<PAGE> 1
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 June 30, 2000
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
-------
@TRACK COMMUNICATIONS, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 51-0352879
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
1155 Kas Drive, Suite 100, Richardson, Texas 75081
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 301-2000
--------------
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 August 3, 2000
------------------------------------- ----------------------------------
Common Stock, $.01 par value 25,326,829
<PAGE> 2
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
Form 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at June 30, 2000
and December 31, 1999 1
Consolidated Statements of Operations for the
three months and six months ended June 30,
2000 and 1999 2
Consolidated Statements of Cash Flows for the six
months ended June 30, 2000 and 1999 3
Consolidated Statement of Changes in Stockholders'
Equity (Deficit) for the six months ended
June 30, 2000 4
Notes to Consolidated Financial Statements 5-6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 9
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and short-term investments $ 14,919 $ 17,768
Accounts receivable, net 16,499 13,341
Inventories 11,581 9,292
Pledged securities 6,449 12,705
Other current assets 3,165 2,588
------------ ------------
Total current assets 52,613 55,694
Network, equipment and software, net 13,779 15,703
Other assets, net 2,482 2,676
------------ ------------
Total assets $ 68,874 $ 74,073
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 4,659 $ 2,431
Telecommunications costs payable 5,726 4,462
Accrued interest payable 3,784 3,784
Other current liabilities 8,617 9,357
------------ ------------
Total current liabilities 22,786 20,034
Senior notes payable 92,287 92,090
------------ ------------
Total liabilities 115,073 112,124
------------ ------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred Stock -- --
Common Stock 256 255
Additional paid-in capital 149,996 149,742
Accumulated deficit (195,904) (187,501)
Treasury stock (547) (547)
------------ ------------
Total stockholders' equity (deficit) (46,199) (38,051)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 68,874 $ 74,073
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 4
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product $ 10,168 $ 19,196 $ 12,038 $ 23,536
Service 11,962 14,002 24,195 26,743
-------- -------- -------- --------
Total revenues 22,130 33,198 36,233 50,279
-------- -------- -------- --------
Cost of revenues:
Product 6,750 14,554 8,091 17,698
Service (Note 5) 6,910 6,699 14,014 9,976
-------- -------- -------- --------
Total cost of revenues 13,660 21,253 22,105 27,674
-------- -------- -------- --------
Gross profit 8,470 11,945 14,128 22,605
-------- -------- -------- --------
Expenses:
General and administrative 3,259 3,671 5,853 7,060
Customer service 1,839 2,006 3,564 3,824
Sales and marketing 1,250 1,171 2,347 2,085
Engineering 993 726 1,574 1,373
Network services center 317 387 669 806
Depreciation and amortization 1,446 1,635 2,875 3,259
-------- -------- -------- --------
9,104 9,596 16,882 18,407
-------- -------- -------- --------
Operating income (loss) (634) 2,349 (2,754) 4,198
Interest income 366 497 893 1,415
Interest expense (3,342) (3,396) (6,684) (6,738
Other income (Note 5) -- 738 142 1,703
-------- -------- -------- --------
Income (loss) before income taxes (3,610) 188 (8,403) 578
Income tax provision -- -- -- --
-------- -------- -------- --------
Net income (loss) $ (3,610) $ 188 $ (8,403) $ 578
======== ======== ======== ========
Per share:
Basic and diluted income (loss) $ (0.14) $ 0.01 $ (0.33) $ 0.02
======== ======== ======== ========
Weighted average number of shares outstanding
Basic 25,322 24,981 25,255 24,956
======== ======== ======== ========
Diluted 25,322 25,308 25,255 25,340
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 5
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (8,403) $ 578
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 2,875 3,259
Amortization of discount on notes payable 197 196
Provision for bad debts 915 1,394
(Increase) in accounts receivable (4,073) (6,680)
(Increase) decrease in inventory (2,289) 3,673
Increase (decrease) in accounts payable 2,228 (5,376)
Increase (decrease) in accrued expenses and other current liabilities 524 (1,316)
Other (610) (2,856)
------------ ------------
Net cash used in operating activities (8,636) (7,128)
------------ ------------
Cash flows from investing activities:
Additions to network and equipment (400) (2,109)
Additions to capitalized software (324) (425)
Decrease in pledged securities 6,256 5,765
Decrease in short-term investments 11,577 5,553
------------ ------------
Net cash provided by investing activities 17,109 8,784
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of stock options 255 104
------------ ------------
Net cash provided by financing activities 255 104
------------ ------------
Increase in cash and cash equivalents 8,728 1,760
Cash and cash equivalents, beginning of period 5,167 16,461
------------ ------------
Cash and cash equivalents, end of period 13,895 18,221
Short-term investments 1,024 4,155
------------ ------------
