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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from _____________ to _____________
Commission file number 0-26140
HIGHWAYMASTER COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0352879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16479 DALLAS PARKWAY, SUITE 710, DALLAS, TEXAS 75248
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 732-2500
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 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 the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING AS OF
TITLE OF EACH CLASS NOVEMBER 8, 1996
- ---------------------------- -----------------------------------
Common Stock, $.01 par value 24,767,695
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
Form 10-Q
INDEX
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 1996
and December 31, 1995 1
Consolidated Statements of Operations for the
three months and nine months ended
September 30, 1996 and 1995 2
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995 3
Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended
September 30, 1996 4
Notes to Consolidated Financial Statements 5-7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 11-14
Item 2 Changes in Securities 11-14
Item 3 Defaults Upon Senior Securities 11-14
Item 4 Submission of Matters to a Vote of Security Holders 11-14
Item 5 Other Information 11-14
Item 6 Exhibits and Reports on Form 8-K 11-14
Signatures 15
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PART I--FINANCIAL INFORMATION
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
ASSETS
September 30, December 31,
1996 1995
------------- ------------
Current assets:
Cash and cash equivalents $ 28,412 $ 23,969
Accounts receivable, net 6,989 5,949
Other short-term receivables 667 803
Inventory 7,846 4,199
Prepaid expenses 258 506
--------- --------
Total current assets 44,172 35,426
Property, plant and equipment, net 6,900 3,927
Long-term receivables 1,148 1,394
Deposits 218 112
Other assets 964 1,510
--------- --------
$ 53,402 $ 42,369
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,443 $ 5,028
Telecommunications costs payable 4,307 1,984
Accrued interest payable to related parties 87 345
Accrued warranty 296 876
Other current liabilities 1,260 1,421
--------- --------
Total current liabilities 10,393 9,654
Notes payable to related parties -- 11,488
--------- --------
Total liabilities 10,393 21,142
--------- --------
Series B redeemable preferred stock -- 8,126
--------- --------
Stockholders' equity:
Series D preferred stock -- --
Common stock 251 223
Additional paid-in capital 144,161 90,560
Accumulated deficit (100,856) (77,135)
Treasury stock (547) (547)
--------- --------
Total stockholders' equity 43,009 13,101
--------- --------
$ 53,402 $ 42,369
--------- --------
--------- --------
See accompanying notes to consolidated financial statements.
1
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share)
Three months ended Nine months ended
September 30, September 30,
------------------ -------------------
1996 1995 1996 1995
------- ------- -------- --------
Revenues:
Product $ 3,426 $ 4,979 $ 9,848 $ 12,593
Service 4,098 2,675 11,548 6,774
------- ------- -------- --------
Total revenues 7,524 7,654 21,396 19,367
------- ------- -------- --------
Cost of revenues:
Product 3,321 4,734 9,723 12,611
Service 2,828 2,448 8,243 6,296
------- ------- -------- --------
Total cost of revenues 6,149 7,182 17,966 18,907
------- ------- -------- --------
Gross profit 1,375 472 3,430 460
General and administrative expenses 2,362 1,825 6,661 5,019
Sales and marketing expenses 2,616 1,683 7,327 4,716
Engineering expenses 995 690 2,730 2,050
Customer service expenses 2,120 1,449 6,050 4,108
------- ------- -------- --------
Operating loss (6,718) (5,175) (19,338) (15,433)
Interest income 77 506 521 542
Interest expense to related parties (603) (599) (1,691) (4,388)
Other (expense) (219) -- (222) (18)
------- ------- -------- --------
Loss before income taxes and
extraordinary item (7,463) (5,268) (20,730) (19,297)
Income tax provision -- -- -- --
------- ------- -------- --------
Loss before extraordinary item (7,463) (5,268) (20,730) (19,297)
Extraordinary item--loss on
extinguishment of debt (Note 3) (317) -- (317) (6,980)
------- ------- -------- --------
Net loss $(7,780) $(5,268) $(21,047) $(26,277)
------- ------- -------- --------
------- ------- -------- --------
Per share data:
Loss before extraordinary item $ (0.37) $ (0.26) $ (1.02) $ (1.05)
Extraordinary item (0.01) -- (0.02) (0.35)
------- ------- -------- --------
Net loss per share $ (0.38) $ (0.26) $ (1.04) $ (1.40)
------- ------- -------- --------
------- ------- -------- --------
Weighted average number of shares
outstanding 22,178 22,022 22,079 19,863
------- ------- -------- --------
------- ------- -------- --------
See accompanying notes to consolidated financial statements.
