP Loan will be replaced with a $3.0
million Senior Secured Note facility subject to, and upon, confirmation of the
Plan. The Company believes, based on its business plan, that such financing is
sufficient for the short and long term capital needs of the Company. However,
there is no assurance that the Plan will be confirmed by the Bankruptcy Court.
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.
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.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
Not applicable.
<PAGE>
PART II
OTHER INFORMATION
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of Teletrac Holdings,
Inc., dated October, 1998 (incorporated by reference to Exhibit 3.1 to
Teletrac Holdings, Inc.'s Form 10-Q for the period ended September 30,
1998).
3.2 Restated Certificate of Incorporation, dated September 18, 1995 of
Teletrac, Inc. (incorporated by reference to Exhibit 3.1 to Teletrac, Inc's
Registration Statement No. 333-35021).
3.3 Certificate of Amendment to Restated Certificate of Incorporation, dated
December 4, 1996 of Teletrac, Inc. (incorporated by reference to Exhibit
3.2 to Teletrac, Inc's Registration Statement No. 333-35021).
3.4 By-laws of Teletrac Holdings, Inc., adopted as of July 30, 1997
(incorporated by reference to Exhibit 3.3 to Teletrac Holdings, Inc.'s
Registration Statement No. 333-35017).
3.5 By-laws of Teletrac, Inc., adopted as of November 14, 1995 (incorporated by
reference to Exhibit 3.3 to Teletrac, Inc.'s Registration Statement No.
333-35021).
27.1 Financial data schedule.
(b) Reports on Form 8-K.
During the three-month period ending June 30, 1999 and subsequently, the Company
filed two Current Reports on Form 8-K under Item 5 -- Other Events:
(i) In a report dated February 27, 1999 the Company announced that Teletrac,
Inc., a wholly-owned subsidiary of the Company, was engaged in ongoing
efforts to raise additional capital and that Teletrac, Inc. had engaged in
discussions with the holders of its 14% Senior Notes due 2007 (the "Notes")
concerning a possible restructuring of its debt. At that time, the Company
also announced (i) that Teletrac, Inc. had entered into a licensing
agreement with Ituran Location and Control, Ltd. ("Ituran"), pursuant to
which Teletrac, Inc. had licensed to Ituran the exclusive rights to the its
technology in South America and certain countries in eastern Europe and
(ii) that Teletrac, Inc. had taken certain actions to reduce its level of
expenses and conserve cash, including reducing the workforce by
approximately 25%.
(ii) In a report dated June 9, 1999 the Company announced that Teletrac, Inc.,
a wholly-owned subsidiary of the Company, had filed a voluntary petition
commencing a case under Chapter 11 of the United States Bankruptcy Code
with the United States Bankruptcy Court for the District of Delaware.
<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 HOLDINGS, INC.
By: /s/ Alan B. Howe
Alan B. Howe
Vice President of
Finance and Corporate
Development and on
behalf of the Registrant
August 13, 1999
<PAGE>
Exhibit Index
3.1 Amended and Restated Certificate of Incorporation of Teletrac Holdings,
Inc., dated October, 1998 (incorporated by reference to Exhibit 3.1 to
Teletrac Holdings, Inc.'s Form 10-Q for the period ended September 30,
1998).
3.2 Restated Certificate of Incorporation, dated September 18, 1995 of
Teletrac, Inc. (incorporated by reference to Exhibit 3.1 to Teletrac, Inc's
Registration Statement No. 333-35021).
3.3 Certificate of Amendment to Restated Certificate of Incorporation, dated
December 4, 1996 of Teletrac, Inc. (incorporated by reference to Exhibit
3.2 to Teletrac, Inc's Registration Statement No. 333-35021).
3.4 By-laws of Teletrac Holdings, Inc., adopted as of July 30, 1997
(incorporated by reference to Exhibit 3.3 to Teletrac Holdings, Inc.'s
Registration Statement No. 333-35017).
3.5 By-laws of Teletrac, Inc., adopted as of November 14, 1995 (incorporated by
reference to Exhibit 3.3 to Teletrac, Inc.'s Registration Statement No.
333-35021).
27.1 Financial data schedule.
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