Cash and short-term investments $ 14,919 $ 22,376
============ ============
Supplemental cash flow information:
Interest paid $ 6,487 $ 6,487
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 6
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(in thousands, except share information)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------------- ------------------------- Paid-in
Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Stockholders' equity (deficit) at December 31, 1999 1,000 $ -- 25,432,210 $ 255 $ 149,742
Exercise of stock options 206,616 1 254
Net loss
---------- ---------- ---------- ---------- ----------
Stockholders' equity (deficit) at June 30, 2000 1,000 $ -- 25,638,826 $ 256 $ 149,996
========== ========== ========== ========== ==========
<CAPTION>
Treasury Stock
------------------------- Accumulated
Shares Amount Deficit Total
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Stockholders' equity (deficit) at December 31, 1999 311,997 $ (547) $ (187,501) $ (38,051)
Exercise of stock options 255
Net loss (8,403) (8,403)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Stockholders' equity (deficit) at June 30, 2000 311,997 $ (547) $ (195,904) $ (46,199)
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS OVERVIEW
The Company develops and implements mobile communications
solutions, including integrated voice, data and position location
services. The initial application for the Company's wireless enhanced
services has been developed for, and is marketed and sold to, companies
that operate in the long-haul trucking market. The Company provides
long-haul trucking companies with a comprehensive package of mobile
communications and management information services, thereby enabling
its trucking customers to effectively monitor the operations and
improve the performance of their fleets. The initial product
application was customized and has been sold to and installed in the
service vehicle fleets of the member companies of SBC Communications,
Inc. During the fourth quarter of 1999, the Company entered the mobile
asset tracking market with the introduction of its trailer-tracking
product, Trackware. Trackware is currently being tested by prospective
customers. There were no significant revenues from Trackware during the
three and six months ended June 30, 2000.
2. BASIS OF PRESENTATION
Effective April 10, 2000, HighwayMaster Communications, Inc.
changed its corporate name to @Track Communications, Inc. The
consolidated financial statements include those of @Track
Communications, Inc. and its wholly owned subsidiary, HighwayMaster of
Canada, LLC.
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 financial statements for the
year ended December 31, 1999. The accompanying consolidated financial
statements reflect all adjustments (all of which are of a normal
recurring nature except as described in Note 5) 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.
3. EARNINGS PER SHARE
Basic earnings per share for the three and six months ended
June 30, 1999 and 2000 is computed using the weighted average number of
shares outstanding during the respective periods. Diluted earnings per
share for the three and six months ended June 30, 1999 is computed
using the weighted average shares from the basic calculation, plus the
number of additional shares that would have been issued from the
exercise of in-the-money stock options, net of the shares that would be
able to be repurchased from the stock option proceeds (the "treasury
stock method"). The calculation of basic and diluted earnings per share
is identical for the three and six months ended June 30, 2000.
4. INVENTORIES
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Complete systems $ 923,000 $ 6,576,000
Component parts 5,792,000 2,302,000
Equipment shipped not yet accepted 4,866,000 414,000
------------ ------------
$ 11,581,000 $ 9,292,000
============ ============
</TABLE>
5
<PAGE> 8
5. UNUSUAL ITEMS
During the three and six months ended June 30, 1999, the
Company recorded the benefit of credits due from cellular carriers
related to 1997 and 1998 based on a settlement agreement reached with
GTE Wireless, Inc. and GTE Telecommunications Incorporated. These
credits had not been previously recognized because of significant
uncertainty as to their ultimate collectibility. Total non-recurring
credits to cost of service revenue for the three months and six months
ended June 30, 1999 aggregated $809,000 and $4,389,000, respectively.
During 1997, the Company entered into a contract with a
customer for a new generation of mobile unit. Pending delivery of the
contracted units, the customer installed current-generation mobile
units. During the three months ended June 30, 1999, the Company and the
customer negotiated a settlement agreement, the terms of which included
termination of the contract and the return of approximately 2,900
mobile units to the Company that had been installed by the customer. "
Other income" for the three months and six months ended June 30, 1999
includes a gain of approximately $750,000 related to this settlement.
Also included in other income for the six months ended June 30, 1999 is
the benefit from the settlement of the litigation with AT&T Corp.,
representing the proceeds from the settlement, net of related expenses,
which was recorded in the first quarter of 1999.