2
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
Nine months ended September 30,
-------------------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(21,047) $(26,277)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 1,110 674
Amortization of discount on notes payable 871 2,020
Extraordinary item 317 6,980
(Increase) decrease in accounts receivable (1,040) (1,941)
(Increase) decrease in other receivables 382 (1,072)
(Increase) decrease in inventory (3,647) 454
(Increase) decrease in prepaid expenses and deposits 142 (431)
Increase (decrease) in accounts payable (585) (3,129)
Increase (decrease) in accrued expenses and other current liabilities 1,324 591
Other 272 (50)
-------- --------
Net cash used in operating activities (21,901) (22,181)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,760) (2,496)
-------- --------
Net cash used in investing activities (3,760) (2,496)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs 10,000 72,866
Proceeds from issuance of preferred stock and warrants, net of issuance costs 19,738 ---
Proceeds from notes payable to related parties 5,000 4,122
Repayments of notes payable to related parties (5,000) (27,239)
Proceeds from exercise of stock options 366 ---
-------- --------
Net cash provided by financing activities 30,104 49,749
-------- --------
Net increase in cash 4,443 25,072
Cash and cash equivalents, beginning of period 23,969 4,158
-------- --------
Cash and cash equivalents, end of period $ 28,412 $ 29,230
-------- --------
-------- --------
Supplemental cash flow information:
Interest paid $ 976 $ 2,685
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1996
(UNAUDITED)
(in thousands, except share information)
<TABLE>
Preferred Stock Common Stock Additional Treasury Stock
--------------- ------------------- Paid-in ---------------
Shares Amount Shares Amount Capital Shares Amount
------ ------ ---------- ------ ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' equity at December 31, 1995 22,333,661 $223 $ 90,560 311,997 $(547)
Accretion of discount -- Series B preferred stock
Exchange of Series B Preferred Stock for Common Stock 864,000 9 10,791
Issuance of Common Stock 1,818,018 18 22,707
Issuance of Series D Preferred Stock 1,000 --- 19,738
Exercise of stock options 48,207 1 365
Net loss
----- ----- ---------- ---- -------- ------- -----
Stockholders' equity at September 30, 1996 1,000 --- 25,063,886 $251 $144,161 311,997 $(547)
----- ----- ---------- ---- -------- ------- -----
----- ----- ---------- ---- -------- ------- -----
Accumulated
Deficit Total
----------- --------
<S> <C> <C>
Stockholders' equity at December 31, 1995 $ (77,135) $ 13,101
Accretion of discount -- Series B preferred stock (1,831) (1,831)
Exchange of Series B Preferred Stock for Common Stock (843) 9,957
Issuance of Common Stock 22,725
Issuance of Series D Preferred Stock 19,738
Exercise of stock options 366
Net loss (21,047) (21,047)
--------- --------
Stockholders' equity at September 30, 1996 $(100,856) $ 43,009
--------- --------
--------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS OVERVIEW
The Company operates a wireless enhanced-services network with both
voice and data capabilities in 99% of the available cellular coverage areas
in the United States and 100% of the A-Side cellular coverage areas in
Canada. The Company's private network covers approximately 95% of the
United States interstate highway system. Through this private network, the
Company provides integrated mobile voice, data, tracking, and fleet
management information services to trucking companies and private truck
operators in the long-haul segment of the transportation industry.
The HighwayMaster system includes a Mobile Communication Unit (the
"Mobile Communication Unit" or "Unit") installed in each truck and a
proprietary dispatch software package developed by the Company for use by
trucking companies. The Mobile Communication Unit transmits and receives
voice and data communication to and from long-haul trucks through the
Company's private network. In addition, the Unit contains a sophisticated
navigational tracking device that enables dispatchers to obtain accurate
position reports for trucks located anywhere in the United States and
Canada. The Company's dispatch software package enables a trucking company
to optimize the use of its fleet by processing data transmitted by Mobile
Communication Units and performing a variety of fleet management functions.
The Company's revenues are derived from sales and installation of
Mobile Communication Units and charges for its services.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements presented herein have
been prepared in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all footnote
disclosures required by generally accepted accounting principles. These
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended
December 31, 1995. The accompanying consolidated financial statements
reflect all adjustments (all of which are of a normal recurring nature)
which are, in the opinion of management, necessary for a fair presentation
of the Company's financial position, results of operations and cash flows
for the interim periods. The results for any interim period are not
necessarily indicative of the results for the entire year.
Operating expenses for 1995 have been reclassified to conform to the
1996 presentation.
3. RECAPITALIZATION TRANSACTIONS
On September 27, 1996, the Company, the Erin Mills Stockholders, the
Carlyle Stockholders and certain other holders of outstanding securities
of the Company entered into a Recapitalization Agreement (the
"Recapitalization Agreement"), and consummated the Recapitalization
Transactions contemplated thereby. In particular, upon the terms and
conditions set forth in the Recapitalization Agreement, (i) the Company
repaid in full the principal amount of and interest accrued on certain
promissory notes in the aggregate principal amount of $5.0 million
executed in favor of an Erin Mills Stockholder in order to repay certain
advances made by such Erin Mills Stockholder in August and September 1996
to enable the Company to meet its short-term
5
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working capital and other requirements, (ii) the Company issued an
aggregate of 800,000 shares of Common Stock to two Erin Mills Stockholders
in exchange for aggregate cash payments in the amount of $10.0 million,
(iii) the Company issued an aggregate of 864,000 shares of Common Stock to
three Erin Mills Stockholders and two other persons in exchange for the
surrender to the Company for cancellation of all outstanding shares of
Series B Preferred Stock, (iv) the Company paid to the Carlyle Stockholders
a portion of the accrued and unpaid interest on certain promissory notes in
the aggregate principal amount of $12,662,000 (the "Carlyle Notes") executed
in favor of the Carlyle stockholders, and (v) the Company issued an
aggregate of 1,018,018 shares of Common Stock in exchange for the surrender
of the Carlyle Notes for cancellation. In connection with the foregoing,
the unamortized balances of debt discount and debt issue costs associated
with the indebtedness retired, in the aggregate amount of $317,000, were
charged to expense and are reported in the accompanying consolidated
statements of operations as an extraordinary item, "loss on extinguishment
of debt."
4. SALE OF SERIES D PREFERRED STOCK
On September 27, 1996 the Company and Southwestern Bell Wireless
Holdings, Inc. ("SBW"), a wholly owned subsidiary of SBC Communications
Inc. ("SBC"), consummated certain transactions, including but not limited
to, (a) the issuance of 1,000 shares of a new series of preferred stock, par
value $0.01 per share, designated as Series D Participating Convertible
Preferred Stock ("Series D Preferred Stock") in consideration of a cash
payment in the amount of $20.0 million and (b) the issuance to SBW of
certain Warrants. Immediately upon receipt of the $20.0 million, it was
delivered by the Company to an escrow agent to be held pending the
expiration or early termination of the waiting period applicable under the
Hart-Scott-Rodino Antitrust Improvements Act of 1974, as amended. On
October 18, 1996, early termination was granted with respect to the
aforementioned waiting period. Accordingly, on October 21, 1996, the
escrow agent released the $20.0 million to the Company. The $20.0 million
is classified with cash in the accompanying balance sheet at September 30,
1996.