6. RECLASSIFICATION
The Company provides post-sale support and maintenance on the
installed base of mobile units. Historically, revenues and cost of
revenues related to support and maintenance activities have been
reported as a component of "product revenues" and "cost of product
revenues," respectively. The level of this activity has increased
significantly as a result of the Company's contract with the member
companies of SBC Communications, Inc. (the "Service Vehicle Contract"),
at a net cost to the Company. The Company believes the net cost of this
activity directly relates to the realization of the recurring stream of
"service revenue." Accordingly, beginning in the first quarter of 2000,
the Company has classified the revenues and cost of revenues related to
support and maintenance activities with "service revenues" and "cost of
service revenues," respectively. The effect of this reclassification is
to reduce gross service margin for the three and six months ended June
30, 2000 to 42.2% and 42.1%, respectively, as compared to 50.8% and
49.8%, respectively, based on the former classification. Amounts for
1999 have been reclassified for consistent presentation.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition," which must be adopted by December 31, 2000. The Company
is currently assessing the impact of SAB 101.
6
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000, Compared to Three Months Ended June
30, 1999
Total revenues decreased 33.3% from $33.2 million in 1999 to $22.1
million in 2000. Product revenues decreased 47.0% from $19.2 million in 1999 to
$10.2 million in 2000, primarily due to a 54.1% decrease in mobile units
revenued. This decrease is primarily due to 1999 mobile units revenued being
unusually high, since it was during the quarter ended June 30, 1999 that
revenues were initially recognized on installations occurring from September
1998 through June 1999 under the Service Vehicle Contract. Units revenued under
the Service Vehicle Contract were 3,778 in 2000, compared to 7,717 in 1999.
Service revenues decreased 14.6% from $14.0 million in 1999 to $12.0 million in
2000, primarily due to lower average monthly revenue per mobile unit. While the
average installed base of mobile units decreased 1.8% from 1999 to 2000, the
average monthly revenue per mobile unit decreased 13.6% to $74.76 in 2000 from
$86.53 in 1999, due to the increasing proportion of service vehicles in the
installed base and reduced personal calling revenue. Average revenue for service
vehicles is significantly less than that of long-haul trucking because of
different product functionality. The installed base of mobile units increased to
53,621 at June 30, 2000 from 52,751 at June 30, 1999. The change in the
installed base reflects additional units installed under the Service Vehicle
Contract essentially offsetting deinstallations in long-haul trucking.
Service gross profit margin was 42.2% in 2000, compared to 52.2% in
1999. As more fully described in Note 5 to the accompanying consolidated
financial statements, during 1999 the Company recorded $0.8 million of credits
due from cellular carriers related to prior years. Excluding the effect of these
credits, the 1999 service gross profit margin would have been 46.4%. The
decrease in service gross profit margin from 46.4% in 1999 to 42.2% in 2000 is
primarily the result of the significant increase during 2000 of post-sale
support and maintenance activity.
Product gross profit margin was 33.6% in 2000, compared to 24.2% in
1999. This increase is primarily the result of improving installation margin
from negative to neutral.
Operating expenses decreased 5.1% to $9.1 million in 2000 from $9.6
million in 1999. This decrease is the aggregate effect of offsetting increases
and decreases, none of which are individually significant.
Interest income was $0.4 million in 2000, compared to $0.5 million in
1999, reflecting the lower average outstanding balances during 2000 in cash and
short-term investments.
Other income reflects the gain from the settlement of a customer
contract as more fully described in Note 5 to the accompanying consolidated
financial statements.
Six Months Ended June 30, 2000, Compared to Six Months Ended June 30,
1999
Total revenues decreased 27.9% from $50.3 million in 1999 to $36.2
million in 2000. Product revenues decreased 48.9% from $23.5 million in 1999 to
$12.0 million in 2000, primarily due to a 57.5% decrease in mobile units
revenued. This decrease is primarily due to 1999 mobile units revenued being
unusually high, since it was during the six months ended June 30, 1999 that
revenues were initially recognized on installations occurring from September
1998 through June 1999 under the Service Vehicle Contract. Units revenued under
the Service Vehicle Contract were 3,889 in 2000, compared to 7,717 in 1999.
Service revenues decreased 9.5% from $26.7 million in 1999 to $24.2 million in
2000, due primarily to lower average monthly revenue per mobile unit. While the
average installed base of mobile units increased 1.9% from 1999 to 2000, the
average monthly revenue per mobile unit decreased 9.4% to $76.67 in 2000 from
$84.65 in 1999, primarily due to the increasing proportion of service vehicles
in the installed base and reduced personal calling revenue. Average revenue for
service vehicles is significantly less than that of long-haul trucking because
of different product functionality. The installed base of mobile units increased
to 53,621 at June 30, 2000 from 52,751 at June 30, 1999. The change in the
installed base reflects additional units installed under the Service Vehicle
Contract essentially offsetting deinstallations in the long-haul trucking
market. Two long-haul trucking customers, with an aggregate installed based of
approximately 4,000 units, were deinstalled due to their inability to pay
amounts owed to the Company.
7
<PAGE> 10
Service gross profit margin was 42.1% in 2000 compared to 62.7% in
1999. As more fully described in Note 5 to the accompanying consolidated
financial statements, during 1999 the Company recorded $4.4 million of credits
due from cellular carriers related to prior years. Excluding the effect of these
credits, the 1999 service gross profit margin would have been 46.3%. The
decrease in service gross profit margin from 46.3% in 1999 to 42.1% in 2000 is
primarily the result of the significant increase during 2000 of post-sale
support and maintenance activity.
Product gross profit margin was 32.8% in 2000, compared to 24.8% in
1999. This increase is primarily the result of improving installation margin
from negative to neutral.
Operating expenses decreased 8.3% to $16.9 million in 2000 from $18.4
million in 1999. This decrease is the aggregate effect of offsetting increases
and decreases, none of which are individually significant.
Interest income was $0.9 million in 2000, compared to $1.4 million in
1999, reflecting the lower average outstanding balances during 2000 in cash and
short-term investments.
Other income during 1999 reflects the gain from the settlement of a
customer contract, and the proceeds from the settlement of the litigation with
AT&T Corp., net of related expenses, as more fully described in Note 5 to the
accompanying consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company"s cash and short-term investments balances at June 30, 2000
were $14.9 million, compared to $17.8 million at December 31, 1999. Based on
projected operating results, the Company believes its existing capital resources
will be sufficient to fund its currently anticipated operating needs and capital
expenditure requirements for the next 12 months. However, the Company's future
cash flow from operations and operating requirements may vary depending on a
number of factors, including the rate of installation of mobile units, the level
of competition, success of new products, general economic conditions and other
factors beyond the Company's control.
The Company has incurred significant operating losses since inception
and has a stockholders' deficit of approximately $46.2 million at June 30, 2000.
The Company must significantly increase its product sales and service revenue,
while decreasing its operating expenses, to achieve profitability. The Company's
ability to achieve profitable operations will be affected by the expenses,
difficulties and delays frequently encountered in the development and marketing
of telecommunication products and services, the competitive environment in which
the Company operates, the Company's dependence upon certain key customers, and
other risks and uncertainties. Although the Company believes it will be able to
successfully mitigate these risks, there is no assurance that the Company ever
will be able to achieve profitability.
Beginning March 15, 2001, the Company will be required to fund the
interest payment on its 13 3/4% Senior Notes from cash generated from
operations, or obtain an alternative means of repayment. Prior to March 15,
2001, interest payments on the Senior Notes are provided for through a portfolio
of U.S. Government securities held in escrow. If the Company is unable to
service the Senior Notes through cash generated from operations, the Company
would be required to obtain additional financial resources to fund such interest
payments or seek to restructure the terms of the Senior Notes. Although the
Company believes that it will be able to fund such interest payments, there is
no assurance that the Company's future operations will generate sufficient
positive cash flow for this purpose or that the Company would be able to obtain
additional financial resources or restructure the terms of the Senior Notes on
terms acceptable to the Company.
The Company's ability to generate positive cash flow from operations is
dependent upon the continued retention of certain key customers. The Company's
ability to retain key long-haul segment customers is dependent upon its ability
to develop next-generation products and services with lower transmission costs
and additional features and functionality. The loss of any such customers would
significantly reduce the Company's ability to generate sufficient cash flow to
fund the interest payments on the Senior Notes beginning March 15, 2001.
The future success of the Company is dependent upon its ability to
profitably develop and market its current and next-generation products and
services in the highly competitive and rapidly changing telecommunications
industry and the support of its creditors, stockholders and customers.
The Company's capital resources may be insufficient to fund its
operating needs, capital expenditures and debt service requirements in the long
term. The Company believes that, in order to address its long-term capital
8
<PAGE> 11
requirements, it will need to take steps to: (i) increase the installed base of
mobile units in service and improve the efficiency of its operations to reduce
or eliminate its operating losses; or (ii) restructure the terms of the Senior
Notes; or (iii) obtain additional sources of debt or equity financing. The
Company's ability to obtain additional debt financing is materially restricted
under the terms of the Indenture governing the Senior Notes. There can be no
assurance that the Company would be able to either restructure the Senior Notes
or obtain additional debt or equity financing on satisfactory terms, if at all.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk
associated with its cash and short-term investments. The Company"s Senior Notes
payable are at a fixed rate and, thus, are not exposed to interest rate risk.
FORWARD LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report, including without
limitation, certain statements in this Item 2 under the captions "---Results of
Operations" and "---Liquidity and Capital Resources," may constitute forward
looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. There can be no
assurances that the Company will be able to maintain gross service margins and
revenues, reduce operating costs or achieve sustained operational profitability.
Important factors that could cause actual results to differ materially from the
Company"s expectations ("cautionary statements") are disclosed in this report
and the Company"s Annual Report on Form 10-K for the year ended December 31,
1999 (under the caption "Business --- Risk Factors" and elsewhere). All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements.