Each outstanding share of Series D Preferred Stock is convertible
into 1,600 shares of Common Stock at the option of SBW. In addition, at
such time as SBW obtains certain regulatory relief required in order for
it to offer long-distance telephone services, all outstanding shares of
Series D Preferred Stock will automatically convert into an equal number
of shares of a new series of common stock designated as Class B Common
Stock.
Each outstanding share of Class B Common Stock will be convertible
into 1,600 of Common Stock at the option of SBW. The holders of Class B
Common Stock will be entitled to receive dividends and liquidating
distributions in an amount equal to the dividends and liquidating
distributions payable on or in respect of the number of shares of Common
Stock into which such shares of Class B Common Stock are then
convertible. The holders of Common Stock and Class B Common Stock will
generally have identical voting rights and will vote together as a single
class, with the holders of Class B Common Stock being entitled to a
number of votes equal to the number of shares of Common Stock into which
the shares of Class B Common Stock held by them are then convertible. In
addition, the holders of Class B Common Stock will be entitled to elect
one director of the Company (or two directors if SBW and its affiliates
beneficially own at least 20% of the outstanding shares of Common Stock
on a fully diluted basis) and will have the right to approve certain
actions on the part of the Company.
The Warrants issued to SBW entitle the holder thereof to purchase
(i) 3,000,000 shares of Common Stock at an exercise price of $14.00 per
share and (ii) 2,000,000 shares of Common Stock at an exercise price of
$18.00 per share. The Warrants will expire on September 27, 2001.
6
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5. INVENTORIES
September 30, December 31,
1996 1995
----------- -----------
Complete systems $ 3,896,000 $ 2,153,000
Component parts 4,600,000 2,476,000
----------- -----------
8,496,000 4,629,000
Less inventory reserve (650,000) (430,000)
----------- -----------
$ 7,846,000 $ 4,199,000
----------- -----------
----------- -----------
6. EARNINGS PER SHARE
Net loss per share for the three months and six months ended September
30, 1995 and 1996 was computed by dividing the net loss, increased by the
accretion of discount on Series B Preferred Stock by the weighted average
number of shares outstanding during the periods.
Stock options granted with exercise prices below the $19.75 offering
price in the Company's June 1995 initial public offering (the "Offering")
and shares of common stock issued during the twelve-month period preceding
the initial filing date of the registration statement for the Offering have
been included in the calculation of weighted average shares outstanding
through the date of the Offering (June 28, 1995). The stock options were
included in the calculation of common stock equivalents using the treasury
stock method. Stock options are excluded from the calculation of weighted
average shares outstanding subsequent to the date of the Offering since
their effect would be anti-dilutive.
7. LITIGATION
As previously reported, on February 16, 1996, the Company filed a
lawsuit against AT&T Corp. ("AT&T") in the U.S. District Court, Northern
District of Texas, Dallas Division. The Company is seeking preliminary
and permanent injunctive relief restraining AT&T from using and
disclosing the Company's trade secrets and proprietary information
relating to its mobile communications technology. In July 1996, AT&T
filed counterclaims essentially mirroring the Company's claims. In
September and October 1996, both the Company and AT&T filed additional
claims against each other related to breach of contract, various tortious
activities and patent claims. In October 1996, the Company amended its
complaint to include another defendant, Lucent Technologies, Inc., to
which AT&T had transferred certain of the patents in dispute. The
amended complaint further alleged Texas Deceptive Trade Practices Act
("DTPA") claims against AT&T. In November 1996, AT&T filed a Partial
Motion to Dismiss the Company's DTPA claims, various tort claims and the
patent invalidity charges. For further discussion regarding the AT&T
Litigation and AT&T's former contractual relationship with HighwayMaster,
see "Part II - Other Information, Item 1. Legal Proceedings".
On December 14, 1995 and on February 23, 1996, lawsuits were filed
by certain plaintiffs against the Company and its directors, along with
the lead underwriters for the Company's Offering. The plaintiff in each
suit sought securities class-action certification and purported to
represent all similarly situated shareholders, who bought stock in the
Company pursuant to its Offering in June 1995 or immediately thereafter.
The plaintiffs sought unspecified damages and alleged that the Company's
registration statement, prospectus and other communications in its
Offering contained false and materially misleading statements. The two
lawsuits were consolidated into one. On November 4, 1996, the Court
entered a Stipulation and Order of Dismissal which was signed by all
parties, including proposed plaintiffs-in-intervention. This action
dismissed the pending litigation with prejudice, precluding these same
plaintiffs from refiling the same claims in the future. The dismissal of
this action did not involve any payment on the part of the Company or any
other defendant.
7
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues for the three months ended September 30, 1996 were $7.5 million
compared to $7.7 million for the three months ended September 30, 1995. Product
revenues for the three months ended September 30, 1996 were $3.4 million
compared to $5.0 million for the three months ended September 30, 1995. The
principal reason for the decrease in product revenues from the 1995 period to
the 1996 period is because the number of Mobile Communication Units sold during
the three months ended September 30, 1996 was 37.4% less than Units sold during
the three months ended September 30, 1995. The decrease in Units sold in the
1996 period as compared to the 1995 period is due to, among other things, (i)
prospective customers postponing their decision to purchase until they are
comfortable that the Company can deliver service with its new Network Services
Center ("NSC" or "Company Complex"), (ii) prospective customers' concerns about
the Company's financial condition and (iii) adverse economic conditions
affecting the trucking industry. Service revenues for the three months ended
September 30, 1996 were $4.1 million compared to $2.7 million for the three
months ended September 30, 1995. The increase in service revenues from the 1995
period to the 1996 period is primarily attributable to the increase in the
number of Mobile Communication Units in service.
Cost of revenues for the three months ended September 30, 1996 was $6.1
million compared to $7.2 million for the three months ended September 30, 1995.
This relationship reflects the decrease in the number of Units sold in the 1996
period compared to the 1995 period offset by increased cost of service revenues
in the 1996 period as a result of the increase in the number of Mobile
Communication Units in service. Cost of revenues for the 1996 period was 81.7%
of revenues compared to 93.8% of revenues for the 1995 period. Cost of product
revenues for the 1996 period was 96.9% of product revenues compared to 95.1%
of product revenues in the 1995 period. Both periods reflect higher costs
associated with a product installation infrastructure with excess capacity to
support anticipated increases in sales. In addition, during the 1996 period,
cost of product revenue was increased as a result of elective costs incurred on
the earlier generations of Mobile Communications Units to make them compatible
with the NSC. These expenditures will continue into the fourth quarter of 1996.
Cost of service revenues for the 1996 period was 69.0% of service revenues
compared to 91.5% of service revenues in the 1995 period. The improvement from
the 1995 period to the 1996 period is primarily due to (i) the effect of lower
costs as a result of renegotiated rates with the Company's service providers
that were in effect during the 1996 period and (ii) improvement in the Company's
ability to monitor and control charges for airtime usage.
General and administrative expenses for the three months ended September 30,
1996 were $2.4 million compared to $1.8 million for the three months ended
September 30, 1995. The most significant increases were occupancy costs and
professional fees, particularly legal fees in connection with the AT&T and
shareholder suit litigation.
Sales and marketing expenses for the three months ended September 30, 1996
were $2.6 million compared to $1.7 million for the three months ended September
30, 1995. The increase from the 1995 period to the 1996 period is primarily
related to growth in the number of employees.
Engineering expenses for the three months ended September 30, 1996 were
$1.0 million compared to $0.7 million for the three months ended September 30,
1995. This increase is primarily attributable to increases in payroll related
costs, and operating expenses for the NSC.
Customer service expenses for the three months ended September 30, 1996
were $2.1 million compared to $1.5 million for the three months ended September
30, 1995. This increase is primarily
8
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attributable to (i) payroll related costs as a result of growth in the number
of employees and (ii) expenses incurred as a result of a major customer
downsizing its fleet.
The decrease in interest income for the three months ended September 30,
1996 as compared to the three months ended September 30, 1995 reflects the lower
average balances of cash available for temporary investment in the 1996 period
as compared to the 1995 period. Cash balances in the 1995 period included the
net proceeds, after repayment of notes payable to related parties, from the
Company's Initial Public Offering.
The 1996 and 1995 extraordinary items, "loss on extinguishment of debt",
represent the write-off of the unamortized balances of debt discount and debt
issue costs associated with the early retirement of notes payable to related
parties.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Revenues for the nine months ended September 30, 1996 were $21.4 million
compared to $19.4 million for the nine months ended September 30, 1995. Product
revenues for the nine months ended September 30, 1996 were $9.8 million
compared to $12.6 million for the nine months ended September 30, 1995. The
decrease in product revenues from the 1995 period to the 1996 period is
primarily attributable to a 32.8% decrease in the number of Units sold offset in
part by a higher average sales price per Unit, increased revenues from
installations and the sale of parts, and a reduction in sales returns in the
1996 period. The decrease in Units sold in the 1996 period as compared to the
1995 period is due to, among other things, (i) the time lapse between the
headcount expansion and restructuring of the Company's sales force, which began
during the fourth quarter of 1995 and continued into the third quarter of 1996,
and the realization of the benefits thereof, (ii) prospective customers
postponing their decision to purchase until they are comfortable that the
Company can deliver service with the NSC, (iii) prospective customers' concerns
about the Company's financial condition and (iv) adverse economic conditions
affecting the trucking industry. Service revenues for the nine months ended
September 30, 1996 were $11.5 million compared to $6.8 million for the nine
months ended September 30, 1995. The increase in service revenues from the
1995 period to the 1996 period is primarily attributable to the increase in the
number of Mobile Communication Units in service.
Cost of revenues for the nine months ended September 30, 1996 was $18.0
million compared to $18.9 million for the nine months ended September 30, 1995.
This relationship reflects the decrease in the number of Units sold in the 1996
period compared to the 1995 period offset by increased cost of service revenues
in the 1996 period as a result of the increase in the number of Mobile
Communication Units in service. Cost of revenues for the 1996 period was 84.0%
of revenues compared to 97.6% of revenues for the 1995 period. Cost of product
revenues for the 1996 period was 98.7% of product revenues compared to 100.1%
of product revenues in the 1995 period. The improvement from a negative margin
in the 1995 period to a positive margin in the 1996 period is primarily due to
higher average selling prices and lower average cost per Unit in the 1996 period
as compared to the 1995 period. However, both periods reflect higher costs
associated with a product installation infrastructure with excess capacity to
support anticipated increases in sales. The margin improvement from the 1995
period to the 1996 period would have been greater were it not for elective costs
incurred during the 1996 period on the earlier generations of Mobile
Communications Units to make them compatible with the NSC. These expenditures
will continue into the fourth quarter of 1996. Cost of service revenues for the
1996 period was 71.4% of service revenues compared to 92.9% of service revenues
in the 1995 period. The improvement from the 1995 period to the 1996 period is
primarily due to (i) the effect of lower costs as a result of renegotiated rates
with the Company's service providers that were in effect during the 1996 period
and (ii) improvement in the Company's ability to monitor and control charges for
airtime usage.