9
<PAGE> 12
@TRACK COMMUNICATIONS, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -- None
Item 2. Changes in Securities -- Effective July 11, 2000, SBC Communications,
Inc. ("SBC") received final approval from the Federal Communications
Commission to provide long distance service in the State of Texas. SBC
previously received the approval of the Texas Public Utilities
Commission and the United States Justice Department to provide long
distance service in Texas. Pursuant to the Purchase Agreement by and
between the Company as Issuer and Southwestern Bell Wireless Holdings,
Inc. n/k/a SBC Wireless, Inc. as Investor, dated September 27, 1996
(the "Purchase Agreement"), certain events are triggered with
respect to SBC's Series D Participating Convertible Preferred Stock
upon the occurrence of "Regulatory Relief." "Regulatory Relief" is
defined in the Purchase Agreement as the date that SBC Communications,
Inc. or its Affiliates in their sole judgment, have obtained all the
necessary federal and state regulatory approvals to provide landline,
interLATA long distance service pursuant to the Communications Act of
1934, as amended by the Telecommunications Act of 1996. Based upon the
approval of SBC to provide long distance service in Texas, the Company
believes that SBC has received Regulatory Relief.
On July 13, 2000, the Company provided written notice to SBC requesting
confirmation as to whether SBC has determined that it has received
Regulatory Relief. As of the date of this filing, SBC has not yet
responded.
If SBC determines that it has received Regulatory Relief, (1) SBC's
1,000 shares of Series D Participating Convertible Preferred Stock
automatically convert to 1,000 shares of Class B Common Stock, with
each share of Class B Common Stock having the voting power of 1,600
shares of Common Stock; (2) SBC's right to a non-voting board delegate
terminates; and (3) the Company and SBC are required to enter into an
agreement in substantially the same form as the Voice and Data
Agreement attached to the Purchase Agreement for the provision of long
distance service by SBC.
Additionally, SBC as the sole holder of Class B Common Stock shall have
the following rights: (1) SBC has the right to elect a voting Board
Member; (2) SBC has the right to elect two Board members if SBC owns
more than 20% of the outstanding common stock of the Company, including
the Common Stock issuable upon conversion of Class B Common Stock or
other convertible securities or the exercise of warrants or options,
but excluding the warrants issued to SBC as part of the Purchase
Agreement and options, warrants, rights and obligations issued by any
other person or entity other than the Company; (3) SBC has the right to
dividends and distributions from the Company in the same amount as if
SBC's 1,000 shares of Class B Common Stock were equal to 1,600,000
shares of Common Stock (as adjusted for stock dividends or stock splits
occurring after September 27, 1996); (4) SBC has the right to appoint
at least one director to the Compensation Committee and the Nominating
Committee of the Board of Directors of the Company; (5) SBC has the
right to convert each share of their Class B Common Stock into 1,600
shares of Common Stock; and (6) SBC has the right to approve: (i) any
annual budget or business plan of the Company; (ii) the issuance of any
equity securities (other than employee stock options); (iii) the
Company incurring any debt greater than $5,000,000; (iv) the hiring or
termination of the Company's chief executive officer, chief operating
officer or chief financial officer; (v) the Company's entering into any
line of business other than its existing line of business; (vi) the
Company's exiting its existing line of business or disposing of assets
(other than assets sold in the ordinary course of business) in any year
with a value in excess of $500,000; (vii) the adoption of any
anti-takeover provision; (viii) the taking of any corporate action
which would reduce the number of common shares issuable upon the
conversion of Class B Common Shares below 1,600 shares of Common Stock
per share of Class B Common Stock.
Additionally, as per the Company's September 27, 1996 Amended and
Restated Stockholders' Agreement, if following the receipt of
Regulatory Relief, SBC does not hold any Class B Common Stock but owns
at least 1,600,000 shares of Common Stock including Common Stock
issuable upon conversion of outstanding securities or upon exercise of
outstanding options, warrants, rights or obligations (but excluding the
warrants issued to SBC as part of the Purchase Agreement and options,
warrants, rights and obligations issued by any
10
<PAGE> 13
other person or entity other than the Company) on a Fully Diluted
Basis, SBC shall retain only the following approval rights previously
held as a Class B Common Stock Holder: (i) the right to approve any
annual budget or business plan of the Company; (ii) the right to
approve the issuance of any equity securities (other than employee
stock options); (iii) the right to approve the Company incurring any
debt greater than $5,000,000; (iv) the right to approve the hiring or
termination of the Company's chief executive officer, chief operating
officer or chief financial officer; (v) the right to approve the
Company's entering into any line of business other than its existing
line of business; (vi) the right to approve the Company's exiting its
existing line of business or disposing of assets (other than assets
sold in the ordinary course of business) in any year with a value in
excess of $500,000; (vii) the adoption of any anti-takeover provision;
and (viii) the right to approve the taking of any corporate action
which would reduce the number of Common Shares held by SBC to fewer
than 1,600,000.