General and administrative expenses for the nine months ended September 30,
1996 were $6.7 million compared to $5.0 million for the nine months ended
September 30, 1995. From the 1995 period to the 1996 period, the Company's
general and administrative functions were increased to meet the growth in
revenues as well as for the additional administrative requirements of a public
company. Accordingly, virtually
9
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all categories of expenses increased. The most significant increases were
payroll related costs, occupancy costs, insurance and legal fees.
Sales and marketing expenses for the nine months ended September 30, 1996
were $7.3 million compared to $4.7 million for the nine months ended September
30, 1995. The increase from the 1995 period to the 1996 period is primarily
related to growth in the number of employees.
Engineering expenses for the nine months ended September 30, 1996 were $2.7
million compared to $2.0 million for the nine months ended September 30, 1995.
This increase is primarily attributable to increases in payroll related costs,
research and development expenditures, and operating expenses for the NSC.
These increases are offset in part by decreased expenditures for contract labor.
Customer service expenses for the nine months ended September 30, 1996
were $6.1 million compared to $4.1 million for the nine months ended September
30, 1995. This increase is primarily attributable to (i) payroll related costs
as a result of growth in the number of employees and (ii) related travel and
telephone costs in response to the increased number of Units in service and
(iii) expenses incurred as a result of a major customer downsizing its fleet.
The decrease in interest expense to related parties from the 1995 period to
the 1996 period is consistent with the decrease in the average outstanding
balance of notes payable to related parties from the 1995 period to the 1996
period.
The 1996 and 1995 extraordinary items, "loss on extinguishment of debt",
represent the write-off of the unamortized balances of debt discount and debt
issue costs associated with the early retirement of notes payable to related
parties.
LIQUIDITY AND CAPITAL RESOURCES
As more fully described in Notes 3 and 4 to the consolidated financial
statements, on September 27, 1996, the Company (i) issued Series D Preferred
Stock to SBW for cash of $20.0 million and issued Warrants to purchase 5.0
million shares of Common Stock, (ii) issued 800,000 shares of Common Stock to
certain existing stockholders in exchange for cash of $10 million, and (iii)
issued a aggregate of 1,882,018 shares of Common Stock in exchange for the
cancellation of notes payable to related parties in the aggregate principal
amount of $12,662,000 and cancellation of all outstanding shares of Series B
Preferred Stock of the Company. The effect of these transactions was to
increase cash by $29,738,000 (net of offering costs), to eliminate all
outstanding indebtedness of the Company and to increase stockholders equity
by approximately $52 million.
Net cash used in operations during the nine months ended September 30,
1996 was $21.9 million and capital expenditures were $3.8 million. After the
transactions decribed above, cash on hand at September 30, 1996 was $28.4
million.
10
<PAGE>
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings --
AT&T Litigation. As previously reported, on February 16, 1996,
the Company filed a lawsuit against AT&T Corp. ("AT&T") in the U.S.
District Court, Northern District of Texas, Dallas Division. The
Company is seeking preliminary and permanent injunctive relief
restraining AT&T from using and disclosing the Company's trade
secrets and proprietary information relating to its mobile
communications technology. In July 1996, AT&T filed counterclaims
essentially mirroring the Company's claims.
In September and October 1996, both the Company and AT&T filed
additional claims against each other related to breach of contract
and various tortious activities. Additionally, the Company seeks a
declaration that the patents issued to AT&T using the Company's
proprietary information are invalid and should be transferred from
AT&T to the Company since they were issued based on the Company's
trade secrets and because of the contractual breaches and tortious
actions of AT&T. The Company seeks actual and punitive damages and
attorneys' fees in connection with these claims. AT&T also seeks
actual and punitive damages, an injunction, a declaratory judgment
defining the parties' intellectual property rights and attorneys'
fees in connection with its claims.
In October 1996, the Company amended its complaint to include
another defendant, Lucent Technologies, Inc., to which AT&T had
transferred certain of the patents described above. The amended
complaint further alleged Texas Deceptive Trade Practices Act
("DTPA") claims against AT&T in its dealings with the Company and
it seeks treble damages in relation to these activities. In
November 1996, AT&T filed a Partial Motion to Dismiss the Company's
DTPA claims, various tort claims and the patent invalidity charges.
The Company and AT&T were parties to a contract (the "AT&T Contract")
under which AT&T provided enhanced call processing, data management
services and long-distance network transport services through a
switching complex owned and operated by AT&T. The AT&T Contract was
terminated effective June 29, 1996. However, AT&T continues to
provide services for Company customers without a formal contract
pursuant to AT&T's obligations with respect to its existing service
agreements with customers.
Shareholder Litigation. On December 14, 1995 and on February 23,
1996, lawsuits were filed by certain plaintiffs against the Company
and its directors, along with the lead underwriters for the
Company's Offering. The plaintiff in each suit sought securities
class-action certification and purported to represent all similarly
situated shareholders, who bought stock in the Company pursuant to
its Offering in June 1995 or immediately thereafter. The
plaintiffs sought unspecified damages and alleged that the
Company's registration statement, prospectus and other
communications in its Offering contained false and materially
misleading statements. The two lawsuits were consolidated into
one. On November 4, 1996, the Court entered a Stipulation and
Order of Dismissal which was signed by all parties, including
proposed plaintiffs-in-intervention. This action dismissed the
pending litigation with prejudice, precluding these same plaintiffs
from refiling the purported federal claims in the future. The
dismissal of this action did not involve any payment on the part of
the Company or any other defendant.
Item 2. Changes in Securities
(a) None.
11
<PAGE>
(b) In accordance with the terms and conditions set forth in a
Purchase Agreement, dated September 27, 1996 (the "Purchase
Agreement"), the Company sold 1,000 shares of Series D Participating
Convertible Preferred Stock ("Series D Preferred Stock") to
Southwestern Bell Wireless Holdings, Inc. ("SBW"), a subsidiary of
SBC Communications, Inc., in exchange for $20 million in cash.
Each share of Series D Preferred Stock is convertible into 1,600
shares of Common Stock (subject to adjustment to prevent dilution)
at the option of SBW, provided that shares of Series D Preferred
Stock may only be converted into Common Stock in blocks of 250
shares. In addition, at such time as Regulatory Relief is
obtained, all of the outstanding shares of Series D Preferred Stock
will automatically convert into an equal number of shares of a new
class of common stock of the Company designated as Class B Common
Stock. If Regulatory Relief is not obtained on or before September
27, 2001, all of the outstanding shares of Series D Preferred Stock
will be converted into shares of Common Stock at the election of
the Company on the same basis as if they had been voluntarily
converted by SBW.
The holders of shares of Series D Preferred Stock will be entitled to
receive dividends and distributions equal to the aggregate amount of
dividends and distributions payable on or in respect of the number of
shares of Common Stock into which such shares of Series D Preferred
Stock are then convertible. In the event of a liquidation of the
Company, the holders of shares of Series D Preferred Stock will be
entitled to an aggregate liquidation preference in an amount equal to
the greater of (i) $20.0 million or (ii) the amount of distributions
payable in connection with such liquidation on or in respect of the
number of shares of Common Stock into which such shares of Series D
Preferred Stock are then convertible.
Except as required by law or as described below, the holders of
Series D Preferred Stock will not be entitled to vote on any
matters submitted to the stockholders of the Company. However,
the holders of Series D Preferred Stock will be entitled to approve
certain actions on the part of the Company, including (i) mergers
or consolidations involving the Company that require stockholder
approval under the General Corporation Law of the State of Delaware
(the "DGCL"), (ii) sales of all or substantially all of the assets
of the Company that require stockholder approval under the DGCL,
(iii) amendments to the Company's Certificate of Incorporation,
(iv) the dissolution of the Company, (v) the adoption,
implementation or acceptance by the Company of certain
anti-takeover provisions, (vi) the issuance by the Company of
equity securities, including securities convertible into equity
securities (subject to specified exceptions), and the incurrence by
the Company of debt obligations in an amount exceeding $5.0 million
in any year, (vii) the Company entering into any line of business
other than its existing line of business or entering into joint
ventures, partnerships or similar arrangements which would require
expenditures of more than $3.0 million, (viii) the disposition by
the Company in any 12-month period of assets (other than assets
sold in the ordinary course of business) of which the fair market
value exceeds $3.0 million, (ix) any amendment, alteration or
repeal of the terms of the Series D Preferred Stock or (x) any
corporate action that would reduce the number of shares of Common
Stock into which a share of Series D Preferred Stock is convertible
to less than 1,600.
Shares of Series D Preferred Stock are not redeemable at the option of
the Company.
Item 3. Defaults Upon Senior Securities -- None.
Item 4. Submission of Matters to a Vote of Security Holders
On September 27, 1996, the Company and SBW consummated certain
transactions which are described in detail in the Company's Current
Report on Form 8-K dated as of such date. In connection with such
transactions, certain stockholders of the Company, who in
12
<PAGE>
the aggregate hold approximately 68.4% of the outstanding shares of
Common Stock, consented in writing to (i) the adoption of a
Certificate of Amendment to the Company's Certificate of
Incorporation in order, among other things, to authorize the Class
B Common Stock into which the shares of Series D Preferred Stock
held by SBW may be converted and (ii) issuance of shares of common
stock upon the exercise of certain warrants held by SBW
(collectively, the "Approved Matters"). Pursuant to DGCL and the
Certificate of Incorporation of the Company, the approval of such
matters requires the affirmative vote or consent of the holders of
a majority of the outstanding shares of Common Stock. Each
outstanding share of Common Stock is entitled to one vote on each
matter submitted to the stockholders of the Company.
Pursuant to the applicable provisions of the DGCL, the close of
business on September 27, 1996 was the record date (the "Record
Date") established for purposes of determining stockholders entitled
to consent to such matters. As of the Record Date, there were
22,069,871 shares of Common Stock outstanding. As of the same date,
the Designated Holders (Erin Mills International Investment
Corporation, William C. Kennedy, Jr., Carlyle-HighwayMaster
Investors, L.P., William C. Saunders, Clipper Merban, L.P.,
Clipper/Merchant Partners, L.P., H.M. Rana Investments Limited, T.C.
Group, L.L.C., Robert S. Folsom and Carlyle-HighwayMaster Investors
II, L.P.) held an aggregate of 15,089,093 shares of Common Stock,
representing approximately 68.4% of the outstanding shares of such
class. At the request of SBW, each of the Designated Holders executed
and delivered a written consent with respect to the Approved Matters.
Because the Approved Matters have been consented to in writing by the
holders of a majority of the outstanding shares of Common Stock, no
further authorization or approval is required from the stockholders
of the Company in connection therewith. Further, holders of Common
Stock who did not consent to the Approved Matters are not entitled to
any appraisal rights in connection therewith.