"On a Fully Diluted Basis" means taking into account the number of
shares of Common Stock which are issued and outstanding plus: (a) the
number of shares of Common Stock issuable upon conversion of any
outstanding Class B Common Stock; and (b) the number of shares of
Common Stock issuable pursuant to outstanding options, warrants, rights
or obligations to purchase or subscribe for shares of Common Stock or
securities of the Company which are exchangeable or exercisable into
shares of Common Stock of the Company. However, excluded from the term
"on a Fully Diluted Basis" are (a) the warrants issued to SBC as part
of the Purchase Agreement; (b) any options, warrants, rights or
obligations to acquire Common Stock of the Company issued by any person
or entity other than the Company; and (c) the number of shares of
Common Stock issuable pursuant to options granted to employees of the
Company to acquire Common Stock of the Company.
Item 3. Defaults Upon Senior Securities -- None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 2000 Annual Meeting of Stockholders (the "Annual
Meeting") was held on May 23, 2000. At the Annual Meeting, the
stockholders of the Company (i) elected each of the persons listed
below to serve as a director of the Company until the next Annual
Meeting of Stockholders or until their respective successors have been
duly elected and qualified; (ii) ratified the selection of Arthur
Andersen LLP as the Company's independent accountants for the Company's
fiscal year ending December 31, 2000; and (iii) approved an amendment
of the Amended & Restated 1994 Stock Option Plan (the "Stock Option
Plan") to permit non-employee members of the Board of Directors to
participate in the Stock Option Plan.
The Company had 25,319,731 shares of Common Stock outstanding as of
March 24, 2000, the record date for the Annual Meeting. At the Annual
Meeting, holders of a total of 19,013,797 shares of Common Stock were
present in person or represented by proxy. The following sets forth
information regarding the results of the voting at the Annual Meeting:
Proposal 1: Election of Directors
<TABLE>
<CAPTION>
Shares Voting Shares
Director In Favor Withheld
-------- ------------- --------
<S> <C> <C>
Jana A. Bell 19,009,047 4,750
Stephen L. Greaves 19,009,047 4,750
Gerry C. Quinn 19,009,047 4,750
John T. Stupka 19,009,047 4,750
</TABLE>
Proposal 2: Ratification of Arthur Andersen LLP as the Company's
Independent Accountants
<TABLE>
<S> <C>
Votes in favor: 19,007,597
Votes against: 3,750
Abstentions: 2,450
</TABLE>
11
<PAGE> 14
Proposal 3: Amendment of the Amended & Restated 1994 Stock Option
Plan to permit non-employee members of the Board of
Directors to participate in the Stock Option Plan
<TABLE>
<S> <C>
Votes in favor: 18,976,062
Votes against: 34,885
Abstentions: 2,850
</TABLE>
Item 5. Other Information - None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See the Index to Exhibits.
(b) Reports on Form 8-K - None
12
<PAGE> 15
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.
@TRACK COMMUNICATIONS, INC.
Date: August 10, 2000
By: /s/ Jana Ahlfinger Bell
-----------------------
Jana Ahlfinger Bell
President and Chief Executive Officer
By: /s/ W. Michael Smith
-----------------------
W. Michael Smith
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
13
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 - Certificate of Incorporation of the Company, as
amended.(1)(9)
3.2 - Amended and Restated By-Laws of the Company.(13)
4.1 - Specimen of certificate representing Common Stock, $.01 par
value, of the Company.(1)
4.2 - Warrant Certificate, dated September 27, 1996, issued to
SBW.(7)
4.3 - 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)
4.4 - 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)
4.5 - Indenture dated September 23, 1997 by and among the Company,
HighwayMaster Corporation and Texas Commerce Bank, National
Association.(12)
4.6 - Pledge Agreement dated September 23, 1997, by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.7 - Registration Rights Agreement dated September 23, 1997, by
and among the Company, HighwayMaster Corporation, Bear,
Stearns & Co. Inc. and Smith Barney Inc.(12)
4.8 - Warrant Agreement dated September 23, 1997, by and among the
Company, Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.9 - Warrant Registration Rights Agreement dated September 23,
1997, by and among the Company, Bear, Stearns & Co. Inc. and
Smith Barney, Inc.(12)
10.1 - 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 - Second Amendment to Employment Agreement, dated September 1,
1998, by and between HighwayMaster Corporation and William
C. Saunders.(16)
10.3 - Agreement and General Release, dated September 30, 1998, by
and between HighwayMaster Corporation and William C.