The Company is obligated to take all action in connection with the
foregoing written consents in accordance with and subject to the
applicable provisions of the DGCL and the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the Certificate of
Incorporation and Bylaws of the Company to notify the holders of the
Company's shares as promptly as practicable of the approval of the
Approved Matters. The Company has filed with the Securities and
Exchange Commission an Information Statement on Schedule 14C with
respect to these matters and will distribute this Information
Statement to its stockholders. As required pursuant to Regulation
14C under the Exchange Act, no corporate action will be taken by
the Company with respect to the Approved Matters until 20 days after
this Information Statement has been sent or given to its stockholders.
Item 5. Other Information
AUTOLINK
On November 4, 1996, the Company announced that it signed a memorandum
of understanding with Motorola and Prince to form an exclusive
strategic business alliance to develop and provide AutoLink-Registered
Trademark-service for motorists in the United States and Canada. The
basic AutoLink product is slated to provide an intelligent
communications link from the car to an information services complex
in order to provide emergency assistance, roadside assistance, and
information services to the occupants of the car, including remote
tracking of stolen or missing vehicles.
The intelligent mobile unit in the car is to be equipped with a GPS
(global positioning system) receiver, processor, modem, and a
wireless transceiver. The memorandum of understanding contemplates
that HighwayMaster will manage the network, provide software for the
intelligent mobile unit, assist in managing various information
services providers and bill the customer. Only HighwayMaster
cellular carriers would be able to offer basic cellular
13
<PAGE>
service to AutoLink customers. Prince and Motorola currently are
accepting orders from automakers and the AutoLink product is to begin
production in 1997.
This discussion of AutoLink consists of forward looking statements
that are subject to certain risks and uncertainties. The
memorandum of understanding executed by HighwayMaster, Prince and
Motorola is non-binding and is subject to the negotiation and
execution of a definitive joint development and marketing
agreement. There can be no assurance that the parties will enter
into such an agreement on the terms described in the memorandum of
understanding, if at all. In addition, certain future events or
capabilities must occur or be further developed in order for the
AutoLink alliance to proceed. These include factors such as the
exercise by cellular carriers of their option to offer this service
to consumers, the placement of orders by sufficient numbers of
automakers, the testing of final versions of the software and
hardware and the production of the AutoLink product in mass
quantities. If any of these or similar events fail to occur, there
can be no assurance that the AutoLink alliance will proceed on the
basis described in the memorandum of understanding, if at all.
COMPTRONIX CORPORATION
On August 9, 1996, Comptronix Corporation ("Comptronix") filed a
petition for relief under Chapter 11 of the United States Bankruptcy
Code. Comptronix assembles the Mobile Communication Units ("Units")
installed in each truck in accordance with specifications provided by
the Company. The various components used by Comptronix in the
assembly of the Units (including GPS components and cellular
transceivers) are obtained from certain other manufacturers such as
Motorola. At the present time, the Company has in its possession a
limited inventory of Units available for shipment to customers. In
addition, a substantial inventory of Units and components, a
significant portion of which has been fully paid for by the Company
is held at a site operated by Comptronix. On August 23, 1996, the
bankruptcy court ordered Comptronix to turn over all of the Units
held at its site to the Company. The Company, therefore, believes
that it has access to sufficient inventory to meet the current needs
of its customers.
On October 22, 1996, Comptronix obtained bankruptcy court approval
to sell substantially all of its assets and to assume and assign
customer purchase orders to Sanmina Corporation ("Sanmina"). Since
the sale, Sanmina has continued production of Units for the
Company. In light of the sale and assignment to Sanmina, the
Company will need to evaluate Sanmina's ability to provide an
adequate supply of Units to meet the long term needs of the
Company's customers. Because Sanmina would be a new supplier of
the Units, no assurances can be given in this regard.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See the Index to Exhibits.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant during the
third quarter of the Company's fiscal year.
On October 7, 1996, the Company filed a Current report on Form 8-K
relating to certain transactions that were consummated on
September 27, 1996 involving SBW and certain existing stockholders
of the Company.
14
<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.
HIGHWAYMASTER COMMUNICATIONS, INC.
Date: November 12, 1996
By: /s/ WILLIAM C. SAUNDERS
-----------------------------------------
William C. Saunders
President and Chief Executive Officer
By: /s/ STEPHEN P. TACKE
-----------------------------------------
Stephen P. Tacke
Vice President, Controller and Acting
Chief Financial Officer (Principal
Financial and Accounting Officer)
15
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Title
- ------- -----
3.1 Certificate of Incorporation of the Company, as amended. (1)
3.2 Form of Amended By-Laws of the Company. (7, filed as Exhibit
3a.)
4.1 Specimen of certificate representing Common Stock, $.01 par
value, of the Company. (1)
4.2 Certificate of Designation Establishing Series D Convertible
Participating Preferred Stock. (7, filed as Exhibit 4a.)
4.3 Warrant Certificate, dated September 27, 1996, issued to SBW.
(7, filed as Exhibit 4b.)
4.4 Recapitalization Agreement, dated September 27, 1996, by and
among the Company, the Erin Mills Stockholders, the Carlyle
Stockholders and the other persons named therein. (7, filed as
Exhibit 10d.)
4.5 Amended and Restated Stockholders' Agreement, dated September
27, 1996, by and among the Company, SBW, the Erin Mills
Stockholders, the Carlyle Stockholders, the By-Word Stockholders
and the other persons named therein. (7, filed as Exhibit 10e.)
10.1 License Agreement, dated April 23, 1992, by and between Voice
Control Systems and the Company (as successor to By-Word
Technologies, Inc.) (1)
10.2 Agency Agreement, dated February 1, 1993, between the Company
and Saunders, Lubinski & White, Inc. (1)
10.3 Employment Agreement, dated February 4, 1994, by and between
HighwayMaster Corporation and William C. Kennedy, Jr., as
amended. (1) (5)
10.4 Employment Agreement, dated February 4, 1994, by and between
HighwayMaster Corporation and William C. Saunders, as amended.
(1) (5)
10.5 Employment Agreement, dated November 23, 1994, by and between
HighwayMaster Corporation and Gordon D. Quick. (1) (5)
10.6 Amended and Restated 1994 Stock Option Plan of the Company,
dated February 4, 1994. (1) (5) (6)
<PAGE>
Exhibit
Number Title
- ------- -----
10.7 Purchase Agreement, dated September 27, 1996, between the
Company and SBW. (7, filed as Exhibit 10a.)
10.8 Mobile Communications (Voice and Data) Services Agreement, dated
as of July 15, 1993, between the Company and EDS Personal
Communications Corporation, as amended. (1) (2)
10.9 Services Agreement, dated March 14, 1995, between the Company
and GTE Telecommunications Services Incorporated. (1) (2)
10.10 Services Agreement, dated March 20, 1996, between the Company
and GTE-Mobile Communications Service Corporation. (3) (4)
10.11 Agreement, dated June 8, 1994, between the Company and
Truckstops of America, Inc. (1)
10.12 Amendment dated November 16, 1995 to that certain Mobile
Communications (Voice and Data) Services Agreement, dated as of
July 15, 1993, between the Company and EDS Personal
Communications Corporation. (3) (4)
10.13 Letter Agreement, dated April 5, 1995, between the Company and
IEX Corporation. (1)
10.14 Product Development Agreement dated December 21, 1995, between
the Company and IEX Corporation. (3) (4)
10.15 Technical Services Agreement, dated September 27, 1996, between
the HM Corporation and SBW. (7, filed as Exhibit 10c.)
10.16 Letter Agreement, dated February 19, 1996, between the Company
and IEX Corporation. (3)
10.17 Form of Adoption Agreement, Regional Prototype Cash or Deferred
Profit-Sharing Plan and Trust Sponsored by McKay Hochman Co.,
Inc., relating to the HighwayMaster Corporation 401(k) Plan. (1)
11 Statement re Computation of Per Share Earnings. (8)
27 Financial Data Schedules. (8)
- -------------------------
(1) Filed in connection with the Company's Registration Statement on Form S-1,
as amended (No. 33-91486) effective June 22, 1995.
<PAGE>
(2) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued in connection with Registration
Statement on Form S-1 (No. 33-91486) effective June 22, 1995.
(3) Filed in connection with the Company's 1995 Annual Report on Form 10-K.
(4) Certain confidential portions deleted pursuant to Application for
Confidential Treatment filed in connection with the 1995 Annual Report on Form
10-K.
(5) Indicates management or compensatory plan or arrangement required to be
identified pursuant to Item 14(a)(4).
(6) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1996.
(7) Filed in connection with the Company's Current Report on Form 8-K filed on
October 7, 1996.
(8) Filed herewith.
<PAGE>
Exhibit 11
HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS
Loss before accretion and extraordinary item $(7,463,000) $(5,268,000) $(20,730,000) $(19,297,000)
Accretion of Series B preferred stock (610,000) (494,000) (1,831,000) (1,483,000)
----------- ----------- ----------- -----------
Loss before extraordinary item (8,073,000) (5,762,000) (22,561,000) (20,780,000)
Extraordinary item (317,000) --- (317,000) (6,980,000)
----------- ----------- ----------- -----------
Net loss applicable to common stockholders $(8,390,000) $(5,762,000) $(22,878,000) $(27,760,000)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Weighted average number of shares outstanding, net of
treasury shares 22,178,389 22,021,664 22,078,547 19,068,494
Additional weighted average shares for assumed exercise
of stock options, net of shares assumed to be repurchased
with exercise proceeds --- --- --- 794,812
----------- ----------- ----------- -----------
Weighted average number of shares outstanding 22,178,389 22,021,664 22,078,547 19,863,306
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET LOSS PER COMMON SHARE APPLICABLE TO COMMON STOCKHOLDERS
Loss before accretion and extraordinary item $ (0.34) $ (0.24) $ (0.94) $ (0.97)
Accretion of Series B preferred stock (0.03) (0.02) (0.08) (0.08)
----------- ----------- ----------- -----------
Loss before extraordinary item (0.37) (0.26) (1.02) (1.05)
Extraordinary item (0.01) --- (0.02) (0.35)
----------- ----------- ----------- -----------
Net loss applicable to common stockholders $ (0.38) $ (0.26) $ (1.04) $ (1.40)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 28,412
<SECURITIES> 0
<RECEIVABLES> 7,826
<ALLOWANCES> (836)
<INVENTORY> 7,846
<CURRENT-ASSETS> 44,172
<PP&E> 8,352
<DEPRECIATION> (1,452)
<TOTAL-ASSETS> 53,402
<CURRENT-LIABILITIES> 10,393
<BONDS> 0
0
0
<COMMON> 251
<OTHER-SE> 42,758
<TOTAL-LIABILITY-AND-EQUITY> 53,402
<SALES> 9,848
<TOTAL-REVENUES> 21,396
<CGS> 9,723
<TOTAL-COSTS> 17,966
<OTHER-EXPENSES> 22,768
<LOSS-PROVISION> 205
<INTEREST-EXPENSE> 1,691
<INCOME-PRETAX> (20,730)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,730)
<DISCONTINUED> 0
<EXTRAORDINARY> (317)
<CHANGES> 0
<NET-INCOME> (21,047)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> 0
</TABLE>