Kennedy, Jr.(15)
10.4 - Release of HighwayMaster Communications, Inc. and
HighwayMaster Corporation by William C. Saunders, dated
December 15, 1998.(16)
10.5 - Release of William C. Saunders by HighwayMaster
Communications, Inc. and HighwayMaster Corporation, dated
December 15, 1998.(16)
10.6 - Amended and Restated 1994 Stock Option Plan of the Company,
dated February 4, 1994, as amended.(1)(5)(6)
10.7 - Purchase Agreement, dated September 27, 1996, between the
Company and SBW.(7)
10.8 - Mobile Communications (Voice and Data) Services Agreement,
dated as of July 15, 1993, between the Company and EDS
Personal Communications Corporation.(1)(2)
10.9 - Stock Option Agreement, dated June 22, 1998, by and between
the Company and John Stupka.(16)
10.10 - Services Agreement, dated March 20, 1996, between the
Company and GTE-Mobile Communications Service
Corporation.(3)(4)
10.11 - Acknowledgment by William C. Saunders dated December 15,
1998.(16)
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)
</TABLE>
<PAGE> 17
<TABLE>
<S> <C>
10.13 - Mutual Separation and Release, dated December 22, 1998, by
and between HighwayMaster Corporation and Gordon D. Quick.
(16)
10.14 - Product Development Agreement, dated December 21, 1995,
between HighwayMaster Corporation and IEX Corporation.(3)(4)
10.15 - Technical Services Agreement, dated September 27, 1996,
between HighwayMaster Corporation and Southwestern Bell
Wireless Holdings, Inc.(7)
10.16 - Letter Agreement, dated February 19, 1996, between
HighwayMaster Corporation 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)
10.18 - February 27, 1997 Addendum to Original Employment Letter,
dated September 19, 1997 by and between the HighwayMaster
Corporation and Robert LaMere. (16)
10.19 - Software Transfer Agreement, dated April 25, 1997, between
HighwayMaster Corporation and Burlington Motor Carriers,
Inc.(9)(10)
10.20 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and Todd A. Felker. (16)
10.21 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and William McCausland.(16)
10.22 - Employment Agreement, dated May 29, 1998, by and between
HighwayMaster Corporation and Jana Ahlfinger Bell. (14)
10.23 - Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc.(15)
10.24 - First Amendment to Employment Agreement, dated September 15,
1998, by and between HighwayMaster Corporation and Jana A.
Bell. (16)
10.25 - Employment Agreement, dated November 24, 1998, by and
between HighwayMaster Corporation and Michael Smith. (16)
10.26 - September 18, 1998 Amended and Restated Stock Option
Agreement of May 29, 1998 by and between the Company and
Jana Ahlfinger Bell. (16)
10.27 - Stock Option Agreement, dated August 12, 1998, by and
between the Company and Jana Ahlfinger Bell. (16)
10.28 - Stock Option Agreement, dated September 18, 1998, by and
between the Company and Jana Ahlfinger Bell. (16)
10.29 - September 18, 1998 Amended and Restated Stock Option
Agreement of February 29, 1996, by and between the Company
and William H. McCausland. (16)
10.30 - Stock Option Agreement, dated September 18, 1998, by and
between the Company and William H. McCausland. (16)
10.31 - September 18, 1998 Amended and Restated Stock Option
Agreement of April 25, 1997, by and between the Company and
Robert LaMere. (16)
10.32 - September 18, 1998 Amended and Restated Stock Option
Agreement of June 3, 1998, by and between the Company and
Todd A. Felker (16)
10.33 - Stock Option Agreement dated November 24, 1998, by and
between the Company and Michael Smith. (16)
10.34 - Stock Option Agreement, dated April 4, 1995, by and between
the Company and Terry Parker. (16)
10.35 - Agreement No. 980427 between Southwestern Bell Telephone
Company, Pacific Bell, Nevada Bell, Southern New England
Telephone and HighwayMaster Corporation executed on January
13, 1999 (17)(18)
10.36 - Administrative Carrier Agreement entered into between
HighwayMaster Corporation and Southwestern Bell Mobile
Systems, Inc. on March 30, 1999 (17)(18)
10.37 - Addendum to Agreement entered into between HighwayMaster
Corporation and International Telecommunications Data
Systems, Inc. on February 4, 1999 (17)(18)
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
10.38 - Second Addendum to Agreement entered into between
HighwayMaster Corporation and International
Telecommunication Data Systems, Inc. on February 4, 1999
(17)(18)
10.39 - Manufacturing and Equipment Purchase Agreement entered into
between HighwayMaster Corporation and Wireless Link
Corporation on March 9, 1999 (17)(18)
10.40 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.41 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.42 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.43 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 7, 1999 (17)(18)
10.44 - Stock Option Agreement dated June 24, 1999, by and between
the Company and J. Raymond Bilbao (19)
10.45 - Stock Option Agreement dated June 24, 1999, by and between
the Company and Marshall Lamm (19)
10.46 - Stock Option Agreement dated June 14, 1999, by and between
the Company and Marc A. Bringman (19)
10.47 - Transition Agreement entered into between GTE Wireless
Services Corporation and HighwayMaster Corporation on April
30, 1999 (19)(20)
10.48 - Fleet-on-Track Services Agreement entered into between GTE
Telecommunications Services Incorporated and HighwayMaster
Corporation on May 3, 1999 (19)(20)
10.49 - Confidential Memorandum of Understanding entered into
between Criticom International Corp. and HighwayMaster
Corporation on April 16, 1999 (19)(20)
10.50 - Stock Option Agreement dated September 3, 1999, by and
between the Company and J. Raymond Bilbao (21)
10.51 - Stock Option Agreement dated September 3, 1999, by and
between the Company and Todd Felker (21)
10.52 - Stock Option Agreement dated September 3, 1999, by and
between the Company and C. Marshall Lamm (21)
10.53 - Stock Option Agreement dated September 3, 1999, by and
between the Company and William H. McCausland (21)
10.54 - Stock Option Agreement dated September 3, 1999, by and
between the Company and Pierre H. Parent (21)
10.55 - Stock Option Agreement dated September 3, 1999, by and
between the Company and W. Michael Smith (21)
10.56 - Stock Option Agreement dated September 3, 1999, by and
between the Company and Robert W. LaMere (21)
10.57 - Stock Option Agreement dated September 3, 1999 by and
between the Company and Stephen P. Tacke (21)
10.58 - Employment Agreement, dated March 13, 2000, by and between
the Company and W. Michael Smith. (22)
10.59 - Employment Agreement, dated March 13, 2000, by and between
the Company and J. Raymond Bilbao. (22)
10.60 - Employment Agreement, dated March 13, 2000, by and between
the Company and Todd A. Felker. (22)
10.61 - Employment Agreement, dated March 13, 2000, by and between
the Company and Marshall Lamm. (22)
10.62 - Employment Agreement, dated March 13, 2000, by and between
the Company and Pierre Parent. (22)
10.63 - Limited Liability Company Agreement of HighwayMaster of
Canada, LLC executed March 3, 2000. (22)
</TABLE>
<PAGE> 19
<TABLE>
<S> <C>
10.64 - Investor Relations Services Agreement, dated March 31, 2000,
by and between the Company and N.D. Hamilton Associates,
Inc. (22)
10.65 - Employment Agreement, dated May 31, 2000, by and between the
Company and Jana A. Bell (24)
10.66 - Employment Agreement, dated June 6, 2000, by and between the
Company and Robert W. LaMere (24)
10.67 - Monitoring Services Agreement dated May 25, 2000, by and
between the Company and Criticom International Corporation
(23) (24)
10.68 - Commercial Lease Agreement dated April 26, 2000 by and
between the Company and 10th Street Business Park, Ltd. (24)
11 - Statement Regarding Computation of Per Share Earnings (24)
27 - Financial Data Schedule (24)
</TABLE>
----------
(1) Filed in connection with the Company's Registration Statement on Form
S-1, as amended (No. 33-91486), effective June 22, 1995.
(2) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued in connection with
Registration Statement on Form S-1 (No. 33-91486) effective June 22,
1995.
(3) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
(4) Certain confidential portions deleted pursuant to Application for
Confidential Treatment filed in connection with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(5) Indicates management or compensatory plan or arrangement required to be
identified pursuant to Item 14(a)(4).
(6) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1996.
(7) Filed in connection with the Company's Current Report on Form 8-K filed
on October 7, 1996.
(8) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
(9) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 1997.
(10) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued in connection with the
Company's Form 10-Q Quarterly Report for the quarterly period ended
March 31, 1997.
(11) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1997.
(12) Filed in connection with the Company's Registration Statement on Form
S-4, as amended (No. 333-38361).
(13) Filed in connection with the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
(14) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1998.
(15) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 1998.
(16) Filed in connection with the Company's Form 10-K fiscal year ended
December 31, 1998.
(17) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 1999.
(18) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued June 22, 1999 in
connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended March 31, 1999.
<PAGE> 20
(19) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended June 30, 1999.
(20) Certain confidential portions deleted pursuant to letter granting
application for confidential treatment issued October 10, 1999 in
connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1999.
(21) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended September 30, 1999.
(22) Filed in connection with the Company's Form 10-Q Quarterly Report for
the quarterly period ended March 31, 2000.
(23) Certain confidential portions deleted pursuant to Application for
Confidential Treatment filed on even date herewith.
(24) Filed herewith.
